Liquidity and Capital Resources
General.
Our
financial statements are prepared on a going concern basis, which assumes that
we will realize our assets and discharge our liabilities in the normal course
of business. At December 31, 2009, we had cash of $24,884, a working capital
deficit of approximately $11.1 million, stockholders deficit of approximately
$9.7 million, and an outstanding long term portion balance of approximately
$0.1 million of debt. In comparison, at December 31, 2008, we had cash and
equivalents of $16,186, a working capital deficit of
approximately $9.5 million, and an outstanding long term portion balance for
other debt of approximately $0.2 million. Our financial condition as of
December 31, 2009, raises doubt as to our ability to continue our normal
business operations as a going concern. Accordingly, our independent registered
public accounting firm has modified their opinion on our financial statements for the year
ended December 31, 2009, with a comment which raises substantial doubt
about our ability to continue as a going concern.
Cash
increased from $16,186 at December 31, 2008 to $24,884 at December 31, 2009,
primarily as a result of approximately (i) $470,000 of cash used for
operations, (ii) $11,500 of cash proceeds from sale of assets, (iii) repayment
of short term notes and a bank line of credit of $34,000, (iv) repayment of
$81,370 of long term debt and shareholder loan of $29,600, and (v) capital
lease repayments of $7,330. This was offset by (i) proceeds form the sale of
convertible preferred stock of approximately $429,190, (ii) proceeds from the
issuance of short term convertible notes of $176,350, and (iii) net proceeds
from a shareholder loan of $14,410.
Our continuation of existence is dependent upon the continued
cooperation of our creditors, our ability to generate sufficient cash flow to
meet our continuing obligations on a timely basis and fund our operating and
capital needs, and our ability to obtain additional financing or implement
other plans as may be necessary. If we are not able to raise additional capital
or put into effect certain plans, we may be required to restructure, file for
bankruptcy or cease operations.
Commitments and Contingencies.
Chase Loan
We
are a party to a $50,000 term loan agreement with JPMorgan Chase Bank, N.A.
which provides for interest at a rate of 8.5% per annum and which is payable in
equal monthly installments through October 2013. As of December 31, 2009,
$31,651 was outstanding under the loan agreement compared to $37,662 at
December 31, 2008.
Chase Line of Credit
We
are a party to a $50,000 line of credit with JPMorgan Chase Bank, N.A. which as
of December 31, 2009 provided for interest at a rate of 4.75% per annum and
which is payable in variable monthly installments. As of December 31, 2009, the
outstanding balance on the line of credit was $45,283, which automatically
renews every year until paid in full. At December 31, 2008, the outstanding
balance was $49,981.
Auto Loans
We
had $185,415 in principal balance on auto loans outstanding as of December 31,
2009, as compared to $297,324 at December 31, 2008. These loans, which bear
interest at rates ranging from 3.9% to 8.69%, mature at various dates through
November 2012.
20
Capital Leases
We
entered into capital leases in the ordinary course of business for office
equipment and computer software, and other equipment. The outstanding amount
due for leased equipment as of December 31, 2009 was $105,889 as compared to
$123,712 at December 31, 2008.
Loan from Former Chief Operating Officer
In
2008 Caroline Gonzalez our former Chief Operating Officer, and the wife of our
Chief Executive Officer loaned us $97,420 via extension of lines of credit on
personal credit cards issued to her by traditional unsecured consumer credit
providers. Since the date of the loan we have been making monthly payments
pursuant to the relevant card terms, which include interest rates ranging from
9.49% to 27.99%. As of December 31, 2009 the outstanding balance on these accounts
was $63,111 as compared to $80,361 at December 31, 2008.
Original Issue Discount Notes
Between
April and September 2008, we issued a series of original issue discount notes
to individual investors. These notes totaled $499,450 in face value, and
yielded net proceeds to us of $414,950 after fees paid to consultants and
placement agents. $99,450 in total face value of the OID Notes was retired via
payments to the holders made in June 2008 and October 2008. $250,000 in total
face value of the OID notes was retired via conversion into $229,046 of 12%
one-year convertible notes (which included accrued and unpaid interest) and
cash payments of $29,500. The remaining $150,000 in total face value of OID
notes remain unpaid, and are past due. At December 31, 2008, the face value of
these notes was $400,000 and an unamortized discount of $15,167.
November 2007 Debentures
On
November 30, 2007, we entered into a securities purchase agreement with three
affiliated institutional investors for the sale of original issue discount 5%
senior secured convertible debentures and common stock purchase warrants. We
refer to this transaction as our November 2007 Private Placement. In this
transaction, we issued an aggregate of $3.75 million principal amount of
debentures at an original issue discount of 20% and warrants to purchase an
aggregate of 11,250,000 shares of our common stock. The warrants expire in
November 2014 and initially had an exercise price of $1.15 per share, subject
to adjustment, including full ratchet anti-dilution protection.
Since
January 1, 2008, we have been required to make quarterly payments of interest
under the convertible debentures issued in our November 2007 Private Placement.
None of such payments have been made since August 2008. We have also been
required to make monthly principal payments in the aggregate of $208,333 since
November 2008. None of such payments have been made. On August 28, 2008, we
entered into an Amendment and Waiver Agreement with each of the holders of
these debentures pursuant to which the debenture holders have:
-
waived our compliance with the provisions of the debentures which require
us to have a registration statement covering the shares issuable upon the
conversion of the debentures
21
declared
effective under the Securities Act of 1933 and maintain the effectiveness of
such registration statement;
-
waived the anti-dilution provisions of the debentures which, as a result of
prior transactions, would have otherwise resulted in an adjustment to the
conversion price of the debentures to $.40 per share;
-
waived certain provisions of the agreement pursuant to which the debentures
were issued which restrict our ability to issue common stock and securities
convertible into or exercisable for common stock;
-
waived all registration rights previously granted to the debenture holders with
respect to the shares issuable upon the conversion of the debentures and
exercise of the warrants issued to the debenture holders in connection with the
transaction, provided that we do not fail to satisfy the current public
information requirements under Rule 144(c) of the Securities Act of 1933 for a
period of three (3) consecutive trading days or more. In the event of such a
public information failure we will be required to file a registration statement
covering the shares issuable upon the debentures and warrants and will be
subject to monetary penalties if it fails to obtain and maintain the
effectiveness of the registration statement.
In
consideration of the waivers and in lieu of (i) $250,000 of liquidated damages
that the debenture holders alleged were owed as a result of the our failure to
register the shares underlying the debentures and warrants for public resale
and (ii) $46,875 of accrued and unpaid interest owed to the debenture holders,
we agreed to issue shares of our common stock valued at $296,875 (based upon a
per share price equal to 80% of the average of the value weighted average price
of the common stock for the 20 trading days prior to the date of the amendment
and waiver) to the debenture holders pro-rata according to their percentage
ownership of the debentures. We agreed to register the new shares for resale
under the Securities Act of 1933, as amended.
The
exercise price of the warrants was also adjusted to $.40 per share.
