UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C.
20549
FORM
10-KSB
[Mark
One]
|
|
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF
THE
|
SECURITIES
EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2007
OR
|
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF
THE
|
SECURITIES
EXCHANGE ACT OF 1934
For
the
transition period from ____________ to ____________
Commission
File Number: 001-10927
|
Simtrol,
Inc.
|
|
(Name
of
small business issuer in its
charter)
|
|
Delaware
|
58-2028246
|
|
(State
or
other jurisdiction of
incorporation or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
520
Guthridge Court, Suite 250, Norcross, Georgia
30092
|
|
(Address
of
principal executive offices) (Zip Code)
|
|
|
|
Issuer’s
telephone number: (770)
242-7566
|
Securities
registered pursuant to section 12(b) of the Exchange Act:
None
Securities
registered pursuant to section 12(g) of the Exchange Act:
Common
Stock, $.001 par value per share
Check
whether the
issuer (1) has filed all reports required to be filed by Section 13 or 15(d)
of
the Exchange Act during the past 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 [ ]
Check
if there is
no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. [ ]
Indicate
by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the
Exchange Act). Yes [ ] No [X]
The
registrant’s
revenues for the fiscal year ended December 31, 2007 were $191,053.
The
aggregate
market value of the shares of common stock held by non-affiliates of the
registrant was approximately $3,909,410, based on the closing price of the
registrant's common stock as quoted on the Over The Counter Bulletin Board
on
March 27, 2008. For the purposes of this response, officers, directors and
holders of 5% or more of the registrant's common stock are considered to be
affiliates of the registrant at that date.
As
of March 27,
2008, registrant had 8,210,771 shares of $.001 par value Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
Registrant
incorporates by reference portions of its Definitive Proxy Statement for the
2008 Annual Meeting of Stockholders, which is expected to be filed no later
than
April 29, 2008, into Part III of this Form 10-KSB to the extent stated herein.
Transitional
Small
Business Disclosure Format (check one): Yes [ ] No [X]
PART
I
FORWARD-LOOKING
STATEMENTS
This
annual report
on Form 10-KSB (this “Annual Report”), including “Management’s Discussion and
Analysis or Plan of Operation,” contains certain “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, that represent our
expectations, anticipations or beliefs about future events, including our
operating results financial condition, liquidity, expenditures, and compliance
with legal and regulatory requirements. For this purpose, any statements that
are not statements of historical fact may be deemed to be forward-looking
statements. These statements involve risks and uncertainties that could cause
actual results to differ materially depending on a variety of important factors.
Factors that might cause or contribute to such differences include, but are
not
limited to, those set forth in the “Factors Affecting Future Performance”
section below and elsewhere in this Annual Report and in our other reports
on
Forms 8-K, 10-QSB and 10-KSB that we file with the Securities Exchange
Commission (“SEC”) from time to time. With respect to such forward-looking
statements, we claim protection under the Private Securities Litigation Reform
Act of 1995. Our SEC filings are available from us, and also may be examined
at
public reference facilities maintained by the SEC or, to the extent filed via
EDGAR, accessed through the website of the SEC (http://www.sec.gov). In
addition, factors that we are not currently aware of could harm our future
operating results. You are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of this Annual
Report. We undertake no obligation to make any revisions to the forward-looking
statements or reflect events or circumstances after the date of this Annual
Report. References to “Simtrol,” the “Company,” “we,” “us” or “our” made herein
from time to time shall mean “Simtrol, Inc.”
ITEM
1.
DESCRIPTION OF BUSINESS.
History
We
were
incorporated under the laws of the State of Delaware on September 19, 1988.
From
1990 to 2001, we primarily designed, manufactured, marketed and supported
hardware-based command and control systems, including videoconferencing systems.
In September 2001 we changed our name from VSI Enterprises, Inc. to Simtrol,
Inc.
General
We
design, develop and market Windows-based software solutions that enable the
command, control and monitoring of otherwise incompatible electronic devices,
particularly corporate audiovisual (“AV”) assets. Our end-to-end solutions are
designed to provide Fortune 1000 corporations, government entities and other
end
users a cost-effective solution to simplify the automation and integration
of AV
and information technology (“IT”) assets.
Over
the past six
years, we have focused our resources to develop proven software technologies
to
meet the growing demand for PC-based control systems. The resulting OnGoer®
(“OnGoer”) solution has the benefit of being less expensive, more customizable,
and more compatible with existing technology infrastructure than the
hardware-based solutions of our historical competitors, AMX Corporation
(“AMX”)and Crestron Electronics, Inc. (“Crestron”) Our solutions also provide
easy scalability, as customers only need to add additional personal computers
(“PCs”) or servers to provide additional processing power, rather than purchase
large-scale proprietary hardware controllers and touch panels. In addition,
much
of our sales focus has been on AV meeting rooms of large corporations and
government agencies, healthcare, and law enforcement where there are usually
existing PCs, because adding our software to these PCs is a compelling cost
savings versus adding closed-architecture hardware. We believe our Windows-based
products are very well suited to meet this demand.
Our
principal
executive offices are located at 520 Guthridge Court, Suite 250, Norcross,
Georgia 30092 and our telephone number is (770) 242-7566.
Recent
Developments
Funding
of
Operations
On
January 23, 2008, we completed the sale of $1,500,000 of securities in a private
placement.
The
net proceeds of
this offering will be used for working capital and general corporate purposes.
Important terms of the convertible notes are as follows:
|
|
·
|
The
convertible notes are unsecured, bear interest at the rate of 12%
per
annum, are payable six months from the issue date (“Maturity Date”) and
can be pre-paid at any time without penalty
.
|
|
|
·
|
If
Simtrol
closes a “Qualifying Next Equity Financing” (as defined below) before the
Maturity Date, the then-outstanding balance of principal and accrued
interest on the convertible notes will automatically convert into
shares
of the “Next Equity Financing Securities” (as defined below) we issue. A
“Qualifying Next Equity Financing” means the first bona fide equity
financing (or series of related equity financing transactions) occurring
subsequent to the date of issue of a Convertible Note in which we
sell and
issue any of our securities for total consideration of not less than
$2.0
million in the aggregate (including the principal balance and accrued
but
unpaid interest to be converted on all our outstanding convertible
notes)
at a price per share for equivalent shares of Common Stock that is
not
greater than $0.75 per share. “Next Equity Financing Securities” means the
type and class of equity securities that we sell in a Qualifying
Next
Equity Financing or a Non-Qualifying Next Equity Financing. If we
sell a
unit comprised of a combination of equity securities, then the Next
Equity
Financing Securities shall be deemed to constitute that unit.
|
|
|
·
|
If
we close a
“Non-Qualifying Next Equity Financing” (as defined below) before the
Maturity Date, the then-outstanding balance of principal and accrued
interest on the convertible notes can be converted, at the option
and
election of the investor, into shares of the “Next Equity Financing
Securities” we issue. A “Non-Qualifying Next Equity Financing” means that
we complete a bona fide equity financing but we fail to raise total
consideration of at least $2.0 million, or the price per share for
equivalent shares of Common Stock is greater than $0.75 per share.
|
|
|
·
|
Upon
conversion of a Convertible Note, we will issue that number of shares
of
Next Equity Financing Securities equal to the quotient obtained by
dividing the then outstanding balance of principal and accrued interest
on
the convertible notes by the price per share of the Next Equity Financing
Securities.
|
|
|
·
|
Upon
any
default, we would be required to pay a 1% default fee on the outstanding
balance. The default fee will be added to the outstanding balance
and
become due under the terms of the Convertible Note.
|
In
connection with
the issuance of the convertible notes, we also issued warrants to the note
holders representing the right to acquire 500,000 shares of our Common Stock
at
an exercise price of $0.75 per share. The warrants have a term ending on the
earlier to occur of (i) the fifth anniversary of the warrant issue date or
(ii) the closing of a change of control event.
As
of December 31, 2007, we had cash, cash equivalents, and certificates of deposit
totaling $358,220. Since inception, we have not achieved a sufficient level
of
revenue to support our business and have incurred recurring losses from
operations, and have an accumulated deficit of approximately $71.8 million
as of
December 31, 2007. We have relied on periodic issuances of common stock,
preferred stock, and convertible debt since the fourth quarter of 2001 to
sustain our operations and we currently require substantial amounts of capital
to fund current operations and the continued development and deployment of
our
ONGOER
®
and
Curiax
TM
(“Curiax”) product
lines. O
n
March 16, 2007,
we
completed
the sale
of $3,525,000 of securities in a private placement of 4,700 units (at $750
per
unit) consisting of one share of Series B Convertible Preferred Stock and one
warrant to purchase 2,000 shares of our common stock at an exercise price of
$0.375 per share. Each share of Series B Convertible Preferred Stock has a
conversion price of $0.375 per share (one Series B Convertible Preferred share
equals 2,000 shares of common stock). The warrants originally had three-year
terms and were modified in September 2007 to extend the term to five years
and
include a cashless exercise provision. See Note 6 to our consolidated financial
statements. We used the proceeds of the private placement to hire additional
sales and software development personnel to expand our sales efforts for our
audiovisual control and monitoring and digital arraignment software, as well
as
to develop new integrated software products for our Curiax platform. We also
issued notes payable of $331,000 to three investors, including one member of
the
Board of Directors during 2007. Principal of $13,500 on these notes and all
applicable accrued interest were repaid to the member of the Board of Directors
in June 2007. Notes for $696,500 (representing $379,000 of notes originated
during 2006 and the $317,500 of notes originated 2007) and $13,700 of accrued
interest on the notes were exchanged in the convertible preferred stock offering
above.
As
we have not been profitable during any year in our history nor have we created
positive cash flows from operations, these matters raise substantial doubt
about
our ability to continue as a going concern. The accompanying consolidated
financial statements have been prepared on a going concern basis, which
contemplate the realization of assets and satisfaction of liabilities in the
normal course of business. The consolidated financial statements do not include
any adjustments relating to the recoverability of the recorded assets or the
classification of the liabilities that might be necessary should we be unable
to
continue as a going concern.
Products
Simtrol
develops
and sells device control middleware that ties devices to applications using
open
standard interfaces. This enables companies to
control,
monitor,
diagnose, schedule and manage devices in a powerful, uniform way. The Company’s
products are used in a number of vertical markets including healthcare, law
enforcement, digital signage, education, corporate, hospitality and residential.
Simtrol sells to a number of Fortune 1000 corporations, government entities,
educational systems and other end users through professional system integrators,
value added resellers (
VARs)
and other
distributors who are supported by the Company’s sales and technical support
staff.
Historically,
device control and monitoring solutions have been driven by closed-architecture
hardware-based solutions. Based on open software architecture and standard
hardware platforms, the Company’s products provide the market better pricing,
more choices and are simpler to deploy without sacrificing functionality. With
six years of software development, a growing track record of clients, and an
increasing number of industry alliances, Simtrol is positioned to lead the
paradigm shift away from proprietary hardware solutions towards open
architecture software.
Current
market
solutions use expensive proprietary hardware. In other industries, companies
have attempted to use proprietary hardware to protect margins (Wang, Digital
Equipment Corporation, Sun Microsystems) but have historically been beaten
in
the marketplace by companies that embrace open architecture (IBM, Dell).
Simtrol’s device management and control software is based on an open platform
that allows control of devices with an industry standard platform - the PC
-
that is easily understood by IT professionals. The breadth and depth of
Simtrol’s code gives the Company’s products the scalability and flexibility to
control thousands of dissimilar devices - each with varying control protocols
-
in virtually an unlimited number of locations.
Below
are examples
of three vertical markets where digital media applications are flourishing
- and
where Simtrol’s software adds tremendous value:
Government
-
Simtrol’s government solutions enable courtrooms, jails and precincts to operate
more efficiently by managing disparate devices through a single user interface.
Specialty applications include Curiax Arraigner that records and tracks all
offender information (video, audio, documents and e-signatures) in a single,
easy-to-access digital case file for efficient and safe processing of an
offender from booking through arraignment. Simtrol estimates the potential
market size for its Arraigner product to be approximately $500 million in the
United States.
Healthcare
-
Simtrol’s healthcare solutions help advanced operating rooms run more
efficiently by managing hospital equipment such as scopes, arms, drapes, tables
and lights through a single user interface. With approximately 100,000 operating
rooms worldwide, Simtrol estimates the potential market size of this target
to
be approximately $300 million.
Security
- Security
and surveillance applications apply advanced analytics to vast amounts of data
(including video & audio) in order to classify objects, detect activities
and raise alerts. Devices such as cameras, sensors, radar, GPS and smart fences
are deployed on-site while projection/display systems, digital video recorders
(DVRs) and audio equipment are used in centralized control centers. As more
of
these devices are deployed throughout increasingly complex environments, it
becomes critical for surveillance solutions providers to ensure that all devices
are always available to collect and distribute data at all times. Robust device
management and control software is needed to effectively design and deploy
such
applications.
Product
Summary: OnGoer
OnGoer
is Simtrol’s
device management and control software. The software allows any PC or server
running Windows to network and communicate with thousands of proprietary AV
and
IT devices built by hundreds of manufacturers. Specifically, OnGoer can control,
manage, monitor, diagnose and schedule any device.
Simtrol
has
developed OnGoer for more than six years, not including Simtrol’s extensive
history in videoconferencing installation, integration, and software
development. From 1993 to 2000, Simtrol used its first generation control
software to design and install over 2,000 videoconferencing systems around
the
world, which gave the Company the experience and the relationships to understand
user needs and requirements.
IT
professionals have long managed corporate assets such as PCs, servers and
routers. During the past few years, most AV products became IP addressable
- a
requirement from IT professionals that wish to manage the AV devices with the
same power and flexibility they use to manage IT assets. IT departments demand
that these devices tie into their existing IT network and wish to use global
IT
tools such as IBM’s NetView, HP’s OpenView, or Computer Associates’ Unicenter to
monitor and manage them. OnGoer complements OpenView, NetView and Unicenter
by
passing valuable health/status information to them. IT professionals need a
product to control the devices locally and remotely and a product to
monitor/manage/diagnose the devices remotely. Our products support these needs
while using industry standard PC technology.
The
hardware
supported by our software is based on the open PC market and comes from a
variety of companies. Our integration and OEM partners choose from many familiar
brands to receive high quality and competitive pricing and our approach takes
advantage of this high-quality, low-price, and easily available hardware. PC
equipment vendors are able to offer tremendous value because of the enormous
economies of scale inherent in the PC marketplace. Our partners are not locked
into expensive, proprietary controllers, touch panels and connectivity hardware
from AMX and Crestron.
OnGoer
is
computer-based general-purpose device control middleware running as a system
service on a Windows 2000 and onward platform. OnGoer can control any device
using a variety of interfaces, including TCP/IP, IR, IO, Relays, Serial (RS232,
RS422 and RS485), Lanc, and USB. With OnGoer, users can leverage commodity,
off-the-shelf PC hardware to create high-quality, affordable solutions.
OnGoer
control
software communicates with the devices in the meeting room as well as monitoring
assets from the server. Devices are controlled locally as part of the room
application or remotely as a help desk application. Health and status
information of all devices is tracked real time and proactive alarms (email
or
text pages to wireless devices such as pagers or cell phones) are sent to
service personnel.
