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PROSPECTUS
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Filed Pursuant to Rule 424(b)(3)
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Registration No. 333-164683
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3,364,738 Shares of Common Stock
This prospectus relates to the sale from time to time
by the selling stockholder identified in this prospectus for its own account of
up to a total of 3,364,738 shares of our common stock, including up to an
aggregate of 672,948 shares of our common stock issuable upon the exercise of a
warrant.
We will not receive any of the proceeds from the sale
of the shares of our common stock by the selling stockholder pursuant to this
prospectus. However, we will receive the
proceeds from the exercise of the warrant by the selling stockholder, if any,
to the extent the warrant is not exercised on a cashless basis.
Our common stock is listed on The NASDAQ Capital
Market under the symbol IFLG. On May 19,
2010, the closing price of our common stock on The NASDAQ Capital Market was $8.89
per share.
The selling stockholder may sell all or a portion of
the shares of common stock it beneficially owns and offered hereby from time to
time directly or through one or more underwriters, broker-dealers or
agents. The sales may be conducted in
the open market or in privately negotiated transactions and at prevailing
market prices, fixed prices or negotiated prices. The selling stockholder will bear all
discounts, concessions, commissions and similar expenses, if any, attributable
to the sale of shares. We will bear the
other costs, expenses, and fees in connection with the registration of the
shares.
We will not control or determine the price at which
the selling stockholder sells its shares and we do not know when or in what
amount the selling stockholder may offer the shares for sale.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. YOU
SHOULD READ THE SECTION ENTITLED RISK FACTORS BEGINNING ON PAGE 5 FOR A
DISCUSSION OF CERTAIN RISKS THAT YOU SHOULD CAREFULLY CONSIDER BEFORE BUYING
SHARES OF OUR COMMON STOCK.
Neither the Securities and Exchange Commission nor
any state securities commission has approved or disapproved of these securities
or determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
This prospectus is dated May 20, 2010
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You should rely only on the information contained
in this prospectus, in any accompanying prospectus supplement or incorporated
herein or therein by reference. Neither
we nor the selling stockholder has authorized anyone to provide you with
information different from that contained in this prospectus. Offers to sell,
and solicitations of offers to buy, shares of our common stock are being made
only in jurisdictions where offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of our common stock.
You should not consider any information in this
prospectus to be legal, business or tax advice. You should consult your own
attorney, business advisor or tax advisor for legal, business and tax advice
regarding an investment in our common stock.
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SUMMARY
You should rely only on the information contained
in this prospectus. We have not
authorized anyone to provide you with different information. If anyone provides you with inconsistent
information, you should not rely on it.
You should assume that the information contained in this prospectus is
accurate only as of the date of this prospectus and that information contained
in any document included in this prospectus is accurate only as of the date of
that document, regardless of the time of delivery of this prospectus or any
sale of shares of our common stock. Our
business, financial condition, results of operations and prospects may have
changed since such dates.
This summary highlights selected information
contained elsewhere in this prospectus . This summary does not contain all of
the information you should consider before investing in our common stock. You
should carefully read this entire prospectus and the other information
incorporated by reference in this prospectus, especially the risks of investing
in our common stock discussed under Risk Factors, beginning on page 5 of
this prospectus before making an investment decision. References in this prospectus to we, our,
us and our company refer to InfoLogix, Inc. and its subsidiaries.
OUR COMPANY
Overview
InfoLogix provides end-to-end solutions for
electronic medical record (EMR) and supply chain (SCM) implementation and
mobilization, with experience in over 2,200 hospitals and businesses
nationwide. We assist our healthcare and commercial customers by implementing
and optimizing EMR and SCM systems, offer mobility to caregivers and workforces
by making data accessible directly at the point of care or point of activity,
and manage operations with services to improve clinical and financial
performance and supply chain with services to drive greater efficiency.
InfoLogix is a provider of enterprise mobility
solutions for the healthcare and commercial industries. We provide these
solutions to our customers by utilizing a combination of products and services,
including consulting, business software applications, mobile managed services,
mobile devices, and wireless infrastructure. Our solutions are designed to
allow the real time usage of data throughout a customers enterprise in order
to enhance workflow, improve customer service, increase revenue and reduce
costs. We sell wireless communication and computing devices, including mobile
workstations that connect to a customers wireless network so that information
can be accessed from any location within the enterprise. We also implement
customized and third-party software applications with a particular expertise in
electronic medical records in the healthcare industry and SAP® back-end systems
in commercial enterprises. In addition, we offer professional services that
support and complement enterprise-wide software implementations and a customers
wireless computing systems, including consulting, mobile managed services,
training, engineering, technical support and network monitoring.
The sale of mobile workstations and other wireless
devices has been and continues to represent a majority of our net revenues. We
are continuing to transition our business to offer higher margin consulting,
other professional services and software applications. With our focus on
selling services and software, we believe that we can provide more
comprehensive enterprise mobility solutions to our customers. These solutions
involve:
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Consulting with our customers
to identify opportunities to use mobile technology in their enterprise to
improve operations and the quality of their customer service by more
efficiently managing people and assets.
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Assessing our customers existing
wireless infrastructurethe cables, routers and network adapters from which a
wireless network is constructedand developing improved network designs to
ensure effective wireless connectivity and infrastructure systems integration.
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Developing and implementing
custom and industry specific software applications, including healthcare
clinical electronic medical records and enterprise-wide systems, by using
existing proprietary and third-party software.
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Delivering and installing
wireless infrastructure and user devices, including mobile workstations.
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Providing our customers with
ongoing managed services that are designed to supplement their information
technology department, such as training, maintenance and repair, network
monitoring, including both on-site and remote, software application upgrades,
network security and workflow consulting.
We conduct substantially all of our operations
through our wholly-owned subsidiary, InfoLogix Systems Corporation. We own our
patents and patent applications through our wholly-owned subsidiaries OPT
Acquisition, LLC, Embedded Technologies, LLC and InfoLogixDDMS, Inc.
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Corporate Information
InfoLogix Systems Corporation, our wholly-owned
subsidiary through which we conduct substantially all of our operations, was
established in 2001 under the name InfoLogix, Inc. as a mobile solution
provider.
InfoLogix, Inc. was incorporated under the laws
of the State of Nevada on November 22, 2004 under the name New Age
Translation, Inc., or New Age NV. On November 22, 2006, New Age
NV merged with and into its newly-formed wholly-owned subsidiary, New Age
Translation, Inc., a Delaware corporation, or New Age DE, solely for the
purpose of changing its state of incorporation from Nevada to Delaware. On November 29,
2006, INFLX Acquisition Corp., a newly-formed wholly-owned subsidiary of New
Age DE, merged with and into InfoLogix, Inc. Following the merger,
InfoLogix, Inc. changed its name to InfoLogix Systems Corporation and New
Age DE changed its name to InfoLogix, Inc.
On January 5, 2010, InfoLogix, Inc. effected
a one-for-twenty-five reverse stock split of its issued and outstanding shares
of common stock, par value $0.00001 per share.
Unless otherwise indicated, all share amounts discussed in this
prospectus reflect the post-split number of shares of common stock.
Our principal executive offices are located at 101
East County Line Road, Suite 210, Hatboro, Pennsylvania 19040. Our
telephone number is (215) 604-0691. Our website address is
www.infologix.com. The information
contained on our website is not incorporated by reference into, and does not
form any part of, this prospectus.
Recent Developments
NASDAQ Delisting Determination and Hearing
Our common stock is listed
on The NASDAQ Capital Market, which imposes, among other requirements, a
requirement that a listed company maintain either a minimum of $2.5 million in
stockholders equity, a minimum of $35 million of market value of listed
securities, or net income from continuing operations of at least $500,000 in
the most recently completed fiscal year or in two of the three most recently
completed fiscal years. On August 19, 2009, we received a letter from
NASDAQ, notifying us that we were not in compliance with these requirements. On
October 30, 2009, we received notice that NASDAQ granted our request for
an extension to regain compliance with these requirements. We had until November 20,
2009 to regain such compliance. On November 25, 2009, we received notice
from NASDAQ that we had regained compliance with the $2.5 million stockholders
equity requirement for continued listing on The NASDAQ Capital Market, but
noting that NASDAQ would continue to monitor our compliance with this listing
rule, and that, if at the time of our next periodic report we did not evidence
compliance, we might be subject to delisting. On April 20, 2010, we
received a new staff determination letter from NASDAQ notifying us of our noncompliance
with the NASDAQ continued listing standards. At December 31, 2009, our
stockholders deficit of $2.54 million was again below NASDAQs minimum
stockholders equity requirement. The NASDAQ staff determined to delist our
common stock unless we requested a hearing before a NASDAQ Panel on or before April 27,
2010. On April 27, 2010, we requested a hearing before the Panel and, as a
result, our common stock will remain listed on NASDAQ pending the issuance of a
decision by the Panel following the hearing, which is currently scheduled for June 10,
2010. There can be no assurance that the Panel will grant our request for
continued listing. See also the risk
factor Risks Relating to our Common
Stock
Our
stock may be delisted from The NASDAQ Capital Market if we do not maintain
certain levels of stockholders equity, market value of listed securities, or
net income from continuing operations
beginning on page [14]
of this prospectus.
Material Weakness in Internal Control Over Financial Reporting
In connection with its audit of our consolidated financial statements
for the period ended December 31, 2009, our independent registered public
accounting firm identified the existence of a material weakness in our internal
control over financial reporting. A material
weakness is a deficiency or a combination of deficiencies in internal control
over financial reporting such that there is a reasonable possibility that a
material misstatement of the annual or interim statements will not be prevented
or detected on a timely basis.
Specifically, our
independent registered public accounting firm found that we failed to properly
apply the Debt Topic of the FASB Accounting Standards Codification and failed
to timely make certain material adjustments required in connection with the
Hercules Restructuring, including recording a $6.78 million loss on debt
extinguishment and a $4.29 million increase in additionalpaidincapital.
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We have taken and continue
to take appropriate and reasonable steps to make the necessary improvements to
remediate these deficiencies, including:
·
continuing to educate our
management and finance personnel concerning accounting and reporting
requirements;
·
implementing personnel,
policy and procedure changes as part of our ongoing program to strengthen the
organization structure, financial reporting procedures and system of internal
control over financial reporting;
·
engaging professional
services firms to assist with accounting and financial reporting; and
·
increasing our management
oversight of accounting and reporting functions in the future.
