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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
Mark One
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ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For The Fiscal Year Ended
December 31, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period from to
Commission File Number 001-33521
INFOLOGIX, INC.
(Exact name of registrant as
specified in its charter)
Delaware
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20-1983837
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(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification Number)
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101 E. County Line Road
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Hatboro, PA
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19040
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(Address of principal executive offices)
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(Zip code)
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(215) 604-0691
(Registrants telephone
number, including area code)
Securities registered
pursuant to Section 12(b) of the Act:
Title
of each class
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Names of each exchange on which registered
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Common Stock,
par value $0.00001
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The NASDAQ Stock Market, LLC
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Securities registered
pursuant to Section 12(g) of the Act:
None
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
o
No
x
Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act. Yes
o
No
x
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).Yes
o
No
o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
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No
x
As of June 30, 2009,
the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $14,940,298 based on the closing price as
reported on the NASDAQ Capital Market. (In determining the market value of the
Common Stock held by any non-affiliates, shares of Common Stock of the
Registrant beneficially owned by directors, officers and holders of more than
10% of the outstanding shares of Common Stock of the Registrant have been
excluded. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.)
The number of shares
outstanding of each of the issuers classes of common stock as of the latest
practicable date,
Class
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Outstanding at May 14, 2010
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Common Stock,
$.00001 par value per share
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3,729,648 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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EXPLANATORY NOTE
This
Amendment No. 1 on Form 10-K/A (Amendment) amends and restates the
Annual Report on Form 10-K of InfoLogix, Inc. (the Company) for the
fiscal year ended December 31, 2009, filed with the Securities and
Exchange Commission (Commission) on April 16, 2010 (the Original
Filing). The Company is filing this Amendment
in order to correct certain inadvertent typographical and numerical errors in
the Original Filing, all of which individually and in the aggregate are not
material to the Companys financial condition and results of operations at and
for the year ended December 31, 2009.
In
addition, in connection with filing this Amendment and pursuant to the
rule of the Commission, the Companys Chief Executive Officer and Chief
Financial Officer have reissued their certifications pursuant to section 302 of
the Sarbanes-Oxley Act of 2002 (SOX), attached as Exhibits 31.1 and 31.2 to
this Amendment, and their certifications pursuant to Section 906 of SOX,
attached as Exhibits 32.1 and 32.2 to this Amendment.
Except as described above,
no other changes have been made to the Original Filing. The Original Filing continues to speak as of
the dates described in the Original Filing, and the Company has not updated the
disclosures contained therein or herein to reflect any events that occurred
subsequent to such dates. Accordingly,
this Amendment should be read in conjunction with the filings made by the
Company with the Commission subsequent to the filing of the Original Filing,
including the Companys Quarterly Report on Form 10-Q for the three months
ended March 31, 2010, which was filed with the Commission on May 17,
2010, as information in such filings may update or supersede certain
information contained in the Original Filing and this Amendment.
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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING
STATEMENTS
This
report contains 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 loan
and security agreement or agreement for any replacement indebtedness; and
·
our ability to remediate and compensate for the
material weakness identified in our internal controls 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
Item 1A Risk Factors in Part I of this report and elsewhere in this
report. 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.
PART I
Item 1.
Business
Overview
InfoLogix, Inc. is a
Delaware corporation that was organized under the laws of the State of Nevada
on November 22, 2004 and subsequently merged with and into a corporation
organized under the laws of the State of Delaware on November 22, 2006. On
November 29, 2006, InfoLogix Systems Corporation (formed in 2001), a
Delaware corporation, merged with and into a wholly-owned subsidiary of
InfoLogix, Inc. As a result, InfoLogix, Inc. is a holding company for,
and conducts substantially all of its operations through, its wholly-owned
subsidiary InfoLogix Systems Corporation. References throughout this report to we,
us, our, the Company and InfoLogix are references to InfoLogix, Inc.
and its wholly-owned direct and indirect subsidiaries unless otherwise
indicated. Many of the amounts and percentages presented in Part I have
been rounded for convenience of presentation, and all dollar amounts, except
per share amounts, are presented in thousands.
On November 20, 2009, we completed a
restructuring transaction with our senior lender Hercules Technology Growth
Capital, Inc. (Hercules) and its wholly-owned subsidiary Hercules
Technology I, LLC (HTI), pursuant to which $5,000 of our outstanding debt to
Hercules 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 (a transaction that we refer to as the
Hercules Restructuring). As a result of the Hercules Restructuring,
we experienced
a change in control and
(i) HTI
owns 2,691,790 shares or 72.3% of our outstanding common stock, as well as a
warrant to acquire up to an additional 672,948 shares of our common stock, and (ii) Hercules
may convert a portion of our remaining indebtedness to Hercules into an
additional 2,691,790 shares of our common stock and has the option to convert
certain term loan interest into an indeterminate number of shares of our common
stock. In addition, on March 1, 2010, Hercules exercised a warrant
initially
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received on June 19, 2009 by which it acquired 7,546 shares of our
common stock.
As a result of Amendment 2 to our Amended Loan
Agreement (described below under -Recent Developments) on April 6, 2010,
Hercules may convert the principal of Term Loan C into an additional 412,087
shares of our common stock and has the option to convert default rate interest
into an indeterminate number of shares of our common stock.
Recent Developments
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 herein reflect the post-split number of shares of our
common stock.
In connection with the Hercules Restructuring, on November 20,
2009, we and Hercules entered into an Amended and Restated Loan and Security
Agreement (Amended Loan Agreement), whereby we and Hercules agreed to
restructure our remaining debt not converted into shares of common stock and a
warrant. The Amended Loan Agreement amended and restated our prior loan and security
agreement with Hercules. On the same date and as a condition to the Hercules
Restructuring, we also restructured our earn out obligation related to our 2008
acquisition of the assets of Delta Health Systems, Inc.
On
February 19, 2010, we entered into Amendment No. 1 (Amendment 1) to
the Amended Loan Agreement. Under
Amendment 1, we may request up to $3,000 for use in purchasing equipment (the
Equipment Loan) subject to valid, verified purchase orders acceptable to
Hercules from suppliers approved by Hercules in its sole discretion.
On March 25, 2010,
Hercules advanced to us an additional $1,350, initially applied to the
outstanding balance on our revolving line of credit facility under the Amended
Loan Agreement. The advance increased our outstanding indebtedness on the
revolving line of credit to $8,909, and was provided as an extension above our
eligible borrowing base provided in the Amended Loan Agreement.
On April 6, 2010, we
entered into Amendment No. 2 (Amendment 2) to the Amended Loan Agreement
with Hercules. Pursuant to Amendment No. 2, Hercules funded a term loan in
an original principal amount of $1,350 (Term Loan C). The proceeds of Term
Loan C were used, in part, to repay outstanding overadvances under the
revolving credit facility under the Loan Agreement. 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 $3.276 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.
As of April 7, 2010 the outstanding
balance on our revolving line of credit was $7,559.
On
February 10, 2010, Hercules sent us a letter notifying us of an event of
default because our borrowings under the revolving credit facility exceeded our
borrowing base as of February 5, 2010 and charging 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.
Hercules may elect to have default rate interest paid in cash, in kind or in
shares of our common stock.
Hercules
has not chosen to accelerate our obligations under the Amended Loan Agreement,
but has expressly not waived any events of default or any of its remedies under
Amended Loan Agreement. 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.
General
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.
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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:
·
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.
·
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.
·
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.
·
Delivering and
installing wireless infrastructure and user devices, including mobile
workstations.
·
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.
We have incurred significant
net losses from 2006 through 2009, including a net loss of $22,388 for the year
ended December 31, 2009, including approximately $9,520 of non recurring
costs associated with the Hercules Restructuring. We have substantial liquidity
requirements related to the repayment of a seller note that comes due on September 30,
2010 and our revolving line of credit, and to earn out payments for past
acquisitions. We do not currently expect to generate sufficient cash flow from
operations to fund those obligations. As a result, our independent registered
public accounting firm has 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. 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, 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 to
more effectively pursue our strategic objectives. Our plans regarding these
initiatives are discussed in Item 7. Managements Discussion and Analysis
of Financial Condition and Results of OperationsGoing Concern, and include
additional cost control measures and may include additional financing, one or
more strategic transactions, and further restructuring our debt. Our continued
operations are dependent on our ability to implement those plans successfully.
If we fail to do so, we may not be able to continue as a going concern.
Despite our history of
losses, the difficult economic climate and other challenges we face, we believe
that our core business is positioned to capitalize on the development,
proliferation and convergence of enterprise mobility solutions in the
marketplace. We have focused our business on large, well-established customers
that are leading their respective markets in the application and implementation
of mobile solutions to improve their businesses
. We
believe that our knowledge
and experience in combining industry leading proprietary and third-party
software creates solutions that address our customers critical needs. Because
we do not depend on any particular technology or network carrier, we believe
that we can provide tailored solutions in a rapidly changing technological
landscape. Also, as market conditions continue to evolve, we believe that our
solutions are adaptable to customers in any industry and scalable to customers
of varying size or technological sophistication.
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Business Organization
We manage our business primarily by market
verticals, driven by our sales organization. We have two reportable operating
segments consisting of our healthcare and commercial or enterprise businesses.
The healthcare segment is principally composed of our activities in hospitals
and other related healthcare facilities. The commercial segment focuses on all
other vertical markets including pharmaceutical, manufacturing, wholesale and
retail distribution and service industries. Further information regarding our
reportable operating segments may be found in Part II, Item 7 of this Form 10-K
under the subheading Results of Operations and in Part II, Item 8 of
this Form 10-K in Notes to Consolidated Financial Statements at Note T, Operating
Segments.
Services and Products
Our implementation and
support organization provides solutions that include consulting, business
software applications, mobile managed services, mobile workstations and
devices, and wireless infrastructure. Our services and products are designed to
help our customers enhance workflow, improve customer service, increase revenue
and reduce costs. We believe our services and products address several
functional applications including, for example, in enterprises in the following
industries:
Healthcare
·
Healthcare
providers are under constant pressure to increase the deployment, productivity
and utilization of their EMR systems, while maximizing the safety and efficacy
of the care they provide while maintaining the integrity and privacy of
information. The use of portable devices in combination with wireless
technology allows access to information at the point of care or wherever else
the information may be required. RFID technology combined with customized
software applications enables real time tracking of patients, medical equipment
and devices by the healthcare provider.
Commercial
·
Distribution
logistics relies on analyzing real time information as it relates to product
quantities, product movement and location throughout the supply chain. Examples
of distribution enterprise mobility solutions provided by us include wireless
handheld computers used to scan products upon warehouse arrival and exit and
wearable PCs used to permit warehouse operators to perform tasks, such as
physical inventory counts, in a hands-free environment.
·
Manufacturing
logistics relies on accessing current information as it relates to materials
and parts inventory pipelines to enable just-in-time manufacturing processes.
An example of a manufacturing enterprise mobility solutions are wireless
devices used to capture information on the warehouse floor and integrate that
information into databases of the manufacturer, which facilitates improved
financial management, inventory control and tracking of customer orders.
·
Transportation
and field services logistics rely on effectively planning, scheduling and
managing goods according to pre-determined delivery expectations. Examples of
transportation and field services enterprise mobility solutions include
vehicle- mounted systems used to capture and transmit real time information on
driver performance, routes taken and hours worked and handheld computers to
allow a customers employees to receive pick-up and delivery schedules at the
beginning and throughout a work shift.
·
Retail
applications rely on accessing information at the point of sale and ensuring
automatic replenishment of inventories. In addition, retailers need to
accurately produce and capture shelf labels for in-store marketing. Examples of
retail enterprise mobility solutions include wireless point of sale devices
used by customers to securely complete financial transactions at a single
location by a credit or debit card and bar-code scanning devices used to enable
employees to quickly and efficiently perform physical inventories.
Our
service and product offerings can be sold to a customer separately or together,
in each case in a manner tailored to that particular customer. We offer the
following services and products: (i) consulting and professional services,
(ii) products and software, and (iii) mobile managed services, as
described below.
Consulting and Professional Services
Our sales and implementation
process takes a consultative approach, rather than the taking and filling of
product orders. We work closely with our customers to assess their operations
and identify the stress points in their organization where work processes and
information management can be improved through the implementation of one of our
own or one of our partners solutions. Our professionals are experienced in
providing strategic planning and guidance in the areas of
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information technology systems engineering,
clinical systems, financial systems, operational systems and software
development.
We have established
capabilities as a national management and clinical systems consulting company
for the healthcare industry, including a trusted reputation as a software and
services partner within the SAP
®
supply chain
execution and mobility business
(1)
. Through the recent formation of our SAP
®
Global Services Group, we aim to bring
increased efficiency to SAP
®
customers in multiple
industries, including pharmaceutical, retail, consumer packaged goods,
logistics, wholesale distribution, and utilities.
Our professional services
and solutions expertise in the healthcare market includes:
·
EMR system
implementation and support;
·
computerized
physician order entry;
·
healthcare
information system selection;
·
strategic cost
management;
·
supply chain
execution design and implementation;
·
information
technology strategic planning;
·
return on
investment analysis;
·
e-charting; and
·
workflow
design.
Our professional services
and solutions expertise in commercial markets includes designing and
implementing solutions using SAP
®
supply chain
execution and mobility applications, developing customized software
applications, and also designing, developing, and improving wireless networks.
We can provide the following
professional services through the project development and deployment process of
a complete mobile system implementation or on a discrete individual basis based
on the needs of our customers:
·
Enterprise Assessment and Planning.
We work with our clients to
understand their current and future needs for enterprise class mobile
computing. By employing a consultative approach to this marketplace, we aim to
assist our clients to increase workforce efficiencies through the deployment of
either vertical specific Best in Class mobility applications or by helping
them to implement and deploy customer specific solutions. We assist our clients
with all aspects of assessment and planning, from application and device or
network selection and procurement through application and technology systems
implementation and post-implementation support.
·
SAP
®
Supply Chain
Execution Services.
Our SAP
®
Global Services
Group concentrates on helping our clients to maximize the value of their SAP
®
investment by implementing
SAPs leading edge supply chain execution components. We have developed world
class knowledge and have renowned expertise in helping SAP
®
clients deploy
the following applications:
·
SAP
®
Warehouse
Management;
·
SAP
®
Extended
Warehouse Management;
·
SAP
®
Transportation
Management;
·
SAP
®
Console and
ITS;
·
SAP
®
Mobile
Netweaver; and
·
SAP
®
Auto ID
Infrastructure.
·
Training/e-Learning.
We offer e-Learning solutions through an extensive
library of interactive and dynamic courses. Our e-Learning solutions range from
training programs that ready a customers employees to use their
(1) SAP
®
is the
trademark or registered trademark of SAP AG in Germany and in several other
countries.
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software
applications efficiently to courses that educate employees on regulatory and
compliance issues. Our training modules customize course materials by capturing
a customers application screens on their hardware and mapping the training to
the customers workflow. Unlike traditional classroom training, our e-Learning
solutions enable standardized and customized training solutions to be
efficiently delivered to large numbers of employees of a customer both on their
schedules and directly at the point of access, typically by use of our mobile
point of activity or mobile point of care workstations. Training methods
include interactive tutorials, on-line knowledge assessments, wide area
classroom methods and instruction services. Delivery options include media such
as video, CD-ROM, video conferencing, web delivery, audio-desktop conferences,
paper-based materials, and stand-up instruction. Whether used for an
organization-wide implementation of a new technology or a department-wide
procedural review, we believe that our e-Learning solutions address numerous
challenges faced by our customers, including:
·
complex
logistics of training a large number of people effectively on a strict
timetable;
·
minimizing
training time spent by staff, which results in more time available for patient
and customer interaction;
·
developing,
supporting and retaining a knowledgeable and skilled staff;
·
providing
trainees with diverse levels of education, styles of learning and familiarity
with technology;
·
delivering a
consistent, unified training message, communicating standard procedures and
policies; and
·
educating
employees hired after training events.
Training modules developed
and implemented to date include HIPAA privacy and security training, clinical
application training templates (Epic electronic medical records systems,
MEDITECH computerized physician order entry and electronic medical record
systems, Siemens AG Medication Administration Checker training, McKesson
Corporations Horizon Expert Documentation clinical documentation training and
Medical Information Technology, Inc.s nursing training) and an assessment
and certification module, designed to test, certify, provide feedback, and
report on clinical courseware retention. We have several other e-Learning
software modules currently under development.
Products and Software
Mobile
and Wall-mount Workstations, Tablet Devices and Power Management Systems
In early 2010, we
launched our ST7 integrated healthcare mobility solution product suite which
includes mobile and wall-mounted workstations, and mobile clinical assistant
(MCA) hand-held devices. The ST7 product line is designed specifically to
advance EMR implementations and mobilize clinicians at the point of care. Our
new ST7 Mobile Workstations are designed to provide hospitals with an
end-to-end strategy for EMR implementation and mobilization.
The ST7 MCA is a purpose-built mobile
computing device based on a platform developed by Intel® to help improve
patient care and clinical workflows. Its ruggedized form, completely
sanitizable surface and hot-swappable batteries allows the device to be carried
on long shifts through a busy medical environment. The ST7 Wall Mount was
designed by clinicians to specifically enhance workflow at the point of care.
The ST7 Wall Mount creates a secure and convenient area to record patient data
and access technology for electronic bedside medication verification.
Our mobile point of care
workstations can be customized for hospital medication administration. This
automated point of care medication administration system, which operates in
conjunction with a hospital pharmacys information technology systems, is
designed to reduce medication errors and associated complications. Nurses scan
the bar-coded medication to confirm the correct dose of medication and the
patients bar-coded wristband to ensure that the correct patient is receiving
the appropriate dose of medication at the right time. We have been selling
mobile workstations since 2002, and currently have sold over 66,000 units deployed
across the healthcare market. Our point of care product line represented
approximately 30% of our total net revenue in 2009.
Our power management systems
include our newly launched
ST7 LiFe Battery, which was developed through more than a year of research
and development provided by our supplier. We believe the ST7 LiFe Battery has
redefined the traditional battery design that powers most mobile computer carts
in the healthcare industry. As a result of this technological breakthrough, we
introduced an innovative lithium iron phosphate power system, which
significantly increases the performance of mobile computer workstations that
doctors and nurses rely upon to deliver high-quality patient care.
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Drawing upon in-depth
customer research and clinician feedback, with our business partner, we
identified the top features clinicians desired in order to enhance the
performance of their mobile computer workstations, including improved battery
life, reliability and charge time. Our new ST7 LiFe Battery not only delivers
these key features, but also provides a battery system that fully recharges in
significantly less time than other power solutions currently in place at
hospitals. This dramatic improvement in battery life is made possible as a
result of a proven, state-of-the art technology similar to that used in hybrid
automobiles.
An additional benefit of
the ST7 LiFe Battery is a reduction in downtime of mobile computer
workstations, a critical consideration for busy clinicians who struggle to
spend as much quality time with patients as possible. The advanced battery
technology also provides superior cell protection, eliminating the high
temperature safety risks associated with Lithium Ion, Sealed Lead Acid (SLA)
and Nickel Metal Hydride batteries.
Our mobility solutions also
include bar-code data collection devices, form-factor PCs, secure wireless
networks, handheld devices, tablet PCs, mobile wireless bar-code and label
printers, vehicle-mounted computers, wearable computers, wireless connectivity
and interconnectivity devices, and proprietary power solutions.
Software
We have dedicated
significant resources and capital to developing, acquiring and partnering with
leading software firms to deliver a full range of software applications. These
software applications are designed to facilitate and integrate tracking and
delivery solutions for our customers. We continue to focus on developing our
mobility solutions to include robust software applications that have changed
our business model to include recurring revenue from software licensing and
support service. Our proprietary software applications include the following:
·
HealthTrax Wireless Tracking Software.
HealthTrax Wireless Tracking
software is designed to help hospitals identify the location of hospital assets
and patients. The HealthTrax solution includes RFID tags that are compatible
with all hospital wireless network infrastructures and provide real time asset
and patient monitoring information designed to increase productivity and
patient safety. Some of our specific solutions include:
·
Patient location tracking.
Patient location tracking
software is designed to enable hospitals to accurately track the location of
patients to improve patient care and reduce medical errors. This software can
also be used to collect data regarding hospital operations such as the length
of patient stays in a hospitals waiting room.
·
Equipment position tracking.
Equipment position tracking
software allows hospital personnel to locate equipment and track its current
status (in use or available), which supports effective clinical workflow by
helping to ensure that the right people and equipment are in the right place at
the right time.
·
Procedure tracking.
Procedure tracking software is designed to enable a
hospital to track and archive a patients medical stay while alerting hospital
personnel to potentially dangerous situations.
·
Patient security.
HealthTrax software can enable a hospital to
increase its security by allowing personnel to track and manage the identity of
infants and other patients.
·
MRS-Web.
We provide strategic cost
management and productivity consulting services to hospitals across North
America. Through the use of our proprietary On-Demand Executive Information
System (
MRS-Web
) we license our software which
provides all levels of hospital management with an on-demand tool for
continuous monitoring of cost management performance metrics, including
specific operational targets.
·
Mobile Device Controller (MDC).
Our mobile product solution
suite is tailored specifically for users of SAP
®
software and
is also adaptable to other back-end systems. This series allows us to provide
our clients with access to business critical applications from mobile
workstations.
·
Rapid development software.
Our Windows-based
development environment includes routines, collection of development tools and
built-in mobile data interchange tools for rapidly creating and testing mobile
applications for mobile devices. Our design of these applications allows us to
create robust business applications.
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Through the use of these
software applications, our mobile field sales application manages our customers
mobile sales force from headquarters to the field. We allow the customer to
track activity by purchase order, customer name, salesperson, product or date
in real time. Our mobile point of delivery solution allows our customer to
manage everything involved in delivering goods and services to their customers.
·
Customer Care Portal (CCP).
Our Customer Care Portal is
an asset tracking and management solution that provides visibility into the
lifecycle of our customers mobility solution using the Internet and a browser.
Based on the Microsoft SharePoint portal server platform, the CCP seamlessly
integrates into our help desk and delivers our customers with access to
information technology asset information, support tickets, relevant
documentation, and a custom-specific knowledge base.
We believe that the CCP provides a secure, easy to use method of
accessing real-time service information such as technical support calls, repair
history and maintenance, all maintained by our professional services staff.
Asset management allows customers to sort and find equipment by item number,
item type, serial number, location, and status. With one click, the icon next
to each asset opens up to enable review of the equipment properties. The CCP
can find where a device is installed, when it was installed and with what
configuration parameters. Additionally, the system can track the complete
history of every device, including repairs and installation history, and is at
the core of our mobile managed services delivery model.
Mobile Managed Services
We believe that the key
differences between the functional capabilities of personal computers (PC) and
mobile devices are steadily eroding. Increasingly, mobile PCs (notebook and
tablet PCs) and mobile devices (smart phones and PDAs) are used as
complementary tools to access the same business application in similar ways. As
the trend toward device consolidation continues, we believe that the market for
mobile service providers remains highly-fragmented with no one provider
capturing more than a 10% market share worldwide. We further believe that IBM
Global services is a market leader for managed and professional network
services (which includes their mobility offering), as is EDS. However, the
overall mobility market is served by a wide variety of technology providers,
consulting organizations and mobility specialists. The types of mobility
solutions these companies offer vary greatly, ranging from general, managed
network services offerings to highly-specialized, mobility offerings tailored
to specific vertical markets and business process applications.
Our mobile managed services
are designed to provide our customers with external asset management and system
monitoring and support that enable their mobile technology to operate without
interruption and at peak performance levels. We offer mobile managed services
to our customers through a dedicated in-house support staff that can monitor and
maintain as much of a customers information technology systems as the customer
desires. We take a proactive approach to identifying and solving problems
within a customers wireless network systems, which we believe is an attractive
alternative to the typical reactive approach to information technology support.
In general, we provide
mobile managed services through an ongoing contracted arrangement that is
budgeted and invoiced periodically as opposed to our professional services,
which are typically one-time engagements that run through product deployment.
Examples of our managed services include:
·
Network Operations Center.
Our network operations
center provides remote systems monitoring and technical assistance on
information technology related issues. The network operations center offers
proactive network monitoring and management and remote support to our
customers.
·
Asset Management.
Our asset management system helps our customers
manage their wireless inventory. We maintain a database of all of the customers
installed equipment, including hardware and software configurations, monitor
contract and licensing compliance and consolidate all cost information into a
single database for a complete view of a customers wireless assets. We also
offer a replacement program for wireless devices that reduces the downtime of
wireless assets. We offer extended warranty and service programs on our mobile
workstations and batteries.
·
Customer Care Portal.
Through our Customer Care Portal, as described
above, we are able to provide customers with access to the asset management
database and also provide access to technical support information and
configuration and installation resources.
·
Help Desk.
Our help desk
service provides support to resolve IT issues that our customers encounter.
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Our mobile managed services
are generally offered through service level agreements that range from two to
five years.
Sales and Marketing
We employ several methods to
sell our services and products, including direct selling, an inside sales
approach and channel partner programs. Our direct selling and inside sales
approach aims to align the compensation paid to our sales representatives with
our business strategy. Sales representatives are paid largely on a commission
basis based on revenue for services and gross profits for products sold.
Our direct sales force is
primarily geographically based to support a regional strategy focused on
one-to-one selling. In addition, many of our sales representatives specialize
in a particular industry or industries, which we believe makes them more
effective in understanding the needs of our customers and ultimately generating
more sales. Over the past year we replaced a majority of our field sales force,
with a focus on hiring experienced solutions sales representatives. We
currently employ 34 direct sales representatives located across the United
States, including our inside sales staff. In general, new sales representatives
take approximately six to nine months to generate leads, initiate contacts and
become integrated into the purchasing cycle of our customers.
Our inside sales strategy
focuses on telephonic and email communications. These sales representatives
work from within our offices and are responsible for handling inbound sales
orders and for following up with customers. To support this sales approach, we
use a sales force automation system that integrates our inside and outside
sales force, customer service representatives, marketing support staff and
management through our email system.
We also sell and market our
services and products through a network of key relationships, including channel
partners. These relationships are synergisticwe refer business to our key
relationships from our existing customers and, in exchange, we receive
preferential pricing and referrals from these key relationships. Our business
development and channel management staff develop relationships with our channel
partners both at the management level and, we believe more importantly, at the
field sales level. We provide incentives to our channel partners to actively
pursue opportunities to market and sell our services and products with our
support. In addition, we intend to continue to leverage our key relationships
and channel partners by increasing the amount of business, in particular that
portion of our business surrounding hardware and wireless device sales, done
through these partners while directing our direct sales team to focus on
selling our higher margin consulting and other professional services.
We market our services and
products through a variety of other methods, including industry trade shows and
professional conferences, public relations and targeted marketing campaigns,
our corporate website, and search engine optimization and marketing.
Customers
We have delivered enterprise
mobility solutions to over 2,200 customers in North America, including over
1,400 hospitals and 800 commercial enterprises since we began operations in
2001. As a percentage of total net revenue, our five largest customers
accounted for, in the aggregate, approximately 38%, 38%, and 34% of our net
revenues for the years ended December 31, 2009, 2008 and 2007,
respectively. During 2009, 2008 and 2007, we had one, one, and two customers,
respectively, that individually comprised 10% or more of revenue. Management
does not believe that the loss of any single customer will have a material
adverse effect on our business or results of operations.
We generated net revenues
from customers located in the United States of $86,050, $100,216, and $75,474 in
the years ended December 31, 2009, 2008 and 2007, respectively. We
generated net revenues from customers located outside of the United States of $866,
$500, and $3,300 in the years ended December 31, 2009, 2008, and 2007,
respectively.
Past Strategic Acquisitions
Acquisition of Assets of Delta Health Systems, Inc.
In May 2008, we
acquired substantially all of the assets of Delta Health Systems, Inc., or
Delta. The assets acquired related to Deltas business of providing strategic
cost management consulting services and web-based management data collection
and work-flow analytics to the healthcare industry. This acquisition has
enabled us to combine our existing solutions with higher margin professional
services. We believe the Delta acquisition has allowed us to reach further into
our
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healthcare customer organizations to bring
critical workflow and human resource utilization efficiencies that support our
mobile solutions. During 2008 and 2009, we began to realize economies of scale
through selling combined solutions to mutual clients of Delta.
The
purchase price was $1,673, which consisted of $1,465 in cash and $208 in
acquisition costs. We also entered into an earn-out agreement pursuant to which
Delta was eligible to earn additional consideration in the subsequent two-year
period (each year, an Earn-out Period) after the closing of the transaction. In
connection with the Hercules Restructuring that closed on November 20,
2009, we restructured our earn-out obligations to Delta. In lieu of the $430
payment that Delta earned for the first Earn-out Period, Delta is participating
in a commission plan under which it will receive a monthly commission of 11.5%
of the collected revenue from Deltas business that we generate during the
applicable month. No changes were made to the payment Delta can earn for the
Second Earn-out Period, which is up to $500 upon achievement of gross revenue
targets described in the Earn-out Agreement. At the end of the two year period,
if Delta has not already earned the $1,000 of additional consideration in
respect of each of the two Earn-out Periods, Delta may earn an amount equal to
the $1,000 of additional consideration less any amounts previously paid in
respect of the two Earn-out Periods upon the achievement of certain cumulative
financial milestones during the two-year earn-out period.
Acquisition of Assets of Aware Interweave, Inc.
In May 2008, we
acquired substantially all of the assets of Aware Interweave, Inc., or
Aware. The assets acquired related to Awares business of providing mobile
software solutions to a variety of customers including federal government
agencies, Fortune 1000 companies and healthcare and life science organizations.
The acquisition was part of our strategic plan to add intellectual property and
higher-margin services and application software licensing, while allowing us to
provide our customers with access to new solutions. The acquisition of Aware
has allowed us the opportunity to enable users of SAP
®
software and applications to significantly
improve their visibility, response time, and revenues by providing access to
business-critical applications without being tied to the office or desktop
computer. Through our acquisition of Aware, we have gained a mobile product
solution suite that it developed, the Co-Pilot series, which is tailored
specifically for users of SAP
®
software, and also adaptable to
other back-end systems.
The purchase price was
$2,479, which consisted of 20,000 shares of our common stock, valued at $1,030,
cash net of cash acquired of $1,318, and $131 of acquisition costs. The
issuance of the shares of common stock was unregistered and the shares are
initially subject to a two-year lockup.
Acquisition of Healthcare Informatics Associates, Inc.
On September 30, 2007,
we acquired substantially all of the assets of Healthcare Informatics
Associates, Inc., or HIA, including all of HIAs cash and cash equivalents
and certain bank accounts, accounts receivable, the rights to existing
relationships with customers, vendors and partners. All of the employees of HIA
were transitioned to us. The employees are a team of senior healthcare
informatics consultants who are also certified healthcare practitioners, and
include registered nurses, pharmacists, ancillary clinicians, physician
assistants, revenue cycle personnel, administrative systems personnel,
technical interface/report writing personnel, clinical transformation
specialists, engineers specializing in return on investment, benefits
realization, and work redesign and certified project managers. The acquisition
of HIA has allowed us to expand the products and services we offer to hospitals
and other healthcare providers. The consideration paid for the acquired assets
was composed of cash, shares of our common stock, a convertible promissory note
and additional contingent consideration under an earn out agreement, each as
discussed in more detail below. We believe that the acquisition of HIA and its
combination of IT and clinical experience has enabled us to expand the
strategic value of our current and future customer relationships.
The cash purchase price
payable at closing was $5,500 (subject to a post-closing working capital
adjustment) of which $900 was placed into escrow to fund a portion of certain
employee retention payments to be made to HIAs employees over a three-year
period after the closing. In addition, $1,557 from HIAs cash account was
deposited into an escrow account to be used to fund any working capital
adjustment payable to the Company, all of which was subsequently released back
to HIA in January 2008. We also deposited approximately $83 into escrow
representing certain outstanding customer invoices due to HIA. We have
collected the amounts due under those invoices so we released an equivalent
amount to HIA from the escrow in January 2008.
In addition to the cash
consideration described above, the purchase price for the assets of HIA
included 30,219 unregistered shares of our common stock and a $3,500
convertible subordinated promissory note issued by our wholly-owned subsidiary,
InfoLogix Systems Corporation. The note bears interest at a rate of 9% per
annum, compounding annually until the principal amount is paid in full. The
principal amount of the note and all accrued interest are payable in full on September 30,
2010. The outstanding unpaid principal amount of the note is convertible at the
option of HIA into
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unregistered shares of our common stock at a
conversion price of $137.50 per share. We may also require HIA to convert all
or any portion of the outstanding unpaid principal of the note into our
unregistered common stock at a conversion price of $137.50 per share if the
closing bid price of our common stock for at least 45 consecutive trading days
equals or exceeds $200.00 per share. Any accrued but unpaid interest on the
note at the time of any conversion will be paid, at our option, either in cash
or in additional shares of our common stock at a conversion price of $137.50
per share. HIA may also, at its option, declare the note payable in full upon
the occurrence of a change of control (as defined in the note) of InfoLogix
Systems. The note also contains customary events of default that would allow
HIA to accelerate the amounts payable under the note, including any default on our
senior debt. The note is subject to a subordination agreement with Hercules
Technology Growth Capital, Inc., our senior lender. The note also grants
HIA the right to require us to redeem a portion of the unpaid and outstanding
principal of the note if we engage in an offering of our equity securities, the
primary purpose of which is to raise capital.
In addition, we entered into
an earn-out agreement pursuant to which HIA is eligible to earn additional
consideration in respect of the two years after the closing of the acquisition.
In August 2008, we entered into an amendment to the earn-out agreement
that extended the first earn-out period from twelve months to fifteen months
ending December 31, 2008, and amended certain financial calculations used
to determine our earn-out liability. Based on satisfaction of certain financial
milestones described in the earn-out agreement, we have recorded an adjustment
of approximately $1,958 to the purchase price as an increase to goodwill, which
reflects the amount that HIA earned under the earn-out for the first year
following closing and is also the maximum amount HIA could have earned. We have
not yet made any payment in connection with this earn-out obligation, and are
currently in discussions with HIA regarding this payment. Please see
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and Capital Resources for further discussion
regarding payment of the HIA earn-out.
Patents and Proprietary Technology
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 proactively 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 6
in other countries, likewise related to medication delivery and administration
and aspects of wearable computing devices. Our patents and patent applications
are owned through our wholly-owned subsidiaries OPT Acquisition, LLC, Embedded
Technologies, LLC and InfoLogixDDMS, Inc.