Simtrol’s
software-based approach allows flexibility regarding hardware and development
environment. Architecturally, application developers have the capability to
write their graphical user interfaces or applications in various programming
environments such as .NET, Visual Basic, C++, C#, Flash 8, Java, or Builder
(Simtrol’s development environment for simple solutions). The application or GUI
is then displayed on a commodity touch screen and/or mobile device for end-user
use. Because OnGoer uses TCP/IP for command and control signaling,
administrative and diagnostic functions are available via network-based
diagnostics tools.
OnGoer
connects via
standard TCP/IP networking and monitors devices at remote locations and displays
information about device health and status via a standard browser interface.
Technicians may log in from any place at any time using standard web browsers
to
view the entire device control network at a glance.
Product
Summary: Curiax
Current
video
arraignment solutions are highly fragmented with a focus mainly on the
audiovisual AV component of the application, separate from the considerable
workflow, record tracking, and document retrieval requirements of the courts.
This lack of focus on a critical component of a complex system presents a unique
opportunity to leverage a robust solution in a national rollout strategy. Other
software systems address the court workflow but lack two essential or critical
items: the video arraignment and court recording functionality. Simtrol believes
that Curiax
TM
is the first
product to provide a unified documentation and AV solution. Following extensive
end user research, the OakVideo solution (from which Curiax is derived) was
designed, developed, and implemented by law enforcement and judicial experts
from Oakland County, Michigan. The result is a robust, fully implemented system
that has garnered attention from counties around the United States as well
as
from legal systems around the world.
Curiax
Arraigner
TM
is a web-based
client-server, document management system tailored for law enforcement and
judicial system users, with a unique videoconferencing and device control and
monitoring element.
Overcrowded
courts
create dangerous, costly logistical problems for transporting prisoners and
inefficient systems prevent police from being on the street protecting citizens.
Curiax Arraigner allows jurisdictions to a
•
void
the need to
transport prisoners to courthouse for arraignment by integrating multipoint
videoconferencing, court recording, and data workflow and document management
into a unified platform. We anticipate releasing additional integrated software
products during 2008 including Curiax Court Recording
TM
and Curiax Video
Visitation
TM
.
Protection
of Intellectual Property Rights
We
have implemented both legal (copyright) and practical protective measures to
protect our intellectual property rights in our OnGoer, Curiax Arraigner, Curiax
Video Visitation, and Curiax Court Recording software. We claim copyright
protection in all software and manuals that we create. We also derive
considerable practical protection by supplying and licensing only a
non-modifiable run-time version to our customers and keeping confidential all
versions that can be modified. By licensing the software rather than
transferring title we, in most cases, have been able to incorporate restrictions
in the licensing agreements, which impose limitations on the disclosure and
transferability of the software. No determination has been made as to the legal
or practical enforceability of these restrictions, or the extent of customer
liability for violations. We have a registered trademark for OnGoer
®
.
Product
Development Strategies
The
AV world and
the IT world are converging, with more and more devices becoming network
enabled. Like PCs and servers, we believe IT departments will demand AV products
(projectors, audio processors, video codecs, video switchers, cameras,
electronic whiteboards, etc.) be accessible on a corporate network, where they
can be controlled, managed and monitored from centralized and/or remote
locations. OnGoer installs on PCs and servers, and support a product
architecture that allows them to control, monitor and manage any device
connected to them via the network.
Markets
Based
on the
long-term objective of becoming the industry standard software for controlling
and monitoring AV devices, management has developed a sales and marketing
strategy to aggressively pursue two vertical markets with the company’s
products: healthcare (particularly advanced operating rooms) and law enforcement
(particularly
digital
arraignments and warrants).
Simtrol’s
core
value to operating room companies is the replacement of proprietary architecture
with open PC architecture to control and monitor all operating room (OR)
devices. This provides more technical flexibility, better scalability and a
simpler design while lowering costs.
Pre-trial
proceedings involve the costly and dangerous logistical problems of transporting
prisoners and moving documents across multiple agencies using antiquated methods
that can result in lost documentation, risk to public safety, and inefficiency
at taxpayer expense. Curiax Arraigner helps law enforcement officials avoid
transporting prisoners to the courthouse for arraignment by integrating
multipoint videoconferencing, court recording, data workflow, and document
management into a unified platform.
Competition
We
primarily
compete with two companies in the AV control and monitory market, both of which
have significantly greater resources and market share. Both companies offer
control solutions based on proprietary hardware and software. We offer control
solutions utilizing open PC technology.
Our
two major
competitors
in the AV control
systems market are AMX and Crestron, who combined currently have
close
to 100% of
the sales in this market.
AMX,
headquartered
in
Richardson,
Texas,
offers control applications such as control and automation systems for corporate
boardrooms, meeting facilities, professional sporting arenas, museums, hospital
operating rooms, transportation systems, schools and residences. Headquartered
in Rockleigh, New Jersey, Crestron designs and manufactures control and
automation systems for corporate, industrial, educational, and residential
markets.
Both
Crestron and
AMX offer hardware-based control systems, the cores of which are proprietary
controllers
fitted with
proprietary cards and connectors manufactured by or for them, and running
proprietary software systems. These proprietary controllers communicate with
controlled devices by means of code written in proprietary software languages
(each company has developed its own). Integrators who re-sell systems from
each
of these companies must send their technical personnel to training courses
offered by the companies themselves and by several independent
organizations.
Because
OnGoer is a
software-based control system designed to run on commodity PC hardware, we
believe we have several advantages over AMX and Crestron. The PC industry is
a
vast marketplace with enormous economies of scale. Computer hardware including
touch screens, wireless Smart Displays, and serial ports are extremely powerful
and inexpensive. Innovative and wireless network-enabled devices are regularly
introduced into the mass PC market. There are advantages for end customers
in
familiarity and cost compared to proprietary, hardware-based control
systems.
End
customers are
also demanding a new breed of proactively monitored control solutions.
Traditional control systems companies are reacting by introducing PC-like
services and interfaces to PCs and innovative PC wireless Smart Displays. These
PC-like services cannot compete in terms of price and performance with the
much
larger PC marketplace.
Traditional
control
systems position themselves to be the central technology and view the PC as
an
"important device." We believe the PC is the central technology and view
traditional hardware control boxes as a declining technology.
We
are not currently aware of any competitors providing a unified digital
arraignment product similar to our Curiax Arraigner product.
Factors
Affecting Future Performance
The
following
summarizes certain of the risks inherent in our business:
We
have limited
available cash, are currently burning cash quickly, and may not have sufficient
cash to continue our business operations.
As
of December
31
,
2007,
we had cash
or cash equivalents of approximately $256,000. We are currently burning cash
at
an estimated rate of approximately $250,000 per month. Moreover, management
expects this rate to increase in future months as we engage in further
expenditures to develop our business infrastructure and pursue our business
plan. We sold $1,500,000 of securities consisting of convertible notes payable
and warrants in January 2008, and we believe we will have working capital
sufficient to meet operating expenses and capital requirements through
approximately the second quarter of 2008. We will need to obtain additional
capital to conduct operations beyond the third quarter of 2008. Even if we
obtain additional equity capital, we may not be able to execute our current
business plan and fund business operations for the period necessary to achieve
positive cash flow. In such case, we might exhaust our capital and be forced
to
reduce expenses and cash burn to a material extent, which would impair our
ability to achieve our business plan. If we run out of available capital, we
might be required to pursue highly dilutive equity or debt issuances to finance
our business in a difficult and hostile market, including possible equity
financings at a price per share that might be much lower than the per share
price invested by our shareholders. No assurance can be given that any source
of
additional cash would be available to us. If no source of additional cash is
available to us, then we would be forced to significantly reduce the scope
of
our operations or possibly seek court protection from creditors or cease
business operations altogether.
We
may not be
able to achieve or sustain profitability.
After
20 years of
operations, we have not reported any profits for a full year of operations
and,
as of December 31, 2007, we had an accumulated deficit of $71.8 million. We
may
not be able to achieve or sustain profitability in the future, as sales of
our
OnGoer product have not proven to be sufficient to fund our operations. As
a
result, we may incur additional losses and negative cash flow from operations
for the foreseeable future.
If
we fail to
secure sufficient capital or fail to create a strong marketing support team,
then our efforts to penetrate new markets could fail, resulting in decreased
cash flow.
Expanding
our
presence in the audiovisual command and control market will require capital
for
further software product development and the creation of new sales channels.
The
inability to secure sufficient capital or the failure to create a strong sales
channel/marketing support organization could result in a failed effort to
penetrate these new markets and adversely affect operating results and cash
flow.
If
we cannot
attract, retain, train or manage our key management or technical personnel
effectively, our ability to develop and sell new products could be hindered,
resulting in a reduction in sales.
Our
development,
management of our growth and other activities depend on the efforts of key
management and technical employees. Competition for such persons is intense.
Because we do not have long-term employment agreements with our key management
personnel or technical employees, we could lose one or more of our key
management or technical personnel, which could result in significant harm to
our
business. Our future success is also dependent upon our ability to effectively
attract, retain, train, motivate and manage our employees and failure to do
so
could hinder the development and marketing of our products and result in a
reduction in sales and our customers could shift their purchases to our
competitors.
We
may be
unable to evaluate our business and to forecast our prospects accurately, which
may prevent us from meeting the product demands of our potential customers
in a
timely manner.
It
is difficult to
forecast our future revenues accurately and to plan future operating expenses.
The revenue and income potential of our products and business are largely
unproven. Although proprietary, closed-architecture AV control systems have
been
sold successfully, the PC-based AV control system is largely unproven. Our
ability to license our OnGoer software and achieve success will depend on,
among
other things, the level of demand for PC-based control systems and our capacity
to meet demand and performance standards of our prospective
clients.
Our
PC-based
control system is unproven technology and may not be accepted by the
industry.
There
is no
industry standard for the control of AV systems. Generally, the market is
dominated by proprietary, closed-architecture control systems by manufacturers
such as AMX and Crestron. Our open-architecture, PC-based control system, which
we believe provides greater flexibility at a lower cost for end-users than
the
traditional proprietary systems, is a relatively new technology for the market.
Given the relatively short operating history of such PC-based systems, it is
impossible to determine at this time whether or not PC-based systems will gain
wide acceptance in the marketplace. To increase our sales, we must establish
a
greater presence in the AV system control market by convincing AV integrators
and IT Managers and ultimately end-users, to utilize a PC-based control system
rather than the traditional proprietary systems. There can be no assurance
that
use of PC-based control systems, such as our OnGoer, will be accepted by the
industry. If the use of PC-based AV control systems is not accepted in the
marketplace or if another industry standard is adopted, our projected sales
will
not materialize, thereby causing potentially poor financial
performance.
We
have very
few current customers and our sales cycle is very long.
To
date, we have
signed revenue-producing contracts to provide services to only a small number
of
customers. During 2007, 100% of our revenues were from five customers. Further,
we do not have long-term contracts with these or any other customers, so
customers could stop purchasing products at any time. The loss of any major
customer, or any reduction in purchases by these customers, could significantly
harm our business. In selling our services, management generally experiences
an
extremely lengthy sales approval process. Accordingly, we anticipate that our
revenues will increase gradually and we will achieve profitability only if
we
successfully secure long-term revenue-producing contracts with many new
customers. The current economic conditions may further extend our sales cycle
and make new customer sales very uncertain and expensive. Delays in completing
a
sale are costly and cause us to incur losses for a longer period than
forecasted. These delays also place us at a continual risk of running out of
capital, and cause us to continue to expend time and energy seeking additional
capital. Our customers generally are significantly larger than we are and have
significant bargaining power to demand low prices and on terms and conditions
that may further make it difficult to achieve profitability.
We
rely on
third parties for the sale of our products.
Sales
of our OnGoer
and Curiax products are primarily made through third-party OEMs and AV
integrators. Generally, we do not have initial access to the end-users of AV
systems in the marketplace and must, therefore, rely on third parties for the
distribution and sale of our products. We have entered into dealer agreements
with third-party OEM and AV integrators for the sale of our products. However,
such agreements are non-exclusive and such third parties may, therefore, also
sell products that directly compete with ours. In addition, such agreements
may
be terminated at any time. If our relationships with such third-party OEMs
and
AV integrators were terminated, we would have to seek a new distribution channel
for our products, which would potentially have a material adverse effect on
our
operations.
We
may be
unable to accurately evaluate our business and to forecast our prospects, which
may prevent us from meeting the product demands of our potential customers
in a
timely manner.
It
is difficult to
forecast our future revenues accurately and to plan future operating expenses.
The revenue and income potential of our products and business are
largely
unproven. Although
proprietary, closed-architecture AV control systems have been sold successfully,
the PC-based AV control system is largely unproven. Our ability to license
our
OnGoer
software
and
achieve success will depend on, among other things, the level of demand for
PC-based control systems and our capacity to meet demand and performance
standards of our prospective clients.
We
may not be
able to maintain or improve our competitive position because we face intense
competition in the AV control system market from existing competitors with
far
greater technical and financial resources and other companies may enter the
marketplace in the future.
Competition
in the
command and control and video communications markets is intense. In the command
and control market, our primary competitors are AMX and Crestron. We compete
with AMX and Crestron on features such as ease of use, scalability and price.
Although we feel that our PC-based system is superior to the proprietary systems
developed by AMX and Crestron in each of these areas, we do not have the name
recognition in the industry that is currently enjoyed by AMX and Crestron,
which
may result in fewer sales of our products. In addition, both AMX and Crestron
have greater financial and personnel resources than we do. Given their market
share, resources and reputation, if either or both of these companies choose
to
develop a PC-based control system, it could have a serious adverse effect on
our
results of operations. In addition, as use of AV systems becomes more widespread
in both businesses and homes, we expect other competitors, some with
significantly greater technical and financial resources such as Microsoft,
to
enter the marketplace. If any such competitors choose to develop their own
PC-based control systems, rather than licensing software from us, it could
have
a serious adverse effect on our sales. If we cannot continue to offer new
command and control and videoconferencing products with improved performance
and
reduced cost, our competitive position will erode. Moreover, competitive price
reductions may adversely affect our results of operations.
Our
success
will depend in part upon our ability to safeguard our software and other
intellectual property.
We
rely on a
combination of patents, copyrights, trade secret laws and licensing agreements
to protect our software and other intellectual property. There can be no
assurance that these measures taken by us will provide significant proprietary
protection of our intellectual property or that competitors will not be able
to
legitimately ascertain proprietary information embedded in our products which
are not covered by such measures. In such case, we may be precluded from
preventing our competitors from making use of such information.
There
are no
pending lawsuits or claims against us regarding infringement of any existing
patents, copyrights or other intellectual property rights of others. There
can
be no assurance, however, that such infringement claims will not be asserted
in
the future, nor can there be any assurance, if such claims are made, that we
will be able to defend such claims successfully or, if necessary, obtain
licenses on reasonable terms. Adverse determinations in any litigation naming
us
could subject us to significant liabilities to third parties, require us to
seek
licenses from third parties and prevent us from selling our products. The
occurrence of any of these events could have a material adverse effect on us.