In
August 2009, we entered into an additional Amendment and Waiver Agreement with
each of the holders of the debentures pursuant to which:
-
Our default for past incidents of non-payment of interest and principal on the
debentures was waived.
-
The total outstanding principal balance of the debentures was increased from
$3,750,000 to $4,083,742, representing the inclusion of accrued interest.
-
The conversion price of the debentures was adjusted to $0.10 per share of the
Companys common stock. As of January 1, 2010 the conversion price became the
lesser of $0.10 or 80% of the lowest daily volume weighted average price during
the 20 Trading Days immediately prior to the applicable Conversion Date, but in
no case less than $0.00625.
22
-
The conversion price of warrants issued to the holders of the debentures at the
time of their original investment was adjusted to $0.12 per share.
Since
entering into this agreement monthly redemptions of principal for the
debentures have became due. Each of these monthly redemption amounts totals
$208,333 and has not been paid by us. Additional redemption payments will also
come due on the first day of each calendar month through May 2010, a date upon
which the entire principal balance of the debentures will have come due.
Quarterly
interest payments owed by us subsequent to the waiver agreement to the holders
of the debentures in the amount of approximately $51,000 also have come due and
were also not paid by us except for those payments in stock pursuant to a Waiver and
Amendment, and a payment in May 2008 of $62,500.
Non-payment
of these amounts, and the failure to file an appropriate registration statement
may be considered default events under the relevant agreements between us and
the holders of the debentures, but no formal notice of default or request for
remedies in the case of default have been issued to the us by the holders. As a
result of default, the holders have the right to demand payment of
approximately $5,300,000 (representing 130% of the principal amount of the
debentures currently outstanding), as well as all accrued and unpaid interest.
We continue to communicate with the holders and are seeking a resolution to the
non-payment situation.
IDS Asset Purchase Convertible Note
In
connection with the April 3, 2008 purchase of substantially all the assets of
IDS, we issued to IDS an unsecured convertible note in the principal amount of
$1.54 million, bearing no interest until April 3, 2011. If not converted, or
paid within 30 days of maturity, then from and after the maturity date, the
convertible note will bear annual interest at 12%. The convertible note is
convertible at the discretion of IDS into shares of our common stock after May
31, 2010, or upon the approval of a majority in interest of the holders of our
then outstanding 5% secured convertible debentures, or any securities issued on
conversion thereof, at an initial conversion price of $1.15 per share. We have agreed
to register the shares issuable upon the conversion of the note for public
resale.
As
of December 31, 2009, $24,000 of payments were past due under the note issued
to IDS. In April 2009, IDS and its principal shareholder instituted an action
seeking to collect the entire $1,544,000 due under the note as well as $206,250
remaining due under the consulting agreement entered into in connection with
the Asset Purchase. See Item 3. Legal Proceedings.
Promissory Note
On
June 10, 2008, we issued a promissory note (the New Note) in the
principal amount of $267,192 to the Russ & Russ PC Defined Benefit Pension
Plan - a pension plan formed for the benefit of Mr. Russ - in exchange for the
surrender of a promissory note in the principal amount of $250,000 (the Old
Note) which was issued by us to an individual lender in October 2007 and
assigned to the pension plan before the exchange. At the time of the exchange,
accrued and unpaid interest under the Old Note, which was past due, was
$17,192. The New Note provided for interest at a rate of 10% per annum and
became due on December 10, 2008.
23
As
further consideration for entering into the exchange transaction, we issued to
Mr. Russ options to acquire 20,000 shares of the our common stock under the
Companys Equity Incentive plan at an exercise price of $0.40 per share. We
have not paid the holder of the note. IDS, its principal shareholder and the
holder of the New Note have instituted an action seeking to collect the past
due amount. See Item 3. Legal Proceedings.
Recent Financing Activity
Equity Financing
Throughout
2009, we issued 500 shares of Series B Convertible Preferred Stock to
accredited investors for an aggregate purchase price of $500,000. We received
net proceeds of $429,188 as a result of the offering. Each Series B convertible
preferred share bears a stated value of $1,000 and is convertible into shares
of our common stock at a rate of $0.005 per share. As part of the offering
placement agents received 14,583 shares of our common stock, and warrants to
purchase 6,830,000 shares of our common stock at a range of exercise prices
from $0.04 to $0.12, with those exercise prices determined by the then market
of price of our common stock on the date of closing. As a result of the
issuance we accrued a deemed dividend of approximately $500,000.
Debt Financing
We
issued a total of $415,546 of 12% Convertible Notes throughout 2009.
Each 12% Convertible Note is convertible into shares of our common
stock at a rate of $0.01 per share. The issuance of the 12%
Convertible Notes took place as follows:
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between July
through December, we issued an aggregate of $106,500 of 12%
Convertible Notes to a number of investors. We received net proceeds of
$96,350, as a result of the offering. As part of the offering placement
agents received warrants to purchase 50,000 shares of our common stock at an
exercise price of $0.04, determined by the then market price of our common
stock on the date of closing.
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between
August and November 2009, we issued $229,046 of 12% Convertible
Notes in exchange for Original Discount Notes previously issued by us in 2008
with aggregate principal plus accrued and unpaid interest of $229,046.
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during the
fourth quarter of 2009, we issued $80,000 of 12% Convertible Notes
for investment banking services.
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I
tem 8.
|
Financial Statements and Supplementary Data
|
The
financial statements called for by this item are set forth herein commencing on
page F-1 of this report.
24
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I
tem 9.
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Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
|
Not
applicable.
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I
tem 9A.
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Controls and Procedures
|
Evaluation of disclosure controls and
procedures
As
required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this Annual Report on Form 10-K, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation was carried out under the supervision of and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer. Disclosure controls and procedures are controls and
other procedures that are designed to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to provide reasonable
assurance that information required to be disclosed in our reports filed under
the Exchange Act is accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
The
evaluation made by our Chief Executive Officer and Chief Financial Officer of
our disclosure controls and procedures included a review of the controls
objectives and design, our implementation, and the effect of the controls on
the information generated for use in this annual report and previous reports to
the Commission. In the course of the evaluation, we sought to identify data
errors, control problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, were being undertaken. The overall
goals of these various evaluation activities are to monitor our disclosure
controls and procedures and to make modifications as necessary. Our intent in
this regard is that the disclosure controls and procedures will be maintained
as dynamic systems that change (including with improvements and corrections) as
conditions warrant. Based on their evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of December 31, 2009.
Managements Report on Internal Control over
Financial Reporting
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. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance
with generally accepted accounting principles (GAAP). Internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of our assets; (2) provide reasonable
assurance that our transactions are recorded
25
as necessary
to permit preparation of our financial statements in accordance with GAAP, and
that receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) 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.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projection of any evaluation of
effectiveness to future periods is 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.
Management
has evaluated the effectiveness of internal control over financial reporting as
of December 31, 2009 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
A
material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis.
