FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
[ ] 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 REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1104448
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5801 GOSHEN SPRINGS ROAD
NORCROSS, GEORGIA 30071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(770) 242-7566
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
VSI ENTERPRISES, INC.
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OF SECURITIES NOVEMBER 9, 2001
-------------------
COMMON STOCK, $.001 PAR VALUE 15,238,703
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SIMTROL, INC. AND SUBSIDIARIES
Index
FINANCIAL INFORMATION Page No.
--------
PART I. Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 2001 (unaudited) and December 31, 2000 (audited)................. 3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2001 and 2000 (unaudited)............ 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000 (unaudited)...................... 5
Consolidated Statement of Stockholders' Equity
Nine Months Ended September 30, 2001 (unaudited)............................... 6
Notes to Condensed Consolidated Financial Statements (unaudited) .............. 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations:
Financial Condition............................................................ 10
Results of Operations.......................................................... 10
Liquidity and Sources of Capital............................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............ 12
PART II. Item 1. Legal Proceedings..................................................... 14
Item 5. Other Information..................................................... 14
Item 6. Exhibits and Reports on Form 8-K...................................... 14
2
PART I
ITEM 1. FINANCIAL STATEMENTS
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
2001 DECEMBER 31,
ASSETS (UNAUDITED) 2000
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents $ 18,663 $ 1,779,548
Accounts receivable, net 293,283 511,702
Inventories, net 374,972 407,044
Prepaid expenses and other assets 45,286 --
-------------- --------------
TOTAL CURRENT ASSETS 732,204 2,698,294
PROPERTY AND EQUIPMENT, NET 233,874 252,701
OTHER ASSETS
Software development costs, net 710,603 709,997
Investments 2,872,078 3,558,684
Other long term assets 14,614 14,614
-------------- --------------
$ 4,563,373 $ 7,234,290
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease and short term borrowings $ 123,453 $ 25,000
Current liabilities of discontinued operations 84,350 84,350
Accounts payable 796,720 453,021
Accrued expenses 411,046 440,097
Deferred revenues 603,430 702,907
-------------- --------------
TOTAL CURRENT LIABILITIES 2,018,999 1,705,375
COMMITMENTS AND CONTINGENCIES -- --
Capital lease, less current portion 38,215 41,738
STOCKHOLDERS' EQUITY
Common stock, authorized 40,000,000 shares of
$.001 par value; issued and outstanding, 15,238,703 at
September 30, 2001 and 15,163,218 at December 31, 2000 15,239 15,163
Additional paid in capital 56,685,920 56,605,370
Accumulated deficit (53,623,078) (51,248,040)
Accumulated other comprehensive income (571,922) 114,684
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 2,506,159 5,487,177
-------------- --------------
$ 4,563,373 $ 7,234,290
============== ==============
The accompanying notes are an integral part of these statements.
3
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ----------------------------
2001 2000 2001 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- ---------- ----------- -----------
REVENUES $ 368,740 $ 907,963 $ 1,353,091 $ 3,584,146
Cost of sales 293,708 452,017 932,854 1,865,902
Selling, general and administrative 586,735 765,875 2,084,681 2,438,912
Research and development 268,032 87,939 710,432 347,816
---------- ---------- ----------- -----------
1,148,475 1,305,831 3,727,967 4,652,630
---------- ---------- ----------- -----------
LOSS FROM OPERATIONS (779,735) (397,868) (2,374,876) (1,068,484)
Other income (expense) (7,517) 1,652 (163) (313,768)
---------- ---------- ----------- -----------
LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (787,252) (396,216) (2,375,039) (1,382,252)
Income taxes benefit (expense) -- -- -- 373,000
---------- ---------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (787,252) (396,216) (2,375,039) (1,009,252)
Loss from discontinued operations, net of taxes -- -- -- (32,556)
Gain on disposal of subsidiary -- -- -- 560,829
---------- ---------- ----------- -----------
NET LOSS $ (787,252) $ (396,216) $(2,375,039) $ (480,979)
========== ========== ============ ===========
Net income (loss) per common share (basic and diluted)
Continuing operations $(0.05) $(0.03) $(0.16) $(0.07)
Discontinued operations -- -- -- 0.04
---------- ---------- ----------- -----------
$(0.05) $(0.03) $(0.16) $(0.03)
========== ========== ============ ===========
Weighted shares outstanding
Basic and diluted 15,238,703 15,048,402 15,216,920 14,377,101
The accompanying notes are an integral part of these statements.