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.
We also rely on trade
secrets and proprietary know-how that we seek to protect, in part, through
confidentiality agreements with our employees, consultants, customers, business
partners, and other third parties. As a condition of employment, we require
that all full-time and part-time employees enter into an invention assignment
and non-disclosure agreement.
We intend to continue to
maintain and where possible to broaden our intellectual property portfolio,
which we consider critical to our future product development and an important
source of potential value. In the past, we have acquired intellectual property
through selective business acquisitions, and we might do so again in the
future, as well as develop our own proprietary solutions. If we are unable to
protect our patents and proprietary rights, our reputation and competitiveness
in the marketplace could be materially damaged.
Litigation may be necessary
in order to enforce any patents that we now hold or any patents that are issued
to us or acquired by us in the future.
Competition
We operate in a fragmented
marketplace, competing with a variety of participants in the wireless mobility
market including companies that design systems, provide hardware and software
applications, integrate software and hardware
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applications, provide consulting services and
offer management and maintenance services. Our primary competition comes from
regional and local firms that are similar to us in terms of revenue and numbers
of employees.
We sell and support mobile
point of care workstations with over 60,000 of our units currently in use in
the U.S. healthcare market. In this business, we compete with a variety of
companies, including furniture and fixture distributors and several nationally
known mobile cart manufacturers and distributors. We believe that the larger
competitors include Stinger Medical (in business for over ten years and the
first company to provide mobile carts to the healthcare industry), Flo
Healthcare (the holder of several patents on mobile computing and now owned by
Emerson Storage Solutions), Ergotron, Rioux Vision (now owned by Omnicell),
Rubbermaid, Lionville (also owned by Emerson Storage Solutions), Howard
Computer, Artomick, EnovateIT and JACO.
In the healthcare market, we
also compete with device manufacturers, service providers and software platform
companies that offer unique, specialty use products. For example, Motion
Computing, Research In Motion (BlackBerry), Palm and Dictaphone compete for
market share in the sales of devices to physicians and other providers,
Microsoft and Intel are positioning for wireless IP platform adoption, while
companies like MedQuist and Scribe vie for customers of specialty use software
applications and services. While we maintain our focus on enterprise mobility
solutions, we will encounter these companies in the marketplace while competing
for a portion of the work-flow and voice-over-IP solution sets.
We encounter the very large
consulting firms such as IBM Global Services, CTG (Computer Task Group),
Accenture, Deloitte Consulting, EDS, Computer Sciences Corporation/First
Consulting Group, and Affiliated Computer Services in both our commercial and
healthcare groups. Many of these national and international consulting firms
focus on design and architecture of wireless networks, and work-flow or process
improvement. We believe there are also many small, local and regional
consulting firms offering services similar to the larger firms, as well as
site-surveys, infrastructure support and information technology outsourcing.
Each of these participants will continue to compete with us for our core
services around enterprise mobility solutions and mobile managed services.
We compete with handheld
mobile computer products companies in our supply-chain solutions business,
including Symbol/Motorola, Intermec, LXE and other makers of tablet computers
such as Dell, Hewlett-Packard, Sony and Fujitsu. Symbol/Motorola is a global
leader in mobile data management systems and services with innovative customer
solutions based on wireless local area networking for voice and data,
application-specific mobile computing and bar-code data capture.
We also compete with a
smaller group of companies that are more solutions oriented, but operate in the
sectors in which we operate, including healthcare, transportation,
manufacturing, distribution and retail. These companies include DecisionPoint, Inc.,
Stratix Corporation, Enterprise Mobile, SOTI, Inc. Wavelink Corporation,
Ennovative, Inc., ID Systems, and OAT Systems (a recognized RFID framework
owned by Checkpoint Systems, Inc.). This group of companies competes for
business that delivers RFID software and solutions. Solution sets include data
and content management, materials management, e-commerce, e-Learning, custom
application and web interface development, and infrastructure management.
In addition to the
foregoing, there are hundreds of firms that operate in a variety of
vertical-specific or technology-centric groupings. Due to the increasing level
of market activity related to these two general areas, an increasing number of
companies are claiming capabilities.
When evaluating our
competitive landscape, we consider:
·
The large
number of RFID and mobile wireless hardware solution providers. Many firms
attempt to differentiate their services by promoting solution integration
capabilities. The larger enterprises understand the value added elements of
software integration (either proprietary or third-party integration) as well as
service capabilities to integrate and manage.
·
A growing
number of private companies are establishing meaningful market presence by
leveraging software integration and solution management capabilities.
·
Cross industry
penetration seems to be a constant theme for many companies; however, we
believe industry specialization is viewed by customers as an important
differentiator.
Product Development
To
ensure our ability to identify and develop new technologies and applications
for our mobile workforce solution platforms, InfoLogix starts with a structured
approach to product development. We conduct intensive research to identify
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opportunities
or needs that are not currently met, we establish a framework for a solution
that we expect will fill those needs and use this framework to design the
system. Once a system reaches the prototype stage, it is carefully
reviewed for adherence to requirements, and then thoroughly tested for quality
assurance. We believe this structured approach is comprehensive and
flexible and allows us to produce high quality and customer-focused solutions
while effectively using our resources to drive future growth for our business.
Solution Delivery and Manufacturing
We
partner with advanced technology providers, and we aim to add value through
customization and service to deliver a comprehensive solution to our customer
base. We undertake a diligent partner review, product/service testing, and
contract administration processes to validate the quality of both the vendor
and its offering, and when satisfied, we enter into long-term engagements to
ensure continued delivery of product according to our strict quality standards.
We engage third parties to produce our mobile point of care and point of
activity workstations, form factor and tablet computers, and wireless kiosk
products. We also have a long-term contract for the design and manufacturing of
our mobility products and power management systems for which we co-own certain
elements of the technology. Most of the manufactured products are shipped
directly from the manufacturing facility to our customer site. Our employees
provide on-site customized assembly and installation, upon request of our
customers.
Employees
As of March 31, 2010,
we had 168 full-time employees of which 34 were in sales and marketing, 97 were
in professional consulting services and e-Learning, 12 were in software
engineering, quality assurance, and field services, 15 were in operations and
customer support, and 10 were in finance, executive and administrative
capacities. We are not subject to any collective bargaining agreements, and we
believe that our relationship with our employees is good.
In addition to full-time
employees, we utilize the services of various independent contractors,
primarily for certain product development and foreign sales, marketing and
administrative activity.
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
.
Item 1A.
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, in addition to the other information contained in this
report and other reports we have filed with the Securities and Exchange
Commission. The risks and uncertainties described below 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.
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.
As discussed in Item 7.
Managements
Discussion and Analysis of Financial Condition and Results of Operations
Going Concern, we have incurred significant losses from 2006 through 2009,
including a net loss of $22,388 for the year ended December 31, 2009. As
of December 31, 2009, we had cash and cash equivalents of $1,018, total
liabilities of $38,486 and an accumulated stockholders deficit of $2,544. 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 Loan Agreement with Hercules, and to 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
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on November 20, 2009
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.
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 Loan Agreement and there can be no
assurance that we can cure the default.
Our Amended Loan Agreement provides us with a
$12,000 line of credit, three term loans with an aggregate principal amount of
$11,850, and an equipment loan with availability of up to $3,000. The term
loans include a $5,500, 48-month amortizing loan, a $5,000 convertible note due
on November 1, 2014, and a $1,350 convertible note due on April 1,
2013. The Amended Loan Agreement contains restrictions and covenants and
requires us to maintain specified financial ratios and tests. For example, the
Amended Loan 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 Loan Agreement. The loans are
secured by all of our assets. We are also required by our lender to maintain a
minimum cash balance of $1,000. An event of default under the loan 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.
As of February 5, 2010, there was an event of
default existing under the Amended Loan Agreement because our advances under
the revolving line of credit portion of our credit facility exceeded our
available borrowing base. On February 10, 2010, Hercules sent us a letter
serving as a notice of event of default and reservation of rights. As a result
of this violation and other financial covenant defaults that are continuing,
Hercules is charging us default rate interest on all of our outstanding
obligations under the Amended Loan Agreement, which rate is equal to the
regular interest rate plus 3%. Hercules has the option to require payment of
default rate interest in cash, in kind or in shares of common stock. Hercules
has not accelerated our obligations under the Amended Loan Agreement, but has
expressly not waived any events of default or any of its remedies under the Amended
Loan Agreement. 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.
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Even without payment
acceleration, the restrictions contained in the loan 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 December 31,
2009, as a result of our Amended Loan Agreement, we had approximately $22,640
of total indebtedness outstanding, including short-term debt and approximately
$7,559 under our 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 Loan
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.
Risks
Related to our Controlled Company /Status
Interests of our controlling stockholder may conflict with
the interest of our other stockholders
.
Our majority 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, as more fully discussed in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations
Recent Developments, 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.
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.
Our majority 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:
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·
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.
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 $86,916 and $100,716, respectively
and incurred net losses of $22,388 and $13,184, 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.
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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.
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
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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.
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;
·
intellectual property invention and protection;
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·
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 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.
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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 6 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 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
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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.
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.
23
Table of Contents
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 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 $2,500 in
stockholders equity, a minimum of $35,000 of market value of listed
securities, or a net income from continuing operations of at least $500 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 have regained compliance with the $2,500 stockholders
equity requirement for continued listing on The NASDAQ Capital Market. NASDAQ,
however, will continue to monitor our ongoing compliance with the stockholders
equity requirement and, because our stockholders deficiency of $2,544 at December 31,
2009 does not evidence compliance with that requirement, we may be subject to
delisting. Any such 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.
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:
·
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 HTI or
Hercules; and
·
continuing uncertainty and adverse developments in the overall stock
market.
24
Table of Contents
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.
We have filed a
registration statement on Form S-3 with the SEC and it is anticipated that
prior to the effective date of this registration statement, we will have
approximately 1,030,354 million shares of common stock that were available to
be publicly traded. The registration statement on Form S-3 that we have
filed covers 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. 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 April 13, 2010 was $5.34.
If HTI 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
HTI might sell our shares of common stock could also depress our market price.
The number of shares of common stock that will be available to be publicly
traded after the effective date of the registration statement on Form S-3
will increase by approximately 327%. Furthermore, we are obligated to file a
registration statement on Form S-3 with the SEC prior to May 31,
2010.
There
may be a limited public market for our securities.
Although we are listed on
The NASDAQ Capital Market, there can be no assurance that the trading of our
common stock will be sustained. If our common stock fails to qualify for
continued listing on The NASDAQ Capital Market or for listing on another
registered stock exchange, trading, if any, in our common stock would be
conducted on the Over-the-Counter Bulletin Board or in what are commonly
referred to as pink sheets. 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
Loan 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.
Due
to a material weakness, our internal controls 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 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 this 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 below.
25
Table of
Contents
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 $6,777 loss on debt extinguishment and a
$4,294 increase in additional paid in capital.
For further discussion of our internal control over financial reporting
and our disclosure controls, see Item 9A(T). Controls and Procedures in Part II
of this Form 10-K.
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 10%
26
Table of Contents
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. See the risk factor titled
Our controlling
stockholder has the contractual right to nominate three members of our Board of
Directors.
Item 1B.
Unresolved Staff Comments
Not applicable.
Item 2.
Properties
Our headquarters are located
in Hatboro, Pennsylvania in approximately 40,000 square feet of leased space.
This facility accommodates our executive office, customer support, warehouse,
development and shipping operations. On October 8, 2004, we entered into a
lease agreement to rent approximately 25,000 square feet. The initial annual
base rent under the lease was approximately $167 and increased 2% annually
effective on the annual anniversary of the lease commencement date. The initial
term of the lease agreement is 85 months, with an option to extend the
lease term for up to one additional period of five years. On May 1, 2007,
we entered into a sub-lease agreement to rent approximately 15,000 square feet
of additional space. The initial annual base rent under the sub-lease was
approximately $178, and increased 4% annually effective on the annual
anniversary of the sub-lease commencement date. The sub-lease agreement expired
on December 29, 2009. We are also responsible for payments of common area
operating expenses for the premises under the lease and sub-lease agreement.
On February 17, 2010,
we entered into an amendment to the lease agreement with the landlord to rent
approximately 40,000 square feet of leased space, which encompasses all of the
leased space previously occupied under the original and sub-lease space
described above. The annual base rent under the amended lease agreement is
approximately $529, with abatement of rental payments for March 1, 2010
through June 30, 2010, and is increased 2.5% annually effective on the
annual anniversary of the lease commencement date each year, except the rental
rate is reduced to an annualized rental of $13 from July 1, 2011 and October 31,
2011. The term of the amended lease agreement expires January 31, 2017.
The amended lease agreement requires the landlord,
at its sole cost and expense, to construct certain improvements within the
lease premises beginning on February 1, 2012 and expiring as of May 31,
2012, as agreed upon between the Company and the landlord. However, the landlord
may condition the performance of its work (in the form of a cash security
deposit or letter of credit) in an amount deemed reasonably sufficient to
landlord if our then-current financial statements do not meet or exceed the
following two conditions: (i) current ratio of 1.3; and (ii) minimum
working capital of $4,000.
Item 3.
Legal Proceedings
We are not a party to any
legal proceedings, the adverse outcome of which, individually or in the
aggregate, management believes would have a material adverse effect on our
business, financial condition or results of operations.
Item 4.
Submission of Matters to a Vote of Security Holders
Our 2009 annual meeting of stockholders was held on December 30,
2009 (the 2009 Meeting). At the 2009 Meeting, the following matters were
submitted to a vote of stockholders: (1) approval of an amendment to our
Certificate of Incorporation to effect a reverse stock split of our issued and
outstanding common stock by a ratio of one-for-twenty-five (the Charter
Amendment); (2) election of seven directors; (3) ratification of the
selection of McGladrey & Pullen LLP as our independent registered
public accounting firm for 2009; and (4) approval of an amendment to our
2006 Equity Compensation Plan to (a) increase the maximum aggregate number
of shares of common stock that may be issued under the plan to, after giving
effect to the reverse stock split pursuant to the Charter Amendment, 1,840,000
shares of our common stock and (b) permit the Compensation Committee of
our Board of Directors, with the concurrence of the affected grantee, to
reprice options and/or cancel any award under the plan (collectively, the Plan
Amendment). The Charter Amendment and the Plan
27
Table of Contents
Amendment were approved, our seven nominees for director were elected,
and the selection of McGladrey & Pullen was ratified. The results of
the voting were as follows:
|
|
Number of
Votes For
|
|
Number of
Votes Against
|
|
Number of
Votes Withheld
|
|
|
|
|
|
|
|
|
|
Charter Amendment
|
|
73,369,833
|
|
187,085
|
|
|
|
|
|
Number of
Votes For
|
|
Number of
Votes Withheld
|
|
|
|
|
|
|
|
|
|
|
|
Election for Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark S. Denomme
|
|
73,298,713
|
|
261,855
|
|
|
|
|
|
|
|
|
|
|
|
David T. Gulian
|
|
73,308,078
|
|
252,490
|
|
|
|
|
|
|
|
|
|
|
|
Manuel A. Henriquez
|
|
73,298,713
|
|
261,855
|
|
|
|
|
|
|
|
|
|
|
|
Wayne D. Hoch
|
|
73,364,213
|
|
196,355
|
|
|
|
|
|
|
|
|
|
|
|
Roy Y. Liu
|
|
73,298,713
|
|
261,855
|
|
|
|
|
|
|
|
|
|
|
|
Thomas C. Lynch
|
|
73,364,213
|
|
196,355
|
|
|
|
|
|
|
|
|
|
|
|
Thomas O. Miller
|
|
73,239,213
|
|
321,355
|
|
|
|
|
|
Number of
Votes For
|
|
Number of
Votes Against
|
|
Number of
Abstentions
|
|
|
|
|
|
|
|
|
|
McGladrey & Pullen LLP
|
|
73,556,573
|
|
1,595
|
|
2,400
|
|
|
|
|
|
|
|
|
|
Plan Amendment
|
|
72,909,423
|
|
649,295
|
|
1,850
|
|
PART II
Item 5. Market
for the Companys Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Market Information
Our common stock is listed
on the NASDAQ Capital Market under the symbol IFLG. On January 5, 2010,
we completed a reverse stock split of our issued and outstanding common stock
by a ratio of one-for-twenty-five. The table below sets forth the high and low closing
sale prices of our common stock during 2009 and 2008, adjusted for the reverse
stock split:
28
Table of Contents
|
|
Quarter Ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
Price
range of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
19.75
|
|
$
|
14.50
|
|
$
|
14.75
|
|
$
|
8.00
|
|
Low
|
|
7.00
|
|
8.75
|
|
6.50
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
Price
range of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
50.00
|
|
$
|
62.50
|
|
$
|
52.75
|
|
$
|
37.00
|
|
Low
|
|
41.00
|
|
38.75
|
|
35.00
|
|
12.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holders of Common Stock
As of April 6, 2010, we
had approximately 279 holders of record of common stock and 3,729,647 shares of common stock
outstanding.
Dividends
We have not paid cash
dividends and do not anticipate paying cash dividends in the foreseeable
future. The declaration and payment of dividends is restricted in accordance
with covenants related to our Amended Loan Agreement with Hercules which
matures in November 2014. The restriction on dividends will remain during
the term of the Amended Loan Agreement. We expect to utilize any future
earnings to finance our operations. The actual amount of any dividends that may
be paid in the future will be subject to the discretion of our Board of
Directors and will depend on our operations, financial and business
requirements and other factors.
29
Table of
Contents
Item 6.
Selected Financial Data
The following table presents
selected financial data for the last five years of the operation of our
business. This information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto in Item 8 and Managements
Discussion and Analysis of Financial Condition and Results of Operations in
Item 7. The selected financial data for fiscal years 2005 through 2009,
with the exception of proforma data, has been derived from our financial
statements which have been audited by an independent registered public
accounting firm.
The
earnings per share and weighted average number of shares outstanding reflect a
twenty-five-for-one reverse stock split of our issued and outstanding shares of
common stock, par value $0.00001 per share that was effected on January 5,
2010. All dollar amounts are presented in thousands except per share data.
|
|
Year
ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Consolidated Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
86,916
|
|
$
|
100,716
|
|
$
|
78,774
|
|
$
|
62,113
|
|
$
|
56,399
|
|
Cost of revenues
|
|
67,273
|
|
74,176
|
|
58,049
|
|
47,163
|
|
43,532
|
|
Gross profit
|
|
19,643
|
|
26,540
|
|
20,725
|
|
14,950
|
|
12,867
|
|
Operating (loss) income
|
|
(8,216
|
)
|
(5,703
|
)
|
(4,486
|
)
|
(2,948
|
)
|
1,206
|
|
(Loss) income before income taxes
|
|
(21,743
|
)
|
(9,749
|
)
|
(4,901
|
)
|
(3,557
|
)
|
681
|
|
Income tax (expense) benefit (1)
|
|
(645
|
)
|
(3,435
|
)
|
1,712
|
|
1,399
|
|
(313
|
)
|
Net income (loss)
|
|
(22,388
|
)
|
(13,184
|
)
|
(3,189
|
)
|
(2,158
|
)
|
368
|
|
Net (loss) income per share (2)
|
|
$
|
(16.88
|
)
|
$
|
(13.04
|
)
|
$
|
(3.30
|
)
|
$
|
(2.29
|
)
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
1,326
|
|
1,011
|
|
967
|
|
944
|
|
944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
Dividends (3)
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
740
|
|
$
|
170
|
|
|
|
As
of December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
35,942
|
|
$
|
50,842
|
|
$
|
48,697
|
|
$
|
31,813
|
|
$
|
15,167
|
|
Notes payable
|
|
12,567
|
|
16,292
|
|
7,445
|
|
1,325
|
|
533
|
|
Total stockholders equity (deficit)
|
|
(2,544
|
)
|
7,478
|
|
18,476
|
|
15,888
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Unaudited
proforma tax provision as if the Company was a taxable entity for the years
ended December 31, 2006 and 2005.
(2)
Unaudited
proforma earnings per share calculation for the years 2006 and 2005. See
Note A of the Notes to the Consolidated Financial Statements in
Item 8 for information concerning the calculation of net income or loss
per common share.
(3)
Unaudited
proforma amounts paid to stockholders with respect to taxes as the Company
filing its federal and state income tax returns as a Sub-Chapter S
Corporation. Prior to November 29, 2006, any income tax liability from
operations was payable directly by stockholders.
Item 7.
Managements Discussion and Analysis of Financial Condition and Results
of Operations
The
following discussion and analysis of our financial condition and results of
operations is intended to assist you in understanding our financial condition
and results of operations. This discussion and analysis should be read in
conjunction with our financial statements and the notes thereto included in
Item 8 of this report. 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 herein reflect
the post-split number of shares of our common stock.
30
Table
of Contents
Many of the amounts and percentages presented
in this discussion and analysis have been rounded for convenience of
presentation, and all dollar amounts, except per share data, are presented in
thousands.
Overview
We provide enterprise mobility solutions for the healthcare and
commercial industries with experience in over 2,200 hospitals and businesses
nationwide. We provide end-to-end solutions for electronic medical record and
supply chain implementation 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.
We manage our business
primarily by market verticals, driven by our sales organization. We have two
reportable operating segments consisting of our healthcare and commercial or
enterprise businesses. The healthcare segment is principally composed of our
activities in hospitals and other related healthcare facilities. The commercial
segment focuses on all other vertical markets including pharmaceutical,
manufacturing, wholesale and retail distribution and service industries.
Historically, the sale of
mobile workstations and other wireless devices has represented a majority of
our net revenues. More recently, we have been transitioning our business to
provide more consulting, professional services and software applications. With
our focus on selling services and software, we believe that we can offer more
comprehensive enterprise mobility solutions that provide greater value to our
customers and generate higher and more recurring revenue for our business.
We conduct substantially all
of our operations through our wholly-owned subsidiary, InfoLogix Systems
Corporation. We own certain patents and patent applications through our
wholly-owned subsidiaries OPT Acquisition LLC, Embedded
Technologies, LLC and InfoLogix-DDMS, Inc. We consolidate OPT
Acquisition LLC, Embedded Technologies, LLC, InfoLogix-DDMS, Inc.
and InfoLogix Systems Corporation for financial reporting purposes.
We serve the healthcare and
commercial industries, which are experiencing significant challenges, primarily
due to weak macroeconomic conditions that have resulted in a decreased demand
for their products and services. As a result, some of our customers may face
financial challenges in 2010. Some of our customers are facing constraints on
their information technology budgets and are seeking more flexibility in the
type of mobility solutions they implement and the timing of their purchases
from us. It is unclear when the general economic climate will improve and when
our customers may benefit from improved conditions.
Going Concern
The current weak
macroeconomic conditions have had a major impact on the industries we serve.
During 2009, we experienced reduced sales and compressed margins, particularly
related to the sales of mobile workstations and related infrastructure in the
healthcare markets that we serve. We believe this slowdown is primarily the
result of adverse economic conditions affecting the healthcare industry,
including constrained budgets promulgated by difficult access to capital in
community and other not-for-profit hospitals. We have responded to the
challenging times by undertaking a series of cost reduction initiatives,
including the elimination of executive bonuses, reduction of employee salaries
and reduction in the number of employees. Economic conditions did not improve
in the first quarter of 2010 and we expect 2010 to be an extremely challenging
year.
Our financial statements for
the year ended December 31, 2009 have been prepared on a going concern
basis, which contemplates continuing operations, securing additional debt or
equity financing, selling certain assets, and realizing assets and liabilities
in the ordinary course of business. We have incurred significant net losses
each year from 2007 through 2009, including a net loss of $22,388 for the year
ended December 31, 2009. Our losses are attributable to the difficult
economic conditions under which we operate, challenges related to our
transition over the last several years from being primarily a seller of
infrastructure and hardware to becoming a provider of comprehensive enterprise
mobility solutions, and the write-off of certain cash and non-cash expenses
related to the Hercules Restructuring (as described under Recent Developments
below) and to non-realizable assets. During this transition period, we have
hired experienced management
31
Table of Contents
and staff to execute our business plans and
have made strategic acquisitions, and we have also managed our liquidity in
spite of carrying approximately $22,000 of senior debt at high interest rates
and other associated costs.
As a result of our capital
and debt structure and recurring losses, we have substantial 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 Loan Agreement with
Hercules and to earn out payments for past acquisitions. We do not currently
expect to generate sufficient cash flow from operations to fund those
obligations. As a result, our independent registered public accounting firm has
included an explanatory paragraph which raises substantial doubt as to our
ability to continue as a going concern in its report on our consolidated
financial statements for the year ended December 31, 2009.
We
have undertaken a series of actions to reduce costs and are pursuing various
initiatives to continue as a going concern and provide for our future success.
Our plan to improve our liquidity contemplates additional cost control measures
and may include additional financing and further restructuring of our debt. Our
ability to implement these plans successfully is dependent on many
circumstances outside of our direct control, including general economic
conditions and the financial strength of our customers. Any additional
financing we are able to secure will likely be subject to a number of
conditions and involve additional costs. Given the current negative conditions
in the economy generally and the credit markets in particular, there is
uncertainty as to whether we will be able to generate sufficient liquidity to
repay our outstanding debt, to make our earn out payments and to meet working
capital needs. If we are unable to improve our liquidity position, we may not
be able to continue as a going concern.
Recent Developments
On
November 20, 2009, we and our subsidiaries 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 $5,000 of our 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
$5,000 in additional availability under a revolving credit facility with
Hercules. In connection with the Hercules Restructuring, on November 20,
2009, we entered into a Debt Conversion Agreement with HTI, pursuant to which
HTI exchanged $5,000 in existing indebtedness for (i) 2,691,790 shares of
our common stock, and (ii) a warrant to purchase 672,948 shares of our
common stock (the Debt Conversion Agreement).
Under the terms of the Debt Conversion Agreement, HTI has certain
corporate governance and other rights with respect to our Company.
In
connection with the Hercules Restructuring, on November 20, 2009, we and
Hercules entered into an Amended and Restated Loan and Security Agreement
(Amended Loan Agreement), whereby we and Hercules agreed to restructure our
remaining debt not converted into shares of common stock and a warrant. The
Amended Loan Agreement amended and restated our prior loan and security
agreement with Hercules. On the same date and as a condition to the Hercules
Restructuring, we also restructured our earn-out obligation related to our 2008
acquisition of the assets of Delta Health Systems, Inc.
On February 19,
2010, we entered into Amendment No. 1 (Amendment 1) to the Amended Loan
Agreement with Hercules. Under Amendment 1, we may request up to $3,000 for use
in purchasing equipment (the Equipment Loan) subject to valid, verified
purchase orders acceptable to Hercules from suppliers approved by Hercules in
its sole discretion.
On March 25, 2010,
Hercules advanced to us an additional $1,350, initially applied to the
outstanding balance on our revolving line of credit facility. The advance
increased our outstanding indebtedness on the revolving line of credit to
$8,909, and was provided as an extension above our eligible borrowing base as
provided in the Amended Loan Agreement. On April 6, 2010, we entered into
Amendment No.2 to the Amended Loan Agreement, under which we issued Hercules a
$1,350 convertible note agreement and used the proceeds of this loan to pay
down the revolving line of credit by the same amount. As of April 7, 2010,
the outstanding balance on our revolving line of credit was $7,559.
As
a result of the Hercules Restructuring, Hercules has the right and will
continue to have the right to nominate three directors to our Board of
Directors until (i) we repay our term loans to Hercules 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 of HTIs
appointed directors would not stand for re-election at the next annual meeting.
None of HTIs appointed directors would stand for re-election at the next
annual meeting of our stockholders following (i) our payment in full of
all obligations under our Amended Loan Agreement and (ii) HTI owning less
than 10% of our issued and outstanding common stock. In certain circumstances, HTI has the right
to nominate a fourth director, and HTI also has the right to have at least one
of its director representatives sit on the Nominating and Governance Committee
and the Compensation Committee of the Board of
32
Table of Contents
Directors.
On
February 10, 2010, Hercules sent us a letter notifying us of an event of
default because our borrowings under the revolving credit facility exceeded our
borrowing base as of February 5, 2010 and charging 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.
Hercules may elect to have default rate interest paid in cash, in kind or in
shares of our common stock.
Hercules
has not chosen to accelerate our obligations under the Amended Loan Agreement,
but has expressly not waived any events of default or any of its remedies under
Amended Loan Agreement. 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.
On
April 6, 2010, our Board of Directors elected Melvin L. Keating to the
Board of Directors. Mr. Keating, an independent director, has been
appointed to the Audit Committee and now serves as its chairman.
Past Acquisitions
We
continue to transition our business model from being principally a reseller of
third party and proprietary hardware to being a fully integrated software and
service solutions business. Acquiring businesses that allow us to improve and
expand our software, consulting and other professional services offerings had
been a central element of our strategic plan. Although we may complete
strategic acquisitions in the future, we anticipate the focus of our business
in the near term will be on our internal operations and organic growth.
In May 2008, we
acquired substantially all of the assets of Delta Health Systems, Inc., or
Delta. The assets acquired related to Deltas business of providing strategic
cost management consulting services and web-based management data collection
and work-flow analytics to the healthcare industry. This acquisition has
enabled us to combine our existing solutions with higher margin professional
services. We believe the Delta acquisition has allowed us to reach further into
our healthcare customer organizations to bring critical workflow and human
resource utilization efficiencies that support our mobile solutions. During 2008
and 2009, we began to realize economies of scale through selling combined
solutions to mutual clients of Delta.
In May 2008, we
acquired substantially all of the assets of Aware Interweave, Inc., or
Aware. The assets acquired related to Awares business of providing mobile
software solutions to a variety of customers including federal government
agencies, fortune 1000 companies and healthcare and life science organizations.
The acquisition was part of our strategic plan to add intellectual property and
higher-margin services and application software licensing, while allowing us to
provide our customers with access to new solutions. The acquisition of Aware
has allowed us the opportunity to enable users of SAP
®
software and applications to significantly improve
their visibility, response time, and revenues by providing access to
business-critical applications without being tied to the office or desktop
computer. Through our acquisition of Aware, we have gained a mobile product
solution suite that it developed, the Mobile Device Controller series, which is
tailored specifically for users of SAP
®
software, and
also adaptable to other back-end systems.
In September 2007, we
acquired certain assets and assumed certain liabilities of Healthcare
Informatics Associates, Inc., or HIA. The acquired assets included the
rights to existing relationships with customers, vendors and partners. All of
the employees of HIA were transitioned to us. The employees are a team of
senior healthcare informatics consultants who are also certified healthcare
practitioners, and include registered nurses, pharmacists, ancillary
clinicians, physician assistants, revenue cycle personnel, administrative
systems personnel, technical interface/report writing personnel, clinical
transformation specialists, engineers specializing in return on investment,
benefits realization, and work redesign and certified project managers. The
acquisition of HIA has allowed us to expand the products and services we offer
to hospitals and other healthcare providers.
For more information with
respect to these transactions, see Notes N and O to our audited
consolidated financial statements included in Item 8 of this report.
Characteristics of our net revenues and expenses
We generate our net revenues
through the resale of wireless and mobile hardware and systems, including
mobile workstations, handheld and wearable computers, peripherals, and related
products under which the revenue is recognized.
33
Table of Contents
Sales revenue on product is recognized when
both the title and risk of loss transfer to the customer, generally upon
shipment. We also generate revenues from consulting and professional services
on either a fixed fee or time and expense basis. Net revenues from our
consulting and professional services are recognized on a time and expense basis
at the time the service is delivered and the expenses are incurred. Net revenues
from the sale of our proprietary learning technologies and any professional
consulting or engineering services provided on a fixed-fee basis are recognized
according to a proportionate method of accounting and is recognized ratably
over the contract period based upon actual project hours as compared to
budgeted project hours.
We
also generate net revenues from the sale of extended warranties on wireless and
mobile hardware and systems, including mobile workstations, computers,
peripherals, and related products. We sell original equipment manufacturers
component warranties and warranty programs sponsored by other third-parties and
recognize the revenue on a net basis upon execution of the warranty agreement.
As we have been transitioning our business away from the sale of hardware and
related warranties, we are not selling new extended warranty programs except
for those serviced by third-parties and we have taken steps to confirm with our
customers that third-parties are the obligors under their warranties. We record
the sales of extended warranties as net revenue immediately upon completion of
the sale transaction.
Payments received in advance
of services performed are recorded as deferred revenue. Certain contract
payment terms may result in customer billing occurring at a pace slower than
revenue recognition. The resulting revenue recognized in excess of amounts
billed and project cost is included in unbilled revenue on our consolidated
balance sheet.
Cost of revenues consists of
all expenses that are directly attributable to the costs associated with the
purchase, for resale, of wireless and mobile hardware and systems, including
computers, peripherals, and related products. Fluctuations in our gross margin
may occur due to changes in our ability to obtain discounts on product sales or
our ability to negotiate higher margins on sales contracts with large
customers. Cost of sales also consists of the direct costs associated with
those employees or sub-contractors that perform our professional consulting services
on behalf of our customers.
Selling expenses primarily
consist of the salaries, benefits, travel and other costs of our regional and
national account sales representatives, sales management and business
development expenses. General and administrative expenses primarily consist of
the costs attributable to the support of our operations, such as: costs related
to information systems, salaries, expenses and office space costs for executive
management, inside sales and customer support, warehousing, technical support,
financial accounting, purchasing, administrative and human resources personnel,
insurance, recruiting fees, legal, accounting and other professional services.
Critical Accounting Estimates and Policies
Our consolidated financial statements are
prepared in conformity with accounting principles generally accepted in the
United States of America (GAAP), which requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of net revenues and
expenses during the reporting periods. Critical accounting policies are those
that require the application of managements most difficult, subjective, or
complex judgments, often because of the need to make estimates about the effect
of matters that are inherently uncertain and that may change in subsequent
periods. In preparing the consolidated financial statements, management has
made estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported amounts
of net revenues and expenses during the reporting periods. In preparing the
financial statements, management has utilized available information, including
our past history, industry standards and the current economic environment,
among other factors, in forming its estimates and judgments, giving due
consideration to materiality. Actual results may differ from these estimates.
In addition, other companies may utilize different estimates, which may impact
the comparability of our results of operations to those of companies in similar
businesses. We believe that of our significant accounting policies, the
following may involve a higher degree of judgment and estimation.
Accounts receivable
We grant credit, generally
without collateral, to our customers, which are primarily in the healthcare and
commercial markets. Consequently, we are subject to potential customer credit
risk related to changes in economic conditions within those markets. However,
we believe that our billing and collection policies are adequate to minimize
the potential credit risk.
