x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
36-3680347
|
|
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
Page
|
|
PART
I Financial Information
|
1
|
ITEM
1. Financial Statements
|
1
|
Note
1 - General
|
4
|
Note
2 - Summary of Significant Accounting Policies
|
4
|
Note
3 - Discontinued Operations
|
7
|
Note
4 - Financing
|
8
|
Note
5 - Investment in Marketable Securities and Other Long-term
Assets
|
15
|
Note
6 - Stock-Based Compensation
|
15
|
Note
7 - Inventory
|
17
|
Note
8 - Accrued Liabilities
|
17
|
Note
9 - Income Taxes
|
17
|
Note
10 - Contingencies
|
18
|
Note
11 - Geographic Reporting
|
18
|
Note
12 - Subsequent Events
|
19
|
ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
20
|
ITEM
3. Quantitative and Qualitative Disclosures About Market
Risk
|
25
|
ITEM
4T. Controls and Procedures
|
25
|
PART
II Other Information
|
26
|
ITEM
1. Legal Proceedings
|
26
|
ITEM
1A. Risk Factors
|
26
|
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
35
|
ITEM
3. Default upon Senior Securities
|
36
|
ITEM
4. Submission of Matters to a Vote of Security Holders
|
36
|
ITEM
5. Other Information
|
36
|
ITEM
6. Exhibits
|
36
|
Signatures
|
37
|
March 31,
|
December 31,
|
||||||
|
2008
|
2007
|
|||||
(unaudited)
|
|||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
220
|
$
|
1,415
|
|||
Trade
accounts receivable, net of allowance for doubtful accounts of $78
and
$78, respectively
|
33
|
58
|
|||||
Other
receivable
|
4
|
225
|
|||||
Inventories,
net of allowance for obsolete & slow-moving inventory of $100 and $80,
respectively
|
221
|
198
|
|||||
Investment
in marketable securities
|
-
|
8
|
|||||
Prepaid
expenses and other current assets
|
178
|
188
|
|||||
Assets
held for sale
|
-
|
159
|
|||||
Total
current assets
|
656
|
2,251
|
|||||
|
|||||||
Property,
equipment & leasehold improvements, net
|
95
|
85
|
|||||
Goodwill
|
3,418
|
3,418
|
|||||
Proprietary
software
|
3,250
|
3,413
|
|||||
Patents
and other intangible assets
|
2,555
|
2,608
|
|||||
Cash
surrender value of life insurance policy
|
747
|
747
|
|||||
Other
long term assets
|
605
|
1,002
|
|||||
Total
assets
|
$
|
11,326
|
$
|
13,524
|
|||
|
|||||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||
Current
liabilities
|
|||||||
Accounts
Payable
|
$
|
384
|
$
|
309
|
|||
Liabilities
held for sale
|
-
|
13
|
|||||
Accrued
expenses
|
6,002
|
6,015
|
|||||
Deferred
revenues and customer prepayments
|
685
|
669
|
|||||
Notes
payable
|
15
|
44
|
|||||
Accrued
purchase price guarantee
|
4,535
|
4,549
|
|||||
Deferred
tax liability
|
706
|
706
|
|||||
Derivative
financial instruments
|
19,199
|
24,651
|
|||||
Debentures
payable
|
29,355
|
30,699
|
|||||
Preferred
stock, $0.01 par value, 25,000,000 shares authorized, 22,000 issued,
19,939 shares outstanding
|
19,939
|
20,097
|
|||||
Total
liabilities
|
80,820
|
87,752
|
|||||
Commitments
and contingencies (note 10)
|
|||||||
Shareholders'
deficit
|
|||||||
Common
stock, $0.01 par value, 5,000,000,000 shares authorized, 1,048,084,313
and
1,025,295,693 shares issued and 1,044,933,044 and 1,022,144,424 shares
outstanding, respectively
|
10,449
|
10,221
|
|||||
Additional
paid in capital
|
118,935
|
118,427
|
|||||
Accumulated
deficit
|
(197,993
|
)
|
(201,565
|
)
|
|||
Accumulated
other comprehensive loss
|
(106
|
)
|
(532
|
)
|
|||
Treasury
stock, at cost, 201,230 shares
|
(779
|
)
|
(779
|
)
|
|||
Total
shareholders' deficit
|
(69,494
|
)
|
(74,228
|
)
|
|||
Total
liabilities and shareholders’ deficit
|
$
|
11,326
|
$
|
13,524
|
For the three months ended
|
|||||||
March 31, 2008
|
March 31, 2007
|
||||||
Revenues
|
$
|
264
|
$
|
399
|
|||
Cost
of sales
|
313
|
313
|
|||||
Gross
Profit (Loss)