Additionally, we continue to
improve and implement more rigorous period end reporting processes to include
improved controls and procedures, resulting in frequent process refinement. Our
remediation efforts are continuing and we expect to make additional changes to
our control environment and accounting and reporting processes that we believe
will strengthen our internal control over financial reporting. We have
dedicated considerable resources to the design, implementation, documentation,
and testing of our internal controls and although we believe the steps taken to
date have improved the effectiveness of our internal control over
financial reporting, we have not
completed all the corrective processes and procedures. Accordingly, we will
continue to monitor the effectiveness of our internal control over financial
reporting and as required, perform additional procedures to ensure that our
financial statements are fairly stated in all material respects. We do not
expect that our disclosure controls and procedures or our internal control over
financial reporting will prevent or detect all errors. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives will be met. The
design of any system of controls is based, in part, upon certain assumptions
about the likelihood of future events and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions. See also the risk factor Risks Relating to our Common Stock
Due to a material
weakness, our internal control over financial reporting were determined not to
be effective for the fiscal year ended December 31, 2009. Our disclosure
controls and procedures and internal control over financial reporting may not
be effective in future periods as a result of existing or newly identified
material weaknesses in internal controls
beginning on page [15]
of this prospectus.
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RESALE OFFERING
Issuer:
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InfoLogix, Inc.
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Selling Stockholder:
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Hercules Technology I, LLC (HTI)
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Common stock offered
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3,364,738 shares, par value $0.00001 per share, which includes
672,948 shares issuable to HTI upon the exercise of a warrant.
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Manner of Offering
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The selling stockholder may sell all or a portion of the shares of
common stock it beneficially owns and offered hereby from time to time
directly or through one or more underwriters, broker-dealers or agents. The
sales may be conducted in the open market or in privately negotiated
transactions and at prevailing market prices, fixed prices or negotiated
prices. See Plan of Distribution beginning on page 23 of this
prospectus.
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Use of Proceeds
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We will not receive any proceeds from the sale of the shares of our
common stock by the selling stockholder pursuant to this prospectus. However,
we will receive proceeds from the exercise of the warrants, if any, to the
extent the warrants are not exercised on a cashless basis. See Use of
Proceeds beginning on page 17 of this prospectus.
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Risk Factors
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See Risk Factors
beginning on page 5 and other information contained elsewhere in this
prospectus for a discussion of certain risks that you should consider
carefully before buying shares of our common stock.
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NASDAQ Capital Market symbol
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IFLG
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On January 5, 2010,
InfoLogix, Inc. effected a one-for-twenty-five reverse stock split of its
issued and outstanding shares of common stock, par value $0.00001 per
share. Unless otherwise indicated, all
share amounts discussed in this prospectus reflect the post-split number of
shares of common stock. Unless
specifically stated otherwise, the information in this prospectus assumes no
exercise of outstanding options, warrants or other convertible securities.
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RISK FACTORS
An investment in our common stock involves a number
of risks. Before deciding to invest in us or to maintain or increase your
investment, you should carefully consider the risks described below, together
with the other information contained in this prospectus and in any prospectus
supplement or incorporated by reference herein or therein, the risks described
under Risk Factors in our Annual Report on Form 10-K for the year ended December 31,
2009. The risks and uncertainties
described below or in the information incorporated by reference are not the
only risks we face. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
may also affect our business operations.
If any of these risks are realized, our business, financial condition or
results of operations could be harmed. In that event, the market price for our
common stock could decline and you may lose all or part of your investment. For
more information about forward-looking statements, please see the section of
this prospectus entitled Cautionary Note Regarding Forward-Looking Statements.
Risks Relating to Our Ability to Continue as a Going Concern
Our independent
registered public accounting firm has expressed doubt about our ability to
continue as a going concern. We may need additional liquidity and capital
resources to achieve our goals.
We have incurred
significant losses from 2006 through 2009, including a net loss of $22.38
million for the year ended December 31, 2009. As of December 31, 2009, we had cash and
cash equivalents of $1.02 million, total liabilities of $38.49 million and an
accumulated stockholders deficit of $2.54 million. We have substantial near-term liquidity
requirements related to the repayment of a seller note that comes due on September 30,
2010 and our revolving line of credit under our amended and restated loan and
security agreement with Hercules Technology Growth Capital, Inc. (Hercules)
and earn out payment obligations from past acquisitions. We do not currently expect to generate
sufficient cash flow from operations to fund those obligations. Based on our history of losses and
substantial near-term liquidity requirements, our independent registered public
accounting firm included an explanatory paragraph with respect to our ability
to continue as a going concern in its report on our consolidated financial
statements for the year ended December 31, 2009. The presence of this explanatory paragraph
may have an adverse impact on our relationship with third parties with whom we
do business, including our customers, vendors and employees and could make it
more challenging for us to raise additional financing or refinance our existing
indebtedness.
In light of our losses
and liquidity requirements, we have undertaken a series of actions to reduce
costs and have explored potential sources of financing and other strategic
initiatives. Even with the restructuring
of our debt with Hercules on November 20, 2009 (see Selling Stockholder
beginning on page 18 of this prospectus for more information) and
subsequent additional borrowings from Hercules in February and April 2010,
we continue to believe that we need to raise additional capital and to further
restructure our debt obligations to meet our liquidity needs and to more
effectively pursue our strategic objectives.
Future initiatives include additional cost control
measures and may include additional financing and further restructuring of our
debt. Our continued operations are dependent on our ability to implement these
plans successfully. If we are unable to do so, we may be unable to continue as
a going concern.
Risks Relating to our Indebtedness
We will need additional financing to fund our operations and finance
our growth; we may be unable to obtain financing on terms acceptable to us.
We will be required to raise
additional capital through either equity or debt financing to fund our
operations, including any operating losses, and to implement our current or
future strategies, including strategic acquisitions. Factors that could
increase our need to seek additional financing include decreased demand and
market acceptance for our products and services, the inability to successfully
develop new products and services, competitive pressures resulting in lower
pricing, new products and services offered by our competitors, and acquisition
opportunities. In addition, if our obligations under existing indebtedness are
accelerated or when our existing credit facilities expire, we would likely need
to obtain replacement debt financing. The capital and credit markets in the
United States continue to experience extreme volatility and disruptions, and
the current turmoil affecting the financial markets and the banking system, as
well as the possibility that financial institutions may consolidate or go out
of business, have resulted in a tightening in the credit markets and a low
level of liquidity in many financial markets. These developments have made
financing terms materially less attractive and, in some cases, made financing
unavailable. As a result, we may be unable to obtain any financing, including
both new and replacement financing, that we might require to operate our
business. In particular, in this environment, it will be extremely difficult to
obtain additional debt financing or to refinance or replace our existing
indebtedness.
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There can be no assurance that
additional or replacement debt financing will be available to us on
commercially reasonable terms or at all. If we incur additional debt, our
interest expense would increase. If we raise capital through the sale of equity
securities, the percentage ownership of our existing stockholders would be
diluted. Any new equity securities may have rights, preferences or privileges
senior to those of our common stock, including liquidation preferences,
dividend rights, board representation, and blocking rights for certain
transactions and other matters. If we are unable to obtain additional or
replacement financing when we need it, our ability to fund our operations and
meet our plans for expansion would be materially adversely affected.
We are currently in default under the terms of our amended and restated
loan and security agreement and there can be no assurance that we can cure the
default.
Our amended and restated
loan and security agreement provides us with a $12 million line of credit,
three term loans with an aggregate principal amount of $11.85 million, and an
equipment loan with availability of up to $3 million. The term loans include a
$5.5 million, 48-month amortizing loan, a $5 million convertible note due
on November 1, 2014, and a $1.35 million convertible note due on April 1,
2013. The amended and restated loan and security agreement contains
restrictions and covenants and requires us to maintain specified financial
ratios and tests. For example, the amended and restated loan and security
agreement restricts our ability, among other things, to incur additional
indebtedness, to acquire other companies or the assets of other companies and
to pay dividends without the lenders consent. If we fail to meet or satisfy
any of the restrictions, covenants, financial ratios or financial tests, we
would be in default under the amended and restated loan and security agreement.
The loans are secured by all of our assets. We are also required by our lender
to maintain a minimum cash balance of $1 million. An event of default under the
amended and restated loan and security agreement would give the lender the
right to declare all amounts outstanding under the credit facility due and
payable and enforce its rights to foreclose on the collateral securing the
loans.
On February 10, 2010,
Hercules sent us a letter notifying us of an event of default as of February 5,
2010 and us a default interest rate of an additional 3% to the applicable
regular interest rate for the period starting February 5, 2010. Events of
default are continuing and default rate interest will be payable monthly on the
same date as regular interest unless Hercules chooses to demand payment of
default interest on another date. As of March 31, 2010, we were not in
compliance with the borrowing base requirement related to the revolver, the
minimum cash requirement of $1 million, and the minimum EBITDA
requirement. As a result of the above
defaults, all balances outstanding under the amended and restated loan and security
agreement at March 31, 2010 were classified as current in the consolidated
balance sheet filed with our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2010. Hercules has
not chosen to accelerate our obligations under the amended and restated loan
and security agreement, but has expressly not waived any events of default or
any of its remedies. We do not have adequate liquidity to repay all outstanding
amounts under the credit facility and payment acceleration would have a
material adverse effect on our liquidity, business, financial condition and
results of operations.
The covenants in our credit facility may restrict our operations, which
could inhibit our ability to execute our growth strategy and have a negative
effect on our results of operations.
Even without payment
acceleration, the restrictions contained in the amended and restated loan and
security agreement could inhibit our ability to obtain financing and engage in
other business activities that are important to our business and growth
strategies, which could inhibit our ability to operate our business and
increase our revenues and profitability.
Our indebtedness could adversely impact our financial condition.
On May 19, 2010, as a result
of our amended and restated loan and security agreement, we had approximately $24.0
million of total senior indebtedness outstanding, including short-term
debt and approximately $7.6 million under our revolving line of credit
facility. We may increase the amount of our indebtedness in the future, which
could have an important impact on our stockholders. An increase in our
indebtedness could:
·
cause us to
violate certain provisions contained in our amended and restated loan and
security agreement;
·
make us more
vulnerable to economic downturns and limit our flexibility to plan for or react
to changes in business and economic conditions;
·
limit our
ability to withstand competitive pressures through increases in our cost of
capital; and
·
harm our
ability to obtain additional debt or equity financing in the future.
If any of the foregoing were
to occur, our ability to execute our business and growth strategies would be
impaired and our results of operations could be harmed.