We have a policy of
reserving for uncollectible accounts based on our best estimate of the amount
of probable credit losses in our existing accounts receivable. We periodically
review our accounts receivable to determine whether an allowance is necessary
based on an analysis of past due accounts and other factors that may indicate
that the realization of an account may be in doubt including historical
experience and current economic and market conditions. Account balances deemed
to be
34
Table of Contents
uncollectible are charged to the allowance
after all means of collection have been exhausted and the potential for
recovery is considered remote.
Inventory
Inventory is stated at the
lower of cost or market. Cost is determined using the first in, first out method.
We periodically review our
inventories and make provisions as necessary for estimated obsolete and
slow-moving goods. We mark down inventory in an amount equal to the difference
between cost of inventory and the estimated market value based on assumptions
about future demands, selling prices and market conditions. The creation of
such provisions results in a write-down of inventory to net realizable value
and a charge to cost of revenues.
Impairment of long-lived assets
We assess the potential impairment
of long-lived assets whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. An assets value is impaired if
managements estimate of the aggregate future cash flows, undiscounted and
without interest charges, to be generated by the asset are less than the
carrying value of the asset. When estimating future cash flows, we consider
factors such as expected future operating income and historical trends, as well
as the effects of demand and competition. To the extent impairment has
occurred, the loss is measured as the excess of the carrying amount of the
asset over the estimated fair value of the asset. Such estimates require the
use of judgment and numerous subjective assumptions, which, if actual experience
varies, could result in material differences in the requirements for impairment
charges.
Intangible assets
The costs of successful
registrations for patents are amortized over the estimated useful lives of the
assets, which is generally sixteen years, using the straight-line method. The
costs of unsuccessful registrations are charged to expense. Acquired technology
is recorded at its estimated fair value at the date of acquisition and
amortized over the estimated useful lives of the assets, which averages four
years, using the straight-line method. Developed technology is also amortized
using the straight-line method, generally over five years. License fees are
amortized over the license period using the straight-line method. Customer
lists are amortized over a period of six to ten years.
Revenue recognition
Net revenues are generated
through product sales, warranty and maintenance agreements, professional
consulting, programming and engineering services, long-term support services,
and educational learning programs. Net revenues from product sales are
recognized when both the title and risk of loss transfer to the customer,
generally upon shipment. We generate net revenues from the sale of extended
warranties on wireless and mobile hardware and systems, including mobile
workstations, computers, peripherals, and related products. Revenue from the
sale of component extended warranties is recognized as net revenue upon
execution of the warranty agreement. We do not bear associated warranty risk
because it is contracted with a third parties, the primary obligors, to fully
assume all risks and obligations.
We also generate revenue
from consulting and other professional services on either a fee-for service or
fixed fee basis. Revenue from consulting and other professional services that
is contracted as fee-for-service is recognized in the period in which the
services are performed. Direct costs for travel and accommodations are
reimbursable in accordance with the contract terms and are recognized as net
revenue in the period the related expense is incurred. Revenue from the sale of
proprietary learning technologies and those consulting and other professional
services provided on a fixed-fee basis is recognized according to a
proportionate method of revenue recognition and is recognized ratably over the
contract period based upon actual project hours completed compared to total
budgeted project hours.
We record amounts billed to
our customers for shipping and handling fees as revenue. All amounts billed in
a sale transaction related to shipping and handling represent revenues earned
for the goods provided and requires such amounts are classified as revenue.
Shipping and handling costs are recorded in general and administrative expenses
in the consolidated statement of operations.
Income taxes
We account for income taxes
using the asset and liability method. Deferred tax assets and liabilities are
determined based on the differences between the financial reporting bases and
the tax bases of existing assets and liabilities, and are measured at the
prevailing enacted tax rates that will be in effect when these differences are
settled or realized. Deferred tax assets are reduced by a valuation allowance
if it is more likely than not that some portion or all of the deferred tax
asset will not be realized.
35
Table of Contents
We have developed a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in
a tax return. As a result, we determined that there were no material
liabilities for tax benefits at December 31, 2009 or 2008. Any future
interest accrued relating to unrecognized tax benefits will be included in
interest expense. In the event that we must accrue for any penalties, they will
be included as an operating expense.
While we believe that our tax positions are fully
supportable, there may certain positions that could be challenged and we may
not prevail. In these instances, we look to establish reserves. If we determine
that a tax position is more likely than not of being sustained upon audit,
based solely on the technical merits of the position, we recognize the benefit.
We measure the benefit by determining the amount that is greater than 50%
likely of being realized upon settlement. We presume that all tax positions
will be examined by a taxing authority with full knowledge of all relevant information.
We regularly monitors our tax positions, tax assets and tax liabilities. We
reevaluate the technical merits of our tax positions and recognize an uncertain
tax benefit or derecognize a previously recorded tax benefit when (i) there
is a completion of a tax audit, (ii) there is a change in applicable tax
law including a tax case or legislative guidance, or (iii) there is an
expiration of the statute of limitations. Significant judgment is required in
accounting for tax reserves.
Stock-based compensation
We
measure all employee stock-based compensation awards using a fair value method
and record such expense in our consolidated financial statements. Such expense
is amortized on a straight line basis over the requisite service period of the
award.
We estimate the grant date fair value of stock options
using the Black-Scholes option-pricing model which requires the input of highly
subjective assumptions. These assumptions include estimating the expected term
of the award and the estimated volatility of our stock price over the expected
term. Changes in these assumptions and in the estimated forfeitures of stock
option awards can materially affect the amount of stock-based compensation
recognized in our consolidated statements of operations.
Results of Operations
Results of operations
expressed as a percentage of net revenues were as follows:
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Net
revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost
of revenues
|
|
77.4
|
%
|
73.6
|
%
|
73.7
|
%
|
Gross
profit
|
|
22.6
|
%
|
26.4
|
%
|
26.3
|
%
|
Selling,
general and adminstrative expenses
|
|
32.1
|
%
|
32.1
|
%
|
32.0
|
%
|
Operating
loss
|
|
(9.5
|
)%
|
(5.7
|
)%
|
(5.7
|
)%
|
Interest
expense
|
|
(6.7
|
)%
|
(2.7
|
)%
|
(1.1
|
)%
|
Interest
income
|
|
0.0
|
%
|
0.1
|
%
|
0.6
|
%
|
Loss
on extinguishment of debt
|
|
(8.3
|
)%
|
(1.4
|
)%
|
|
|
Goodwill
impairment
|
|
(0.2
|
)%
|
|
|
|
|
Fair
value adjustment on derivative liabilities
|
|
(0.3
|
)%
|
|
|
|
|
Loss
before income tax (expense) benefit
|
|
(25
|
)%
|
(9.7
|
)%
|
(6.2
|
)%
|
Income
tax (expense) benefit
|
|
(0.7
|
)%
|
(3.4
|
)%
|
2.2
|
%
|
Net
loss
|
|
(25.7
|
)%
|
(13.1
|
)%
|
(4.0
|
)%
|
Net revenues
Net revenues by operating segment for the
years ended December 31, 2009 and 2008 were as follows:
36
Table of Contents
|
|
2009
|
|
2008
|
|
Amount of
Change
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
27,704
|
|
$
|
40,028
|
|
$
|
(12,324
|
)
|
-31
|
%
|
Professional
Services
|
|
20,027
|
|
22,473
|
|
(2,446
|
)
|
-11
|
%
|
Managed
Services
|
|
2,622
|
|
1,903
|
|
719
|
|
38
|
%
|
Total
healthcare
|
|
50,353
|
|
64,404
|
|
(14,051
|
)
|
-22
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
28,978
|
|
22,598
|
|
6,380
|
|
28
|
%
|
Professional
Services
|
|
5,770
|
|
7,560
|
|
(1,790
|
)
|
-24
|
%
|
Managed
Services
|
|
1,815
|
|
6,154
|
|
(4,339
|
)
|
-71
|
%
|
Total
commercial
|
|
36,563
|
|
36,312
|
|
251
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$
|
86,916
|
|
$
|
100,716
|
|
$
|
(13,800
|
)
|
-14
|
%
|
Net revenues for 2009 of $86,916 decreased $13,800 or
13.7% as compared to 2008. The decrease in net revenues was the result of
recording revenues and cost of revenues associated with extended warranties on
a net basis for 2009 as compared to recording revenues and cost of revenues on
a gross basis for 2008 resulting from changes in the mix of warranties we sold
in 2009 and notifying our customers that third parties are the primary obligors
under their warranties as well as lower than expected sales as a result of our
customers choosing to defer projects during the current economic downturn. We
have noticed that starting with the fourth quarter, and continuing into early
2010 customers have begun pursuing projects that had been earlier deferred.
The
reimbursable expense revenue included in our professional services revenue
totaled $2,623 and $2,412 for the years ended December 31, 2009 and 2008.
Cost of revenues
Cost of revenues by operating segment for the
years ended December 31, 2009 and 2008 were as follows:
37
Table of Contents
|
|
2009
|
|
2008
|
|
Amount of
Change
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
21,569
|
|
$
|
29,409
|
|
$
|
(7,840
|
)
|
-27
|
%
|
Professional
Services
|
|
15,056
|
|
14,368
|
|
688
|
|
5
|
%
|
Managed
Services
|
|
(47
|
)
|
587
|
|
(634
|
)
|
-108
|
%
|
Total
healthcare
|
|
36,578
|
|
44,364
|
|
(7,786
|
)
|
-18
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
25,363
|
|
19,809
|
|
5,554
|
|
28
|
%
|
Professional
Services
|
|
4,782
|
|
5,029
|
|
(247
|
)
|
-5
|
%
|
Managed
Services
|
|
550
|
|
4,974
|
|
(4,424
|
)
|
-89
|
%
|
Total
commercial
|
|
30,695
|
|
29,812
|
|
883
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
$
|
67,273
|
|
$
|
74,176
|
|
$
|
(6,903
|
)
|
-9
|
%
|
Cost of revenues in 2009
totaled $67,273, a decrease of $6,903 or 9.3% in 2009 as compared to $74,176
for 2008.
The
decrease in our cost of revenues was the result of recording revenues and cost
of revenues associated with extended warranties on a net basis for 2009 as
compared to recording revenues and cost of revenues on a gross basis for 2008
resulting from changes in the mix of warranties we sold in 2009 as well as
notifying our customers that third parties are the primary obligors under their
warranties.
The reimbursable expenses included in our
professional services cost of revenue totaled $2,623 and $2,412 for the years
ended December 31, 2009 and 2008, respectively.
Gross profit
Gross profit by operating
segment for the years ended December 31, 2009 and 2008 was as follows:
38
Table of
Contents
|
|
2009
|
|
2008
|
|
Amount of
Change
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
6,134
|
|
$
|
10,619
|
|
$
|
(4,485
|
)
|
-42
|
%
|
Professional
Services
|
|
4,971
|
|
8,105
|
|
(3,134
|
)
|
-39
|
%
|
Managed
Services
|
|
2,670
|
|
1,316
|
|
1,354
|
|
103
|
%
|
Total
healthcare
|
|
13,775
|
|
20,040
|
|
(6,265
|
)
|
-31
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
3,615
|
|
2,789
|
|
826
|
|
30
|
%
|
Professional
Services
|
|
988
|
|
2,530
|
|
(1,542
|
)
|
-61
|
%
|
Managed
Services
|
|
1,265
|
|
1,181
|
|
84
|
|
7
|
%
|
Total
commercial
|
|
5,868
|
|
6,500
|
|
(632
|
)
|
-10
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
gross profit
|
|
$
|
19,643
|
|
$
|
26,540
|
|
$
|
(6,897
|
)
|
-26
|
%
|
Gross profit percentage by
operating segment for the years ended December 31, 2009 and 2008 was as
follows:
|
|
2009
|
|
2008
|
|
Amount of
Change
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
Infrastructure
|
|
22
|
%
|
27
|
%
|
-5
|
%
|
Professional
Services
|
|
25
|
%
|
36
|
%
|
-11
|
%
|
Managed
Services
|
|
102
|
%
|
69
|
%
|
33
|
%
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
Infrastructure
|
|
12
|
%
|
12
|
%
|
0
|
%
|
Professional
Services
|
|
17
|
%
|
33
|
%
|
-16
|
%
|
Managed
Services
|
|
70
|
%
|
19
|
%
|
51
|
%
|
|
|
|
|
|
|
|
|
Total
gross profit percentage
|
|
23
|
%
|
26
|
%
|
-3
|
%
|
Our overall gross profit
decreased by $6,897 and our gross profit percentage decreased by 3%.
The decrease in our gross profit is the
result of lower than expected sales of our more profitable professional and
consulting services related to our mobile solutions and software implementation
services.
We continue to experience downward pressure on our gross margin from
the sale of infrastructure and third-party hardware. Consistent with our
overall strategic plan, we continue to migrate the business toward an overall
greater mix of consulting and other professional services.
Selling, general and administrative
expenses
Our selling, general and
administrative expenses were $27,859 for the year ended December 31, 2009,
compared with $32,243 for the year ended December 31, 2008, a decrease of
$4,384 or 13.6%. Selling expenses were $11,057 for the year ended December 31,
2009, compared with $11,460 for the year ended December 31, 2008, a
decrease of $403 or 3.5%. The decrease in our selling expenses for 2009
relates to lower salary and travel
related costs resulting from staffing reductions and other cost control
measures.
General and administrative expenses were $16,802 for the year ended December 31,
2009, compared with $20,783 for the year ended December 31, 2008, a
decrease of $3,981 or 19.2%. The
decrease in our general and administrative expenses
for the comparable period was primarily attributable to reductions in
39
Table of Contents
staff and associated benefits and travel expenses, lower purchases of
demonstration and evaluation equipment, lower marketing expenses, and lower
non-cash compensation costs.
Interest expense
Our interest expense, which
arises in connection with our credit line, term loans, and certain transaction
related expenses was $5,855 for the year ended December 31, 2009, compared
to $2,735 for the year ended December 31, 2008, an increase of $3,120 or
114.08%. T
he increase
in interest expense is a result of higher related average amounts outstanding
under our revolving credit and term loan facilities and higher rates charged on
these facilities than the rates charged during the comparable periods in 2008.
In addition to higher base rates, interest on our 2009 borrowings was charged
at a higher rate as a result of certain covenant violations during 2009 that were
not in effect in 2008.
Borrowings under the revolving credit facility bore
interest at an annual rate equal to 11.25% through February 14, 2009, then
increased to 12.25% through May 15, 2009, then increased to 13.25% through
May 31, 2009, then increased to 14.25% through September 30, 2009
plus 1.50% interest paid in kind beginning on May 31, 2009 through September 30,
2009. Borrowings under the term loan facilities bore interest at an annual rate
equal to 1.75% interest paid in kind plus 13.75%, and then increased to 3.75%
interest paid in kind plus 15.75%. In addition, we paid default interest
penalties of 3.0% from February 1, 2009 though May 31, 2009.
As a result of the Hercules Restructuring that closed
on November 20, 2009, which was subsequently amended in February and April 2010,
we expect our incremental borrowing rate on all outstanding and future
borrowings from Hercules, our senior lender, will increase. See Liquidity and
Capital Resources below.
Loss on extinguishment of debt
We incurred a loss on
extinguishment of debt of $7,197 for the year ended December 31, 2009 compared
with a loss on the extinguishment of debt of $1,451 in 2008. The loss for 2009
was related to the
Hercules
Restructuring
that closed in the fourth quarter of 2009 and an
amendment to our credit arrangement in the second quarter of 2009. The 2008
charge was related to an amendment to our credit agreement that we entered into
in the fourth quarter of 2008.
Depreciation and amortization
Our depreciation and
amortization expense decreased to $1,883 for the year ended December 31,
2009 from $2,533 for the year ended December 31, 2008, a decrease of $650
or 25.7%,
partially
the result of demonstration units deployed being expensed when shipped to the
field during 2009, offset by amortization expense related to our 2008
acquisitions of intangible assets from Delta and Aware.
Net loss
Our net loss was $22,388 for
the year ended December 31, 2009 compared with a net loss of $13,184 for
the year ended December 31, 2008, an increase of $9,204 or 69.8% which is
primarily due to a substantial increase
in our interest expense and related non-recurring and non-cash borrowing and
restructuring costs related to the Hercules Restructuring, reduced sales and,
during the first six months of 2009, lower gross margins due to the economic
slowdown.
As a result of Hercules Restructuring,
we underwent a change of ownership as defined by the Internal Revenue Code (Section 382).
Section 382 imposes limitations on a corporations ability to utilize
its net operating losses (NOLs) if it experiences an ownership change. As a
result, the Companys net operating losses have been limited.
As of December 31,
2009, we had federal NOLs of approximately $31,000 that would be available for
use. As a result of the limitations under Section 382, the Company will
able to utilize approximately $156 per year over the next 20 years to offset
future taxable income. We have recorded a full valuation allowance related to
the net operating loss carryforwards and other temporary items at December 31,
2009 and 2008 as we determined it is more likely than not that we will not be
able to use the assets to reduce future tax liabilities. If not used, the NOLs
will expire beginning in the year 2024. Our state NOLs which are also limited
under Section 382, will also be subject to expiration in varying years
starting in 2013 through 2027.
Year ended December 31, 2008
Compared with the Year ended December 31, 2007
Net revenues
Net revenues by operating
segment for the years ended December 31, 2008 and 2007 were as follows:
40
Table of Contents
|
|
2008
|
|
2007
|
|
Amount of
Change
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
40,028
|
|
$
|
40,477
|
|
$
|
(449
|
)
|
-1
|
%
|
Professional
Services
|
|
22,473
|
|
4,572
|
|
17,901
|
|
392
|
%
|
Managed
Services
|
|
1,903
|
|
2,447
|
|
(544
|
)
|
-22
|
%
|
Total
healthcare
|
|
64,404
|
|
47,496
|
|
16,908
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
22,598
|
|
18,854
|
|
3,744
|
|
20
|
%
|
Professional
Services
|
|
7,560
|
|
7,637
|
|
(77
|
)
|
-1
|
%
|
Managed
Services
|
|
6,154
|
|
4,787
|
|
1,367
|
|
29
|
%
|
Total
commercial
|
|
36,312
|
|
31,278
|
|
5,034
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$
|
100,716
|
|
$
|
78,774
|
|
$
|
21,942
|
|
28
|
%
|
The increase in net revenues
was due primarily to the expansion of our consulting and other professional
services across the organization, including revenue contributed as a result of
the acquisitions of the businesses of Healthcare Informatics Associates, Inc.
(HIA), Delta and Aware, and an increase in infrastructure and hardware related
revenue. The net revenues associated with HIA, Delta and Aware totaled $20,395
for the year ended December 31, 2008. The net revenues associated with HIA
totaled $3,217 from the date of acquisition through December 31, 2007. The
reimbursable expense revenues included in our professional services revenue
totaled $2,412 and $332 for the years ended December 31, 2008 and 2007.
Cost of revenues
Cost of revenues by
operating segment for the years ended December 31, 2008 and 2007 were as
follows:
|
|
2008
|
|
2007
|
|
Amount of
Change
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
29,409
|
|
$
|
28,410
|
|
$
|
999
|
|
4
|
%
|
Professional
Services
|
|
14,368
|
|
4,199
|
|
10,169
|
|
242
|
%
|
Managed
Services
|
|
587
|
|
714
|
|
(127
|
)
|
-18
|
%
|
Total
healthcare
|
|
44,364
|
|
33,323
|
|
11,041
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
19,809
|
|
16,507
|
|
3,302
|
|
20
|
%
|
Professional
Services
|
|
5,029
|
|
4,926
|
|
103
|
|
2
|
%
|
Managed
Services
|
|
4,974
|
|
3,293
|
|
1,681
|
|
51
|
%
|
Total
commercial
|
|
29,812
|
|
24,726
|
|
5,086
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
$
|
74,176
|
|
$
|
58,049
|
|
$
|
16,127
|
|
28
|
%
|
The increase in our cost of
revenues was the result of costs incurred as a result of higher sales of
wireless infrastructure, mobile point-of-care workstations and our expanded
consulting and other professional services. The cost of revenues associated
with HIA, Delta and Aware totaled $12,290 for the year ended December 31,
2008. The cost of revenues associated with HIA totaled $1,978 from the date of
acquisition through December 31, 2007. The reimbursable expenses
41
Table of Contents
included in our professional services cost of
revenue totaled $2,412 and $332 for the years ended December 31, 2008 and
2007.
Gross profit
Gross profit by operating
segment for the years ended December 31, 2008 and 2007 was as follows:
|
|
2008
|
|
2007
|
|
Amount of
Change
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
10,619
|
|
$
|
12,067
|
|
$
|
(1,448
|
)
|
-12
|
%
|
Professional
Services
|
|
8,105
|
|
373
|
|
7,732
|
|
2073
|
%
|
Managed
Services
|
|
1,316
|
|
1,733
|
|
(417
|
)
|
-24
|
%
|
Total
healthcare
|
|
20,040
|
|
14,173
|
|
5,867
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
2,789
|
|
2,347
|
|
442
|
|
19
|
%
|
Professional
Services
|
|
2,530
|
|
2,711
|
|
(181
|
)
|
-7
|
%
|
Managed
Services
|
|
1,181
|
|
1,495
|
|
(314
|
)
|
-21
|
%
|
Total
commercial
|
|
6,500
|
|
6,553
|
|
(53
|
)
|
-1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
gross profit
|
|
$
|
26,540
|
|
$
|
20,725
|
|
$
|
5,815
|
|
28
|
%
|
Gross profit percentage by
operating segment for the years ended December 31, 2008 and 2007 was as
follows:
|
|
2008
|
|
2007
|
|
Amount of
Change
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
Infrastructure
|
|
27
|
%
|
30
|
%
|
-3
|
%
|
Professional
Services
|
|
36
|
%
|
8
|
%
|
28
|
%
|
Managed
Services
|
|
69
|
%
|
71
|
%
|
-2
|
%
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
Infrastructure
|
|
12
|
%
|
12
|
%
|
0
|
%
|
Professional
Services
|
|
33
|
%
|
35
|
%
|
-2
|
%
|
Managed
Services
|
|
19
|
%
|
31
|
%
|
-12
|
%
|
|
|
|
|
|
|
|
|
Total
gross profit percentage
|
|
26
|
%
|
26
|
%
|
|
|
Our overall gross profit
percentage remained unchanged. The change in the makeup of our gross profit
percentage is a result of increased sales of our more profitable consulting and
other professional services related to our mobile solutions and software
implementation services, offset by sales of lower margin infrastructure and
third-party hardware. We continue
42
Table of Contents
to experience downward pressure on our gross
margin from the sale of infrastructure and third-party hardware. Consistent
with our overall strategic plan, we are migrating the business toward an
overall greater mix of consulting and other professional services.
Selling, general and administrative
expenses
Our selling, general and
administrative expenses were $32,243 for the year ended December 31, 2008,
compared with $25,211 for the year ended December 31, 2007, an increase of
$7,032 or 27.9%. Selling expenses were $11,460 for the year ended December 31,
2008, compared with $10,215 for the year ended December 31, 2007, an
increase of $1,245 or 12.2%. The increase in our selling expenses for the
comparable periods was primarily attributable to an increase in wages related
to the expanded sales staff hired during 2007, and sales support related costs
attributable to HIA during the year ended December 31, 2008. General and
administrative expenses were $20,783 for the year ended December 31, 2008,
compared with $14,996 for the year ended December 31, 2007, an increase of
$5,787 or 38.6%. The increase in our general and administrative expenses for
the comparable periods was primarily attributable to an increase in salary
expenses related to the addition of key members of our management and
professional services staff hired during 2007, which includes staff from
acquisitions; an increase in our marketing campaigns; and an increase in
outside services of non-capitalized costs associated with product development.
During the year ended December 31, 2008, we also incurred a loss of $1,340
in connection with the write-down and disposal of property, equipment and
certain intangible assets. Additionally, we wrote off $200 of previously
capitalized costs incurred in connection with an offering of common stock since
we have chosen not to complete the offering.
Interest expense and interest income
Our interest expense, which
arose in connection with our credit line and term loan, was $2,735 for the year
ended December 31, 2008, compared to approximately $873 for the year ended
December 31, 2007, an increase of $1,862 or 213.3%. The increase in
interest expense is a result of higher interest costs and greater amounts
outstanding under our asset-based line of credit facility, term loans and notes
payable issued in connection with our acquisitions.
Our interest income was $140
for the year ended December 31, 2008, compared to $458 for the year ended December 31,
2007, a decrease of $318 or 69.4%. The decrease in interest income is primarily
the result of lower average cash and cash equivalents balance during the year
ended December 31, 2008 when compared to the same period of 2007.
Depreciation and amortization
Our depreciation and
amortization expense increased to $2,533 for the year ended December 31,
2008 from $1,667 for the year ended December 31, 2007, an increase of $866
or 51.9% as the result of a greater number of demonstration units deployed to
our expanded sales force and amortization expense related to our acquisitions
of intangible assets from AMTSystems, HIA, Delta and Aware.
Net loss
Our net loss was $13,184 for
the year ended December 31, 2008 compared with a net loss of $3,189 for
the year ended December 31, 2007, an increase of $9,995 or 313.4%. Our net
loss increased primarily due to additional overhead costs, including
recruiting, salary and commissions expenses associated with hiring experienced
sales, administrative and operations personnel to support our organizational
growth, write-down and disposal of property, equipment and certain intangible
assets, elimination of the tax benefit and the costs associated with our growth
through acquisitions. In addition, the increase in our net loss is due in part
to a nonrecurring extinguishment of debt charge in 2008 of $1,451 related to
amending our loan and security agreement with Hercules during the fourth
quarter.
As of December 31,
2008, we had federal NOLs of approximately $11,245 available to offset future
taxable income. Beginning with the fourth quarter of 2008, we recorded a full
valuation allowance related to the net operating loss carryforwards and other
temporary items as we determined it is more likely than not that we will not be
able to use the assets to reduce future tax liabilities. If not used, the NOLs
will expire beginning in the year 2024. Our state NOLs will also be subject to
expiration in varying years starting in 2013 through 2027.
Liquidity and Capital Resources
At December 31, 2009, we had cash and cash
equivalents of $1,018, compared to $3,037 at December 31, 2008. Pursuant
to a covenant in the Amended Loan Agreement with Hercules, we are required to
maintain a minimum cash balance of $1,000. We have used, and plan to use, our
unrestricted cash for general corporate purposes, including working capital. We
have funded our operating losses primarily through the private sale of equity
securities and through current and long term
43
Table of Contents
debt and working capital. At December 31, 2009, our total
liabilities were $38,486 and were comprised mostly of term debt, borrowings
outstanding under our credit line, notes due to sellers related to prior
acquisitions, and outstanding accounts payable. Net cash used in operating
activities for the year ended December 31, 2009 was $1,416
,
primarily the result of operating net losses and financing
related fees and expenses. Net cash used in investing activities was $446 for
the year ended December 31, 2009, primarily used to purchase equipment and
software.
Net cash used in financing activities
was $157 for the year ended December 31, 2009, primarily due to costs
associated with the Hercules Restructuring,and increased borrowings under our
Amended Loan Agreement with Hercules in the second half of 2009, net of debt
repayments.
Our
primary current and contingent cash obligations arise under our term loan and
revolving credit facilities under the Amended Loan Agreement with Hercules, our
earn out agreements related to our acquisitions of substantially all of the
assets of HIA and Delta, and our note payable to HIA. In 2009, we were in
violation of certain of our financial covenants with respect to our loan and
security agreement with Hercules that was subsequently restructured on November 20,
2009. As a result of those covenant
violations, we were prohibited from making payments on our earn out obligations
related to our acquisitions of the assets of HIA and Delta. As a condition to
and in connection with the Hercules Restructuring, InfoLogix Inc.s
wholly-owned subsidiary, InfoLogix Systems Corporation (Systems) entered into a
letter agreement (the Letter Agreement) with Delta whereby the parties agreed
to restructure the outstanding obligations under the Earn Out Agreement dated May 2,
2008 (Delta Earn Out Agreement). Under the Delta Earn Out Agreement, Delta had
earned $430 for the earn out period ended May 2, 2009. Under the Letter
Agreement, in lieu of the $430 payment, commencing as of September 1,
2009, Delta is participating in a commission plan, under which Systems pays
Delta a monthly commission equal to 11.5% of collected revenue from Deltas
business that we generate, if any, during the applicable month until the
balance is paid in full. Delta has released Systems from all obligations under
the Delta Earn Out Agreement relating to the period ended May 2, 2009. All
other terms and conditions of the Delta Earn Out Agreement, including the
rights and obligations of the parties with respect to the earn out period
ending May 2, 2010, if any, remain in full force and effect. Commissions
earned by Delta in 2009 equaled $132.
Additionally,
we are not permitted under our Amended Loan Agreement to satisfy our
obligations on our earn out agreement with HIA that would otherwise be due and
payable. We also have a seller note to HIA that is payable on September 30,
2010. We are in discussions with HIA about the earn out payment and the seller
note.
On
February 19, 2010, we entered into Amendment No. 1 (Amendment 1) to
the Amended Loan Agreement with Hercules, which allows us to request up to
$3,000 in borrowings for use in purchasing equipment (Equipment Loan). We may borrow, in minimum increments of $250,
under the Equipment Loan subject to valid, verified purchase orders acceptable
to Hercules from suppliers approved by Hercules in its sole discretion.
On March 25, 2010,
Hercules advanced to us an additional $1,350, initially applied to the
outstanding balance on our revolving line of credit facility. The advance
increased our outstanding indebtedness on the revolving line of credit to
$8,909, and was provided as an extension above our eligible borrowing base as
defined in our loan agreements with Hercules. On April 6, 2010, we entered
into Amendment No. 2 to the Amended Loan Agreement, under which we issued
Hercules a $1,350 convertible note, and used the proceeds of this loan to pay
down the revolving line of credit by the same amount. We also entered into a
registration rights agreement whereby we agreed to register the shares underlying
the convertible note. As of April 7, the outstanding balance on our
revolving line of credit was $7,559.
Given the amount of our
current unrestricted cash and cash equivalents, short-term investments,
accounts receivable, and amounts available under our Equipment Loan, we believe
that we will have sufficient liquidity to meet our short-term operational
capital requirements.
We have, however, substantial liquidity requirements
related to the repayment of a seller note in the amount of approximately $4,252
that comes due on September 30, 2010 and our revolving line of credit
under our Amended Loan Agreement with Hercules, and to earn out payment
obligations from past acquisitions. We do not currently expect to generate
sufficient cash flow from operations to fund those obligations. We have
undertaken a series of actions to reduce costs and have explored potential
sources of financing and other strategic initiatives. Furthermore, on February 10,
2010, Hercules sent us a letter notifying us of an event of default because our
borrowings under the revolving credit facility exceeded our borrowing base as
of February 5, 2010 and charging us a default interest rate of an
additional 3% to the applicable regular interest rate for the period starting February 5,
2010. Hercules has not chosen to accelerate our obligations under the Amended
Loan Agreement, but has expressly not waived any events of default or any of
its remedies under Amended Loan Agreement. 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. Even without acceleration of our
obligations to Hercules and even with the restructuring of our debt with
Hercules on November 20, 2009, 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
44
Table of Contents
may
include additional financing and further restructuring of our debt.
Our initiatives include restructuring our
debt, and pursuing additional debt and equity capital, one or more strategic
transactions, and further cost control actions. Our continued operations are
dependent on our ability to implement those plans successfully. If we fail to
do so, we may not be able to continue as a going concern. For a discussion of
our plans with respect to these matters, see Going Concern.
Line of Credit and Term Loan
On May 1, 2008,
we
and our subsidiaries entered into a loan and security agreement with
Hercules (Loan and Security Agreement), which provided us with a revolving
credit facility and a term loan facility. The Loan and Security Agreement was
subsequently amended in November 2008 and May 2009, and we entered
into a forbearance agreement with respect to certain defaults under the Loan
and Security Agreement in July 2009, and we entered into five amendments
to the forbearance agreement over the course of August through October 2009.
In connection with the Hercules Restructuring that closed on November 20,
2009, we entered into the Amended Loan Agreement with Hercules, which amended
and restated the Loan and Security Agreement. The description of the Amended
Loan Agreement below reflects the terms in place since November 20, 2009,
as amended on February 19, 2010 (to provide the Equipment Loan) and on April 6,
2010 (to issue Term Loan C).
Under the Amended
Loan Agreement, our indebtedness to Hercules consists of three term loans
aggregating $11,850 and a revolving credit facility of $12,000, of which $7,559
is outstanding at December 31, 2009. The revolving credit facility expires
on May 1, 2011, but may be extended at our option for six months if there
is no existing event of default. Any advances under the revolving credit
facility bear interest initially at 12.0% per annum until the term loans, as
described below, are repaid in full, when the interest rate on outstanding
advances will be prime plus 4%. Borrowings under the revolving credit facility
are based on eligible accounts receivables, including an overadvance provision
of up to $500, which will be due 28 days after the overadvance is drawn.
Overadvances bear interest at 15% per annum.
The term loans are comprised of a $5,500 term loan due
on November 1, 2013 (Term Loan A), a $5,000 convertible term loan due on November 1,
2014 (Term Loan B), and a $1,350 convertible term loan due on April 1,
2013 (Term Loan C). Amortization on Term Loan A begins on December 1,
2010. Term Loan B may be converted into shares of our common stock at a price
of $1.8575 per share at Hercules option, or automatically if the 90-day value
weighted adjusted trading price of our common stock exceeds five times the
conversion price. We, however, have the right to pay a portion of the
conversion amount in cash plus applicable fees, interest and other charges
instead of shares of common stock if an automatic conversion occurs under
certain circumstances.
Term Loan C may be converted into shares of our
common stock at a price of $3.276 per share at Hercules option.
Term Loan A bears
interest at (i) 12% per annum for the first year, (ii) 18% per annum
for the next year, and (iii) 15% thereafter. All interest on Term Loan A
is payable in cash monthly commencing December 1, 2009. Term Loan B bears
interest at (i) 14.5% per annum for the first year, (ii) 20.5% per
annum for the next year, and (iii) 17.5% thereafter. 2.5% of the interest
on Term Loan B is to be paid in kind (PIK) compounded monthly. The balance of
the interest on Term Loan B is payable in cash monthly commencing December 1,
2009.
