ITEM 1.
DESCRIPTION OF BUSINESS.
Overview
We are a provider of green technology solutions, managing the equipment disposition needs of our government and commercial clients by buying, reselling, or recycling, in an environmentally and regulatory compliant manner, computers and other technology hardware. By delivering cost effective asset management solutions and capitalizing on our knowledge and relationships in the industry, we believe that we are able to maximize the technology dollars of our clients.
Our focus is on executing and managing secure, compliant end-of-life information technology (“IT”) asset management and disposition services. As part of our services, we provide a comprehensive asset management system or integrate with our clients existing asset management systems with the goal of providing clear audit trail of the asset and enabling our clients the ability to assess shipping or disposal status, take inventory and generate settlement reports for every returned asset. Additionally, we are focused on partnering with veterans. Either through providing employment opportunities directly or through our continuing support of Work Vessels For Veterans.
The company maintains its principal office in Fair Lawn, New Jersey and opened a second location in Tampa Florida in fiscal 2013.
Business Strategy
Our business strategy is based upon leveraging our experience and expanding our relationships and resources and includes:
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expanding our sources of public and private technology equipment;
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expanding our resources for environmentally compliant recycling and reuse of equipment,
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expanding our geographical footprint, and
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further penetrating the large global market for the resale of useful equipment.
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We are giving special attention to federal, state and local government and public sector healthcare agencies as a source of legacy IT product. As a result of our GSA schedule award from the General Services Administration, we are approved to service all agencies of the government, including federal, state and local government, healthcare, education and Homeland Security. For the overall management of legacy IT equipment, we have a variety of programs including RecycleToday - immediate environmentally compliant downstream disposition - or RecycleTomorrow™ - advanced budgeting for the disposal of equipment in conjunction with new product purchases that will eventually become obsolete from one of our partners, either original equipment manufacturers (OEMs) or value-added resellers (VARs).
Growth and Acquisition Strategy
We expect that our ability to grow our company will be accelerated by expanding geographically, either organically or through acquisition. We believe we can grow through synergistic acquisitions of similar high service companies with positions in various geographic and product markets which we believe may be advantageous to us. Our internal research determined that our industry is primarily populated by small, regional companies, many with strong relationships and reputations but without the critical mass, resources or financial market expertise to maximize on their potential or create an exit strategy for their owners. It is our intent to seek to acquire one or more complementary companies in our space. We believe that there are several potential acquisition targets in the end-of-life IT asset management recycling business which would be synergistic and broaden our overall competiveness. However, as we do not have any agreements or understandings with any third parties regarding the terms and conditions of any future acquisitions or leases for additional warehouse space in other geographies, there are no assurances we will be successful in implementing this growth strategy. In addition, in all likelihood we will need to raise additional capital to fund this strategy, and as discussed elsewhere herein, our ability to access the capital markets is limited.
The Industry
We believe that the disposal of aging IT assets is becoming increasingly problematic. In 2010 the number of installed PCs worldwide had surpassed 1.4 billion units and was projected to eclipse 2.3 billion units in 2015, according to Gartner, Inc. Gartner, Inc. analysts estimate the worldwide installed base of personal computers (“PCs”) is growing just over 23% annually for mobile PCs in the home. According to Kleiner Perkins Caufield Byers the installed base of the PC is expected to remain static through 2015 while the growth in the installed base of tablets will increase from under 100 million in 2011 to over 700 million in 2015 and the installed base of smartphones will increase from over 600 million in 2011 to over 2.2 billion in 2015. Each PC, tablet, smartphone, server, storage system, printer or IT device retired can pose a data security risk and potential environmental hazard. If not processed properly for disposal, this increasing stream of electronic waste, or E-waste, can have a detrimental impact on the environment. E-waste has been identified by the U.S. Environmental Protection Agency (EPA) as the fastest-growing and potentially most hazardous waste stream in the world. Today, we believe that organizations are looking for solutions to divert this waste from the common waste stream and ensure that the hazardous materials that are resident in electronics do not end up in landfills.
In a recent IDC research report dated June 10, 2010 entitled “
ITAD Trends and Outlook
” analysts indicate that leading service providers in the area of information technology asset disposition, or ITAD, are focusing on data center consolidations. The report also states that globally there has been a 30% increase in European collection and processing of E-waste in 2009 based on the Waste Electrical and Electronic Equipment (WEEE) Directive. These analysts also believe the rise in volumes of legacy IT is made possible by:
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proliferation of collection points and expanding ITAD sector;
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growing consumer awareness of recycling issues; and
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expanding “best” practices into “common” practices made evident by the requirement by more enterprise organizations to perform data destruction services.
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The report notes Fortune 1000 companies are increasingly searching for global solution and face very little offerings. Finally, the report noted that one of the biggest challenges that E-waste service providers face is in customer education more than even the competition against each other.
Products and Services
Our focus is on executing and managing secure, compliant end-of-life IT asset management and disposition services. As part of our services, our reporting systems provide a clear audit trail of the asset detailing disposal status, remarketing inventory and settlement reports for every remarketable asset.
We offer a full suite of ITAD services. Our products and services revolve around:
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government mandated IT redeployment Producer Takeback Trade-In and Asset Recovery and Remarketing Programs;
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regulatory compliant E-waste processing;
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global logistics management and secure disposal transportation; and
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secure data erasure and destruction.
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We believe that our
RecycleTomorrow™
is a cornerstone of our product offerings. The program was created as a means to facilitate the bundling of ITAD services on new devices. This is a stock-keeping unit, or SKU, based service that our clients can resell alongside any new equipment sales to their clients. For many organizations, we believe that this program addresses the various funding and budgetary hurdles of achieving regulatory compliance at a reduced recycling services cost. We believe that one inherent advantage of the RecycleTomorrow program is the capability of essentially capitalizing the expense of disposition requirements into the acquisition cost of the new IT asset.
We also provide a range of services that support our customer’s redeployment/remarketing programs, offering a second life to IT equipment that may otherwise be discarded. We believe that extending a product’s lifecycle not only promotes sustainability while reducing total cost of ownership, but contributes toward the basic tenets of waste reduction: reduce, re-use and recycle. As a means of reducing the total project cost and highest return on investment to our customers for their ITAD initiative, we can remarket these assets. We offer clients a number of remarketing options both domestically and internationally. Our services include conducting a detailed analysis of retired equipment, customized business intelligence-based reporting and recommending a course of action. Based upon our experience, we believe we have the unique ability to quickly remarket technology, utilizing our trading network to quickly access buyers and identify the best remarketing opportunities for equipment.
Logistics and transportation services are a significant part of the IT asset disposition process which we provide to our customers. Our customized solutions include:
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secure web-based E-waste pickup request tool;
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onsite packaging and removal;
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data erasure or destruction;
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onsite per system software “padlock” to ensure safe transport of customer data;
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IT asset serial number scanning;
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dedicated transport with optional global positioning satellite (GPS) tracking; and
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armored truck transport.
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We offer data security services focused on proper data erasure and destruction techniques including:
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Data Erasure
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Data erasure is done in accordance with U.S. Department of Defense 5220.22M standards at our certified facilities. We believe that data security is the most important aspect of IT asset disposition. To ensure that hard drives are properly sanitized and erased, we have assembled what we believe to be a technologically advanced data erasure system. Our hard drive erasure process is designed to ensure safety through 100% data eradication. We erase hard drives while they are either still in the system or out of the system, on our commercial erasure stations. Our capabilities range from single to bulk erasure schemes utilizing our multiport test systems. All hard drives are system audited by us for erasure, with random samples removed for stand-alone audits. Additionally, we conduct periodic random sampling to ensure proper hard drive erasure. Once we fully erase a hard drive and it passes our inspection, remarketing may be an option to regain residual value for the system, utilizing our global trading network to provide customers with the highest possible return of their assets. If remarketing is not an option, we will ensure that the drives are properly destroyed through our destruction process.
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Destruction
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When erasure of hard drives and data devices is not secure enough or hard drive has an error making data erasure incomplete, we offer data protection by destroying and shredding disk drives in accordance with National Security Agency (NSA) standards. Hard drive shredding usually occurs when optimal data security is a necessity and a company maintains a zero tolerance for risk. Drives designated for destruction are shredded by us into small particles. The shredded material is then properly recycled in an environmentally friendly manner.
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On-Site Destruction.
On-site media destruction is an option which we believe provides the ultimate data security. With our on-site media destruction services, a truck-mounted mobile shredder is dispatched directly to a facility so that data storage devices never leave a property, ensuring complete control and protection. We follow the same procedures used with off-site hard drive destruction, including shredding the devices into small particles meeting NSA standards and environmentally friendly recycling of the processed particles.