We
will also rely
on unpatented or copyrighted trade secrets and propriety know-how. We generally
require our employees, consultants, advisors and prospective partners to enter
into confidentiality agreements. There is no assurance, however, that these
agreements will protect any current or future proprietary information or that
others will not gain access to or independently develop similar trade secrets
or
know-how. Our competitive position and amount of potential future income will
depend in part upon our ability to obtain and maintain copyright and other
intellectual property protection in various jurisdictions for proprietary
technologies, existing products and products we may develop in the
future.
If
necessary
licenses of third-party technology become unavailable to us or become very
expensive, it could adversely impact our business.
We
currently
license technology for use in our OnGoer and Curiax Arraigner products and
may,
from time to time, be required to license additional technology from third
parties to develop new applications or application enhancements. We cannot
assure you that third-party licenses will be available to us on commercially
reasonable terms, if at all. The inability to obtain any third-party licenses
required to develop new applications and application enhancements could require
us to obtain substitute technology of lower quality or performance standards
or
at greater cost, either of which could have an adverse effect on our
business.
Our
success
will depend on our ability to adapt to rapid technological
change.
The
AV industry
typically experiences rapid technological change, changing market conditions
and
customer demands and the emergence of new industry standards and practices
that
could render our products obsolete. Our future success will substantially depend
on our ability to enhance our products and services, develop new services and
proprietary technology and respond to technological advances in a timely and
cost-effective manner. The development of additional products and other
proprietary information entails significant technical and business risk. There
can be no assurance that we will succeed in developing and using new
technologies or in adapting our technology and systems to meet emerging industry
standards and customer requirements. If we are unable, for technical, legal,
financial, or other reasons, to adapt in a timely manner in response to changing
market conditions or customer requirements, or if our new products and services
do not achieve market acceptance, our business, financial condition and results
of operations would be materially adversely affected.
The
lack of a
developed trading market may make it difficult to sell our
securities.
Trading
of our
Common Stock is conducted on the Over The Counter Bulletin Board (the “OTC
Bulletin Board”). Trading activity in our Common Stock has fluctuated and at
times been limited. We cannot guarantee that a consistently active trading
market will develop in the future. A holder of our Common Stock may find it
difficult to dispose of or to obtain quotations as to the market value of our
Common Stock.
The
market
price for our common stock may be volatile.
The
market price
for our Common Stock could be subject to significant fluctuations in response
to
variations in quarterly operating results, announcements of technological
innovations or new products by us or our competitors, or our failure to achieve
operating results consistent with any securities analysts’ projections of our
performance.
Our
Common
Stock is subject to “penny stock” regulations and restrictions on initial and
secondary broker-dealer sales.
The
Securities and
Exchange Commission (“SEC”) has adopted regulations which generally define
“penny stock” to be any listed, trading equity security that has a market price
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exemptions. Penny stocks are subject to certain additional
oversight and regulatory requirements. These requirements may restrict your
ability to sell our Common Stock.
Research
and Development
Our
product
engineering, including our costs associated with design and configuration of
fully developed systems for particular customer applications, is accounted
for
in our financial statements as research and development expenses. During the
year ended December 31, 2007 our expenditures for research and development
of
new products or new components for our OnGoer and Curiax products totaled
$828,564, an increase of 99% from the total expenditures of $416,982 in 2006.
Employees
As
of December 31,
2007, we employed nineteen persons full time, including two executive officers.
Of the full-time employees who were not executive officers, ten were engaged
in
research and development and operations, two in service, four in sales, and
one
in information systems. Employee relations are considered good and we have
no
collective bargaining contracts covering any of our employees.
ITEM
2.
DESCRIPTION
OF PROPERTY
.
We
maintain our
executive and sales offices in 10,000 square feet of leased office space in
Norcross, Georgia, under a 60-month lease which expires in October 2012. Monthly
rent is approximately $11,500 including common area maintenance charges, taxes,
and insurance.
We
believe that our
current facilities are adequate for our current requirements.
ITEM
3.
LEGAL PROCEEDINGS.
We
are not party to any pending legal proceedings.
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No
matters were
submitted to a vote of security holders during the fourth quarter of
2007.
PART
II
ITEM
5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES.
From
January 1,
2002 to May 21, 2003, our Common Stock traded on the OTC Bulletin Board under
the symbol “SMOL.” Our Common Stock traded on the Pink Sheets under the symbol
“SMOL” from May 22, 2003 to May 6, 2004. From May 7, 2004 to June 17, 2004, our
Common Stock traded on the Pink Sheets under the symbol “SMRL.” On June 18,
2004, our Common Stock began trading on the OTC Bulletin Board under the symbol
“SMRL,” where it currently trades.
The
following table
sets forth the quarterly high and low bid quotations per share of Common Stock
on the OTC Bulletin Board and the Pink Sheets as reported for the periods
indicated. These prices also represent inter-dealer quotations without retail
mark-ups, markdowns, or commissions and may not necessarily represent actual
transactions.
|
|
|
HIGH
|
|
LOW
|
|
|
FISCAL
YEAR
ENDED DECEMBER 31, 2006
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.25
|
|
$
|
0.51
|
|
|
Second
Quarter
|
|
|
0.75
|
|
|
0.36
|
|
|
Third
Quarter
|
|
|
0.90
|
|
|
0.25
|
|
|
Fourth
Quarter
|
|
|
0.51
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL
YEAR
ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
2.80
|
|
$
|
0.27
|
|
|
Second
Quarter
|
|
|
2.25
|
|
|
1.01
|
|
|
Third
Quarter
|
|
|
1.55
|
|
|
0.90
|
|
|
Fourth
Quarter
|
|
|
1.30
|
|
|
0.60
|
|
As
of March 28,
2008, there were approximately 700 holders of record and approximately 2,900
beneficial holders of our Common Stock.
We
have never paid
cash dividends on our Common Stock and have no plans to pay cash dividends
in
the foreseeable future. The policy of our Board of Directors is to retain all
available earnings for use in the operation and expansion of our business.
Whether dividends may be paid in the future will depend upon our earnings,
capital requirements, financial condition, prior rights of any preferred
stockholders, and other relevant factors.
On
December 31,
2007, we issued 7,876 shares of Common Stock to members of our Board of
Directors in lieu of cash fees for attendance at Board meetings during the
three
months ended December 31, 2007. The offer and sale of the shares were exempt
from the registration requirements of the Securities Act of 1933 (the “Act”)
pursuant to Rule 506 and Section 4(2) of the Act. In connection with the
sales, we did not conduct any general solicitation or advertising, and we
complied with the requirements of Regulation D relating to the restrictions
on
the transferability of the shares issued.
The
following table
provides information as of December 31, 2007 regarding the Company’s
compensation plans and arrangements:
Equity
Compensation Plan Information
|
Plan
category
|
|
Number
of
securities to be issued upon exercise of outstanding options, warrants
and
rights
(a)
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
|
Number
of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a)
(c)
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved
by
security
holders
|
|
4,401,375
|
|
$0.94
|
|
1,598,625
|
|
Equity
compensation plans not
approved
by
security holders
|
|
16,434,774
|
|
$0.60
|
|
-
|
|
Total
|
|
20,836,149
|
|
$0.67
|
|
1,598,625
|
See
note 3 to
the consolidated financial statements for a description of the Company's 2002
Equity Incentive Plan.
__________________________
ITEM
6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The
following
discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Form 10-KSB.
Overview
We
used $2,639,991
in cash from operating activities in 2007, primarily due to our loss of
$4,905,483. Our net loss increased during 2007 primarily due to a significant
increase in personnel costs during the year to accelerate our product
development and sales and marketing efforts.
During
2007, we
used $125,677 in investing activities primarily to purchase new computer
equipment and leasehold improvements on our new office space. Leasehold
improvements will be amortized over the shorter of the estimated useful life
or
the life of our new office lease and computer equipment depreciated over
estimated useful lives, on a straight-line basis. During 2006, we used $5,200
in
investing activities for purchases of equipment. We also issued $26,000 and
$52,000 in 2007 and 2006, respectively, of our common stock in conjunction
with
the acquisition of the remaining 50% interest in a joint venture that we did
not
previously own (see Note 11 to the consolidated financial statements). Cash
received from financing activities during 2007 included $331,000 of notes
payable originated by three investors, including one member of our board of
directors, as well as net proceeds of approximately $2,809,000 from the Series
B
convertible preferred private placement we closed on March 16, 2007. See Notes
5
and 6 to our consolidated financial statements.
Cash
used in
financing activities in 2006 included $12,000 for the return of a deposit
received from a potential investor in a cancelled offering at December 31,
2005.
We received $250,000 from investing activities during 2006 for the sale of
our
patent technology related to our former videoconferencing business. See Note
7
to the consolidated financial statements. We issued a $37,000 note payable
to
one member of the board of directors on June 9, 2006. The proceeds of this
debt
were utilized for working capital purposes. On June 30, 2006, the Company repaid
the note plus the accrued interest of $213 (see Note 5 to the consolidated
financial statements). We also received $250,000 from the exercise of stock
options by two members of our Board of Directors (see Note 6 to the consolidated
financial statements). During 2006, we issued $379,000 in notes payable to
one
member of our board of directors.
During
2007, our
total assets increased approximately 133% to $665,117 at December 31, 2007
from
$285,908 at December 31, 2006. The increase in assets was primarily due to
the
proceeds from issuance of our Series B convertible preferred stock on March
16,
2007 in a private placement (see Note 6
to
our consolidated
financial statements
),
partially offset
by cash used to fund operations during the period.
Current
liabilities
decreased $1,638,182, or 84%, due primarily
to
the elimination
of a dividend payable on the covenant default of the Company’s Series A
convertible preferred stock of $1,171,863 as of December 31, 2006, as well
as
the exchange of notes payable in the offering ($387,351 principal and interest
outstanding at December 31, 2006). See note 5 to the consolidated financial
statements.
See
Note 2 to the
consolidated financial statements regarding the Company’s going concern
uncertainty.
The
Company does
not have any material off-balance sheet arrangements.
LIQUIDITY
AND SOURCES OF CAPITAL
General
Due
to recurring
losses from operations, an accumulated deficit, negative working capital and
our
inability to date to obtain sufficient financing to support current and
anticipated levels of operations, our independent registered public accountants’
audit opinion states that these matters have raised substantial doubt about
the
Company’s ability to continue as a going concern for the year ended December 31,
2007. As of December 31, 2007, we had cash, cash equivalents and certificate
of
deposit totaling $358,220. We have relied on periodic issuances of common stock,
convertible debt, and notes payable since the fourth quarter of 2001 to sustain
our operations. We currently require substantial amounts of capital to fund
current operations and the continued development and deployment of our OnGoer
and Curiax
TM
product lines.
T
here
can be no assurance that we will be successful in our attempts to develop and
deploy our OnGoer and Curiax Arraigner product lines, to generate positive
cash
flows or raise sufficient capital essential to our survival. To the extent
that
we are unable to generate or raise the necessary operating capital, it will
become necessary to curtail operations. Additionally, even if we do raise
operating capital, there can be no assurance that the net proceeds will be
sufficient to enable us to develop our business to a level where we will
generate profits and positive cash flows.
On
January 22 and 23, 2008, we completed the sale of $1,500,000 of securities
in a
private placement.
The
net proceeds of
this offering will be used for working capital and general corporate purposes.
We
may
require additional funding to fund our development and operating activities.
This additional funding could be in the form of the sale of assets, debt,
equity, or a combination of these financing methods. However, there can be
no
assurance that the Company will be able to obtain such financing if and when
needed, or that if obtained, such financing will be sufficient or on terms
and
conditions acceptable to us. If we are unable to obtain this additional funding,
our business, financial condition and results of operations would be adversely
affected. The accompanying consolidated financial statements contemplate our
continuation as a going concern. However, the Company has sustained substantial
losses from operations in recent years, and such losses have continued through
December 31, 2007.
In
view of the matters described in the preceding paragraph, recoverability of
a
major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon our continued operations, which
in
turn is dependent upon our ability to meet our financing requirements on a
continuing basis and attract additional financing. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue
in
existence.
On
January 28, 2007, the Compensation Committee of the board of directors approved
a cash compensation plan for employees equal to a maximum of 20% of gross
revenues, payable on a quarterly basis. On February 1, 2007, we signed an
advisory services agreement (the "Agreement") with Triton Business Development
Services, an Atlanta-based provider of critical business planning, resource
and
development services.
As
a part of the Agreement, Triton will provide us with financial and strategic
planning services that include capital formation, structure and funding
strategies, investor relations consultation, human resources assessment and
development, and an organizational review of our processes, practices, and
procedures. The term of the Agreement is 24 months.
Triton’s
compensation will consist of cash and restricted shares of our common stock
over
the term of the Agreement. A monthly cash retainer of $10,000 will be paid
by
us. Additionally, 640,000 restricted shares of our common stock will be earned
ratably over the 24-month term of the Agreement by Triton.
We
expect to spend
less than $125,000 on capital expenditures in 2008.
Critical
Accounting Policies
We
prepare our
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. As such, we are required
to
make certain estimates, judgments and assumptions that we believe are reasonable
based upon the information available. These estimates and assumptions affect
the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. The significant accounting policies which we believe are the most
critical to aid in fully understanding and evaluating our reported financial
results include the following:
|
·
|
Revenue
recognition
.
We
follow the
guidance of the Securities and Exchange Commission’s Staff Accounting
Bulletin 104 for revenue recognition. In general, we record revenue
when
persuasive evidence of an arrangement exists or product delivery
has
occurred or services rendered, the sales price to the customer is
fixed
and determinable, and collectability is reasonably assured. Certain
judgments affect the application of our revenue policy. Revenue consists
of the sale of device control software and related maintenance contracts
on these systems. Revenue on the sale of hardware is recognized upon
shipment. We recognize revenue from OnGoer software sales upon shipment
as
we sell the product to audiovisual integrators, net of estimated
returns
and discounts. Revenue on maintenance contracts is recognized over
the
term of the related contract.
|
|
·
|
Capitalized
software research and development costs
.
Our policy
on capitalized software costs determines the timing of our recognition
of
certain development costs. In addition, this policy determines whether
the
cost is classified as development expense or is capitalized. Software
development costs incurred after technological feasibility has been
established are capitalized and amortized, commencing with product
release, using the greater of the income forecast method or on a
straight-line basis over the useful life of the product. Management
is
required to use professional judgment in determining whether development
costs meet the criteria for immediate expense or capitalization.
The
Company did not capitalize any software development costs during
either
2007 or 2006 and all assets were fully amortized by December 31,
2006.
Total capitalized software costs are $2,208,070 and all amounts were
previously amortized.
|
|
·
|
Impairment
of Assets/Investments
.
We record
impairment losses on assets and investments when events and circumstances
indicate that the assets might be impaired and the undiscounted cash
flows
estimated to be generated by those assets are less than the carrying
amount of those items. Our cash flow estimates are based on historical
results adjusted to reflect our best estimate of future market and
operating conditions. The net carrying value of assets not recoverable
is
reduced to fair value. Our estimates of fair value represent our
best
estimate based on industry trends and reference to market rates and
transactions. No impairment was recorded in 2007 or
2006.
|
|
·
|
Stock-Based
Compensation
.
