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 30092
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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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Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer (Do not check if a smaller reporting company)
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Smaller
reporting company x
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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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||
June
30, 2009 (unaudited) and December 31, 2008
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3
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Condensed
Consolidated Statements of Operations for the
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||
Three
and Six Months Ended June 30, 2009 and 2008 (unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the
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||
Six
Months Ended June 30, 2009 and 2008 (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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16
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Item
3. Quantitative and Qualitative Disclosures about Market
Risk
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21
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Item
4T.Controls and
Procedures
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21
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PART
II.
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OTHER
INFORMATION
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Item
6. Exhibits
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22
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ASSETS
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June
30,
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December
31,
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||||||
Current
assets
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2009
(unaudited)
|
2008
|
||||||
Cash and cash
equivalents
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$ | 349,288 | $ | 997,048 | ||||
Accounts
receivable
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147,341 | 80,015 | ||||||
Inventory
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25,125 | 28,905 | ||||||
Prepaid expenses and other
assets
|
46,454 | 129,873 | ||||||
Total current
assets
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568,208 | 1,235,841 | ||||||
Certificate
of deposit-restricted
|
82,433 | 81,126 | ||||||
Property
and equipment, net
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86,632 | 101,509 | ||||||
Right
to license intellectual property, net
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8,719 | 27,218 | ||||||
Other
assets
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11,458 | 11,458 | ||||||
Total
assets
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$ | 757,450 | $ | 1,457,152 | ||||
LIABILITIES
AND STOCKHOLDERS’(DEFICIENCY)/ EQUITY
|
||||||||
Current
liabilities
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||||||||
Accounts payable
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$ | 262,295 | $ | 188,064 | ||||
Accrued expenses
|
93,669 | 43,505 | ||||||
Deferred revenue
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31,313 | 19,518 | ||||||
Common stock to be
issued
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26,000 | 26,000 | ||||||
Derivative
liabilities
|
4,286 | - | ||||||
Notes
payable, net of debt discount of $370,362
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191,888 | - | ||||||
Total current
liabilities
|
609,451 | 277,087 | ||||||
Derivative
liabilities
|
658,653 | - | ||||||
Deferred
rent payable
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21,209 | 20,551 | ||||||
Total liabilities
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1,289,313 | 297,638 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
Equity/(Deficit):
|
||||||||
Preferred stock, $.00025 par
value; 800,000 shares authorized;
|
||||||||
Series
A Convertible: 770,000 shares designated; 672,664 and 688,664
outstanding; liquidation values of $2,017,992 and
$2,065,992
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167 | 171 | ||||||
Series
B Convertible: 4,700 shares designated; 4,264 and 4,285 outstanding;
liquidation values of $3,198,000 and $3,213,750
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1 | 1 | ||||||
Series
C Convertible: 7,900 shares designated; 5,534 and 5,534 outstanding;
liquidation values of $4,150,500 and $4,150,500
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14 | 14 | ||||||
Common stock, 100,000,000
shares authorized;
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||||||||
$.001 par value; 12,224,356 and
10,783,882 issued and outstanding
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12,224 | 10,784 | ||||||
Additional paid-in
capital
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79,413,546 | 80,338,073 | ||||||
Accumulated
deficit
|
(79,957,815 | ) | (79,189,529 | ) | ||||
Total stockholders'
(deficiency)/equity
|
(531,863 | ) | 1,159,514 | |||||
Total liabilities and
stockholders’ (deficiency)/equity
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$ | 757,450 | $ | 1,457,152 |
Three
Months Ended June
30 |
Six
Months Ended June
30 |
|||||||||||||||
2009
|
2008
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2009
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2008
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|||||||||||||
Revenues:
|
||||||||||||||||
Software
licenses
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$ | 1,000 | $ | 7,767 | $ | 76,321 | $ | 20,455 | ||||||||
Service
and hardware
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19,102 | 3,116 | 195,068 | 70,325 | ||||||||||||
Total
revenues
|
20,102 | 10,883 | 271,389 | 90,780 | ||||||||||||
Cost