Hercules also has the option, in its sole discretion, to require any
and all interest on Term Loan B to be paid in cash, in kind or in shares of our
common stock, rather than 2.5% as PIK and the balance in cash. The number of
shares into which accrued interest will be converted will be determined based
on an adjusted 60-day average trading price of our common stock on the date of
Hercules election to convert the interest into shares.
In the event Term Loan A or Term Loan B
is prepaid, a prepayment charge on the principal prepaid of 5% if prepaid
during the first 12 months, 3% if prepaid during the next 12 months and 1% thereafter
will be due, provided that, if Term Loan A or Term Loan B is prepaid during the
first 12 months and there is no event of default, Hercules will waive the
prepayment charge on both term loans.
Term Loan C bears interest
at a rate of 8% per annum and, at the discretion of Hercules, is payable either
in cash or in kind. Interest is payable
monthly commencing on May 1, 2010. We may prepay Term Loan C without
incurring a prepayment penalty charge.
The Equipment Loan allows us
to request up to $3,000 in borrowings for use in purchasing equipment. We may
borrow, in minimum increments of $250, subject to valid, verified purchase
orders acceptable to Hercules from suppliers approved by Hercules in its sole
discretion. In connection with any advances, we will be charged a fee of 3% of
the purchase price identified in the relevant purchase orders. All customer
receipts related to sales of products financed by the Equipment Loan will be
placed in a lockbox account under the exclusive control of Hercules and customer
receipts will be applied first to payment of the Equipment Loan fee, second, to
the outstanding principal on the Equipment Loan and third, to all other
obligations existing under the Equipment Loan. After such application, the
excess in the lockbox account will be returned to us, unless an event of
default exists or could reasonably be expected to exist, in which case,
Hercules may apply the excess in the lockbox account to any obligation under
the Amended Loan Agreement. The Equipment Loan bears interest at a rate of 1.5%
per month and Hercules commitment terminates on April 30, 2010.
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The Amended Loan Agreement contains certain negative
covenants and other stipulations associated with the arrangement, including
covenants that restrict our ability to incur indebtedness, make investments,
make payments in respect of our capital stock, including dividends and repurchases
of common stock, sell or license its assets, and engage in acquisitions without
the prior satisfaction of certain conditions. Additionally, the Amended Loan
Agreement contains the following financial covenants (i) minimum
consolidated adjusted EBITDA measured on a three month rolling basis as of the
last day of each month of between $150 and $2,000, until December 31, 2011
and thereafter when $3,000 of consolidated adjusted EBITDA is required, as more
fully described in the table below, (ii) maximum leverage ratio measured
on a rolling twelve month basis as of the last day of a fiscal quarter
commencing June 30, 2010 of 6.0 to 1.0 decreasing to 1.5 to 1.0 by the
quarter ending June 30, 2012, (iii) minimum consolidated fixed charge
coverage ratio measured on a rolling twelve month basis as of the last day of a
fiscal quarter commencing June 30, 2010 of 0.75 to 1.0 increasing to 2.0
to 1.0 by the quarter ending June 30, 2012, and (iv) at least $1,000
in unrestricted cash at all times. Failure to maintain the financial covenants,
as well as certain other events, are events of default under the Amended Loan
Agreement. Upon an event of default under the Amended Loan Agreement, Hercules
may opt to accelerate and demand payment of all or any part of our obligations.
We were assessed a transaction fee of $450 in
connection with the Hercules Restructuring, which is payable in 12 equal
monthly installments beginning in April 2010. Our obligations under the
Amended Loan Agreement are secured by all of our personal property, including
all of our equity interests in our respective subsidiaries.
The amended monthly minimum
EBITDA test is follows:
Period Ending
|
|
Consolidated
Adjusted
EBITDA
|
|
December 31, 2009
|
|
$
|
1,000
|
|
January 30, 2010
|
|
150
|
|
February 28, 2010
|
|
250
|
|
March 31, 2010
|
|
1,000
|
|
April 30, 2010
|
|
200
|
|
May 31, 2010
|
|
300
|
|
June 30, 2010
|
|
1,250
|
|
July 31, 2010
|
|
1,000
|
|
August 31, 2010
|
|
1,000
|
|
September 30, 2010 to
November 30, 2010
|
|
1,250
|
|
December 31, 2010 to
May 31, 2011
|
|
1,500
|
|
June 30, 2011 to November 30,
2011
|
|
2,000
|
|
For each three month
measurement period ending during any fiscal month commencing with the month
ending on December 31, 2011 to and including the month ending
April 30, 2012
|
|
3,000
|
|
|
|
|
|
|
The first monthly maximum
leverage ratio test is as of June 30, 2010, at which time it may not
exceed 6.00 to 1.00.
As of December 31,
2009, we were in compliance with the financial covenants required under the
Amended Loan Agreement. However, beginning February 5, 2010 we were not in
compliance with our borrowing base requirement related to the revolver. As a
result of the covenant violation and because our total leverage ratio exceeds
3.00 to 1.00, we are prohibited from satisfying our earn-out obligation related
to our acquisition of the assets of HIA.
On February 10, 2010,
Hercules sent us a letter notifying us of an event of default because our
borrowings under the revolving credit facility exceed our borrowing base as of February 5,
2010 and charging us default interest 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. Under the terms of our Amended Loan Agreement
with Hercules, late fees are equal to 5% of the past due amount and default
rate interest is equal to the applicable regular interest rate plus 3%.
Hercules may elect to have default rate interest paid in cash, in kind or in
shares of our common stock. All default rate interest paid in kind will be
added to the outstanding principal amount on Term Loan B, notwithstanding on
which loan the interest has accrued. If
Hercules elects to have default rate interest paid in shares, the number of
shares into which such accrued default rate interest will be converted will be
determined based on the adjusted 60-day average trading price of our common
stock on the date of Hercules election to convert the interest into shares.
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Hercules
has not chosen to accelerate our obligations under the Amended Loan Agreement,
but has expressly not waived any events of default or any of its remedies under
the loan and security agreement. 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.
We
entered into the Earn out Agreement with HIA pursuant to which HIA is eligible
to earn additional consideration in respect of the two years (each year, an Earn
out Period) after the closing of our acquisition of substantially all of the assets
of HIA. We entered into an amendment to the Earn out Agreement in August 2008
that extended the first Earn out Period from twelve months to fifteen months
ending December 31, 2008, and amended certain financial calculations used
to determine our earn out liability. Based on satisfaction of certain
milestones described in the Earn out Agreement, we recorded an adjustment of
$1,958 to the purchase price as an increase to goodwill, which reflects the
amount that HIA earned under the earn out for the period ended December 31,
2008.
Due
to the restrictions in our Amended Loan Agreement and due to our lack of
available cash flow, we are prohibited from making the earn out payment to HIA
that would otherwise be currently due and payable. We are currently in
discussions with HIA regarding the earn out payment and the seller note.
Significant Contractual Obligations
As
of December 31, 2009, our significant contractual obligations were as
follows:
Contractual Obligations
|
|
Payments Due by Period
|
|
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More
Than 5
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations
|
|
$
|
15,081
|
|
$
|
14,850
|
|
$
|
188
|
|
$
|
43
|
|
$
|
|
|
Capital
lease obligations
|
|
212
|
|
90
|
|
90
|
|
32
|
|
|
|
Operating
lease obligations
|
|
3,706
|
|
320
|
|
926
|
|
1,150
|
|
1,310
|
|
Vendor
obligations
|
|
8,408
|
|
1,837
|
|
3,113
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation
To
date, the effects of inflation on our financial results have not been
significant; however, we cannot be certain that inflation will not affect us
materially in the future.
Off Balance Sheet Arrangements
We
do not currently have any off-balance sheet arrangements.
New Accounting Standards
Pursuant to Statement of
Financial Accounting Standard No. 168,
The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles,
issued
by the Financial Accounting Standards Board (FASB) in
47
Table of Contents
June 2009 and
effective for us beginning July 1, 2009, the Financial Accounting
Standards Board Accounting Standards Codification (referred to as the
Codification or the ASC) officially became the single source of authoritative
nongovernmental generally accepted accounting principles (GAAP), superseding
existing FASB, American Institute of Certified Public Accountants, Emerging
Issues Task Force (EITF), and related accounting literature. Only one level of
authoritative GAAP now exists and all other accounting literature is considered
non-authoritative. The Codification reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included in the Codification is relevant SEC
guidance organized using the same topical structure in separate sections within
the Codification. This has an impact on the disclosures in our financial
statements since all references to authoritative accounting literature will be
through the Codification.
In August 2009, the FASB issued Accounting
Standards Update (ASU) No. 2009-05 which provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair
value using one or more of the following methods: (i) a valuation
technique that uses (a) the quoted market price of the identical liability
when trades as an asset or (b) quoted prices for similar liabilities or
similar liabilities when trades as assets, and/or (ii) a valuation technique
that is consistent with the principles of ASC Topic 820. The new accounting
pronouncement also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust inputs relating to the
existence of transfer restrictions on that liability. The adoption of this
standard did not have an impact on our consolidated financial statements.
In April 2009, the
FASB provided guidance as codified in ASC Topic 820 on how to determine when a
transaction is not orderly and for estimating fair value when there has been a
significant decrease in the volume and level of activity for an asset or
liability. The guidance requires disclosure of the inputs and valuation
techniques used, as well as any changes in valuation techniques and inputs used
during the period to measure fair value in interim and annual periods. In
addition, the presentation of the fair value hierarchy is required to be
presented by major security type. The provisions set forth in the new guidance
were effective for interim periods ending after June 15, 2009. The
adoption of the new standard did not have a material impact on our consolidated
financial statements.
In
April 2009, the FASB provided guidance as codified in ASC Topics 270 and
825 to require disclosures about the fair value of financial instruments in
interim financial statements as well as in annual financial statements. In
addition, the guidance requires disclosures of the methods and significant
assumptions used to estimate the fair value of those financial instruments. We
adopted this new guidance and it
did not have a material impact on our consolidated
financial statements
.
In
March 2008, the FASB provided guidance about disclosures about derivative instruments and hedging activities as codified
in ASC 815. The guidance requires enhanced disclosure about an entitys
derivative and hedging activities. The objective of the guidance is to provide
users of financial statements with an enhanced understanding of how and why an
entity uses derivative instruments: how an entity accounts for derivative
instruments and related hedged items and how derivative instruments and related
hedged items affect an entitys financial position, financial performance, and
cash flows. SFAS 161 is effective for fiscal years beginning after November 15,
2008. We adopted this pronouncement on January 1, 2009
and it did not have a material impact on
our consolidated financial statements.
We adopted the guidance
related to Accounting for convertible debt instruments that may be settled in
cash upon conversion as codified in ASC 470-20 as of January 1, 2009. The
pronouncement applies to convertible debt instruments that, by their stated
terms, may be settled in cash (or other assets) upon conversion, including
partial cash settlement, unless the embedded conversion option is required to
be separately accounted for as a derivative under ASC 815. The pronouncement
requires that the issuer of a convertible debt instrument within its scope
separately account for the liability and equity components in a manner that
reflects the issuers nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. The excess of the principal amount of the
liability component over its initial fair value must be amortized to interest
cost using the effective interest method. Because the Company is required to
separately account for the embedded conversion options contained in its
convertible debt instruments, the adoption of this pronouncement did not have a
material impact on the consolidated financial statements.
In June 2008, the
FASB provided guidance related to determining whether an instrument (or an
embedded feature) is indexed to an entitys own stock as codified in ASC
815-40. ASC 815 specifies that a contract issued or held by a company that is
both indexed to its own stock and classified in stockholders equity is not
considered a derivative instrument for purposes of applying ASC 815. The
pronouncement provides guidance for applying the requirements of ASC 815,
requiring that both an instruments contingent exercise provisions and its
settlement provisions be evaluated to determine whether the instrument (or
embedded feature) is indexed solely to an entitys own stock. We adopted the
guidance on January 1, 2009 and it did not have a material impact on our
consolidated financial statements.
In
December 2007, the FASB provided guidance as codified in ASC 805 related
to business combinations. The guidance retains the fundamental requirements
that the acquisition method of accounting be used for all business
48
Table of Contents
combinations
and for an acquirer to be identified for each business combination. The
objective of this pronouncement is to improve the relevance, and comparability
of the information that a reporting entity provides in its financial reports
about a business combination and its effects. To accomplish that, the
pronouncement establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree, recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. This Statement applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15,
2008 and may not be applied before that date. We adopted the guidance on January 1,
2009.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Not
required.
Item 8.
Financial Statements and Supplementary Data
INFOLOGIX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
49
Table of
Contents
Report
of Independent Registered Public Accounting Firm
To the Board of Directors
and Stockholders
InfoLogix, Inc.
We have audited the
accompanying consolidated balance sheets of InfoLogix, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders equity (deficit), and cash
flows for each of the three years in the period ended December 31,
2009. Our audits also included the
financial statement schedule of InfoLogix, Inc. listed in Item 15(a). These financial statements and financial
statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of InfoLogix, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We were not engaged to
examine managements assessment of the effectiveness of InfoLogix, Inc.s
internal control over financial reporting as of December 31, 2009,
included in the accompanying
M
anagements Report on Internal Control Over
Financial Reporting
and, accordingly, we do not express an opinion
thereon.
The accompanying
consolidated financial statements have been prepared assuming the Company will
continue as a going concern. As
discussed in Note A to the consolidated financial statements, the Company has
suffered recurring losses from operations, has negative working capital and an
accumulated deficit as of December 31, 2009. This raises substantial doubt
about the Companys ability to continue as a going concern. Managements plans in regard to these matters
are also described in Note A. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ McGladrey &
Pullen, LLP
Blue Bell, Pennsylvania
April 15, 2010
50
Table of
Contents
INFOLOGIX, INC.
CONSOLIDATED
BALANCE SHEETS
(in thousands, except share amounts)
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Currents assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,018
|
|
$
|
3,037
|
|
Accounts and other receivables (net of allowance
for doubtful accounts in the amount of $2 and $352 as of December 30,
2009 and 2008, respectively)
|
|
14,158
|
|
22,610
|
|
Unbilled revenue
|
|
252
|
|
1,498
|
|
Inventory, net
|
|
1,089
|
|
1,775
|
|
Prepaid expenses and other current assets
|
|
674
|
|
1,228
|
|
|
|
|
|
|
|
Total current assets
|
|
17,191
|
|
30,148
|
|
Property and equipment, net
|
|
600
|
|
944
|
|
Intangible assets, net
|
|
7,343
|
|
8,709
|
|
Goodwill
|
|
10,337
|
|
10,540
|
|
Deferred financing costs
|
|
471
|
|
501
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
35,942
|
|
$
|
50,842
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,591
|
|
$
|
11,099
|
|
Line of credit
|
|
7,559
|
|
9,000
|
|
Current portion of notes payable
|
|
12,336
|
|
12,077
|
|
Current portion of capital lease obligations
|
|
81
|
|
86
|
|
Sales tax payable
|
|
276
|
|
477
|
|
Accrued expenses
|
|
3,183
|
|
3,090
|
|
Accrued earn out payable
|
|
1,958
|
|
1,958
|
|
Deferred revenue
|
|
1,690
|
|
276
|
|
Other liabilities
|
|
|
|
900
|
|
|
|
|
|
|
|
Total current liabilities
|
|
34,674
|
|
38,963
|
|
Notes payable, net of current maturities
|
|
231
|
|
4,215
|
|
Capital lease obligations, net of current
maturities
|
|
114
|
|
186
|
|
Warrant liabilities
|
|
2,762
|
|
|
|
Deferred income taxes
|
|
592
|
|
|
|
Other liabilities
|
|
113
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
38,486
|
|
43,364
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
Stockholders (deficit) equity:
|
|
|
|
|
|
Preferred stock, par value $.00001; authorized
10,000,000 shares; none issued or outstanding
|
|
|
|
|
|
Common stock, par value $.00001; authorized
100,000,000 shares; issued and outstanding 3,722,156 shares and 1,024,091
shares at December 31, 2009 and 2008, respectively
|
|
|
|
|
|
Additional paid in capital
|
|
38,132
|
|
25,766
|
|
Accumulated deficit
|
|
(40,676
|
)
|
(18,288
|
)
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
(2,544
|
)
|
7,478
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit)
equity
|
|
$
|
35,942
|
|
$
|
50,842
|
|
The accompanying notes are an integral part of these financial
statements
51
Table of
Contents
INFOLOGIX, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
86,916
|
|
$
|
100,716
|
|
$
|
78,774
|
|
Cost
of revenues
|
|
67,273
|
|
74,176
|
|
58,049
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
19,643
|
|
26,540
|
|
20,725
|
|
Selling,
general and adminstrative expenses
|
|
27,859
|
|
32,243
|
|
25,211
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
(8,216
|
)
|
(5,703
|
)
|
(4,486
|
)
|
Interest
expense
|
|
(5,855
|
)
|
(2,735
|
)
|
(873
|
)
|
Interest
income
|
|
12
|
|
140
|
|
458
|
|
Loss
on extinguishment of debt
|
|
(7,197
|
)
|
(1,451
|
)
|
|
|
Goodwill
impairment
|
|
(205
|
)
|
|
|
|
|
Fair
value adjustment on derivative liabilities
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax (expense) benefit
|
|
(21,743
|
)
|
(9,749
|
)
|
(4,901
|
)
|
Income
tax (expense) benefit
|
|
(645
|
)
|
(3,435
|
)
|
1,712
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(22,388
|
)
|
$
|
(13,184
|
)
|
$
|
(3,189
|
)
|
|
|
|
|
|
|
|
|
Loss
per share - basic and diluted
|
|
$
|
(16.88
|
)
|
$
|
(13.04
|
)
|
$
|
(3.30
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted
|
|
1,326,389
|
|
1,011,082
|
|
966,927
|
|
The accompanying notes are an integral part of these financial
statements
52
Table of
Contents
INFOLOGIX, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY
(in thousands, except share and per share amounts)
|
|
|
|
|
|
Additional
|
|
Retained
|
|
Total
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Earnings
|
|
Stockholders
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
(Deficit)
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
943,827
|
|
$
|
|
|
$
|
17,803
|
|
$
|
(1,915
|
)
|
$
|
15,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued - acquisitions
|
|
51,746
|
|
|
|
4,883
|
|
|
|
4,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to advisor
|
|
800
|
|
|
|
66
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
828
|
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
(3,189
|
)
|
(3,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
996,372
|
|
|
|
23,580
|
|
(5,104
|
)
|
18,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
960
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to advisor
|
|
800
|
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued - employee stock purchase plan
|
|
6,919
|
|
|
|
158
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued - acquisition
|
|
20,000
|
|
|
|
1,030
|
|
|
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
(13,184
|
)
|
(13,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
1,024,091
|
|
|
|
25,766
|
|
(18,288
|
)
|
7,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
853
|
|
|
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued - employee stock purchase plan
|
|
6,275
|
|
|
|
65
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
issued
|
|
|
|
|
|
78
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
component of convertible debt security
|
|
|
|
|
|
2,514
|
|
|
|
2,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued upon conversion of debt
|
|
2,691,790
|
|
|
|
8,856
|
|
|
|
8,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
(22,388
|
)
|
(22,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
3,722,156
|
|
$
|
|
|
$
|
38,132
|
|
$
|
(40,676
|
)
|
$
|
(2,544
|
)
|
The accompanying notes are an integral part of these financial
statements.
53
Table of
Contents
INFOLOGIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands, except share and per share amounts)
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(22,388
|
)
|
$
|
(13,184
|
)
|
$
|
(3,189
|
)
|
Adjustments
to reconcile net loss to operating cash flow:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
1,883
|
|
2,533
|
|
1,667
|
|
Allowance
for doubtful accounts receivable
|
|
476
|
|
(57
|
)
|
91
|
|
Loss
on write-down and disposal of equipment and intangible assets
|
|
281
|
|
1,340
|
|
274
|
|
Goodwill
impairment
|
|
205
|
|
|
|
|
|
Inventory
obsolescence
|
|
1,117
|
|
(64
|
)
|
286
|
|
Loss
on extinguishment of debt
|
|
6,777
|
|
1,451
|
|
|
|
Change
in fair value of warrant liabilities
|
|
282
|
|
|
|
|
|
Amortization
of deferred financing costs
|
|
536
|
|
720
|
|
11
|
|
Amortization
of debt discount
|
|
76
|
|
|
|
|
|
Paid
in kind interest
|
|
366
|
|
322
|
|
|
|
Accrued
interest income on note receivable
|
|
|
|
(5
|
)
|
|
|
Stock
based compensation
|
|
853
|
|
998
|
|
894
|
|
Interest
charge as a result of warrant liability
|
|
292
|
|
|
|
|
|
Deferred
income tax benefit (expense)
|
|
592
|
|
3,407
|
|
(1,720
|
)
|
Changes
in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
7,978
|
|
(2,020
|
)
|
(8,519
|
)
|
Unbilled
revenue
|
|
1,245
|
|
(446
|
)
|
(1,052
|
)
|
Inventory
|
|
(430
|
)
|
188
|
|
107
|
|
Prepaid
expenses and other current assets
|
|
554
|
|
(613
|
)
|
239
|
|
Accounts
payable
|
|
(3,508
|
)
|
2,571
|
|
1,893
|
|
Sales
tax payable
|
|
(201
|
)
|
178
|
|
(43
|
)
|
Accrued
expenses
|
|
183
|
|
(815
|
)
|
2,133
|
|
Deferred
revenue
|
|
1,415
|
|
201
|
|
75
|
|
Net
cash used in operating activities
|
|
(1,416
|
)
|
(3,295
|
)
|
(6,853
|
)
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Acquisitions,
net of cash acquired
|
|
|
|
(2,967
|
)
|
(3,159
|
)
|
Acquisition
of property, software and equipment
|
|
(446
|
)
|
(2,559
|
)
|
(1,904
|
)
|
Proceeds
from disposal of property and equipment
|
|
|
|
45
|
|
|
|
Promissory
notes issued
|
|
|
|
(200
|
)
|
|
|
Repayment
of promissory notes
|
|
|
|
50
|
|
|
|
Net
cash used in investing activities
|
|
(446
|
)
|
(5,631
|
)
|
(5,063
|
)
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Payments
received from employee stock purchase plan
|
|
65
|
|
158
|
|
|
|
Payment
of financing costs
|
|
|
|
(1,715
|
)
|
(68
|
)
|
Issuance
of Hercules note payable
|
|
|
|
12,000
|
|
|
|
Issuance
of Herules line of credit
|
|
|
|
7,500
|
|
|
|
Final
repayment of Sovereign notes payable
|
|
|
|
(3,292
|
)
|
|
|
Final
repayment of Sovereign line of credit
|
|
|
|
(9,334
|
)
|
|
|
Proceeds
from long-term debt
|
|
|
|
|
|
2,000
|
|
Repayment
of long-term debt and capital leases
|
|
(767
|
)
|
(330
|
)
|
(801
|
)
|
Net
borrowings from line of credit
|
|
545
|
|
875
|
|
4,004
|
|
Net
cash provided by (used in) financing activities
|
|
(157
|
)
|
5,862
|
|
5,135
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
(2,019
|
)
|
(3,064
|
)
|
(6,781
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
3,037
|
|
6,101
|
|
12,882
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
1,018
|
|
$
|
3,037
|
|
$
|
6,101
|
|
54
Table of
Contents
INFOLOGIX, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share information)
NOTE ASUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
InfoLogix, Inc.
(the Company)
provides mobile
workforce technology solutions by enabling real time data communications
anywhere in an enterprise. The Company provides wireless network design,
hardware, software, consulting, system integration and network and device
management solutions.
On
November 20, 2009, the Company and its subsidiaries 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 $5,000 of the Companys outstanding debt was
converted into shares of common stock and a warrant to purchase shares of the
Companys common stock, and the remaining outstanding debt with Hercules was
otherwise restructured (the Hercules Restructuring). The Hercules Restructuring
also provided the Company with up to $5,000 in additional availability under a
revolving credit facility with Hercules. In connection with the Hercules
Restructuring, on November 20, 2009, the Company entered into a Debt
Conversion Agreement with HTI, pursuant to which HTI exchanged $5,000 in
existing indebtedness for (i) 2,691,790 shares of common stock, and (ii) a
warrant to purchase 672,948 shares of common stock. As a result of the Hercules Restructuring,
the Company experienced a change in control and under the terms of the Debt
Conversion Agreement, HTI has certain corporate governance and other rights
with respect to the Company.
In
connection with the Hercules Restructuring, on November 20, 2009, the
Company and its subsidiaries (collectively, the Borrowers) and Hercules entered
into an Amended and Restated Loan and Security Agreement (Amended Loan
Agreement), whereby the Borrowers and Hercules agreed to restructure the
remaining debt not converted into shares of common stock and a warrant pursuant
to the Debt Conversion Agreement. The Amended Loan Agreement amended and
restated the Companys prior loan and security agreement with Hercules. The
Amended Loan Agreement was further amended on February 19, 2010 and April 6,
2010. See Note V Subsequent Events. On the same date and as a condition to
the Hercules Restructuring, the Company also restructured its earn out
obligation related to the 2008 acquisition of the assets of Delta Health
Systems, Inc.
Basis of
presentation
The
accompanying consolidated financial statements include the accounts of
InfoLogix, Inc. and its wholly-owned subsidiaries: InfoLogix Systems
Corporation, OPT Acquisition, LLC, Embedded Technologies, LLC, and
InfoLogixDDMS, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
On
January 5, 2010, the Company completed a reverse stock split of its issued
and outstanding common stock by a ratio of one-for-twenty-five. All share and per
share amounts in the accompanying consolidated financial statements have been
adjusted to retroactively reflect the reverse stock split.
The
accompanying financial statements for the year ended December 31, 2009
have been prepared on a going concern basis, which contemplates continuing
operations, securing additional debt or equity financing, selling certain
assets, and realizing assets and liabilities in the ordinary course of
business. However, the Company has incurred significant net losses from 2007
through 2009, including a net loss in 2009 of $22,388. The Companys losses are
attributable to the difficult economic conditions under which it operates,
challenges related to its transition over the last several years from being
primarily a seller of infrastructure and hardware to becoming a provider of
comprehensive enterprise mobility solutions, and the write-off of certain cash
and non-cash expenses related to the Hercules Restructuring and non-realizable
assets.
55
Table of Contents
As
a result of the Companys capital and debt structure and recurring losses, it
has substantial near-term liquidity requirements related to the repayment of a
seller note that becomes due on September 30, 2010, the revolving line of
credit that comes due on May 19, 2011 and to earn out payments for past
acquisitions. The Company does not currently expect to generate sufficient cash
flow from operations to fund those obligations. As a result, the Companys
independent registered public accounting firm has included an explanatory
paragraph which raises substantial doubt as to its ability to continue as a
going concern in its report on the consolidated financial statements for the
year ended December 31, 2009.
The
Company has undertaken a series of actions to reduce costs and is pursuing
various initiatives to continue as a going concern and provide for its future
success. The Companys plans to improve liquidity contemplates additional cost
control measures and may include additional financing and further restructuring
of its debt. The Companys ability to implement these plans successfully is
dependent on many circumstances outside of its direct control, including
general economic conditions and the financial strength of its customers. Any
additional financing the Company is able to secure will likely be subject to a
number of conditions and involve additional costs. Given the current negative
conditions in the economy generally and the credit markets in particular, there
is uncertainty as to whether the Company will be able to generate sufficient
liquidity to repay its outstanding debt, to make its earn out payments and to
meet working capital needs. If the Company is unable to improve its liquidity
position, it may not be able to continue as a going concern.
The
purchase price of acquired companies is allocated between tangible and
intangible assets acquired and liabilities assumed from the acquired business
based on their estimated fair values, with the residual of the purchase price
recorded as goodwill. The results of operations of acquired businesses are
included in the Companys results from the dates of acquisition.
Pursuant to Statement of Financial
Accounting Standard No. 168,
The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles,
issued
by the Financial Accounting Standards Board (FASB) in June 2009 and
effective for the Company beginning July 1, 2009, the Financial Accounting
Standards Board Accounting Standards Codification (referred to as the
Codification or the ASC) officially became the single source of authoritative
nongovernmental generally accepted accounting principles (GAAP), superseding
existing FASB, American Institute of Certified Public Accountants, Emerging
Issues Task Force (EITF), and related accounting literature. Only one level of
authoritative GAAP now exists and all other accounting literature is considered
non-authoritative. The Codification reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included in the Codification is relevant SEC
guidance organized using the same topical structure in separate sections within
the Codification. This has an impact on the disclosures in the consolidated
financial statements since all references to authoritative accounting
literature will be through the Codification.
Use of estimates
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of net
revenues and expenses during the reporting period.
In
preparing the financial statements, management has utilized available
information, including our past history, industry standards and the current
economic environment, among other factors, in forming its estimates and
judgments. Actual results may differ from these estimates. In addition, other
companies may utilize different estimates, which may impact the comparability
of our results of operations to those of companies in similar businesses.
Many
of the amounts and percentages presented in these notes to the consolidated
financial statements have been rounded, and all dollar amounts are presented in
thousands, except share and per share information.
Cash and cash
equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Pursuant to a covenant in its
Amended Loan Agreement with Hercules (Note E), the Company is required to
maintain a minimum cash balance of $1,000.
Fair
value measurements
The
Company categorizes its financial instruments into a three-level fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs
56
Table of Contents
(Level
3). If the inputs used to measure fair value fall within different levels of
the hierarchy, the category level is based on the lowest priority level input
that is significant to the fair value measurement of the instrument. Financial
assets recorded at fair value on the Companys consolidated balance sheets are
categorized as follows:
·
Level 1: Observable inputs such as quoted
prices for identical assets or liabilities in active markets;
·
Level 2: Inputs, other than the quoted
prices in active markets, that are observable either directly or indirectly;
and
·
Level 3: Unobservable inputs for which
there is little or no market data, which require the reporting entity to
develop its own assumptions.
The fair value hierarchy
also requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs in measuring fair value.
Concentrations of credit risk
The
Company grants credit, generally without collateral, to its customers, which
are primarily in the healthcare and commercial markets. Consequently, the
Company is subject to potential credit risk related to changes in economic
conditions within those markets. However, management believes that its billing
and collection policies are adequate to minimize the potential credit risk.
The
Company has a policy of reserving for uncollectible accounts based on its best
estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to
determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt including historical experience and current economic and market
conditions. Account balances deemed to be uncollectible are charged to the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote.
Inventory
Inventory
is stated at the lower of cost or market. Cost is determined using the first
in, first out method.
The
Company periodically reviews its inventories and makes provisions as necessary
for estimated obsolete and slow-moving goods. The Company marks down inventory
to an amount equal to the difference between cost of inventory and the
estimated market value based upon assumptions about future demands, selling
prices and market conditions. The creation of such provisions results in a
write-down of inventory to net realizable value and a charge to cost of
revenues.
Property and
equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation of
furniture and equipment is generally computed using the straight line method at
rates based on the estimated useful lives of the related assets. Amortization
of leasehold improvements is computed over the lesser of the estimated useful
lives or the lease term of the related assets using the straight line method.
Maintenance and repairs that neither add to the value of the asset nor
appreciably prolong its useful life are charged to expense as incurred.
The estimated lives of property and
equipment are as follows:
Equipment
|
|
3 to 5 years
|
Furniture and fixtures
|
|
5 years
|
Leasehold improvements
|
|
Lease term or 5
years
|
Goodwill and
other intangible assets
Goodwill
is the excess of the purchase price paid over the fair value of the net assets
of businesses acquired. Goodwill is tested at least annually for impairment by
comparing the fair value of the recorded assets to their carrying amount. If
the carrying amount of the intangible asset exceeds its fair value, an
impairment loss is recognized. The annual evaluation of intangible assets
require the use of estimates about future operating results of each reporting
unit to determine their estimated fair value. Changes in forecasted operations
can affect these estimates. Once an impairment of an intangible
57
Table of Contents
asset
has been recorded, it cannot be reversed. At December 31, 2009, the
Company recorded a charge of $205 related to the impairment of goodwill from
its acquisition of AMTSystems, Inc.
Other
intangible assets consist primarily of non-contractual customer relationships,
sales contracts, patents and technology. Intangible assets that have a
definite-life are amortized on a straight-line basis over their estimated
useful lives. The Company reviews the carrying value of all intangible assets
for possible impairment whenever events or changes in circumstances indicate
that their carrying value may not be recoverable. If the carrying amounts of
the intangible assets that have a definite-life exceed their fair value, an
impairment loss is recognized. At December 31,
2009, the Company recorded a charge of $281 for impairment of certain software
and developed technology.
The
weighted average remaining useful lives for financial reporting and tax
purposes are as follows:
|
|
Book
|
|
Tax
|
|
Patents
|
|
11
|
|
10
|
|
Computer
software
|
|
2
|
|
2
|
|
Developed
technology
|
|
0
|
|
1
|
|
Customer
lists
|
|
6
|
|
14
|
|
Non
compete agreements
|
|
2
|
|
14
|
|
Trademarks
and trade names
|
|
Indefinite
|
|
14
|
|
Deferred
financing costs
Deferred
financing costs that are incurred by the Company in connection with the
issuance of debt are deferred and amortized to interest expense in the
consolidated statement of operations over the life of the underlying
indebtedness, adjusted to reflect any early repayments.
Impairment of
long-lived assets
The
Company assesses the potential impairment of long-lived assets whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. An assets value is impaired if managements estimate of the
aggregate future cash flows, undiscounted and without interest charges, to be
generated by the asset are less than the carrying value of the asset. When
estimating future cash flows, the Company considers factors such as expected
future operating income and historical trends, as well as the effects of demand
and competition. To the extent impairment has occurred, the loss is measured as
the excess of the carrying amount of the asset over the estimated fair value of
the asset. Such estimates require the use of judgment and numerous subjective
assumptions, which, if actual experience varies, could result in material
differences in the requirements for impairment charges.
Software
capitalization
The
Company capitalizes the cost of internal use software. Costs for preliminary
stage projects are expensed as incurred while application stage projects are
capitalized. The Company ceases capitalizing costs and commences amortization
of the software on a straight-line basis over the estimated useful life,
typically three to five years, when it is ready for intended use.
The
Company capitalizes certain costs related to the acquisition and development of
software to be sold or licensed to its customers.
The Company expenses as incurred
those costs incurred prior to achieving technological feasibility and
capitalizes those arising after technological feasibility has been achieved.