Based
on their evaluation, our Chief Executive Officer and Chief Financial Officer
identified a number of material weaknesses in our internal control over
financial reporting. These material weaknesses included:
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A lack of
sufficient resources and an insufficient level of monitoring and oversight,
which restricts our ability to gather, analyze and report information
relative to the financial statement assertions in a timely manner.
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-
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The limited
size of the accounting department makes it impracticable to achieve an
appropriate segregation of duties and to implement the formal documented
closing and reporting calendar and checklists in a timely manner on a
consistent basis.
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-
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There are no
formal cash flow forecasts, business plans, and organizational structure
documents to guide the employees in critical decision-making processes.
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-
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Material
weaknesses identified in the past including deficiencies in information
technology have not been fully remediated.
|
As
a result of the material weaknesses described above, we have concluded that, as
of December 31, 2009, our internal control over financial reporting was not
effective.
Remediation of Material Weaknesses
We
intend to take action to hire additional staff, implement stronger financial
reporting systems and software and develop the adequate policies and procedures
with said enhanced staff to ensure all noted material weaknesses are addressed
and resolved. However, due to our cash flow
constraints, the timing of implementing the above has not yet been determined, and may not be possible.
26
Our
management does not expect that our disclosure controls or our internal
controls over financial reporting will prevent all error and fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
but not absolute, assurance that the objectives of a control system are met.
Further, any control system reflects limitations on resources, and the benefits
of a control system must be considered relative to its costs. These limitations
also include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. In addition,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of a control. A
design of a control system is also based upon certain assumptions about
potential future conditions. Over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and may not be detected.
Changes in Internal Control over Financial
Reporting
There
were no changes in our internal control over financial reporting
during the quarter ended December 31, 2009, except that due to cash flow constraints, the
size of the accounting department was reduced and as a result, the formal
monthly closing schedules could not be followed.
Sobel
& Company was not required to and did not perform a review of our internal
controls over financial reporting.
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I
tem 10.
|
Directors, Executive Officers, and Corporate Governance
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The
following table sets forth information regarding the members of our Board of
Directors and our executive officers. The directors listed below will serve
until the next annual meeting of the Companys stockholders.
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Name
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Age
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Position
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Jason
Gonzalez
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39
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President,
Chief Executive Office and Director
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Michael Ryan
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51
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Director
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Colonel Jack
Jacobs
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64
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Director
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Martin
McFeely
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54
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Director
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Robert Moe
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58
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Director
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William
Malenbaum
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81
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Director
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James (J.D)
Gardner
|
57
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Chief
Financial Officer
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W. Geoffrey
Martin
|
34
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Chief
Operating Officer & General Counsel
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Jonathan
Bergman
|
51
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Vice
President Marketing and Sales
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27
Jason Gonzalez
is our founder and has been
involved in the security industry for five years. Prior to launching Visual
Management Systems, Inc. he served as Chief Operating Officer for Infinite
Sales, Inc., a wholly owned subsidiary of Freedom Systems, Inc., a leading
distributor of DVRs in the United States. Mr. Jason Gonzalez was at Freedom
Systems, Inc. from February 2002 until August 2003. Before his appointment to
Chief Operating Officer, Mr. Gonzalez served in various capacities for Freedom
Systems, Inc. in sales and sales management. Prior thereto he was employed by
Merrill Lynch as a vetting manager in ML Direct technology banking. He also
worked for Olde, and William R. Hough & Co. as a registered representative,
general and municipal securities principal. Mr. Gonzalez graduated from
Embry-Riddle Aeronautical University where he earned a BS in Aviation Business
Administration. He completed an additional 20 credits in Aeronautical Science
and Aerospace Engineering. Mr. Gonzalez is a graduate of the SIA Securities
Industry Institute. Mr. Gonzalez and Caroline Gonzalez are husband and wife.
Michael
Ryan
joined our Board of Directors in July 2007 and has
spent over 20 years in the security industry. He owns and operates Fire Code
Services, a New Jersey based fire protection systems and services business.
Fire Code Services provides fire safety equipment to skyscrapers throughout New
York City and New Jersey.
Colonel
Jack Jacobs U.S. Army (Retired)
, who joined our Board
of Directors in July 2007, earned the Medal of Honor for exceptional heroism on
the battlefields of Vietnam. He also holds three Bronze Stars and two Silver
Stars. Colonel Jacobs served on the faculty of the U.S. Military Academy at
West Point and the National War College in Washington, D.C. After retirement,
he founded and was chief operating officer of Auto Finance Group. He has served
as a managing director of Bankers Trust Co. and later co-founded an investment
management business for Lehman Brothers. He is a member of the Council on
Foreign Relations and is a director of the Medal of Honor Foundation. Colonel
Jacobs currently serves as a military analyst for NBC/MSNBC.
Martin
McFeely
, who joined our Board of Directors in July
2007, has served as Chief Financial Officer of Quick Service Management, the
parent company of El Rancho Foods, which operates approximately 89 Taco Bell
and other franchises.
Robert
Moe
, who joined our Board of Directors in July 2007,
is the founder and chief executive officer of RAM Capital Corp., an investment
banking firm specializing in providing industry specific financial and
operational advisory services to companies seeking to implement and finance
high growth strategies.
William
Malenbaum,
who joined our board in January 2009, has
more than 50 years of accounting experience with concentrations in cost
accounting and credit management as well as sales and sales management. Mr.
Malenbaum is retired, but has remained active in a variety of consulting
capacities since 2000.
James
(J.D.) Gardner,
was appointed as our Chief Financial
Officer in June 2008. From April 2008 until his appointment as Chief Financial
Officer, he served as a consultant to our finance and accounting department.
From May 2005 to February 2008, Mr. Gardner served as
28
Chief
Financial Officer and Chief Operating Officer of Amedia Networks, Inc., a
publicly held company engaged in developing next generation ultra broadband
switched Ethernet home gateways and home networking solutions for voice video
and data services. From January 2005 through May 2005, Mr. Gardner served as
Chief Operating Officer of dotPhoto, a private company engaged in on-line photo
processing and wireless application development for cellular telephones. From
January 2002 through April 2004, Mr. Gardner served as Chief Executive Officer
of Comstar Interactive, a private company engaged in the wireless credit card
processing field. He has also held the position of Chief Financial Officer of
BellSouth Wireless Data (renamed Cingular Interactive (May 1999 through
November 2001), and as chief financial officer of BellSouth Mobile Data
(November 1995 through May 1999) and chief financial officer of RAM/BSE
Communications L.P. from 1991 through 1995, with all companies involved in the
provision of wireless packet data networks and services, principally in the US
and Europe. Mr. Gardner also held several other senior executive positions at
BellSouth and AT&T in the areas of Financial Management, Domestic and
International corporate finance, issuing debt and equity and the related rating
agency and investment banking interfaces, shareholder relations and a number of
other treasury, accounting and finance positions.
W.