Our Customers
Our mission is to partner with our customers such that they are able to offer “green” initiatives to demonstrate a clear commitment to the community by addressing the environmental, data and even financial impact of the full technology lifecycle. Our customers include:
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the public sector including federal, state and local government agencies and healthcare providers;
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original equipment manufacturers (OEMs);
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value added resellers (VARs) and system integrators; and
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Commercial enterprises and end users.
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In 2002, we were granted our initial General Services Administration (GSA) Schedule 70 which assists us in selling services to U.S. government agencies. GSA contracts provide government agencies, prime contractors, and state and local governments with an efficient and cost-effective means for buying commercial IT products and services. GSA purchasers may place unlimited orders for products under GSA contracts. In addition, GSA provides access to state and local government agencies to utilize GSA schedules. The terms of these schedules are five years, and our current schedule was renewed in 2012. We do not believe the changes at the GSA will have a negative impact on our Company. As a result of the services provided to date, since 2002 we have received U.S. Congressional Recommendations for IT asset management, forensic data scrub (Department of Defense 5220.22M certified), trade-in (Exchange/Sale), donation processing, and disposal services solutions. We sometimes act as a subcontractor for a prime contractor that sells new equipment to government agencies. We have also entered into task order contracts with Federal Government agencies. Task order contracts specify the period of performance, including the number of option periods, and specify the quantity and scope of products and services the Federal agency will acquire under the contract. After award of the master contract, the Federal agency will issue individual task orders, as needed, to address specific defined requirements. Task orders typically include a statement of work and/or a bill of materials that define the services or products the contractor will be obligated to deliver.
We offer our clients several types of contracts to meet their specific needs, including contracts which are for fixed fee-based services for management and recycling of legacy IT such as inventorying, data wiping, logistics, including removal and shipping from client, but do not guarantee a volume, or contracts that are specific to a particular type of product that will be decommissioned by our client over a period of time which anticipate a specified volume of legacy IT equipment, or a combination of these. Generally, the terms of these contracts are for one year with automatic renewals, but may be cancelled by either party upon notice.
During fiscal 2013 two customers represented approximately 22% of our net sales and in fiscal 2012, two customers represented approximately 34% of our net sales.
Regulation
Our operations are located in New Jersey. Companies that are strictly refurbishing electronics for resale or donation do not need an approval from the New Jersey Department of Environmental Protection to operate; however, if the company will be storing any unusable electronics, the company is regulated as a universal waste handler. We are subject to regulation by the State of New Jersey as a small quantity handler of consumer electronic waste, including batteries.
In June 2002, the New Jersey Department of Environmental Protection adopted an amendment to the Universal Waste Rule (UWR) including consumer electronics as a universal waste. Consumer electronics includes the components and sub-assemblies that collectively make up the electronic products and may, when individually broken down, include batteries, mercury switches, capacitors containing polychlorinated biphenyl, or PCBs, cadmium plated parts and lead or cadmium containing plastics. Under the UWR, a generator of consumer electronics is regulated as a small or large quantity handler. A small quantity handler of universal waste accumulates less than 5,000 kilograms (11,000 pounds) of universal waste at any given time. This includes all types of universal waste being generated at the site. A large quantity handler of universal waste accumulates greater than 5,000 kilograms of universal waste at any given time. Demanufacturers of consumer electronics are regulated in New Jersey as Class D recycling centers and are required to obtain a Class D Recycling Center Approval. Large quantity universal waste handlers may not demanufacture electronics and small quantity universal waste handlers are allowed to demanufacture electronics without obtaining a Class D Recycling Center Approval; however, processing or treating the components, for example by crushing or shredding, is prohibited. In July 2012 we filed for a Class D permit in New Jersey to enable us to expand our demanufacturing processes, which was approved in November 2012.
Although there is no standard regulation on the federal level, we have elected to voluntarily pursue the EPA sanctions Recycling Industry Operating Standard (RIOS) responsible recycling R2 practices as well as ISO 14001:2004 Environmental Management System certification for responsible electronics recyclers which are administered by the ISRI Services Corporation and the International Organization for Standardization (ISO), respectively. We have also completed our e-Stewards Certification from the Basel Action Network and ISO 9001 Quality Management Certification. These are defined as best practices for responsible electronics recycling and environmental management that incorporate EPA-supported requirements and the quality, environmental, and health and safety (QEH&S) management system standard for the recycling industry. In this vein, in October 2011 we were awarded certifications for RIOS responsible recycling R2 practices as well as ISO 14001:2004 and in June 2012 we were awarded the e-Stewards and ISO 9001 certifications. We believe these industry certifications will assist us in building awareness of the benefits of our services and differentiate us from many competitors in our industry.
Our Employees
As of September 10, 2013, we employed 37 full-time employees, one part time employee and approximately 13 contract personnel. We maintain a satisfactory working relationship with our employees.
In March 2011 we successfully concluded negotiations with the United Electrical, Radio and Machine Workers of America union on a collective bargaining agreement. The agreement does not apply to any of our employees. The agreement covers employees who were employed by us at the time of the initial union election, and the terms of the agreement do not apply to the balance of our current, or any of our future employees, in accordance with the terms negotiated.
Access Direct, Inc., our predecessor company, was formed in September 1992 under the laws of the State of New Jersey. We were formed in October 2000 under the laws of the State of Delaware for the purposes of redomiciling Access Direct to Delaware. In October 2000, we entered into a merger with Access Direct and its stockholders pursuant to which the two entities were merged with our company being the survivor.
ITEM 1.A
RISK FACTORS.
Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.
Risks Related to Our Business
OUR AUDITORS HAVE RAISED SUBSTANTIAL DOUBTS AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN
.
For fiscal 2013 we reported a net loss of approximately $1,321,000 and net cash used in operating activities of approximately $725,000. At June 30, 2013 we had an accumulated deficit of approximately $8,874,000. The report of our independent registered public accounting firm on our financial statements for the year ended June 30, 2013 contains an explanatory paragraph regarding our ability to continue as a going concern based upon the loss for the current year, the accumulated deficit and the net cash used in operating activities. Our financial statements have been prepared assuming we will continue as a going concern. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that we will continue to incur losses in future periods until we are successful in significantly increasing our sales. There are no assurances that we will be able to raise our sales to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.
WE HAVE A HISTORY OF LOSSES, OUR NET SALES DECLINED IN FISCAL 2013 FROM FISCAL 2012, CASH FLOW HAS DRAMATICALLY DECREASED AND THERE ARE NO ASSURANCES WE WILL EVER REPORT PROFITABLE OPERATIONS.
Our net sales for fiscal 2013 declined approximately 30% from fiscal 2012, while our margins and operating expenses remained relatively constant. For fiscal years 2013 and 2012, we reported net losses of $1,321,411 and $509,847, respectively. At June 30, 2013, we had an accumulated deficit of approximately $8.9 million. Cash used in operations in fiscal 2013 was $725,000 as compared to $108,000 in fiscal 2012. We believe we have the staff, systems and infrastructure in place to scale the business but we need to grow sales to eliminate our losses. However, we operate in a very competitive environment and there are no assurances we will be able to increase our net sales in future periods. Until such time as we are able to increase our net sales to a level which supports our operating expenses, of which there are no assurances, we will continue to deplete our cash and report losses.
WE MAY NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY TO GROW OUR COMPANY AND SUSTAIN OUR BUSINESS COULD BE IN JEOPARDY.
At June 30, 2013 we had working capital of $10,271, a decline of 99% from June 30, 2012. In addition, our cash at June 30, 2013 declined 87% from June 30, 2012. The decline in our working capital is primarily related to the decline in our net sales in fiscal 2013. Capital is needed for the effective expansion of our business, as well as to provide sufficient working capital to sustain our current operations as we seek to increase our net sales. In addition, we have $500,000 principal amount 12% convertible promissory notes which are due in December 2014. Our future capital requirements, however, depend on a number of factors, including our ability to internally grow our sales, manage our business and control our expenses. In order to fully implement our growth strategy, we will need to raise additional capital. We do not have any firm commitments to provide any additional capital and we anticipate that we will have certain difficulties raising capital given the illiquid nature of an investment in our company, our recent decline in net sales and our history of losses. Accordingly, we cannot assure you that additional working capital will be available to us upon terms acceptable to us, if at all. We believe that we will need to raise capital to fund our existing operating expenses for the next 12 months, absent a significant increase in our net sales of which there are no assurances. If we are unable to obtain additional capital or increase sales, we will have to reduce our operating expenses that could impact our ability to successfully compete or execute on our strategy.