The Company amortizes the capitalized costs using the straight-line method over
the developed products estimated economic life. The Company ceases
capitalizing costs when the software applications are ready for general
release.
Revenue
recognition
Net
revenues are generated through product sales, warranty and maintenance
agreements, professional consulting, programming and engineering services,
long-term support services, and educational learning programs. Net revenues
from
58
Table of Contents
product
sales are recognized when both the title and risk of loss transfer to the
customer, generally upon shipment. The Company generates net revenues from the
sale of extended warranties on wireless and mobile hardware and systems,
including mobile workstations, computers, peripherals, and related products.
Revenue from the sale of component extended warranties are recognized as net
revenue upon execution of the warranty agreement. The Company does not bear
associated warranty risk because it has contracted with third parties, as
primary obligors, to fully assume all risks and obligations.
The
Company also generates revenue from consulting and other professional services
on either a fee-for service or fixed fee basis. Revenue from consulting and
other professional services that is contracted as fee-for-service is recognized
in the period in which the services are performed. Direct costs for travel and
accommodations are reimbursable in accordance with the contract terms and are
recognized as net revenue in the period the related expense is incurred.
Revenue from the sale of proprietary learning technologies and those consulting
and other professional services provided on a fixed-fee basis is recognized
according to a proportionate method of revenue recognition and is recognized
ratably over the contract period based upon actual project hours completed
compared to total budgeted project hours.
The
Company records amounts billed to its customers for shipping and handling fees
as revenue. All amounts billed in a sale transaction related to shipping and
handling represents revenues earned for the goods provided and requires such
amounts are classified as revenue. Shipping and handling costs are recorded in
general and administrative expenses in the consolidated statement of
operations.
Advertising costs
Advertising
costs are expensed when incurred. Certain cooperative advertising
reimbursements are netted against specific identifiable costs incurred in
connection with the selling of the vendors product. Advertising costs and
certain cooperative reimbursements are as follows:
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Advertising
Costs
|
|
$
|
547
|
|
$
|
858
|
|
$
|
914
|
|
|
|
|
|
|
|
|
|
Certain
cooperative advertising reimbursements
|
|
$
|
39
|
|
$
|
121
|
|
$
|
86
|
|
Income taxes
The
Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are determined based on the differences
between the financial reporting bases and the tax bases of existing assets and
liabilities, and are measured at the prevailing enacted tax rates that will be
in effect when these differences are settled or realized. Deferred tax assets
are reduced by a valuation allowance if it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
The
Company has developed a recognition threshold and measurement attribute for the
financial statement recognition and measurement of its tax position taken or
expected to be taken in a tax return. As a result, the Company determined that
there were no material liabilities for tax benefits for predecessor and
successor periods. Any future interest accrued relating to unrecognized tax
benefits will be included in interest expense. In the event the Company must
accrue for penalties, they will be included as an operating expense.
59
Table of Contents
While the Company
believes that its tax positions are fully supportable, there may be certain
positions that could be challenged and that it may not prevail. In these
instances, the Company looks to establish reserves. If the Company determines
that a tax position is more likely than not of being sustained upon audit,
based solely on the technical merits of the position, it recognizes the
benefit. The Company measures the benefit by determining the amount that is
greater than 50% likely of being realized upon settlement. The Company presumes
that all tax positions will be examined by a taxing authority with full
knowledge of all relevant information. The Company regularly monitors its tax
positions, tax assets and tax liabilities. The Company reevaluates the
technical merits of its tax positions and recognize an uncertain tax benefit or
derecognize a previously recorded tax benefit when (i) there is a
completion of a tax audit, (ii) there is a change in applicable tax law
including a tax case or legislative guidance, or (iii) there is an
expiration of the statute of limitations. Significant judgment is required in
accounting for tax reserves.
Stock-based compensation
The
Company measures employee stock-based compensation awards using a fair value
method and amortizes the expense on a straight line basis over the requisite
service period of the award.
The estimated grant date fair value of stock options
using the Black-Scholes option-pricing model requires the input of highly
subjective assumptions. These assumptions include estimating the expected term
of the award and the estimated volatility of our stock price over the expected
term. Changes in these assumptions and in the estimated forfeitures of stock
option awards can materially affect the amount of stock-based compensation
recognized in the consolidated statements of operations.
Earnings per share
The
Company accounts for earnings per share based on a basic and dilutive basis.
Basic earnings per share is computed by dividing income or loss available to
common stockholders by the weighted average number of common shares outstanding
during the period. The Company also provides dual presentation of basic and
diluted earnings per share on the face of the statement of operations. Diluted
earnings per share reflects the amount of earnings for the period available to
each share of common stock outstanding during the reporting period, while
giving effect to all dilutive potential common shares that were outstanding
during the period, such as common share equivalents that could result from the
potential exercise into common stock. The computation of diluted earnings per
share does not assume exercise of securities that would have an anti-dilutive
effect on per share amounts (
i.e.
,
increasing earnings per share or reducing loss per share). The dilutive effect
of outstanding options are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon the exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options
will have a dilutive effect only when the average market price of the common
stock during the period exceeds the exercise price of the options.
Recent accounting
pronouncements
In August 2009, the FASB issued Accounting
Standards Update (ASU) No. 2009-05 which provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair
value using one or more of the following methods: (i) a valuation
technique that uses a) the quoted market price of the identical liability when
trades as an asset or b) quoted prices for similar liabilities or similar
liabilities when trades as assets, and/or (ii) a valuation technique that
is consistent with the principles of ASC Topic 820. The new accounting
pronouncement also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust inputs relating to the
existence of transfer restrictions on that liability. The adoption of this
standard did not have an impact on the Companys consolidated financial
statements.
In June 2009, the FASB provided guidance as
codified in ASC Topic 810
which amends
current practice in determining whether an enterprise has a controlling
financial interest in a variable interest entity. This determination identifies
the primary beneficiary of a variable interest entity as the enterprise that
has both the power to direct the activities of a variable interest entity that
most significantly impacts the entitys economic performance, and the
obligation to absorb losses or the right to receive benefits of the entity that
could potentially be significant to the variable interest entity. The revised
guidance requires ongoing reassessments of whether an enterprise is the primary
beneficiary and eliminates the quantitative approach previously required for
determining the primary beneficiary. The Company does not expect the provisions
of the new guidance to have a material effect on its consolidated financial
statements.
In
May 2009, the FASB provided guidance as codified in ASC Topic 855 which
establishes general standards of
60
Table of Contents
accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. The guidance sets
forth the period after the balance sheet date during which management shall
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity
shall recognize events or transactions occurring after the balance sheet date
in its financial statements and the disclosures that an entity shall make about
events or transactions that occurred after the balance sheet date. This
guidance was effective for interim and annual periods ending after June 15,
2009. The adoption of this standard did not have an impact on the Companys
consolidated financial statements.
In
April 2009, the FASB provided guidance as codified in ASC Topic 820 on how
to determine when a transaction is not orderly and for estimating fair value
when there has been a significant decrease in the volume and level of activity
for an asset or liability. The guidance requires disclosure of the inputs and
valuation techniques used, as well as any changes in valuation techniques and
inputs used during the period to measure fair value in interim and annual
periods. In addition, the presentation of the fair value hierarchy is required
to be presented by major security type. The provisions set forth in the new
guidance were effective for interim periods ending after June 15, 2009.
The adoption of the new standard did not have a material impact on the Companys
consolidated financial statements.
In April 2009, the FASB provided guidance as
codified in ASC Subtopic 320-10 which amends the accounting for certain
investments in debt and equity securities to modify the indicator of
other-than-temporary impairment for debt securities. Additionally, this
guidance changes the amount of other-than-temporary impairment that is
recognized in earnings when there are credit losses on a debt security that
management does not intend to sell and it is more-likely-than-not that the
entity will not have to sell prior to recovery of the noncredit impairment. In
those situations, the portion of the total impairment that is attributable to
the credit loss would be recognized in earnings, and the remaining difference
between the debt securitys amortized cost basis and its fair value would be
included in other comprehensive income. The guidance is effective for interim
and annual reporting periods ending after June 15, 2009 and did not have a
material impact on the Companys consolidated financial statements.
In
April 2009, the FASB provided guidance as codified in ASC Topics 270 and
825 to require disclosures about the fair value of financial instruments in
interim financial statements as well as in annual financial statements. In
addition, the guidance requires disclosures of the methods and significant
assumptions used to estimate the fair value of those financial instruments. The
Company adopted this new guidance and it
did not have a material impact on the Companys
consolidated financial statements
.
In
March 2008, the FASB provided guidance on disclosures about derivative instruments and hedging activities as codified
in ASC 815. The guidance requires enhanced disclosure about an entitys
derivative and hedging activities. The objective of the guidance is to provide
users of financial statements with an enhanced understanding of how and why an
entity uses derivative instruments: how an entity accounts for derivative
instruments and related hedged items and how derivative instruments and related
hedged items affect an entitys financial position, financial performance, and
cash flows. SFAS 161 is effective for fiscal years beginning after November 15,
2008. The Company adopted this pronouncement on January 1, 2009
and it did not have a material impact on
the consolidated financial statements.
The Company adopted the
guidance related to Accounting for convertible debt instruments that may be
settled in cash upon conversion as codified in ASC 470-20 as of January 1,
2009. The pronouncement applies to convertible debt instruments that, by their
stated terms, may be settled in cash (or other assets) upon conversion,
including partial cash settlement, unless the embedded conversion option is
required to be separately accounted for as a derivative under ASC 815. The pronouncement
requires that the issuer of a convertible debt instrument within its scope
separately account for the liability and equity components in a manner that
reflects the issuers nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. The excess of the principal amount of the
liability component over its initial fair value must be amortized to interest
cost using the effective interest method. Because the Company is required to
separately account for the embedded conversion options contained in its
convertible debt instruments, the adoption of this pronouncement did not have a
material impact on the consolidated financial statements. .
In
June 2008, the FASB provided guidance related to determining whether an
instrument (or an embedded feature) is indexed to an entitys own stock as
codified in ASC 815-40. ASC 815 specifies that a contract issued or held by a
company that is both indexed to its own stock and classified in stockholders
equity is not considered a derivative instrument for purposes of applying ASC
815. The pronouncement provides guidance for applying the requirements of ASC
815, requiring that both an instruments contingent exercise provisions and its
settlement provisions be evaluated to determine whether the instrument (or
embedded feature) is indexed solely to an entitys own stock. The Company
adopted the pronouncement on January 1, 2009
and it did not have a material impact on the Companys
consolidated financial statements.
In
December 2007, the FASB provided guidance as codified in ASC 805 related
to business combinations. The guidance retains the fundamental requirements
that the acquisition method of accounting be used for all business
61
Table of Contents
combinations
and for an acquirer to be identified for each business combination. The
objective of this pronouncement is to improve the relevance, and comparability
of the information that a reporting entity provides in its financial reports
about a business combination and its effects. To accomplish that, the
pronouncement establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree, recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. This Statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15,
2008 and may not be applied before that date. The Company adopted the guidance
on January 1, 2009 and it did not have a material impact on the Companys
consolidated financial statements.
NOTE BINVENTORY
Inventory consists of the following:
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
2,547
|
|
$
|
2,111
|
|
Work
in progress
|
|
80
|
|
85
|
|
Less:
allowance for slow moving and obsolete inventory
|
|
(1,538
|
)
|
(421
|
)
|
|
|
|
|
|
|
Total
inventory, net
|
|
$
|
1,089
|
|
$
|
1,775
|
|
NOTE CPROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Demonstration
and evaluation equipment
|
|
$
|
|
|
$
|
23
|
|
Equipment
|
|
1,139
|
|
1,057
|
|
Furniture
and fixtures
|
|
936
|
|
917
|
|
Leasehold
improvements
|
|
63
|
|
63
|
|
|
|
2,138
|
|
2,060
|
|
Less:
accumulated depreciation
|
|
(1,538
|
)
|
(1,116
|
)
|
|
|
$
|
600
|
|
$
|
944
|
|
Depreciation
expense was $423, $817 and $688 for the years ended December 31, 2009,
2008 and 2007 respectively.
NOTE DINTANGIBLE ASSETS
Intangible
assets consist of the following:
62
Table of
Contents
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Patents
|
|
$
|
2,824
|
|
$
|
2,746
|
|
Computer
software
|
|
1,895
|
|
1,820
|
|
Developed
technology
|
|
1,058
|
|
1,157
|
|
Customer
Lists
|
|
4,285
|
|
4,285
|
|
Non
compete agreements
|
|
289
|
|
289
|
|
Trademarks
and trade names
|
|
1,469
|
|
1,469
|
|
|
|
11,820
|
|
11,766
|
|
Less
accumulated amortization
|
|
(4,477
|
)
|
(3,057
|
)
|
Total
net intangible assets
|
|
$
|
7,343
|
|
$
|
8,709
|
|
Amortization
expense was $1,460, $1,716 and $979 for the years ended December 31, 2009,
2008 and 2007, respectively.
Amortization
expense subsequent to December 31, 2009 is expected to be as follows:
Years ended December 31:
|
|
Amount
|
|
|
|
|
|
2010
|
|
$
|
1,197
|
|
2011
|
|
927
|
|
2012
|
|
744
|
|
2013
|
|
624
|
|
2014
|
|
280
|
|
|
|
|
|
|
NOTE EDEBT
On
May 1, 2008, the Company and its subsidiaries entered into a loan and
security agreement with Hercules (Loan and Security Agreement), which provided
the Company with a revolving credit facility and a term loan facility. The Loan and Security Agreement was
subsequently amended in November 2008 and May 2009, and the Company
and Hercules entered into a forbearance agreement with respect to certain
defaults under the Loan and Security Agreement in July 2009, and the
parties entered into five amendments to the forbearance agreement over the
course of August through October 2009. In connection with the Hercules Restructuring
that closed on November 20, 2009, the Company and its subsidiaries entered
into the Amended Loan Agreement with Hercules, which amended and restated the
Loan and Security Agreement. The
description of the Amended Loan Agreement below reflects the terms in place
since November 20, 2009, however the Amended Loan Agreement was
subsequently amended on February 19, 2010 and April 6, 2010. See Note
V Subsequent Events. Under the Amended Loan the Companys indebtedness to
Hercules consists of a $5,500 term loan (Term Loan A), and a $5,000 convertible
note (Term Loan B). In addition, the Company has a $12,000 revolving line of
credit facility, of which $7,559 was outstanding at December 31, 2009.
Term Loan A has a 48-month term, with principal
amortization of approximately $153 thousand beginning December 1,
2010. The outstanding principal balance
on Term Loan A will bear interest payable in cash at 12% per annum for the
initial year; 18% per annum for the subsequent six months and 15% per annum
thereafter.
Term
Loan B has a 60-month term and can be converted, at Hercules option, or
automatically if the 90 day value weighted adjusted trading price exceeds five
times the conversion price, into shares of the Companys common stock at
$1.8575 per share. The Company has the right to pay a portion of the conversion
amount in cash plus applicable fees, interest and other charges, instead of
shares of common stock, if an automatic conversion occurs under certain
circumstances and the Companys common stock is listed on certain national exchanges.
If not converted, the outstanding principal balance of Term Loan B is due on November 1,
2014. The outstanding principal balance on Term Loan B bears interest at 14.5%
per annum for the
63
Table of Contents
initial
twelve months following closing of the arrangement; 20.5% per annum for the
subsequent twelve months and 17.5% per annum thereafter, of which, 2.5% is
payable in kind. Term Loan B will bear an additional 2.5% interest that will be
paid in kind (PIK) compounded monthly after the first year. The Company will
have the option to turn the PIK interest into cash interest or additional
shares of common stock if certain predefined metrics are maintained. Both term
loans will be assessed a prepayment charge between 1% and 5% of the total term
loan commitment depending on when paid.
Term
Loan B may be partially settled in cash upon conversion.
In accordance with ASC
470-20,
Debt with Conversion and other options
, the Company is
required to separately account for the liability and equity components of this
instrument by allocating the proceeds from issuance of the instrument between
the liability component and the embedded conversion option in a manner that
reflects interest cost at the interest rate of similar nonconvertible debt. The
difference between the proceeds and the fair value of the liability or $2,514
should then be ascribed to the embedded conversion option and recognized in
equity. The difference between the principal amount of the debt and the amount
of the proceeds allocated to the liability component should be reported as a
debt discount and subsequently amortized as interest cost over the instruments
expected life using the interest method.
The
proceeds of the term loans and borrowings were used, in part, to refinance the
Companys indebtedness to Hercules under the Loan and Security Agreement.
Borrowings under the Amended Loan Agreement may be used for permitted
acquisitions and for general corporate and working capital purposes. At December 31,
2009, the Company had $10,515 of indebtedness outstanding under the Hercules
term loans, including paid in kind interest of $15, and $7,559 outstanding
under the revolving credit facility.
The amount that is available
to be borrowed under the revolving credit facility is limited to the lesser of
the maximum availability at such time or 85% of the Companys eligible
accounts. Eligible accounts, as defined in the Amended Loan Agreement, exclude
certain account criteria that Hercules considers risky. Until such time as the
Companys three-month consolidated EBITDA exceeds $1,500, the borrowings under
the revolving credit facility may not exceed 85% of the Companys eligible
accounts minus $2,500.
The revolving credit facility expires on May 1,
2011, but may be extended at
the Companys
option for six months if there is no existing event of
default. Any advances under the revolving credit facility bear interest
initially at 12.0% per annum until the term loans are repaid in full, at which
time the interest rate on outstanding advances will be prime plus 4%.
Borrowings under the revolving credit facility include an overadvance provision
of up to $500, which will be due 28 days after the overadvance is drawn.
Overadvances bear interest at 15% per annum.
The Amended Loan Agreement contains certain negative
covenants and other stipulations associated with the arrangement, including
covenants that restrict the Companys ability to incur indebtedness, make
investments, make payments in respect of its capital stock, including dividends
and repurchases of common stock, sell or license its assets, and engage in
acquisitions without the prior satisfaction of certain conditions. Additionally,
the Amended Loan Agreement contains the following financial covenants (i) minimum
consolidated adjusted EBITDA measured on a three month rolling basis as of the
last day of each month of between $150 and $2,000, until December 31, 2011
and thereafter when $3 million of consolidated adjusted EBITDA is required, (ii) maximum
leverage ratio measured on a rolling twelve month basis as of the last day of a
fiscal quarter commencing June 30, 2010 of 6.0 to 1.0 decreasing to 1.5 to
1.0 by the quarter ending June 30, 2012, (iii) minimum consolidated
fixed charge coverage ratio measured on a rolling twelve month basis as of the
last day of a fiscal quarter commencing June 30, 2010 of 0.75 to 1.0
increasing to 2.0 to 1.0 by the quarter ending June 30, 2012, and (iv) at
least $1 million in unrestricted cash at all times. Failure to maintain the
financial covenants, as well as certain other events, are events of default
under the Amended Loan Agreement. Upon an event of default, Hercules may opt to
accelerate and demand payment of all or any part of
the Companys
obligations. Under the terms of the
Amended Loan Agreement, late fees are equal to 50% of the past due amount and
default rate interest is equal to the applicable regular interest rate plus 3%.
As of December 31, 2009, the Company was in compliance with financial covenants
under the Amended Loan Agreement. However, beginning February 5, 2010, the Company
was not in compliance with the borrowing base requirement related to the
revolver. As a result of the default, balances outstanding under the Term Loans
at December 31, 2009 have been classified as current in the consolidated
balance sheet.
Notes
payable consist of the following:
64
Table of
Contents
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Term
Loan A note payable pursuant to the debt restructuring agreement with
Hercules.
|
|
$
|
5,500
|
|
$
|
|
|
|
|
|
|
|
|
Convertible
Term Loan B note payable pursuant to the debt restructuring agreement with
Hercules. At December 31, 2009, the outstanding principal balance was
$5,015, net of the equity component of $2,514.
|
|
2,501
|
|
|
|
|
|
|
|
|
|
Convertible
note payable pursuant to the asset purchase agreement with Healthcare
Informatics Associates, Inc. Principal and interest payable at
9.0% is due September 30, 2010
|
|
4,252
|
|
3,901
|
|
|
|
|
|
|
|
Amounts
payable pursuant to the asset purchase agreement with AMT Systems, Inc.
in monthly installments of $9 interest included, at a rate of 7.84%, maturing
May 31, 2013
|
|
314
|
|
391
|
|
|
|
|
|
|
|
Note
payable to Hercules, principal payable $150 monthly over sixteen months
commencing February 2009, payable $250 over twelve months, commencing
June 2010, payable $550 over twelve months commencing June 2011.
The note was restructured at November 20, 2009.
|
|
|
|
12,000
|
|
|
|
|
|
|
|
Total
notes payable
|
|
12,567
|
|
16,292
|
|
|
|
|
|
|
|
Less:
current maturities
|
|
(12,336
|
)
|
(12,077
|
)
|
|
|
|
|
|
|
|
|
$
|
231
|
|
$
|
4,215
|
|
Aggregate
maturities of notes payable are as follows at December 31, 2009:
Years ended December 31:
|
|
Amount
|
|
|
|
|
|
2010
|
|
$
|
14,850
|
|
2011
|
|
90
|
|
2012
|
|
98
|
|
2013
|
|
43
|
|
|
|
|
|
|
NOTE FFINANCIAL INSTRUMENTS
In connection with the Hercules Restructuring, the
Company issued 2,691,790 shares of the Companys common stock and a warrant to
purchase 672,948 fully paid and non-assessable shares of the Companys common
stock which were valued at $9,421 and $2,159, respectively. As a result of the Hercules restructure, the
Company determined that an extinguishment of debt occurred. In accordance with ASC 470-50,
Debt Modifications and Extinguishments,
a loss on
extinguishment of debt, which amounted to $6,777 was recorded. The loss represented the excess of the fair
value of the common stock and warrants issued to Hercules of $11,580 over the
total debt extinguished. The Company
included $197 of fees paid in connection with the Hercules Restructure as
additional loss on extinguishment of debt.
The Company has
determined that, at the time of issuance, the warrant did not meet all of the
criteria for equity classification. As a
result, the Company has recorded the warrant in accordance with ASC Topic
815-40,
Derivatives and Hedging
, at its fair
value of $2,159, as a derivative liability as of November 20, 2009. The Company will mark the warrant liability
to market at the end of each period until the Company complies with the
requirements for equity classification of the warrant at which time the warrant
liability will be reclassified to equity.
At December 31, 2009, the Company recorded a charge of $282, which
represents the change in the fair value of the warrant liabilities for the
period from the Hercules Restructure date to December 31, 2009.
65
Table of Contents
The fair value of warrant liabilities was calculated
under the Black-Scholes pricing model using the Companys stock price on the
date of the warrant grant, the warrant exercise price, the Companys expected
volatility, and the risk free interest rate matched to the warrants expected
life. The Company does not anticipate paying dividends during the term of the
warrants. The Company uses historical data to estimate volatility assumptions
used in the valuation model. The expected term of warrants granted is derived
from an analysis that represents the period of time that warrants granted are
expected to be outstanding. The risk-free rate for periods within the
contractual life of the warrant is based on the U.S. Treasury yield curve in
effect at the time of grant.
The following
table details warrant activity:
Outstanding
at January 1, 2007 and 2008
|
|
|
106,000
|
|
Issued
|
|
|
|
Exercised
|
|
|
|
Forfeited
|
|
|
|
Outstanding
as of December 31, 2008
|
|
106,000
|
|
|
|
|
|
Issued
|
|
682,948
|
|
Exercised
|
|
|
|
Forfeited
|
|
|
|
Outstanding
as of December 31, 2009
|
|
|
788,948
|
|
Expiration Date
|
|
Number of
Shares
Underlying
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
2010
|
|
106,000
|
|
$
|
15.03
|
|
2011
|
|
10,000
|
|
1.86
|
|
2012
|
|
|
|
|
|
2013
|
|
|
|
|
|
2014
|
|
672,948
|
|
1.86
|
|
|
|
|
|
|
|
Total
outstanding
|
|
788,948
|
|
$
|
3.63
|
|
All
outstanding warrants expire no later than November 19, 2014.
The
range of assumptions used in the Black Scholes pricing model to calculate the fair
value of the financial instruments was as follows:
66
Table of Contents
Exercise price
|
|
$1.86-$50.00
|
|
|
|
|
|
Estimated
life
|
|
0.91-4.89 years
|
|
|
|
|
|
Volatility
|
|
137.89%-205.73%
|
|
|
|
|
|
Risk
free rate
|
|
0.45%-2.20%
|
|
|
|
|
|
Dividend
rate
|
|
0%
|
|
NOTE GCAPITAL LEASE OBLIGATIONS
Equipment acquired under capital lease obligations is classified as
property and equipment in the accompanying consolidated financial statements
and consisted of the following:
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
324
|
|
$
|
492
|
|
Less:
accumulated depreciation
|
|
(86
|
)
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
238
|
|
$
|
272
|
|
Amortization of equipment under capital lease obligations is included
with depreciation and amortization in the consolidated statement of cash flows.
Future minimum capital lease payments as of December 31, 2009 are
as follows:
2010
|
|
$
|
90
|
|
2011
|
|
46
|
|
2012
|
|
44
|
|
2013
|
|
32
|
|
Total
|
|
212
|
|
Less:
amount representing interest
|
|
(17
|
)
|
Net
present value of minimum lease payments
|
|
195
|
|
Less:
current portion
|
|
(81
|
)
|
|
|
|
|
|
|
$
|
114
|
|
NOTE HLEASE COMMITMENTS
The
Company leases facilities in Pennsylvania under an amended operating lease
agreement which is set to expire January 31, 2017. Rent expense for the
years ended December 31, 2009, 2008 and 2007 was $585, $574 and $468,
respectively.
Future
minimum lease payments required under operating leases subsequent to December 31,
2009 are as follows:
67
Table of Contents
Years ended December 31:
|
|
Amount
|
|
|
|
|
|
2010
|
|
$
|
320
|
|
2011
|
|
372
|
|
2012
|
|
554
|
|
2013
|
|
568
|
|
2014
|
|
582
|
|
Thereafter
|
|
1,310
|
|
|
|
|
|
|
NOTE IRELATED PARTY TRANSACTIONS
Notes PayableStockholders
As a result of the Hercules Restructuring, the Companys majority
stockholder is HTI, a wholly owned subsidiary of its senior lender, Hercules.
During 2009, Hercules charged the Company approximately $3,700 in interest on
outstanding debt and $1,200 in finance fees and other costs associated with
loan amendments, a forbearance agreement and the restructuring. Included in finance fees is a $450
restructuring charge payable to Hercules in monthly installments of
approximately $38 beginning in April 2010. Of the finance fees and costs
charged during 2009, approximately $173 has been deferred at December 31,
2009 and will be charged to interest expense over the term of the credit
arrangement. During 2008, Hercules charged the Company approximately $2,725 in
interest on outstanding debt and $1,660 in other costs associated with the loan
agreement. Fees charged during 2008 were outstanding at December 31, 2008
and included as a component of aggregate outstanding debt at the November 20,
2009 restructuring date.
Consulting Services
During 2006, the Company entered into a consulting agreement with
Corrugated Service Corp. which does business as Amtech and is owned by Cosmo T.
DeNicola, an officer and director of InfoLogix prior to the Companys merger
with New Age Translation, Inc., and a stockholder of InfoLogix. The
consulting agreement continued until December 31, 2008. Despite the
termination of the consulting agreement, the Company continued to use Amtech
for services during 2009.
Amtech
provided certain software development consulting services. For the years ended December 31,
2009, 2008 and 2007, the Company paid Amtech approximately $173, $1,661 and
$812, respectively.
Support Services
.
During
2006, the Company entered into a services agreement with Futura Services, Inc. (Futura) which is owned by the wife of
Cosmo T. DeNicola, an officer and director of InfoLogix prior to its merger
with New Age Translation, Inc., and a stockholder of InfoLogix. The services agreement granted Futura the
exclusive right to provide certain outsourcing services and functions to
support certain equipment that is used in the Companys business.
On
March 2, 2009, the Company entered into a master services agreement, which
superseded the services agreement with Futura. The master services agreement
will continue until December 31, 2013, unless terminated earlier. Pursuant
to the master services agreement, Futura is granted the exclusive right to
provide certain outsourcing services and functions to support equipment that is
used in the Companys business. The Company issues purchase orders for
specified services to be provided by Futura and the services are set forth in
mutually agreed statements of work. Futura will maintain its exclusive right to
provide services until the earlier of the termination of the master services
agreement or the fulfillment by Futura of services under statements of work in
the amount of $1,500 for any calendar year during the term of the master
services agreement, after which point the Company may use other providers to
perform the services for the balance of that calendar year, provided that
Futura is given the right to perform the services on the same terms and
conditions as the other providers.
Under
the terms of the master services agreement, Futura bears the risk of loss for
the services rendered under the master services agreement and statements of
work, including, but not limited to all costs (subject to certain exclusions)
related to warranty, extended warranty and call center services that are sold
by the Company to its customers and to post- and pre-production of kitting
(assembly and packaging), imaging and shipments to customers. The Company has a
minimum annual commitment to purchase services from Futura as described above
in an aggregate amount of $1,500 per year through
68
Table of Contents
2013.
Professional Recruiting Services
The Company maintains a business relationship with Gulian &
Associates, which is owned by the wife of David T. Gulian, the President and
Chief Executive Officer and director and stockholder. Under the terms of the
arrangement, Gulian & Associates provides the Company with
retainer-based professional recruiting services, on a non-exclusive basis.
Gulian & Associates is paid a success fee of 20% of a newly hired
persons annual base salary for employees introduced to the Company by Gulian &
Associates; one-third of the fee is invoiced at the time the hiring request is
made, the remainder is invoiced only upon successful placement of a candidate
into the role. Fees earned for the years ended December 31, 2009, 2008 and
2007 were $178, $225 and $159, respectively.
NOTE JEMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering substantially all
employees. As allowed under Section 401(k) of the Internal Revenue
Code, the plan provides tax deferred salary deductions for eligible employees.
Company contributions are at the discretion of the board of directors. The
Company did not make a contribution to the plan for 2009, 2008 or 2007.
NOTE KCONCENTRATIONS OF CREDIT RISK
During the years ended December 31,
2009, 2008 and 2007, the Company had two, one and one vendors, respectively,
that individually comprised 10% or more of cost of revenues.
As a percentage of total net
revenue, the Companys five largest customers accounted for, in the aggregate,
approximately 38%, 34%, and 34% of net revenues for the years ended December 31,
2009, 2008 and 2007, respectively.
NOTE LCOMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Companys financial
position, results of operations or cash flows.
Employment Agreements
The Companys employment agreements with its Chief Executive Officer
and President and Chief Financial Officer (collectively Executives) expired on December 31,
2008. On March 13, 2009 the Company entered into severance agreements with
both Executives. Each severance agreement provides, in the event of termination
of the Executives employment, for predefined payments based on the Executives
then current wage base in exchange for non-compete and non-solicitation
agreements.
NOTE MINCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Accordingly deferred income tax assets and liabilities are recognized
for the estimated future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. These assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which the temporary differences are expected to reverse.
The Company has net operating loss carryforwards available in certain
jurisdictions to reduce future taxable income. Future tax benefits for net
operating loss carryforwards are recognized to the extent that realization of
these benefits is considered more likely than not. This determination is based
on the expectation that related operations will be sufficiently profitable or
various tax business and other planning strategies will enable the Company to
utilize the operating loss carryforwards. The Companys evaluation of the
realizability of deferred tax assets considers both positive and negative
evidence. The weight given to the potential effects of positive and negative
evidence is based on the extent to which it can be objectively verified.
69
Table of Contents
As of December 31, 2009, the Company has federal net operating
losses (NOLs) of approximately $20 million.. As a result of limitations under Section 382
for the change in control, the Companys ability to utilize the NOLs to offset
future taxable income is limited to approximately $156 per year over the next
20 years. The Company determined that it is more likely than not that it will
not be able to use the net operating losses and other deferred tax assets to
reduce future tax liabilities and has recorded a full valuation allowance at December 31,
2009 and 2008. If not used, the NOLs
will expire beginning in the year 2024.State NOLs which are also limited under Section 382,
are subject to expiration in varying years starting in 2013 through 2027.
The provision for income taxes is as follows:
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Current
income tax expense (benefit):
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
$
|
|
|
State
|
|
53
|
|
28
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
28
|
|
8
|
|
Deferred
income tax expense (benefit):
|
|
|
|
|
|
|
|
Federal
|
|
529
|
|
2,939
|
|
(1,487
|
)
|
State
|
|
63
|
|
468
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
592
|
|
3,407
|
|
(1,720
|
)
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
$
|
645
|
|
$
|
3,435
|
|
$
|
(1,712
|
)
|
Deferred tax assets and liabilities are detailed as follows:
70
Table of
Contents
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
1
|
|
$
|
153
|
|
Inventory
|
|
651
|
|
198
|
|
Accrued
expenses
|
|
716
|
|
170
|
|
Valuation
allowance
|
|
(1,368
|
)
|
(521
|
)
|
|
|
|
|
|
|
Deferred
tax asset-current
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
(25
|
)
|
(127
|
)
|
Intangible
assets
|
|
(144
|
)
|
(37
|
)
|
Operating
loss carry forwards
|
|
2,163
|
|
4,885
|
|
Stock
based compensation
|
|
611
|
|
1,729
|
|
Valuation
allowance
|
|
(3,197
|
)
|
(6,450
|
)
|
|
|
|
|
|
|
Net
deferred tax liability-long-term
|
|
(592
|
)
|
|
|
|
|
|
|
|
|
Total
net deferred tax liability
|
|
$
|
(592
|
)
|
$
|
|
|
A reconciliation of the United States statutory income tax rate to the
effective income tax rate is as follows:
71
Table of
Contents
|
|
Year ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
at the Federal statutory rate
|
|
$
|
(7,392
|
)
|
34.0
|
%
|
$
|
(3,315
|
)
|
34.0
|
%
|
$
|
(1,656
|
)
|
34.0
|
%
|
State
taxes
|
|
(80
|
)
|
0.3
|
%
|
(243
|
)
|
2.5
|
%
|
(225
|
)
|
4.6
|
%
|
Permanent
differences
|
|
304
|
|
(1.4
|
)%
|
38
|
|
(0.5
|
)%
|
11
|
|
(0.2
|
)%
|
Other
|
|
570
|
|
(2.6
|
)%
|
(17
|
)
|
0.2
|
%
|
158
|
|
(3.3
|
)%
|
Limitation
of net operating loss carryforward
|
|
9,650
|
|
(44.4
|
)%
|
|
|
0.0
|
%
|
|
|
0.0
|
)%
|
Valuation
allowance
|
|
(2,407
|
)
|
11.1
|
%
|
6,972
|
|
(71.5
|
)%
|
|
|
0.0
|
%
|
|
|
$
|
645
|
|
(3.0
|
)%
|
$
|
3,435
|
|
(35.3
|
)%
|
$
|
(1,712
|
)
|
35.10
|
%
|
NOTE NACQUISITION OF ASSETS OF DELTA HEALTH
SYSTEMS, INC.