Geoffrey Martin
was hired to serve as our General
Counsel in November 2007, and became our Chief Operating Officer in November
2009. Mr. Martin is admitted to the bar of the State of Illinois, and as in-house
counsel in the State of New Jersey and from January 2006 until his hiring,
operated his own law firm specializing in commercial litigation. Mr. Martin
received his Juris Doctorate from the University of Illinois in 2005, and
graduated from the University of Illinois in May 1999. Mr. Martin has extensive
financial services experience and served as a financial product designer for US
Bancorp in 2002 and as both a project manager for financial software
development and as an Assistant Vice President for business development and
marketing for Merrill Lynch from June 1999 until September 2001.
Jonathan
Bergman
joined Visual Management Systems, Inc. in
September 2003 as Vice President-Marketing and Sales. From 2001 to August 2003,
he served in various capacities for Freedom Systems, Inc, including Loss
Prevention Consultant, Area Manager and Regional Manager. From 1996 to 2001,
Mr. Bergman served as a General Manager and the Director of Food and Beverage
Operations for Inn America Hospitality. Prior thereto he owned and operated
Advantage Building Maintenance, a general building services contractor. Mr.
Bergman attended NY City Technical College and Florida International University
and earned his AS in Business Management and his BS in Hospitality/Business
Management.
Our
Audit Committee consists of Michael Ryan and Marty McFeely. Our Board of
Directors has assigned Mr. McFeely as the Audit Committees financial expert.
Mr. McFeely is not considered independent under the rules of the American Stock
Exchange.
We
have adopted a code of conduct that applies to all of our directors, officers
and employees, including our Chief Executive Officer, Chief Financial Officer,
and other senior financial advisors. Our Code of Conduct is posted at
www.vmscctv.com..
29
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I
tem 11.
|
Executive Compensation
|
Executive Compensation
The
following table sets forth information concerning the annual and long-term
compensation for services in all capacities to Visual Management Systems, Inc.
for the years ended December 31, 2009 and 2008 of the Chief Executive Officer
and each other executive officer whose total annual contracted-for compensation
for the year ended December 31, 2009 exceeded $100,000 (the named executive
officers). No other executive
officers contracted-for annual salary and bonus for the year ended December 31,
2009 exceeded $100,000.
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SUMMARY COMPENSATION TABLE
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Name and
Principal
Position
|
|
Year
|
|
Salary
($)(1)
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Bonus
($)
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|
Stock
Awards
($)
|
|
Option
Awards
($)
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|
Non-
Equity
Incentive
Plan
Compen-
sation ($)
|
|
Nonqualified
Deferred
Compensa-
tion
Earnings ($)
|
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All Other
Compensa-
tion ($)
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Total
($)
|
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Jason
Gonzalez,
President and
Chief
Executive
Officer
|
|
2009
|
|
$
|
86,206
|
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$
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86,206
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|
|
2008
|
|
$
|
123,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Bergman,
Vice
President-
Marketing
and Sales
|
|
2009
|
|
$
|
83,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,981
|
|
|
2008
|
|
$
|
115,845
|
|
|
|
|
|
|
|
$
|
11,655(2
|
)
|
|
|
|
|
|
|
|
|
|
$
|
127,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Geoffrey
Martin, Chief
Operating
Officer &
General
Counsel
|
|
2009
|
|
$
|
72,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,033
|
|
|
2008
|
|
$
|
89,900
|
|
|
|
|
|
|
|
$
|
47,500
(3
|
)
|
|
|
|
|
|
|
|
|
|
$
|
137,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James (J.D.
Gardner)
Chief
Financial
Officer
|
|
2009
|
|
$
|
82,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,986
|
|
|
2008
|
|
$
|
65,792
|
|
|
|
|
|
|
|
$
|
47,500
(4
|
)
|
|
|
|
|
|
|
|
|
|
$
|
113,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Chief Executive
Officer and each other executive officer have agreed to defer receipt of
their full salary until Visual Management Systems, Inc.s financial
performance improves. The sums
detailed in the Salary column for 2009 represent the actual amounts paid in
compensation to each officer.
Salaries accrued but not paid for 2009 are as follows: Mr. Gonzalez
$93,793; Mr. Bergman $60,018; Mr. Martin $47,966; and Mr. Gardner $3,577. The sums detailed in the Salary column for
2008 represent the actual amounts paid in compensation to each officer. Salaries accrued but not paid for 2008 are
as follows: Mr. Gonzalez $56,793; Mr. Bergman $28,154; Mr. Martin $30,099;
and Mr. Gardner 18,207.
|
|
|
(2)
|
On June 12, 2008, the
purchase price of Mr. Bergmans option to purchase 225,000 shares of Visual
Management Systems, Inc. common stock was adjusted from $1.25 to $0.40. The fair value of the re-priced options
granted was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions
used: dividend yield of 0%; expected
volatility of
|
30
|
|
|
120%; risk free rate of
return of 4.1%; and expected life of 10 years. The difference in the weighted average fair value of these
options was $0.05 per share.
|
|
|
(3)
|
On June 12, 2008, Mr.
Martin was granted an option to purchase 125,000 shares of Visual Management
Systems, Inc. common stock. Options
with respect to 62,500 shares vested on the one year anniversary of the date
of grant and options with respect to the remaining 62,500 shares are
scheduled to vest on the two year anniversary of the date of grant. The options have a term of ten years and
an exercise price of $0.40 per share.
The fair value of the options granted was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used: dividend
yield of 0%; expected volatility of 120%; risk free rate of return of 4.1%;
and expected life of 10 years. The
weighted average fair value of these options was $0.38 per share.
|
|
|
(4)
|
On June 12, 2008, Mr.
Gardner was granted an option to purchase 125,000 shares of Visual Management
Systems, Inc. common stock. Options
with respect to 62,500 shares vested on the one year anniversary of the date
of grant and options with respect to the remaining 62,500 shares are
scheduled to vest on the two year anniversary of the date of grant. The options have a term of ten years and
an exercise price of $0.40 per share.
The fair value of the options granted was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used:
dividend yield of 0%; expected volatility of 120%; risk free rate of
return of 4.1%; and expected life of 10 years. The weighted average fair value of these options was $0.38 per
share.
|
31
Outstanding Equity Awards at Fiscal Year-End
The
following table provides information about all equity compensation awards held
by the named executive officers as of December 31, 2009.