of revenues:
|
||||||||||||||||
Software
licenses
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- | 105 | 300 | 105 | ||||||||||||
Service
and hardware
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6,146 | 1,169 | 114,116 | 27,306 | ||||||||||||
Total
cost of revenues
|
6,146 | 1,274 | 114,416 | 27,411 | ||||||||||||
Gross
profit
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13,956 | 9,609 | 156,973 | 63,369 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling,
general, and administrative
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595,628 | 714,994 | 1,374,278 | 1,622,467 | ||||||||||||
Research
and development
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289,008 | 295,000 | 600,873 | 643,462 | ||||||||||||
Total
operating expenses
|
884,636 | 1,009,994 | 1,975,151 | 2,265,929 | ||||||||||||
Loss
from Operations
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(870,680 | ) | (1,000,385 | ) | (1,818,178 | ) | (2,202,560 | ) | ||||||||
Other
income/(expenses):
|
||||||||||||||||
Amortization
of debt discount-warrant fair value
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(80,408 | ) | (166,639 | ) | (80,408 | ) | (266,038 | ) | ||||||||
Amortization
of beneficial conversion of notes payable
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- | (166,639 | ) | - | (266,038 | ) | ||||||||||
Amortization
of debt issuance costs
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(5,781 | ) | (17,500 | ) | (5,781 | ) | (21,579 | ) | ||||||||
Loss
on derivative liabilities
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(160,706 | ) | - | (101,506 | ) | - | ||||||||||
Interest
and other income
|
3,825 | 3,548 | 9,810 | 9,740 | ||||||||||||
Interest
expense
|
(12,173 | ) | (45,425 | ) | (12,593 | ) | (80,067 | ) | ||||||||
Total
other expense, net
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(255,243 | ) | (392,655 | ) | (190,478 | ) | (623,982 | ) | ||||||||
Net
Loss
|
(1,125,923 | ) | (1,393,040 | ) | (2,008,656 | ) | (2,826,542 | ) | ||||||||
Dividends
on convertible preferred stock paid in common stock
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(359,338 | ) | (274,368 | ) | (359,338 | ) | (274,368 | ) | ||||||||
Deemed
dividend on convertible preferred stock
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- | (1,299,838 | ) | - | (1,299,838 | ) | ||||||||||
Net
loss attributable to common stockholders
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$ | (1,485,261 | ) | $ | (2,967,246 | ) | (2,367,994 | ) | $ | (4,440,748 | ) | |||||
Net
loss per common share, basic and diluted:
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||||||||||||||||
Basic
and diluted
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$ | (0.14 | ) | $ | (0.35 | ) | $ | (0.22 | ) | $ | (0.55 | ) | ||||
Weighted
average shares outstanding:
|
||||||||||||||||
Basic
and diluted
|
10,935,736 | 8,366,429 | 10,883,077 | 7,975,416 |
Six
Months Ended
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||||||||
June
30,
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||||||||
2009
|
2008
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|||||||
CASH
FLOWS USED IN OPERATING ACTIVITIES:
|
||||||||
Net loss
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$ | (2,008,656 | ) | $ | (2,826,542 | ) | ||
Adjustments to reconcile net
loss to net cash used in operating activities:
|
||||||||
Issuance of common stock for
services
|
3,255 | 84,639 | ||||||
Depreciation and
amortization
|
38,974 | 91,937 | ||||||
Impairment of right to license
intellectual property
|
18,499 | - | ||||||
Amortization of debt
discounts
|
80,408 | 532,076 | ||||||
Stock-based
compensation
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424,687 | 443,568 | ||||||
Loss on derivative
liabilities
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101,506 | - | ||||||
Changes in operating assets and
liabilities
|
174,505 | 206,481 | ||||||
Net cash used in operating
activities
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(1,166,822 | ) | (1,467,841 | ) | ||||
CASH
FLOWS USED IN INVESTING ACTIVITIES:
|
||||||||
Purchases
of property and equipment
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(18,267 | ) | (22,939 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net proceeds from notes payable
issuance
|
562,250 | 1,495,021 | ||||||
Net proceeds from stock
issuance
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- | 1,053,153 | ||||||
Capitalized
offering costs
|
(24,921 | ) | (4,979 | ) | ||||
Net cash provided by financing
activities
|
537,329 | 2,548,174 | ||||||
(Decrease)/Increase
in cash and cash equivalents
|
(647,760 | ) | 1,057,394 | |||||
Cash
and cash equivalents, beginning of the period
|
997,048 | 256,358 | ||||||
Cash
and cash equivalents, end of the period
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$ | 349,288 | $ | 1,313,752 | ||||
Supplemental
schedule of non-cash investing and financing activities:
|
||||||||
Beneficial conversion feature
of notes payable
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$ | - | $ | 266,038 | ||||
Warrant
fair value in securities issuance
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$ | 450,770 | $ | 266,038 |
June 30, 2009
|
June 30, 2008
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|||||||
Options
|
7,270,950 | 6,230,763 | ||||||
Warrants
|
28,427,465 | 24,175,509 | ||||||
Convertible
Preferred Stock
|
22,286,656 | 18,684,656 | ||||||
Convertible
Notes Payable
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1,529,156 | - | ||||||
Totals
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59,514,227 | 49,090,928 |
|
(i)
|
107,629
shares of common stock to the Series A shareholders (672,664 Series A
shares issued and outstanding on that date);
and
|
|
(ii)
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511,680
shares of common stock to the Series B shareholders (4,286 shares
issued and outstanding on that
date).