On May 2, 2008, the Company, through its wholly-owned subsidiary
InfoLogix Systems Corporation (Systems), acquired substantially all of the
assets and assumed certain liabilities of Delta Health Systems, Inc.
(Delta) pursuant to an asset purchase agreement. The assets acquired related to
Deltas business of providing strategic cost management consulting services and
web-based management data collection and work-flow analytics to the healthcare
industry, and included cash, accounts receivables, the rights to existing
relationships with customers, vendors and partners, certain tangible personal
property and certain intangible rights and property. The liabilities assumed
related to customer contracts and accrued expenses.
The purchase price paid by the Company was $1,673, which consisted of
$1,465 in cash and $208 in acquisition costs. The Company and Delta also
entered into an earn-out agreement pursuant to which Delta is eligible to earn
additional consideration in the subsequent two year period (each year, an Earn-out
Period) after the closing of the transaction. Under the terms of the Earn-out
Agreement, Delta was able earn up to $500 in the first Earn-out Period and up
to $500 in the second Earn-out Period upon achievement of gross revenue targets
described in the Earn-out Agreement. The additional cash consideration will not
be accounted for by the Company until such time as payment of this additional
consideration is considered probable, if any pursuant to the terms of the
agreement. At the end of the two year period, if Delta has not already earned
the $1,000 of additional consideration in respect of each of the two Earn-out
Periods, Delta may earn an amount equal to the $1,000 of additional
consideration less any amounts previously paid in respect of the two Earn-out
Periods upon the achievement of certain cumulative financial milestones during
the two-year earn-out period. At the point the consideration is considered
probable, the Company will record it as an adjustment to the purchase price.
72
Table of
Contents
The
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values on the date of acquisition, as follows:
Assets
acquired:
|
|
|
|
Accounts
receivable
|
|
$
|
28
|
|
Property
and equipment
|
|
2
|
|
Goodwill
|
|
1,179
|
|
Customer
relationships
|
|
402
|
|
Non-compete
agreements
|
|
62
|
|
Trademarks/trade
names
|
|
43
|
|
Total
assets acquired
|
|
1,716
|
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
Current
liabilities
|
|
43
|
|
Net
assets acquired
|
|
$
|
1,673
|
|
The customer relationships
are being amortized on a straight-line basis over an eight year period, which
is the average expected life of the underlying customer contracts. The
non-compete agreements are amortized on a straight-line basis over a three year
period, which corresponds with the expiration date of the non-compete
provisions contained within the asset purchase agreement. Goodwill and the
trademarks/trade names have indefinite lives and therefore are not amortized,
however, they will be evaluated annually for impairment.
Delta earned $430
for the earn-out period ended May 2, 2009. As a condition to and in
connection with the Hercules Restructuring on November 20, 2009, the
Companys wholly-owned subsidiary, Systems entered into a letter agreement with
Delta whereby the parties agreed to restructure the outstanding obligation
under the earn-out. In lieu of the $430
payment, commencing as of September 1, 2009, Delta is participating in a
commission plan, under which Systems pays Delta a monthly commission equal to
11.5% of collected revenue from Deltas business that the Company generates, if
any, during the applicable month. Delta released Systems from all
obligations under the Delta Earn-out Agreement relating to the earn-out period
ended May 2, 2009. All other terms and conditions of the Delta
Earn-out Agreement, including the rights and obligations of the parties with
respect to the earn-out period ending May 2, 2010, if any, remain in full
force and effect. Commissions earned for
the year-ended December 31, 2009 was $132.
NOTE OACQUISITION OF ASSETS OF AWARE
INTERWEAVE, INC.
On May 16, 2008, the
Company, through its wholly-owned subsidiary InfoLogix Systems Corporation,
acquired substantially all of the operating assets and assumed certain
liabilities of Aware Interweave, Inc. (Aware) pursuant to an asset
purchase agreement. The assets acquired related to Awares business of
providing mobile solutions to a variety of industries including the healthcare
and life sciences industries, and included cash, accounts receivable, the
rights to existing relationships with customers, vendors and partners, certain
tangible personal property and certain intangible rights and property. The
liabilities assumed consist of current accounts payable and accrued expenses.
The purchase price paid by
the Company consisted of cash and shares of the Companys common stock. The
total purchase price paid by the Company is as follows:
Cash
paid, net of cash received
|
|
$
|
1,318
|
|
Common
stock issued
|
|
1,030
|
|
Acquisition
costs
|
|
131
|
|
|
|
$
|
2,479
|
|
73
Table of Contents
At closing, the Company
issued 20,000 shares of common stock, which was valued at $1,030 based on the
average closing market price of the Companys common stock from May 13,
2008 through May 21, 2008. The issuance of the shares of common stock was
unregistered and the shares are subject to a two-year lockup.
The purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values on the date of acquisition, as follows:
Assets
acquired, excluding cash:
|
|
|
|
Accounts
receivable
|
|
$
|
204
|
|
Prepaid
expenses
|
|
12
|
|
Property
and equipment
|
|
11
|
|
Goodwill
|
|
1,697
|
|
Customer
relationships
|
|
175
|
|
Software
|
|
500
|
|
Trademarks/trade
names
|
|
18
|
|
Non-compete
agreements
|
|
54
|
|
Total
assets acquired
|
|
2,671
|
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
Current
liabilities
|
|
192
|
|
Net
assets acquired
|
|
$
|
2,479
|
|
The customer relationships
are being amortized on a straight-line basis over a two year period, which
corresponds with the expected life of the underlying customer contracts.
Amortization of the software will not commence until such time as the software
is available for sale. The non-compete agreements are amortized on a
straight-line basis over a three year period, which corresponds with the
expiration date of the non-compete provisions contained within the asset
purchase agreement. Goodwill and the trademarks/trade names have indefinite
lives and therefore are not amortized, however, they will be evaluated annually
for impairment.
NOTE P2008 EMPLOYEE STOCK PURCHASE PLAN
On January 1, 2008, the
Company established the 2008 Employee Stock Purchase Plan (ESPP). The purpose
of the ESPP is to provide the Companys employees the opportunity to purchase
common stock through accumulated payroll deductions. The ESPP is administered
by the Board of Directors. The Company has reserved 40,000 shares for use in
the ESPP. The purchase price of the common stock is at an amount equal to 85%
of the fair market value of a share of common stock on the enrollment date or
the exercise date, whichever is lower. The ESPP has consecutive three month
offering periods commencing on the first trading day of each calendar quarter.
An eligible employee may become a participant in the ESPP by completing a
subscription agreement authorizing payroll deductions not to exceed 10% of the
employees compensation. These payroll deductions commence on the first payroll
date following the enrollment date and end on the last payroll date in the
offering period.
On the enrollment date of
each offering period, each eligible participating employee is granted an option
to purchase on the exercise date of such offering period up to a number of
shares of the common stock determined by dividing the employees payroll
deductions accumulated prior to such exercise date by the applicable purchase
price. Employees are not permitted to purchase more than 100 shares during each
offering period. The option for the purchase of shares is exercised
automatically and purchases of shares are effective on the last day of each
quarter. The maximum number of full shares subject to the option are purchased
for such participant at the applicable purchase price with the accumulated
payroll deductions in his or her account.
On July 20,
2009, the Companys Board of Directors voted to amend the ESPP to provide that
the Board of Directors may suspend the ESPP at any time and for any reason and
later reinstate the ESPP at any time and for any reason. The Board of
Directors has determined that an indefinite suspension of the ESPP is in the
best interests of the
74
Table of Contents
Company and its
stockholders. Pursuant to the ESPP as amended, the Company suspended the ESPP
effective as of July 1, 2009.
During 2009, the
Company issued 6,275 shares in connection with the ESPP for which it received
$65 in cash. The Company issued 6,919 shares during 2008 for which it
received $158 in cash.
NOTE QSTOCK-BASED COMPENSATION
In November 2006, the
Companys Board of Directors approved the 2006 Equity Compensation Plan (Plan).
In accordance with the Plan, the Board of Directors may grant options to
purchase shares of the Companys common stock to employees, officers,
consultants and non-employee directors. The Plan, as originally approved
provides for the issuance of options to purchase up to 154,400 shares of the
Companys common stock. The Plan was amended in January 2010, to increase
the number of shares authorized to 1,840,000 shares.
The Plan provides that
employees, consultants and non-employee directors are eligible to receive
nonqualified stock options, while only employees are eligible to receive
incentive stock options. The incentive stock options offer employees certain
tax advantages that are not available under nonqualified stock options. The
Board of Directors, or a committee thereof whose members are appointed by the
Board of Directors, administers the Plan, and has discretion in setting the
terms of options granted to employees, consultants and non-employee directors.
The Company estimates the
fair value of stock options granted using the Black-Scholes option pricing
model. Expected volatilities are
calculated based on the historical volatility of the stock. Management monitors share option exercise and
employee termination patterns to estimate forfeiture rates within the valuation
model. The simplified method is used to estimate the period of time that
options granted are expected to be outstanding. The risk free interest rate for
periods within the contractual life of an option is based on the interest rate
of a 5-year U.S. Treasury Note in effect on the grant date. The estimated fair
value is amortized on a straight line basis over the requisite service period
of the award, which is generally the vesting period. Employee options typically vest with respect
to 25% of the shares one year after the options grant date and the remainder
ratably on an annual basis over the following three years. Director options
typically vest with respect to 50% of the shares six months after the options
grant date and the remainder ratably on a monthly basis over the following
three years.
The Company estimated the
fair value of options granted using the following range of assumptions:
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Expected
life in years
|
|
6.00
|
|
5.00
|
|
5.00
|
|
Risk-free
interest rate
|
|
2.07%-2.15%
|
|
2.5% - 3.3%
|
|
3.5% - 4.0%
|
|
Volatility
|
|
125.36%-126.86%
|
|
64.3% - 81.2%
|
|
57.9% - 61.4%
|
|
Dividend
yield
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
Fair
value of grants
|
|
$9.70-$10.20
|
|
$15.25-$36.25
|
|
$30.25-$34.25
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
129,635
|
|
32,440
|
|
25,400
|
|
75
Table of Contents
The following table details stock option
activity:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Life (years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
84,480
|
|
$
|
50.00
|
|
9.92
|
|
$
|
6,653
|
|
Granted
|
|
25,400
|
|
68.25
|
|
|
|
|
|
Forfeited
|
|
(1,460
|
)
|
50
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
108,420
|
|
56.50
|
|
9.27
|
|
415
|
|
Granted
|
|
32,440
|
|
36.75
|
|
|
|
|
|
Forfeited
|
|
(9,160
|
)
|
52.00
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2009
|
|
131,700
|
|
50.00
|
|
8.49
|
|
|
|
Granted
|
|
18,035
|
|
11.00
|
|
|
|
|
|
Forfeited
|
|
(11,980
|
)
|
43.75
|
|
|
|
|
|
Expired
|
|
(8,120
|
)
|
52.00
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
129,635
|
|
$
|
45.25
|
|
7.74
|
|
$
|
|
|
Vested
shares at December 31, 2009
|
|
69,450
|
|
|
|
|
|
$
|
|
|
Exercisable
shares at December 31, 2009
|
|
69,450
|
|
|
|
|
|
$
|
|
|
The intrinsic value of stock
options is the amount by which the market price of the stock on a given date,
such as at the end of the period or on the day of exercise, exceeded the market
price of stock on the date of grant.
The recognized compensation
cost for stock options granted to employees was approximately $853, $960 and
$828 for the years ended December 31, 2009, 2008 and 2007
respectively. At December 31, 2009,
the amount of stock based compensation to be recognized over future periods is
approximately $1,300.
The Company recorded an
income tax benefit for 2007 of approximately $1,418 related to the granting of
the nonqualified options and warrants. The Company did not record an income tax
benefit for options during 2009 and 2008.
76
Table of Contents
NOTE R- FAIR VALUE MEASUREMENTS
The Company categorizes its
financial instruments into a three-level fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value into three broad
levels. The fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3).
If the inputs used to measure fair value fall within different levels of
the hierarchy, the category level is based on the lowest priority level input
that is significant to the fair value measurement of the instrument. Financial
assets recorded at fair value on the Companys consolidated balance sheets are
categorized as follows:
Level 1- Observable inputs such as quoted prices
(unadjusted) for identical assets or liabilities in active markets
Level 2- Inputs, other than quoted prices in active
markets, that are observable either directly or indirectly
Level 3- Unobservable inputs for which there is little
or no market activity, which require the Company to develop its own assumptions
The fair value hierarchy also requires an
entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.
The following
table details the assets and liabilities measured at fair value on a recurring
basis:
|
|
|
|
Fair Value Measurement at December 31, 2009
|
|
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liability
|
|
$
|
2,762
|
|
$
|
|
|
$
|
2,762
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of derivative instruments is estimated using the Black
Scholes valuation model with observable inputs.
As discussed in Note F, in connection with the Hercules Restructuring,
the Company issued 2,691,790 shares of the Companys common stock and a warrant
to purchase 672,948 fully paid and non-assessable shares of the Companys
common stock which were valued at $9,421 and $2,159, respectively. The fair value of the common stock was
determined to be $3.50 per share which represents the closing price of the
Companys common stock as traded on the NASDAQ Capital Market.
77
Table of Contents
NOTE SSELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
(UNAUDITED)
2009 Quarter Ended
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
21,348
|
|
$
|
22,345
|
|
$
|
24,411
|
|
$
|
18,812
|
|
Gross
profit
|
|
4,984
|
|
5,946
|
|
4,578
|
|
4,135
|
|
Net
loss
|
|
(10,874
|
)
|
(2,062
|
)
|
(4,781
|
)
|
(4,671
|
)
|
Loss
per share - basic and diluted
|
|
$
|
(4.89
|
)
|
$
|
(2.00
|
)
|
$
|
(4.65
|
)
|
$
|
(4.56
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
2,223,726
|
|
1,030,365
|
|
1,027,408
|
|
1,024,126
|
|
2008 Quarter Ended
|
|
December 31
|
|
September 30
|
|
June 30
|
|
March 31
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
26,759
|
|
$
|
23,824
|
|
$
|
26,347
|
|
$
|
23,786
|
|
Gross
profit
|
|
6,837
|
|
6,210
|
|
7,288
|
|
6,205
|
|
Net
loss
|
|
(9,133
|
)
|
(2,520
|
)
|
(540
|
)
|
(991
|
)
|
Loss
per share - basic and diluted
|
|
$
|
(8.95
|
)
|
$
|
(2.47
|
)
|
$
|
(0.54
|
)
|
$
|
(0.99
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
1,020,737
|
|
1,019,092
|
|
1,007,748
|
|
996,738
|
|
NOTE T- OPERATING SEGMENTS
The Company has two reportable operating segments:
commercial and healthcare. Each of the reportable segments provide similar
products and services, with a focus on primary vertical markets. The
implementation
and support organizations in both the healthcare and commercial segments
provide solutions that include consulting, business software applications,
mobile managed services, mobile workstations and devices, and wireless
infrastructure. The accounting policies
of each segment are the same as those described in Note A - Summary of
Significant Accounting Policies. The Company evaluates the performance of its
operating segments based on gross profit and does not allocate assets among
segments. There are no intersegment sales or transfers.
|
|
Year ended December 31, 2009
|
|
|
|
Healthcare
|
|
Commercial
|
|
Total
|
|
Net
revenues
|
|
$
|
50,353
|
|
$
|
36,563
|
|
$
|
86,916
|
|
Cost
of revenues
|
|
36,578
|
|
30,695
|
|
67,273
|
|
Gross
profit
|
|
$
|
13,775
|
|
$
|
5,868
|
|
$
|
19,643
|
|
|
|
Year ended December 31, 2008
|
|
|
|
Healthcare
|
|
Commercial
|
|
Total
|
|
Net
revenues
|
|
$
|
64,404
|
|
$
|
36,312
|
|
$
|
100,716
|
|
Cost
of revenues
|
|
44,364
|
|
29,812
|
|
74,176
|
|
Gross
profit
|
|
$
|
20,040
|
|
$
|
6,500
|
|
$
|
26,540
|
|
78
Table of
Contents
NOTE U- SUPPLEMENTAL CASH FLOW INFORMATION
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
3,924
|
|
$
|
2,253
|
|
$
|
873
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Capital
lease obligations incurred for new equipment
|
|
12
|
|
186
|
|
125
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares in connection with acquisitions
|
|
|
|
1,030
|
|
3,363
|
|
Issuance
of long-term debt in connection with acquisitions
|
|
|
|
|
|
4,000
|
|
Issuance
of common shares to advisor for services rendered
|
|
|
|
38
|
|
66
|
|
Liability
incurred for financing cost
|
|
450
|
|
900
|
|
|
|
Issuance
of common shares and warrants in connection with the
Hercules
Restructure
|
|
11,580
|
|
|
|
|
|
Reclassification
of equity component of Term Loan B
|
|
2,514
|
|
|
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NOTE V- SUBSEQUENT EVENTS
On February 19, 2010, the Company and its subsidiaries entered
into the Amendment No. 1 (Amendment 1) to the Amended Loan Agreement with
Hercules, which provides the Company with an Equipment Loan allowing it to
request up to $3,000 in borrowings for use in purchasing equipment (the
Equipment Loan). The Company may borrow in minimum increments of $250 under the
Equipment Loan, subject to valid, verified purchase orders acceptable to
Hercules from suppliers approved by Hercules in its sole discretion. In connection with any advances, the Company
will be charged a fee of 3% of the purchase price identified in the relevant purchase
orders. All customer receipts related to sales of products financed by the
Equipment Loan will be placed in a lockbox account under the exclusive control
of Hercules and customer receipts will be applied first to payment of the
Equipment Loan fee, second, to the outstanding principal on the Equipment Loan
and third, to all other obligations existing under the Equipment Loan. After
such application, the excess in the lockbox account will be returned to the
Company, unless an event of default exists or could reasonably be expected to
exist, in which case, Hercules may apply the excess in the lockbox account to
any obligation under the Amended Loan Agreement. The Equipment Loan bears
interest at a rate of 1.5% per month and Hercules commitment terminates on April 30,
2010
On
March 25, 2010, Hercules advanced to the Company an additional $1,350,
initially applied to the outstanding balance on the Companys revolving line of
credit facility. The advance increased the outstanding indebtedness on the
revolving line of credit to $8,909, and was provided as an extension above the
Companys eligible borrowing base.
On
April 6, 2010, the Company entered into Amendment No. 2 (Amendment 2)
to the Amended Loan Agreement with Hercules. Pursuant to Amendment 2, Hercules
funded a term loan in an original principal amount of $1,350 (Term Loan C). The
proceeds of Term Loan C were used to repay outstanding overadvances under the
revolving credit facility under the Amended Loan Agreement. 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 the Companys common stock at a price of $3.276 per share at any time
at Hercules option. The Company may prepay Term Loan C without incurring a
prepayment penalty charge. The Company also entered into a registration rights
agreement with Hercules whereby it agreed to register the shares underlying
Term Loan C and certain interest that may be paid in shares.
Amendment 2
also amended the interest payment options under Term Loan B such that Hercules
now has the option, in its sole discretion, to require any and all interest on
Term Loan B to be paid in cash, in kind or in shares of common stock of the
Company rather than 2.5% as PIK and the balance in cash or conversion of the
2.5% PIK interest into cash or shares only if certain pre-defined metrics are
maintained. The number of shares into which accrued interest will be converted
will be determined based on the adjusted 60-day average trading price of the
Companys common stock on the date of Hercules election to convert the
interest into shares.
Amendment
2 also amends the default interest payment options under the Amended Loan
Agreement. Whereas prior to Amendment 2, default rate interest was payable in
cash or in kind by adding the accrued interest to the outstanding principal
amount, pursuant to Amendment 2, Hercules now has the option to elect to have
default rate interest paid in cash, in kind or in shares of the Companys
common stock. All default rate interest paid in kind will be added to the
outstanding principal amount on Term Loan B, notwithstanding on which loan the
interest has accrued. If Hercules elects to have default
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rate
interest paid in shares, the number of shares into which such accrued default
rate interest will be converted will be determined based on the adjusted 60-day
average price on the date of Hercules election to convert the interest into
shares.
On February 10, 2010, Hercules sent the Company a letter notifying
the Company of an event of default as of February 5, 2010 and charging the
Company 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.
Hercules has not chosen to accelerate the Companys obligations under
the Amended Loan Agreement, but has expressly not waived any events of default
or any of its remedies under the loan and security agreement. The Company does
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.
On
February 17, 2010, Wayne D. Hoch resigned as a director of the Company.
His resignation was not due to any disagreement with the Company. As of the
date of his resignation, Mr. Hoch was the chairman of the Audit Committee
of the Board of Directors, as well as a member of the Compensation Committee
and the Nominating and Governance Committee of the Board of Directors.
On
April 6, 2010, the Board of Directors elected Melvin L. Keating to the
Board of Directors. Mr. Keating, an independent director, has been
appointed to the Audit Committee and now serves as its chairman.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None
Item 9A(T). Controls and Procedures
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934, as amended (Exchange Act), is recorded,
processed, summarized and reported within the time periods specified in the SECs
rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) were designed to ensure that the
information we are required to disclose in our reports under the Exchange Act
is recorded, processed and reported in an accurate manner and on a timely basis
and the information that we are required to disclose in our Exchange Act
reports is accumulated and communicated to management to permit timely
decisions with respect to required disclosure but based on a letter received
from our independent registered public accounting firm discussed below were not
operating in an effective manner.
Managements Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining internal
control over financial reporting. As required by SEC Rule 15d-15(b), we
carried out an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2009. As defined in the rules of
the Securities and Exchange Commission, internal control over financial
reporting is a process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
Our internal control over financial reporting includes those policies
and procedures that:
1.
Pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the Companys transactions and the dispositions of assets of the
Company;
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2.
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of our management
and Board of Directors; and
3.
Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, a system of internal control over
financial reporting can provide only reasonable assurance with respect to
financial statement preparation and presentation and may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In connection with the preparation of our annual consolidated financial
statements, management has conducted an assessment of the effectiveness of our
internal control over financial reporting based on the framework set forth in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Managements assessment included an evaluation of the design of our
internal control over financial reporting and testing of the operational
effectiveness of those controls. Based on this evaluation, we have concluded
that, as of December 31, 2009, our internal control over financial
reporting was not effective due to the existence of a material weakness. 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.
This annual report does not include an attestation report of the
Companys independent registered public accounting firm regarding internal
control over financial reporting. Managements report was not subject to
attestation by the Companys independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only managements report in this annual report.
Material Weakness Identified
In connection with its audit
of our consolidated financial statements for the period ended December 31,
2009, our independent registered public accounting firm identified deficiencies
in internal control related to our accounting for the Hercules
Restructuring. 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 $6,777 loss on debt
extinguishment and a $4,294 increase in additional-paid-in-capital.
Plan for Remediation of Material
Weaknesses
We intend to take
appropriate and reasonable steps to make the necessary improvements to
remediate these deficiencies.
Changes in internal controls over financial reporting
We continually seek ways to improve the effectiveness and efficiency of
the Companys internal controls over financial reporting, resulting in frequent
process refinement. However, there have been no changes in our internal control
over financial reporting that occurred during our last fiscal period to which
this Annual Report on Form 10-K relates that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
Directors
The
Board of Directors believes that it is necessary for each of the Companys
directors to possess many qualities and skills. When assessing new candidates,
the Nominating and Governance Committee considers the evolving needs of the
Board of Directors and identifies prospective directors that fill any current
or anticipated need. In addition, pursuant to the terms of the Debt Conversion
Agreement, HTI, our majority stockholder, currently has the contractual right
to nominate at least three members of our Board of Directors and the Chief Executive
Officer will also be one of our directors. Our goal is to assemble a Board of
Directors that operates cohesively and works with management in a constructive
way so as to deliver long term stockholder value. Although we do not have a
formal diversity policy, our Nominating and Governance Committee and Board of
Directors consider the diversity of directors in many different forms,
including diversity of executive and professional experience and perspectives,
in our nominating process.
We
believe that our current Board of Directors consists of individuals who have
achieved success in their chosen professions and possess high integrity and
intellect. They are committed to being informed about our industry, our
company, and its key constituents including customers, suppliers, stockholders
and management. Our Board of Directors has identified the following skills that
are most important to our long-term success: accounting and finance knowledge,
business judgment, leadership ability, experience in the information
technology, healthcare and/or commercial industries, and development of
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early stage and/or growing
middle market companies.
Information
about each directors specific experience, qualifications and skills can be
found in the biographical information below. Each of our directors serves a
one-year term until his successor has been duly elected and qualified.
Mark S.
Denomme
, 43,
joined our Board of Directors in November 2009. He is a Managing Director
at Hercules (NASDAQ: HTGC), a specialty finance company providing venture debt
and equity to venture capital and private equity-backed technology and life science
companies at all stages of development and the parent corporation of HTI. Mr. Denomme
has over 20 years of experience in financial services. Prior to joining
Hercules, Mr. Denomme was a Senior Vice President at Brown Brothers
Harriman & Co., focusing on investments in middle market healthcare
companies. From 2000 to 2006, Mr. Denomme was a Managing Director and
co-founder of Consilium Partners, an investment banking firm focused primarily
on sell-side and buy-side engagements for lower middle market companies. From
1997 to 2000, Mr. Denomme was a Director in the Leveraged Finance group of
BancBoston Robertson Stephens, focusing on originating loan syndication and
high yield debt opportunities for the firms technology and media clients. From
1988 to 1997, Mr. Denomme was a commercial lender with Bank of Boston
focused on structured debt opportunities with technology and media-related
companies. Mr. Denomme holds a BBA degree from the University of Michigan.
Mr. Denomme was nominated for election as director by HTI pursuant to its
rights under the Debt Conversion Agreement. We and Mr. Denomme are party
to a director indemnification agreement whereby we have agreed to indemnify
him, to the fullest extent permitted by the law of the State of Delaware, from
indemnifiable losses arising as a result of his role as a member of our Board
of Directors.
Mr. Denommes
experience in financial services positions, including significant
management-level experience working in an investor or lender capacity with
developing and middle markets companies in the technology, healthcare and life
sciences industries, provides him with a strong understanding of the needs of a
growing middle market company in our industry and finance knowledge, which is
particularly useful in understanding our financial and liquidity needs.
David T.
Gulian
, 45,
co-founded InfoLogix in 2001 and serves as our President and Chief Executive
Officer. Mr. Gulian has served as a member of our Board of Directors since
November 2006 and as a member of the Board of Directors of InfoLogix
Systems Corporation, our wholly-owned subsidiary, since 2001. Mr. Gulian
guided InfoLogix from a privately held company to a NASDAQ listed public
company raising over $17,000 in initial capital and over $40,000 in growth capital
to date. He has acquired and integrated several technology and IP companies at
InfoLogix. Mr. Gulian has over 20 years of industry experience with
leading information technology and enterprise mobility firms including
extensive experience in the mobile technology space for commercial and
healthcare industries. Setting the vision, he has cultivated business for
product and go to market strategies for all entities and subsidiaries of
InfoLogix. Prior to the formation of InfoLogix, Mr. Gulian co-founded, and
from 1996 to 2001 served as President of, Prologix, a provider of mobility
systems and wireless platforms. Prologix merged with Datavision in 1999. Prior
to Prologix, Mr. Gulian was the Vice President of RF Mobile Solutions from
1994 to 1996. Mr. Gulian has provided advisory services to multiple
companies and boards through the years.
Mr. Gulian,
as co-founder of the Company and President and Chief Executive Officer of
InfoLogix, Inc., possesses a thorough knowledge of our day-to-day
operations, well-developed business judgment, leadership ability and a deep
working knowledge of our industry.
Manuel A. Henriquez
, 46, joined our Board of
Directors in November 2009. Mr. Henriquez is the co-founder, Chairman
and CEO of Hercules (NASDAQ: HTGC), a specialty finance company providing
venture debt and equity to venture capital and private equity-backed technology
and life science companies at all stages of development and the parent
corporation of HTI. Prior to co-founding Hercules, Mr. Henriquez was a
partner at VantagePoint Venture Partners, a $2.5 billion multi-stage venture
capital firm, where he was an active equity investor and board member of many
leading communications and software companies. From 1997 to March 2000, Mr. Henriquez
was at Comdisco Ventures, where he was the president and chief investment
officer, along with other senior level positions. While at Comdisco Ventures,
he co-headed the investment activities for more than $2 billion in investments
to venture backed companies. Earlier in his career, Mr. Henriquez was a
vice president at Robertson Stephens & Co.s late stage equity venture
fund, CrossLink Capital (fka Omega Ventures). From 1987 to early 1991, Mr. Henriquez
was a vice president at BancBoston Ventures, the Bank of Bostons early stage
venture capital fund. He also was in the Bank of Bostons specialized High
Technology Lending Group. In addition to his extensive debt and equity
investment experience, Mr. Henriquez has held various senior executive
level operating positions at companies, including ON Technology (NASDAQ: ONTC),
a Kleiner Perkins Caufield & Byers
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venture
backed software company acquired by Symantec (NASDAQ: SYMC). He was also the
founder of various technology companies including HealthyPets, acquired by
Petopia.com. Mr. Henriquez earned his B.S. in Business Administration and
Finance from Northeastern University. Mr. Henriquez has also served on the
board of directors of many technology companies, including Alopa Networks
(acquired by C-Cor: CCBL), Asiner, S.A. (Mexico City), eAssist Solutions
(acquired by Talisma), New Channel (acquired by LivePerson: LPSN), Qiva
(acquired by TradeBeam). Savvion, STSN, and Think Engines (acquired by
Cognitronics: CGN). Mr. Henriquez was nominated for election as director
by HTI pursuant to its rights under the Debt Conversion Agreement. We and Mr. Henriquez
are party to a director indemnification agreement whereby we have agreed to
indemnify him, to the fullest extent permitted by the law of the State of
Delaware, from indemnifiable losses arising as a result of his role as a member
of our Board of Directors.
Mr. Henriquez
co-founded Hercules and currently serves as its Chairman and Chief Executive
Officer. As the founder and leader of a NASDAQ-listed company, he possesses
well-developed business judgment and leadership ability in running and growing
a company. Through these roles, he also understands the needs of a growing
middle market company in our industry and has financial knowledge. Mr. Henriquez
is a member of the Compensation Committee and the Nominating and Governance
Committee of our Board of Directors.
Melvin L. Keating
, 63, joined our Board of Directors in April 2010:
Mr. Keating is currently providing investment advice and other services to
various private equity forms. He was President and Chief Executive Officer of
Alliance Semiconductor Corporation, a worldwide manufacturer and seller of
semiconductors, from 2005 to 2008. From
2004 to 2005, Mr. Keating served as Executive Vice President, Chief
Financial Officer and Treasurer of Quovadx Inc., a healthcare software company.
Mr. Keating was employed as a Strategy Consultant for Warburg Pincus
Equity Partners from 1997 to 2004, providing acquisition and investment target
analysis and transactional advice. Mr. Keating also was President and
Chief Executive Officer of Sunbelt Management Company, a private,
European-owned real estate development firm, from 1995 to 1997. From 1986 to
1995, Mr. Keating was Senior Vice President, Financial Administration of
Olympia & York Companies/Reichmann International, responsible for
joint ventures, financial reporting and acquisitions. Mr. Keating is also
a director of White Electronic Designs Corp., serving on its Audit Committee
and Operations Committee, a director of Aspect Medical Systems Inc., serving on
its Strategic Committee and Compensation Committee, and serves on the advisory
board of BTI Systems, Inc. During the course of his career, Mr. Keating
has served on the Board of Directors of seven publicly-traded organizations,
including serving as audit committee chair at Integrated Silicon Solutions
Inc., Plymouth Rubber Co., Price Legacy Corp., a REIT that he helped to create,
Tower Semiconductor, and LCC International, Inc. Mr. Keating holds a B.A. degree from
Rutgers University, as well as an M.S. in Accounting and M.B.A in Finance, both
from The Wharton School of the University of Pennsylvania.
Mr. Keating
has significant executive-level leadership experience and possesses business
judgment and leadership ability in establishing, developing and running growing
companies like ours. His experience and education has also provided him with
financial expertise, including in roles where has been called on to exercise an
important oversight function. Mr. Keating
is the Chairman of the Audit Committee of our Board of Directors
Thomas
C. Lynch
, 67,
joined our Board of Directors in November 2006. He has served as a Senior
Vice President of The Musser Group, a private equity and venture advisory firm
since January 2008. Since September 2008 he serves as a managing
director for Jones Lang LaSalle. From 2001 through September 2008, he
served as a Senior Vice President of The Staubach Company, a real estate
advisory firm. From 1995 to 2000, Mr. Lynch served as a Senior Vice
President for Safeguard Scientifics, Inc., a public investment firm
specializing in expansion financing, management buyout, recapitalization,
industry consolidation, and early-stage transactions. While at Safeguard, he
served from 1998 to 2000 as President and Chief Operating Officer at CompuCom
Systems, a subsidiary of Safeguard. Following a 31 year career of Naval service
after graduating from the U.S. Naval Academy, he retired with the rank of Rear
Admiral in 1995. Mr. Lynchs Naval service included Chief, Navy
Legislative Affairs, command of the Eisenhower Battle Group during Operation
Desert Shield and Superintendent of the U.S. Naval Academy from 1991 to 1994. Mr. Lynch
serves as a director on the following boards: PRWT Services, Buckeye Insurance
Company, Pennsylvania Eastern Technology Council, the Armed Forces Benefit
Association (5 Star Life), Mikros Communications (serves on the audit
committee), Telkonet (serves on the audit committee), and USO World Board of
Governors. He also serves as a trustee of the U.S. Naval Academy Foundation.
Mr. Lynch has
significant executive-level leadership experience in the areas of venture
capital, private equity and expansion financing, and developed leadership
qualities from his experience in command positions with the United States Navy
and as the superintendent of the Naval Academy.