OUTSTANDING
EQUITY AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
Name
|
|
|
Date of
Grant(1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
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
($)
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
|
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason
Gonzalez, President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
Jonathan
Berman, Vice President-Sales and Marketing
|
|
|
6/12/08
|
|
|
225,000
|
(2)
|
|
|
|
|
|
|
|
$
|
0.40
|
|
|
6/12/18
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Geoffrey Martin, General Counsel
|
|
|
6/12/08
|
|
|
62,500
|
(3)
|
|
62,500
|
|
|
|
|
|
$
|
0.40
|
|
|
6/12/18
|
|
|
|
|
|
|
|
|
|
|
|
|
James (J.D. Gardner) Chief Financial Officer
|
|
|
6/12/08
|
|
|
62,500
|
(3)
|
|
62,500
|
|
|
|
|
|
$
|
0.40
|
|
|
6/12/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects date that options
to purchase shares of Visual Management Systems, Inc. were issued or reissued
to adjust the exercise price of a previous issuance.
|
|
|
(2)
|
Mr. Bergman was issued
options to acquire 225,000 shares of our common stock having an exercise
price of $2.50 per share in exchange for the options to acquire Visual
Management Systems Holding, Inc.
|
32
|
|
|
common stock upon the
completion of our acquisition of Visual Management Systems Holding, Inc. On
June 12, 2008, the purchase price of Mr. Bergmans option to purchase 225,000
shares of our common stock was adjusted from $2.50 to $0.40. The fair value
of the re-priced options granted was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: dividend yield of 0%; expected volatility of 120%; risk
free rate of return of 4.1%; and expected life of 10 years. The difference in
the weighted average fair value of these options was $0.05 per share
|
|
|
(3)
|
On June 5, 2008, Mr.
Martin was granted an option to purchase 125,000 shares of Visual Management
Systems, Inc. common stock. Options with respect to 62,500 shares vest on the
one year anniversary of the date of grant and options with respect to the
remaining 62,500 shares are scheduled to vest on the two year anniversary of
the date of grant. The options have a term of ten years and an exercise price
of $0.40 per share. The fair value of the options granted was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used: dividend yield of 0%; expected
volatility of 120%; risk free rate of return of 4.1%; and expected life of 10
years. The weighted average fair value of these options was $0.38 per share.
|
|
|
(4)
|
On June 5, 2008, Mr.
Gardner was granted an option to purchase 125,000 shares of Visual Management
Systems, Inc. common stock. Options with respect to 62,500 shares vest on the
one year anniversary of the date of grant and options with respect to the
remaining 62,500 shares are scheduled to vest on the two year anniversary of
the date of grant. The options have a term of ten years and an exercise
price of $0.40 per share. The fair value of the options granted was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used: dividend yield of 0%; expected
volatility of 120%; risk free rate of return of 4.1%; and expected life of 10
years. The weighted average fair value of these options was $0.38 per share.
|
|
|
|
Securities Authorized for Issuance under Equity Compensation Plans
|
|
|
|
We
adopted an Equity Incentive Plan in connection with our acquisition of Visual
Management Systems Holding, Inc. Following is a summary of the material terms
of our Equity Incentive Plan.
|
|
|
|
The
purpose of the plan is to allow our employees, directors and consultants to
participate in our growth and to generate an increased incentive for these
persons to contribute to our future success and prosperity and to focus on
its growth. Employees, directors and consultants are all eligible to receive
awards under the plan. The plan is administered by the Compensation Committee
of our Board of Directors. The Compensation Committee is authorized to grant:
|
|
|
|
|
|
Incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
|
|
|
|
|
|
Nonqualified
stock options
|
|
|
|
|
|
Stock
appreciation rights
|
|
|
|
|
|
Restricted
stock grants
|
|
|
|
|
|
Deferred
stock awards
|
33
|
|
|
|
|
Other stock
based awards to employees of our Company and our subsidiaries and other
persons and entities who, in the opinion of the Board of Directors, are in a
position to make a significant contribution to the success of our Company and
our subsidiaries.
|
The
Compensation Committee has the power to determine the terms of any awards
granted under our Equity Incentive Plan, including the exercise price, the
number of shares subject to the award and conditions of exercise. Awards
granted under our Equity Incentive Plan are generally not transferable. The
exercise price of all incentive stock options granted under our Equity
Incentive Plan must be at least equal to the fair market value of the shares of
common stock on the date of the grant. A total of 2,088,126 shares of our common stock have been
reserved for issuance under our Equity Incentive Plan.
As
of December 31, 2009, the number of stock options outstanding under our Equity
Incentive Plan, the weighted-average exercise price of outstanding stock
options, and the number of securities remaining available for issuance, was as
follows:
EQUITY
COMPENSATION PLAN TABLE
|
|
|
|
|
|
|
|
|
|
|
|
Plan
category
|
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
|
|
|
Weighted
average
exercise price of
outstanding
options, warrants
and rights
(b)
|
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
(c)
|
Equity
compensation plans approved by security holders
|
|
|
1,016,500
|
(1)
|
|
|
$ 0.60
|
|
|
971,626
|
|
Equity
compensation plans not approved by security holders
|
|
|
8,122,463
|
(2)
|
|
|
$0.059
|
|
|
|
|
Total
|
|
|
9,138,963
|
|
|
|
$0.119
|
|
|
971,626
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents options issued
under our Equity Incentive Plan.
|
|
|
|
|
(2)
|
Represents warrants issued
to placement agents in connection with financing transactions.
|
Executive Officer Employment Agreements
Due
to our financial situation affecting the Company, all executive officers have
been notified that their current employment agreements
34
which expired between
March and April 2010 have not been
extended, and that said officers shall be retained as at-will employees at
their current pay and benefit level subject to negotiation of new employment
agreements expected to occur before the end of May 2010.
Director Compensation
We did not pay
any of our directors any compensation for serving as directors during 2009.
|
|
I
tem 12.
|
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The
following table sets forth information regarding the number of shares of our
common stock beneficially owned on April 13, 2010, by each person who we know
to beneficially own 5% or more of the 146,112,526 shares of our currently
outstanding common stock, each of our directors and executive officers, and all
of our directors and executive officers, as a group. Except as indicated in the
notes to the table, each of such stockholders maintains a business address at
our headquarters at 1000 Industrial Way North, Suite C, Toms River, New Jersey
08755:
|
|
|
|
|
|
|
Name of
Beneficial Owner
|
|
No. of
Shares
|
|
Percentage
of
Shares
Outstanding
|
|
|
|
|
|
|
|
|
Jason Gonzalez
|
|
5,401,474
|
(1)
|
|
3.7%
|
|
Michael Ryan
|
|
8,027,500
|
(2)
|
|
5.5%
|
|
Colonel Jack Jacobs
|
|
1,017,500
|
(3)
|
|
(5)
|
|
Robert Moe
|
|
217,500
|
(3)
|
|
(5)
|
|
Martin McFeely
|
|
217,500
|
(3)
|
|
(5)
|
|
William Malenbaum
|
|
822,388
|
(3)
|
|
(5)
|
|
Jonathan Bergman
|
|
1,225,000
|
(3)
|
|
(5)
|
|
J.D. Gardner
|
|
462,500
|
(3)
|
|
(5)
|
|
W. Geoffrey Martin
|
|
1,062,500
|
(3)
|
|
(5)
|
|
Enable Growth Partners
L.P.
|
|
14,596,641
|
(4)
|
|
9.99%
|
|
Enable Opportunity
Partners L.P.