|
(49
|
)
|
86
|
||||
Sales
and marketing
|
628
|
858
|
|||||
General
and administrative
|
1,206
|
2,460
|
|||||
Research
and development
|
562
|
506
|
|||||
Operating
loss
|
(2,445
|
)
|
(3,738
|
)
|
|||
(Gain)
loss on extinguishment of debt
|
(4
|
)
|
-
|
||||
Interest
(income)/expense, net
|
(1,171
|
)
|
1,698
|
||||
(Gain)/loss
on sale of assets
|
84
|
9
|
|||||
(Gain)
loss from change in fair value of derivative financial
instruments
|
(5,392
|
)
|
3,508
|
||||
Operating
income (loss) from continuing operations before income
taxes
|
4,038
|
(8,953
|
)
|
||||
Income
tax benefit (expense)
|
-
|
(29
|
)
|
||||
Net
income (loss) from continuing operations
|
4,038
|
(8,924
|
)
|
||||
Income/(loss)
from discontinued operations (Note 3)
|
(445
|
)
|
(2,573
|
)
|
|||
Net
income (loss)
|
3,593
|
(11,497
|
)
|
||||
Accretion
of dividends on convertible preferred stock
|
(399
|
)
|
(433
|
)
|
|||
Net
income (loss) attributable to common shareholders
|
$
|
3,194
|
$
|
(11,930
|
)
|
||
Comprehensive
income (loss):
|
|||||||
Net
income (loss)
|
3,593
|
(11,497
|
)
|
||||
Other
comprehensive loss
|
|||||||
Unrealized
gain/(loss) on marketable securities
|
-
|
(26
|
)
|
||||
Foreign
currency translation adjustment
|
-
|
9
|
|||||
Comprehensive
income (loss)
|
$
|
3,593
|
$
|
(11,514
|
)
|
||
Net
income/(loss) per share, basic:
|
|||||||
Continuing
operations
|
$
|
0.004
|
$
|
(0.013
|
)
|
||
Discontinued
operations
|
$
|
(0.000
|
)
|
$
|
(0.004
|
)
|
|
$
|
0.004
|
$
|
(0.017
|
)
|
|||
Net
income/(loss) per share, fully diluted:
|
|||||||
Continuing
operations
|
$
|
0.000
|
$
|
(0.013
|
)
|
||
Discontinued
operations
|
$
|
(0.000
|
)
|
$
|
(0.004
|
)
|
|
$
|
0.000
|
$
|
(0.017
|
)
|
|||
Weighted
average number of common shares used in per share
calculation:
|
|||||||
Basic
|
1,075,168,419
|
684,819,898
|
|||||
Fully
diluted
|
9,617,290,165
|
684,819,898
|
|
For the three months ended
|
||||||
March 31, 2008
|
March 31, 2007
|
||||||
|
|
|
|||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
Net
income (loss)
|
$
|
3,593
|
$
|
(11,497
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating activities from
continuing operations:
|
|||||||
Loss
from discontinued operations
|
445
|
2,573
|
|||||
Depreciation
and amortization
|
269
|
279
|
|||||
Loss
(gain) on sale of assets
|
84
|
-
|
|||||
Change
in fair value from revaluation of warrants and embedded conversion
features
|
(5,392
|
)
|
3,508
|
||||
(Gain)
loss on early extinguishment of debt
|
(4
|
)
|
-
|
||||
Stock-based
compensation
|
359
|
891
|
|||||
Interest
(income) expense related to convertible debt
|
(1,157
|
)
|
781
|
||||
Change
in value of life insurance policies
|
-
|
(4
|
)
|
||||
Changes
in operating assets and liabilities:
|
|||||||
|
|||||||
Receivables
|
246
|
(6
|
)
|
||||
Inventories
|
(22
|
)
|
(43
|
)
|
|||
Prepaid
expenses and other current assets
|
26
|
(21
|
)
|
||||
Accounts
payable and accrued expenses
|
(127
|
)
|
(234
|
)
|
|||
Deferred
revenue and other current liabilities
|
16
|
138
|
|||||
Cash
used in operating activities of continuing operations
|
(1,664
|
)
|
(3,635
|
)
|
|||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
Expenditures
for property, plant, and equipment
|
(66
|
)
|
-
|
||||
Loans
repaid from subsidiaries
|
289
|
933
|
|||||
Proceeds
from sale of investments
|
750
|
-
|
|||||
Payment
of purchase price guarantee obligations
|
(14
|
)
|
(2,372
|
)
|
|||
Amounts
received under notes receivable
|
-
|
450
|
|||||
Cash
provided by (used in) investing activities of continuing operations
|
959
|
(989
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
Borrowing
under convertible debt instrument
|
(29
|
)
|
6,678
|
||||