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Risks
Related to our Controlled Company Status
Interests of our controlling stockholder may conflict with the interest
of our other stockholders
.
The selling stockholder,
HTI, a wholly owned subsidiary of our senior lender Hercules, owns
approximately 40% of our outstanding common stock on a fully diluted basis and
shares having approximately 72% of our total voting power. HTI may have
interests that differ from our other stockholders interests, and it may vote in
a way adverse to these interests. Additionally, HTI has and will continue to
have control over the outcome of certain matters requiring stockholder
approval, including the power to, among other things, elect members of our
Board of Directors, amend our certificate of incorporation or by-laws and
approve extraordinary transactions, including mergers, acquisitions or
dispositions of all or substantially all of our assets. HTI may also prevent or cause a change of
control, delay a change of control, or cause a change of control to occur at a
time when it is not favored by other stockholders. This could deprive other
stockholders of an opportunity to receive a premium for their common stock as
part of a sale of our Company and may adversely affect the market price of our
common stock. HTIs ability to employ anti-takeover measures is
strengthened due to the security ownership of its parent, Hercules, which owns
securities convertible into approximately 37% of our outstanding common stock
on a fully diluted basis. See also the risk factor
Provisions in our organizational documents and under Delaware law, as
well as governance rights and security ownership of HTI and Hercules, may delay
or prevent attempts by our stockholders to change our management and hinder
efforts to acquire a controlling interest in us
and
Description of Capital Stock Anti-Takeover Provisions in our
Governance Structure
beginning on page 21 of this prospectus.
In addition, HTI and its
affiliates may engage in business with companies that may compete with us or
with our subsidiaries. HTI is not obligated to advise us of any investment or
business opportunities of which they are aware, and they are not prohibited or
restricted from competing with us or with our subsidiaries.
Our controlling stockholder has the contractual right to nominate three
members of our Board of Directors.
Under the terms of a debt
conversion agreement between us and HTI, HTI has the contractual right to
nominate three of the seven voting members of our Board of Directors. Our Board
of Directors appoints the members of our senior management. As a result, HTI
has significant influence over the appointment of the members of our senior
management and may be able to prevent any changes in senior management that
other stockholders, or that other members of our Board of Directors, may deem
advisable. Due to the significant influence of HTI on our Board of Directors,
HTI has the power to influence all decisions of the Board of Directors,
including whether to approve extraordinary transactions, mergers, acquisitions
or dispositions of all or substantially all of our assets.
Our stockholders do not have the same protections available to other
stockholders of NASDAQ-listed companies because we are currently a controlled
company within the meaning of NASDAQ Listing Rules.
The selling stockholder,
HTI, currently controls a majority of our outstanding common stock. As a
result, we are a controlled company within the meaning of the rules governing
companies with stock quoted on The NASDAQ Capital Market. As a controlled
company, we qualify for, and may and intend to rely upon, exemptions from
several corporate governance requirements, including requirements that:
·
a majority of the Board of
Directors consist of independent directors;
·
compensation of officers be
determined or recommended to the Board of Directors by a majority of its
independent directors or by a compensation committee comprised solely of
independent directors; and
·
director nominees be
selected or recommended to the Board of Directors by a majority of its
independent directors or by a nominating committee that is composed entirely of
independent directors.
Additionally, HTI has the
right to have its nominees represented on our Compensation and Nominating and
Corporate Governance Committees. Accordingly, our stockholders will not be
afforded the same protections as stockholders of other NASDAQ-listed
companies for so long as HTI owns a majority of our outstanding common stock.
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Risks Relating to our Business
and Industry
We have incurred losses
in the past and our ability to operate profitably in the future is uncertain.
For the years ended December 31, 2009 and 2008,
we generated net revenues of $86.92 million and $100.72 million, respectively,
and incurred net losses of $22.39 million and $13.19 million,
respectively. We have incurred net
losses in each of the last four full fiscal years and we may incur additional
losses in the future. Even if we achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis. If our business
and revenues grow more slowly than we anticipate, our operating expenses exceed
our expectations, we are unable to sell our products and services at acceptable
prices relative to our costs, or we fail to develop and introduce on a timely
basis new products and services from which we can derive additional revenues,
our financial results will suffer.
Achieving
profitability may be affected by the continued downturn in economic, business
or industry conditions.
In weak economic, business or industry conditions,
customers or potential customers could reduce or delay their technology
investments. Reduced or delayed
technology investments could decrease our sales and profitability. In such an environment, our customers may
experience financial difficulty, cease operations or fail to budget or reduce
budgets for the purchase of our products and professional services. This may lead to longer sales cycles, delays
in purchase decisions, payment and collection, and may also result in downward
price pressures, causing our sales and profitability to decline. In addition,
general economic uncertainty and general declines in capital spending in the
information technology sector make it likely that the purchasing requirements
of our customers and the markets we serve will decline. There are many other factors that could
affect our revenues and profitability, including:
·
the introduction and market acceptance of new
technologies, products and services;
·
new competitors and new forms of competition;
·
adverse changes in the credit quality of our customers
and suppliers;
·
changes in the pricing policies of, or the
introduction of, new products and services by us or our competitors;
·
changes in the terms on which we do business with our
customers, suppliers or key relationships;
·
the availability, pricing, quality, and delivery time
of products from our suppliers; and
·
variations in costs for products and services and the
mix of products and services sold.
In particular, we serve the healthcare and commercial
industries, which continue to experience significant challenges, primarily due to
macroeconomic conditions that have resulted in a decreased demand for their
products and services. Some of our
customers are facing constraints on their information technology budgets and
are seeking more flexibility in the timing of their purchases from us. As a result of the continuing macroeconomic
downturn, some of our customers may face financial challenges going
forward. It is unclear when the general
economic climate will improve and when our customers may benefit from improved
conditions. These factors could
adversely affect our business, profitability and financial condition and
diminish our ability to achieve our strategic objectives.
Achieving profitability
and managing our growth are necessary to achieve our strategic objectives.
The industries in which we operate are highly
competitive. To meet our growth
objectives, we believe that we need to continue to add and increasingly
emphasize higher-value, proprietary solutions, including mobile managed services,
software applications and consulting services.
There can be no assurance that we will effectively deploy our
initiatives or be successful in obtaining customer acceptance of our current
and anticipated higher margin products and services or developing new products
and services with higher margins, and if we do not, we would not meet our
strategic objectives.
In addition, the implementation of our strategic
initiatives to reduce costs and achieve profitability may have the unintended
effect of placing a significant burden on our management and our operational
and financial resources. If we fail to
successfully implement these initiatives, or encounter unexpected difficulties
in that process, our business and results of operations could be adversely
affected.
Also, to manage any future growth of our business, we
will need to hire, integrate and retain highly skilled and motivated
employees. We will also need to continue
to improve our financial and management controls, reporting and operational systems
and procedures. If we do not effectively
manage our growth and cost structure, we may not be able to meet our strategic
objectives.
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We may engage in
acquisitions that could disrupt our business, could be difficult to integrate
with our existing operations, cause dilution to our stockholders and harm our
business, operating results and financial condition, and we may be unable to
find suitable acquisition candidates consistent with our strategic objectives.
In the past, as part of our
acquisition strategy, we acquired the businesses and certain assets of DDMS
Holdings, LLC, AMTSystems, Inc., Healthcare Informatics Associates, Inc.,
Delta Health Systems, Inc. and Aware Interweave, Inc. during 2007 and
2008. Though we did not complete any
business acquisitions in 2009 and acquisitions are not a primary focus of our
current strategy, past and potential future acquisitions of other companies or
businesses may present us with growth opportunities, but also involve numerous
risks, including:
·
problems combining the acquired operations,
technologies or products;
·
unanticipated costs;
·
diversion of managements time and attention from our
core business;
·
adverse effects on existing business relationships
with customers and suppliers;
·
risks associated with entering markets in which we
have no or limited prior experience;
·
potential loss of key employees, particularly those of
the acquired business; and
·
continuing obligations to fund earn out payments or to
repay acquisition financing.
There can be no assurance that we will be able to
manage the integration of acquired businesses effectively or be able to retain
and motivate key personnel from these businesses. Any difficulties we encounter in the
integration process could divert management from day-to-day responsibilities,
increase our expenses and have a material adverse effect on our business,
financial condition and results of operations.
For future acquisitions, we may not be able to find
suitable acquisition candidates, we may not be able to complete acquisitions on
favorable terms, if at all, and we may not be able to finance acquisitions on
favorable terms, if at all. Though we
have no current plans for acquisitions, if we do complete acquisitions, we may
not maintain or may weaken our competitive position or may not achieve our
goals, or may be viewed negatively by customers, financial commentators or
investors. Acquisitions may disrupt our
ongoing operations, divert management from day-to-day responsibilities,
increase our expenses and adversely impact our business, operating results and
financial condition. Future acquisitions
may reduce our cash available for operations, debt service and other uses and
could result in an increase in amortization expense related to identifiable
assets acquired, potentially dilutive issuances of equity securities or the
incurrence of debt.
We depend on our
existing senior management team and on recruiting and retaining additional
senior managers in order to be successful, and the loss of or failure to
recruit key executives could materially and adversely affect our business.
Our current and future performance depends, in
significant part, upon retaining our existing senior management team, whose
knowledge, leadership and technical abilities would be difficult to replace and
recruiting and retaining qualified senior managers. Our success also depends in part upon the ability
of our executives to work effectively together and with the rest of our
employees to continue to develop our technologies and services and to manage
the operation and potential growth of our business. We also must continue to develop and retain a
strong core group of senior executives in order to realize our goal of growing
our business and achieving profitability.
We may be unsuccessful in our efforts.
The unplanned loss of the services of one or more of our executives
could have an adverse effect on our business and profitability.
We are dependent on our
allied customers and key industry relationships.
We maintain important relationships with hardware and
software technology leaders. We regard
these relationships as more than traditional customer/supplier relationships
and believe they represent an important lead referral source and sales channel
for us.
There can be no assurance that we or our key
relationships can continue to be successful in maintaining relationships with
customers or that we or our allied customers could find adequate replacements
if needed. The loss of any of these
allied customers or key relationships could result in the temporary or
permanent cessation of a group of products or solutions and result in the loss
of a portion of our existing and anticipated customer base and related revenue.
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We depend on third-party
suppliers and manufacturers to manufacture our products. If these third parties experience any delay,
disruption or quality control problems in their operations, or cease
manufacturing our products, we could lose market share and revenues, and our
reputation may be harmed.