|
|
14,596,641
|
(4)
|
|
9.99%
|
|
Pierce Diversified
Strategy Master Fund, LLC
|
|
14,596,641
|
(4)
|
|
9.99%
|
|
Directors and officers as
a group (8 persons) (2)(3)
|
|
18,453,862
|
|
12.6%
|
|
|
|
|
|
|
|
|
(1) Includes 512,500
shares beneficially owned and 125,000 shares subject to immediately exercisable options owned by Mr. Gonzalezs
wife, Caroline Gonzalez. Mr. Gonzalez disclaims beneficial ownership of these
shares
|
|
|
|
(2) Includes 8,000,000
shares beneficially owned by Mr. Ryans wife, Elizabeth May, and 27,500 shares subject to immediately exercisable
warrants owned by Mr. Ryan. Mr. Ryan disclaims beneficial ownership of the
shares owned by Ms. May.
|
|
|
|
(3) Represents shares and
shares subject to immediately exercisable options or convertible
shares
|
35
|
|
|
of convertible preferred
stock owned by the named individual.
|
|
|
|
(4) Does
not include 650,052,079 shares of our common stock acquirable upon the
conversion of debentures (assuming the minimum conversion price) and exercise of warrants held by the stockholder or
its affiliates as described in the paragraph below, all of which are subject
to conversion or exercise caps. Pursuant to the terms of the debentures and
warrants referred to in the paragraph below, the number of shares of our
common stock that may be acquired by the stockholder upon any conversion of the
debentures is limited, to the extent necessary, to ensure that following such
conversion, the number of shares of our common stock then beneficially owned
by the stockholder and any other person or entities whose beneficial
ownership of common stock would be aggregated with the stockholder for
purposes of the Exchange Act does not exceed 9.99% of the total number of
shares of our common stock then outstanding. All of the Warrants held by the
stockholder also include similar caps on the stockholders right to acquire
shares of our common stock upon exercise of such warrants. Accordingly, in
light of the beneficial ownership cap, the aforementioned entities are
entitled to acquire in the aggregate 14,596,641 shares of our common stock.
|
|
|
|
This
stockholder and its affiliates hold the following securities: (i) $3,587,159
principal amount original issue discount 5% secured convertible debenture
acquired by Enable Growth Partners LP (EGP), an affiliate of Enable
Opportunity Partners LP (EOP) and Pierce Diversified Strategy Master Fund
LLC, ena. (Pierce), on November 30, 2007; (ii) an immediately exercisable
warrant to purchase 9,882,000 shares of our common stock at $0.12 per share
held by EGP; (iii) $398,573 principal amount original issue discount 5%
secured convertible debenture acquired by EOP, an affiliate of EGP and
Pierce, on November 30, 2007; (iv) an immediately exercisable warrant to
purchase 1,098,000 shares of our common stock at $0.12 per share held by EOP;
(v) $98,010 principal amount original issue discount 5% convertible debenture
acquired by Pierce, an affiliate of EOP and EGP, on November 30, 2007; and
(vi) an immediately exercisable warrant to purchase 270,000 shares of our
common stock at $0.12 per share held by Pierce. Brendan ONeil is the Chief
Investment Officer of each of EGP, EOP and Pierce and, as such, has the power
to direct the vote and disposition of these shares. Mr. ONeil disclaims
beneficial ownership of these shares.
|
|
|
|
Each
of EGP, EOP and Pierce may be contacted at One Ferry Building Ste. 225, San
Francisco, California.
|
|
|
|
(5) Less
than one percent.
|
|
|
I
tem 13.
|
Certain Relationships and Related Transactions
|
In 2008
Caroline Gonzalez our former Chief Operating Officer, and the wife of our Chief
Executive Officer loaned us $97,420 via extension of lines of credit on
personal credit cards issued to her by traditional unsecured consumer credit
providers. Since the date of the loan we have been making monthly payments
pursuant to the relevant card terms, which include interest rates ranging from
9.49% to 27.99%. As of December 31, 2009 the outstanding balance on these
accounts was $63,111.
Under the
terms of our Audit Committee Charter, any proposed transaction between us and a
related party is subject to review and approval of the Audit Committee.
Marty McFeely, a member
of our board of directors, is Chief Financial Officer of El Rancho Foods, a customer of ours. For the years
ending December 31, 2009 and December 31, 2008 El Rancho Foods accounted for company
revenue of $165,149 and $72,145 respectively.
36
Each of
Michael Ryan, Col. Jack Jacobs, William Malenbaum and Robert Moe qualifies as
an independent director under the standards of the American Stock Exchange.
Jason Gonzalez and Marty McFeely are not considered independent under the same
standard.
The following
table sets forth the details of the purchases of shares of our Series B
Convertible Preferred Stock made by our officers and members of our board of
directors as part of our 2009 offering.
|
|
|
|
|
|
|
|
Name
|
|
Purchase Price
|
|
Number of Shares
|
|
|
|
|
|
|
|
Jason
Gonzalez (1)
|
|
$
|
10,000
|
|
|
10
|
|
Jonathan
Bergman
|
|
$
|
5,000
|
|
|
5
|
|
W. Geoffrey
Martin
|
|
$
|
5,000
|
|
|
5
|
|
J.D. Gardner
|
|
$
|
2,000
|
|
|
2
|
|
Michael Ryan
(2)
|
|
$
|
40,000
|
|
|
40
|
|
William
Malenbaum
|
|
$
|
4,000
|
|
|
4
|
|
Robert Moe
|
|
$
|
1,000
|
|
|
1
|
|
Jack Jacobs
|
|
$
|
5,000
|
|
|
5
|
|
Marty
McFeely
|
|
$
|
1,000
|
|
|
1
|
|
|
|
(1)
|
Includes
purchases by Caroline Gonzalez, our former Chief Operating Officer, and the
wife of our Chief Executive Officer Jason Gonzalez
|
|
(2)
|
Includes
purchases by Elizabeth May, the wife of our director Michael Ryan
|
|
|
I
tem 14.
|
Principal Accounting Fees and Services
|
The following table sets forth the aggregate fees billed
to us by Sobel & Co. LLC, our independent auditors for 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Audit Fees
|
|
$
|
65,393
|
|
$
|
80,311
|
|
Audit-Related Fees
|
|
|
32,468
|
|
|
48,808
|
|
Financial Information Systems
|
|
|
|
|
|
|
|
Design and Implementation Fees
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
6,892
|
|
Audit fees represent amounts billed for professional services rendered
for the audit of our annual financial statements and the reviews of our
financial statements included in our Forms 10-Q and Forms 8-K filed during the
year ended December 31, 2009 and 2008. Before Sobel & Co. LLC was engaged
by us to render its audit services, the engagement was approved by the Audit
Committee of our Board of Directors.
We did not
incur any fees associated with non-audit services to Sobel & Co., LLC
relating to the years ended December 31, 2009 and December 31, 2008.
|
|
I
tem 15.
|
Exhibits, Financial Statement Schedules
|
Reference
is made to the Index of Exhibits beginning on page E-1 herein.