Net
proceeds from exercise of stock options and warrants
|
-
|
9
|
|||||
Cash
(used in) provided by financing activities of continuing operations
|
(29
|
)
|
6,687
|
||||
Net
cash (used in) provided by continuing operations
|
(734
|
)
|
2,063
|
||||
Effect
of exchange rate changes on cash for continuing operations
|
(16
|
)
|
(8
|
)
|
|||
Net
cash used in discontinued operations
|
|||||||
Operating
cash flows
|
(445
|
)
|
(2,573
|
)
|
|||
Investing
cash flows
|
-
|
-
|
|||||
Financing
cash flows
|
-
|
-
|
|||||
Total
cash flows used in discontinued operations
|
(445
|
)
|
(2,573
|
)
|
|||
Net
decrease in cash and cash equivalents
|
(1,195
|
)
|
(518
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
1,415
|
2,813
|
|||||
Cash
and cash equivalents at end of period
|
$
|
220
|
$
|
2,295
|
Supplemental
cash flow information:
|
|||||||
Interest
paid during the period
|
$
|
14
|
$
|
401
|
|||
Unrealized
gain (loss) on marketable securities
|
-
|
(26
|
)
|
||||
Fair
value of shares issued to satisfy purchase price guarantee obligations
|
-
|
12,721
|
|||||
Accretion
of dividends on Series C Convertible Preferred Stock
|
399
|
433
|
|||||
Series
C Convertible Preferred Stock converted to common stock
|
225
|
-
|
|||||
Deemed
dividend on preferred stock conversions
|
21
|
-
|
March 31, 2008
|
|
March 31, 2007
|
|||||
Outstanding
Stock Options
|
116,096,867
|
106,978,761
|
|||||
Outstanding
Warrants
|
504,775,000
|
441,325,000
|
|||||
Convertible
debt
|
4,429,763,074
|
415,001,413
|
|||||
Convertible
preferred stock
|
3,491,486,805
|
607,422,165
|
|||||
|
8,542,121,746
|
1,570,727,339
|
(in
thousands)
|
Micro Paint
Repair
|
12Snap
|
Other
|
Total
|
|||||||||
Three
Months Ended March 31, 2008
|
|||||||||||||
Net
sales
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
Cost
of sales
|
5.7
|
-
|
-
|
5.7
|
|||||||||
Gross
profit
|
(5.7
|
)
|
-
|
-
|
(5.7
|
)
|
|||||||
Sales
and marketing expenses
|
7.1
|
44.8
|
23.7
|
75.6
|
|||||||||
General
and administrative expenses
|
311.3
|
22.7
|
1.4
|
335.4
|
|||||||||
Research
and development costs
|
-
|
24.4
|
3.9
|
28.3
|
|||||||||
Loss
from discontinued operations
|
$
|
(324.1
|
)
|
$
|
(91.9
|
)
|
$
|
(29.0
|
)
|
$
|
(445.0
|
)
|
|
|
|||||||||||||
Three
Months Ended March 31, 2007
|
|||||||||||||
Net
sales
|
$
|
326.0
|
$
|
2,620.7
|
$
|
302.4
|
$
|
3,249.1
|
|||||
Cost
of sales
|
399.9
|
361.6
|
145.4
|
906.9
|
|||||||||
Gross
profit
|
(73.9
|
)
|
2,259.1
|
157.0
|
2,342.2
|
||||||||
|
|||||||||||||
Sales
and marketing expenses
|
315.4
|
1,046.2
|
156.6
|
1,518.2
|
|||||||||
General
and administrative expenses
|
164.7
|
365.7
|
281.9
|
812.3
|
|||||||||
Research
and development costs
|
38.0
|
333.7
|
3.9
|
375.6
|
|||||||||
Loss
from operations of discontinued business
|
($592.0
|
)
|
513.5
|
($285.4
|
)
|
($363.9
|
)
|
||||||
Loss
on disposal of business
|
-
|
(2,467.0
|
)
|
257.1
|
(2,209.9
|
)
|
|||||||
Loss
from discontinued operations
|
($592.0
|
)
|
($1,953.5
|
)
|
($28.3
|
)
|
($2,573.8
|
)
|
August
24,
|
December
29,
|
March
27,
|
August
24,
|
|||||||||||||
|
2006
|
2006
|
2007
|
2007
|
Total
|
|||||||||||
Aggregate
amount
|
$
|
5,000,000
|
$
|
2,500,000
|
$
|
7,458,651
|
$
|
1,775,000
|
$
|
16,733,651
|
||||||
Fees
paid
|
-
|
(270,000
|
)
|
(780,865
|
)
|
(200,000
|
)
|
(1,250,865
|
)
|
|||||||
Accrued
interest on prior obligations paid
|
-
|
-
|
(365,972
|
)
|
-
|
(365,972
|
)
|
|||||||||
Liquidated
damages on prior obligations paid
|
-
|
-
|
(1,311,814
|
)
|
-
|
(1,311,814
|
)
|
|||||||||
Net
proceeds to us
|
$
|
5,000,000
|
$
|
2,230,000
|
$
|
5,000,000
|
$
|
1,575,000
|
$
|
13,805,000
|
||||||
Interest
rate
|
10
|
%
|
10
|
%
|
13
|
%
|
14
|
%
|
||||||||
Maturity