4
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
2001 2000
(UNAUDITED) (UNAUDITED)
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,375,039) $ (480,979)
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on sale of subsidiary -- (933,829)
Depreciation and amortization 252,811 372,039
Changes in operating assets and liabilities:
Accounts receivable 386,683 125,875
Inventories 32,071 162,861
Prepaid expenses and other assets (45,286) (96,463)
Accounts payable 187,512 (501,853)
Accrued expenses (59,562) (454,552)
Deferred revenues (101,092) (107,156)
Effect of operating activities of discontinued operations -- (110,320)
-------------- --------------
Net cash used by operating activities (1,721,904) (2,024,377)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, continuing operations (3,505) (174,288)
Purchases of property and equipment, discontinued operations -- (27,087)
Change in other assets, continuing operations (122,592) (433,298)
Change in other assets, discontinued operations -- 25,514
Cash from sale of discontinued operations -- 1,287,835
-------------- --------------
Net cash provided (used) by investing activities (126,097) 678,676
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on notes payable
and short term credit facilities 39,776 (822,929)
Proceeds from exercise of stock options 21,081 154,876
Proceeds from private placement, net of issuance costs -- 4,054,876
Payment for minority interest -- (709,722)
-------------- --------------
Net cash provided by financing activities 60,857 2,677,101
-------------- --------------
Increase (decrease) in cash and cash and cash equivalents (1,787,142) 1,331,400
Cash provided by discontinued operations -- 38,860
Cash provided by acquired operations 26,257 --
Cash and cash equivalents at beginning of the period 1,779,548 798,826
-------------- --------------
Cash and cash equivalents at end of the period $ 18,663 $ 2,169,086
============== ==============
The accompanying notes are an integral part of these statements.
5
SIMTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Common Stock
------------------- Additional Additional Other
Number of Par Paid in Accumulated Comprehensive
Shares Value Capital Deficit Income Total
-------------------------------------------------------------------------------
Balance December 31, 2000 15,163,218 $15,163 $56,605,370 $(51,248,040) $114,684 $5,487,177
Net loss for the period (2,375,039) (2,375,039)
Other comprehensive income:
Change in investment in marketable securities (686,606) (686,606)
-------------------------------------------------------------------------------
Comprehensive income (loss) (2,375,039) (571,922) (2,946,961)
-------------------------------------------------------------------------------
Exercise of stock options 30,031 31 21,051 21,082
Issuance of common shares for purchase of QSA 45,454 45 59,500 59,545
-------------------------------------------------------------------------------
Balance September 30, 2001 15,238,703 $15,239 $56,685,920 $(53,623,078) $(571,922) $2,506,159
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
6
SIMTROL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited and
have been prepared by the management of Simtrol, Inc. and subsidiaries (the
"Company" or "Simtrol") in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, certain information and
footnote disclosures usually found in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of management of the Company, all adjustments
(consisting only of normal recurring adjustments) considered necessary for fair
presentation of the condensed consolidated financial statements have been
included, and the accompanying condensed consolidated financial statements
present fairly the financial position and the results of operations for the
interim periods presented. Operating results for the three month period and nine
month periods ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and related footnotes included in the
Company's 2000 Annual Report on Form 10-K, as filed with the SEC on April 2,
2001.