SUBSTANTIALLY ALL OF OUR INVENTORY IS ON CONSIGNMENT AND THERE ARE NO ASSURANCES IT WILL BE SOLD FOR THE CARRYING AMOUNT.
At June 30, 2013 we had $267,763 of inventory recorded as an asset on our audited balance sheet. Of this amount, approximately $236,000, or 88%, represents the carrying value of used equipment on consignment at a customer’s facility. We have already paid our vendor from whom we purchased this used equipment for approximately 70% the costs of the inventory, and we owe this vendor the remaining amount. While we retain title to this equipment and reasonably believe our customer will be able to resell the inventory for at least our carrying value, this used equipment has a limited resale market and we are unable to predict when, or at what price, this used equipment will ultimately be resold. Our ability to recoup our carrying costs of this inventory is dependent upon our customer paying us for this consigned inventory. If our customer is unable to resell all or substantially all of this consigned inventory, our ability to record a financial benefit from this transaction will be in jeopardy.
WE ARE SUBJECT TO RISKS THAT OUR INVENTORY MAY DECLINE IN VALUE BEFORE WE SELL IT OR THAT WE MAY NOT BE ABLE TO SELL THE INVENTORY AT THE PRICES WE ANTICIPATE.
We purchase and warehouse inventory, most of which is excess, used and off-lease, "as-is" and refurbished mainframes and associated peripherals, midrange computers and personal computer (PC) equipment and related IT products. As a result, we assume inventory risks and price erosion risks for these products. These risks are especially significant because computer equipment generally is characterized by rapid technological change and obsolescence. These changes affect the market for refurbished or excess inventory equipment.
Generally, our inventory holding period ranged from 30 to 90 days during fiscal 2013 and fiscal 2012, except from December 2012 through March 2013 when it reached 150 days due to our management system implementation.
Our success will depend on our ability to purchase inventory at attractive prices relative to its resale value and our ability to turn our inventory rapidly through sales. If we pay too much or hold inventory too long, we may be forced to sell our inventory at a discount or at a loss or write down its value, and our business could be materially adversely affected.
In addition, fluctuations in the inventory holding periods and prices of the inventory impact our gross profit margins. Our gross profit margin in fiscals 2013 and 2012 were 46%. There may be fluctuations in our margins, which would impact our results of operations in future periods.
DECLINING PRICES FOR NEW COMPUTER EQUIPMENT COULD REDUCE DEMAND FOR OUR PRODUCTS.
The cost of new computer equipment, particularly personal computers, has declined dramatically in recent years. As the price of new computer products declines, consumers may be less likely to purchase “as-is” or refurbished computer equipment unless there is a substantial discount to the price of the new equipment. Accordingly, the price at which we sell "as-is" equipment to remarketers can decline. As prices of new products continue to decrease, our revenue, profit margins and earnings could be adversely affected. There can be no assurance that we will be able to maintain a sufficient pricing differential between new products and our "as-is" or refurbished products to avoid adversely affecting our revenues, profit margins and earnings.
THE INDUSTRY IN WHICH WE COMPETE IN IS HIGHLY COMPETITIVE.
We face intense competition in each area of our business, and many of our competitors have greater resources and a more established market position than we have. Our primary competitors include:
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privately and publicly owned businesses such as Redemtech, Intechra and Solectron that offer asset management and end-of-life product refurbishment and remarketing services; and
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major manufacturers of computer equipment such as, Dell Computer Corporation, Hewlett Packard and IBM, each of which offer "as-is", refurbished and new equipment through direct sales personnel, through their websites and direct e-mail broadcast campaigns.
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Most of our competitors have larger customer or user bases, greater brand name recognition and significantly greater financial, marketing and other resources than we do. Many of these competitors already have an established brand name and can devote substantially more resources to increasing brand name recognition and product acquisition than we can. Our competitors may be able to secure products from sources of supply on more favorable terms, fulfill customer orders more efficiently or adopt more aggressive price or inventory availability policies than we can. We also anticipate that competition will intensify if prices for new computers continue to decrease. There are no assurances we will ever effectively compete in our industry.
IF WE ARE UNABLE TO ATTRACT AND RETAIN SUFFICIENT PERSONNEL, OUR ABILITY TO OPERATE AND GROW OUR COMPANY WILL BE IN JEOPARDY.
We believe that there is, and will continue to be, intense competition for qualified personnel in our industry, and there is no assurance that we will be able to attract or retain the personnel necessary for the management and development of our business. Turnover can also create distractions as we search for replacement personnel, which may result in significant recruiting, relocation, training and other costs, and can cause operational inefficiencies as replacement personnel become familiar with our business and operations. The inability to attract or retain employees currently or in the future may have a material adverse effect on our business, financial condition and results of operations.
ANY POTENTIAL FUTURE ACQUISITIONS MAY SUBJECT US TO SIGNIFICANT RISKS, ANY OF WHICH MAY HARM OUR BUSINESS.
Our long-term strategy includes identifying and acquiring companies in our industry with operations that complement ours. Acquisitions would involve a number of risks and present financial, managerial and operational challenges, including:
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diversion of management attention from running our existing business,
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increased expenses including legal, administrative and compensation expenses related to newly hired employees,
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increased costs to integrate the technology, personnel, customer base and business practices of the acquired company with our own,
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potential exposure to material liabilities not discovered in the due diligence process,
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potential adverse effects on our reported operating results due to possible write-down of goodwill and other intangible assets associated with acquisitions, and
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acquisition financing may not be available on reasonable terms or at all.
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Any acquired business, technology, service or product may significantly under-perform relative to our expectations, and we may not achieve the benefits we expect from our acquisitions. For all these reasons, our pursuit of an acquisition may cause our actual results to differ materially from those anticipated.
CERTAIN OF OUR OUTSTANDING WARRANTS CONTAIN CASHLESS EXERCISE PROVISIONS WHICH MEANS WE WILL NOT RECEIVE ANY CASH PROCEEDS UPON THEIR EXERCISE.
At June 30, 2013 we have common stock warrants outstanding to purchase an aggregate of 794,187 shares of our common stock with exercise prices of $0.45 and $0.75 per share which are exercisable on a cashless basis. This means that the holders, rather than paying the exercise price in cash, may surrender a number of warrants equal to the exercise price of the warrants being exercised. It is possible that the warrant holders will utilize the cashless exercise feature which will deprive us of additional capital which might otherwise be obtained if the warrants did not contain a cashless feature.
OUR COMMON STOCK IS CURRENTLY QUOTED ON THE OTC BULLETIN BOARD, BUT TRADING IN THE SECURITIES IS LIMITED
.
Currently, our common stock is quoted on the OTC Bulletin Board. The market for our common stock is extremely limited and there are no assurances an active market for either security will ever develop.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.
Provisions of our certificate of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of the Delaware General Corporation Law also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation's disinterested stockholders.
Further, our certificate of incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors in their sole discretion. Our board of directors may, without stockholder approval, issue series of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.
THE TRADABILITY OF OUR COMMON STOCK IS LIMITED UNDER THE PENNY STOCK REGULATIONS WHICH MAY CAUSE THE HOLDERS OF OUR COMMON STOCK DIFFICULTY SHOULD THEY WISH TO SELL THE SHARES.
Because the quoted price of our common stock is less than $5.00 per share and we do not meet certain other exemptions, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.
SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities and this limited liquidity will make it more difficult for an investor to sell his shares of our common stock in the secondary market should the investor wish to liquidate the investment. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.
WE HAVE OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE NOTES TO PURCHASE APPROXIMATELY 34% OF OUR CURRENTLY OUTSTANDING COMMON STOCK.
At September 11, 2013 we had 36,670,238 shares of common stock outstanding together with outstanding options and warrants to purchase an aggregate of 10,635,881 shares of common stock at exercise prices of between $0.03 and $0.75 per share, as well as 12% convertible promissory notes which, including accrued interest, are presently convertible into an aggregate of 1,765,848 shares of our common stock. In the event of the exercise of the warrants and/or options, or the conversion of the notes, the number of our outstanding common stock will increase by up to approximately 34%, which will have a dilutive effect on our existing stockholders.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
Not applicable to a smaller reporting company.
ITEM 2.
PROPERTIES.