|
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(iii)
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664,040
shares of common stock to the Series C shareholders (5,534 shares issued
and outstanding on that date).
|
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(iv)
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220,375
shares of common stock to the Series A shareholders (688,664 Series A
shares issued and outstanding on that date) The Company erroneously issued
holders of Series A Preferred Stock common stock dividends on June 30,
2008 with a value of $0.375 per share. As a result, the holders
were issued twice the number of common shares to which they were entitled
in payment of the June 30, 2008 dividend and no additional shares were
issued on December 31, 2008; and
|
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(v)
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521,160
shares of common stock to the Series B shareholders (4,343 shares
issued and outstanding on that
date).
|
For the three months ended June
30,
|
For the six months ended June
30,
|
|||||||||||||
Assumptions
|
2009
|
2008
|
2009
|
2008
|
||||||||||
Risk-free
rate
|
None
granted
|
2.57-3.67 | % | 1.90 | % | 2.57-3.67 | % | |||||||
Annual
rate of dividends
|
0 | % | 0 | % | 0 | % | ||||||||
Volatility
|
115 | % | 107.8 | % | 115-131 | % | ||||||||
Average
life
|
5
years
|
5
years
|
5
years
|
Weighted-
Average
|
Weighted-Average
Remaining
|
|||||||||||
Shares
|
Exercise
Price
|
Term
(in years)
|
||||||||||
Outstanding
January 1, 2009
|
7,420,950 | $ | 0.67 | |||||||||
Granted
|
150,000 | $ | 0.15 | |||||||||
Exercised
|
- | $ | - | |||||||||
Forfeited
|
(300,000 | ) | $ | 0.27 | ||||||||
Outstanding
at June 30, 2009
|
7,270,950 | $ | 0.67 | 7.2 | ||||||||
Exercisable
at June 30, 2009
|
4,028,497 | $ | 0.70 | 6.2 |
June
30, 2009
|
January
1, 2009
|
Date
of Issuance
|
||||||||||
Placement Agent Warrants:
|
||||||||||||
Risk-free
rate
|
0.17 | % | 0.37 | % | 3.38-3.97 | % | ||||||
Annual
rate of dividends
|
0 | 0 | 0 | |||||||||
Volatility
|
108.8 | % | 109.9 | % | 169-171 | % | ||||||
Weighted
Average life (years)
|
0.1 | 0.3 | 5 | |||||||||
2005 Warrants:
|
||||||||||||
Risk-free
rate
|
0.55 | % | 0.76 | % | 3.98 | % | ||||||
Annual
rate of dividends
|
0 | 0 | 0 | |||||||||
Volatility
|
108.8 | % | 109.9 | % | 134.3 | % | ||||||
Weighted
Average life (years)
|
1.0 | 1.5 | 5 | |||||||||
2009 Warrants:
|
||||||||||||
Risk-free
rate
|
2.54 | - | 2.34 | |||||||||
Annual
rate of dividends
|
0 | - | 0 | |||||||||
Volatility
|
108.8 | % | - | 108.8 | % | |||||||
Weighted
Average life (years)
|
4.9 | - | 5.0 | |||||||||
Fair
Value
|
$ | 662,939 | $ | 110,663 | $ | 2,161,141 |
Fair
Value Measurements at June 30, 2009
|
||||||||||||||||
Total
Carrying Value at June 30, 2009
|
Quoted
prices in active markets (Level 1)
|
Significant
other observable inputs (Level 2)
|
Significant
unobservable inputs (Level 3)
|
|||||||||||||
Derivative
liabilities
|
$ | 662,939 | $ | - | $ | - | $ | 662,939 |
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Beginning
balance
|
$ | (51,463 | ) | $ | - | $ | (110,663 | ) | $ | - | ||||||
Net
unrealized loss on derivative financial instruments
|
(160,706 | ) | - | (101,506 | ) | - | ||||||||||
New
derivative liabilities issued
|
(450,770 | ) | (450,770 | ) | ||||||||||||
Ending
balance
|
$ | (662,939 | ) | $ | - | $ | (662,939 | ) | $ | - |
|
·
|
The
Master Note bears interest at the rate of 22% per annum, is payable six
months from the issue date (“Maturity Date”) and can be pre-paid at any
time. Accrued interest is payable in cash on the Maturity
Date.