The accompanying financial statements contemplate continuation of the Company
as a going concern. However, the Company has sustained substantial losses from
operations in recent years, and such losses have continued through September
30, 2001. The Company has also used, rather than provided, cash in its
operations for the nine months ended September 30, 2001. Additionally, the
Company has been notified of the potential for litigation with regard to the
shares of PentaStar, classified as investments on the balance sheet, which are
being held in escrow relating to the Company's sale of a subsidiary in 1999.
This may significantly delay or prevent the Company's ability to convert these
shares to cash.
In view of the matters described in the preceding paragraph, recoverability of
a major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements on a
continuing basis and attract additional financing. The 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.
In response to the matters described in the preceding paragraphs, management of
the Company is currently in the process of attempting to secure additional
equity financing.
Effective as of the close of business on September 30, 2001, the Company changed
its name from VSI Enterprises, Inc. to Simtrol, Inc.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
NOTE 3 - DISCONTINUED OPERATIONS
On February 18, 2000, the Company and its network reselling subsidiary, VSI
Network Solutions Inc., doing business as Eastern Telecom, entered into a
definitive agreement to sell substantially all of the assets of Eastern Telecom
to PentaStar Communications, Inc., a Denver, Colorado based communications
services agent. The definitive agreement was subject to, among other things,
stockholder approval, which occurred at the Annual Meeting held on May 18, 2000.
As a result of the decision to discontinue the Company's network reselling
business, operating results for Eastern Telecom have been reclassified and
reported as discontinued operations in accordance with Accounting Principles
Board Opinion No. 30 for all periods presented.
NOTE 4 - NET INCOME (LOSS) PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" requires the disclosure of basic net income (loss) per share and diluted
net income (loss) per share. Basic net income (loss) per share is computed by
dividing net income (loss) available to common shareholders by the
weighted-average number of common shares outstanding during the period and does
not include any other potentially dilutive securities. Diluted net income (loss)
per share gives effect to all potentially dilutive securities.
7
NOTE 5 - ACCOUNTING FOR IMPAIRMENTS IN LONG-LIVED ASSETS
Long-lived assets and identifiable intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amounts
of assets may not be recoverable. Management periodically evaluates the carrying
value and the economic useful life of its long-lived assets based on the
Company's operating performance and the expected future undiscounted cash flows
and will adjust the carrying amount of assets which may not be recoverable in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and Long-lived Assets to be disposed of", which requires that the
impairment loss be measured as the amount by which the carrying value of the
asset exceeds the fair value of the asset. Management believes long-lived assets
in the accompanying condensed consolidated balance sheets are appropriately
valued in accordance with SFAS No.121. (See Note 1)
NOTE 6 - REVENUE RECOGNITION
Revenues on systems sales are recognized upon shipment. If installation costs
relating to the systems sold are significant, revenue is only recognized for the
installation as the costs associated with the installation are incurred. Revenue
on maintenance contracts are recognized over the term of the related contract.
The SEC issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in
Financial Statements", in December 1999. SAB 101 summarizes certain of the SEC
staff's views in applying accounting principals generally accepted in the United
States to revenue recognition in the financial statements. Management has
reviewed its revenue recognition policies and determined that the Company is in
compliance with SAB 101.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In November 2000, the Company was named as a defendant in a lawsuit filed by the
bankruptcy trustee of VSI Network Services, Inc., a subsidiary of the Company
that filed for Chapter 7 bankruptcy in 1999. This lawsuit, filed in the Northern
District of Georgia, Atlanta Division was for an accounting and to seek recovery
of alleged preferential transfers of funds. The lawsuit was seeking to recover
approximately $740,000 in alleged preference payments from the Company. On
September 24, 2001, a settlement was reached whereby the Company agreed to pay
$32,000 to the bankruptcy trustee.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
NOTE 8 - ACQUISITION
On March 28, 2001, the Company acquired Quality Software Associates, Inc.
("QSA"), a custom programmer of audio/visual control systems. This merger was
accounted for using the purchase method of accounting. The purchase included the
transfer of 45,454 shares of Simtrol stock valued at $59,545 for the outstanding
shares of QSA. There was no goodwill recorded as a result of this transaction.