date (2 years)
|
8/24/2008
|
12/29/2008
|
3/27/2009
|
8/24/2009
|
||||||||||||
|
||||||||||||||||
Number
of warrants issued
|
175,000,000
|
42,000,000
|
125,000,000
|
75,000,000
|
417,000,000
|
|||||||||||
Exercise
price of warrants
|
.05
- .25
|
* |
0.06
|
* |
0.04
|
* |
0.02
|
|||||||||
Warrant
exercisable expiration date (5 years)
|
8/24/2011
|
12/29/2011
|
3/24/2012
|
8/24/2012
|
||||||||||||
|
||||||||||||||||
Convertible
into our common stock:
|
||||||||||||||||
conversion
price per share
|
$
|
0.15
|
$
|
0.06
|
$
|
0.05
|
$
|
0.02
|
||||||||
or
percent of lowest closing bid price
|
90
|
%
|
90
|
%
|
90
|
%
|
80
|
%
|
||||||||
of
lowest volume weighted average price preceding conversion
|
30
days
|
30
days
|
30
days
|
10
days
|
||||||||||||
Registration
rights agreement:
|
||||||||||||||||
file
registration with SEC
|
within 30 days
|
within 150 days
|
before 4/12/07
|
30 days of
demand
|
||||||||||||
achieve
effectiveness of registration statement with SEC
|
within 90 days
|
within 90 days
|
5/10/2007
|
90 days of
demand
|
||||||||||||
Liquidated
damages for failure to meet filing or effectiveness
requirements
|
2% of principal,
per month
|
2% of principal,
per month
|
2% of principal,
per month
|
2% of principal,
per month
|
||||||||||||
Security
pledged as collateral
|
substantially
all of our assets
|
substantially all
of our assets
|
substantially all
of our assets
|
substantially all
of our assets
|
* |
all
warrants issued to Yorkville under these Agreements have been subsequently
repriced to $0.02 per share.
|
|
Series C Shares
|
|
Common Shares
|
|
Series C Shares
|
|
||||
Date
issued
|
|
|
Converted
|
|
|
Issued
|
|
|
Outstanding
|
|
11/29/06
|
378
|
6,631,579
|
21,622
|
|||||||
06/19/07
|
245
|
8,781,362
|
21,377
|
|||||||
08/16/07
|
500
|
25,773,196
|
20,877
|
|||||||
10/24/07
|
600
|
45,801,527
|
20,277
|
|||||||
10/31/07
|
180
|
13,740,458
|
20,097
|
|||||||
02/19/08
|
78
|
10,000,000
|
20,019
|
|||||||
03/10/08
|
16
|
2,500,000
|
20,003
|
|||||||
03/17/08
|
32
|
10,000,000
|
19,971
|
|||||||
03/25/08
|
32
|
10,000,000
|
19,939
|
|||||||
2,061
|
133,228,122
|
19,939
|
Restated
|
Restated
|
||||||||||||
Exercise
|
Exercise
|
||||||||||||
Shares
|
Original
|
Price
|
Price
|
||||||||||
Underlying
|
Exercise
|
December
29,
|
August
24,
|
||||||||||
Original
Issue Date
|
Warrant
|
Price
|
2006
(1)
|
2007
(2)
|
|||||||||
February
17, 2006 (3)
|
20,000,000
|
$
|
0.50
|
$
|
0.04
|
$
|
0.02
|
||||||
February
17, 2006 (3)
|
25,000,000
|
$
|
0.40
|
$
|
0.04
|
$
|
0.02
|
||||||
February
17, 2006 (3)
|
30,000,000
|
$
|
0.35
|
$
|
0.04
|
$
|
0.02
|
||||||
August
24, 2006 (3)
|
25,000,000
|
$
|
0.15
|
$
|
0.04
|
$
|
0.02
|
||||||
August
24, 2006 (3)
|
50,000,000
|
$
|
0.25
|
$
|
0.04
|
$
|
0.02
|
||||||
August
24, 2006 (3)
|
50,000,000
|
$
|
0.20
|
$
|
0.04
|
$
|
0.02
|
||||||
August
24, 2006 (3)
|
50,000,000
|
$
|
0.05
|
n/a
|
$
|
0.02
|
|||||||
December
29, 2006 (4)
|
42,000,000
|
$
|
0.06
|
n/a
|
$
|
0.02
|
|||||||
March
27, 2007
|
125,000,000
|
$
|
0.04
|
n/a
|
$
|
0.02
|
|||||||
August
24, 2007
|
75,000,000
|
$
|
0.02
|
n/a
|
n/a
|
||||||||
Total
|
492,000,000
|
(1) |
The
exercise price of certain warrants outstanding as of December 29,
2006 was
repriced as an inducement for Yorkville to enter into a financing
arrangement with us on that date.
|
(2) |
The
exercise price of all warrants outstanding as of August 24, 2007
was
repriced as an inducement for Yorkville to enter into a financing
arrangement with us on that date.
|
(3) |
We
can exercise of the warrants if the closing bid price of our stock
is more
than $0.10 greater than the exercise price of any of the warrants
for 15
consecutive trading days.