By virtue of these experiences and his participation on the boards of
directors of other companies, he brings business judgment, leadership ability,
financial knowledge and an understanding of the needs of developing middle
market companies like ours. Mr. Lynch
is the Chairman of the Nominating and Governance Committee of our Board of
Directors.
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Roy Y.
Liu
, 49, joined
our Board of Directors in November 2009. He is is a Managing Director at
Hercules (NASDAQ: HTGC), a specialty finance company providing venture debt and
equity to venture capital and private equity-backed technology and life science
companies at all stages of development and the parent corporation of HTI.
Previously, he was a Vice President at GrandBanks Capital and led the firms
investment in Colubris Networks (acquired by Hewlett-Packard), and was a board
observer for CXO Systems and GlassHouse Technologies. Mr. Liu co-founded
Imperial Banks Boston office in 1997, providing debt financing for
venture-backed companies. In addition, Mr. Liu has served as Chief
Financial Officer of several technology start-ups. Mr. Liu started his
finance career in the Acquisition Finance Division of the Bank of Boston. Prior
to his career in finance, Mr. Liu worked at IBM in research &
product development. He holds a BS degree in Electrical Engineering and a
Masters in Business Administration from the University of Michigan. Mr. Liu
was nominated for election as director by HTI pursuant to its rights under the
Debt Conversion Agreement. We and Mr. Liu are party to a director
indemnification agreement whereby we have agreed to indemnify him, to the
fullest extent permitted by the law of the State of Delaware, from
indemnifiable losses arising as a result of his role as a member of our Board
of Directors.
Mr. Lius
experience in financial services positions, including significant experience
working with developing and middle markets companies and his experience serving
as the chief financial officer of several companies in the technology,
healthcare and life sciences industries, provide him with a strong
understanding of the needs of a growing middle market company and accounting
and financial knowledge, which is particularly useful in understanding our
financial and liquidity needs.
Thomas
O. Miller
, 58,
joined our Board of Directors in November 2006. He is currently a partner
in The SAGE Company, which assists small to mid-size companies by providing
consulting services to build increased levels of company performance and value.
Mr. Miller was President of Intermec Technologies, a supply chain
information systems provider, from 2004 to 2005 and a corporate officer in
UNOVA Corporation, Intermecs parent company, from 2001 to 2006. Mr. Miller
also served as Intermecs Executive Vice President, Global Sales and Marketing
from 2001 to 2003 and Senior Vice President, Sales Americas and as Senior Vice
President of System and Solutions from 1999 to 2001. From 1982 to 1999, he
served in various positions with Norand Corporation including President and
Senior Vice President of Sales, Marketing and Operations, helping in the
development of Norands point-of-sale, wireless and direct store delivery
automation businesses and in its 1997 sale to Western Atlas Corporation. Mr. Miller
serves on the board of directors for Socket Mobile, Inc. From 1996 to
2001, Mr. Miller was a member of the board of directors of Eagle Point
Software, a NASDAQ-listed architecture, civil engineering, and landscaping software
company and, from 2003 to 2006, Mr. Miller served as Chairman of the Board
of directors of the Automatic Identification and Mobility Association.
Mr. Millers
experience as a partner in The SAGE Group, prior executive leadership roles,
and current and prior service on boards of directors of other companies provide
him with well-developed business judgment and accounting and financial
knowledge, as well as a particular understanding of developing middle market
companies. As a result of his experiences with Intermec, UNOVA and Norand, he
possesses a deep knowledge of our industry and product offerings. Mr. Miller
is the Chairman of the Audit Committee of our Board of Directors.
Executive Officers
Set forth below is biographical information concerning the non-director
executive officers of InfoLogix, Inc.:
John A. Roberts
, 51, has served as our
Chief Financial Officer since September 2006 and our Secretary since November 2006.
Mr. Roberts served as Acting Chief Financial Officer and Secretary of
Clarient, Inc., a publicly-traded provider of diagnostic laboratory
services, from February 2006 until August 2006. Mr. Roberts
served as Chief Financial Officer and Secretary of Daou Systems, Inc., a
publicly-traded professional services consulting business specializing in
healthcare information technology, from 2003 to 2006. From 2001 to 2002, Mr. Roberts
served as the Vice President of Business Development for MEDecision, Inc.,
a software products company providing medical management solutions for managed
care organizations. From 1999 to 2001, Mr. Roberts held the position of
Senior Vice President of Corporate Development and Chief Financial Officer for
HealthOnline, Inc., a provider of web-based community hosting services.
Since 2009, Mr. Roberts is a member of the Board of Directors for the Drug
Information Association and is chairman of the associations audit committee.
His term expires in 2011. Mr. Roberts earned a Bachelor of Science and a
Masters degree in Business Administration from the University of Maine.
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Eric N. Rubino
, 51, has served as our
Chief Operating Officer since November 2007. Before joining InfoLogix, Mr. Rubino
served as the Chief Operating Officer of Neoware, a publicly-traded provider of
thin client computing devices, software and services, where he was responsible
for overseeing operations, customer service, engineering, information
technology, administration and human resources from 2002 to September 2007.
Before joining Neoware, Mr. Rubino worked for SAP Americas, a subsidiary
of business software company SAP AG, from 1991 to 2002 and served as its Senior
Vice President, General Counsel and Corporate Secretary from 1995 to 1999 and
Chief Operating Officer from 1999 to 2002. Mr. Rubino earned a Bachelor of
Science in Marketing from Rider University, a Masters degree in Business
Administration from St. Josephs University, and a Juris Doctor from Widener
University School of Law.
Gerald E. Bartley
, 67, has served as
Executive Vice President and as Managing Director of our HIA Consulting group
since September 2007. Mr. Bartley served as President and Chief
Executive Officer of Healthcare Informatics Associates, Inc., a
specialized healthcare consulting business, from 1996 to September 2007.
Before joining Healthcare Informatics Associates, Inc., Mr. Bartley
served as Vice President for BRC Healthcare, a hospital IT outsourcing firm
from 1994 to 1996. In addition, Mr. Bartley served in various management
capacities for the Healthcare Division of Alltel/TDS Healthcare Systems, an HIS
software and outsourcing corporation, from 1982 to 1994, Mr. Bartley
served as Chief Information Officer of Washoe Medical Center, Reno Nevada and
Kettering Medical Center, Kettering, Ohio. Mr. Bartley earned his Medical
Technology degree and was a pre-med student for Veterinary Medicine.
Board Structure
We
have chosen to combine the role of Chief Executive Officer and President in
David T. Gulian because we believe doing so facilitates the exchange of
information between the Board of Directors and our employees as well as the
execution by management of the strategic goals developed by the Board of
Directors. Because Mr. Gulian is the only employee director, we are a controlled
company and exempt from certain NASDAQ corporate governance requirements, and
the Audit Committee is composed solely of independent directors (as defined by
the NASDAQ listing standards), the Board of Directors does not believe
establishing the position of an independent chairman or lead independent
director would provide an additional benefit that would outweigh the
efficiencies of the current structure.
Audit Committee
The
board of directors has a standing Audit Committee which is comprised of Melvin
L. Keating (Chairman), Thomas O. Miller and Thomas C. Lynch. The principal
duties of the Audit Committee are to oversee managements conduct of our
accounting and financial reporting processes, the audit of our financial
statements and our compliance with applicable legal and regulatory
requirements, to select and retain our independent registered public accounting
firm, to review with management and the independent registered public
accounting firm our annual financial statements and related footnotes, to
review our internal audit activities, to review with the independent registered
public accounting firm the planned scope and results of the annual audit and
their reports and recommendations, and to oversee managements maintenance of,
and review with the independent registered public accounting firm matters
relating to, our system of internal controls. From the date of Wayne D. Hochs
resignation from our Board of Directors and Audit Committee on February 17,
2010, to the election of Melvin L. Keating to our Board of Directors and
appointment to the Audit Committee, we did not have an audit committee
financial expert. Our Board of Directors has determined that Mr. Keating
is an audit committee expert in accordance with the definition of that term
set forth in Item 4079d0(5)(ii) of Regulation S-K, as adopted by the SEC.
Code of Ethics
InfoLogix maintains a code of business conduct and ethics for
directors, officers and employees, including its Chief Executive Officer and
Chief Financial Officer. The code is available free of charge on our website at
www.infologix.com
, as well as in
print to any stockholder upon request by writing to InfoLogix at 101 E. County
Line Road, Suite 210, Hatboro, Pennsylvania, 19040 or by calling
215-604-0691. Our Board of Directors and Nominating and Governance Committee
regularly reviews corporate governance developments and modifies the code as
warranted. Any modifications are reflected on our website. We intend to satisfy
the disclosure requirements under Item 10 of Form 8-K regarding an
amendment to, or waiver from, a provision of our code by posting such
information on our website.
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Section 16(a) Beneficial
Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
our executive officers and directors and persons who own more than ten percent of
a registered class of our equity securities (collectively, the reporting
persons) to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish InfoLogix with copies of
these reports. Based on our review of the copies of the reports we have
received, and written representations received from certain reporting persons
with respect to the filing of reports on Forms 3, 4 and 5, InfoLogix
believes that all filings required to be made under Section 16(a) by
the reporting persons since our common stock became registered pursuant to Section 12
of the Exchange Act were made on a timely basis, except that David T. Gulian,
Richard D. Hodge and Warren V. Musser were each inadvertently late in filing a Form 4
related to the cancellation of a warrant and a grant of a new warrant to
acquire shares of our common stock.
Item 11. Executive Compensation
Executive Compensation
Compensation Committee
During
2008 and through November 20, 2009, the Compensation Committee of our
Board of Directors was comprised of Thomas O. Miller (Chairman), Wayne D. Hoch,
and Richard A. Vermeil. Mr. Henriquez joined our Compensation Committee on
November 20, 2009 and Mr. Vermeil resigned. Mr. Hoch resigned
from our Board of Directors on February 17, 2010. Currently, the
Compensation Committee consists of Thomas O. Miller (Chairman) and Manuel A.
Henriquez.
The principal duties of the Compensation Committee are to review and
approve goals and objectives relevant to the compensation and benefits of our
Chief Executive Officer, to recommend to the independent directors the annual
and long term compensation of our Chief Executive Officer in accordance with
those goals and objectives and in light of existing agreements, to review,
approve and recommend to the independent directors the annual compensation for
all executive officers, to make recommendations to our board of directors
regarding incentive compensation and stock incentive plans, and to administer
stock incentive plans. The Compensation Committee may form, and delegate all or
any portion of its functions to, a subcommittee consisting of one or more of
its members.
The Compensation Committee met twice during 2009. Meeting agendas are
set by the Chairman. The Compensation Committee approves all employment or
severance agreements entered into with the Chief Executive Officer and other
executives. In the absence of a formal agreement, base salaries for the Chief
Executive Officer and the other executive officers are set annually by the Compensation
Committee and our board of directors, typically in March of each year
after our financial results are known. In determining whether to recommend to
the independent directors for approval merit based increases to the base
salaries of the Chief Executive Officer and our other executive officers, the
Compensation Committee considers our overall performance compared to our stated
strategic plan, including objective performance criteria such as the levels of
net income, EBITDA and revenues that we achieved from year to year and over
longer time periods. In accordance with our statement on corporate governance,
the Compensation Committee also considers the following criteria when
evaluating the performance of our Chief Executive Officer for potential merit
based salary increases and other compensation awards: (i) the creation of
our vision and strategy; (ii) the execution of our vision and strategy; (iii) the
development of sound long term and annual business plans in support of the
approved strategy; (iv) maintenance of consistent values and exemplary
conduct; and (v) the development, retention and motivation of an effective
executive management team and succession plans for our executive management
team.
The Compensation Committee considers the recommendations of our Chief
Executive Officer in establishing compensation for other executive officers and
invited our Chief Executive Officer to participate in its meetings to discuss
the compensation of our other executive officers. When considering whether to award
stock options to the Chief Executive Officer and other executive officers, and
the size of any such award, the Compensation Committee considers previous
equity awards made to the Chief Executive Officer and other executive officers,
the size of their equity interest in InfoLogix, their job duties and
responsibilities, and the overall contribution made to InfoLogix. The
Compensation Committee also considers conditions in the market for executive
talent in which it competes when determining the size of any option award to be
made to a candidate for a position as an executive officer. To date, the
Compensation Committee has made grants of stock options to executive officers
upon the consummation of the merger with New Age Translation, Inc. or in
connection with the officers initial hiring and subsequent incentive awards
granted in 2008.
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The
Compensation Committee has the exclusive authority to retain and terminate
executive compensation consultants that assist in the evaluation of executive
officer or director compensation. To date, the Compensation Committee has not
engaged a compensation consultant to assist it in setting executive officer or
director compensation. The Board of Directors and the Compensation Committee
has reviewed our compensation policies and practices for executive officers and
other employees and to not believe they create risks that are reasonably likely
to have a material adverse effect on the Company.
Summary
Compensation Table2009 and 2008
The
following table summarizes the compensation of our named executive officers in
2008 and 2009. The named executive officers are our Chief Executive Officer and
the two other executive officers who were most highly compensated in 2009.
Name and Principal Position
|
|
Year
|
|
Salary($)
|
|
Bonus($)
|
|
Option
Awards($)(1)
|
|
All Other
Compensation($)
|
|
Total($)
|
|
David
T. Gulian(2)
|
|
2009
|
|
356,849
|
|
50,000
|
|
|
|
43,000
|
|
449,849
|
|
President
and Chief Executive Officer
|
|
2008
|
|
335,452
|
|
118,731
|
|
90,900
|
|
38,016
|
|
464,368
|
|
Richard
D. Hodge(3)
|
|
2009
|
|
296,396
|
|
10,000
|
|
|
|
48,000
|
|
354,396
|
|
Executive
Vice President
|
|
2008
|
|
295,524
|
|
96,923
|
|
|
|
43,130
|
|
552,802
|
|
John
A. Roberts(4)
|
|
2009
|
|
226,485
|
|
60,000
|
|
|
|
16,400
|
|
302,885
|
|
Chief
Financial Officer
|
|
2008
|
|
215,000
|
|
42,126
|
|
45,450
|
|
16,000
|
|
318,576
|
|
(1)
The amounts shown in the
Option Awards column represent the aggregate grant date fair value amounts for
2009 and 2008 in connection with options granted to the named executive
officers, and warrants awarded to Messrs. Gulian and Hodge, as computed in
accordance with the Financial Accounting Standards Board (FASB) guidance
regarding share-based payments. The amounts previously reported in 2008 have
been restated in accordance with new SEC rules relating to executive
compensation disclosure. For information regarding significant factors,
assumptions and methodologies used in our computations pursuant to the FASB
guidance see Note Q, Stock-Based Compensation Expense to our
consolidated financial statements in Item 8 of Part II of this Form 10-K.
(2)
The amounts reported for Mr. Gulian
in the Salary column represent the base salary paid by us of $335 in 2008 and
$357 in 2009.
In November 2009,
in connection with the Hercules Restructuring, we cancelled a warrant
previously granted to Mr. Gulian to acquire 30,000 shares of our common
stock at an exercise price of $50.00 per share and granted him a warrant to
acquire up to 30,000 shares of our common stock at an exercise price of $1.8575
per share and otherwise on substantially the same terms as the cancelled
warrant.
The amounts reported for Mr. Gulian in the All Other Compensation
column represent health insurance premiums, life and disability insurance
premiums and auto allowance, respectively, paid by us of $16, $4 and $18 in
2008 and $18, $7, and $18 in 2009.
(3)
The amounts reported for Mr. Hodge
in the Salary column represent the base salary paid by us of $296 in 2008 and
$296 in 2009.
In November 2009,
in connection with the Hercules Restructuring, we cancelled a warrant
previously granted to Mr. Hodge to acquire 15,000 shares of our common
stock at an exercise price of $50.00 per share and granted him a warrant
acquire up to 15,000 shares of the Companys common stock at an exercise price
of $1.8575 per share and otherwise on substantially the same terms as the
cancelled warrant.
The amounts reported for Mr. Hodge in the All
Other Compensation column represent health insurance premiums, life and
disability insurance premiums and auto allowance, respectively, paid by us of
$16, $9 and $18 in 2008 and $18, $12 and $18 in 2009. Mr. Hodges
employment with the Company terminated on February 12, 2010.
(4)
The amounts reported for Mr. Roberts
in the Salary column represent the base salary paid by us of $215 in 2008 and
$226 in 2009. The amounts reported for Mr. Roberts in the All Other
Compensation column represent health insurance premiums, life and disability
insurance premiums and auto allowance, respectively, paid by us of $6,$2 and $8
in 2008 and $0.4, $8 and $8 in 2009.
Employment Arrangements
David T. Gulian.
We entered into an employment agreement with
David T. Gulian in July 2006. Under this agreement, Mr. Gulian agreed
to continue acting as our President and Chief Executive Officer, under the
supervision of our Board of Directors, and to perform such duties and to have
such authority consistent with his position as may from time to time be
specified by our Board of Directors. Mr. Gulians employment agreement had
a two-year term and expired on December 31,
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2008. On March 13,
2009, we entered into a severance agreement with Mr. Gulian. Under the
severance agreement, Mr. Gulian agreed to continue as our President and
Chief Executive Officer, under the supervision of our Board of Directors, and
to perform such duties and to have such authority consistent with his position
as may from time to time be specified by our Board of Directors. As
compensation for his services pursuant to the severance agreement, we pay Mr. Gulian
a base salary of $361 per year beginning January 1, 2009 and terminating
on December 31, 2010. Thereafter, the term of the agreement will
automatically extend an additional year on each anniversary date unless our
Board of Directors, at its discretion, elects not to continue the severance
agreement.
The
Compensation Committee did not set bonus targets for the fiscal year ending December 31,
2009 and a $50 bonus was paid to Mr. Gulian in December 2009.
Under the terms
of his severance agreement, Mr. Gulian has agreed to standard
confidentiality restrictions. He is also subject to a noncompetition covenant
that generally restricts his ability to compete with us in the United States
for a period of one year following the termination of his employment for any
reason. Mr. Gulian has also agreed to a nonsolicitation covenant that is
applicable during the term of his employment and for a period of one year
following the termination of employment.
In
2009, we cancelled a warrant to purchase 30,000 shares of our common stock at
an exercise price of $50.00 per share that had been granted to Mr. Gulian
in 2006 and issued him a warrant to purchase up to 30,000 shares of our common
stock at an exercise price is $1.8575 per share and otherwise on substantially
the same terms as the cancelled warrant. In 2008, we granted Mr. Gulian
options to purchase 6,000 shares of our common stock at an exercise price of
$23.00 per share and in 2006, Mr. Gulian was also granted options to
purchase up to 12,000 shares of our common stock at an exercise price of $50.00
per share. We have obtained a long-term disability insurance policy for Mr. Gulian
and pay all premiums on that policy.
Richard D. Hodge.
We entered into an employment agreement with
Richard D. Hodge in July 2006. Under this agreement, Mr. Hodge agreed
to continue acting as Executive Vice President, under the supervision of our
Chief Executive Officer, and to perform such duties and to have such authority
consistent with his position as may from time to time be specified by our Chief
Executive Officer. Mr. Hodges employment agreement expired on December 31,
2008. On March 13, 2009, we entered into a severance agreement with Mr. Hodge.
Under the severance agreement, Mr. Hodge agreed to continue as our
Executive Vice President, under the supervision of our Chief Executive Officer,
and to perform such duties and to have such authority consistent with his
position as may from time to time be specified by our Chief Executive Officer.
As compensation for his services pursuant to the severance agreement, we paid Mr. Hodge
a salary of $295 in 2009.
The Compensation Committee did not set bonus targets
for the fiscal year ending December 31, 2009 and a $10 bonus was paid to Mr. Hodge
in December 2009. Mr. Hodges employment with us ended on February 12,
2010 (the Termination Date). Under the terms of the severance agreement, he
was paid, during 2010, a severance payment equal to one years base salary. For
a period of one year following the Termination Date, Mr. Hodge is subject
to standard non-solicitation and non-competition covenants. He is also bound to
confidentiality covenants indefinitely. In 2009, we cancelled a warrant to
purchase 12,000 shares of our common stock at an exercise price of $50.00 per
share that had been granted to Mr. Hodge in 2006 and issued him a warrant
to purchase up to 15,000 shares of our common stock at an exercise price is
$1.8575 per share and otherwise on substantially the same terms as the
cancelled warrant. In 2006, Mr. Hodge was granted options to purchase up
to 15,000 shares of our common stock at an exercise price of $50.00 per share.
All of Mr. Hodges outstanding options will terminate three months after
his Termination Date.
John A. Roberts.
We entered into an
employment agreement with John A. Roberts in September 2006. Under this
agreement, Mr. Roberts agreed to serve as our Chief Financial Officer,
under the supervision of our Chief Executive Officer, and to perform such
duties and to have such authority consistent with his position as may be from
time to time specified by the Chief Executive Officer. Mr. Roberts
employment agreement had a two year term and expired on December 31, 2008.
On March 13, 2009, we entered into a severance agreement with Mr. Roberts.
As compensation for his services pursuant to the severance agreement, we pay Mr. Roberts
a salary of $226 per year starting on January 1, 2009 and ending on December 31,
2010. Thereafter, the term of the agreement will automatically extend an
additional year on each anniversary date unless our Board of Directors, at its
discretion, elects not to continue the severance agreement. The Compensation
Committee did not set bonus targets for the fiscal year ending December 31,
2009 and a $60 bonus was paid to Mr. Roberts in December 2009. Under
the terms of his severance agreement, Mr. Roberts has agreed to standard confidentiality
restrictions. He is also subject to a noncompetition covenant that generally
restricts his ability to compete in the United States for a period of one year
following the termination of his employment for any reason. Mr. Roberts
has also agreed to a nonsolicitation covenant that is applicable during the
term of his employment and for a period of one year following the termination
of employment.
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In
2008, we granted Mr. Roberts options to purchase 3,000 shares of common
stock under our equity incentive compensation plan at an exercise price of
$23.00 per share and, in 2006, Mr. Roberts was granted options to purchase
up to 12,000 shares of our common stock at an exercise price of $50.00 per
share.
Outstanding Equity Awards at Fiscal Year End 2009
The following table shows information concerning outstanding equity
awards at December 31, 2009 made by InfoLogix to our Chief Executive
Officer and our two other most highly compensated officers.
|
|
Executive Incentive Plan Awards
|
|
Name
|
|
Number of
securities
underlying
Unexercised Awards
(#) exercisable
|
|
Number of
Securities
Underlying
Unexercised Awards
Unexercisable (#)
|
|
Award Exercise
Price($)
|
|
Award
Expiration Date
|
|
David T. Gulian
|
|
1,500
|
|
4,500
|
(4)
|
23.00
|
|
11/06/2018
|
|
|
|
9,000
|
|
3,000
|
(1)
|
50.00
|
|
11/29/2016
|
|
|
|
|
|
30,000
|
(2)
|
50.00
|
|
11/29/2011
|
|
Richard D. Hodge(5)
|
|
9,000
|
|
3,000
|
(1)
|
50.00
|
|
11/29/2016
|
|
|
|
|
|
15,000
|
(3)
|
50.00
|
|
11/29/2011
|
|
John A. Roberts
|
|
750
|
|
2,250
|
(4)
|
23.00
|
|
11/29/2018
|
|
|
|
9,000
|
|
3,000
|
(1)
|
50.00
|
|
11/29/2016
|
|
(1)
|
Represents
options vesting in equal annual installments over four years on November 29
of each year beginning on November 29, 2007.
|
|
|
(2)
|
Represents
warrants that vested with respect to 23,750 shares on January 5, 2010
and that vest, starting on February 28, 2010, with respect to 625 shares
per month until fully vested.
|
|
|
(3)
|
Represents
warrants that vested with respect to 11,250 shares on January 5, 2010
and that vest, starting on February 28, 2010, with respect to 625 shares
per month until fully vested.
|
|
|
(4)
|
Represents
options vesting in equal annual installments over four years on
November 6 of each year beginning on November 6, 2009.
|
|
|
(5)
|
On
December 30, 2009, it was determined that
Mr. Hodges
employment with the Company would terminate on February 12, 2010. On
such date, all of his unvested options became immediately exercisable. All of
his outstanding options will terminate on May 12, 2010.
|
Potential Payments Upon Termination or Change of
Control or Retirement
As described under Employment Arrangements in this Item 11, on March 13,
2009, we entered into severance agreements with our named executive officers.
The following is a summary of the arrangements that provide for payment to our
Chief Executive Officer and our two other most highly compensated officers,
following or in connection with any Change of Control of InfoLogix or change in
their responsibilities or other event that results in termination, including
resignation, severance, retirement or constructive termination. Under the
severance agreements, a Change of Control is defined as a merger or
consolidation of InfoLogix, a sale, lease, exchange or transfer of all or
substantially all of our assets, a dissolution and liquidation of InfoLogix,
any person or group becoming the beneficial owner of a majority of our voting
securities or, during any twelve-month period, the current directors no longer
constitute a majority of our board of directors, unless the election of at
least 75% of the new directors was approved by two-thirds of the directors in
office at the time. As a result of the Hercules restructuring we experienced a
Change of Control on November 20, 2009.
David T. Gulian, Richard D. Hodge, and John A.
Roberts (each, an Executive)
Termination by Us following a Change of Control of
InfoLogix.
If, following the occurrence of a Change of Control
of InfoLogix,
(i)
the Executive
is not offered employment by the successor company,
(ii)
within one year
after the Change of Control, the Executive is terminated by the successor
company for a reason other than for Cause (Cause being defined to include, among
other things, embezzlement,
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indictment for fraud, gross incompetence (after 15 days notice
specifying the applicable deficiencies), and disclosure of our confidential
information) or other than due to the Executives disability, or
(iii)
within one year
after the Change of Control, the Executive terminates his employment with the
successor company for Good Reason, after having provided the successor
company with written notice that he believes he has the right to terminate for
Good Reason and the successor has failed to eliminate the Good Reason within
15 days of the notice (Good Reason being defined to include, among other
things, demotion, reduction of compensation, and/or relocation),and, provided
that the Executive signs a full release in our favor, then:
(a)
we will pay him any accrued
but unpaid salary and vacation, as well as severance of (1) the Executives
annual base salary in effect as of the date of his termination plus (2) an
amount equal to his maximum annual cash bonus at the rate in effect on the
termination date; and
(b)
all of the Executives
granted but unvested stock options will vest and become immediately
exercisable.
Termination Other than following a Change of Control
of InfoLogix.
If the Executives employment with us is terminated
prior to a Change in Control other than by us for Cause, by the Executive or
due to Executives disability and, provided the Executive signs a full release
in our favor, then:
(i)
we will pay him
any accrued but unpaid salary and vacation, as well as severance of (a) the
Executives annual base salary in effect as of the date of his termination plus
(b) an amount equal to pro rata portion of his maximum annual cash bonus
at the rate in effect on the termination date, which will be calculated based
on a numerator equal to the number of days between January 1 and the
termination date and a denominator of 365; and
(ii)
all of the
Executives granted but unvested stock options will vest and become immediately
exercisable.
If the Executives employment is terminated for any other reason, or if
he fails to execute a release in our favor, he would only be entitled to
receive a payment equal to his accrued but unpaid salary and vacation. There
were no terminations of executive officers following the recent Change of
Control except for the termination of Mr. Hodges employment, which was
effective February 12, 2009 and resulted in him being eligible to receive
severance payments equal to one years base salary.
2009 Director Compensation
The
Chairman of our Board of Directors and the Chairman of the Audit Committee of
our Board of Directors each receive an annual retainer of $25, reduced from $30
after March 31, 2009 and each other non-employee director receives an
annual retainer of $15, reduced from $20 after March 31, 2009. Each
director who is not an officer of InfoLogix received $1,000 per Board of Directors
or Board committee meeting in which the director participated attended in
person. Upon first becoming a director, each non-employee director received a
grant of an option to purchase 2,000 shares. Fifty percent of the options
vested on the six month anniversary of the date of grant. The remaining 50%
vested pro rata over the subsequent 18-month period. In January 2010, we
granted each of our non-employee directors, except Messrs. Denomme,
Henriquez and Liu, who declined the grant, an option to purchase up to 6,000
shares of our common stock. The option vests 50% on July 26, 2010 and in
eighteen equal monthly installments thereafter. Our employee director, Mr. Gulian,
does not receive compensation for their service as a director.
The following table summarizes the compensation of non-employee
directors for their service on our Board of Directors and any committees of our
board of directors during 2009.
Name(4)
|
|
Fees Earned or
Paid in Cash($)
|
|
Option
Awards($)(1)
|
|
Total ($)
|
|
Mark S. Denomme
|
|
|
|
|
|
|
|
Manual A. Henriquez
|
|
|
|
|
|
|
|
Wayne D. Hoch(3)
|
|
41,250
|
|
|
|
41,250
|
|
Roy Y. Liu
|
|
|
|
|
|
|
|
Thomas C. Lynch
|
|
29,250
|
|
|
|
29,250
|
|
Thomas O. Miller
|
|
29,000
|
|
|
|
29,000
|
|
Warren V. Musser(2)
|
|
35,250
|
|
|
|
35,250
|
|
Jake Steinfeld(2)
|
|
18,500
|
|
|
|
18,500
|
|
Richard A. Vermeil(2)
|
|
18,500
|
|
|
|
18,500
|
|
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Table of Contents
(1)
We did not grant any stock-based compensation to
non-employee directors in 2009.
(2)
Mr. Steinfeld resigned
from our Board of Directors on October 8, 2009. Messrs. Musser and
Vermeil resigned from our Board of Directors on November 20, 2009, but Mr. Musser
continues to serve as non-voting Chairman Emeritus.
(3)
Mr. Hoch resigned from our Board on February 17,
2010.
(4)
Mr. Melvin L. Keating joined our Board of
Directors on April 6, 2010.
The following table sets forth the aggregate number of options held by
each InfoLogix director as of December 31, 2009:
Name
|
|
Exercisable
Options
|
|
Warren V. Musser
|
|
2,000
|
(a)
|
Wayne D. Hoch
|
|
2,000
|
|
Thomas C. Lynch
|
|
2,000
|
|
Thomas O. Miller
|
|
2,000
|
|
(a)
Does not
include 24,000 shares that may be obtained upon exercise of a warrant granted
to Mr. Musser at an exercise price of $50.00 per share.
Item 12.
Security Ownership of
Certain Beneficial Owners and
Management and Related Stockholder Matters
Equity Compensation Plans
The following table summarizes our equity compensation plans as of December 31,
2009:
Plan category
|
|
Number of shares to be
issued upon exercise of
outstanding options,
warrants
and rights
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights
|
|
Number of shares
remaining available for
future issuance under
equity compensation
plans(1)
|
|
Equity compensation plans approved by stockholders
|
|
129,635
|
|
$
|
45.25
|
|
1,712,227
|
|
Equity compensation plans not approved by
stockholders
|
|
106,000
|
(2)
|
$
|
15.03
|
|
|
|
Total
|
|
235,635
|
|
$
|
31.65
|
|
1,712,227
|
|
(1)
Does not
include shares reflected in the column entitled Number of shares to be issued
upon exercise of outstanding options, warrants and rights.
(2)
Represents 29,000
shares issuable upon exercise of warrants at an exercise price of $50.00 per
share and 22,000 shares issuable upon exercise of warrants at an exercise price
of $1.86 per share. For more information, refer to Note F to our
consolidated financial statements in Item 8 of Part II of this Form 10-K.
Principal
Stockholders and Security Ownership of Management
The following
table shows the beneficial ownership of InfoLogix, Inc. common stock for
each of our executive officers and directors, each person known to us to
beneficially own more than 5% of our common stock and all directors and
executive officers as a group as of March 31, 2010. This information is
based solely on statements filed with the SEC and other reliable information.
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Table of
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Name
|
|
Shares
Beneficially Owned(1)(2)
|
|
%(3)
|
|
Hercules Technology Growth Capital, Inc.(4)
|
|
6,064,074
|
|
85.48
|
%
|
Manuel A. Henriquez(4)(5)
|
|
6,064,074
|
|
85.48
|
%
|
Hercules Technology I, LLC(4)
|
|
3,364,738
|
|
76.43
|
%
|
Mark S. Denomme(4)(6)
|
|
3,364,738
|
|
76.43
|
%
|
Roy Y. Liu(4)(6)
|
|
3,364,738
|
|
76.43
|
%
|
David T. Gulian(7)
|
|
129,851
|
|
3.45
|
%
|
Richard D. Hodge(8)
|
|
|
|
|
|
Gerald E. Bartley(9)
|
|
31,218
|
|
*
|
|
John A. Roberts(10)
|
|
10,198
|
|
*
|
|
Eric N. Rubino(11)
|
|
9,950
|
|
*
|
|
Wayne D. Hoch(12)
|
|
|
|
|
|
Thomas C. Lynch(13)
|
|
3,360
|
|
*
|
|
Thomas O. Miller(14)
|
|
2,200
|
|
*
|
|
All directors and executive officers as a group
(consists of 9 persons)(15)
|
|
6,250,851
|
|
87.36
|
%
|
*
The percentage of shares beneficially owned does not exceed 1%.
(1)
The numbers of shares set
forth in this column are calculated in accordance with the provisions of Rule 13d-3
under the Exchange Act. As a result, these figures assume the exercise or
conversion by each beneficial owner of all securities that are exercisable or
convertible within 60 days of March 31, 2010.
(2)
Unless otherwise indicated,
each director, executive officer or beneficial owner of 5% or more of our
common stock has sole voting and investment power with respect to all such
shares of common stock.
(3)
Based on 3,729,647 shares
of common stock outstanding as of March 31, 2010.
(4)
The following is based, in
part, on information provided pursuant to a Schedule 13D filed jointly by
Hercules Technology Growth Capital, Inc. (Hercules) and Hercules
Technology I, LLC (HTI) on November 30, 2009 with the Securities and
Exchange Commission, as well as other reliable information known to us in
connection with our Amended Loan Agreement with Hercules.
Hercules, the parent corporation of HTI,
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 and 2,691,790 shares that may be acquired upon the conversion of a term
loan held directly by Hercules. It also has
shared voting and
dispositive power, with HTI, over 3,364,738 shares, consisting of 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. The number of shares beneficially
owned 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.