|
|
·
|
The
Maturity Date of the Master Note may be extended by the Company for two
30-day periods. If the Company elects to extend the Maturity
Date, the Company will pay a 5% Extension Fee at the conclusion of each
such 30-day Extension Period, payable at the option of the Company in cash
or the Company’s common stock.
|
|
·
|
The
Master Note is secured by all of the Company’s cash and cash equivalents,
accounts receivable, prepaid assets, and equipment. The Master
Note and Participation Interests will be convertible into equity
securities on the following terms:
|
|
·
|
If
the Company closes a “Qualifying Next Equity Financing” before the
Maturity Date, the then-outstanding balance of principal and accrued
interest on the Master Note will automatically convert into shares of the
“Next Equity Financing Securities” the Company issues. “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, the Company would 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 Master Note by the price per share of the Next Equity Financing
Securities.
|
|
·
|
If
the Company closes a “Non-Qualifying Next Equity Financing” before the
Maturity Date, the then-outstanding balance of principal and accrued
interest represented by a Participation Interest 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 the Master Note in which the Company
sells and issues any 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
Participation Interests in the Master Note) at a price per share for
equivalent shares of common stock that is not greater than $0.375 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 $0.375 per
share.
|
|
·
|
At
any time prior to payment in full of this Note, an Investor may convert
all, but not less than all, of such Investors interest in this Note (as
represented by such Investor’s Participation Interest) into that number of
Series C Preferred Stock Units equal to (A) the principal balance plus
accrued but unpaid interest hereunder due and payable to the investor in
accordance with such Investor’s Participation Interest, divided by (B)
$750. Each Series C Preferred Stock Unit comprises one share of
our Series C Convertible Preferred Stock and detachable five-year warrants
(“Series C Warrants”) to acquire 2,000 shares of our common stock at an
exercise price of $0.375 per
share.
|
Assumptions
|
|
Risk-free
rate
|
2.34%
|
Annual
rate of dividends
|
0
|
Volatility
|
108.8%
|
Average
life
|
5
years
|
|
·
|
Revenue
recognition.
We follow the guidance of the Securities and Exchange Commission’s
Staff Accounting Bulletin 104 (“SAB 104”) for revenue
recognition. We adhere strictly to the criteria outlined in SAB
104, which provides for revenue to be recognized when (i) persuasive
evidence of an arrangement exists, (ii) delivery or installation has been
completed, (iii) the customer accepts and verifies receipt, and (iv)
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 Device ManagerTM
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 and research and development costs. Our policy on
capitalized software and research and 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
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 research
and development costs meet the criteria for immediate expense or
capitalization. We did not capitalize any software and research and
development costs during either 2009 or 2008 and all assets were fully
amortized by December 31, 2006. Our research and development
efforts during 2008 and 2009 primarily involved product improvements to
our Device Manager and Video Visitation products to improve their
functionality and ease of use for end
users.
|
|
·
|
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. We recorded an impairment of
approximately $18,000 in the three months ended June 30, 2009 to lower the
carrying value of our right to license intellectual property based on
estimated future gross profit from sales of our Curiax Arraigner software
product and due to sales that occurred during the period. No
impairment was recorded in the three months ended June 30,
2008. See Note 8 to our condensed consolidated financial
statements.
|
|
·
|
Derivative
Financial Instruments. We do not use derivative
instruments to hedge exposures to cash flow, market or foreign currency
risks and we evaluates all of our financial instruments to determine if
such instruments are derivatives or contain features that qualify as
embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date,
with changes in the fair value reported in the condensed consolidated
statements of operations. For stock-based derivative financial
instruments, we use the Black-Scholes option pricing model to value the
derivative instruments at inception and on subsequent valuation
dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity,
is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or
non-current based on the term of the underlying derivative
instrument. See Note 9 to our condensed consolidated
financial statements.
|
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
|
SIMTROL, INC. | |||
Date:
August 14, 2009
|
By:
|
/s/ Oliver M. Cooper III | |
Chief Executive Officer | |||
(Principal executive officer) | |||
Date:
August 14, 2009
|
By:
|
/s/ Stephen N. Samp | |
Chief
Financial Officer
|
|||
(Principal financial and accounting officer) | |||