A substantial portion of our products are
manufactured, assembled, tested and packaged by third parties. We rely on several suppliers and
manufacturers to procure components and various products that we sell and, in
some cases, subcontract engineering work.
Some of our products are manufactured by a single manufacturer and, if
we were to lose the services of this manufacturer, finding a suitable
replacement could prove particularly difficult. In most cases, we do not have
long-term contracts with these third parties.
If our suppliers and manufacturers encounter financial or other business
difficulties, if their strategic objectives change, or if they perceive us to
no longer be an attractive customer, they may cease to manufacture our products
and our business could be harmed.
The loss of the services of any of our primary
manufacturers or a material change in the terms on which we do business with
them could cause a significant disruption in operations and delays in product
shipments, which could adversely impact our cash flow. Qualifying a new manufacturer and commencing
volume production is expensive and time consuming.
Our reliance on third-party suppliers and
manufacturers also exposes us to the following risks over which we have limited
control:
·
inability to procure key required components for our
finished products to meet our customers demands;
·
unexpected increases in manufacturing and repair
costs;
·
unexpected reductions in payment terms;
·
interruptions in shipments if one of our manufacturers
is unable to complete production;
·
inability to control the quality of finished products;
·
inability to control delivery schedules;
·
inability to obtain favorable pricing;
·
unpredictability of manufacturing yields; and
·
potential lack of adequate capacity to manufacture all
or a part of the products we require.
If we are unable to
provide our third-party suppliers and manufacturers with an accurate and timely
forecast of our component and material requirements, we may experience delays
in the manufacturing of our products and the costs of our products may
increase.
We provide our third-party suppliers and manufacturers
with forecasts of our demand that they use to determine their material and
component requirements. Lead times for
ordering materials and components vary significantly and depend on various
factors, such as the specific supplier, contract terms and demand and supply
for a component at a given time. Some of
our components require substantial lead times. If our forecasts are less than
our actual requirements, or are not delivered in a timely manner, our manufacturers
may not be able to manufacture enough products to meet our needs. If our forecasts are too high, our suppliers
and manufacturers may be unable to use all of the components they have
purchased on our behalf. Therefore, the
cost per unit of producing products for us may be higher and those costs may be
passed through to us, which could reduce our margins or raise our product
prices relative to our competitors.
Moreover, if they are unable to use certain components, we may be
required to reimburse them for any losses they incur.
Our
industry is highly competitive, and competitive pressures from existing and new
companies may have a material adverse effect on our business, revenues, growth
rates, market share, and profitability.
Our industry is highly competitive and influenced by
many factors, including the following:
·
advances in technology;
·
introduction of new products and services;
·
evolving industry standards;
·
product improvements;
·
rapidly changing customer needs;
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·
intellectual property invention and protection;
·
marketing and distribution capabilities;
·
competition from highly capitalized companies;
·
competition from companies with stronger brand
recognition and greater financial resources;
·
entrance of new competitors;
·
customer budget pressure on information technology
spending; and
·
price competition.
If we do not keep pace with product and technology
advances, our products and services could be rendered obsolete, which would
have a material adverse effect on our competitive position, revenues and
prospects for growth. There is also
likely to be continued pricing pressure resulting from the economic downturn or
as competitors attempt to maintain or increase market share.
The products manufactured and marketed by us and our
competitors are becoming more complex.
As the technological and functional capabilities of our products
increase, these products may begin to compete with products being offered by
companies that have substantially greater financial, technical, marketing and
manufacturing resources than we do. We
may not be able to compete successfully against these competitors, and
competitive pressures may result in a material adverse effect on our business,
revenues, growth rates, market share and profitability.
We also compete with certain of our key relationships
from time to time. If we are unable to
maintain our relationships with them, we may be forced to compete directly with
them for customers that we previously had served through our
relationships. We may also lose our key
relationships as customers. Our key relationships generally have substantially
greater financial, technical, marketing and manufacturing resources than we do
and may be able to directly offer their customers solutions similar to those we
offer.
If we fail to continue
to introduce new products and services that achieve sufficient market
acceptance on a timely basis, we will not be able to compete effectively and we
will be unable to increase or maintain revenues and profitability.
Our future success depends on our ability to develop
and introduce new products, services and technology enhancements that achieve
sufficient market acceptance. If we are
unable to develop and introduce new products and services that respond to
emerging technological trends and customers critical needs, our profitability
and market share will suffer. The
process of developing new technology and related services is complex and
uncertain, and if we fail to accurately predict customers changing needs or
emerging technological trends, our business could be harmed. We must commit resources to developing new
products before knowing whether our investments will result in products the
market will accept. We may also have
difficulty obtaining the capital resources necessary to develop and introduce
new products. We may encounter delays in
manufacturing, producing and deploying new or improved products or offering new
or improved services. Our new products
and services may not be commercially successful. If we expend a significant amount of
resources and our efforts do not lead to the successful introduction of new or
improved products or services, there could be a material adverse effect on our
business, profitability, financial condition and market share.
Demand for existing products may decrease following
the announcement of new or improved products. Further, since products under
development are often announced before introduction, these announcements may
cause customers to delay purchases of our products, even if newly introduced,
until new or improved versions of those products are available. If customer orders decrease or are delayed
during a product transition, we may experience a decline in revenue. Our profitability might decrease if
customers, who may otherwise choose to purchase existing products, instead
choose to purchase lower priced models of new products. Delays or deficiencies in the development, manufacturing,
and delivery of, or demand for, our new or improved products would adversely
affect our business and profitability.
If we are unsuccessful
in expanding our professional services, we may fail to achieve our objectives.
We have been expanding our professional services and
enhancing our technical knowledge to broaden our service offerings and to
transition our business to focus on higher margin software applications,
consulting and other professional services and away from the sale of hardware and
related warranties. To do so, we have
been increasing our in-house talent pool and introducing new products for
support and professional services, including through acquisitions of businesses
that we believe complement our existing services. We look to leverage new employees that are
skilled in our business to reduce our dependence on outside assistance. Our initiatives will include reducing
dependence on outside service providers, determining specific methodologies and
processes for meeting customer needs, conducting in-house training sessions,
and leveraging business partnerships to increase professional services
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opportunities. These initiatives have required, and will
continue to require, significant investment by us, including expenses relating
to the recruiting and training of these new employees. There is no assurance that we will have
adequate resources to continue to implement these initiatives or that they will
improve the sales and profitability of our professional services.
Any failure in our
ability to offer high-quality support and other services could have a material
adverse effect on our sales and results of operations.
Once our products are integrated within our customers
hardware and software systems, our customers may depend on our support
organization to manage those systems and resolve any issues that may
arise. A high level of support is
critical for the successful marketing and sale of our solutions. If we do not effectively assist our customers
in deploying our products, succeed in helping our customers quickly resolve
post-deployment issues, and provide effective ongoing support, our ability to sell our solutions to
existing customers could be adversely affected, and our reputation with
potential customers could be harmed. In
addition, as we expand our operations internationally, our support organization
will face additional challenges, including those associated with delivering
support, training and documentation in languages other than English. Our
failure to maintain high-quality support and services, or to adequately assist
our key relationships in providing high-quality support and services, could
result in customers choosing to use our competitors products and services
instead of ours.
We rely on information
technology and could be adversely affected if we are unable to maintain and
upgrade our technology to remain competitive.
We have invested in sophisticated technologies and
information systems to allow us to provide customized solutions to our
customers needs. We anticipate that it
will be necessary to select, invest in and upgrade our technology and systems
to maintain our competitiveness. In the
event of substantial improvements in technologies and equipment, we may be
required to invest in new systems and equipment and to hire and retain
qualified persons to implement and maintain them. There can be no guarantee that we will be
able to maintain and upgrade the technology and systems necessary for our
business to remain competitive, and any disruption to or infiltration of our
information technology systems could significantly harm our business and
profitability.
If we are unable to
protect our intellectual property rights or if third parties assert we are in
violation of their intellectual property rights, we could be prevented from
selling our products, the time and attention of management could be diverted
from operating our business and our ability to attract new customers and retain
current customers could be hampered, any of which could have a material adverse
effect on our business, financial condition and results of operations.
We file patent applications
to protect technology, innovations and improvements that we consider important
to the development of our business.
Throughout our history, we have invested in and acquired intellectual
property assets. We continue to partner
and invest to develop, capture and deliver unique, high-quality, differentiated
and cost-effective mobile workforce technology solutions for our
customers. We have 23 issued patents in
the U.S. and 13 in other countries related to wearable computers and
surrounding RFID technology that manages proper medication delivery and
administration. We have 5 patent
applications pending with the U.S. Patent and Trademark Office and six in other
countries, likewise related to medication delivery and administration and
aspects of wearable computing devices.
We have also developed other proprietary solutions,
including form-factor PC technologies designed specifically for low power
consumption, handheld and kiosk point of sale devices and several customized
software applications. We seek to
protect our proprietary information and technology through licensing
agreements, third-party nondisclosure agreements and other contractual
provisions, as well as through patent, trademark, copyright and trade secret
laws in the U.S. and similar laws in other countries. There can be no assurance that these
protections will be available in all cases or will be adequate to prevent our
competitors from copying, reverse engineering or otherwise obtaining and using
our technology, proprietary rights or products.
Our competitors may independently develop technologies
that are substantially equivalent or superior to our technology or design
around our proprietary rights. In each case, our ability to compete and to
receive licensing revenues could be significantly impaired. To prevent substantial unauthorized use of
our intellectual property rights, it may be necessary to prosecute actions for
infringement and/or misappropriation of our proprietary rights against third
parties. Any such action could result in
significant costs and diversion of our resources and managements attention,
and we may be unsuccessful in any such action.
In addition, third parties may seek to challenge, invalidate or
circumvent our patents, trademarks, copyrights and trade secrets, or applications
for any of the foregoing. Furthermore,
the laws of certain countries in which our products are or may be licensed do
not protect our proprietary rights to the same extent as the laws of the U.S.
Third parties may assert claims of infringement of intellectual
property rights against us or against our partners for which we may be liable
under certain indemnification arrangements.
The failure to obtain a license on commercially reasonable terms or the
entry of an injunction that impairs our ability to market certain products or
services could have a material adverse effect on our
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business, reputation,
profitability or financial condition. Any litigation regarding patent and other
intellectual property rights could have a material adverse effect on our
business and our ability to compete.
