UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
_______________
x
QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2008
OR
o
TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from ______ to _____
Commission
file number 1-10927
SIMTROL,
INC.
(Exact
name of small business issuer as specified in its charter)
|
Delaware
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58-2028246
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(State
of
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(I.R.S.
Employer
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incorporation)
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Identification
No.)
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520
Guthridge Ct., Suite 250
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Norcross,
Georgia 30071
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(770)
242-7566
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(Address
of principal executive offices)
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(Issuer’s
telephone number)
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Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
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Accelerated filer
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Non-accelerated filer (Do not check
if a
smaller reporting company)
|
Smaller reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes No
x
As
of May
19, 2008, registrant had 8,411,422 shares of $.001 par value Common Stock
outstanding.
Transitional
Small Business Disclosure Format (check one): Yes
o
No
x
SIMTROL,
INC. AND SUBSIDIARIES
Form
10-Q
Three
Months Ended March 31, 2008
Index
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Page
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PART
I.
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FINANCIAL
INFORMATION
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Item
1. Financial Statements:
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Condensed
Consolidated Balance Sheets as of
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March
31, 2008 (unaudited) and December 31, 2007
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3
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Condensed
Consolidated Statements of Operations for the
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Three
Months Ended March 31, 2008 and 2007 (unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the
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Three
Months Ended March 31, 2008 and 2007 (unaudited)
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5
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Notes
to Condensed Consolidated Financial Statements (unaudited)
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6
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Item
2. Management's Discussion and Analysis of Financial Condition
and
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Results
of Operations
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10
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Item
3. Quantitative and Qualitative Disclosures about Market
Risk
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13
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Item
4T.Controls and Procedures
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13
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PART
II
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OTHER
INFORMATION
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Item
6. Exhibits
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14
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SIMTROL,
INC.
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
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SIMTROL,
INC. AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED BALANCE
SHEETS
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ASSETS
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December
31,
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Current
assets:
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(unaudited)
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2007
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Cash
and cash equivalents
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$
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903,974
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$
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256,358
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Accounts
receivable, net
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16,095
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27,232
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Prepaid
expenses and other assets
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95,256
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19,178
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Total
current assets
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1,015,325
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302,768
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Certificate
of deposit-restricted
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102,984
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101,862
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Debt
issuance costs, net
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17,500
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16,601
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Property
and equipment, net
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121,398
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117,285
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Right
to license intellectual property, net
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111,430
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115,143
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Other
assets
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11,458
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11,458
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Total
assets
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$
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1,380,095
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$
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665,117
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LIABILITIES
AND STOCKHOLDERS’ (DEFICIENCY)/EQUITY
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Current
Liabilities:
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Accounts
payable
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$
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208,690
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$
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169,243
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Accrued
expenses
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105,919
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127,365
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Convertible
notes payable, net of debt discount of $333,278
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1,166,722
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-
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Common
stock to be issued
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26,000
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26,000
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Total
current liabilities
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1,507,331
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322,608
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Common
stock to be issued, less current portion
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26,000
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26,000
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Deferred
rent payable, less current portion
|
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13,326
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11,967
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Total
liabilities
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1,546,657
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360,575
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Stockholders'
(Deficiency)/Equity:
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Preferred
stock, $.00025 par value; 800,000 shares authorized;
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Series
A Convertible: 770,000 shares designated; 688,664 and 728,664
outstanding;
liquidation values of $2,065,992 and $2,185,992
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171
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182
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Series
B Convertible: 4,700 shares designated; 4,416 and 4,700 outstanding;
liquidation values of $3,312,000 and $3,525,000
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1
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1
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Common
stock, 40,000,000 shares authorized; $.001 par value; 8,238,722
and
7,314,371 issued and outstanding
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8,239
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7,314
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Additional
paid-in capital
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73,081,470
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72,119,986
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Accumulated
deficit
|
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(73,256,443
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)
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(71,822,941
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)
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Total
stockholders' (deficiency)/equity
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(166,562
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)
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304,542
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Total
liabilities and stockholders’ (deficiency)/equity
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$
|
1,380,095
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$
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665,117
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|
See
notes
to condensed consolidated financial statements.