Stock option
awards are granted with an exercise price equal to or greater than
the
market price of our stock on the date of the grant in accordance
with the
our 2002 Equity Incentive Plan. The options generally have five-year
contractual terms for directors and 10 years for employees, and vest
immediately for directors and over four years for employees. The
Company
implemented FAS 123R in the first quarter of 2006. The statement
requires
companies to expense the value of employee stock options and similar
awards. Under FAS 123R, share-based payment awards result in a cost
that
will be measured at fair value on the awards’ grant date based on the
estimated number of awards that are expected to vest. Compensation
costs
for awards that vest will not be reversed if the awards expire without
being exercised. The Company uses historical data to estimate option
exercise and employee termination within the valuation model and
historical stock prices to estimate volatility.
|
Comparison
of Year Ended December 31, 2007 to Year Ended December 31,
2006
Results
of
Operations
Revenues
Revenues
were
$191,053 and $224,692 in 2007 and 2006, respectively. The 15% decrease in
revenues from 2006 to 2007 was primarily due to a decrease in software revenues
of $66,190, as software revenues during 2006 included a $78,000 multi-site
sale
to an integrator for implementation at one end user who previously purchased
our
software in 2004, offset partially by increased programming services revenue
of
approximately $32,551. Due to our small customer base, we face the risk of
fluctuating revenues should any of our customers discontinue using our products.
See Note 8 to our consolidated financial statements.
Gross
Profit
Gross
profit as a
percentage of revenues was approximately 99% and 97% in 2007 and 2006,
respectively.
Selling,
General & Administrative Expenses
Selling,
general
and administrative expenses were $2,956,697 and $1,502,983 for 2007 and 2006,
respectively. The increase in 2007 compared to 2006 resulted primarily from
(i)
higher payroll costs during the current period as we increased headcount during
2007 to expand our product development and sales efforts, and (ii) stock
payments totaling $490,381 made to Triton Business Development Services as
part
of a strategic consulting agreement, partially offset by a decrease in stock
based compensation of $184,253 as the Company recorded stock-based compensation
of $279,720 during 2007 and $463,973 during 2006, which included $308,721
recorded in June 2006 to reflect the fair value of the stock options granted
to
non-employee directors at that time.
Research
and
Development Expenses
We
charge research and development costs to expense as incurred until technological
feasibility of a software product has been established. Software development
costs incurred after technological feasibility has been established are
capitalized and amortized, commencing with product release, using the greater
of
the income forecast method or on a straight-line basis over the useful life
of
the product. These expensed costs were $828,564 and $416,982 for 2007 and 2006,
respectively. The increase in expense was due mainly to the hiring of additional
software development personnel as well as the use of third-party development
personnel and outsourced software development services during the current
period.
During
2007 and
2006, respectively, stock-based compensation of $98,883 and $41,154 was included
in research and development expense to record the amortization of the estimated
fair value of the portion of previously granted stock options that vested during
the current period.
Other
income/(expense)
Other
expense of
($1,308,441) for 2007 consisted primarily of the $772,655 expense to record
to
value of warrants to purchase 710,200 shares of common stock granted to
noteholders as an inducement for the conversion of their notes for Series B
preferred stock, $578,611 of expense recorded due to the increased fair value
of
the warrants modified in September 2007, partially offset by interest earned
on
cash balances during the year.
Other
income of
$238,826 for 2006 consisted primarily of the $250,000 we received from licensing
our patent portfolio related to our older videoconferencing technology.
Net
Loss
Net
loss for 2007
was $4,905,483 compared to a net loss of $1,462,187 for 2006. The greater loss
during the current period was due primarily to the significant increase in
operating expenses that resulted from hiring additional sales and research
and
development personnel during 2007, $490,381 recorded for share-based payments
to
Triton Business Development Services for consulting services, $772,655 recorded
for the value of warrants issued in conjunction with the exchange of notes
payable for Series B Preferred stock, and the $578,611 warrant modification
expense. Also, during 2006, we received $250,000 from the licensing of our
patent portfolio related to our older videoconferencing technology.
Off
Balance
Sheet Arrangements
We
do not have any
off-balance sheet arrangements.
ITEM
7.
FINANCIAL
STATEMENTS.
The
information
required by this Item 7 is hereby incorporated by reference to our Consolidated
Financial Statements beginning on page F-1 of this Annual Report on Form 10-KSB.
ITEM
8.
CHANGES
IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
.
Not
applicable.
ITEM
8A(T).
CONTROLS AND PROCEDURES
Evaluation
of
Disclosure Controls and Procedures
This
annual report
does not include an attestation report of the Company’s independent registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s independent
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management
reports in this annual report.
The
Company
maintains a system of internal controls designed to provide reasonable assurance
that transactions are executed in accordance with management’s general or
specific authorization; transactions are recorded as necessary to (1) permit
preparation of financial statements in accordance with accounting principles
generally accepting in the United States of America, and (2) maintain
accountability for assets. Access to assets is permitted only in accordance
with
management’s general or specific authorization. In 2007, the Company adopted and
implemented the control requirements of Section 404 of the Sarbanes-Oxley Act
of
2002 (the “Act”).
It
is the responsibility of the Company’s management to establish and maintain
adequate internal control over financial reporting. However, due to its limited
financial resources, there is only limited segregation of duties within the
accounting function, leaving most significant aspects of financial reporting
in
the hands of the Chief Financial Officer.
The
Company
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports
is
recorded, processed, summarized, and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including the Company’s Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. As of December 31, 2007, an evaluation was performed under
the supervision and with the participation of our management, including the
Chief Executive Officer and the Chief Financial Officer, of the effectiveness
of
the design and operation of our disclosure controls and procedures. Based upon
that evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were not effective.
In
connection with its audit of our consolidated financial statements as of
December 31, 2007 and for the year ended December 31, 2007, Marcum &
Kliegman LLP advised our management and Audit Committee of the Board of
Directors that it had identified a deficiency in internal controls, which was
designated a "material weakness", as defined below. The material weakness
indicated that there was difficulty in evaluating, applying, and documenting
complex accounting principles, and in preparing a complete report without major
errors, within our accounting function. The Company initially failed to properly
record the beneficial conversion feature associated with the Series B
Convertible Preferred Stock offering, and the financing expense for the
conversion of notes payable for Series B Convertible Preferred Stock.
A
material weakness is a significant deficiency (or a combination of significant
deficiencies) that result in a more-than-remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
A
significant deficiency is a control deficiency (or combination of internal
control deficiencies) that adversely affects the Company's ability to initiate,
authorize, record, process, or report external financial data reliably in
accordance with GAAP such that there is a more-than-remote likelihood that
a
misstatement of the Company's annual or interim financial statements that is
more than inconsequential will not be prevented or detected. The standard
specifies that a misstatement is inconsequential if a reasonable person would
conclude, after considering the possibility of further undetected misstatements,
that the misstatement, either individually or when combined with other
misstatements, would clearly be immaterial to the financial statements. If
a reasonable person could not reach such a conclusion regarding a particular
misstatement, that misstatement would be more than inconsequential.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
is
responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d(15(f) under the
Securities Exchange Act of 1934, as amended). Our management including the
Company’s Chief Executive Officer and Chief Financial Officer, evaluated as of
December 31, 2007, the effectiveness of our internal control over financial
reporting using the framework in
Internal
Control - Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on
that
evaluation , the Company’s Chief Executive Officer and Chief Financial Officer
concluded that our internal controls, as of December 31, 2007, were not
effective in providing reasonable assurances regarding reliability of financial
reporting, for the reasons set forth above in “- Evaluation of Disclosure
Controls and Procedures.”
Changes
in
Internal Control over Financial Reporting
There
have been no
significant changes in internal controls over financial reporting that occurred
during the quarter ended December 31, 2007 that has materially affected, or
is
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM
8B.
OTHER INFORMATION
On
March 24, 2008, five shareholders converted 139 shares of the Company’s Series B
Convertible Preferred Stock to 278,000 shares of the Company’s common
stock.
On
March 26, 2008, two shareholders converted 145 shares of the Company’s Series B
Convertible Preferred Stock to 290,000 shares of the Company’s common
stock.
PART
III
ITEM
9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANACE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The
information
required by this Item is contained in our definitive proxy statement for the
2008 Annual Meeting of Stockholders, which is expected to be filed with the
SEC
on or about April 29, 2008, and is incorporated herein by reference.
ITEM
10.
EXECUTIVE
COMPENSATION
.
The
information
required by this Item will be presented in our definitive proxy statement for
the 2008 Annual Meeting of Stockholders, which is expected to be filed with
the
SEC on or about April 29, 2008, and is incorporated herein by reference.
ITEM
11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The
information
required by this Item will be presented in our definitive proxy statement for
the 2008 Annual Meeting of Stockholders, which is expected to be filed with
the
SEC on or about April 29, 2008, and is incorporated herein by reference.
ITEM
12.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
.
The
information
required by this Item will be presented in our definitive proxy statement for
the 2008 Annual Meeting of Stockholders, which is expected to be filed with
the
SEC on or about April 29, 2008, and is incorporated herein by reference.
ITEM
13.
EXHIBITS.
The
following
exhibits are filed with or incorporated by reference into this report. The
exhibits which are denominated by an asterisk (*) were previously filed as
a
part of, and are hereby incorporated by reference from either (i) the Company’s
Registration Statement on Form SB-2 (File No. 333-128420) filed with the
Securities and Exchange Commission on September 19, 2005, (referred to as
“2005
SB-2”), (ii) the Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-18 (File No. 33-27040-D) (referred to as “S-18 No. 2”),
(iii) Post-Effective Amendment No. 2 to the Company's Registration Statement
on
Form S-18 (File No. 33-27040-D) (referred to as “S-18 No. 3”), (iv) the
Company's Registration Statement Form S-1 (File No. 33-85754) (referred to
as
“S-1”); (v) the Company's Annual Report on Form 10-K for the year ended December
31, 1993 (referred to as “1993 10-K”); (vi) the Company's Annual Report on Form
10-K for the year ended December 31, 1994 (referred to as “1994 10-K”); (vii)
the Company’s Annual Report on Form 10-K for the year ended December 31, 1998,
as amended (referred to as “1998 10-K/A”) filed on April 30, 1999 , (viii) the
Company's Form S-8 Registration Statement (File No. 333-148890), (referred
to as
“Option Plan S-8”) filed on January 28, 2008, (ix) the Company's Registration
Statement on Form S-3 amended January 31, 1999 (“1999 S-3”), (x) the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (referred
to as “2001 10-Q”) filed November 14, 2001, (xi) the Company’s Annual Report on
Form 10-KSB for the year ended December 31, 2006 (“2006 10-KSB”) filed April 17,
2007, or (xii) the Company’s 2002 proxy statement on Schedule 14A (referred to
as “2002 Proxy Statement”) filed on April 24, 2002.
|
Exhibit
No.
|
|
Description
of Exhibit
|
|
|
|
|
|
*3.1
|
|
Certificate
of Incorporation of the Company, as amended through March 8,
2007 (2006
10-KSB)
|
|
|
|
|
|
*3.2
|
|
Amended
Bylaws of the Company as presently in use (S-18 No. 2, Exhibit
3.2)
|
|
|
|
|
|
4.1
|
|
Certificate
of Incorporation of the Company, as amended (filed herewith as
Exhibit
3.1)
|
|
|
|
|
|
*10.3
|
|
1991
Stock
Option Plan (S-18 No. 3, Exhibit 10.1(a))
|
|
|
|
|
|
*10.3.1
|
|
Amendment
No.
1 to 1991 Stock Option Plan (1993 10-K)
|
|
|
|
|
|
*10.3.2
|
|
Amendment
No.
2 to 1991 Stock Option Plan (S-1)
|
|
|
|
|
|
*10.3.3
|
|
Amendment
No.
3 to 1991 Stock Option Plan (S-1)
|
|
|
|
|
|
*10.3.4
|
|
Amendment
No.
4 to 1991 Stock Option Plan (Option Plan S-8, Exhibit
4.5)
|
|
|
|
|
|
*10.3.5
|
|
Amendment
No.
5 to 1991 Stock Option Plan (1998 10-K/A, Exhibit
10.3.5)
|
|
|
|
|
|
*10.4
|
|
2002
Equity
Incentive Plan (2002 Proxy Statement)
|
|
|
|
|
|
*10.5
|
|
2002
Equity
Incentive Plan Form S-8 (Option Plan S-8)
|
|
|
|
|
|
*10.6
|
|
License
Agreement between ACIS, Inc. and the Company dated September
9, 1999 (1999
S-3)
|
|
|
|
|
|
*10.7
|
|
First
Amendment and Modification of ACIS, Inc. warrant agreement dated
September
7, 2001 (2001 10-Q, Exhibit 10.2)
|
|
|
|
|
|
*10.8
|
|
ACIS
Technology License Agreement between ACIS, Inc. and the Company
dated
September 27, 2001 (2001 10-Q, Exhibit 10.1)
|
|
|
|
|
|
*10.9
|
|
Triton
Business Development Services Engagement Agreement dated January
31, 2007
(2006 10-KSB)
|
|
|
|
|
|
21.1
|
|
Subsidiaries
of the Company
|
|
|
|
|
|
23.1
|
|
Consent
of
Marcum & Kliegman LLP
|
|
|
|
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Executive
Officer
|
|
|
|
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Financial
Officer
|
|
|
|
|
|
32.1(1)
|
|
Section
1350
Certifications
|
|
|
|
|
|
*
Previously
filed
|
|
|
|
(1)
In
accordance with Item 601(b)(32) of Regulation S-B, this Exhibit
is not
deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise
subject to the liabilities of that section. Such certifications
will not
be deemed incorporated by reference into any filing under the
Securities
Act or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference.
|
ITEM
14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information
required by this Item will be presented in our definitive proxy statement for
the 2008 Annual Meeting of Stockholders, which is expected to be filed with
the
SEC on or about April 29, 2008, and is incorporated herein by reference.
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.
|
|
|
|
|
|
SIMTROL,
INC.
|
|
|
|
|
|
By
:
|
/s/
Richard W. Egan
|
|
Date:
March 28, 2008
|
Richard
W. Egan, Chief Executive
Officer
|
Pursuant
to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Dallas S.
Clement
|
|
Chairman
of
the Board
|
|
March
28,
2008
|
|
Dallas S. Clement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard
W. Egan
|
|
Chief
Executive Officer
|
|
March
28,
2008
|
|
Richard W. Egan
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Stephen
N. Samp
|
|
Chief
Financial Officer
|
|
March
28,
2008
|
|
Stephen N. Samp
|
|
(Principal
Financial and
|
|
|
|
|
|
Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Adam D.
Senter
|
|
Director
|
|
March
28,
2008
|
|
Adam D. Senter
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Lee D.
Wilder
|
|
Director
|
|
March
28,
2008
|
|
Lee D. Wilder
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Consolidated
Balance Sheet as of December 31, 2007
|
F-2
|
|
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2007
and
2006
|
F-4
|
|
|
|
|
Consolidated
Statements of Stockholders' Equity/(Deficiency) for the Years
Ended
December 31, 2007 and 2006
|
F-5
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007
and
2006
|
F-6
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Audit Committee of the
Board
of
Directors and Shareholders
of
Simtrol, Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheet of Simtrol, Inc. and
Subsidiaries
(the
“Company”) as of December 31, 2007, and the related consolidated statements of
operations, stockholders’ equity/(deficiency) and cash flows for the years ended
December 31, 2007 and 2006. These consolidated financial statements are
the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated 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.