We may also be subject to claims from customers for
indemnification. Any resulting
litigation, regardless of its resolution, could result in substantial costs and
diversion of resources. If it were
determined that our products infringe upon the intellectual property rights of
others, we would need to obtain licenses from these parties or reengineer our
products in order to avoid infringement.
We might not be able to obtain the necessary licenses on acceptable
terms or at all, or to reengineer our products successfully. Moreover, if we are sued for infringement and
lose the suit, we could be required to pay substantial damages or be enjoined
from licensing or using the infringing products or technology, or both. Any of these events could cause us to incur
significant costs and prevent us from selling our products and could have
material adverse effect on our business and our ability to compete.
We rely upon third
parties for technology that is critical to our products, and if we are unable
to continue to use this technology and future technology our ability to offer
competitive products could be harmed and our costs of production could
increase.
We obtain non-exclusive software license rights to
technologies from third parties that are incorporated into and necessary for
the operation and functionality of certain of our products. Because the intellectual property for which
we have obtained licenses is available from third parties, barriers to entry
for our competitors may be lower than if we owned exclusive rights to these
technologies. On the other hand, if a
competitor enters into an exclusive arrangement with any of our third-party
technology providers, our ability to develop and sell products containing that
technology could be severely limited.
Our success depends in part on our continued ability to have access to
these technologies on commercially reasonable terms. If we do not continue to hold or obtain
licenses to use necessary technologies, we may be forced to acquire or develop
alternative technology that may be of lower quality or performance
standards. This could limit and delay
our ability to offer competitive products and increase our costs of production.
As a result, our profitability and market share could be harmed.
Our products are complex
and may contain undetected and unexpected defects, errors or failures.
Substantial product defects could result in product
recalls, repairs or an increased amount of product returns, loss of market
acceptance and damage to our reputation, which in turn could increase our
costs, cause us to lose sales and have a material adverse effect on our
profitability. Product defects might
also result in claims against us by our customers or others. In addition, the
occurrence of any defects or errors in these products could result in cancellation
of orders, difficulty in collecting accounts receivable, increased service and
warranty costs in excess of our estimates, diversion of resources, and
increased insurance costs and other losses to our business or to end-users.
Incompatibilities, defects or bugs in our products may
not be detected until our customers begin to install the products or
later. We may need to modify the design
of our new or improved products if they have incompatibilities, defects or
bugs, which could result in significant expenditures, delays in product purchases
or canceled orders.
Because we often sell
our products on a purchase order basis, we are subject to uncertainties and
variability in demand from our customers.
We sell our mobile workstations and other devices on a
purchase order basis rather than pursuant to long-term contracts or contracts
with minimum purchase requirements.
Consequently, the level and timing of our sales are subject to
variations in demand from our customers.
Orders can be cancelled, reduced or delayed due to customer budget cycles,
the introduction or anticipated introduction of new products or technologies or
general economic conditions. Generally,
sales are sequentially down in the first quarter from the fourth quarter,
higher in the second quarter, flat or slightly higher or lower in the third
quarter, and strongest in the fourth quarter.
If we are unable to anticipate and respond to the demands of our
customers, our business, financial position and operating results may be
adversely affected.
Our
products are subject to certain government regulations and noncompliance with,
or a change in, those regulations could have a material adverse effect on our
business, financial condition, and results of operations.
Our products are subject to regulation by federal,
state and local agencies in the U.S. and agencies in certain foreign countries
where our products are manufactured or sold.
There can be no assurance that we will be able to maintain compliance
with these regulations, particularly if they were to change. Regulatory changes may require us to make
modifications to certain of our products so that we can continue to manufacture
and market our products, which could result in unanticipated costs and
delays. Our failure to comply with these
regulations, or delays resulting from modifications could have a material
adverse effect on our business, financial condition and results of operations.
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Armed hostilities,
terrorism, natural disasters, or public health issues could harm our business.
Armed hostilities, terrorism, natural disasters, or
public health issues, whether in the U.S. or abroad, could cause damage or
disruption to us, our suppliers or customers, or could create political or
economic instability, any of which could harm our business. Any such events could, among other things,
cause further instability in financial markets and could directly, or
indirectly through reduced demand, negatively affect our facilities and
operations or those of our customers or suppliers. If our customers experience any disruptions
in the solutions that we provide to them as a result of any such events, we may
not be successful in alleviating the disruptions, particularly if many
customers are affected by any of these events.
Risks Relating to our Common
Stock
Our
stock may be subject to delisting from The NASDAQ Capital Market if the closing
bid price for our common stock is not maintained at $1.00 per share or higher.
Our common stock is listed on The NASDAQ Capital
Market, which imposes, among other requirements, a minimum bid
requirement. The price of our common
stock must trade at or above $1.00 to comply with the minimum bid requirement
for continued listing. On September 16, 2009, we received a deficiency
letter from the NASDAQ Stock Market (NASDAQ) stating that we no longer met
the minimum $1.00 per share requirement.
We had a grace period of 180 calendar days, or until March 15,
2010, to regain compliance, which would occur if the bid price of our stock
closed at $1.00 per share or more for a minimum of 10 consecutive business
days. On January 5, 2010, we
amended our certificate of incorporation to effect a one-for-twenty-five
reverse stock split of our issued and outstanding shares of common stock in an
attempt to increase the trading price of our common stock and to regain
compliance with the minimum bid price rule and avoid delisting of our
stock. The reverse stock split was
reflected on The NASDAQ Capital Market at the opening of trading on January 6,
2010. Since that date, the closing price
of our common stock has ranged from a low of $1.67 to a high of $8.55. As such, on January 21, 2010, we
received a notice from NASDAQ that we have regained compliance with the minimum
bid price requirement and the matter is now closed. There is no guarantee that the market price
of our common stock will continue to trade above $1.00 or that we will continue
to comply with the minimum bid requirement.
If we fail to maintain compliance with the continued listing standards,
a delisting could adversely affect the market liquidity of our common stock and
the market price of our common stock could decrease and could also adversely
affect our ability to obtain financing for the continuation of our operations
and/or result in the loss of confidence by investors, customers, suppliers and
employees.
Our
stock may be delisted from The NASDAQ Capital Market if we do not maintain
certain levels of stockholders equity, market value of listed securities, or
net income from continuing operations.
Our common stock is listed on The NASDAQ Capital
Market, which imposes, among other requirements, a requirement that a listed
company maintain either a minimum of $2.5 million in stockholders equity, a
minimum of $35 million of market value of listed securities, or a net income
from continuing operations of at least $500,000 in the most recently completed
fiscal year or in two of the three most recently completed fiscal years. On August 19, 2009, we received a letter
from NASDAQ, notifying us that we were not in compliance with these
requirements. On October 30, 2009,
we received notice that NASDAQ granted our request for an extension to regain
compliance with these requirements. We
had until November 20, 2009 to regain such compliance. On November 25, 2009, we received notice
from NASDAQ that we had regained compliance with the $2.5 million stockholders
equity requirement for continued listing on The NASDAQ Capital Market, but
noting that NASDAQ would continue to monitor our compliance with this listing
rule, and that, if at the time of our next periodic report we did not evidence
compliance, we might be subject to delisting.
On April 20, 2010, we received a new staff determination letter
from NASDAQ notifying us of our non-compliance with NASDAQs continued listing
standards. On December 31, 2009,
our stockholders deficit of $2.54 million was again below the minimum
stockholders equity requirement. The
NASDAQ staff determined to delist our common stock unless we requested a
hearing before a NASDAQ Listing Qualifications Panel (the Panel) on or before
April 27, 2010. On April 27, 2010
we requested a hearing before the Panel and, as a result, our common stock will
remain listed on NASDAQ pending the issuance of a decision by the Panel
following the hearing, which is currently scheduled for June 10, 2010. There can be no assurance that the Panel will
grant our request for continued listing. A delisting of our common stock from
NASDAQ could adversely affect the market liquidity of our common stock, cause
the market price of our common stock to decrease and could also adversely
affect our ability to obtain financing for the continuation of our operations
and/or result in the loss of confidence by investors, customers, suppliers and
employees. If our common stock is
delisted we may seek to have our stock quoted on the Pink OTC Market (also
known to as the Pink Sheets) or traded on the OTC Bulletin Board, however
there can be no assurance that we will be successful in such efforts.
The market price of our
common stock may continue to be highly volatile and continue to be subject to
wide fluctuations.
The market price of our common stock is likely to be
highly volatile and could be subject to wide fluctuations in response to a
number of factors that are beyond our control, including:
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·
announcements of new products or services by our
competitors;
·
quarterly variations in our revenues and operating
expenses;
·
our announcements of technological innovations or new
products or professional services;
·
sales of common stock by our directors and executive
officers or Hercules or the selling stockholder, HTI; and
·
continuing uncertainty and adverse developments in the
overall stock market.
If a substantial number
of our shares of common stock become available for sale and are sold in a short
period of time, the market price of our shares of common stock could decline.
As of the date of this
prospectus, we had approximately 1,030,354 million shares of common stock that
were available to be publicly traded. This prospectus relates to the resale by
the selling stockholder of up to 3,364,738 shares of our common stock. Although
our common stock is listed on The NASDAQ Capital Market, it does not generally
have a high average trading volume. For example, since we became listed on
NASDAQ in September 2007, our average daily trading volume has been
approximately 16,682 shares. Our low
trading volume may cause the price of our common stock to be volatile. The last
reported sale price of our common stock on NASDAQ on May 19, 2010 was $8.89.
If the selling stockholder sells substantial amounts
of our shares of common stock, the market price of our shares of common stock
could decrease significantly. The
perception in the public market that the selling stockholder might sell our
shares of common stock could also depress our market price. The number of shares of common stock that are
available to be publicly traded as a result of this registration has increased
by approximately 327%. Furthermore, we
are obligated to file a registration statement with the SEC prior to May 31,
2010 to register the 412,087 shares that may be issued to Hercules upon the
conversion of one of our term loans, as well as any additional shares that may
be issued to Hercules in payment of default interest under our amended and restated
loan and security agreement.
There may be a limited
public market for our securities.
Although we currently are listed on The NASDAQ Capital
Market, there can be no assurance that the Panel will grant our request for
continued listing or that the trading of our common stock will be sustained. If
we fail to qualify for continued listing on The NASDAQ Capital Market or for
listing on another registered stock exchange, we may seek to have our common
stock quoted on the Pink Sheets or traded on the OTC Bulletin Board, although
there is no assurance that we will be successful in such efforts. As a result, our stockholders may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of our common stock, and our common stock would become substantially less
attractive for margin loans, for investment by financial institutions, as
consideration in future capital raising transactions or other purposes. An active public market for shares of our
common stock may not develop, or if one should develop, it may not be
sustained. Therefore, our stockholders
may not be able to find purchasers for their shares of our common stock.