37
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
|
VISUAL MANAGEMENT SYSTEMS,
INC.
|
|
|
|
|
|
Date: April 15, 2010
|
By:
|
|
/s/ Jason Gonzalez
|
|
|
Name:
|
|
Jason Gonzalez
|
|
|
Title:
|
|
Chairman and Chief
Executive Officer
|
|
|
KNOW
ALL PERSONS BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Jason Gonzalez as his true lawful
attorney-in-fact and agent, with full power of substitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Form 10-K, and to file the same, together with all the exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and being
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
Date: April 15, 2010
|
|
|
/s/ Jason Gonzalez
|
|
Name:
|
|
Jason Gonzalez
|
|
Title:
|
|
President, Chief Executive
Officer and Director
|
|
|
|
|
Date: April 15, 2010
|
|
|
/s/ J.D. Gardner
|
|
Name:
|
|
J.D. Gardner
|
|
Title:
|
|
Chief Financial Officer
|
|
|
|
(Principal Accounting
Officer)
|
|
|
|
|
Date: April 15, 2010
|
|
|
/s/ Michael Ryan
|
|
Name:
|
|
Michael Ryan
|
|
Title:
|
|
Director
|
|
|
|
|
Date: April 15, 2010
|
|
|
/s/ Jack Jacobs
|
|
Name:
|
|
Jack Jacobs
|
|
Title:
|
|
Director
|
|
|
|
|
Date: April 15, 2010
|
|
|
/s/ Martin McFeely
|
|
Name:
|
|
Martin McFeely
|
|
Title:
|
|
Director
|
|
|
|
|
Date: April 15, 2010
|
|
|
/s/ Robert Moe
|
|
Name:
|
|
Robert Moe
|
|
Title:
|
|
Director
|
38
|
|
|
|
Date: April
15, 2010
|
|
|
/s/ William Malenbaum
|
|
Name:
|
|
William Malenbaum
|
|
Title:
|
|
Director
|
39
Visual Management Systems, Inc. and
Subsidiaries
Consolidated Financial Statements
Contents
F-1
R
EPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders
Visual Management Systems, Inc. and Subsidiaries
Toms River, New Jersey
We
have audited the accompanying consolidated balance sheets of Visual Management
Systems Inc. and Subsidiaries (the Company), as of December 31, 2009 and
2008, and the related consolidated statements of operations and
stockholders deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Visual Management
Systems, Inc. and Subsidiaries at December 31, 2009
and 2008 and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the financial statements, the Company has suffered
recurring losses from operations; the Company has experienced a deficiency of
cash from operations and lacks sufficient liquidity to continue its operations.
These matters raise substantial doubt as to the Companys ability to continue
as a going concern. Managements plans in regard to these matters are also
discussed in Note 2. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
|
|
|
|
/s/ Sobel & Co., LLC
|
|
|
Certified Public
Accountants
|
April 15, 2010
Livingston, New Jersey
F-2
Visual Management Systems, Inc.
and Subsidiaries
C
onsolidated Balance Sheets
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
24,884
|
|
|
$
|
16,186
|
|
Accounts receivable, net
|
|
|
90,286
|
|
|
|
230,339
|
|
Inventory
|
|
|
46,462
|
|
|
|
340,650
|
|
Prepaid expenses
|
|
|
27,584
|
|
|
|
177,450
|
|
Total current assets
|
|
|
189,216
|
|
|
|
764,625
|
|
|
|
|
|
|
|
|
|
|
Property and equipment - net
|
|
|
192,958
|
|
|
|
533,912
|
|
Capitalized software-net
|
|
|
144,092
|
|
|
|
180,115
|
|
Deposits and other assets
|
|
|
148,431
|
|
|
|
146,227
|
|
Investment in joint venture
|
|
|
|
|
|
|
5,000
|
|
Software-net
|
|
|
729,738
|
|
|
|
912,172
|
|
Deferred financing costs-net
|
|
|
322,853
|
|
|
|
1,089,322
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,727,288
|
|
|
$
|
3,631,373
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,664,913
|
|
|
$
|
1,708,861
|
|
Accrued expenses and other current
liabilities
|
|
|
2,885,414
|
|
|
|
2,312,843
|
|
Customer deposits
|
|
|
68,394
|
|
|
|
195,976
|
|
Sales tax payable
|
|
|
145,159
|
|
|
|
136,745
|
|
Bank line of credit
|
|
|
45,283
|
|
|
|
49,981
|
|
Short term notes payable
|
|
|
504,303
|
|
|
|
756,387
|
|
Convertible notes payable
|
|
|
289,046
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
115,321
|
|
|
|
100,738
|
|
Current portion of obligations under
capital leases
|
|
|
105,889
|
|
|
|
110,212
|
|
Current portion of convertible notes
payable (net of unamortized discount of $123,333 and $423,333)
|
|
|
5,504,409
|
|
|
|
4,870,667
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,328,131
|
|
|
|
10,242,410
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
|
|
|
|
|
|
|
Long-term debt - net of current portion
|
|
|
101,745
|
|
|
|
234,248
|
|
Obligations under capital leases - net of
current portion
|
|
|
|
|
|
|
13,500
|
|
Loans payable - stockholders
|
|
|
|
|
|
|
|
|
Other long term liabilities
|
|
|
|
|
|
|
54,522
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
1
|
|
|
|
1
|
|
Common stock
|
|
|
129,264
|
|
|
|
10,808
|
|
Additional paid-in-capital
|
|
|
20,822,226
|
|
|
|
14,205,834
|
|
Accumulated deficit
|
|
|
(30,504,079
|
)
|
|
|
(20,979,950
|
)
|
Treasury stock, at cost
|
|
|
(150,000
|
)
|
|
|
(150,000
|
)
|
Total stockholders deficit
|
|
|
(9,702,588
|
)
|
|
|
(6,913,307
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Deficit
|
|
$
|
1,727,288
|
|
|
$
|
3,631,373
|
|
See report of independent registered public
accounting firm and notes to consolidated financial statements.
F-3
Visual Management Systems, Inc.
and Subsidiaries
C
onsolidated Statements of Operations
Year Ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenues - net
|
|
$
|
2,564,170
|
|
|
$
|
6,359,669
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,411,760
|
|
|
|
3,550,470
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,152,410
|
|
|
|
2,809,199
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
3,670,677
|
|
|
|
8,967,246
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,518,267
|
)
|
|
|
(6,158,047
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expenses
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,662,081
|
|
|
|
1,833,500
|
|
Miscellaneous loss (income)
|
|
|
(63,665
|
)
|
|
|
(52,749
|
)
|
|
|
|
1,598,416
|
|
|
|
1,780,751
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,116,683
|
)
|
|
$
|
(7,938,798
|
)
|
|
|
|
|
|
|
|
|
|
Deemed dividend on convertible preferred
|
|
|
5,407,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss applicable to common stockholders
|
|
$
|
(9,524,129
|
)
|
|
$
|
(7,938,798
|
)
|
|
|
|
|
|
|
|
|
|
Per share data - basic and fully diluted
|
|
$
|
(0.17
|
)
|
|
$
|
(0.92
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding
|
|
|
57,054,180
|
|
|
|
8,666,715
|
|
See report of independent registered public
accounting firm and notes to consolidated financial statements.