Our principal executive offices are located in approximately 48,000 square feet of commercial and office space. We lease approximately 27,000 square feet of these facilities from an unrelated third party for approximately $192,000 per year base rent plus common area maintenance expenses, insurance and real estate taxes under an agreement expiring in March 2018. In May 2011 we leased an additional approximately 21,000 square feet in adjacent premises from the same unrelated third party for an additional approximately $115,000 per year base rent plus common area maintenance expenses, insurance and real estate taxes under a lease agreement expiring in October 2013. On November 15, 2011 we entered into the Fifth Amendment to Modified Net Lease Agreement with the unaffiliated third party from whom we lease our principal executive offices. Under the terms of this lease agreement, the rent for a portion of these facilities which comprises approximately 21,000 square feet was increased by $0.35 per square foot per month and the term for that portion of the facilities was extended from April 30, 2012 to October 31, 2012. On September 13, 2012 we entered into the Sixth Amendment to Modified Net Lease Agreement with the unaffiliated third party from whom we lease our principal executive offices. Under the terms of this lease agreement, the rent for a portion of these facilities which comprises approximately 21,000 square feet remained the same and the term for that portion of the facilities was extended from October 31, 2012 to April 30, 2013. On December 15, 2012 we entered into the Seventh Amendment to Modified Net Lease Agreement with the unaffiliated third party from whom we lease our principal executive offices. Under the terms of this lease agreement, the rent for a portion of these facilities which comprises approximately 21,000 square feet remained the same and the term for that portion of the facilities was extended from April 30, 2013 to October 31, 2013. We plan to consolidate the two New Jersey warehouses and not renew this lease.
We lease approximately 30,000 square feet of warehouse space in Tampa, Florida from an unrelated third party for approximately $101,000 per year base rent with annual 3% escalations plus sales tax, common area maintenance expenses, insurance and real estate taxes under an agreement expiring in March 2016.
ITEM 3.
LEGAL PROCEEDINGS.
We are not a party to any pending or threatened litigation.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable to our company.
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
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Our common stock has been quoted on the OTC Bulletin Board under the symbol “ANYI” since December 2011. The reported high and low last sale prices for the common stock are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions. The historical share prices in this table have been adjusted to give effect to the reverse stock split of our common stock in June 2012.
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High
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Low
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2012
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Second quarter ended December 31, 2011
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$0.450
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$0.330
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Third quarter ended March 31, 2012
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$0.750
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$0.072
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Fourth quarter ended June 30, 2012
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$0.295
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$0.072
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2013
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First quarter ended September 30, 2012
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$0.090
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$0.022
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Second quarter ended December 31, 2012
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$0.050
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$0.011
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Third quarter ended March 31, 2013
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$0.051
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$0.011
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Fourth quarter ended June 30, 2013
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$0.094
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$0.030
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The last sale price of our common stock as reported on the OTC Bulletin Board on September 10, 2013 was $0.045 per share. As of September 10, 2013, there were approximately 34 record owners of our common stock.
Dividend Policy
We have never paid cash dividends on our common stock. Under Delaware law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Delaware statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our company, computed in accordance with the relevant Delaware statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits and dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.
Recent Sales of Unregistered Securities
On September l8,2013 our board of directors approved the issuance of an aggregate of 553,875 shares of our common stock valued at $22,155 to our three executive officers as payment of fiscal 2013 bonuses due each of them under the terms of their employment agreements. The shares, which were issued under our 2010 Equity Compensation Plan, were valued at fair market value and issued in lieu of a cash bonus. The recipients were accredited investors and the issuances were exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
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ITEM 6.
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SELECTED FINANCIAL DATA.
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Not applicable to a smaller reporting company.
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ITEM 7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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The following discussion of our financial condition and results of operation
s for fiscal 2013 and fiscal 2012 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors, Cautionary Statement Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
We are a provider of green technology solutions, managing the equipment disposition needs of our government and commercial clients by buying, reselling, or recycling, in an environmentally and regulatory compliant manner, computers and other technology hardware. We operate in one segment. We generate revenues from:
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fees for logistics, inventory management and data destruction services,
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sales of used equipment to wholesalers providing a second life to IT equipment that may otherwise be discarded, and
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sales to companies that specialize in removing recyclable or remarketable parts of electronics from equipment that no longer has a usable life.
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Our industry is relatively new and has grown during the past few years. We believe that this growth has been driven by both the increasing rate of changes in IT which accelerates the rate at which IT equipment becomes obsolete, the expansion of the remarketing and demanufacturing segments of our industry and a general increased awareness of the “green” aspect of information technology asset disposition, or ITAD.
We expect the growth of our industry, as well as the growth of our company, to continue in the future. Our business strategy is based upon leveraging our experience and building on our existing business model by expanding our relationships and resources and includes:
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expanding our sources of technology equipment;
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expanding our resources for environmentally compliant recycling, reuse and data storage and destruction;
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expanding our geographical footprint;
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expanding the demanufacturing and recycling services we provide; and
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further penetrating the large global market for the resale of useful equipment.
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Our business model is to grow our company both organically and through acquisitions of similar or complementary businesses. To support this expected growth, during fiscal 2011 we leased space which effectively doubled our warehouse space to enable us to store inventory in the local market. In an effort to further accelerate our organic growth, we are investing in our relationships with our existing partners through training sessions and other efforts to increase awareness and educate their organizations of the value of practicing sound asset recovery. During fiscal 2012 we realized our infrastructure, including warehouse configuration, product flow, processes and systems, limited our ability to grow while maintaining our profit margins. As such, in fiscal 2013 we redesigned the product flow and processes in both of our New Jersey facilities and implemented a new management system in our main warehouse in New Jersey. We also realized the optimal configuration for a facility, which we utilized in the selection of leased space in Tampa, FL. The facility in Tampa is designed with more space to move product freely from one point to the other, it has more receiving and shipping doors to keep a good flow without a bottleneck and it went live on our new management system when it opened in March 2013. In the second quarter of fiscal 2014 we will consolidate our two warehouses in New Jersey to streamline processes, reduce operating costs and realizes efficiencies. We believe the new infrastructure, processes and system enable us to be scalable and have a repeatable solution to grow both organically and through acquisitions.
As the e-waste industry is not a mature industry, federal regulations have not yet been adopted and companies are left to their own accord to adopt best practices. We have decided that a differentiator in our industry will be companies that comply with standards that reflect policies that closely monitor where e-waste and scrap is sent after leaving a recycling facility. In this vein, in October 2011 we were awarded certifications for the Recycling Industry Operating Standard (RIOS) responsible recycling R2 practices as well as ISO 14001:2004 Environmental Management System for responsible electronics recyclers which are administered by the ISRI Services Corporation and the International Organization for Standardization (ISO). Additionally, in June 2012, we were awarded the ISO 9001 Quality Management Certification as well as the e-Stewards Certification from the Basel Action Network. We believe these industry certifications will assist us in building awareness of the benefits of our services. We have a zero landfill policy and prioritize resale over other potential means of recycling.
In fiscal 2013 we expanded our footprint by opening a facility in Tampa, FL. We expect to further expand into geographical areas where we have an existing customer base to expand our footprint and our business presence. In order for us to continue to grow, we will need to raise additional capital to fund an expansion of our operations. We also expect to seek to acquire additional companies whose operations are complementary to ours, including companies with similar business models located in different geographical areas, and companies that offer different services, such as demanufacturers. Based upon our internal analysis of our industry and our competitors, we believe that there are a number of potential target companies, but there are no assurances our beliefs are correct or that we will ever close any acquisitions.
The biggest challenges we are facing in our organic growth efforts are our ability to sustain growth and increase sales, our access to sufficient qualified employees, extensive competition and sufficient capital to support our efforts, all of which are necessary to support the expansion of our business. We have hired additional management personnel and are using a staffing company to provide qualified personnel to fill our technical and labor needs. This approach allows us to control our overhead expenses. While we are located in an area with a good supply of qualified candidates, the process, however, of evaluating the candidates is time intensive for our management and maintaining a sufficiently qualified workforce will continue to be a challenge for us in the near future. We have implemented a new, fully automated, management system to support our operations. During fiscal 2012 we invested approximately $90,000 on this new system. We went live on the new system in September 2012 in our main warehouse in NJ, went live in Tampa in the fourth quarter of fiscal 2013 and went live in the second NJ warehouse in the first quarter of fiscal 2014. This new system provides operating and reporting efficiencies to enable us to grow our business while minimizing the need to expand warehouse space and personnel.
During fiscal 2013, however, our net sales declined by 30% from fiscal 2012, while our gross profit margins and operating expenses remained relatively constant. This decline in net sales has adversely impacted our working capital, which declined 99% between the respective periods. While we do not have any commitments for capital expenditures, in order for us to sustain our current operations and grow our business we will need to raise additional working capital. As a small public company with a limited market for our common stock, we face a number of challenges in accessing the capital markets, and the number of sources to raise working capital are limited. During fiscal 2013 we explored a number of options to provide additional capital to our company and we are continuing our efforts to raise additional working capital, either in the form of equity, debt or a combination of the two. However, we do not have any commitments for additional capital, and there are no assurances we will be successful in raising capital upon terms acceptable to us, if at all. If we are unable to raise additional working capital, absent a significant increase in our net sales, we will be unable to continue to grow our company and may be forced to reduce certain operating expenses in an effort to conserve our working capital.