We do not expect to pay
dividends for the foreseeable future.
We currently intend to retain any future earnings to
support the development and expansion of our business and do not anticipate
paying cash dividends in the foreseeable future. Any payment of future dividends will be at
the discretion of our Board of Directors after taking into account various
factors, including, but not limited to, our financial condition, operating
results, cash needs, growth plans and the terms of any credit agreements that
we may be a party to at the time. Our
amended and restated loan and security agreement with Hercules currently
restricts our ability to pay dividends on our common stock. Accordingly, our stockholders must rely on
sales of their common stock after price appreciation, which may never occur, as
the only way to make a positive return on their investment. Investors seeking
cash dividends should not purchase our common stock.
Due to a material weakness, our internal control over financial
reporting were determined not to be effective for the fiscal year ended December 31,
2009. Our disclosure controls and procedures and internal control over
financial reporting may not be effective in future periods as a result of
existing or newly identified material weaknesses in internal controls.
Effective internal controls
are necessary for us to provide reasonable assurance with respect to our
financial reports and to effectively prevent fraud. If we cannot provide
reasonable assurance with respect to our financial reports and effectively
prevent fraud, our reputation and operating results could be harmed. Pursuant to
the Sarbanes-Oxley Act of 2002, we are required to furnish a report by
management on internal control over financial reporting, including managements
assessment of the effectiveness of such control. Internal control over
financial reporting may not prevent or detect misstatements because of its
inherent limitations, including the
15
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possibility of human error,
the circumvention or overriding of controls, or fraud. Therefore, even
effective internal controls can provide only reasonable assurance with respect
to the preparation and fair presentation of financial statements. In addition,
projections of any evaluation of effectiveness of internal control over
financial reporting to future periods are subject to the risk that the control
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. If we fail to
maintain the adequacy of our internal controls, including any failure to
implement required new or improved controls, or if we experience difficulties
in their implementation, our business and operating results could be adversely
impacted, we could fail to meet our reporting obligations, and our business and
stock price could be adversely affected.
Our Chief Executive Officer
and Chief Financial Officer have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) and have concluded that, subject
to the inherent limitations identified in Item 9A(T) of Part II of
our Form 10-K, as of April 15, 2010, our disclosure controls
and procedures were not effective due to our independent public accountants
identification of the existence of a material weakness in our internal control
over financial reporting as described in our Form 10-K for the year ended December 31,
2009, our disclosure controls and procedures were not effective due to our
independent public accountants identification of the existence of a material
weakness in our internal control over financial reporting, as described
therein.
A material weakness is a
deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a
material misstatement of the companys annual or interim financial statements
will not be prevented or detected on a timely basis. A deficiency in internal
control over financial reporting exists when the design or operation of a
control does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect financial statement
misstatements on a timely basis. A deficiency in design exists when a control
necessary to meet the control objective is missing, or when an existing control
is not properly designed so that even in the control operates as designed, the
control objective would not be met. A deficient in operation exists when a
properly designed control does not operate as designed or when the person
performing the control does not possess the necessary authority or competence
to perform the control effectively.
In connection with the audit
on our consolidated financial statements as of and for the year ended December 31,
2009, our independent public accountants, in accordance with the standards of
the Public Company Accounting Oversight Board, identified deficiencies in
internal control related to our accounting for the Hercules Restructuring.
Specifically, we failed to properly apply the Debt Topic of the FASB Accounting
Standards Codification and failed to timely make certain material adjustments
required in connection with the Hercules Restructuring, including recording a $6.78
million loss on debt extinguishment and a $4.29 million increase in additional
paid-in capital.
We intend to take
appropriate and reasonable steps to make the necessary improvements to
remediate these deficiencies. We cannot be certain that our remediation efforts
will ensure that our management designs, implements and maintains adequate
controls over our financial processes and reporting in the future or will be
sufficient to address and eliminate the material weakness identified. Our inability
to remedy the identified material weakness or any additional deficiencies or
material weaknesses that may be identified in the future could, among other
things, could have a material adverse effect on our business, results of
operations and financial condition, as well as impair our ability to meet our
quarterly, annual and other reporting requirements under the Securities
Exchange Act of 1934 in a timely manner, and require us to incur additional
costs or to divert management resources.
Provisions in our
organizational documents and under Delaware law, as well as governance rights
and security ownership of HTI and Hercules, may delay or prevent attempts by
our stockholders to change our management and hinder efforts to acquire a
controlling interest in us.
Certain provisions of our certificate of incorporation
and by-laws may strengthen our Board of Directors position in the event of a
hostile takeover attempt. These
provisions have the effect of providing stockholders may only remove a director
by a majority vote of all shares outstanding and entitled to vote at a special
meeting called for that purpose, that stockholders may only call a special
meeting by the request, in writing, of stockholders owning individually or
together ten percent or more of our entire capital stock outstanding and
entitled to vote, and that we may issue preferred stock with such rights,
preferences, privileges and limitations as our Board of Directors may
establish.
In addition, Section 203 of the Delaware General
Corporation Law prohibits a publicly held Delaware corporation from engaging in
a business combination with an interested stockholder, generally a person which
together with its affiliates owns or within the last three years has owned 15%
of our voting stock, for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage,
delay or prevent a change in control of our company.
Furthermore, HTIs rights to representation on our
Board of Directors, the controlling ownership interest currently held by HTI
and the ability of HTI and its parent corporation, Hercules, to further
increase their holdings of our common stock could be a significant deterrent to
any other person interested in acquiring a controlling interest in us.
16
Table
of Contents
See also
Description of Capital
Stock Anti-Takeover Provisions in our Governance Structure
beginning on page 20 of this prospectus.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus and the documents we incorporate by
reference in this prospectus contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, that are based on our
current expectations, estimates, forecasts and projections about our company
and our industry. These forward-looking
statements reflect our current views about future events and can be identified
by terms such as will, may, believe, anticipate, intend, estimate, expect,
should, project, plan and similar expressions, although not all
forward-looking statements contain such identifying words. You are cautioned not to place undue reliance
on these forward-looking statements.
These forward-looking statements are not guarantees of future events and
involve risks and uncertainties that are difficult to predict and are based
upon assumptions that may prove to be incorrect. Our actual results could differ materially and adversely from
those anticipated in such forward-looking statements as a result of certain
factors, including but not limited to, for example:
·
our ability to refinance, replace or restructure our
current indebtedness and to comply with the financial covenants and other terms
and conditions contained in the agreements governing our indebtedness or any
replacement indebtedness;
·
our ability to operate profitably and manage growth of
our business;
·
our ability to introduce new products and services and
maintain products and service quality;
·
our ability to implement our business plan in
difficult economic conditions and to adapt to changes in economic, political,
business or industry conditions;
·
our ability to find additional financing necessary to
support our operations and/or strategic objectives while also maintaining our
focus on operating and developing our business;
·
our ability to successfully integrate acquisitions
with our existing operations;
·
our ability to retain, replace and hire experienced
senior management;
·
our relationships with our customers, key industry
relationships and other third parties on which we rely;
·
competition in the industries in which we compete;
·
our ability to protect our intellectual property
rights;
·
restrictions on our operations contained in our
amended and restated loan and security agreement or agreement for any
replacement indebtedness; and
·
our ability to improve our internal control over
financial reporting.
We have disclosed additional important factors that
could cause our actual outcomes and results to differ materially from the
forward-looking statements under Risk Factors beginning on page 5 of
this prospectus and elsewhere in this prospectus and in the documents we
incorporate by reference in this prospectus. We do not undertake any obligation
to update or revise any forward-looking statements to reflect new information,
future events or otherwise, except as required by federal securities laws.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the
shares of our common stock by the selling stockholder pursuant to this
prospectus. If the selling stockholder
exercises, on a cash basis and in full, the warrant underlying the shares being
registered, we will receive a gross amount of $1,250,000. We will use such funds, if any, for working
capital and general corporate purposes.
We will not receive any proceeds from the exercise of the warrants on a
cashless basis.
17
Table of Contents
SELLING STOCKHOLDER
On January 5, 2010, we effected a
one-for-twenty-five reverse stock split of our issued and outstanding shares of
common stock, par value $0.00001 per share.
Unless otherwise indicated, all share amounts discussed below reflect
the post-split number of shares of our common stock.
On November 20, 2009, we and our subsidiaries
(collectively, the Borrowers) completed a restructuring transaction with
Hercules Technology Growth Capital, Inc. (Hercules) and Hercules
Technology I, LLC, a wholly-owned subsidiary of Hercules (HTI), pursuant to
which $5 million of the Borrowers outstanding debt was converted into shares
of our common stock and a warrant to purchase shares of our common stock, and
the remaining outstanding debt with Hercules was otherwise restructured (the Hercules
Restructuring). The Hercules
Restructuring also provided us with up to $5 million in additional availability
under a revolving credit facility with Hercules, which amount was subsequently
increased to $8.91 million, as an extension above our eligible borrowing base
provided in the amended and restated loan and security agreement, pursuant to
an amendment to the amended and restated loan and security agreement dated March 25,
2010. In connection with the Hercules
Restructuring, on November 20, 2009, we entered into a Debt Conversion
Agreement with HTI, pursuant to which HTI exchanged $5 million in existing
indebtedness (the Conversion Amount) for (i) 2,691,790 shares (the Conversion
Shares) of our common stock, and (ii) a warrant to purchase 672,948
shares of our common stock (the Warrant Shares) at an exercise price of
$1.8575 per share (the Warrant). The
Warrant has a five year term, is currently exercisable, and allows for cashless
exercise at the option of HTI.
In connection with the Debt Conversion Agreement, on November 20,
2009, we and HTI entered into a Registration Rights Agreement whereby we agreed
to file within 120 days after the closing of the Hercules Restructuring a shelf
registration statement with the SEC covering the resale of the Conversion
Shares and the Warrant Shares (the HTI Registration Rights Agreement).
Pursuant to the HTI Registration Rights Agreement, we are registering the
resale by the selling stockholder from time to time of up to 3,364,738 shares,
$0.00001 par value per share, of our common stock, which consists of the
Conversion Shares and the Warrant Shares. The selling stockholder, including
its transferees, pledgees or donees or their successors, may from time to time
offer and sell under this prospectus or a supplement hereto any or all of the
shares of common stock. In the event that a sale is to be made pursuant to this
prospectus by a pledgee or other transferee, we will provide appropriate
information regarding such pledgee or transferee by a prospectus supplement or
post-effective amendment, if necessary, naming such pledgee or transferee as a
selling stockholder.