|
(4) |
We
can force exercise of the warrants if the closing bid price of our
stock
is more than $0.16 for 10 consecutive trading
days.
|
·
|
Any
case or action of bankruptcy or insolvency commenced by us or any
subsidiary, against us or adjudicated by a court for the benefit
of
creditors;
|
·
|
Any
default in our obligations under a mortgage or debt in excess of
$0.1
million;
|
·
|
Any
cessation in the eligibility of our stock to be quoted on a trading
market;
|
·
|
Failure
to timely file the registration statement covering the shares related
to
the conversion option, or failure to make the registration statement
effective timely (we were in default of this provision as of December
31,
2006, with respect to the Series C convertible preferred stock, the
August
2006 Debenture, and the December 2006
Debenture);
|
·
|
Any
lapse in the effectiveness of the registration statement covering
the
shares related to the conversion option and the
warrants;
|
·
|
Any
failure to deliver certificates within the specified
time;
|
·
|
Any
failure by us to pay in full the amount of cash due pursuant to a
buy-in
or failure to pay any amounts owed on account of an event of default
within 10 days of the date due.
|
·
|
The
convertible securities are convertible into common stock, at the
option of
Yorkville, at any time after the effective
date;
|
·
|
Conversions
can be made in increments and from time to
time;
|
·
|
As
promptly as practicable after any conversion date and subject to
an
effective registration statement or an exemption from registration,
we
shall cause our transfer agent to deliver a certificate representing
the
converted shares, free of any legends and trading restrictions for
the
number of shares converted;
|
·
|
We
will reserve and keep available authorized and unissued registered
shares
available to be issued upon
conversion;
|
·
|
Yorkville
will not be responsible for any transfer taxes relative to issuance
of
shares;
|
·
|
If
we offer, sell or grant stock at an effective per share price less
than
the then-effective conversion price, then the conversion price shall
be
reduced to equal the effective conversion, exchange or purchase price
for
such common stock or common stock
equivalents;
|
·
|
Without
Yorkville’s consent we cannot:
|
–
|
issue
or sell any shares of common stock or preferred stock without
consideration or for consideration per share less than the closing
bid
price immediately prior to its
issuance,
|
–
|
issue
or sell any preferred stock, warrant, option, right, contract, call,
or
other security or instrument granting the holder thereof the right
to
acquire common stock for consideration per share less than the closing
bid
price immediately prior to its
issuance,
|
–
|
enter
into any security instrument granting the holder a security interest
in
any of our assets, or
|
–
|
file
any registration statements on Form
S-8.
|
·
|
Pursuant
to security agreements between us and Yorkville signed in connection
with
the convertible debentures, Yorkville has a security interest in
substantially all of our assets.
|
·
|
Prior
to the default, we were accreting dividends on the Series C convertible
preferred stock, using the effective interest method, through periodic
charges to additional paid in capital. Due to the default status,
we
accreted dividends to the full face value of the Series C convertible
preferred stock during the fourth quarter of
2006.
|
·
|
Prior
to the default, we were accreting the debt discount on the August
2006
Debenture and the December
2006 Debenture,
using the effective interest method, through periodic charges to
interest
expense. Due to the default status, during the fourth quarter of
2006, we
accreted debt discount to the full face value of these secured convertible
debentures.
|
·
|
The
Series C convertible preferred stock is now reported as demand debt
in the
current liabilities section of the balance sheet, pursuant to the
guidance
outlined in FAS 150.
|
·
|
The
secured convertible debentures are reported as debt in the current
liabilities section of the balance sheet rather than long term because
the
debenture is callable as demand debt due to the
default.