Going Concern
For fiscal 2013 we reported a net loss of approximately $1,321,000 and net cash used for operating activities of approximately $725,000. At June 30, 2013 we had an accumulated deficit of approximately $8,874,000. The report of our independent registered public accounting firm on our financial statements for the year ended June 30, 2013 contains an explanatory paragraph regarding our ability to continue as a going concern based upon the loss for the current year, the accumulated deficit and the net cash used in operating activities. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to increase our sales and report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.
Results of Operations
Our business is driven by either businesses or the government entities updating older equipment or partnering with our company to dispose of old or unused equipment. As such, the timing of equipment inflow is not consistent or predictable. Sales for fiscal 2013 decreased 30% as compared to fiscal 2012. Our sales decreased in fiscal 2013 as a result of the reduction of equipment volume from a significant customer who was sending equipment to our New Jersey facility and a significant one-off transaction of approximately $675,000 in the fourth quarter of 2012 with no comparable transaction in 2013. We added one additional sales person in the third quarter of fiscal 2013 and one additional sales person in June 2013. We believe this will help us grow sales to existing and new customers.
Our gross profit margin depends on various factors, including product mix, pricing strategies, market conditions, personnel levels and other factors, any of which could result in changes in gross margins from period to period. Gross profit decreased 30% in fiscal 2013 as compared to fiscal 2012, which was directly attributable to the reduction in sales. As a percentage of sales, the gross profit margin was 46% in both fiscal 2013 and fiscal 2012. The gross profit margin was relatively unchanged although warehouse labor decreased by approximately $340,000, or 7% of sales, which was the result of the reduction of the second shift that was halted in January 2012, and the change in product flow, processes and management system in fiscal 2013.
Selling, general and administrative expenses increased 2% in fiscal 2013 as compared to fiscal 2012, while increasing as a percentage of sales to 71% versus 51% in the respective periods as a result of the decline in sales in fiscal 2013. The primary factors that impacted selling, general and administrative expenses were an increase in facilities’ costs of approximately $120,000 which was partially offset by a decrease of approximately 2.8% in compensation and benefits expense. The facilities’ costs increased as a result of increased operating costs in the New Jersey warehouses and the additional space leased in Tampa beginning in January 2013, with the Tampa warehouse opening in March 2013. Compensation and benefits were approximately $2,240,000 in fiscal 2013, which included approximately $366,000 in amortization of non-cash stock based compensation, compared to approximately $2,305,000 in fiscal 2012, which included approximately $647,000 in amortization of non-cash stock based compensation. In fiscal 2013 compensation increased approximately $222,000 for additional employees and salary increases.
We will attempt to keep our operating costs at this level in fiscal 2014 while we continue to drive sales. If we are unable to drive sales above the level in fiscal 2013, or if sales continue to decrease, we will attempt to cut operating costs to sustain our business.
Other expense decreased 28% in fiscal 2013 as compared to fiscal 2012. The decrease is the result of $50,000 of the convertible notes being converted in January 2012 resulting in lower interest for fiscal 2013, and the reduction of amortization of the debt discount for the value of the warrants issued in this note offering, including the warrants issued to the placement agent as a fee since they were amortized through January 2013.
Net loss in fiscal 2013 was approximately $(1,321,000) compared to net loss of approximately $(510,000) in fiscal 2012 resulting from a decrease in sales.
Liquidity and capital resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for operating the business. At June 30, 2013 we had working capital of approximately $10,000 as compared to working capital of approximately $890,000 at June 30, 2012. The decreased working capital at June 30, 2013 is primarily attributable to operating losses, which caused a decrease in cash and cash equivalents, accounts receivables and an increase in customer deposits which is partially offset by an increase in inventories and a decrease in accounts payable.
Cash and cash equivalents decreased 87% at June 30, 2013 from June 30, 2012 which is attributable to the decrease in sales. Accounts receivable decreased 15% at June 30, 2013 from June 30, 2012 which is attributable to timing of sales for the month ended June 30, 2013. Customer deposits increased 733% at June 30, 2013 from June 30, 2012 due to a few customers having large credit balances from the sale of equipment at June 30, 2013.
Our inventories at June 30, 2013 increased 90% from June 30, 2012. Unlike many companies in other businesses which time inventory purchases to maintain an adequate amount of inventory for its anticipated sales, our inventory levels will fluctuate primarily based upon the decommissioning schedules for legacy IT by our clients which determine when we take possession of the used IT equipment. As a result, our inventory levels have historically fluctuated from period to period and we expect that fluctuation to continue in future periods. At June 30, 2013 approximately 88% of our inventory represents consigned inventory at a customer who was refurbishing the units for resale by that customer. The customer does not presently have any customers for the refurbished inventory and, accordingly, we are unable to predict when this inventory will be sold. Our ability to recoup our carrying costs of this inventory is dependent upon our customer paying us for this consigned inventory. Accounts payable decreased 22% at June 30, 2013 as compared to June 30, 2012 which is also the result of timing differences.
Cash flows
Net cash used for operating activities was approximately $725,000 for fiscal 2013 as compared to net cash used for operating activities of approximately $108,000 for fiscal 2012.
In fiscal 2013 cash was used as follows:
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Net loss was approximately $1,321,000, partially offset by a
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Decrease in operating net assets of approximately $94,000, and
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Non-cash operating expenses of approximately $502,000.
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In fiscal 2012 cash was used as follows:
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Net loss was approximately $510,000, and
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Decrease in operating net assets of approximately $436,000, partially offset by
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Non-cash operating expenses of approximately $838,000.
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Net cash used in investing activities was approximately $189,000 for fiscal 2013 as compared to approximately $111,000 for fiscal 2012 reflects our purchase of additional equipment and deposits into restricted accounts in both periods and an increase in security deposits in fiscal 2013. We purchased equipment of approximately $125,000 in fiscal 2013 and approximately $81,000 in fiscal 2012. We deposited funds into restricted accounts of approximately $60,000 in fiscal 2013 and approximately $30,000 in fiscal 2012. We increased security deposits by approximately $4,000 in fiscal 2013.
Net cash provided by financing activities for fiscal 2013 was approximately $33,000 and reflects advances for new capital leases less payments on our notes payable and capital leases. Net cash used in financing activities for fiscal 2012 was approximately $42,000 and reflects payments on our notes payable and capital leases.
Recent Accounting Pronouncements
The recent accounting standards that have been issued or proposed by the Financial Accounting Standards Board (FASB) or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Off Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Critical Accounting Policies
Revenue Recognition
For product sales, we recognize revenue at the time products are shipped and title is transferred, which is in accordance with the stated shipping terms. Revenue is recognized in accordance with these shipping terms so long as a purchase order, electronic, written or phone commitment has been received or a contract has been executed, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable and collectability is deemed probable. If uncertainties exist regarding customer acceptance or collectability, revenue is recognized when those uncertainties have been resolved. We provide a limited as-is warranty on some of our products. We analyze our estimated warranty costs and provide an allowance as necessary, based on experience. At June 30, 2013 and June 30, 2012, a warranty reserve was not considered necessary.
Asset management fees are recognized once the services have been performed and the results reported to the client. In those circumstances where we dispose of the client’s product, or purchases the product from the client for resale, revenue is recognized as a “product sale” described above.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts based on the expected collectability of our accounts receivable. We perform credit evaluations of significant customers and establish an allowance for doubtful accounts based on the aging of receivables, payment performance factors, historical trends and other information. In general, we reserve 2% of the receivables outstanding 31 to 60 days, 5% of the receivables outstanding 61 to 90 days and 20% of the receivables outstanding more than 90 days. We evaluate and revise the reserve on a quarterly basis based on a review of specific accounts outstanding and our history of uncollectible accounts. As of June 30, 2013 and 2012, we recorded $47,449 and $64,065, respectively of allowance for doubtful accounts.
Share-Based Payments
We recognize share-based compensation expense in connection with our share-based awards, net of an estimated forfeiture rate and therefore only recognize compensation cost for those awards expected to vest over the service period of the award. We account for the grants of stock and warrant awards to employees in accordance with ASC Topic 718, Compensation – Stock Compensation. ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of warrants and stock options and other equity based compensation. We utilize a Black-Scholes option pricing model to estimate the fair value of our stock options. Calculating share-based compensation expense requires the input of highly subjective judgment and assumptions, including estimates of expected life of the award, stock price volatility, forfeiture rates and risk-free interest rates. The assumptions we used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.