The
Company is not required to have, nor were we engaged to perform, an audit
of its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
An
audit also includes examining, on a test basis, evidence supporting the
amounts
and disclosures in the financial statements, 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 consolidated financial position of Simtrol,
Inc.
and Subsidiaries, as of December 31, 2007, and the consolidated results
of their
operations and their cash flows for the years ended December 31, 2007 and
2006
in conformity with United States generally accepted accounting principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2 to
the
consolidated financial statements, at December 31, 2007, the Company has
not
achieved a sufficient level of revenues to support its business and has
suffered
recurring losses from operations. These factors raise substantial doubt
about
the Company’s ability to continue as a going concern. Management’s plans
regarding those matters are also described in Note 2. The consolidated
financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
/s/
Marcum & Kliegman LLP
New
York,
New York
March
28,
2008
SIMTROL,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
December
31, 2007
ASSETS
|
CURRENT
ASSETS
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
256,358
|
|
|
Certificate
of deposit
|
|
|
101,862
|
|
|
Accounts
receivable, net
|
|
|
27,232
|
|
|
Prepaid
expenses and other current assets
|
|
|
35,779
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
421,231
|
|
|
|
|
|
|
|
|
LONG-TERM
ASSETS
|
|
|
|
|
|
Property
and equipment, net
|
|
|
117,285
|
|
|
Right
to license intellectual property
|
|
|
115,143
|
|
|
Other
long-term assets
|
|
|
11,458
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
665,117
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SIMTROL,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
December
31, 2007
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
Accounts
payable
|
|
$
|
169,243
|
|
|
Accrued
expenses
|
|
|
126,903
|
|
|
Deferred
revenue
|
|
|
462
|
|
|
Common
stock to be issued
|
|
|
26,000
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
322,608
|
|
|
|
|
|
|
|
|
Common
stock to be issued, less current portion
|
|
|
26,000
|
|
|
Deferred
rent payable, less current portion
|
|
|
11,967
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
360,575
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
Preferred
stock, $.00025 par value; 800,000 shares authorized;770,000 shares
of
Series A Convertible Preferred Stock designated; 728,664 outstanding;
liquidation value of $2,185,992; 4,700 shares of Series B Convertible
Preferred Stock designated and issued; liquidation value of
$3,525,000
|
|
|
183
|
|
|
Common
stock, authorized 40,000,000 shares of
$.001
par value; 7,314,371 shares issued and outstanding
|
|
|
7,314
|
|
|
Additional
paid-in capital
|
|
|
72,119,986
|
|
|
Accumulated
deficit
|
|
|
(71,822,941
|
)
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
304,542
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
665,117
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SIMTROL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the
Years Ended December 31, 2007 and 2006
|
|
|
2007
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
Software
licenses
|
|
$
|
97,584
|
|
$
|
159,659
|
|
|
Service
|
|
|
93,469
|
|
|
65,033
|
|
|
Total
revenues
|
|
|
191,053
|
|
|
224,692
|
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
|
2,834
|
|
|
3,873
|
|
|
Service
|
|
|
-
|
|
|
1,867
|
|
|
Total
cost of revenues
|
|
|
2,834
|
|
|
5,740
|
|
|
Gross
profit
|
|
|
188,219
|
|
|
218,952
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
2,956,697
|
|
|
1,502,983
|
|
|
Research
and development
|
|
|
828,564
|
|
|
416,982
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,785,261
|
|
|
1,919,965
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,597,042
|
)
|
|
(1,701,013
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expenses):
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
42,825
|
|
|
(11,174
|
)
|
|
Gain
on sale of intellectual property
|
|
|
-
|
|
|
250,000
|
|
|
Increased
fair value of warrants’ modification
|
|
|
(578,611
|
)
|
|
-
|
|
|
Finance
expense on conversion of notes payable
|
|
|
(772,655
|
)
|
|
-
|
|
|
Total
other income/(expense)
|
|
|
(1,308,441
|
)
|
|
238,826
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,905,483
|
)
|
$
|
(1,462,187
|
)
|
|
Dividend
on covenant default of convertible preferred stock
|
|
|
-
|
|
|
800,613
|
|
|
Preferred
stock dividend
|
|
|
599,917
|
|
|
-
|
|
|
Deemed
preferred dividend
|
|
|
939,118
|
|
|
-
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(6,444,518
|
)
|
$
|
(2,262,800
|
)
|
|
Net
loss per common share attributable to common stockholders-basic
and
diluted
|
|
$
|
(1.04
|
)
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
6,204,921
|
|
|
4,349,737
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SIMTROL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIENCY)
For
the
Years Ended December 31, 2007 and 2006
|
|
|
Common stock
|
|
Preferred Stock
|
|
Additional
Paid-in
capital
|
|
Accumulated
deficit
|
|
Total
|
|
|
|
|
Number of
Shares
|
|
Par value
|
|
Number of
Shares
|
|
Par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
3,755,684
|
|
|
3,756
|
|
|
450,000
|
|
|
113
|
|
|
63,641,158
|
|
|
(63,916,236
|
)
|
|
(271,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,462,187
|
)
|
|
(1,462,187
|
)
|
|
Conversion
of Series A Preferred Stock
|
|
|
261,336
|
|
|
261
|
|
|
(65,334
|
)
|
|
(17
|
)
|
|
(244
|
)
|
|
|
|
|
-
|
|
|
Dividend
payable on covenant default of convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(800,613
|
)
|
|
|
|
|
(800,613
|
)
|
|
Issuance
of common stock to directors
|
|
|
87,984
|
|
|
88
|
|
|
|
|
|
|
|
|
36,012
|
|
|
|
|
|
36,100
|
|
|
Stock-based
compensation amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469,027
|
|
|
|
|
|
469,027
|
|
|
Exercises
of stock options
|
|
|
625,000
|
|
|
625
|
|
|
|
|
|
|
|
|
249,375
|
|
|
|
|
|
250,000
|
|
|
Issuance
of common stock for purchase
|
|
|
200,000
|
|
|
200
|
|
|
|
|
|
|
|
|
51,800
|
|
|
|
|
|
52,000
|
|
|
Balance,
December 31, 2006
|
|
|
4,930,004
|
|
$
|
4,930
|
|
|
384,666
|
|
$
|
96
|
|
$
|
63,646,515
|
|
$
|
(65,378,423
|
)
|
$
|
(1,726,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,905,483
|
)
|
|
(4,905,483
|
)
|
|
Issuance
of Series B Preferred Stock
|
|
|
|
|
|
|
|
|
4,700
|
|
|
1
|
|
|
3,518,793
|
|
|
|
|
|
3,518,794
|
|
|
Conversion
of Series A Preferred Stock
|
|
|
162,672
|
|
|
163
|
|
|
(40,668)
|
|
|
(10
|
)
|
|
(153
|
)
|
|
|
|
|
-
|
|
|
Issuance
of Series A Preferred stock in modification
|
|
|
|
|
|
|
|
|
384,666
|
|
|
96
|
|
|
523,050
|
|
|
|
|
|
523,146
|
|
|
Issuance
of common stock to directors
|
|
|
18,431
|
|
|
18
|
|
|
|
|
|
|
|
|
21,432
|
|
|
|
|
|
21,450
|
|
|
Stock-based
compensation amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357,153
|
|
|
|
|
|
357,153
|
|
|
Warrant
issued in Series A modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,620
|
|
|
|
|
|
245,620
|
|
|
Issuance
of common stock for purchase of license agreement
|
|
|
100,000
|
|
|
100
|
|
|
|
|
|
|
|
|
25.900
|
|
|
|
|
|
26,000
|
|
|
Write
off remainder of previously accrued dividend payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403,097
|
|
|
|
|
|
403,097
|
|
|
Cashless
warrant exercises
|
|
|
713,387
|
|
|
713
|
|
|
|
|
|
|
|
|
(713
|
)
|
|
|
|
|
-
|
|
|
Warrants
issued for notes payable exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
772,655
|
|
|
|
|
|
772,655
|
|
|
Common
stock dividend on Series A and B Convertible Preferred
shares
|
|
|
604,977
|
|
|
605
|
|
|
|
|
|
|
|
|
599,312
|
|
|
(599,917
|
)
|
|
-
|
|
|
Increase
in fair value of warrants due to modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
578,611
|
|
|
|
|
|
578,611
|
|
|
Issuance
of common stock for services
|
|
|
784,900
|
|
|
785
|
|
|
|
|
|
|
|
|
489,596
|
|
|
|
|
|
490.381
|
|
|
Deemed
preferred dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939,118
|
|
|
(939,118
|
)
|
|
-
|
|
|
Balance,
December 31, 2007
|
|
|
7,314,371
|
|
|
7,314
|
|
|
733,364
|
|
|
183
|
|
|
72,119,986
|
|
|
(71,822,941
|
)
|
|
304,542
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SIMTROL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the
Years Ended December 31, 2007 and 2006
|
|
|
2007
|
|
2006
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,905,483
|
)
|
$
|
(1,462,187
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Gain
on sale of intellectual property
|
|
|
-
|
|
|
(250,000
|
)
|
|
Depreciation
and amortization
|
|
|
80,080
|
|
|
9,733
|
|
|
Stock-based
compensation
|
|
|
378,603
|
|
|
505,127
|
|
|
Issuance
of stock for services
|
|
|
490,381
|
|
|
-
|
|
|
Issuance
of warrants in conversion of notes payable to preferred
stock
|
|
|
772,655
|
|
|
-
|
|
|
Increase
in fair value of warrants’ modification
|
|
|
578,611
|
|
|
-
|
|
|
Note
interest exchanged into offering
|
|
|
5,736
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
57,137
|
|
|
(81,476
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(4,471
|
)
|
|
1,922
|
|
|
Other
long-term assets
|
|
|
(11,458
|
)
|
|
-
|
|
|
Interest
payable
|
|
|
-
|
|
|
8,351
|
|
|
Accounts
payable
|
|
|
(98,836
|
)
|
|
117,010
|
|
|
Accrued
expenses
|
|
|
4,625
|
|
|
9,693
|
|
|
Deferred
revenue
|
|
|
462
|
|
|
(19,144
|
)
|
|
Deferred
rent payable, less current portion
|
|
|
11,967
|
|
|
-
|
|
|
Net
cash used in operating activities
|
|
|
(2,639,991
|
)
|
|
(1,160,971
|
)
|
|
Cash
flows from/(used in) investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment and leasehold improvements
|
|
|
(125,677
|
)
|
|
(5,200
|
)
|
|
Proceeds
from sale of intellectual property
|
|
|
-
|
|
|
250,000
|
|
|
Net
cash provided by/(used in) investing activities
|
|
|
(125,677
|
)
|
|
244,800
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from /(used in) financing activities:
|
|
|
|
|
|
|
|
|
Increase
in certificate of deposit
|
|
|
(100,000
|
)
|
|
-
|
|
|
Net
proceeds from exercise of stock options
|
|
|
-
|
|
|
250,000
|
|
|
Proceeds
from notes payable issuance
|
|
|
331,000
|
|
|
416,000
|
|
|
Repayment
of note payable
|
|
|
(14,286
|
)
|
|
(37,000
|
)
|
|
Deposit
returned from cancelled offering
|
|
|
-
|
|
|
(12,000
|
)
|
|
Cash
overdraft
|
|
|
(1,420
|
)
|
|
1,420
|
|
|
Net
proceeds from stock issuances
|
|
|
2,808,594
|
|
|
-
|
|
|
Net
cash provided by financing activities
|
|
|
3,023,888
|
|
|
618,420
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in cash and cash equivalents
|
|
|
258,220
|
|
|
(297,751
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of the year
|
|
|
0
|
|
|
297,751
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of the year
|
|
$
|
258,220
|
|
$
|
0
|
|
|
Supplementary
disclosure:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
3,085
|
|
$
|
213
|
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Non
cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Dividend
payable on covenant default of convertible preferred stock
|
|
$
|
-
|
|
$
|
800,613
|
|
|
Issuance
of common stock in acquisition of JDS interest
|
|
$
|
26,000
|
|
$
|
$
52,000
|
|
|
Exchange
of notes payable for Series B Preferred stock
|
|
$
|
710,200
|
|
$
|
-
|
|
|
Common
stock dividend paid
|
|
$
|
599,917
|
|
$
|
-
|
|
|
Issuance
of Series A Preferred stock as dividend payment on covenant
default
|
|
$
|
768,766
|
|
$
|
-
|
|
|
Issuance
of warrants as dividend payment on covenant default
|
|
$
|
403,097
|
|
$
|
-
|
|
|
Deferred
offering costs
|
|
$
|
16,600
|
|
$
|
-
|
|
|
Deemed
preferred dividend
|
|
$
|
939,118
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
NOTE
1 – Nature of Operations and Basis of Presentation
Simtrol,
Inc., formerly known as VSI Enterprises, Inc., was incorporated in Delaware
in
September 1988 and, together with its wholly-owned subsidiaries (the "Company"),
develops, markets, and supports software based audiovisual control systems
and
videoconferencing products that operate on PC platforms. The Company operates
at
a single facility in Norcross, Georgia and its sales are primarily in the
United
States.
NOTE
2 – Going Concern
As
of
December 31, 2007, the Company had cash, cash equivalents, and certificate
of
deposit totaling $358,220. Since inception, the Company has not achieved
a
sufficient level of revenue to support its business and has incurred recurring
losses from operations, and has an accumulated deficit of approximately
$71.8
million as of December 31, 2007. The Company has relied on periodic issuances
of
common stock, preferred stock, and convertible debt since the fourth quarter
of
2001 to sustain its operations. The Company currently requires substantial
amounts of capital to fund current operations and the continued development
and
deployment of its OnGoer
®
and
Curiax
TM
product
lines.
On
January 22 and 23, 2008, the Company completed the sale of $1,500,000 of
securities in a private placement.
The
net
proceeds of this offering will be used for working capital and general
corporate
purposes.
See
Note
13. Management continues to actively seek additional funding to continue
to
develop its products to generate income from operations.
These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying consolidated financial statements have
been prepared on a going concern basis, which contemplate the realization
of
assets and satisfaction of liabilities in the normal course of business.
The
consolidated financial statements do not include any adjustments relating
to the
recoverability of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as a going
concern.
NOTE
3 – Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and
its
wholly-owned subsidiaries. All intercompany transactions and balances have
been
eliminated in consolidation.
Loss
Per Share
Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share",
requires the presentation of basic and diluted earnings per share ("EPS").
Basic
EPS is computed by dividing loss attributable to common shareholders by
the
weighted-average number of common shares outstanding for the period. Diluted
EPS
includes the potential dilution that could occur if options or other contracts
to issue common stock were exercised or converted. The following equity
securities are not reflected in diluted loss per share because their effects
would be anti-dilutive:
|
|
|
December 31, 2007
|
|
December 31, 2006
|
|
|
Options
|
|
|
4,401,375
|
|
|
1,775,025
|
|
|
Warrants
|
|
|
16,434,774
|
|
|
4,897,737
|
|
|
Convertible
Preferred Stock
|
|
|
12,314,656
|
|
|
1,538,664
|
|
|
Total
|
|
|
33,150,805
|
|
|
8,211,426
|
|
Accordingly,
basic and diluted loss per share are identical.