|
|
|
Series
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Convertible
|
August
|
December
|
March
|
August
|
|||||||||||||||||
|
Preferred
|
2006
|
2006
|
2007
|
2007
|
|
|
|||||||||||||||
Stock
|
Debenture
|
Debenture
|
Debenture
|
Debenture
|
Other
|
Total
|
||||||||||||||||
Holder
|
|
Yorkville
|
|
|
Yorkville
|
|
|
Yorkville
|
|
|
Yorkville
|
|
|
Yorkville
|
|
|
Other
|
|
|
|
|
|
Instrument
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrants
|
Warrants
|
||||||
Exercise
price
|
$
|
0.02
|
$
|
0.0038
|
$
|
0.0038
|
$
|
0.0038
|
$
|
0.0038
|
$
|
0.01 - $3.45
|
||||||||||
Remaining
term (years)
|
2.88
|
3.40
|
3.75
|
3.99
|
4.40
|
.27
- 2.88
|
||||||||||||||||
Volatility
|
88
|
%
|
93
|
%
|
93
|
%
|
97
|
%
|
97
|
%
|
139%-163%
|
|
||||||||||
Risk-free
rate
|
1.79
|
%
|
1.79
|
%
|
2.46
|
%
|
1.79
|
%
|
2.46
|
%
|
1.38% - 2.46%
|
|
||||||||||
Number
of warrants
|
75,000,000
|
175,000,000
|
42,000,000
|
125,000,000
|
75,000,000
|
12,775,000
|
504,775,000
|
Series
C
|
||||||||||
Convertible
|
August
|
December
|
||||||||
Preferred
|
2006
|
2006
|
||||||||
Stock
|
Debenture
|
Debenture
|
||||||||
Conversion
prices
|
$
|
0.0067
|
$
|
0.0038
|
$
|
0.0038
|
||||
Remaining
terms (years)
|
0.88
|
0.42
|
0.75
|
|||||||
Equivalent
volatility
|
166.40
|
%
|
164.95
|
%
|
161.13
|
%
|
||||
Equivalent
interest-risk adjusted rate
|
10.62
|
%
|
12.86
|
%
|
13.27
|
%
|
||||
Equivalent
credit-risk adjusted yield rate
|
74.60
|
%
|
40.67
|
%
|
39.39
|
%
|
March
31, 2008
|
Face value
|
Fair value
|
Total
|
|||||||
|
(in
thousands)
|
|||||||||
Series
C Convertible Preferred Stock
|
$
|
19,939
|
$
|
19,939
|
||||||
|
||||||||||
August
2006 debenture
|
$
|
5,000
|
$
|
5,000
|
||||||
December
2006 debenture
|
2,500
|
2,500
|
||||||||
March
2007 debenture
|
17,719
|
17,719
|
||||||||
August
2007 debenture
|
4,136
|
4,136
|
||||||||
$
|
7,500
|
$
|
21,855
|
$
|
29,355
|
December
31, 2007
|
Face value
|
Fair value
|
Total
|
|||||||
|
(in
thousands)
|
|||||||||
Series
C Convertible Preferred Stock
|
$
|
20,097
|
$
|
20,097
|
||||||
|
||||||||||
August
2006 debenture
|
$
|
5,000
|
$
|
5,000
|
||||||
December
2006 debenture
|
2,500
|
2,500
|
||||||||
March
2007 debenture
|
18,798
|
18,798
|
||||||||
August
2007 debenture
|
4,401
|
4,401
|
||||||||
$
|
7,500
|
$
|
23,199
|
$
|
30,699
|
|
Series C
Convertible
Preferred
Stock
|
August
2006
Debenture
|
December
2006
Debenture
|
March
2007
Debenture
|
August
2007
Debenture
|
Other
Warrants (1)
|
Other
Preferred
Stock (1)
|
Total
|
|||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||||||
Common
stock warrants
|
$
|
210
|
$
|
1,050
|
$
|
260
|
$
|
788
|
$
|
427
|
13
|
-
|
$
|
2,748
|
|||||||||||
Embedded
conversion feature(2)
|
6,923
|
6,316
|
3,158
|
n/a
|
n/a
|
-
|
54
|
16,451
|
|||||||||||||||||
$
|
7,133
|
$
|
7,366
|
$
|
3,418
|
$
|
788
|
$
|
427
|
$
|
13
|
$
|
54
|
$
|
19,199
|
(1)
|
The
fair values of certain other derivative financial instruments (warrants)
that existed at the time of the issuance of Series C convertible
preferred
stock were reclassified from stockholders’ equity to liabilities when, in
connection with the issuance of Series C convertible preferred stock,
we
no longer controlled our ability to share-settle these instruments.
These
derivative financial instruments had fair values of $14.3 million,
$0.782
million and $0.013 million on February 17, 2006, March 31, 2007,
and March
31, 2008, respectively. The decrease in fair value of these other
derivative financial instruments resulted primarily from a decrease
in our
share price between February 17, 2006, March 31, 2007, and March
31, 2008.
The change in fair value is reported as “Gain on derivative financial
instruments” on the condensed consolidated statement of operations during
each period. These warrants will be reclassified to stockholders’ equity
when we reacquire the ability to share-settle the
instruments.
|
(2)
|
For
the March 2007 and August 2007 debentures, the embedded conversion
feature
is effectively embodied in the fair value of those
instruments.
|
|
Series C
Convertible
Preferred
Stock
|
August
2006
Debenture
|
December
2006
Debenture
|
March
2007
Debenture
|
August
2007
Debenture
|
Other
Warrants
|
|||||||||||||
|
(in
thousands)
|
||||||||||||||||||
Common
stock warrants
|
75,000
|
175,000
|
42,000
|
125,000
|
75,000
|
12,775
|
|||||||||||||
Embedded
conversion feature (1)
|
3,491,487
|
1,315,789
|
657,895
|
1,988,974
|
467,105
|
-
|
|||||||||||||
Total
|
3,566,487
|
1,490,789
|
699,895
|
2,113,974
|
542,105
|
12,775
|
(1)
|
The
terms of the embedded conversion features in the convertible instruments
presented above provide for variable conversion rates that are indexed
to
our trading common stock price. As a result, the number of indexed
shares
is subject to continuous fluctuation. For presentation purposes,
the
number of shares of common stock into which the embedded conversion
feature in the Series C convertible stock was convertible as of March
31,
2008 was calculated as the face value plus assumed dividends (if
declared), divided by 97% of the lowest closing bid price for the
30
trading days preceding March 31, 2008. The number of shares of common
stock into which the embedded conversion feature in the convertible
debentures was convertible as of March 31, 2008 was calculated as
the face
value of each instrument divided by the lower of $0.01 or 50% of
the
average closing market price of our common stock for the 10 days
prior to
March 31, 2008.