SIMTROL,
INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three
Months Ended
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March
31,
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2008
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2007
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Revenues:
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Software
licenses
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$
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12,688
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$
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14,224
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Service
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67,209
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20,000
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Total
revenues
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79,897
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34,224
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Cost
of revenues:
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Software
licenses
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-
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372
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Service
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26,137
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11,058
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Total
cost of revenues
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26,137
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11,430
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Gross
profit
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53,760
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22,794
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Operating
expenses:
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Selling,
general, and administrative
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907,473
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667,503
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Research
and development
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348,462
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123,671
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Total
operating expenses
|
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1,255,935
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791,174
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Loss
from operations
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(1,202,175
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)
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(768,380
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)
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Other
income/(expense):
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Finance
expense on conversion of notes payable
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-
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(772,655
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)
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Finance
expense
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(237,518
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)
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-
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Interest
income
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6,191
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|
-
|
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Interest
expense
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-
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(5,246
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)
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Total
other income/(expense), net
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(231,327
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)
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(777,901
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)
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Net
loss
|
|
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(1,433,502
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)
|
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(1,546,281
|
)
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Deemed
dividend on convertible preferred stock
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-
|
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(939,118
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)
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Net
loss attributable to common stockholders
|
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$
|
(1,433,502
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)
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$
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(2,485,399
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)
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Net
loss per common share:
|
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Basic
and Diluted
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$
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(0.19
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)
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$
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(0.47
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)
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Weighted
average shares outstanding:
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Basic
and diluted
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7,584,404
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5,292,225
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See
notes
to condensed consolidated financial statements.
|
SIMTROL,
INC. AND SUBSIDIARIES
|
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
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(UNAUDITED)
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Three
Months Ended
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March
31,
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2008
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2007
|
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CASH
FLOWS USED IN OPERATING ACTIVITIES:
|
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|
|
|
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Net
loss
|
|
$
|
(1,433,502
|
)
|
$
|
(1,546,281
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
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|
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Issuance
of common stock for services
|
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54,735
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204,157
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Depreciation
and amortization
|
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|
35,675
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16,103
|
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Amortization
of debt discounts
|
|
|
198,798
|
|
|
-
|
|
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Stock-based
compensation
|
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287,336
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70,349
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Issuance
of warrants upon conversion of notes payable to preferred
stock
|
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|
-
|
|
|
772,655
|
|
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Changes
in operating assets and liabilities
|
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26,048
|
|
|
(67,696
|
)
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|
Net
cash used in operating activities
|
|
|
(830,910
|
)
|
|
(550,713
|
)
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CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment and net cash used in investing
activities
|
|
|
(16,495
|
)
|
|
(5,370
|
)
|
|
|
|
|
|
|
|
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
proceeds from notes payable issuance
|
|
|
1,495,021
|
|
|
331,000
|
|
|
Net
proceeds from stock issuances
|
|
|
-
|
|
|
2,808,594
|
|
|
Net
cash provided by financing activities
|
|
|
1,495,021
|
|
|
3,139,594
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
647,616
|
|
|
2,583,511
|
|
|
Cash
and cash equivalents, beginning of the period
|
|
|
256,358
|
|
|
-
|
|
|
Cash
and cash equivalents, end of the period
|
|
$
|
903,974
|
|
$
|
2,583,511
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of notes payable and warrant fair value
|
|
$
|
532,076
|
|
$
|
-
|
|
|
Issuance
of Series A Preferred as dividend payment on covenant
default
|
|
$
|
-
|
|
$
|
768,766
|
|
|
Issuance
of warrants as dividend payment on covenant default
|
|
$
|
-
|
|
$
|
403,097
|
|
|
Exchange
of notes payable for Series B Preferred stock
|
|
$
|
-
|
|
$
|
710,200
|
|
SIMTROL,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Unaudited)
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 device management software that operates
on PC
platforms.
The
accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in conformity with accounting principles generally
accepted in the United States of America and the instructions to Form 10-Q.
It
is management’s opinion that these statements include all adjustments,
consisting of only normal recurring adjustments, necessary to present fairly
the
condensed consolidated financial position as of March 31, 2008, and the
condensed consolidated results of operations, and cash flows for all periods
presented. Operating results for the three months ended March 31, 2008, are
not
necessarily indicative of the results that may be expected for the year ended
December 31, 2008.