Under an amendment to the
amended and restated loan and security agreement with Hercules entered into on February 19,
2010, we may request $3 million for use in purchasing equipment subject to
valid, verified purchase orders acceptable to Hercules from suppliers approved
by Hercules in its sole discretion.
On April 6, 2010, we entered into Amendment No. 2
to the amended and restated loan and security agreement with Hercules, pursuant
to which Hercules funded a term loan in an original principal amount of $1.35 million
(Term Loan C). Interest on Term Loan C
will accrue at a rate of 8% per annum and, at the discretion of Hercules, is
payable either in cash or in kind by adding the accrued interest to the
principal of Term Loan C. All principal
outstanding on Term Loan C will be due and payable on April 1, 2013. Term Loan C may be converted into shares of
our common stock at a price of $3.27 per share at any time at Hercules
option. We may prepay Term Loan C
without incurring a prepayment penalty charge.
We also entered into a registration rights agreement with Hercules
whereby we agreed to register the shares underlying Term Loan C by May 31,
2010.
Under the Debt Conversion Agreement, HTI has the right
to nominate three directors to our Board of Directors (the HTI Directors). Currently, Mark S. Denomme, Manuel A.
Henriquez and Roy Y. Liu serve on our Board of Directors as the HTI Directors.
In addition, one director must be mutually agreed on by us and HTI (the Joint
Director). HTI will continue to have
the right to nominate at least three directors until we repay the term loan
portions of our debt to Hercules and achieve certain financial results.
The following table sets forth the name of the selling
stockholder and the number of shares of common stock beneficially owned by the
selling stockholder before the offering and the shares that may be offered
using this prospectus. The number of Warrant Shares included in the Number of
Shares being Offered column assumes the full cash exercise of the Warrant. The
selling stockholder will act independently of us in making decisions with
respect to the timing, manner and size of the sale or sales of our common stock
covered by this prospectus. We cannot
estimate the number of shares the selling stockholder will hold after the
completion of the offering by the selling stockholder because it may sell all
or a portion of the shares offered by this prospectus and we do not know if the
selling stockholder will exercise the Warrant. We have assumed for purposes of this
table that none of the shares offered by this prospectus will be held by the
selling stockholder after the completion of this offering. Our registration of
the shares of common stock held by the selling stockholder does not necessarily
mean that the selling stockholder will sell all or any of the shares.
The information presented below is based upon
information obtained from the selling stockholder, information in our
18
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possession regarding the
issuance of shares of common stock and the Warrant in connection with the
Hercules Restructuring, and information filed by the selling stockholder with
the SEC. The percentage of shares owned
after the offering set forth in the table below are based on 3,729,647 shares
of our common stock outstanding on March 25, 2010 and the Warrant Shares.
The
selling stockholder has represented to us that it is not a broker-dealer or
affiliated with a broker-dealer.
|
|
Shares of
Common
Stock Owned
|
|
Number of Shares being Offered
|
|
Shares Owned after Offering
|
|
Name of Beneficial
Owner
|
|
Before the
Offering(1)
|
|
Conversion
Shares
|
|
Warrant Shares
|
|
Number
|
|
Percent(3)
|
|
Hercules Technology, Inc.
(2)
|
|
3,364,738
|
|
2,691,790
|
|
672,948
|
|
0
|
|
*
|
|
* Less than 1%.
(1) The
number of shares presented in this table as owned before the offering by the
selling stockholder includes all shares of common stock issuable upon the cash
exercise of the warrant issued to that stockholder pursuant to the Hercules
Restructuring.
(2) The
following is based, in part, on information provided pursuant to a Schedule 13D
filed jointly by Hercules and HTI on November 30, 2009 with the SEC as
well as other reliable information known to us in connection with our amended
and restated loan and security agreement with Hercules. Hercules, the parent corporation of HTI, has
shared voting and dispositive power over these securities. Hercules also has sole voting and dispositive
power over 7,546 shares of our common stock that were acquired directly by
Hercules upon the exercise of a warrant on March 1, 2010. Hercules also has the ability to acquire
2,691,790 shares of our common stock upon conversion of a portion of our term
loan principal and an indeterminate number of our shares upon conversion of a
portion of the interest on our term loan. The number of shares beneficially
owned also does not include 412,087 shares that may be acquired upon the
conversion of a term loan entered into on April 6, 2010. The principal place of business of both
Hercules and HTI is 400 Hamilton Avenue, Suite 310, Palo Alto, California
94301. In connection with the rights of
HTI under the Debt Conversion Agreement,
Manuel A. Henriquez, who is the co-founder, Chairman and CEO of
Hercules, and Mark S. Denomme and Roy Y. Liu, who are Managing Directors of
Hercules, are also members of our Board of Directors.
(3) The
selling stockholders sale of shares offered by this prospectus would not impact
the holdings by its parent corporation, Hercules, of securities convertible
into shares of our common stock. If HTI
sells all of the shares offered hereby, Hercules would continue to hold 7,546
shares of our common stock and also have the ability to convert a portion of
the principal on our outstanding term loans into 3,103,877 shares of our common
stock and a portion of the interest on our outstanding term loans into an
indeterminate number of shares.
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Table of Contents
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 100,000,000 shares of
common stock, par value $0.00001 per share, and 10,000,000 shares of preferred
stock, par value $0.00001 per share. The
following description of our capital stock is intended as a summary only and is
qualified in its entirety by reference to our certificate of incorporation and
by-laws filed as exhibits to the registration statement, of which this
prospectus forms a part, and to Delaware corporate law. These documents are filed as exhibits to the
registration statement of which this prospectus is a part.
On January 5, 2010, we effected a
one-for-twenty-five reverse stock split of our issued and outstanding shares of
common stock, par value $0.00001 per share.
The reverse stock split did not change the number of shares we have
authorized for issuance or the par value of our shares. Unless otherwise indicated, all share amounts
discussed herein reflect the post-split number of shares of our common stock.
As of May 19, 2010, we had 3,729,647 shares of common
stock outstanding, held by 280 stockholders of record as of such date. As of May 19, 2010, there were no shares
of preferred stock outstanding.
Common
Stock
Each holder of common stock is entitled to one vote
per share. Our certificate of incorporation does not provide for cumulative
voting. All elections for directors are
decided by plurality vote and, except as otherwise provided by our certificate
of incorporation or the laws of the State of Delaware, all other questions are
decided by the vote of a majority of the stockholders present, in person or by
proxy, at the meeting assuming a quorum is present. Holders of our common stock are entitled to
receive dividends, if any, as declared by our Board of Directors out of legally
available funds. For so long as HTI,
together with any of its affiliates, owns at least 25% of the issued and outstanding
shares of our common stock, HTI is required to vote or cause to be voted all of
the shares of our common stock owned by HTI or any of its affiliates at any
regular or special meeting of Companys stockholders called for the purpose of
filling positions on the Board of Directors, or must execute a written consent
in lieu of such meeting of stockholders for the purpose of filling positions on
the Board of Directors, and must take all actions necessary or desirable in its
reasonable control, to ensure that our Board of Directors is comprised of the
Joint Director, our chief executive officer, the HTI Directors and such other
persons who are independent under the NASDAQ Listing Rules and the SEC rules applicable
to audit committees, that are nominated for election by the affirmative vote of
all of the members of the Nominating Committee to fill the remaining positions
on our Board of Directors.
The current policy of our Board of Directors is to
retain earnings, if any, to fund our operations and growth. Our amended and restated loan and security
agreement with Hercules currently restricts our ability to pay dividends on our
common stock. Upon a liquidation,
winding up, or dissolution, holders of our common stock are entitled to share
ratably in all of our assets that are available for distribution. The rights, preferences and privileges of
holders of our common stock are subject to, and may be adversely effected by,
the rights of holders of any series of our preferred stock, which may be
designated solely by action of our Board of Directors and issued in the future.
Preferred
Stock
Our Board of Directors is authorized, subject to any
limitations prescribed by law, without further vote or action by the
stockholders, to issue from time to time shares of preferred stock in one or
more series. Each such series of our
preferred stock will have such number of shares, designations, preferences,
voting powers, qualifications and special or relative rights or privileges as
determined by our Board of Directors.
Warrants
As of May
19, 2010, we had outstanding warrants to purchase an aggregate of 19,000 shares
of our common stock at an exercise price of $50 per share, and warrants to
purchase an aggregate of 759,948 shares of our common stock at an exercise
price of $1.8575 per share. The exercise
price and/or number of shares of common stock issuable upon exercise of the
warrants may be adjusted in certain circumstances, including subdivisions and
stock splits, stock dividends, combinations, reorganizations,
reclassifications, consolidations and mergers.
This
prospectus covers 672,948 shares of our common stock issuable upon the exercise
of warrants. Such warrants are
exercisable at a price of $1.8575 per share.
20
Table of Contents
Anti-Takeover
Provisions in our Governance Structure
Certain provisions of our certificate of
incorporation, our by-laws and applicable state law, as well as aspects of the
Hercules Restructuring, could delay or prevent a change in control of our
Company.
Certificate of Incorporation and
By-Laws
Our certificate of incorporation and by-laws provide:
·
that directors can be removed only upon the vote of a
majority of all the shares of stock outstanding and entitled to vote at a
special meeting of the stockholders called for such purpose;
·
that we may issue preferred stock with such rights,
preferences, privileges and limitations as our Board of Directors may
establish; and
·
that special meetings of stockholders may only be
called by the chairman of our Board of Directors, a majority of our Board of
Directors, or holders, individually or in the aggregate, of ten percent or more
of our entire capital stock of the Company issued and outstanding and entitled
to vote.
Delaware General Corporation Law
Section 203 of the Delaware General Corporation
Law applies to us because we are a publicly-traded Delaware corporation.
Pursuant to Section 203, with certain exceptions, a Delaware corporation
may not engage in any of a broad range of business combinations, such as
mergers, consolidations and sales of assets, with an interested stockholder,
as defined below, for a period of three years from the date that person became
an interested stockholder, unless:
·
the transaction that results in a person becoming an
interested stockholder or the business combination is approved by the board of
directors of the corporation before the person becomes an interested
stockholder;
·
upon consummation of the transaction that results in
the stockholder becoming an interested stockholder, the interested stockholder
owns 85% or more of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding shares owned by persons who are directors
and also officers and shares owned by certain employee stock plans; or
·
on or after the time the person becomes an interested
stockholder, the business combination is approved by the corporations board of
directors and by holders of at least two-thirds of the corporations
outstanding voting stock, excluding shares owned by the interested stockholder,
at a meeting of stockholders.