|
Three months ended March 31,
|
|||||||
|
2008
|
2007
|
|||||
(in
thousands)
|
|||||||
Series
C Convertible Preferred Stock
|
$
|
1,240
|
$
|
2,828
|
|||
August
2006 debenture
|
2,291
|
2,206
|
|||||
December
2006 debenture
|
964
|
101
|
|||||
March
2007 debenture
|
475
|
(8,640
|
)
|
||||
August
2007 debenture
|
405
|
-
|
|||||
Other
derivative instruments
|
17
|
(3
|
)
|
||||
|
$
|
5,392
|
($
3,508
|
)
|
March 31, 2008
|
December 31, 2007
|
||||||
|
(in
thousands)
|
||||||
Warrants
and embedded conversion features in preferred stock
|
$
|
7,133
|
$
|
8,410
|
|||
Warrants
and embedded conversion features in certain debentures
|
11,999
|
16,136
|
|||||
Other
warrants
|
13
|
26
|
|||||
Fair
value of future payment obligation
|
-
|
-
|
|||||
Special
preference stock of Mobot
|
54
|
79
|
|||||
Total
derivative financial instruments
|
$
|
19,199
|
$
|
24,651
|
Three months ended
|
|||||||
March 31,
|
|||||||
2008
|
2007
|
||||||
Stock
based compensation allocated to:
|
(in
thousands)
|
||||||
Sales
and marketing expense
|
$
|
104
|
$
|
345
|
|||
General
and administrative expense
|
195
|
388
|
|||||
Research
and development expense
|
60
|
157
|
|||||
Stock
based compensation included in continuing operations
|
359
|
891
|
|||||
Stock
based compensation included in discontinued operations
|
142
|
537
|
|||||
Total
stock based compensation expense included in net loss
|
$
|
501
|
$
|
1,428
|
Three months ended March 31,
|
|||||||
2008
|
2007
|
||||||
Employees
|
300,000
|
1,280,000
|
|||||
Officers
|
3,262,500
|
620,000
|
|||||
Directors
|
216,465
|
-
|
|||||
Contractors
|
3,072,155
|
-
|
|||||
Total
|
6,851,120
|
1,900,000
|
Three months ended March 31,
|
|||||||
2008
|
2007
|
||||||
Volatility
|
88.06
|
%
|
115.05
|
%
|
|||
Expected
dividends
|
0
|
0
|
|||||
Expected
term (in years)
|
6.56
|
5.59
|
|||||
Risk-free
rate
|
4.35
|
%
|
4.35
|
%
|
(in
thousands)
|
March 31, 2008
|
December 31, 2007
|
|||||
Raw
materials
|
$
|
68
|
$
|
59
|
|||
Finished
goods
|
251
|
218
|
|||||
Work
in process
|
2
|
1
|
|||||
subtotal
|
$
|
321
|
$
|
278
|
|||
Allowance
for obsolete or slow-moving inventory
|
(100
|
)
|
(80
|
)
|
|||
Total
inventory, net
|
$
|
221
|
$
|
198
|
(in
thousands)
|
March 31, 2008
|
December 31, 2007
|
|||||
Accrued
legal and accounting costs
|
97
|
358
|
|||||
Accruals
for disputed services
|
1,336
|
1,336
|
|||||
Accrued
operating expenses
|
2,193
|
2,184
|
|||||
Payroll
related accruals
|
171
|
121
|
|||||
Accrued
interest & liquidated damages
|
2,204
|
2,016
|
|||||
Total
|
$
|
6,002
|
$
|
6,015
|
|
Three Months Ended March 31,
|
||||||
Net
Sales (1)
:
|
2008
|
2007
|
|||||
(in
thousands)
|
|||||||
United
States
|
$
|
116
|
$
|
178
|
|||
Germany
|
148
|
221
|
|||||
|
$
|
264
|
$
|
399
|
|||
|
|||||||
Net
Loss from Continuing Operations (1)
:
|
|||||||
United
States
|
$
|
4,492
|
($8,779
|
)
|
|||
Germany
|
(454
|
)
|
(145
|
)
|
|||
|
$
|
4,038
|
($
8,924
|
)
|
Identifiable
Assets (1)
|
March 31, 2008
|
December 31, 2007
|
|||||
United States
|
$
|
10,861
|
$
|
12,875
|
|||
Germany
|
465
|
649
|
|||||
$
|
11,326
|
$
|
13,524
|
(1) |
Geographic
reporting excludes the Micro Paint Repair, Mobot, Sponge, 12Snap
and
Telecom Service business units that are reported as discontinued
operations and the corresponding assets and liabilities that are
reported
as Held For Sale.