Certain
information and footnote disclosures normally included in the annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these unaudited condensed consolidated financial statements be read
in
conjunction with the consolidated financial statements and notes thereto
as of
December 31, 2007 and for each of the two years ended December 31, 2007,
and
2006, which are included in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2007, filed with the Securities and Exchange Commission
on March 31, 2008.
Certain
amounts in the 2007 condensed consolidated financial statements have been
reclassified for comparative purposes to conform to the presentation in the
current period condensed consolidated financial statements. These
reclassifications have no effect on previously reported net loss.
Note
2 - Going Concern Uncertainty
As
of
March 31, 2008, the Company had cash and cash equivalents of $903,974 and
a
working capital deficiency of $492,006. Since inception, the Company has
not
achieved a sufficient level of revenue to support its business and incurred
a
net loss of $1,433,502 and used net cash of $830,910 in operating activities
during the three months ended March 31, 2008. The Company has relied on periodic
issuances of common stock, preferred stock, and convertible debt 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 23, 2008, the Company completed the sale of $1,500,000 of securities
in
a private placement (see Note 6). Management continues to actively seek
additional funding to continue to develop its products to generate income
from
operations.
Even
if
the Company obtains additional equity capital, the Company may not be able
to
execute its current business plan and fund business operations for the period
necessary to achieve positive cash flow. In such case, the Company might
exhaust
its capital and be forced to reduce expenses and cash burn to a material
extent,
which would impair its ability to achieve its business plan. If the Company
runs
out of available capital, it might be required to pursue highly dilutive
equity
or debt issuances to finance its 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 current shareholders. No assurance
can be given that any source of additional cash would be available to the
Comapny. If no source of additional cash is available to the Company, then
the
Company would be forced to significantly reduce the scope of its operations
or
possibly seek court protection from creditors or cease business operations
altogether.
These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying condensed 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 condensed 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 - Selected Significant Accounting Policies
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 the loss available to common stockholders 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 dilutive
securities are not reflected in diluted earnings per share because their
effects
would be anti-dilutive.
|
|
|
March
31, 2008
|
|
March
31, 2007
|
|
|
Options
|
|
|
4,605,125
|
|
|
3,371,400
|
|
|
Warrants
|
|
|
16,931,509
|
|
|
17,130,936
|
|
|
Convertible
Preferred Stock
|
|
|
11,586,656
|
|
|
12,445,328
|
|
|
Convertible
Notes Payable
|
|
|
2,000,000
|
|
|
-
|
|
|
Total
|
|
|
35,123,290
|
|
|
32,947,664
|
|
Accordingly,
basic and diluted net loss per share are identical.
Note
4 - Stock Based Compensation
Under
SFAS No. 123R, "Share Based Payment.", 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 $287,336 and $70,349
during the three months ended March 31, 2008, and 2007 respectively. Of these
totals, $41,891 and $17,164 was classified as research and development expense
and $245,445 and $53,186 was classified as selling, general, and administrative
expense for the three months ended March 31, 2008 and 2007, respectively.
The
Company uses historical data to estimate option exercise and employee
termination data within the valuation model and historical stock prices to
estimate volatility. The fair value for options to purchase 245,000 and
1,600,000 shares issued during the three months ended March 31, 2008 and
2007,
respectively, were estimated at the date of grant using a Black-Scholes
option-pricing model to be $151,912 and $618,262, with the following
weighted-average assumptions.
|
|
|
For
the three months ended March 31,
|
|
|
Assumptions
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
rate
|
|
|
2.80-2.92
|
%
|
|
4.92
|
%
|
|
Annual
rate of dividends
|
|
|
0
|
%
|
|
0
|
%
|
|
Volatility
|
|
|
128-130
|
%
|
|
142
|
%
|
|
Average
life
|
|
|
5
years
|
|
|
5
years
|
|
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 Company’s 1991 Stock Option Plan and the Company’s
2002 Equity Incentive Plan as of March 31, 2008 and changes during the three
months then ended are presented below:
|
|
|
|
|
Weighted-
Average
|
|
Weighted-Average
Remaining
|
|
|
|
|
Shares
|
|
Exercise
Price
|
|
Term
(in years)
|
|
|
Outstanding
January 1, 2008
|
|
|
4,401,375
|
|
$
|
0.94
|
|
|
|
|
|
Granted
|
|
|
245,000
|
|
$
|
0.72
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(41,250
|
)
|
$
|
0.49
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
4,605,125
|
|
$
|
0.94
|
|
|
7.3
|
|
|
Exercisable
at March 31, 2008
|
|
|
2,090,275
|
|
$
|
1.12
|
|
|
5.2
|
|
The
weighted-average grant-date fair values of options granted during the three
months ended March 31, 2008 and 2007 were $0.62 and $0.39, respectively.