For the years ending June 30, 2013 and 2012, total stock-based compensation was $366,214 and $646,731, respectively. We granted 2,893,338 stock options and issued 333,334 restricted shares of common stock in December 2011. In March 2012, we granted 666,667 stock options and in January 2012, we granted 666,667 restricted shares of common stock. In November 2012, we granted 60,000 restricted shares of common stock, in February 2013, we granted 60,000 restricted shares of common stock, in April 2013, we granted 100,000 restricted shares of common stock, May 2013, we granted 60,000 restricted shares of common stock and in June 2013, we granted 2,050,000 stock options. Additionally, stock based compensation for the year ending June 30, 2013 includes $33,000 of accrued bonuses for executive officers expected to be paid in the form of stock in fiscal 2014.
General
The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for a smaller reporting company.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Please see our Financial Statements beginning on page F-1 of this annual report.
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ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
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On October 23, 2012, we dismissed Sherb & Co., LLP as our independent registered public accounting firm and engaged D’Arelli Pruzansky, P.A. as our independent registered public accounting firm. Sherb & Co., LLP audited our financial statements for the periods ended June 30, 2012 and 2011. The dismissal of Sherb & Co., LLP was approved by our Board of Directors on October 22, 2012. Sherb & Co., LLP did not resign or decline to stand for re-election.
Neither the report of Sherb & Co., LLP dated August 16, 2012 on our balance sheets as of June 30, 2012 and 2011 and the related statements of operations, stockholders’ equity and cash flows for the years ended June 30, 2012 and 2011 nor the report of Sherb & Co., LLP dated September 27, 2011 on our balance sheets as of June 30, 2011 and 2010 and the related statements of operations, stockholders’ equity and cash flows for the years ended June 30, 2011 and 2010 contained an adverse opinion or a disclaimer of opinion, nor were either such report qualified or modified as to uncertainty, audit scope, or accounting principles.
During our two most recent fiscal years and the subsequent interim period preceding our decision to dismiss Sherb & Co., LLP we had no disagreements with the firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of Sherb & Co., LLP would have caused it to make reference to the subject matter of the disagreement in connection with its report.
During our two most recent fiscal years and the subsequent interim period prior to retaining D’Arelli Pruzansky, P.A. (1) neither we nor anyone on our behalf consulted D’Arelli Pruzansky, P.A. regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and (2) D’Arelli Pruzansky, P.A. did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.
ITEM 9A.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
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pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
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provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
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Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of June 30, 2013, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
Other Information.
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Executive officers and directors
The following table provides information on our executive officers and directors:
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Name
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Age
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Positions
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David Bernstein
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44
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President, Chief Executive Officer, director
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Vlad Stelmak
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41
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Chief Operating Officer, Secretary, director
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Gail L. Babitt
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49
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Chief Financial Officer, director
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Richard Hausig
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48
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Director
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David Bernstein
. Mr. Bernstein has served as an executive officer and director of our company and our predecessor since co-founding Access Direct in 1992. Mr. Bernstein established the creation of customized information technology asset management programs for both government and private sector clients that facilitate the disposition/retirement services as a bundled integration solution allowing for complete-end-to-end technology lifecycle services practice. He has created an industry standard utilizing learned best practices in information technology asset management, disposition and disposal services to protect customer data security and environmental liability for both public and private sector marketplaces. Mr. Bernstein was awarded the first General Services Administration Schedule for IT Asset Management/Disposition Services under Schedule 70 - IT Professional Services and has personally received Congressional Recommendations for IT Asset Management, Forensic Data Scrub (Department of Defense 5220.22M certified), Trade-In (Exchange/Sale), Donation processing, and Disposal services solutions. From 2003 until 2006, Mr. Bernstein has served on the Board of Directors of The Computing Technology Industry Association (CompTIA) comprised of over 20,000 members from the information technology reseller and consulting community. He is a graduate of Rider University with a B.S. in Communications.
Vlad Stelmak.
Mr. Stelmak has served as an executive officer and director of our company and our predecessor since co-founding Access Direct in 1992. Mr. Stelmak is responsible for the management of global remarketing of both Federal agency and Fortune 1000 IT assets. He instituted best practices in performing IT asset audits/inventory with necessary data capture to ensure highest return on resale value. He has experience in the oversight of all fair market valuations of IT assets and the development with ongoing support of our proprietary fair market valuation index. Mr. Stelmak is responsible for the day-to-day operations of the Global Remarketing sales staff. He supervises the ongoing development and negotiation of new channels of product remarketing/resale. He is also responsible for locating certified EPA/DEP Recycling partners, both domestic and international, and is in charge of oversight of partner and sub-contractor compliance with our standards as well as continued audits of partner practices. Mr. Stelmak is a graduate of New York University with a B.S. in Marketing and International Business.
Gail L. Babitt
. Ms.
Babitt has served as our Chief Financial Officer since January 2012 and a member of our Board of Directors since March 2012. Prior to joining our company, she was a Partner of Advisory Financial Group, an accounting and business consulting firm headquartered in South Florida, in 2011. From 2009 until 2010 she served as the Chief Financial Officer for Inuvo, Inc. (NYSE MKT: INUV), an internet advertising company that leverages data and analytics, where she provided financial and operational leadership to drive organizational change and recapitalize the company. From 2007 to 2008, Ms.
Babitt served as Chief Financial Officer of WorldSage, Inc., a global consolidator of post-secondary education institutions. Previously, from 2006 to 2007 she served as Chief Financial Officer for Pamida Stores, a private equity owned national merchandiser operating over 200 stores in 16 states with annualized revenues in excess of $800 million. She was a Partner with Envision Management Group, Inc., a private consulting firm that provides financial consulting services to various industries (active from 2004 to 2006), Chief Financial Officer for Onstream Media Corporation, a NASDAQ-listed digital asset management and streaming media company (from 2000 to 2004), and served as VP of Finance and Corporate Controller for Telecomputing ASA, an Oslo Stock Exchange listed application service provider (from 1999 to 2000). Ms.
Babitt began her career with Ernst & Young and Price Waterhouse in the assurance and advisory practice, providing audit services for clients in diversified industries, with most of her clients being publicly-traded companies. From there she became a Manager in the Transaction Services Group of PricewaterhouseCoopers, providing financial due diligence for mergers and acquisitions supporting financial and strategic buyers and sellers. Ms.
Babitt received her Bachelor of Science degree in accounting from Nova Southeastern University and her MBA from Boston University. She is a Certified Public Accountant. She is currently on the Board of Directors for The First Tee of Tampa Bay and Medjo, Inc.
Richard Hausig
. Mr. Hausig has been a member of our Board of Directors since August 2008 and was a co-founder of our company. Since January 2010 Mr. Hausig has been Chief Operating Officer of Paisa Services, a Columbian outsource services supplier. From May 2003 until August 2009, Mr. Hausig was Chief Operating Officer of MDM Worldwide Solutions, an EDGAR filing agent.
There are no family relationships between any of the executive officers and directors. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified.
Our Board of Directors is currently comprised of four individuals, three of whom are co-founders of our company. Each of Messrs. Bernstein and Stelmak, are co-founders and who are also our executive officers, have over 21 years of experience in management of legacy IT and ITAD services. Mr. Hausig, who is currently an independent director, was also a co-founder of our company and has significant institutional knowledge about our company and our industry. Ms. Babitt has significant experience as a chief financial officer of public companies as well as significant experience in with growing technology companies that require strategic and operational leadership. Our Board concluded that as a result of these directors individual experience, qualifications, attributes or skills that such person should be serving as a member of our Board of Directors as of the date of this report in light of our business and structure. In addition to their individual skills and backgrounds which are focused on our industry as well as financial and managerial experience, we believe that the collective skills and experience of our Board members are well suited to guide us as we continue to grow our company. We expect to expand our Board of Directors in the future to include additional independent directors. In adding additional members to our Board, we will consider each candidate’s independence, skills and expertise based on a variety of factors, including the person’s experience or background in management, finance, regulatory matters and corporate governance. Further, when identifying nominees to serve as director, we expect that our Board will seek to create a Board that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and corporate governance.