NOTE 9 - COMPREHENSIVE INCOME
In 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income".
Comprehensive income includes the changes in equity resulting from transactions
with non-owners for the periods reported. The unrealized gain (loss) on
marketable securities represents our only component of comprehensive income.
Comprehensive income (loss) for the three month periods ended September 30, 2001
and 2000 was ($1,588,102) and $(342,518), and for the nine month periods ended
September 30, 2001 and 2000 was ($2,946,961) and $(244,736), respectively.
8
NOTE 10 - INVESTMENTS
Investments consist primarily of equity securities, which are accounted for as
available for sale securities and are stated at fair value. Unrealized gains and
losses on these investments are included in the stockholders' equity section of
the balance sheet. (see Note 1)
NOTE 11 - STOCK OPTIONS
The Company's board of directors has approved a stock option plan which covers
up to 3,662,057 shares of common stock. The plan provides for the expiration of
options ten years from the date of grant and requires the exercise price of the
options granted to be at least equal to 100% of market value on the date
granted. Stock option transactions are summarized below:
Shares
Outstanding at beginning of year 988,864
Granted 208,250
Exercised (30,031)
Forfeited (173,029)
---------
Outstanding, end of quarter 974,054
=========
9
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. Notes to
the condensed consolidated financial statements included in this report and the
notes to the consolidated financial statements included in our Form 10-K for the
year ended December 31, 2000 should be read in conjunction with both sets of
consolidated financial statements.
FINANCIAL CONDITION
During the nine months ended September 30, 2001, total assets decreased
approximately 37% to $4,563,373 from $7,234,290 at December 31, 2000. This was
primarily the result of a decrease in cash of $1,760,885, a decrease in accounts
receivable of $218,419 and a decrease in our investments of $686,606.
Investments decreased as a result of the change in the stock price of the
PentaStar Communications, Inc. shares held in escrow resulting from the sale of
our subsidiary, VSI Network Solutions, Inc. as described in "Note 3 -
Discontinued Operations" in the notes to the condensed consolidated financial
statements.
Current liabilities increased by $313,624, or 18%, due to the acquisition of
Quality Software Associates, Inc. ("QSA") on March 28, 2001, increased accounts
payables of $343,699, increased short term borrowings of $98,453, and offset by
decreased deferred revenue of $99,477 and decreased accrued liabilities of
$29,051.
We exchanged 45,454 of our common shares valued at $59,545 for the net assets of
QSA. There was no goodwill recorded as a result of this transaction.
RESULTS OF OPERATIONS
REVENUES
Revenues were $368,740 and $907,963 for the three months ended September 30,
2001 and 2000, respectively. The 59% decrease from 2000 to 2001 was primarily
due to the startup of the new Ongoer(TM) system and the transition away from
being a hardware and software company to a predominantly software company. The
first sales of the Ongoer(TM) product line were in March 2001.
For the nine months ended September 30, 2001 revenues were $1,353,091 reflecting
a 62% decrease from revenues of $3,584,146 for the same period in 2000. This
reduction in revenue is due to the movement away from the old Omega(TM) software
and hardware system sales to the new Ongoer (TM) software system sales.
COST OF SALES
Cost of sales decreased by $158,309, or 35%, for the three months ended
September 30, 2001, compared to the comparable period in 2000. The decrease is
primarily a result of lower revenues for the quarter as the Company shifted its
focus to its Ongoer software system sales and away from hardware sales.
Gross margin was approximately 20% and 50% for the three months ended September
30, 2001 and 2000, respectively. This decrease resulted from the amortization of
capitalized software cost for the Ongoer (TM) product line, which began shipping
in March 2001. It is our policy that software development costs are capitalized
once the product becomes technologically feasible and then these costs are
amortized over 36 months once the first sale is made. Amortization costs for the
three months ended September 30, 2001 were $69,000.
Cost of sales decreased by $933,048, or 50%, for the nine months ended September
30, 2001, compared to the comparable period in 2000. The decrease is primarily a
result of lower revenues for the nine months period as the Company shifted its
focus to its Ongoer software system sales and away from hardware sales.