Stock-Based
Compensation
On
August
31, 2007, the stockholders of the Company approved an amendment to the
Company's
2002 Equity Incentive Plan (the "Plan") to increase the number of shares
of
common stock authorized for issuance under the Plan to 6,000,000 shares
from the
previously authorized amount of 4,000,000 shares. Option awards are granted
with
an exercise price equal to or greater than the market price of the Company’s
stock on the date of the grant in accordance with the Plan. The options
generally have five-year contractual terms for directors and 10 years for
employees, and vest immediately for directors and over four years for
employees.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
The
Company implemented FAS 123R in the first quarter of 2006. The statement
requires companies to expense the value of employee stock options and similar
awards. Under FAS 123R, share-based payment awards result in a cost that
will be
measured at fair value on the awards’ grant date based on the estimated number
of awards that are expected to vest. Compensation costs for awards that
vest
will not be reversed if the awards expire without being exercised. Stock
compensation expense under FAS 123R was $378,603 and $505,127 during 2007
and
2006, respectively. Of these totals, $98,883 and $41,154 were classified
as
research and development expense and $279,720 and $463,973 were classified
as
selling, general, and administrative expense in 2007 and 2006,
respectively.
The
Company uses historical data to estimate option exercise and employee
termination within the valuation model and historical stock prices to estimate
volatility. The fair values for options issued during 2007 and 2006 were
estimated at the date of grant using a Black-Scholes option-pricing model
to be
$1,648,047 and $373,349, respectively, with the following weighted-average
assumptions:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
rate
|
|
|
3.32%-4.97
|
%
|
|
4.88-4.92
|
%
|
|
Annual
rate of dividends
|
|
|
0
|
|
|
0
|
|
|
Volatility
|
|
|
89-133
|
%
|
|
90-148
|
%
|
|
|
|
|
|
|
|
|
|
|
Average
life
|
|
|
5
years
|
|
|
2.9
years
|
|
The
Company estimated forfeitures at 0% for 2007 and 2006, respectively.
The
Black-Scholes option valuation model was developed for use in estimating
the
fair value of traded options, which have no vesting restrictions and are
fully
transferable. In addition, option valuation models require the input of
highly
subjective assumptions, including the expected stock price volatility.
The
Company’s employee stock options have characteristics significantly different
from those of traded options, and changes in the subjective input assumptions
can materially affect the fair value estimate.
A
summary
of option activity under the Plan as of December 31, 2007 and changes during
the
year then ended are presented below:
|
|
|
|
|
Weighted-
Average
|
|
Weighted-Average
Remaining
|
|
Aggregate
|
|
|
Options
|
|
Shares
|
|
Exercise Price
|
|
Term
|
|
Intrinsic Value
|
|
|
Outstanding
January 1, 2007
|
|
|
1,775,025
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,904,600
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Terminated
|
|
|
(278,250
|
)
|
$
|
1.56
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
4,401,375
|
|
$
|
0.94
|
|
|
7.7
|
|
$
|
1,404,056
|
|
|
Exercisable
at December 31, 2007
|
|
|
1,367,025
|
|
$
|
1.42
|
|
|
4.6
|
|
$
|
1,143,529
|
|
The
weighted-average grant-date fair values of options granted during the years
ended December 31, 2007 and 2006 were $0.57 and $0.24, respectively. There
were
no options exercised during 2007. The total intrinsic value of options
exercised
during 2006 was $106,007.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
As
of
December 31, 2007, there was $1,493,817 of total unrecognized compensation
cost
related to nonvested share-based compensation arrangements granted under
the
Plan. That cost is expected to be recognized over a weighted average period
of
2.6 years. The total fair values of shares vested during the years ended
December 31, 2007 and 2006 was $357,153 and $172,578, respectively.
At
December 31, 2007, 1,598,625 options remain available for grant under the
Company’s 2002 Stock Option Plan.
The
following table summarizes information about stock options outstanding
at
December 31, 2007:
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
Range of
|
|
Number
|
|
Remaining
|
|
Average
|
|
Number
|
|
Average
|
|
|
Exercise
|
|
Outstanding at
|
|
Contractual
|
|
Exercise
|
|
Exercisable at
|
|
Exercise
|
|
|
Price
|
|
December 31, 2007
|
|
Life (Years)
|
|
Price
|
|
December 31, 2007
|
|
Price
|
|
|
$0.26-$0.48
|
|
|
2,066,000
|
|
|
6.89
|
|
$
|
0.39
|
|
|
738,750
|
|
$
|
0.40
|
|
|
$0.55-$0.90
|
|
|
1,254,600
|
|
|
8.56
|
|
$
|
0.76
|
|
|
325,000
|
|
$
|
0.69
|
|
|
$1.04-$2.00
|
|
|
955,000
|
|
|
8.90
|
|
$
|
1.39
|
|
|
177,500
|
|
$
|
1.96
|
|
|
$2.25-$2.50
|
|
|
65,300
|
|
|
3.89
|
|
$
|
2.30
|
|
|
65,300
|
|
$
|
2.30
|
|
|
$3.50-$4.80
|
|
|
32,150
|
|
|
2.48
|
|
$
|
4.31
|
|
|
32,150
|
|
$
|
4.31
|
|
|
$9.10-$55.00
|
|
|
28,325
|
|
|
2.53
|
|
$
|
27.73
|
|
|
28,325
|
|
$
|
27.73
|
|
|
|
|
|
4,401,375
|
|
|
7.69
|
|
$
|
0.94
|
|
|
1,367,025
|
|
$
|
1.42
|
|
Revenue
Recognition
Revenues
consist of the sale of device control and monitoring software and digital
arraignment software, videoconferencing systems and related maintenance
contracts on these systems. The Company marketed and sold
three
different products during 2007 and 2006: its control and monitoring software,
OnGoer®, digital arraignment software called Curiax Arraigner
TM,
and
service of its older proprietary hardware and software product, Omega.
Revenue
consists of the sale of device control software and related maintenance
contracts on these systems. Revenue on the sale of hardware is recognized
upon
shipment. We recognize revenue from OnGoer software sales upon shipment
as we
sell the product to audiovisual integrators, net of estimated returns and
discounts. Revenue on maintenance contracts is recognized over the term
of the
related contract.
As
of
December 31, 2007, there was $462 of deferred revenues. The Company did
not have
any sales of its Curiax digital arraignment software during either 2007
or
2006.
Cash
and Cash Equivalents
For
financial reporting purposes, the Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash
equivalents. The Company does have cash balances in banks in excess of
the
maximum amount insured by the FDIC as of December 31, 2007.
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts reflects management’s best estimate of the
probable losses inherent in the account receivable balance. Management
determines the allowance based on known troubled accounts, historical
experience, and other currently available evidence.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are provided
for
in amounts sufficient to relate the cost of depreciable assets to operations
over the shorter of their estimated useful lives or lease terms, ranging
from
3-10
years on a straight-line basis. Leasehold improvements made in 2007 will
be
amortized over the shorter of the useful life or over 60 months, the term
of the
initial lease on the company’s facility.
Software
Development Costs
All
software development costs are charged to expense as incurred until
technological feasibility has been established for the product.
Software
development costs incurred after technological feasibility has been established
are capitalized and amortized, commencing with product release, using the
greater of the income forecast method or on a
straight-line
basis over the useful life of the product. The Company did not capitalize
any
software development costs during either 2007 or 2006 and all assets were
fully
amortized by December 31, 2006.
Income
Taxes
The
Company filed its federal and state tax returns for the years ended December
31,
2004, 2005, and 2006, respectively, during 2007.
Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of
FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition
threshold and a measurement attribute for the financial statement recognition
and measurement of tax positions taken or expected to be taken in a tax
return.
For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities.
In
many
cases the Company’s tax positions are related to tax years that remain subject
to examination by relevant tax authorities. The Company files income tax
returns
in the United States (federal) and in various state and local jurisdictions.
In
most instances, the Company is no longer subject to federal, state and
local
income tax examinations by tax authorities for years prior to 2003.
The
adoption of the provisions of FIN 48 did not have a material impact on
the
company’s consolidated financial position and results of operations. As of
December 31, 2007 no liability for unrecognized tax benefits was required
to be
recorded.
The
Company recognized a deferred tax asset of approximately $18.0 million
as of
December 31, 2007, primarily relating to net operating loss carry forwards
of
approximately $46.9 million, which expire through 2027. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income
during the periods in which those temporary differences become deductible.
The
Company considers projected future taxable income and tax planning strategies
in
making this assessment. At present, the Company does not have a history
of
income to conclude that it is more likely than not that the Company will
be able
to realize all of its tax benefits; therefore, a valuation allowance of
$18.0
million was established for the full value of the deferred tax asset. For
the year ended December 31, 2007, the valuation allowance decreased by
approximately $285,000. A valuation allowance will be maintained until
sufficient positive evidence exists to support the reversal of any portion
or
all of the valuation allowance net of appropriate reserves. Should the
Company
be profitable in future periods with supportable trends, the valuation
allowance
will be reversed accordingly.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
A
reconciliation of the expected federal statutory rate of 34% to the Company’s
actual rate as reported for each of the periods presented is as
follows:
|
|
|
Year Ended
|
|
Year Ended
|
|
|
|
|
December 31, 2007
|
|
December 31, 2006
|
|
|
Expected
Statutory Rate
|
|
|
(34.00
|
)%
|
|
(34.00
|
)%
|
|
State
income tax rate, net of federal benefit
|
|
|
(3.96
|
)%
|
|
(3.96
|
)%
|
|
|
|
|
(37.96
|
)%
|
|
(37.96
|
)%
|
|
Permanent
Difference
|
|
|
(10.45
|
)%
|
|
-
|
|
|
Valuation
Allowance
|
|
|
(27.51
|
)%
|
|
(37.96
|
)%
|
|
Net
Actual Rate
|
|
|
0.00
|
%
|
|
0.00
|
%
|
Fair
Value of Financial Instruments
Management
believes that the carrying amounts of certain financial instruments, including
cash and cash equivalents, certificates of deposit, accounts receivable,
accounts payable and accrued expenses approximate their fair values as
of each
balance sheet date given the relatively short maturity of each of these
instruments. The fair value of the Company's debt
approximates
fair value based on borrowing rates currently available to the Company
for
borrowings with comparable terms and conditions.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 revenue and expenses during the reporting period. Critical estimates
include
management's judgments associated with: determination of an allowance for
doubtful accounts receivable, deferred income tax valuation
allowance
and the capitalization, depreciation and amortization of certain long-term
assets (primarily software development costs), stock-based compensation,
and
impairment of assets. Actual results could differ from those estimates.
New
Accounting Pronouncements
In
February 2006, the FASB issued Statement of Financial Accounting Standard
155 - Accounting for Certain Hybrid Financial Instruments (“SFAS 155”), which
eliminates the exemption from applying SFAS 133 to interests in securitized
financial assets so that similar instruments are accounted for similarly
regardless of the form of the instruments. SFAS 155 also allows the election
of
fair value measurement at acquisition, at issuance, or when a previously
recognized financial instrument is subject to a remeasurement event. Adoption
is
effective for all financial instruments acquired or issued after the beginning
of the first fiscal year that begins after September 15, 2006.
The
adoption of SFAS did not have a material effect on
the
Company's
consolidated
financial position, results of operations, or cash flows.
In
March 2006, the FASB issued Statement of Financial Accounting Standard 156
- Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
separately recognized servicing assets and servicing liabilities be initially
measured at fair value. SFAS 156 permits, but does not require, the subsequent
measurement of servicing assets and servicing liabilities at fair value.
Adoption is required as of the beginning of the first fiscal year that
begins
after September 15, 2006.
The
adoption of SFAS 156 did not have a material effect on the Company's
consolidated
financial position, results of operations, or cash flows.
In
June
2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), Accounting
for
Uncertainty in Income Taxes. FIN 48 prescribes 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. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006.
The
adoption of FIN 48 did not have a material effect on the Company's
consolidated
financial position, results of operations, or cash flows.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
In
December 2006, FASB issued FASB Staff Position EITF 00-19-2 “Accounting for
Registration Payment Arrangements,” which specifies that the contingent
obligation to make future payments or otherwise transfer consideration
under a
registration payment arrangement should be separately recognized and measured
in
accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of EITF
00-19-02 is required for fiscal years beginning after December 15, 2006.
The
adoption of EITF 00-19-2 did not have a material effect on the
Company's
consolidated
financial position, results of operations, or cash flows.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies
with an option to report selected financial assets and liabilities at fair
value
and establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes
for
similar types of assets and liabilities. SFAS 159 is effective for fiscal
years
beginning after November 15, 2007. The adoption of SFAS 159 is not expected
to have a material effect on the Company’s consolidated financial position,
results of operations, or cash flows.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business
Combinations” (“SFAS 141R”), which replaces SFAS No. 141, “Business
Combinations.” SFAS 141R establishes principles and requirements for determining
how an enterprise recognizes and measures the fair value of certain assets
and
liabilities acquired in a business combination, including noncontrolling
interests, contingent consideration, and certain acquired contingencies.
SFAS
141R also requires acquisition-related transaction expenses and restructuring
costs be expensed as incurred rather than capitalized as a component of
the
business combination. SFAS 141R will be applicable 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.
SFAS 141R
would have an impact on accounting for any businesses acquired after the
effective date of this pronouncement.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS
160”). SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary (previously referred to as minority
interests). SFAS 160 also requires that a retained noncontrolling interest
upon
the deconsolidation of a subsidiary be initially measured at its fair value.
Upon adoption of SFAS 160, the Company would be required to report any
noncontrolling interests as a separate component of stockholders’ equity. The
Company would also be required to present any net income allocable to
noncontrolling interests and net income attributable to the stockholders
of the
Company separately in its consolidated statements of income. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. SFAS 160 requires retroactive
adoption
of the presentation and disclosure requirements for existing minority interests.
All other requirements of SFAS 160 shall be applied prospectively. SFAS
160
would have an impact on the presentation and disclosure of the noncontrolling
interests of any non wholly-owned businesses acquired in the
future.
NOTE
4 – Property and Equipment
Property
and equipment consist of the following as of December 31, 2007:
|
Machinery
and equipment
|
|
$
|
130,078
|
|
|
Furniture
and fixtures
|
|
|
6,619
|
|
|
Leasehold
improvements
|
|
|
15,840
|
|
|
|
|
|
152,537
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(35,252
|
)
|
|
|
|
$
|
117,285
|
|
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
Depreciation
and amortization expense relating to property and equipment was $25,223
and
$9,733 for the years ended December 31, 2007 and 2006, respectively, and
is
included in selling, general and administrative expense in the accompanying
consolidated statements of operations.