No
options were exercised during the three months ended March 31,
2008.
As
of
March 31, 2008, there was $1,337,626 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under
the
2002 Equity Incentive Plan. That cost is expected to be recognized over a
weighted average period of 2.0 years.
At
March
31, 2008, 1,325,150 options remain available for grant under the 2002 Equity
Incentive Plan. No options are available to be issued under the 1991 Stock
Option Plan.
On
January 28, 2008 the Company granted options to purchase 25,000 shares
of common
stock to an employee with three-year vesting periods at exercise prices
equal to
the fair value of the Company’s stock.
On
January 18, 2008, the Company granted options to purchase 50,000 shares
of
common stock to a consultant. The options vested immediately and were granted
with an exercise price equal to or greater than the fair value of the Company’s
stock.
During
the three months ended March 31, 2008, respectively, the Company granted
options
to purchase 170,000 shares of common stock to non-employee directors with
immediate vesting periods at exercise prices equal to the then fair value
of the
Company’s stock.
Recently
Implemented Accounting Pronouncements
Effective
January 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value
Measurements” for financial assets and liabilities, as well as any other assets
and liabilities that are carried at fair value on a recurring basis in financial
statements. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
SFAS
No. 157 applies under other accounting pronouncements that require or permit
fair value measurements, the Financial Accounting Standards Board (“FASB”)
having previously concluded in those accounting pronouncements that fair
value
is the relevant measurement attribute. Accordingly, SFAS No. 157 does not
require any new fair value measurements. The Company applied the provisions
of
FSP FAS No. 157-2, “Effective Date of FASB Statement 157” which defers the
provisions of SFAS No. 157 for nonfinancial assets and liabilities to the
first
fiscal period beginning after November 15, 2008. The deferred nonfinancial
assets and liabilities include items such as goodwill. The Company is required
to adopt SFAS No. 157 for nonfinancial assets and liabilities in the first
quarter of 2009 and is still evaluating the impact on the condensed consolidated
financial statements.
Effective
January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for
Financial Assets and Liabilities.” SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value.
The
Company did not elect the fair value reporting option for any assets or
liabilities not previously recorded at fair value.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement
No. 133”.
SFAS
161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS
No.
133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. The guidance in
SFAS
161
is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. This
Statement encourages, but does not require, comparative disclosures for earlier
periods at initial adoption.
At
this time, management is evaluating the implications of
SFAS
161
and
its impact on the financial statements has not yet been
determined.
Note
5 - Income Taxes
The
Company’s 2007 federal and state tax returns are currently on extension through
September 15, 2008.
The
Company recognized a deferred tax asset of approximately $18.1 million as
of
March 31, 2008, primarily relating to net operating loss carry forwards of
approximately $47.0 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 $18.1
million was established for the full value of the deferred tax asset. For
the three months ended March 31, 2008, the valuation allowance increased
by
approximately $68,000. 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.
Note
6 - Convertible Notes Payable
On
January 23, 2008, the Company completed the sale of $1,500,000 of convertible
notes payable (“Convertible Notes”) in a private placement.
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
the Company 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” the Company issues. If the
Company closes 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” the Company issues.
|
|
·
|
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 the
Company
sells and issues any of the Company's 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
the outstanding Convertible Notes) at a 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 the Company completes a
bona fide equity financing but fails 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 the Company sells
in a
Qualifying Next Equity Financing or a Non-Qualifying Next Equity
Financing. If the Company sells 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, the Company 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, the Company 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.
|
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
Company raised a net total of $1,479,000 from the sale (offering costs of
approximately $16,000 incurred in 2007 and $5,000 in the three months ended
March 31, 2008 were capitalized as financing costs) and the proceeds of the
offering were used to fund current operational expenses. In conjunction with
the
issuance of the Convertible Notes, the Company recorded debt discounts of
$532,076 for the estimated value of the warrants
and
a
beneficial conversion feature Amortization of debt discounts included in
finance
expense during the three months ended March 31, 2008 amounted to
$198,798.