Under Section 203, an interested stockholder is
defined as any person, other than the corporation and any direct or indirect
majority-owned subsidiary, that is:
·
the owner of 15% or more of the outstanding voting
stock of the corporation; or
·
an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately before the date on which it
is sought to be determined whether such person is an interested stockholder.
Section 203 does not apply to business
combinations with HTI or Hercules because the Hercules Restructuring was
approved by our Board of Directors.
Governance Rights and Security
Ownership of HTI and Hercules
HTIs rights to representation on our Board of
Directors, the controlling ownership interest currently held by HTI and the
ability of HTI and its parent corporation, Hercules, to further increase their
holdings of our common stock could be a significant deterrent to any other
person interested in acquiring a controlling interest in us.
HTI
has the right and will continue to have the right to nominate three directors
to our Board of Directors until (i) we repay the term loans, and (ii) we
maintain a consolidated total leverage ratio of 1.5 to 1 for a rolling twelve
months ending on each of four consecutive quarters, in which case, one HTI
Director will not stand for re-election at the next annual meeting of
stockholders
21
Table of Contents
following
the occurrence of either of those events. No HTI Directors will stand for
reelection at the next annual meeting of stockholders following (i) our
payment in full of all obligations under our amended and restated loan and
security agreement with Hercules, and (ii) HTI owning less than 10% of our
issued and outstanding common stock. HTI
also has the right to have one HTI Director sit on the Nominating and
Governance and Compensation Committees of the Board of Directors. For so long as HTI and its affiliates own at
least 25% of the issued and outstanding common stock, HTI has agreed to, and
shall cause its affiliates to, vote for the HTI Directors, the Joint Director,
the Chief Executive Officer and those persons who are independent and nominated
by all members of the Nominating and Governance Committee. These rights may delay or prevent others from
effecting change in the composition of our Board of Directors.
As of May 19, 2010, Hercules, the parent corporation
of our majority stockholder HTI, is the beneficial owner of 6,476,161 shares of
our common stock or 85.5% of the beneficial ownership of our common stock, as
calculated in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. This consists of (i) 2,691,790
shares held directly by HTI and 672,948 shares that may be acquired upon the
exercise of a warrant held directly by HTI, as well as (ii) 7,546 shares
of our common stock that were acquired directly by Hercules upon the exercise
of a warrant on March 1, 2010 and a maximum of 3,038,877 shares of our
common stock that may be acquired by Hercules upon conversion of a portion of
two of our term loans. Furthermore, Hercules also has the option to convert
certain term loan interest into an indeterminate number of shares of our common
stock. On a fully diluted basis,
Hercules and HTI own approximately 75.4% of our common stock, not including the
common stock that could be acquired upon conversion of term loan interest. If Hercules or HTI acquires our common stock
pursuant to the exercise of the warrants held by them or the conversion of Term
Loan B or Term Loan C principal or interest, it will have a significant
dilutive effect on the ownership interests of our other stockholders and could
therefore limit another stockholders ability to obtain a controlling ownership
interest in our Company. In addition,
the ability of Hercules and HTI to exercise their rights to acquire additional
shares of our common stock at any time gives them the ability to exercise those
rights strategically as a defensive response to a contested takeover attempt.
Transfer Agent
The transfer agent and registrar for our common stock
is StockTrans, Inc.
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PLAN OF DISTRIBUTION
The selling stockholder may sell all or a portion of
the shares of common stock it beneficially owns and offered hereby from time to
time directly or through one or more underwriters, broker-dealers or agents. If
the shares of common stock are sold through underwriters or broker-dealers, the
selling stockholder will be responsible for underwriting discounts or
commissions or agents commissions. The sales may be conducted in the open
market or in privately negotiated transactions and at prevailing market prices,
fixed prices or negotiated prices. These sales may be effected in transactions,
which may involve crosses or block transactions:
·
on any national securities exchange or quotation
service on which the shares of common stock may be listed or quoted at the time
of sale;
·
in the over-the-counter market;
·
in transactions otherwise than on these exchanges or
systems or in the over-the-counter market;
·
through the writing of options, whether such options
are listed on an options exchange or otherwise;
·
in ordinary brokerage transactions and transactions in
which the broker-dealer solicits purchasers;
·
in block trades in which the broker-dealer will
attempt to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
·
through purchases by a broker-dealer as principal and
resale by the broker-dealer for its account;
·
in an exchange distribution in accordance with the rules of
the applicable exchange;
·
in privately negotiated transactions;
·
through short sales;
·
in sales pursuant to Rule 144;
·
through the sale by broker-dealers of a specified
number of such shares at a stipulated price per share;
·
in a combination of any such methods of sale; and
·
through any other method permitted pursuant to
applicable law.
If the selling stockholder effects such transactions
by selling shares of common stock to or through underwriters, broker-dealers or
agents, such underwriters, broker-dealers or agents may receive commissions in
the form of discounts, concessions or commissions from the selling stockholder
or commissions from purchasers of the shares of common stock for whom they may
act as agent or to whom they may sell as principal (which discounts,
concessions or commissions as to particular underwriters, broker-dealers or
agents may be in excess of those customary in the types of transactions
involved). In connection with sales of the shares of common stock or otherwise,
the selling stockholder may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the shares of common
stock in the course of hedging positions they assume. The selling stockholder
may also sell shares of common stock short and deliver shares of common stock
covered by this prospectus to close out short positions and to return borrowed
shares in connection with such short sales. The selling stockholder may also
loan or pledge shares of common stock to broker-dealers that in turn may sell
such shares.
The selling stockholder may pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if it
defaults in the performance of its secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time
pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933, as amended, amending,
if necessary, the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus. The selling stockholder also may transfer and donate the shares of
common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest, will be the selling beneficial owners
for purposes of this prospectus.
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The
selling stockholder and any broker-dealer participating in the distribution of
the shares of common stock may be deemed to be underwriters within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholder and any
discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the shares
of common stock may be sold in such states only through registered or licensed
brokers or dealers. In addition, in some states the shares of common stock may
not be sold unless such shares have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with.
There can be no assurance that the selling stockholder
will sell any or all of the shares of common stock registered pursuant to the
registration statement, of which this prospectus forms a part.
The selling stockholder and any other person
participating in such distribution will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, including, without limitation, to the extent
applicable, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholder and any other participating person. To the extent applicable,
Regulation M may also restrict the ability of any person engaged in the
distribution of the shares of common stock to engage in market-making
activities with respect to the shares of common stock. All of the foregoing may
affect the marketability of the shares of common stock and the ability of any
person or entity to engage in market-making activities with respect to the
shares of common stock.
We will pay all expenses of the registration of the
shares of common stock, estimated to be $68,071 in total, including, without
limitation, Securities and Exchange Commission filing fees and expenses of
compliance with state securities or blue sky laws; provided, however, that
the selling stockholder will pay all underwriting discounts and selling
commissions, if any, and all fees and expenses of counsel for the selling
stockholder. We have agreed to indemnify the selling stockholder against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act, and we may be indemnified by the selling stockholder against
liabilities, including liabilities under the Securities Act, that may arise
from any written information furnished to us by the selling stockholder
specifically for use in this prospectus.
Once sold under the shelf registration statement, of
which this prospectus forms a part, the shares of common stock will be freely
tradable.
LEGAL MATTERS
Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania, has provided us with an opinion as to the validity of the common
stock offered by this prospectus.
EXPERTS
The consolidated financial statements as of December 31,
2009 and for each of the years in the two-year period ended December 31,
2009 have been provided in reliance on the report (which contains an
explanatory paragraph relating to our ability to continue as a going concern as
described in Note A to the financial statements) dated April 15, 2010, of
McGladrey & Pullen, LLP, an independent registered public accounting
firm, given on their authority as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting registrant under the Securities
Exchange Act of 1934, as amended. Our website address is
http://www.infologix.com. The information included on our website is not
included as a part of, or incorporated by reference into, this prospectus. We
will make available through our website free of charge our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we have filed or
furnished such material to the SEC.
You may read and copy any materials we file with the
SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
We have filed with the SEC a registration statement on
Form S-3 under the Securities Act to register the resale of the shares
pursuant to this prospectus. The term registration statement means the
original registration statement and any and all amendments
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thereto, including the
schedules and exhibits to the original registration statement or any amendment.
This prospectus is part of that registration statement. This prospectus does
not contain all of the information set forth in the registration statement or
the exhibits to the registration statement. For further information with
respect to us and the shares of common stock we are offering pursuant to this
prospectus, you should refer to the registration statement and its exhibits.
You may read or obtain a copy of the registration statement at the SECs public
reference facilities and Internet site referred to above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference in
this prospectus certain information we file with the SEC, which means that we
may disclose important information in this prospectus by referring you to the
document that contains the information. The information incorporated by
reference is considered to be a part of this prospectus, and the information we
file later with the SEC will automatically update and supersede the information
filed earlier. We incorporate by reference the documents listed below, all
filings filed by us pursuant to the Exchange Act after the date of the
registration statement and prior to effectiveness of the registration
statement, and any future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act until the offering of the shares
covered by this prospectus is completed; provided, however, that we are not
incorporating by reference any additional documents or information furnished
and not filed with the SEC:
·
our Annual Report on Form 10-K for the year ended December 31,
2009.
·
our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2010.
·
our Current Reports on Form 8-K filed with the SEC on January 5,
2010, February 23, 2010, March 15, 2010, March 31, 2010, April 8,
2010 and April 23, 2010 (in each case, only to the extent filed and not
furnished); and
·
the description of our common stock contained in our Registration
Statement on Form 10 dated September 17, 2007, and all amendments or
reports filed with the SEC for the purpose of updating such description.
You may obtain copies of any of these filings by
contacting us at the address and phone number indicated below or by contacting
the SEC as described above. You may request a copy of these filings, and any
exhibits we have specifically incorporated by reference as an exhibit in this
prospectus, at no cost, by writing or telephoning our Chief Financial Officer
at:
InfoLogix, Inc.
101 E. County Line Road, Suite 210
Hatboro, PA 19040
(215) 604-0691
Attention: Chief Financial Officer
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