Director Compensation
We have not established standard compensation arrangements for our directors and the compensation payable to each individual for their service on our Board is determined from time to time by our Board of Directors based upon the amount of time expended by each of the directors on our behalf. Currently, executive officers of our company who are also members of the Board of Directors do not receive any compensation specifically for their services as directors. The following table provides information on compensation paid to our non-employee director during fiscal 2013 for his services as a director.
|
Director Compensation
|
|
Name
|
Fees
earned or
paid in
cash ($)
|
|
Stock
awards
($)
|
|
Option
awards
($)
1
|
|
Non-equity
incentive plan
compensation
($)
|
|
Nonqualified
deferred
compensation
earnings
($)
|
|
All other
compensation
($)
|
|
Total
($)
|
|
Richard Hausig
|
0
|
|
0
|
|
$1,500
|
|
0
|
|
0
|
|
0
|
|
$1,500
|
|
1
|
The amounts included in the “Option Awards” column represent the aggregate grant date fair value of the stock options granted to directors during fiscal 2013, computed in accordance with ASC Topic 718. The assumptions made in the valuations of the option awards are included in Note 11 of the Notes to our Financial Statements for the year ended June 30, 2013 appearing elsewhere herein.
|
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our President and Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or Controller and any other persons performing similar functions. This code provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and full, fair, accurate, timely and understandable disclosure in reports we file with the Securities Exchange Commission. A copy of the Code of Business Conduct and Ethics may be found on our website at www.anythingit.com. Copies of this Code are also available without charge upon written request to our Corporate Secretary.
Committees of our Board of Directors and the Role of our Board in Risk Oversight
Mr. Bernstein serves as both our Chief Executive Officer and as one of the four members of our Board of Directors. None of our directors has been designated as Chairman of the Board. Mr. Hausig is considered an independent director, but we do not have a “lead” independent director. The Board of Directors oversees our business affairs and monitors the performance of management. In accordance with our corporate governance principles, the Board of Directors does not involve itself in day-to-day operations. Our independent director keeps himself informed through discussions with our executive officers and by reading the reports and other materials that we send him and by participating in Board of Directors meetings. At the present stage of our company, our Board believes that in the context of risk oversight, with executive officers making up the majority of the Board, the Board gains valuable perspective that combines operational experience of a member of management with the oversight focus of a member of the Board.
We have not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, or any committee performing a similar function. The functions of those committees are being undertaken by the Board of Directors as a whole. Because we only have one independent director, we believe that the establishment of these committees would be more form than substance.
We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. Further, when identifying nominees to serve as director, while we do not have a policy regarding the consideration of diversity in selecting directors, at such time as we expand our Board, our Board will seek to create a Board of Directors that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and corporate governance. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees. In considering a director nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our Board.
Ms. Babitt is considered an “audit committee financial expert” within the meaning of Item 407(d) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors who:
|
●
|
understands generally accepted accounting principles and financial statements,
|
|
●
|
is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
|
|
●
|
has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
|
|
●
|
understands internal controls over financial reporting, and
|
|
●
|
understands audit committee functions.
|
Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during fiscal 2013 except Mr. Hausig who failed to timely file a Form 4 reporting one transaction of option grants. This delinquent report has subsequently been filed.
ITEM 11.
EXECUTIVE COMPENSATION.
The following table summarizes all compensation recorded by us in fiscal 2013 and fiscal 2012 for our principal executive officer, each other executive officer serving as such whose annual compensation exceeded $100,000, and up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer of our company at June 30, 2013. The value attributable to any option awards is computed in accordance with FASB ASC Topic 718. The assumptions made in the valuations of the option awards are included in Note 11 of the Notes to our Financial Statements appearing later in this report.
|
SUMMARY COMPENSATION TABLE
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
David Bernstein, Chief Executive Officer
(1)
|
|
2013
|
|
|
|
220,000
|
|
|
|
11,000
|
|
|
|
0
|
|
|
|
86,100
|
|
|
|
0
|
|
|
|
0
|
|
|
|
40,586
|
|
|
|
357,686
|
|
|
|
|
2012
|
|
|
|
180,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
100,650
|
|
|
|
0
|
|
|
|
0
|
|
|
|
47,402
|
|
|
|
368,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vlad Stelmak, Chief Operating Officer
(2)
|
|
2013
|
|
|
|
220,000
|
|
|
|
11,000
|
|
|
|
0
|
|
|
|
86,100
|
|
|
|
0
|
|
|
|
0
|
|
|
|
37,892
|
|
|
|
354,992
|
|
|
|
|
2012
|
|
|
|
180,000
|
|
|
|
40,000
|
|
|
|
0
|
|
|
|
100,650
|
|
|
|
0
|
|
|
|
0
|
|
|
|
47,672
|
|
|
|
368,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gail L. Babitt
(3)
|
|
2013
|
|
|
|
195,019
|
|
|
|
11,000
|
|
|
|
60,000
|
|
|
|
67,910
|
|
|
|
0
|
|
|
|
0
|
|
|
|
24,413
|
|
|
|
358,342
|
|
|
|
|
2012
|
|
|
|
81,667
|
|
|
|
13,333
|
|
|
|
60,000
|
|
|
|
73,457
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,094
|
|
|
|
237,551
|
|
(1)
All other compensation in fiscal 2013 and fiscal 2012 represents the automobile allowance and health and dental insurance premiums paid for Mr. Bernstein, which he is entitled to under the terms of his employment agreement. Additionally, in fiscal 2013 it includes out of pocket health insurance cost reimbursed and the use of company tickets for personal use of $520. The $11,000 bonus for 2013 has not been paid and is expected to be paid in fiscal 2014 through the issuance of common stock of the Company.
(2)
All other compensation in fiscal 2013 and fiscal 2012 represents the automobile allowance and health and dental insurance premiums paid for Mr. Stelmak, which he is entitled to under the terms of his employment agreement. The $11,000 bonus for 2013 has not been paid and is expected to be paid in fiscal 2014 through the issuance of common stock of the Company.
(3)
Ms. Babitt joined the company in January 2012. All other compensation in fiscal 2013 and fiscal 2012 represents the automobile allowance and health and dental insurance premiums paid for Ms. Babitt, which she is entitled to under the terms of her employment agreement. Additionally, in fiscal 2013 it includes the use of company tickets for personal use of $130. The $11,000 bonus for 2013 has not been paid and is expected to be paid in fiscal 2014 through the issuance of common stock of the Company.
Employment Agreements with our Executive Officers
We are a party to an employment agreement with each of our executive officers. The terms and conditions of these agreements are as follows:
Effective July 1, 2010 we entered into three year employment agreements with each of Messrs. Bernstein and Stelmak which superseded their prior agreements. Under the terms of these agreements, we pay each of them an annual salary of $180,000, and they are entitled to an annual bonus of 1% of our revenues up to a maximum of $40,000. Each of these executive officers is also entitled to a $925 per month automobile allowance and participation in all benefit programs we offer our employees. The agreements, which contain an automatic yearly renewal provision, contain customary confidentially and non-compete provisions. Each employee's employment may be terminated upon his death or disability and with or without cause. In the event we should terminate his employment upon his death or disability, he is entitled to his base salary for a period of one year from the date of termination. In the event we should terminate the agreement for cause or if he should resign, he is entitled to payment of his base salary through the date of termination. At our option we may terminate his employment without cause, in which event he is entitled to payment of his base salary and bonus through the date of termination together with one years’ salary payable over six months from the date of termination.
On December 22, 2011 we entered into a letter agreement with Ms. Babitt at the time we engaged her to serve as our Chief Financial Officer. Under the terms of the letter agreement, we agreed to pay her a base salary of $2,500 per week together with an additional $100 per hour for all hours in excess of 25 per week. We also granted her 333,334 shares of our common stock, vesting in four tranches between December 2011 and October 2012, and incentive options to purchase an additional 550,000 shares of our common stock at an exercise price of $0.36 per share, vesting in one thirds between December 2011 and December 2013. Under the terms of our agreement with Ms. Babitt, she was also entitled to participate in all company benefits including health care, retirement and discretionary bonuses, and we agree to reimburse her for certain pre-approved out of pocket expenses.
Effective March 1, 2012 we entered into a three year executive employment agreement with Ms. Babitt which replaced this letter agreement. Under the terms of the executive employment agreement, we agreed to pay Ms. Babitt an annual salary of $180,000, and she is entitled to an annual bonus of 1% of our revenues, not to exceed $40,000. Ms. Babitt is also entitled to a $925 per month automobile allowance and participation in all benefit programs we offer our employees. As additional compensation under the new employment agreement, we granted Ms. Babitt options to purchase 666,667 shares of our common stock, at an exercise price of $0.15 per share, vesting in arrears annually over four years, which are exercisable at the fair market value of our common stock on the date of grant. The agreement, which contain an automatic yearly renewal provision, contain customary confidentially and non-compete provisions. Ms. Babitt’s employment may be terminated upon her death or disability and with or without cause. In the event we should terminate her employment upon her death or disability, she is entitled to her base salary for a period of one year from the date of termination. In the event we should terminate the agreement for cause or if she should resign, she is entitled to payment of her base salary through the date of termination. At our option we may terminate her employment without cause, in which event she is entitled to payment of her base salary and bonus through the date of termination together with one years’ salary payable over six months from the date of termination.