10
Gross margin for the nine months ended September 30, 2001 and 2000 were 31% and
48%, respectively. The reason for the lower margin is discussed above.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $586,735 and $765,875 for the
three months ended September 30, 2001 and 2000, respectively. For the nine
months ended September 30, 2001 and 2000, selling, general and administrative
expenses were $2,084,681 and $2,438,912, respectively. The decrease in both the
three month and nine month periods ended September 30, 2001 compared to the
similar periods in 2000 resulted from our consolidation of operations,
reductions in personnel and ongoing efforts to cut costs. These reductions in
costs were net of additional expense from the operations of QSA, which was
acquired on March 28, 2001. These expenses amounted to $97,000 and $358,000 for
the three month and nine month periods ended September 30, 2001.
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 over the useful life of the product. These
expensed costs were $268,032 and $87,939 for the three months ended September
30, 2001 and 2000, respectively. The expensed costs for the nine months ended
September 30, 2001 and 2000 were $710,432 and $347,816, respectively. During the
three months ended September 30, 2001, we did not capitalize any software
development costs related to new products under development, which caused our
expenses to increase relative to the prior year periods.
OTHER INCOME ( EXPENSE)
Other income (expense) consisted of ($7,517) of miscellaneous expense for the
three months ended September 30, 2001 compared with $1,652 of interest income
for the three months ended September 30, 2000. Other income (expense) was ($163)
and ($313,768) for the nine months ended September 30, 2001 and 2000,
respectively. The reduction of other (expense) is primarily related to lower
interest expenses and debt discount costs resulting from the repayment of our
debt in the second quarter of 2000.
DISCONTINUED OPERATIONS
On February 18, 2000, we entered into a definitive agreement to sell Eastern
Telecom, our network reselling subsidiary, and, as a result accounted for
Eastern Telecom as discontinued operations. Accordingly, operating results were
reclassified and reported as discontinued operations. Operating loss from
discontinued operations was ($32,556) for the nine months ended September 30,
2000. The sale was completed on May 18, 2000. There was no impact on our
financial results for the three months and nine months ended September 30, 2001
of these discontinued operations.
GAIN ON DISPOSAL OF SUBSIDIARY
We realized a gain of $560,829 for the three and nine months ended September 30,
2000, net of taxes of $373,000 from the sales of Eastern Telecom.
NET INCOME (LOSS)
Net loss for the three months ended September 30, 2001 was $787,252 as compared
to a net loss of $396,216 for the three months ended September 30, 2000. For the
nine months ended September 30, 2001 we lost $2,375,039 compared to a loss of
$480,979 for the same period in 2000. The increase in net loss for the period
was due primarily to the decrease in revenues. The year earlier period included
income from the sale of Eastern Telecom of $933,829, before taxes.
11
LIQUIDITY AND SOURCES OF CAPITAL
GENERAL
As of September 30, 2001, we had cash and cash equivalents of $18,663. We used
$1,721,904 in cash from operating activities in the nine months ended September
30, 2001, primarily due to our loss of $2,375,039, offset by a decrease in
accounts receivable of $386,683 and an increase in accounts payable of $187,510.
Cash used in investing activities was $126,097, of which $122,592 was for
software development and $3,505 was for the purchase of equipment. As part of
the sale of Eastern Telecom to PentaStar Communications, Inc., PentaStar was
required to escrow 57,122 shares of its common stock. The terms of the sale were
such that the escrowed shares are to be released to us, one third on November
18, 2001, one third on May 18, 2002 and one third on November 18, 2002.
We will require additional funding during the remainder of fiscal 2001 and
thereafter 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.