Note
7 - Stockholders’ Equity
During
the three months ended March 31, 2008, the Company issued 1,251 shares of
common
stock valued at $750 to members of the Board of Directors for attendance
at
meetings. This amounts was recorded as selling, general, and administrative
expense.
The
Company issued the 80,100 restricted common shares to Triton Value Partners
valued at $54,735 as part of its 24-month engagement with the Company that
commenced on January 31, 2007.
During
the three months ended March 31, 2008, two Series A Convertible Preferred
Stock
holders converted 40,000 shares of their Preferred Stock and were issued
160,000
shares of common stock.
During
the three months ended March 31, 2008, seven Series B Convertible Preferred
Stock holders converted their Preferred Stock and were issued 568,000 shares
of
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.
Note
8- Major Customers
Revenue
from one customer comprised 84% of consolidated revenues for the three months
ended March 31, 2008. At March 31, 2008, related accounts receivable of $13,951
from this customer comprised 87% of consolidated receivables.
Revenue
from three customers comprised 100% of consolidated revenues for the three
months ended March 31, 2007
Note
9 - 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 is being amortized over the estimated remaining life of the license
agreement for JDS’ use of the OakVideo software through October 2015.
Amortization during the three months ended March 31, 2008 and 2007,
respectively, each totaled $3,714.
The
Company
also
recorded a customer list of $40,000 in conjunction with the purchase of the
IDS
interest in JDS. The $40,000 was fully amortized as of December 31, 2007.
Amortization during the three months ended March 31, 2008 was
$10,000.
Note
10 - Subsequent Events
During
April and May, 2008, four stockholders converted a total of 73 shares of
Series
B Convertible Preferred Stock into 146,000 shares of common stock.
On
April
30, 2008, the Company issued 26,700 restricted shares of common stock pursuant
to its advisory services agreement with Triton Business Development Services.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion highlights the material factors affecting our results
of
operations and the significant changes in the balance sheet items. The notes
to
our condensed consolidated financial statements included in this report and
the
notes to our consolidated financial statements included in our Form 10-KSB
for
the year ended December 31, 2007 should be read in conjunction with this
discussion and our consolidated financial statements.
CRITICAL
ACCOUNTING POLICIES
We
prepare our unaudited condensed 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
.
Our revenue recognition policy is significant because our revenue
is a key
component of our results of operations. In addition, our revenue
recognition determines the timing of certain expenses. We follow
very
specific and detailed guidelines in measuring revenue; however, certain
judgments affect the application of our revenue policy. Revenue results
are difficult to predict, and any shortfall in revenue or delay in
recognizing revenue could cause our operating results to vary
significantly from quarter to quarter and could result in future
operating
losses. Revenues consist of the sale of device management, control,
and
monitoring software and digital arraignment software, videoconferencing
systems and related maintenance contracts on these systems. We marketed
two products during 2008 and 2007: our control and monitoring software,
OnGoer® and our digital arraignment software called Curiax
Arraigner
TM
.
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. We had no sales
of
Curiax Arraigner during 2007 or 2008.
|
|
·
|
Capitalized
software development costs
.
Our policy on capitalized software development 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
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.
|
|
·
|
Impairment
of Long-Lived Assets
.
We record impairment losses on assets 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.
|
FINANCIAL
CONDITION
During
the three months ended March 31, 2008, total assets increased approximately
107%
to $1,380,095 from $665,117 at December 31, 2007. The increase in assets
was
primarily due to the proceeds of approximately $1,495,000 from issuance of
our
convertible notes in January 2008 in a private placement, partially offset
by
cash used to fund operations during the period.
Current
liabilities increased $1,184,723 or 367%, due primarily
to
the
issuance of convertible notes payable during January 2008 in a private
placement.