NOTE
5 – Related Party Transaction
In
order
to fund its operations, the Company issued a $37,000 note payable to one
member
of the Board of Directors on June 9, 2006. The debt accrued interest at
10% and
was uncollateralized. The proceeds of this debt were utilized for working
capital purposes. On June 30, 2006, the Company repaid the note plus the
accrued
interest of $213.
As
of
March 16, 2007, the member of the Board of Directors had a total of $510,000
notes payable outstanding and he exchanged $496,500 of the notes and accrued
interest of $11,289 as part of the Series B Preferred Stock private placement.
See Note 6. The remaining balance of $13,500 and accrued interest totaling
$786
was paid in full at June 29, 2007. See Note 6.
NOTE
6 – Stockholders’ Equity/(Deficiency)
On
February 22, 2006, two holders of Series A Preferred Stock of the Company
elected to convert an aggregate of 65,334 shares of Series A Preferred
Stock to
common stock of the Company, pursuant to the conversion terms of the Series
A
Preferred Stock. On February 22, 2006, the Company issued an aggregate
of
261,336 shares of its common stock to the two stockholders upon the surrender
of
their Series A Preferred Stock for conversion.
In
June
2006, two directors of the Company exercised 625,000 stock options for
total
proceeds to the Company of $250,000.
During
2007, the Company granted options to employees with three-year vesting
periods
at exercise prices equal to or greater than the fair value of the Company’s
stock on these dates:
|
January
31, 2007-
|
|
|
1,400,000
|
|
|
March
14, 2007 -
|
|
|
200,000
|
|
|
April
10, 2007 –
|
|
|
75,000
|
|
|
May
30, 2007 –
|
|
|
75,000
|
|
|
June
25, 2007 -
|
|
|
75,000
|
|
|
August
6, 2007 -
|
|
|
25,000
|
|
|
August
11, 2007 -
|
|
|
150,000
|
|
|
August
14, 2007 -
|
|
|
5,000
|
|
|
August
22, 2007 -
|
|
|
35,000
|
|
|
September
1, 2007 -
|
|
|
25,000
|
|
|
October
4, 2007 -
|
|
|
35,000
|
|
|
October
10, 2007 -
|
|
|
25,000
|
|
|
October
22, 2007 –
|
|
|
50,000
|
|
|
December
11, 2007 –
|
|
|
729,600
|
|
On
January 31, 2007, the Company issued 480,000 shares of its common stock
to
Triton Business Development Services (“Triton”), an Atlanta-based provider of
critical business planning, resource, and development services, in conjunction
with an agreement dated October 18, 2006.
On
February 1, 2007, the Company signed an advisory services agreement (the
"Agreement") with Triton. As a part of the Agreement, Triton will provide
the
Company with financial and strategic planning services that include capital
formation, structure and funding strategies, investor relations consultation,
human resources assessment and development, and an organizational review
of the
Company’s processes, practices, and procedures. The term of the Agreement is 24
months.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
Triton’s
compensation will consist of cash and restricted shares of the Company's
common
stock over the term of the Agreement. A monthly cash retainer of $10,000
will be
paid by the Company. Additionally, 640,000 shares of the Company's common
stock will be earned ratably over the 24-month term of the Agreement by
Triton.
The Company issued restricted shares of common stock pursuant to the Agreement
as follows:
|
Date
|
|
Number of shares
|
|
|
January
31, 2007
|
|
|
11,200
|
|
|
February
28, 2007
|
|
|
26,700
|
|
|
March
31, 2007
|
|
|
26,700
|
|
|
April
30, 2007
|
|
|
26,700
|
|
|
May
31, 2007
|
|
|
26,700
|
|
|
June
30, 2007
|
|
|
26,700
|
|
|
July
31, 2007
|
|
|
26,700
|
|
|
August
31, 2007
|
|
|
26,700
|
|
|
September
30, 2007
|
|
|
26,700
|
|
|
October
31, 2007
|
|
|
26,700
|
|
|
November
30, 2007
|
|
|
26,700
|
|
|
December
31, 2007
|
|
|
26,700
|
|
The
offer
and sale of the shares issued in connection with the Agreement were exempt
from
the registration requirements of the Securities Act of 1933, as amended
(the
"Act"), pursuant to Rule 506 and Section 4(2) of the Act. In connection
with the
sales, the Company did not conduct any general solicitation or advertising, and
the Company complied with the requirements of Regulation D relating to
the
restrictions on the transferability of the shares issued.
On
January 30, 2007, the Company received a notice of effectiveness from the
State
of Delaware regarding the Certificate of Amendment of Certificate of
Incorporation of the Company (the "Amendment"), which modified the rights
of the
holders of the Company's Series A Convertible Preferred Stock. The Amendment
provides for, among other things: (i) each holder of the Company's Series
A
Convertible Preferred Stock to receive one additional share of Series A
Convertible Preferred Stock for each share owned; (ii) the addition of
an 8%
(based on stated value) noncumulative coupon, payable semi-annually in
cash or
common stock of the Company; (iii) pre-emptive rights for holders of the
Company's Series A Convertible Preferred Stock; (iv) the addition of a
redemption feature whereby the Series A Convertible Preferred Stock is
callable
at $3.75 per share at the option of the Company; (v) the addition of a
mandatory
conversion feature whereby the Series A Convertible Preferred Stock is
automatically converted to common stock of the Company in the event that
the bid price of the Company's common stock closes at or above $1.00 for
20
consecutive trading days and the average daily trading volume of the Company's
common stock is equal to or greater than $150,000; and (vi) the amendment
of the
provision requiring unanimous approval for an increase in
the
number of shares designated as Series A Convertible Preferred Stock to
require a
majority approval for an increase in the number of shares designated as
Series A
Convertible Preferred Stock. The Amendment also eliminated the working
capital
test that previously occurred at quarter end per the previous Series A
Convertible Preferred Stock terms and increased the authorized number of
Series
A Convertible Preferred shares from the previous 450,000 to 770,000. On
June 30,
2007, in accordance with the terms of the Certificate, the Company paid
a
dividend to the Series A shareholders of 58,035 shares of its common stock.
The
price of the stock on that date was $1.54. On December 31, 2007, in accordance
with the terms of the Certificate, the Company paid a dividend to the Series
A
shareholders of 119,797 shares of its common stock. The price of the stock
on
that date was $0.73.
In
accordance with the receipt of a notice of effectiveness from the State
of
Delaware regarding the Amendment, which modified the rights of the holders
of
the Company's Series A Convertible Preferred Stock, the Company issued
384,666
shares of Series A Convertible Preferred stock on January 31, 2007 to the
existing Series A Convertible Preferred stockholders. Each stockholder
also
received warrants to purchase two shares of common stock for each share
of
Series A Convertible Preferred Stock issued on January 31, 2007 at an exercise
price of $0.375 per share. This issue of Series A Preferred stock and warrants
to purchase common stock settled the liability for dividend payable on
default of convertible preferred stock of $1,171,863. On January 31, 2007,
in
accordance with the anti-dilution provisions of certain warrants to purchase
388,000 shares of common stock that were issued during 2004, thirteen warrant
holders had the exercise prices of the warrants adjusted from $2.00 per
share to
$0.375 per share and warrants to purchase an additional 1,681,333
shares of common stock were issued. On January 31, 2007, in accordance
with the
anti-dilution provisions of certain warrants to purchase 2,145,444 shares
of
common stock that were issued during 2005, warrant holders having the right
to
purchase 345,444 shares of stock had their exercise prices of the warrants
adjusted from $0.75 per share to $0.375 per share, warrant holders having
the
right to purchase 900,000 shares of stock had their exercise prices of
the
warrants adjusted from $1.25 per share to $0.375 per share, and warrant
holders
having the right to purchase 900,000 shares of stock had their exercise
prices
of the warrants adjusted from $1.00 per share to $0.375 per share. The
expiration dates of the 2004 and 2005 warrants were not changed.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
On
February 20, 2007, the Certificate of Designation establishing the terms
of a
Series B Preferred Stock was filed. Certain terms of the Series B Preferred
Stock are as follows:
|
|
·
|
The
Series B Preferred Stock stated value is $750.00 and each share
converts
into common stock at the conversion price of $0.375 at any time
and
without limitation.
|
|
|
·
|
Without
approval of a majority of the Series B Preferred Stock Holders,
the
Company shall not incur debt (other than debt collateralized
by accounts
receivable of the Company) in excess of an aggregate of $1.5
million
outside of trade debt in the normal course of business. The terms
of such
debt shall not encumber any copyrights, marketing materials,
software code
or any other proprietary technology, software or product processes,
patents or patent licenses.
|
|
|
·
|
The
Series B Preferred Stock will pay a 12% (based on stated value)
noncumulative coupon, payable semi-annually (June 30, December
31) in cash
or common stock (common stock value deemed $0.375 for purpose
of dividend
payment if closing price of common stock on payment date is less
than
$0.375).
|
|
|
·
|
If
the Company has a current registration statement on file covering
those
common shares represented by Series B Preferred Stock and the
Company’s
common stock bid price closes at or above $1.00 for 20 consecutive
trading
days and the average daily trading volume of the common stock
is equal to
or greater than $150,000, then Series B Preferred Stock will
automatically
convert to common at $0.375 per common
share.
|
|
|
·
|
Series
B Preferred Stock Holders receive pre-emptive right to participate
in
subsequent equity rounds at the same pro rata percentage of ownership
they
currently own in Company on an as-converted basis
today.
|
|
|
·
|
Series
B Preferred Stock callable at $1,875 per share at option of
Company.
|
|
|
·
|
A
total of 4,700 shares of Series B Preferred Stock were
designated.
|
|
|
·
|
The
Company was required to file a registration statement within
sixty (60)
days of the closing of this Offering and use its best efforts
for it to be
effective within sixty (60) days from its filing. In the event
that these
filing requirements were not met, the Company will pay the Investor
(pro
rated on a daily basis), as partial compensation for such failure,
and not
as a penalty, in the form of common stock, equal to one and one
half
percent (1.5%) of the purchase price of the registrable securities
purchased from the Company and held by the Investor for each
month (or
portion thereof) until such Registration Statement has been filed.
The
Company filed a resale registration statement on Form SB-2 on
May 14, 2007
to register the common stock underlying the Series B Convertible
Preferred
Stock, the common stock underlying the warrants issued in conjunction
with
the exchange of the notes payable, and the common stock underlying
the
warrants in the private placement. As of March 28, 2008, the
registration
statement has not been declared effective by the
SEC
|
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
On
March
16, 2007, three note holders, including one member of the Board of Directors,
exchanged $696,500 principal and $13,700 interest due from the Company
(totaling
$710,200) under their notes payable for units in the private placement.
In
conjunction with the exchange, the Company issued the holders additional
warrants to purchase an aggregate of 710,200 shares of the Company’s common
stock at an exercise price of $0.375 per share. The warrants have five-year
terms. The Company recorded a finance expense of $772,655 to recognize
the fair
value of the warrants granted to the noteholders. See Note 9.
Additionally,
on March 16, 2007, the Company completed the sale of $3,525,000 of securities
in
a private placement of 4,700 units (at $750 per unit) consisting of one
share of
Series B Convertible Preferred Stock and one warrant to purchase 2,000
shares of
our common stock at an exercise price of $0.375 per share. Each share of
Series
B Convertible Preferred Stock has a conversion price of $0.375 per share
(one
Series B Convertible Preferred share equals 2,000 shares of common stock).
The
warrants had three-year terms. In connection with the issuance of the securities
above, a deemed dividend of $939,118 was recorded to reflect the beneficial
conversion feature on the common shares that would result from the
conversion of the Series B Preferred Stock. On September 12, 2007, Company
amended the terms of its stock purchase warrants. The Warrants were revised
to
include a cashless exercise provision and to extend the term of the Warrants
from three years to five years. In conjunction with the amendment, the
Company
recorded an expense of $578,611 to record the increased fair value of the
warrants due to the modification.
On
June
30, 2007, in accordance with the terms of the terms of the Series B Preferred
stock, the Company paid a dividend to the Series B shareholders of 137,378
shares of its common stock. The price of the stock on that date was
$1.54.
On
December 31, 2007, in accordance with the terms of the terms of the Series
B
Preferred stock, the Company paid a dividend to the Series B shareholders
of
289,767 shares of its common stock. The price of the stock on that date
was
$0.73.
On
March
16, 2007, one stockholder converted 8,000 shares of the Company’s Series A
Convertible Preferred Stock to 32,000 shares of the Company’s common stock.
On
March
21, 2007, one warrant holder exercised warrants allowing the purchase of
130,668
shares of common stock via a cashless exercise provision. Per the terms
of the
warrant agreement, the Company issued the holder 87,685 shares of its common
stock on that date.
On
March
30, 2007, two warrant holders exercised warrants allowing the purchase
of
128,000 shares of common stock via a cashless exercise provision. Per the
terms
of the warrant agreements, the Company issued the holders 104,960 shares
of its
common stock on that date.
On
April
2, 2007, one warrant holder exercised warrants allowing the purchase of
32,000
shares of our common stock via a cashless exercise provision. Per the terms
of
the warrant agreement, the Company issued the holder 25,782 shares of its
common
stock on that date.
On
April
9, 2007, two shareholders converted 8,334 shares of the Company’s Series A
Convertible Preferred Stock to 33,336 shares of the Company’s common stock.
On
April
17, 2007, three warrant holders exercised warrants allowing the purchase
of
198,668 shares of common stock via a cashless exercise provision. Per the
terms
of the warrant agreements, the Company issued the holders 158,613 shares
of its
common stock on that date.
On
April
17, 2007, one shareholder converted 8,334 shares of the Company’s Series A
Convertible Preferred Stock to 33,336 shares of the Company’s common stock.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
On
April
24, 2007, one warrant holder exercised warrants allowing the purchase of
32,000
shares of our common stock via a cashless exercise provision. Per the terms
of
the warrant agreement, the Company issued the holder 25,617 shares of its
common
stock on that date.
On
April
26, 2007, one warrant holder exercised warrants allowing the purchase of
75,668
shares of our common stock via a cashless exercise provision. Per the terms
of
the warrant agreement, the Company issued the holder 59,904 shares of its
common
stock on that date.
On
May 2,
2007, two warrant holders exercised warrants allowing the purchase of 186,736
shares of common stock via a cashless exercise provision. Per the terms
of the
warrant agreements, the Company issued the holders 147,832 shares of its
common
stock on that date.
On
May
15, 2007, one warrant holder exercised warrants allowing the purchase of
32,000
shares of our common stock via a cashless exercise provision. Per the terms
of
the warrant agreement, the Company issued the holder 22,551 shares of its
common
stock on that date.
On
May
21, 2007, one warrant holder exercised warrants allowing the purchase of
16,092
shares of our common stock via a cashless exercise provision. Per the terms
of
the warrant agreement, the Company issued the holder 11,376 shares of its
common
stock on that date.
On
July
27, 2007, one warrant holder exercised warrants allowing the purchase of
32,000
shares of our common stock via a cashless exercise provision. Per the terms
of
the warrant agreement, the Company issued the holder 22,977 shares of its
common
stock on that date.
On
July
30, 2007, one warrant holder exercised warrants allowing the purchase of
64,000
shares of our common stock via a cashless exercise provision. Per the terms
of
the warrant agreement, the Company issued the holder 46,090 shares of its
common
stock on that date.