|
Increase(decrease)
|
|||||||||||||
For the Three Months Ended March 31,
|
2008 to 2007
|
||||||||||||
2008
|
2007
|
$ |
%
|
||||||||||
(in
thousands)
|
|||||||||||||
Hardware
sales - Gavitec
|
$
|
67
|
$
|
149
|
(82
|
)
|
-54.9
|
%
|
|||||
Lavasphere
revenue - Gavitec
|
24
|
11
|
13
|
115.0
|
%
|
||||||||
Legacy
product revenue
|
77
|
133
|
(56
|
)
|
-42.0
|
%
|
|||||||
Patent
licensing
|
39
|
41
|
(2
|
)
|
-6.6
|
%
|
|||||||
Other
revenue
|
57
|
65
|
(8
|
)
|
-12.7
|
%
|
|||||||
Total
revenue
|
$
|
264
|
$
|
399
|
(135
|
)
|
-34.0
|
%
|
|
For the Three Months Ended March 31,
|
||||||
2008
|
2007
|
||||||
|
(in
thousands)
|
||||||
Sales
and marketing
|
$
|
628
|
$
|
858
|
|||
General
and administrative
|
1,206
|
2,460
|
|||||
Research
and development
|
562
|
506
|
|||||
Gain
(loss) on extinguishment of debt
|
(4
|
)
|
-
|
||||
Interest
expense/(income), net
|
(1,171
|
)
|
1,698
|
||||
Gain/(loss)
on sale of assets
|
84
|
9
|
|||||
Gain
from change in fair value of derivative financial
instruments
|
(5,392
|
)
|
3,508
|
||||
Total
operating costs and expenses
|
($4,087
|
)
|
$
|
9,039
|
·
|
Financial
Expert on the Audit Committee.
On February 6, 2008, our Board of Directors appointed George G. O’Leary as
Chairman of the Audit Committee. Mr. O’Leary meets the definition of an
Audit Committee Financial Expert as defined by Section 407 of the
Sarbanes-Oxley Act.
|
·
|
adapting
corporate infrastructure and administrative resources to accommodate
additional customers and future
growth;
|
·
|
developing
products, distribution, marketing, and management for the
broadest-possible market;
|
·
|
broadening
customer technical support
capabilities;
|
·
|
developing
or acquiring new products and associated technical
infrastructure;
|
·
|
developing
additional indirect distribution
partners;
|
·
|
increased
costs from third party service
providers;
|
·
|
improving
data security features; and
|
·
|
legal
fees and settlements associated with litigation and
contingencies.
|
·
|
maintain
and increase our client base;
|
·
|
implement
and successfully execute our business and marketing
strategy;
|
·
|
continue
to develop and upgrade our
products;
|
·
|
continually
update and improve service offerings and
features;
|
·
|
respond
to industry and competitive developments;
and
|
·
|
attract,
retain, and motivate qualified
personnel.
|
·
|
with
a price of less than $5.00 per
share;
|
·
|
that
are not traded on a “recognized” national
exchange;
|
·
|
whose
prices are not quoted on the NASDAQ automated quotation system (NASDAQ
listed stock must still have a price of not less than $5.00 per share);
or
|
·
|
in
issuers with net tangible assets less than $2 million (if the issuer
has
been in continuous operation for at least three years) or $10 million
(if in continuous operation for less than three years), or with average
revenues of less than $6 million for the last three
years.
|
·
|
our
mobile business unit will ever achieve
profitability;
|
·
|
our
current product offerings will not be adversely affected by the focusing
of our resources on the physical-world-to-internet space;
or
|
·
|
the
products we develop will obtain market
acceptance.
|
·
|
We
have contractually limited our liability for such claims adequately
or at
all; or
|
·
|
We
would have sufficient resources to satisfy any liability resulting
from
any such claim.
|
·
|
rapid
technological change;
|
·
|
changes
in user and customer requirements and
preferences;
|
·
|
frequent
new product and service introductions embodying new technologies;
and
|
·
|
the
emergence of new industry standards and practices that could render
proprietary technology and hardware and software infrastructure
obsolete.
|
·
|
enhance
and improve the responsiveness and functionality of our products
and
services;
|
·
|
license
or develop technologies useful in our business on a timely
basis;
|
·
|
enhance
our existing services, and develop new services and technologies
that
address the increasingly sophisticated and varied needs of our prospective
or current customers; and
|
·
|
respond
to technological advances and emerging industry standards and practices
on
a cost-effective and timely basis.
|
31.1
|
Certifications
of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
31.2
|
Certifications
of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
NEOMEDIA TECHNOLOGIES, INC.
|
|
(Registrant)
|
|
Dated: May
15, 2008
|
/s/ Frank J. Pazera
|
Frank J. Pazera
|
|
Chief Financial Officer & Principal Accounting
Officer
|