See
Note
2 to the unaudited condensed consolidated financial statements regarding
the
Company’s going concern uncertainty.
The
Company does not have any material off-balance sheet arrangements.
RESULTS
OF OPERATIONS
Revenues
Revenues
were $79,897 and $34,224 for the three months ended March 31, 2008 and 2007,
respectively. The 133% increase for the three months ended March 31, 2008
was
primarily due to increased service revenues related to programming service
revenue during the current period from one customer. The effects of inflation
and changing prices on revenues and loss from operations during the periods
presented have been de minimus.
Cost
of Revenues and Gross Profit
Cost
of
revenues increased $14,707, or 129%, for the three months ended March 31,
2008
compared to the three months ended March 31, 2007 due primarily to costs
associated with increased service revenues relating to software application
development for a customer during the current period.
Gross
margins were approximately 67% for the three months ended March 31, 2008
and
2007.
Selling,
General, and Administrative Expenses
Selling,
general, and administrative expenses were $907,473 and $667,503 for the three
months ended March 31, 2008 and 2007, respectively. The 36% increase in the
expenses for three-month period ended March 31, 2008 resulted primarily from
increased headcount as we hired additional sales and marketing personnel
after
March 31, 2007, and an increase in stock-based compensation of $192,259 during
the current period due to amortization of stock option grants made to employees
and non-employee directors during the current period.
Research
and Development Expenses
Research
and development costs were $348,462 and $123,971 for the three months ended
March 31, 2008 and 2007, respectively. During the three months ended March
31,
2008 and 2007, we did not capitalize any software development costs related
to
new products under development.
The
181%
increase in expense during the current period resulted primarily from increased
headcount as we hired additional software development personnel to increase
our
product development efforts for OnGoer and Curiax after March 31, 2007. During
the three months ended March 31, 2008 and 2007, respectively, stock-based
compensation of $41,891 and $17,194 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. This
increase was due primarily to grants of options made to new employees subsequent
to March 31, 2007.
Other
(Income)/Expense
Other
expense of $231,327 for the three months ended March 31, 2008 consisted
primarily of the $198,798 finance expense to record amortization of the fair
value of the warrants granted to noteholders as part of the convertible
notes issued by the Company in January 2008, as well as amortization of the
beneficial conversion feature of the notes, as well as accrued interest on
the
convertible notes payable.
Other
expense of $777,901 for the three months ended March 31, 2007 consisted
primarily of the $772,655 expense recorded for the 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, and accrued
interest on the notes payable originated by the Company during 2006 and 2007
to
fund operations.
Net
Loss
Net
loss
for the three months ended March 31, 2008 was $1,433,502 compared to a net
loss
of $1,546,281 for the three months ended March 31, 2007. The reduced loss
during
the current period was due primarily to the $772,655 expense recorded during
the
prior period to record the fair value of the warrants issued to induce
conversion of previously issued notes payable, offset partially by the $479,840
increase in operating expenses that resulted from increased headcount during
the
current period, as well as higher stock-based compensation during the current
period.
CONTRACTUAL
OBLIGATIONS
A
summary
of contractual obligations as of March 31, 2008 is as follows:
|
Contractual
obligations
|
Payments
due by period
|
|
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
|
Operating
Lease Obligations
|
$
789,071
|
$170,370
|
$348,431
|
$270,270
|
-
|
|
Convertible
Notes Payable
|
1,500,000
|
1,500,000
|
-
|
-
|
-
|
|
Other
Long-Term Liabilities Reflected on the Registrant's Balance Sheet
under
GAAP
|
52,000
|
26,000
|
26,000
|
-
|
-
|
|
Total
|
$2,341,071
|
$1,696,370
|
$374,431
|
$270,270
|
-
|
LIQUIDITY
AND CAPITAL RESOURCES
General
Due
to a
net loss during the three months ended March 31, 2008 of $1,433,502, cash
used
in operating activities of $830,910 during the three months ended March 31,
2008, and an accumulated deficit of $73.3 million at March 31, 2008, and
our
inability to date to obtain sufficient financing to support current and
anticipated levels of operations, there is a substantial doubt about the
Company’s ability to continue as a going concern. We have relied on periodic
issuances of common stock, convertible debt, and notes payable to sustain
our
operations.