On July 24, 2012, we entered into amendments to the employment agreements with David Bernstein, Vlad Stelmak and Gail Babitt, our executive officers. The terms of the amendments are identical for each executive officer. Under the terms of these amendments the annual base salary of each executive officer will be $220,000 per year. The executive officers will also receive an annual bonus of 1% of net sales, for all net sales in excess of $4,000,000. Under the terms of the amendment the executive’s automobile allowance will be $1,235 per month. Additionally, we agreed to reimburse the executive up to the maximum out-of-pocket health care expenses, representing the annual deductible, or portion thereof, and co-pays, excluding doctor’s visits and prescriptions, paid by the executive under our new health care insurance plan.
In February 2013, due to cash constraints of the company, Ms. Babitt reduced her time commitment, scope of services and compensation from $4,230.77 to $3,000 per week, in addition to eliminating her automobile allowance. This adjustment was originally from February 11, 2013 to May 10, 2013. The adjustment was extended from May 11, 2013 to August 8, 2013 and from August 9, 2013 to November 10, 2013.
On June 12, 2013, the employment agreements of Messrs. Bernstein and Stelmak were amended to extend the term from July 1, 2013 to July 1, 2015, with all other terms of the agreements remaining unchanged. Additionally, each of Messrs. Bernstein and Stelmak were granted options to purchase 1,000,000 shares of our common stock at $0.033 per share.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of June 30, 2013:
|
OPTION AWARDS
|
STOCK AWARDS
|
|
Name
|
Number of Securities Underlying Unexercised Options
(#) Exercisable
|
Number of Securities Underlying Unexercised Options
(#) Unexercisable
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
|
Option Exercise Price
($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
Market Value of Shares or Units of Stock That Have Not Vested ($)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Bernstein
|
1,000,000
|
|
|
$0.033
|
6/12/18
|
|
|
|
|
|
|
366,667
|
0
|
|
$0.30
|
12/20/16
|
|
|
|
|
|
|
283,334
|
0
|
|
$0.30
|
12/20/17
|
|
|
|
|
|
|
0
|
283,333
|
|
$0.30
|
12/20/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vlad Stelmak
|
1,000,000
|
|
|
$0.033
|
6/12/18
|
|
|
|
|
|
|
366,667
|
0
|
|
$0.30
|
12/20/16
|
|
|
|
|
|
|
283,334
|
0
|
|
$0.30
|
12/20/17
|
|
|
|
|
|
|
0
|
283,333
|
|
$0.30
|
12/20/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gail L. Babitt
|
183,334
|
0
|
|
$0.36
|
12/22/16
|
|
|
|
|
|
|
183,333
|
0
|
|
$0.36
|
12/22/17
|
|
|
|
|
|
|
0
|
183,333
|
|
$0.36
|
12/22/18
|
|
|
|
|
|
|
166,667
|
0
|
|
$0.15
|
3/1/17
|
|
|
|
|
|
|
0
|
166,667
|
|
$0.15
|
3/1/18
|
|
|
|
|
|
|
0
|
166,667
|
|
$0.15
|
3/1/19
|
|
|
|
|
|
|
0
|
166,666
|
|
$0.15
|
3/1/20
|
|
|
|
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
At September 11, 2013, we had 36,670,238 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of September 11, 2013 by:
|
●
|
each person known by us to be the beneficial owner of more than 5% of our common stock;
|
|
●
|
each of our named executive officers; and
|
|
●
|
our named executive officers and directors as a group.
|
Unless otherwise indicated, the business address of each person listed is in care of 17-09 Zink Place, Unit 1, Fair Lawn, NJ 07410. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
|
Name of Beneficial Owner
|
Amount and Nature of Beneficial Ownership
|
% of Class
|
|
David Bernstein
1
|
10,400,002
|
27.1%
|
|
Vlad Stelmak
2
|
9,650,002
|
25.1%
|
|
Gail L. Babitt
3
|
2,366,668
|
6.4%
|
|
Richard Hausig
4
|
55,556
|
≤1%
|
|
All officers and directors as a group (four persons)
1,2,3 and 4
|
22,472,228
|
55.4%
|
|
John Esposito
|
2,944,234
|
8.0%
|
1
The number of shares beneficially owned by Mr. Bernstein includes options to purchase 650,001 shares of our common stock with an exercise price of $0.30 per share and 1,000,000 shares of our common stock with an exercise price of $0.033 per share, but excludes options to purchase 283,333 shares of our common stock with an exercise price of $0.30 per share which have not yet vested.
2
The number of shares beneficially owned by Mr. Stelmak includes options to purchase 650,001 shares of our common stock with an exercise price of $0.30 per share and 1,000,000 shares of our common stock with an exercise price of $0.033 per share, but excludes options to purchase 283,333 shares of our common stock with an exercise price of $0.30 per share which have not yet vested.
3
The number of shares beneficially owned by Ms. Babitt includes options to purchase 366,667 shares of our common stock with an exercise price of $0.36 per share and 166,667 shares of our common stock with an exercise price of $0.15 per share, but excludes options to purchase 183,333 shares of our common stock with an exercise price of $0.36 per share and options to purchase 500,000 shares of our common stock with an exercise price of $0.15 per share which have not yet vested.
4
The number of shares beneficially owned by Mr. Hausig includes options to purchase 5,556 shares of our common stock with an exercise price of $0.30 per share and 50,000 shares of our common stock with an exercise price of $0.03 per share but excludes options to purchase 2,778 shares of our common stock with an exercise price of $0.30 per share which have not yet vested.
Stockholder Agreement
Five of our stockholders, including stockholders who purchased shares from us in a private offering in 2001, are subject to the terms of a Stockholder Agreement pursuant to which we have a right of first refusal to purchase these shares should the stockholder wish to sell the securities. This right of first refusal automatically terminates at such time as we undertake an initial public offering resulting in gross proceeds to us of at least $10 million.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of June 30, 2013.
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
|
|
Plan category
|
|
|
|
|
|
|
|
|
|
Plans approved by our stockholders:
|
|
|
|
|
2010 Equity Compensation Plan
|
12,000,000
|
$0.19
|
6,141,661
|
|
Plans not approved by stockholders
|
0
|
$0
|
0
|
2010 Equity Compensation Plan
On June 28, 2010, our Board of Directors authorized our 2010 Equity Compensation Plan covering 12,000,000 shares of common stock. The plan was approved by our stockholders on June 28, 2010. The purpose of the plan is to enable us to offer to our employees, officers, directors and consultants, whose past, present and/or potential contributions to our company have been, are or will be important to our success, an opportunity to acquire a proprietary interest in our company. The 2010 Equity Compensation Plan is administered by our Board of Directors. Plan options may either be:
|
|
●
|
incentive stock options (ISOs),
|
|
|
●
|
non-qualified options (NSOs),
|
|
|
●
|
awards of our common stock, or
|
|
|
●
|
rights to make direct purchases of our common stock which may be subject to certain restrictions.
|
Any option granted under the 2010 Equity Compensation Plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any ISO granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The plan further provides that with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year cannot exceed $100,000. The term of each plan option and the manner in which it may be exercised is determined by the Board of Directors or the compensation committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. In the event of any stock split of our outstanding common stock, the Board of Directors in its discretion may elect to maintain the stated amount of shares reserved under the plan without giving effect to such stock split. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person.
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
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We are not a party to any related party transactions with our executive officers, directors or principal stockholders.
Director Independence
Mr. Hausig is considered “independent” within the meaning of Rule 5605 of the NASDAQ Marketplace Rules.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table shows the fees that were billed for the audit and other services provided by D’Arelli Pruzansky, P.A. for fiscal 2013 and Sherb & Co., LLP for fiscal 2012.
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Fiscal 2013
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Fiscal 2012
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|
|
|
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Audit Fees
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$
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55,000
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$
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57,000
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|
Audit-Related Fees
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0
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0
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Tax Fees
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2,500
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2,500
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All Other Fees
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0
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7,500
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|
Total
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$
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57,500
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$
|
67,000
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Audit Fees
— This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees
— This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.
Tax Fees
— This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees
— This category consists of fees for other miscellaneous items.
Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of the Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to fiscal 2013 were pre-approved by the entire Board of Directors.
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