(5)
Includes the aggregate
6,064,074 shares over which Hercules has sole and shared voting and dispositive
power, as to which Mr. Henriquez may be deemed to have investment and
voting power because of his position with Hercules and his role as one of HTIs
nominees to our Board of Directors. The number of shares beneficially owned
does not include 412,087 shares that may be acquired upon the conversion of a
term loan entered into on April 6, 2010. Mr. Henriquez disclaims
beneficial ownership of the shares beneficially owned by Hercules and HTI. The
address of Mr. Henriquez is c/o Hercules Technology Growth Capital, Inc.,
400 Hamilton Avenue, Suite 310, Palo Alto, CA 94301.
(6)
Includes the 3,364,738
shares over which HTI has sole and shared voting and dispositive power, as to
which Messrs. Denomme and Liu may be deemed to have investment and voting
power because of their roles as HTI nominees to our Board of Directors. Each of
these individuals disclaims beneficial ownership of the shares beneficially
owned by HTI. The address for Messrs. Denomme and Liu is c/o Hercules
Technology Growth Capital, Inc., 31 St. James Ave., Suite 790,
Boston, MA 02116.
(7)
Includes 93,101 shares
owned by Mr. Gulian directly (including 2,000 shares owned by Mr. Gulian
and his wife) and 10,500 shares subject to options exercisable within 60 days
of March 31, 2010, and 26,250 shares that may be acquired upon the
exercise of a warrant held directly by Mr. Gulian. Mr. Gulian shares voting and dispositive
power over the shares he holds with his wife.
(8)
Mr. Hodges employment with us
terminated on February 12, 2010 and on such date, all of his unvested
options became immediately exercisable. As such, we believe that he has 12,000
shares subject to options exercisable within 60 days of March 31, 2010 and
12,500 shares that may be acquired upon the exercise of a warrant directly by Mr. Hodge.
We cannot verify the number of shares of common stock he continues to hold.
(9)
Includes 15,109 shares
owned by Mr. Bartley directly, 1,000 shares subject to options exercisable
within 60 days of March 31, 2010, and 15,109 shares owned by Mr. Bartleys
spouse.
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Table of Contents
(10)
Includes 448 shares owned
by Mr. Roberts directly and 9,750 shares subject to options exercisable
within 60 days of March 31, 2010.
(11)
Includes 200 shares owned
by Mr. Rubino directly and 9,750 shares subject to options exercisable
within 60 days of March 31, 2010.
(12)
Mr. Hoch resigned from our Board of Directors on February 17,
2010, and as such, all of his outstanding options will terminate three months
after that date. We believe that he has 2,000 shares subject to options
exercisable within 60 days of March 31, 2010, but we cannot verify the
number of shares of common stock he continues to hold.
(13)
Includes 1,360 shares owned
by Mr. Lynch directly and 2,000 shares subject to options exercisable
within 60 days of March 31, 2010.
(14)
Includes 200 shares owned
by Mr. Miller directly and 2,000 shares subject to options exercisable
within 60 days of March 31, 2010.
(15)
Includes 734,198 shares that
may be acquired upon the exercise of options and warrants and convertible term
loan. The shares that may be acquired upon the exercise of options and warrants
and conversion of a convertible term loan are included in the numerator and the
denominator for the purpose of calculating the percentage of shares of common
stock beneficially owned by the group.
Item 13. Certain Relationships
and Related Transactions, and Director Independence
Director Independence
InfoLogix is a controlled
company as defined in Rule 5615(c)(1) of the NASDAQ Marketplace Rules because
more than 50% of our voting power is held by HTI. See Item 12. Security
Ownership of Certain Beneficial Owners and Management, and Related Stockholder
Matters Principal Stockholders and Security Ownership of Management and Related
Party Transactions Our Relationship with Hercules and HTI. Therefore, we are
exempt from certain requirements of NASDAQ Rule 5605 with respect to (1) having
a majority of independent directors on our Board of Directors, (2) having
the compensation of our executive officers determined by a majority of
independent directors or a compensation committee composed solely of
independent directors, and (3) having nominees for director selected or
recommended for selection by either a majority of independent directors or a
nominating committee composed solely of independent directors.
Three of the members of our Board of Directors are independent
directors. For a director to be considered independent, our Board of Directors
must determine that the director does not have any direct or indirect material
relationship with us. Our Board of Directors has established guidelines to
assist it in determining director independence. The guidelines that our Board
of Directors uses to determine whether a director is independent specify that:
1.
A director will
not be deemed independent if, within the previous five years: (i) the
director was employed by us; (ii) someone in the directors immediate
family was employed by us as an officer; (iii) the director was employed
by or affiliated with us present or former independent registered public
accounting firms; (iv) someone in the directors immediate family was
employed or affiliated with our present or former independent registered public
accounting firms as an officer, partner, principal or manager; and (v) the
director or someone in her/his immediate family was employed as an executive
with another entity that concurrently has or had as a member of its
compensation (or equivalent) committee of the board of directors any of our
executive officers.
2.
The following
commercial or charitable relationships will not be considered to be material
relationships that would impair a directors independence: (i) the
director or any of his or her immediate family members accept payment
(including political contributions and payments pursuant to personal services
or consulting contracts) directly or indirectly from us, an affiliate of
InfoLogix, the Chairman of the board of directors, Chief Executive Officer or
other executive officer, other than for service as a member of our board of
directors or a committee of our board of directors, of less than $60 during the
current year; and (ii) the director is a partner in, or an executive
officer or a stockholder owning less than 10% of, any for profit or not for
profit organization to which we made or from which we receive payments (other
than those arising solely from investments in our securities) that are less
than 5% of our or the organizations consolidated gross revenues or $200,
whichever is greater, in the current year or in any of the past three years.
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Table of Contents
3.
For
relationships not covered by the objective independence guidelines in
paragraph 2 above, the determination of whether the relationship is
material or not, and therefore whether the director would be independent or
not, shall be made by the directors who clearly satisfy the objective
independence guidelines set forth in paragraphs 1 and 2 above.
Our board of directors has determined that Melvin L. Keating, Thomas C.
Lynch and Thomas O. Miller satisfy our independence guidelines and the
independence requirements set forth in the NASDAQ Marketplace Rules.
All members of the Compensation Committee, Audit Committee, and
Nominating and Governance Committee of our Board of Directors are independent
directors, except Manuel A. Henriquez, a Hercules representative, is a member
of the Compensation Committee and Nominating and Governance Committee. Members
of the Audit Committee must also satisfy additional Securities and Exchange
Commission and NASDAQ independence requirements.
Related Party Transactions
We
do not have a written policy specifically relating to responsibility for review
of related party transactions, our Board of Directors exercises the
responsibility for reviewing and approving related party transactions. In
accordance with our conflict of interest policy, if a member of our Board of
Directors is a party to a transaction, he or she will not vote on approval of
the transaction. Our Board of Directors reviews all transactions with related
parties that are required to be disclosed in our filings with the SEC and/or in
the notes to our audited financial statements and our management regularly
reports to our Board of Directors regarding the details of related party
transactions and the status of each active related party transaction.
Three
of our current directors, Messrs. Denomme, Henriquez and Liu, are
employees of Hercules, our current senior lender. If matters arise involving
conflicting interests between Hercules and us, Messrs. Denomme, Henriquez
and Liu may be required to abstain from voting on those matters. A related
party includes any executive officer, director, nominee for director or
beneficial holder of more than 5% of our Common Stock, any immediate family member
of those persons and any entity that is owned or controlled by any of the
foregoing persons or any entity in which such a person is an executive officer.
Our Relationship with Hercules and HTI
On November 20, 2009, we entered into a series of agreements with
our senior lender, Hercules, designed to restructure our outstanding
indebtedness. On that date, certain events of default existed under our Loan
and Security Agreement with Hercules dated May 1, 2008, as amended (Loan
and Security Agreement), and though Hercules had agreed to forbear from
exercising its rights, due to the events of default, Hercules had the right to
accelerate and demand payment of all or any part of our obligations under the
Loan and Security Agreement. Our obligations amounted to approximately $22,500,
including accrued interest and fees. In an effort to cure the events of
default, we and Hercules restructured the indebtedness by converting a portion
of our outstanding debt to Hercules, which portion Hercules had assigned to its
wholly-owned subsidiary HTI, to shares of our common stock and warrants to
purchase our common stock and by restructuring the remaining outstanding debt,
including by making a portion of it convertible into shares of our common stock
(Hercules Restructuring). The Hercules Restructuring resulted in the
cancellation of $5,000 in indebtedness and has provided us with up to $5,000 in
additional availability under a revolving credit facility with Hercules. As a
result of the Hercules Restructuring (i) HTI now owns
2,691,790 shares or 72.4% of our
outstanding common stock as of March 31, 2010, as well as a warrant to
acquire up to an additional 672,948 shares of our common stock, and (ii) Hercules
may convert a portion of our remaining indebtedness to Hercules into an
additional 2,691,790 shares of our common stock and has the option to convert
certain term loan interest into an indeterminate number of shares of our common
stock. In addition, on March 1, 2010, Hercules exercised a warrant
initially received on June 19, 2009 by which it acquired 7,546 shares of
our common stock. As a result of Amendment 2 to our Amended Loan Agreement on April 6,
2010, Hercules may convert the principal of Term Loan C into an additional
412,087 shares of our common stock and has the option to convert default rate
interest into an indeterminable number of shares of our common stock.
As
a result of the Hercules Restructuring, pursuant to the Debt Conversion
Agreement, Hercules has the right and will continue to have the right to nominate
three directors to our Board of Directors until (i) we repay our term
loans to Hercules 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 of HTIs appointed directors would not stand for
re-election at the next annual meeting. None of HTIs appointed directors would
stand for re-election at the next annual meeting of our stockholders following (i) our
payment in full of all obligations under our Amended Loan Agreement and (ii) HTI
owning less than 10% of our issued and outstanding common stock. In certain
circumstances, HTI has the right to nominate a fourth director, and HTI also
has the right to have at least one of its director representatives sit on the
Nominating and Governance Committee
94
Table of Contents
and the Compensation
Committee of the Board of Directors. Currently, Messrs. Denomme, Henriquez
and Liu serve as directors pursuant to HTIs rights under the Debt Conversion
Agreement and Mr. Henriquez is a member of both the Nominating and
Governance Committee and the Compensation Committee.
As
of April 7, 2010, $21,659 of principal was outstanding under our Amended
Loan Agreement with Hercules. The
largest amount of principal outstanding at any time in 2009 was $21,000. In
2009, we paid Hercules a total of $700 in principal, $ 3,130 in interest (at an
average interest rate of 13% per annum),not including interest paid in kind,
and $ 1,199 in fees.
Certain Other Relationships and
Transactions
Corrugated Service Corp., d/b/a Amtech
In
July 2006, we entered into a consulting agreement with Corrugated Service
Corp. which does business as Amtech and is owned by Cosmo T. DeNicola, an
officer and director of InfoLogix prior to our merger with New Age Translation, Inc.,
and a stockholder of InfoLogix. The consulting agreement became effective upon
consummation of the merger between InfoLogix and New Age Translation, Inc.
on November 29, 2006 and continued until December 31, 2008. Despite
the termination of the consulting agreement, we continued to use Amtech for
services during 2009.
Pursuant
to the consulting agreement, Amtech provided certain software development
consulting services to us for our products, projects and customer deliverables.
In consideration of Amtechs services, we paid Amtech a monthly fee equal to
$17 per month for calendar year 2008 and $17 per month for calendar year 2009.
In 2008 and 2009, we paid Amtech approximately $1,661 and $173, respectively,
for services provided under the consulting agreement.
Futura Services, Inc.
In
July 2006, we entered into a services agreement with Futura Services, Inc.,
which is owned by the wife of Cosmo T. DeNicola, an officer and director of
InfoLogix prior to our merger with New Age Translation, Inc., and a
stockholder of InfoLogix. The agreement was amended in August 2007. The
services agreement granted Futura the exclusive right to provide certain
outsourcing services and functions to support certain equipment that is used in
our business
. In 2008 and 2009, we paid Futura approximately
$2,700 and 2,600, respectively, for services provided under this agreement.
The
term of the services agreement commenced upon the consummation of our merger
with New Age Translation, Inc. on November 29, 2006 and was
terminated on March 2, 2009. On March 2,
2009, we entered into a master services agreement, which supersedes and
replaces our services agreement with Futura. The term of the master services
agreement commenced on March 2, 2009 and will continue until December 31,
2013, unless terminated earlier. The master services agreement may be
terminated by (i) either party if the other party materially breaches the
master services agreement and fails to cure the breach within 60 days of
receipt of notice thereof, (ii) either party upon the insolvency or
bankruptcy of the other party or (iii) either party if an amount from the
other party in excess of $100 remains due and unpaid or if any amount from the
other party remains due and unpaid for 90 days or more. We may also terminate
the master services agreement for any reason or no reason upon 45 days notice
to Futura. If Futura terminates the master services agreement as a result of
our breach, or we terminate the master services agreement as a result of Futuras
breach or for no reason, we will be required to (x) pay Futura a
termination fee of $750 and (y) sublease at Futuras option up to 10,000
square feet of Futuras office space in Fort Washington, Pennsylvania for the
remaining term of Futuras lease with the landlord. The rental term of Futuras
lease is 66 months and began on October 15, 2006. The current minimum
monthly rent under the lease is $37 for 22,215 square feet of office space and
increases approximately $0.9 on October 15 of each year of the rental
term.
Pursuant
to the master services agreement, Futura is granted the exclusive right to
provide certain outsourcing services and functions to support the equipment
that is used in our business. We will issue purchase orders for specified
services to be provided by Futura and the services will be set forth in
mutually agreed statements of work. Futura will maintain its exclusive right to
provide services until the earlier of the termination of the master services
agreement or the fulfillment by Futura of services under statements of work in
the amount of $1,500 for any calendar year during the term of the master services
agreement, after which point we may use other providers to perform the services
for the balance of that calendar year, provided that Futura is given the right
to perform the services on the same terms and conditions as the other providers
with our consent not to be unreasonably withheld. The fees payable to Futura
for services will be specified in the applicable statement of work.
Pursuant
to the master services agreement, Futura agreed to certain confidentiality,
non-solicitation and warranty provisions and we agreed to certain
confidentiality and non-solicitation provisions as well. Futura will bear the
risk of loss for
95
Table of Contents
the services rendered under
the master services agreement and statements of work, including, but not
limited to all costs (subject to certain exclusions) related to warranty,
extended warranty and call center services that are sold by us to our customers
and to post- and pre-production of kitting (assembly and packaging), imaging
and shipments to our customers, in each case as such services are specified in
an applicable statement of work. Futuras liability for damages is limited to
the aggregate compensation actually received by Futura under any applicable
statement of work, except in the event of any liability arising from a breach
of Futuras confidentiality and non-solicitation obligations or from its gross
negligence or willful misconduct, or to the extent contrary to the laws of any
applicable jurisdiction. Pursuant to the terms of the amended agreement, we
have a minimum annual commitment to purchase services in an aggregate amount of
$1,500 per year through 2013.
During
2008 and 2009, we maintained a business relationship with Gulian &
Associates, which is owned by the wife of David T. Gulian, the President and
Chief Executive Officer and director and stockholder. Under the terms of the
arrangement, Gulian & Associates provided us with retainer-based
professional recruiting services, on a non-exclusive basis. Gulian &
Associates was paid a success fee of 20% of a newly hired persons annual base
salary for employees it introduces to us; one-third of the fee is invoiced at
the time of the engagement, the remainder is invoiced only upon successful
placement of a candidate into the role. In 2008 and 2009, we paid Gulian &
Associates approximately $225 and $178, respectively, in success fees.
Item 14
.
Principal Accountant Fees and Services
We retained McGladrey & Pullen to audit our consolidated
financial statements for the years ended December 31, 2009 and 2008. We
understand the need for our independent registered public accounting firm to
maintain objectivity and independence in its audit of our financial statements.
To minimize relationships that could appear to impair the objectivity of our
independent registered public accounting firm, the Audit Committee of our Board
of Directors has adopted and approved a policy related to the pre-approval of
all non-audit work to be performed by our independent registered public
accounting firm.
Consistent with the rules established by the Securities and
Exchange Commission (SEC), proposed services to be provided by our independent
registered public accounting firm are evaluated by grouping the service fees
under one of the following four categories:
Audit
Services, Audit-Related Services
,
Tax
Services
and
All Other Services
.
All proposed services are discussed and approved by the Audit Committee. In order
to render approval, the Audit Committee has available a schedule of services
and fees approved by category for the current year for reference and specific
details are provided. The Audit Committee does not pre-approve services related
only to the broad categories noted above.
The Audit Committee has delegated pre-approval authority to its
chairman for cases where services must be expedited. Our management provides
the Audit Committee with reports of all pre-approved services and related fees
by category incurred during the current fiscal year with forecasts of
additional services anticipated during the upcoming year.
All of the services related to fees disclosed below were pre-approved
by the Audit Committee.
The aggregate fees paid for professional services to McGladrey &
Pullen in 2008 and 2009 for their services were:
Type of Fees
|
|
2008
|
|
2009
|
|
Audit Fees
|
|
$
|
271,000
|
|
$
|
303,000
|
|
Total
|
|
$
|
271,000
|
|
$
|
303,000
|
|
In the table above, in accordance with the SEC definitions and rules, audit
fees are fees we paid or were billed by McGladrey & Pullen for
professional services for the audit of our consolidated financial statements
included in our Forms 10-K, and for services that are normally provided by
the accountant in connection with the review of SEC registration statements and
other filings, comfort letters and consents.
We did not engage McGladrey & Pullen to provide any audit
related services, tax services or other services during 2008 or 2009.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
Financial
Statements and Schedules
The following financial statements and schedules listed below are
included in this Form 10-K.
Financial
Statements (See Item 8)
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Table of
Contents
Report
of Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of December 31, 2009 and 2008
Consolidated
Statements of Operations for the Years Ended December 31, 2009, 2008, and
2007
Consolidated
Statements of Stockholders Equity for the Years Ended December 31, 2009,
2008, and 2007
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009, 2008, and
2007
Notes
to Consolidated Financial Statements
Financial
Statement Schedules
Schedule IIValuation
and Qualifying Account
INFOLOGIX, INC.
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
|
|
Allowance for
|
|
|
|
|
|
Doubtful
|
|
Reserve
|
|
|
|
Receivables
|
|
for Excess
|
|
|
|
and
|
|
and Obsolete
|
|
|
|
Sales Returns
|
|
Inventory
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$
|
409
|
|
$
|
485
|
|
Charges
to operations
|
|
6
|
|
189
|
|
Acquired
in asset purchase
|
|
34
|
|
|
|
Deductions
|
|
(97
|
)
|
(253
|
)
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
352
|
|
421
|
|
Charges
to operations
|
|
476
|
|
1,117
|
|
Deductions
|
|
(826
|
)
|
|
|
Balance
at December 31, 2009
|
|
$
|
2
|
|
$
|
1,538
|
|
(b) Exhibits
Exhibit No.
|
|
Description
|
2.1
|
|
Agreement and Plan of
Merger between New Age Translation, Inc., INFLX Acquisition Corp. and
InfoLogix, Inc. dated as of November 29, 2006 (incorporated herein
by reference to Exhibit 2.1 of our Current Report on Form 8-K filed
December 5, 2006).
|
|
|
|
2.2
|
|
Asset Purchase
Agreement by and among InfoLogix, Inc., InfoLogix Systems Corporation,
Healthcare Informatics Associates, Inc. and the stockholders of
Healthcare Informatics Associates, Inc. dated as of September 30,
2007 (incorporated herein by reference to Exhibit 2.1 of our Current
Report on Form 8-K filed October 4, 2007).
|
|
|
|
2.3
|
|
Asset Purchase
Agreement by and among InfoLogix, Inc., InfoLogix Systems Corporation,
Delta Health Systems, Inc. and the stockholders of Delta Health
Systems, Inc. dated as of May 2, 2008 (incorporated by reference to
Exhibit 2.1 of our Current Report on Form 8-K filed May 8, 2008).
|
|
|
|
3.1
|
|
Certificate of Incorporation
of New Age Translation, Inc. (incorporated herein by reference to
Exhibit 3.1 of our Current Report on Form 8-K filed
November 28, 2006).
|
|
|
|
3.2
|
|
Certificate of
Amendment of New Age Translation, Inc. changing corporate name to
InfoLogix, Inc. (incorporated herein by reference to Exhibit 3.2 of
our Current Report on Form 8-K filed December 5, 2006).
|
97
Table of Contents
3.3
|
|
Certificate of
Amendment of InfoLogix, Inc. (incorporated herein by reference to
Exhibit 3.1 of our Current Report on Form 8-K filed January 1,
2010).
|
|
|
|
3.4
|
|
Certificate of
Correction to Certificate of Amendment to Certificate of Incorporation of
InfoLogix, Inc.+
|
|
|
|
3.5
|
|
By-laws of New Age
Translation, Inc. (incorporated herein by reference to Exhibit 3.2
of our Current Report on Form 8-K filed November 28, 2006).
|
|
|
|
4.1
|
|
Amended and Restated
Loan and Security Agreement by and among InfoLogix, Inc., InfoLogix
Systems Corporation, Embedded Technologies, LLC, Opt Acquisition, LLC, and
InfoLogix-DDMS, Inc., as Borrowers, and Hercules Technology Growth
Capital, Inc., as Lender, dated as of November 20, 2009
(incorporated by reference to Exhibit 4.1 of our Current Report on
Form 8-K filed November 25, 2009).
|
|
|
|
4.2
|
|
Amendment No. 1,
dated as of February 19, 2010, to the Amended and Restated Loan and
Security Agreement, dated as of November 20, 2009, by and among
InfoLogix, Inc., InfoLogix Systems Corporation, Embedded Technologies,
LLC, Opt Acquisition, LLC, and InfoLogix DDMS, Inc., as Borrowers and
Hercules Technology Growth Capital, Inc., as Lender (incorporated herein
by reference to Exhibit 4.1 of our Current Report on Form 8-K filed
February 23, 2010).
|
|
|
|
4.3
|
|
Amendment
No. 2, dated as of April 6, 2010, to the Amended and Restated Loan
and Security Agreement, dated as of November 20, 2009, as amended, by
and among InfoLogix, Inc., InfoLogix Systems Corporation, Embedded
Technologies, LLC, Opt Acquisition LLC, and InfoLogix-DDMS, Inc., as
Borrowers, and Hercules Technology Growth Capital, Inc., as Lender
(incorporated herein by reference to Exhibit 4.3 of our Current Report
on Form 8-K filed April 8, 2010).
|
|
|
|
4.4
|
|
Warrant dated as of November 29,
2006 between InfoLogix, Inc. and Karen Keating Mara (incorporated herein
by reference to Exhibit 4.3 of our Current Report on Form 8-K filed
December 5, 2006).
|
|
|
|
4.5
|
|
Warrant dated as of
November 29, 2006 between InfoLogix, Inc. and Craig A. Wilensky
(incorporated herein by reference to Exhibit 4.6 of our Current Report
on Form 8-K filed December 5, 2006).
|
|
|
|
4.6
|
|
Warrant dated as of
November 20, 2009 between InfoLogix, Inc. and Hercules Technology
Growth Capital, Inc. (incorporated herein by reference to
Exhibit 4.2 of our Current Report on Form 8-K filed
November 25, 2009).
|
|
|
|
4.7
|
|
Warrant dated as of
November 20, 2009 between InfoLogix, Inc. and Hercules Technology
I, LLC (incorporated herein by reference to Exhibit 4.3 of our Current Report
on Form 8-K filed November 25, 2009).
|
|
|
|
4.8
|
|
Warrant dated as of
November 20, 2009 between InfoLogix, Inc. and Warren V. Musser
(incorporated herein by reference to Exhibit 4.4 of our Current Report
on Form 8-K filed November 25, 2009).
|
|
|
|
4.9
|
|
Warrant dated as of
March 6, 2010 between InfoLogix, Inc. and Michael M. Carter.+
|
|
|
|
4.10
|
|
Warrant dated as of
November 20, 2009 between InfoLogix, Inc. and David T. Gulian
(incorporated herein by reference to Exhibit 4.6 of our Current Report
on Form 8-K filed November 25, 2009).
|
|
|
|
4.11
|
|
Warrant dated as of
November 20, 2009 between InfoLogix, Inc. and Richard D. Hodge
(incorporated herein by reference to Exhibit 4.7 of our Current Report
on Form 8-K filed November 25, 2009).
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98
Table of Contents
4.12
|
|
Warrant dated as of
November 20, 2009 between InfoLogix, Inc. and Fairmount Partners LP
(incorporated herein by reference to Exhibit 4.8 of our Current Report
on Form 8-K filed November 25, 2009).
|
|
|
|
10.1
|
|
InfoLogix, Inc.
2006 Equity Compensation Plan (incorporated herein by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed
November 28, 2006).
|
|
|
|
10.2
|
|
Amendment No. 1 to
InfoLogix, Inc. 2006 Equity Compensation Plan (incorporated herein by
reference to Exhibit 4.6 of our Registration Statement on Form S-8
filed January 15, 2010).
|
|
|
|
10.3
|
|
Employment Agreement
dated as of November 29, 2007 by and between Eric N. Rubino and
InfoLogix, Inc. (incorporated by reference to Exhibit 10.6 of our
Annual Report on Form 10-K filed March 28, 2008).
|
|
|
|
10.4
|
|
Employment Agreement by
and between InfoLogix Systems Corporation and Gerry Bartley dated as of
September 30, 2007 (incorporated herein by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed
October 4, 2007).
|
|
|
|
10.5
|
|
Earn Out Agreement by
and between InfoLogix Systems Corporation and Healthcare Informatics
Associates, Inc. dated as of September 30, 2007 (incorporated
herein by reference to Exhibit 10.2 of our Current Report on
Form 8-K filed October 4, 2007).
|
|
|
|
10.6
|
|
First Amendment to Earn
Out Agreement by and between InfoLogix Systems Corporation and Healthcare
Informatics Associates, Inc. dated as of August 23, 2008
(incorporated by reference to Exhibit 10.2 of our Quarterly Report on
Form 10-Q filed November 19, 2008).
|
|
|
|
10.7
|
|
Promissory Note
executed in favor of Healthcare Informatics Associates, Inc. by
InfoLogix Systems Corporation dated as of September 30, 2007
(incorporated herein by reference to Exhibit 10.3 of our Current Report
on Form 8-K filed October 4, 2007).
|
|
|
|
10.8
|
|
Loan and Security
Agreement by and among InfoLogix, Inc., InfoLogix Systems Corporation,
Embedded Technologies, LLC, Opt Acquisition LLC, InfoLogix-DDMS, Inc.,
as Borrowers, and Hercules Technology Growth Capital, Inc., as Lender,
dated May 1, 2008 (incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed May 7, 2008).
|
|
|
|
10.9
|
|
First Amendment to Loan
and Security Agreement by and between InfoLogix, Inc., InfoLogix Systems
Corporation, Embedded Technologies, LLC, Opt Acquisition LLC, and InfoLogix -
DDMS, Inc., as Borrowers, and Hercules Technology Growth
Capital, Inc., as Lender, dated November 19, 2008 (incorporated by
reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q
filed November 19, 2008).
|
|
|
|
10.10
|
|
Second Amendment to
Loan and Security Agreement by and between InfoLogix, Inc., InfoLogix
Systems Corporation, Embedded Technologies, LLC, Opt Acquisition LLC, and
InfoLogix-DDMS, Inc., as Borrowers, and Hercules Technology Growth
Capital, Inc., as Lender, dated May 31, 2009 (incorporated by
reference to Exhibit 10.3 of our Current Report on Form 8-K filed
June 4, 2009).
|
|
|
|
10.11
|
|
Forbearance Agreement
dated July 31, 2009 by and among Hercules Technology Growth
Capital, Inc. and InfoLogix, Inc., InfoLogix Systems corporation,
Embedded Technologies, LLC, Opt Acquisition, LLC, and InfoLogix
DDMS, Inc (incorporated by reference to Exhibit 10.1 of our
Quarterly Report on Form 10-Q filed November 23, 2009).
|
|
|
|
10.12
|
|
Amendment to
Forbearance Agreement dated August 14, 2009 by and among Hercules
Technology Growth Capital, Inc. and InfoLogix, Inc., InfoLogix
Systems corporation, Embedded Technologies, LLC, Opt Acquisition, LLC, and
InfoLogix DDMS, Inc. (incorporated by reference to Exhibit 10.2
of our Quarterly Report on Form 10-Q filed November 23, 2009).
|
99
Table of Contents
10.13
|
|
Second Amendment to
Forbearance Agreement dated August 20, 2009 by and among Hercules
Technology Growth Capital, Inc. and InfoLogix, Inc., InfoLogix
Systems corporation, Embedded Technologies, LLC, Opt Acquisition, LLC, and
InfoLogix DDMS, Inc. (incorporated by reference to Exhibit 10.3
of our Quarterly Report on Form 10-Q filed November 23, 2009).
|
|
|
|
10.14
|
|
Third Amendment to
Forbearance Agreement dated September 23, 2009 by and among Hercules
Technology Growth Capital, Inc. and InfoLogix, Inc., InfoLogix
Systems corporation, Embedded Technologies, LLC, Opt Acquisition, LLC, and
InfoLogix DDMS, Inc. (incorporated by reference to Exhibit 10.4
of our Quarterly Report on Form 10-Q filed November 23, 2009).
|
|
|
|
10.15
|
|
Fourth Amendment to
Forbearance Agreement dated September 30, 2009 by and among Hercules
Technology Growth Capital, Inc. and InfoLogix, Inc., InfoLogix
Systems corporation, Embedded Technologies, LLC, Opt Acquisition, LLC, and
InfoLogix DDMS, Inc. (incorporated by reference to Exhibit 10.5
of our Quarterly Report on Form 10-Q filed November 23, 2009).
|
|
|
|
10.16
|
|
Fifth Amendment to
Forbearance Agreement dated October 15, 2009 by and among Hercules
Technology Growth Capital, Inc. and InfoLogix, Inc., InfoLogix
Systems corporation, Embedded Technologies, LLC, Opt Acquisition, LLC, and
InfoLogix DDMS, Inc. (incorporated by reference to Exhibit 10.6
of our Quarterly Report on Form 10-Q filed November 23, 2009).
|
|
|
|
10.17
|
|
Earn Out Agreement by
and between InfoLogix Systems Corporation and Delta Health Systems, Inc.
dated as of May 2, 2008 (incorporated by reference to Exhibit 10.1
of our Current Report on Form 8-K filed May 8, 2008).
|
|
|
|
10.18
|
|
Letter Agreement dated as
of November 20, 2009 by and between InfoLogix Systems Corporation and
Delta Health Systems, Inc. (incorporated by reference to
Exhibit 10.4 of our Current Report on Form 8-K filed
November 25, 2009).
|
|
|
|
10.19
|
|
Master Services
Agreement by and between Futura Services, Inc. and InfoLogix, Inc.
dated March 2, 2009 (incorporated by reference to Exhibit 10.1 of
our Current Report on Form 8-K filed March 6, 2009).
|
|
|
|
10.20
|
|
Severance Agreement
dated March 13, 2009 by and between InfoLogix, Inc. and David T.
Gulian (incorporated by reference to Exhibit 10.1 our Current Report on
Form 8-K filed March 17, 2009).
|
|
|
|
10.21
|
|
Severance Agreement
dated March 13, 2009 by and between InfoLogix, Inc. and John A.
Roberts (incorporated by reference to Exhibit 10.2 our Current Report on
Form 8-K filed March 17, 2009).
|
|
|
|
10.22
|
|
Severance Agreement
dated March 13, 2009 by and between InfoLogix, Inc. and Richard
Hodge (incorporated by reference to Exhibit 10.3 our Current Report on
Form 8-K filed March 17, 2009).
|
|
|
|
10.23
|
|
Severance Agreement
dated March 13, 2009 by and between InfoLogix, Inc. and Craig A.
Wilensky (incorporated by reference to Exhibit 10.4 our Current Report
on Form 8-K filed March 17, 2009).
|
|
|
|
10.24
|
|
Debt Conversion
Agreement dated as of November 20, 2009 by and between
InfoLogix, Inc. and Hercules Technology I, LLC (incorporated by
reference to Exhibit 10.1 of our Current Report on Form 8-K filed
November 25, 2009).
|
|
|
|
10.25
|
|
Registration Rights
Agreement dated as of November 20, 2009 by and between
InfoLogox, Inc. and Hercules Technology I, LLC (incorporated by
reference to Exhibit 10.2 of our Current Report on Form 8-K filed
November 25, 2009).
|
100
Table of Contents
10.26
|
|
Registration Rights
Agreement dated as of November 20, 2009 by and between
InfoLogox, Inc. and Hercules Technology Growth Capital, Inc.
(incorporated by reference to Exhibit 10.3 of our Current Report on
Form 8-K filed November 25, 2009).
|
|
|
|
10.27
|
|
Form of
Indemnification Agreement dated as of November 20, 2009 (incorporated by
reference to Exhibit 10.5 of our Current Report on Form 8-K filed
November 25, 2009).
|
|
|
|
10.28
|
|
Registration
Rights Agreement, dated as of April 6, 2010, by and between
InfoLogix, Inc. and Hercules Technology Growth Capital, Inc.
(incorporated herein by reference to Exhibit 10.1 of our Current Report
on Form 8-K filed April 8, 2010).
|
|
|
|
21
|
|
Direct and Indirect
Subsidiaries of the Registrant.+
|
|
|
|
23.1
|
|
Consent of McGladrey & Pullen LLP,
Independent Registered Public Accounting Firm.+
|
|
|
|
31.1
|
|
Certification pursuant
to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.2
|
|
Certification pursuant
to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
32.1
|
|
Certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
|
|
|
|
32.2
|
|
Certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
|
(*)
Filed herewith.
(+)
Previously filed.
101
Table of Contents
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned; thereunto duly authorized, in
Hatboro, Pennsylvania on May 24, 2010.
|
INFOLOGIX, INC.
|
|
|
|
By:
|
/s/
DAVID T. GULIAN
|
|
|
David
T. Gulian
|
|
|
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities
indicated on May 24, 2010.
Signatures
|
|
Title(s)
|
|
|
|
|
|
|
/s/ DAVID T. GULIAN
|
|
President,
Chief Executive Officer and Director (Principal
|
David T. Gulian
|
|
Executive
Officer)
|
|
|
|
/s/ JOHN A. ROBERTS
|
|
Chief
Financial Officer (Principal Financial and Accounting
|
John A. Roberts
|
|
Officer)
|
102
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