As
of
March 31, 2008, we had cash and cash equivalents of $903,974. 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. On January 23, 2008, we completed the sale of $1,500,000 of convertible
notes payable in a private placement. We will 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 we 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. We used the proceeds of the
convertible notes private placement for working capital purposes.
We
used
$830,910 in cash from operating activities during the three months ended
March
31, 2008 due primarily to our net loss during the period of $1,433,502. We
used
$550,713 in cash from operating activities during the three months ended
March
31, 2007 due primarily to the Company’s net loss during the period of
$1,546,281. The increase in cash used during the current period was due mainly
to the hiring of additional personnel after March 31, 2007. Cash received
from
financing activities during the three months ended March 31, 2008 included
the
$1,500,000 of convertible notes payable issued less approximately $5,000
of
deferred financing costs incurred during the period. Cash received from
financing activities during the three months ended March 31, 2007 included
$331,000 of notes payable originated by three investors, including one member
of
the Company’s board of directors, as well as the Series B convertible preferred
private placement that the Company closed on March 16, 2007.
During
the three months ended March 31, 2008 and 2007, respectively, we used $16,495
and $5,370 in investing activities primarily to purchase new computer
equipment.
In
view
of the matters described in the preceding paragraph, recoverability of a
major
portion of the recorded asset amounts shown in the accompanying condensed
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 unaudited condensed
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.
The
Company expects to spend less than $100,000 for capital expenditures for
the
remainder of fiscal 2008.
FORWARD-LOOKING
STATEMENTS
Certain
statements contained herein are “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995, such as statements
relating to financial results and plans for future sales and business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition, our ability
to complete the development of and market our new ONGOER and OnGuard product
lines and other uncertainties detailed from time to time in our Securities
and
Exchange Commission (“the SEC”) filings, including our Annual Report on Form
10-KSB and our quarterly reports on Form 10-Q.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
Company had not material exposure to market risk from derivatives or other
financial instruments as of March 31, 2008.
ITEM
4T. CONTROLS AND PROCEDURES
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 accepted 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”).
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.
It
is the
responsibility of the Company’s management to establish and maintain adequate
internal control over financial reporting.
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. Our management, including the Company’s Chief
Executive Officer and Chief Financial Officer, evaluated as of March 31,
2008,
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.
The Company's material weaknesses include a lack of segregation of duties and
difficulty in evaluating, applying, and documenting complex accounting
principles. With
respect to the first material weakness, which relates to segregation of duties,
although we believe our risks with respect to this matter are minimal, we
still
acknowledge that it would be beneficial for the Company to have sufficient
personnel to segregate certain procedures. We believe, however, that the
costs
we would incur to increase our staff solely for this purpose exceeds the
potential reduction in risk. Our Chief Executive Officer and Chief Financial
Officer are monitoring this situation to determine if these circumstances
change. If this situation changes, management’s intent is to increase staffing
within our general accounting and financial functions if it is determined
that
the action results in a net benefit to the Company.
With
respect to the second material weakness, in circumstances where we may
become
(or contemplate becoming) a party to transactions in which our expertise
is
limited, we would engage the services of outside financial consultants,
if
necessary.
Part
II - OTHER INFORMATION
ITEM
6. 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
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. 1”) or (ii) ) the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2006 (referred
to
as “2006 10-KSB”).
|
Exhibit
No.
|
Description
|
|
|
|
|
3.1*
|
Certificate
of Incorporation as amended through March 8, 2007 (2006
10-KSB)
|
|
|
|
|
3.2*
|
Amended
Bylaws of the Company as presently in use (S-18 No. 1, Exhibit
3.2)
|
|
|
|
|
10.9*
|
Triton
Business Development Services Engagement Agreement dated January
31, 2007
(2006 10-KSB)
|
|
|
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Exchange Act Rule
13a-14(a).
|
|
|
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Exchange Act Rule
13a-14(a).
|
|
|
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements 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.
|
|
|
|
|
Date: May
19,
2008
|
|
/s/ Oliver
M.
Cooper III
|
|
|
Chief
Executive Officer
(Principal
executive officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stephen
N. Samp
|
|
|
Chief
Financial Officer
|
|
|
(Principal
financial and accounting officer)
|