On
September 5, 2007, one shareholder converted 16,000 shares of the Company’s
Series A Convertible Preferred Stock to 64,000 shares of the Company’s common
stock.
The
Company issued 18,431 shares of restricted common stock valued at $21,450
to
Board Members for attendance during 2007. The Company also issued 87,984
shares
of restricted common stock valued at $36,100 to Board Members for attendance
during 2006. All amounts were recorded at the fair value of the stock on
the
date of the issuances.
On
November 28, 2006, the Company signed an agreement to acquire the remaining
fifty percent (50%) membership interest in JDS from Integrated Digital
Systems,
LLX (“IDS”). Following the acquisition the Company owned 100% of JDS.
On
November 28, 2006, the Company issued 200,000 shares of restricted common
stock
to IDS as partial consideration for purchasing the membership interest.
See Note
11.
On
November 22, 2007, the Company issued 100,000 shares of restricted common
stock
to IDS as partial consideration for purchasing the membership interest.
See Note
11.
NOTE
7 – Stock Warrants
The
Company has stock purchase warrants for 16,434,774 shares of common stock
outstanding at December 31, 2007. A roll forward of the warrant totals
for 2007
and 2006 is as follows:
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
|
|
|
2007
|
|
2006
|
|
|
Warrants
outstanding at beginning of year
|
|
|
4,897,737
|
|
|
4,937,880
|
|
|
Granted
|
|
|
12,560,865
|
|
|
-
|
|
|
Exercised
|
|
|
(927,828
|
)
|
|
-
|
|
|
Terminated
|
|
|
(96,000
|
)
|
|
(40,143
|
)
|
|
Warrants
outstanding at December 31
|
|
|
16,434,774
|
|
|
4,897,737
|
|
The
range
of exercise prices of the warrants was $0.375 to $2.00 and the weighted
average
exercise price was approximately $0.60 at December 31, 2007. The range
of
exercise prices of the warrants was $0.75 to $2.40 and the weighted average
exercise price was approximately $1.49 at December 31, 2006.
NOTE
8- Major Customers
Revenue
from two customers comprised 72% of our revenues for 2007. Revenue from
one
customer of $78,000 comprised approximately 35% of our consolidated revenues
for
2006. At December 31, 2007, accounts receivable from two different customers
comprised 49% and 32%, respectively, of consolidated receivables.
Management
believes that concentration of credit risk with respect to trade receivables
is
minimal due to the composition of the customer base. The end users for
the
company’s products are primarily large national and multinational companies and
agencies of the U.S. government. Allowances are maintained for potential
credit
losses, and such losses have been within management's expectations.
NOTE
9 - Operating Leases
The
Company leases office space and equipment under noncancellable operating
leases
expiring at various dates through 2012. The Company moved to a new office
location in October 2007 and has 60-month leases on its current office
space and
certain leased equipment. On July 20, 2007, the Company entered into a
60-month
lease agreement with Narmada Partners, LLC to occupy new office space consisting
of approximately 10,000 square feet in an office building in Norcross,
Georgia.
The Company occupied the space on October 11, 2007. The total amount of
rent
payable under the lease will be recognized on a straight-line basis over
the
term of the lease. Due to scheduled annual rental increases of approximately
three percent during the term of the lease, the Company recognized additional
rent expense and deferred rent payable totaling $16,488 at December 31,
2007. In
addition to the base rental, the Company will be obligated for a percentage
of
the increase in operating expenses after 2007. The Company delivered to
the
landlord a standby, irrevocable letter of credit for $100,000 as a security
deposit with the letter of credit amount reducing $20,000 for each year
of the
lease as long as the lease is not in default. The Company collateralized
the
letter of credit with a $100,000 one-year certificate of deposit. An event
of
default occurs on the lease if the Company fails to pay any rental amounts
within five days when due and such failure to pay continues for seven additional
days following written notice from Narmada Partners, LLC of failure to
pay. Upon
an event of default, Narmada Partners, LLC may terminate the lease and
demand
payment of all remaining rent due and coming due under the remaining term
of the
lease.
The
Company also maintains several operating leases related to copiers, telephone,
equipment, and office furniture under various non-cancellable agreements
expiring through November 2012.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
As
of
December 31, 2007, the future minimum lease payments are as
follows:
|
2008
|
|
$
|
169,339
|
|
|
2009
|
|
|
173,485
|
|
|
2010
|
|
|
174,652
|
|
|
2011
|
|
|
174,741
|
|
|
2012
|
|
|
138,958
|
|
|
Total
|
|
$
|
831,175
|
|
Rent
expense for all operating leases for the years ended December 31, 2007
and 2006
was $93,045 and $53,012, respectively.
NOTE
10- Litigation
The
Company is not currently involved in any legal proceedings nor was it involved
in any legal proceedings during 2007.
NOTE
11 – Acquisition of Justice Digital Solutions LLC
On
February 15, 2006 Simtrol formed a joint venture with Integrated Digital
Systems, LLC (“IDS”), an integrator based in Livonia, Michigan to develop and
sell a judicial arraignment software solution based on the success of a
deployment in Oakland County, Michigan. The new joint venture, Justice
Digital
Solutions L.L.C., a Michigan limited liability company ("JDS"), is headquartered
in Michigan, with its development staff and testing center located in Norcross,
Georgia.
IDS
contributed to JDS all of IDS’ interest in a software license agreement between
IDS and the County of Oakland, Michigan Constitutional Corporation, including
the exclusive worldwide rights to copy, modify, market, distribute, and
sublicense the software developed pursuant to the software license agreement
(the “OakVideo Software”). The license agreement requires the licensee to pay a
royalty equal to five percent of all software revenues for products
based
on
the OakVideo Software for the period of the license agreement (initially
10
years from date of licensing agreement on October 28, 2005). Simtrol contributed
to JDS a non-exclusive, worldwide, royalty-free license to
integrate,
copy, modify, market, distribute and sublicense Simtrol’s ONGOER and OnGuard
software for use with and into the OakVideo Software, and Simtrol transferred
to
JDS any and all exclusive worldwide rights to copy, modify, market, distribute,
and sublicense certain digital court recording software under development
by
Simtrol. JDS initially launched a judicial arraignment solution based on
the
integration of Simtrol’s products with the OakVideo Software in
2006.
On
November 28, 2006, the Company signed an agreement to acquire an additional
fifty percent (50%) membership interest in JDS from IDS. Following the
acquisition the Company owned 100% of JDS.
As
consideration for the transfer of the membership interest in JDS from IDS
to the
Company, the Company will issue Five Hundred Thousand (500,000) restricted
shares of its common stock to IDS according to the following installment
schedule:
|
|
·
|
Two
Hundred Thousand (200,000) restricted common shares of the Company's
capital stock to IDS on November 28,
2006;
|
|
|
·
|
One
Hundred Thousand (100,000) restricted common shares of the Company's
capital stock to IDS on November 22,
2007;
|
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
|
|
·
|
One
Hundred Thousand (100,000) restricted common shares of the Company's
capital stock to IDS on November 22, 2008;
and
|
|
|
·
|
One
Hundred Thousand (100,000) restricted common shares of the Company's
capital stock to IDS on November 22,
2009.
|
In
addition, JDS will pay IDS five percent (5%) of the gross revenues of JDS,
from
whatever source derived, during calendar year 2008 and two and one-half
percent
(2.5%) of the gross revenues of JDS during calendar year 2009.
NOTE
12 – Intangibles
In
conjunction with the purchase of the IDS interest in JDS in November 2006,
the
Company recorded an intangible asset of $130,000 on November 28, 2006,
representing the fair value of 500,000 shares of common stock paid and
payable
to IDS, to reflect the value of the license to use the OakVideo Software.
This
amount will be amortized over the estimated remaining life of the license
agreement for JDS’ use of the OakVideo software (through October 2015).
Amortization during 2007 totaled $14,857.
The
Company also recorded a customer list of $40,000 in conjunction with the
purchase of the IDS interest in JDS in 2006. The $40,000 was amortized
in 2007
as all applicable revenue with the customer was earned during 2007.
NOTE
13 – Subsequent Events
On
January 2, 2008 one shareholder converted 24,000 shares of the Company’s Series
A Convertible Preferred Stock to 96,000 shares of the Company’s common
stock.
On
January 3, 2008 the Company issued 10,000 shares of common stock in exchange
for
investor relations services performed for the Company by an investor relations
consulting company. On February 5, 2008 the Company issued 105,000 shares
of
common stock in exchange for investor relations and consulting services
performed for the Company by an investor relations consultant.
On
January 22 and 23, 2008, Simtrol, Inc. (the "Company") completed the sale
of
$1,500,000 of securities in a private placement.
The
net
proceeds of this offering will be used for working capital and general
corporate
purposes. Important terms of the Convertible Notes include:
|
|
·
|
The
Convertible Notes are unsecured, bear interest at the rate of
12% per
annum, are payable six months from the issue date (“Maturity Date”) and
can be pre-paid at any time without penalty
.
|
|
|
·
|
If
Simtrol closes a “Qualifying Next Equity Financing” before the Maturity
Date, the then outstanding balance of principal and accrued interest
on
the Convertible Notes will automatically convert into shares
of the “Next
Equity Financing Securities” we issue. If we close a “Non-Qualifying Next
Equity Financing” before the Maturity Date, the then-outstanding balance
of principal and accrued interest on the Convertible Notes can
be
converted, at the option and election of the investor, into shares
of the
“Next Equity Financing Securities” we issue.
|
|
|
·
|
A
“Qualifying Next Equity Financing” means the first bona fide equity
financing (or series of related equity financing transactions)
occurring
subsequent to the date of issue of a Convertible Note in which
we sell and
issue any of our securities for total consideration totaling
not less than
$2.0 million in the aggregate (including the principal balance
and accrued
but unpaid interest to be converted on all our outstanding Convertible
Notes) at a
|
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
|
|
·
|
price
per share for equivalent shares of common stock that is not greater
than
$0.75 per share. A “Non-Qualifying Next Equity Financing” means that we
complete a bona fide equity financing but we fail to raise total
consideration of at least $2.0 million, or the price per share
for
equivalent shares of common stock is greater than $0.75 per share.
“Next
Equity Financing Securities” means the type and class of equity securities
that we sell in a Qualifying Next Equity Financing or a Non-Qualifying
Next Equity Financing. If we sell a unit comprising a combination
of
equity securities, then the Next Equity Financing Securities
shall be
deemed to constitute that unit.
|
|
|
·
|
Upon
conversion of a Convertible Note, we will issue that number of
shares of
Next Equity Financing Securities equal the quotient obtained
by dividing
the then outstanding balance of principal and accrued interest
on the
Convertible Notes by the price per share of the Next Equity Financing
Securities.
|
|
|
·
|
Upon
any default, Simtrol would be required to pay a 1% default fee
on the
outstanding balance. The default fee will be added to the outstanding
balance and become due under the terms of the Convertible Note.
|
In
conjunction with the January 22 and January 23, 2008, private placement,
the
Company also issued investors warrants to acquire 500,000 shares of our
common
stock at an exercise price of
$0.75
per
Share. The Warrants have a term ending on the earlier to occur of (i) the
fifth anniversary of the Warrant issue date or (ii) the closing of a change
of control event.
The
offers and sales of the securities in the private placement are exempt
from the
registration requirements of the Securities Act of 1933 (the “Act”) pursuant to
Rule 506 and Section 4(2) of the Act. In connection with the offers and
sales, we did not conduct any general solicitation or advertising, and
we
complied with the requirements of Regulation D relating to the restrictions
on
the transferability of the shares issued.
On
January 18, 2008, the Company granted options to purchase 50,000 shares
of stock
to a consultant. The options immediately vest, have a six-year life, and
were
granted at an exercise price equal to the fair value of the Company’s common
stock on that date.
On
January 28, 2008, the Company granted options to purchase 25,000 shares
of stock
to an employee. The options have a three-year vesting period and were granted
at
an exercise price equal to the fair value of the Company’s common stock on that
date.
On
February 19, 2008 one shareholder converted 16,000 shares of the Company’s
Series A Convertible Preferred Stock to 64,000 shares of the Company’s common
stock.
On
February 26 and 27, 2008 the Company granted options to purchase 170,000
shares
of stock to non-employee Board Members. The options vest immediately and
were
granted at an exercise price equal to the fair value of the Company’s common
stock on those dates.
The
Company issued restricted shares of common stock pursuant to the Triton
Agreement as follows:
|
January
31, 2008 –
|
|
|
26,700
|
|
|
February
29, 2008 –
|
|
|
26,700
|
|
On
March
24, 2008, five shareholders converted 139 shares of the Company’s Series B
Convertible Preferred Stock to 278,000 shares of the Company’s common
stock.
On
March
26, 2008, two shareholders converted 145 shares of the Company’s Series B
Convertible Preferred Stock to 290,000 shares of the Company’s common
stock.
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007 and 2006
Note
14. Restatement of Prior Unaudited Quarterly Data
On
June
30, 2007, in accordance with the terms of the Series A Convertible Preferred
stock and the Series B Convertible Preferred stock, the Company paid a
dividend
to the Series A shareholders of 58,035 shares of its common stock and to
the
Series B shareholders 137,378 shares of its common stock which was not
included
in the June 30, 2007 or September 30, 2007 statements of operations with
respect
to net loss attributable to common shareholders. The price on that date
was
$1.54 which produced a total preferred dividend of $300,936. The effect
of this
preferred dividend is as follows for the three and six months ended June
30,
2007 and nine months ended September 30, 2007.
|
|
|
Three Months
Ended
June 30, 2007
|
|
Six
Months
Ended
June 30, 2007
|
|
Nine
Months
Ended
September 30, 2007
|
|
|
Net
loss- previously reported
|
|
$
|
(881,575
|
)
|
$
|
(2,427,856
|
)
|
$
|
(3,982,557
|
)
|
|
Deemed
preferred dividend – previously reported
|
|
|
-
|
|
|
939,118
|
|
|
939,118
|
|
|
Net
loss attributable to common stockholders – previously
reported
|
|
$
|
(881,575
|
)
|
$
|
(3,366,974
|
)
|
$
|
(4,921,675
|
)
|
|
Preferred
dividend
|
|
|
(300,936
|
)
|
|
(300,936
|
)
|
|
(300,936
|
)
|
|
Net
loss attributable to common stockholders, as restated
|
|
$
|
(1,182,511
|
)
|
$
|
(3,667,910
|
)
|
$
|
(5,222,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted -previously
reported
|
|
$
|
(0.14
|
)
|
$
|
(0.59
|
)
|
$
|
(0.82
|
)
|
|
Net
loss per common share, basic and diluted, as restated
|
|
$
|
(0.19
|
)
|
$
|
(0.64
|
)
|
$
|
(0.87
|
)
|
|
Weighted
average shares outstanding, basic and diluted – previously
reported
|
|
|
6,121,893
|
|
|
5,709,351
|
|
|
6,006,936
|
|
Simtrol (CE) (USOTC:SMRL)
Graphique Historique de l'Action
De Fév 2025 à Mar 2025
Simtrol (CE) (USOTC:SMRL)
Graphique Historique de l'Action
De Mar 2024 à Mar 2025