The accompanying financial statements contemplate continuation of the Company as
a going concern. However, the Company has sustained substantial losses from
operations in recent years, and such losses have continued through September 30,
2001. The Company has also used, rather than provided, cash in its operations
for the nine months ended September 30, 2001. Additionally, the Company has been
notified of the potential for litigation with regard to the shares of PentaStar,
classified as investments on the balance sheet, which are being held in escrow
relating to the Company's sale of a subsidiary in 1999. This may significantly
delay or prevent the Company's ability to convert these shares to cash.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing requirements on a
continuing basis and attract additional financing. The 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.
In response to the matters described in the preceding paragraphs, management of
the Company is currently in the process of attempting to secure additional
equity financing.
We expect to spend approximately $30,000 for capital expenditures in the
remainder of fiscal 2001.
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 and market our new Ongoer product line and other
uncertainties detailed from time to time in our Securities and Exchange
Commission filings, including our Annual Report on Form 10-K and our quarterly
reports on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have minimal exposure to market risks such as changes in foreign currency
exchange rates and interest rates. The value of our financial instruments is
generally not significantly impacted by changes in the interest rates and we
have no investments in derivatives. Fluctuations in interest rates will not have
a material impact on interest expense because we have no indebtedness
outstanding pursuant to credit facilities. Changes in foreign currency exchange
rates have no effect on financial statements subsequent to September 1999, based
on the sale of our European subsidiary.
12
PART II
ITEM 1. LEGAL PROCEEDINGS
In November 2000, we were named as a defendant in a lawsuit filed by the
bankruptcy trustee of VSI Network Services, Inc., a subsidiary of ours that
filed for Chapter 7 bankruptcy in 1999. This lawsuit, filed in the Northern
District of Georgia, Atlanta Division was for an accounting and to seek recovery
of alleged preferential transfers of funds. The lawsuit was seeking to recover
approximately $740,000 in alleged preference payments from us. On September 24,
2001, we settled this lawsuit by agreeing to pay $32,000 to the bankruptcy
trustee. This action now has been dismissed.
We are involved in various claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on our financial position
or results of operations.
ITEM 5. OTHER INFORMATION
At the close of business on September 30, 2001 the name of the company was
changed from VSI Enterprises, Inc. to Simtrol, Inc. and the trading symbol was
changed to "SMOL."
On September 27, 2001 we entered into a license agreement with ACIS, Inc.
("ACIS") that significantly expanded the scope of our rights to CycleFree
development. ACIS granted to Simtrol a nonexclusive, worldwide, irrevocable,
perpetual license to use, copy, import, modify, enhance and create derivatives
of any implementation of the Willie-event-kernel(TM) (the "ACIS Kernel"), the
tools, class libraries, utilities and other programs developed or acquired by
ACIS relating to the ACIS Kernel, as well as any derivatives thereof created by
or for ACIS; and to make, have made, copy, distribute and sell Simtrol products
solely for use with and running on top of any Microsoft platform. Under the
prior agreement, Simtrol was limited to only developing and selling applications
running on top of Windows 2000.
On September 7, 2001 we renegotiated certain terms and conditions pertaining to
our warrant to acquire up to twenty percent of our technology partner, ACIS (the
"Warrant"). Simtrol now has until March 31, 2002 to exercise the Warrant.
Additionally, the number of ACIS shares available under the Warrant is now fixed
at 1,005,500 shares, which, when combined with ACIS shares already held by
Simtrol, is equal to twenty percent of the fully diluted ACIS shares outstanding
as of September 7, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Second Amendment to Certificate of Incorporation filed on
September 28, 2001.
10.1 ACIS Technology License Agreement dated as of September 27, 2001 by and
between ACIS, Inc. and Simtrol, Inc.
10.2 First Amendment and Modification of ACIS-VSI Warrant Agreement dated as
of September 7, 2001 by and between ACIS, Inc. and Simtrol, Inc.
(b) Reports on Form 8-K:
None.
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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: November 14, 2001 /s/ Richard W. Egan
------------------- ---------------------------------------
Chief Executive Officer
(Principal executive officer)
/s/ Robert W. Morris
---------------------------------------
Chief Financial Officer
(Principal financial and accounting
officer)
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