F-4
Visual
Management Systems, Inc. and Subsidiaries
Consolidated
Statement of Stockholders Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders
Equity (Deficit)
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Paid-In
Capital
|
|
Treasury
Stock
|
|
Accumulated
Deficit
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2008
|
|
|
616
|
|
|
1
|
|
|
7,378,905
|
|
|
7,379
|
|
|
12,030,155
|
|
|
(150,000
|
)
|
|
(13,041,152
|
)
|
|
(1,153,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock payment for penalty and interest
|
|
|
|
|
|
|
|
|
359,134
|
|
$
|
359
|
|
$
|
299,836
|
|
|
|
|
|
|
|
$
|
300,195
|
|
Warrant Exercises
|
|
|
|
|
|
|
|
|
310,952
|
|
|
311
|
|
|
124,611
|
|
|
|
|
|
|
|
|
124,922
|
|
Issuance of stock for services
|
|
|
|
|
|
|
|
|
1,400,286
|
|
|
1,399
|
|
|
1,170,159
|
|
|
|
|
|
|
|
|
1,171,559
|
|
Preferred conversion
|
|
|
(181
|
)
|
$
|
(0
|
)
|
|
1,132,500
|
|
|
1,133
|
|
|
(1,132
|
)
|
|
|
|
|
|
|
|
(0
|
)
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,133
|
|
|
|
|
|
|
|
|
39,133
|
|
Liquidated Damages
|
|
|
|
|
|
|
|
|
226,500
|
|
|
227
|
|
|
154,573
|
|
|
|
|
|
|
|
|
154,800
|
|
Stock Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,499
|
|
|
|
|
|
|
|
|
388,499
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,938,798
|
)
|
|
(7,938,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
435
|
|
|
1
|
|
|
10,808,277
|
|
|
10,808
|
|
|
14,205,834
|
|
|
(150,000
|
)
|
|
(20,979,950
|
)
|
|
(6,913,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Preferred B
|
|
|
500
|
|
|
1
|
|
|
|
|
|
|
|
|
500,261
|
|
|
|
|
|
|
|
|
500,262
|
|
Preferred B closing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,300
|
)
|
|
|
|
|
|
|
|
(37,300
|
)
|
Warrant Exercises
|
|
|
|
|
|
|
|
|
190,166
|
|
|
190
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
Stock for services
|
|
|
|
|
|
|
|
|
290,000
|
|
|
290
|
|
|
33,810
|
|
|
|
|
|
|
|
|
34,100
|
|
Stock for placement agent services-Pfd B
|
|
|
|
|
|
|
|
|
14,583
|
|
|
15
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Issuance of warrants-finders fee for convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,892
|
|
|
|
|
|
|
|
|
1,892
|
|
Warrant repricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,561
|
|
|
|
|
|
|
|
|
200,561
|
|
Preferred A Conversion
|
|
|
(88
|
)
|
|
(0
|
)
|
|
43,800,000
|
|
|
43,800
|
|
|
(43,800
|
)
|
|
|
|
|
|
|
|
(0
|
)
|
Preferred A Penalty Shares
|
|
|
|
|
|
|
|
|
109,500
|
|
|
110
|
|
|
6,428
|
|
|
|
|
|
|
|
|
6,538
|
|
Preferred B conversion
|
|
|
(307
|
)
|
|
(0
|
)
|
|
61,400,000
|
|
|
61,400
|
|
|
(61,400
|
)
|
|
|
|
|
|
|
|
0
|
|
Conversions-Convertible Debt
|
|
|
|
|
|
|
|
|
12,650,000
|
|
|
12,651
|
|
|
113,850
|
|
|
|
|
|
|
|
|
126,500
|
|
Beneficial conversion feature on convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415,546
|
|
|
|
|
|
|
|
|
415,546
|
|
Deemed dividend-preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,407,446
|
|
|
|
|
|
|
|
|
5,407,446
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,303
|
|
|
|
|
|
|
|
|
79,303
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,524,129
|
)
|
|
(9,524,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
540
|
|
$
|
1
|
|
|
129,262,526
|
|
$
|
129,264
|
|
$
|
20,822,226
|
|
$
|
(150,000
|
)
|
$
|
(30,504,079
|
)
|
$
|
(9,702,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See report of
independent registered public accounting firm and notes to consolidated
financial statements.
F-5
Visual
Management Systems, Inc. and Subsidiaries
C
onsolidated Statements of Cash Flows
Year Ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,116,683
|
)
|
$
|
(7,938,798
|
)
|
Adjustments to reconcile net loss to net
cash used by operating activities
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,307,429
|
|
|
1,100,233
|
|
Revaluation of IDS investment
|
|
|
5,000
|
|
|
636,242
|
|
Non-cash interest expense
|
|
|
948,851
|
|
|
430,300
|
|
Bad debt expense
|
|
|
68,836
|
|
|
64,780
|
|
Accrued rent charge
|
|
|
|
|
|
144,869
|
|
Restricted Registration Penalty
|
|
|
6,539
|
|
|
|
|
Payment of stock for services
|
|
|
34,100
|
|
|
1,051,543
|
|
Stock-based compensation
|
|
|
84,303
|
|
|
388,499
|
|
Accrued interest on debt penalty
|
|
|
|
|
|
1,125,000
|
|
Loss (gain) on disposition of assets (net)
(Increase) decrease in operating assets:
|
|
|
(17,571
|
)
|
|
249
|
|
Accounts receivable
|
|
|
71,217
|
|
|
1,328
|
|
Inventory
|
|
|
294,188
|
|
|
304,064
|
|
Prepaid expenses and other assets
|
|
|
149,866
|
|
|
(33,503
|
)
|
Deposits and other assets
|
|
|
(2,204
|
)
|
|
(43,920
|
)
|
Increase (decrease) in operating liabilities
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(39,174
|
)
|
|
928,340
|
|
Accrued expenses and other current
liabilities
|
|
|
871,843
|
|
|
864,852
|
|
Sales tax payable
|
|
|
8,414
|
|
|
98,018
|
|
Customer deposits
|
|
|
(127,582
|
)
|
|
58,816
|
|
|
|
|
|
|
|
|
|
Net cash used from operating activities
|
|
|
(452,628
|
)
|
|
(819,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
(59,394
|
)
|
Capitalized software
|
|
|
|
|
|
(180,115
|
)
|
Proceeds from disposition of assets
|
|
|
11,514
|
|
|
12,145
|
|
Investment in joint venture
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
11,514
|
|
|
(232,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Repayment of capital leases
|
|
|
(7,330
|
)
|
|
(39,558
|
)
|
Repayment of short term notes
|
|
|
(29,500
|
)
|
|
(111,000
|
)
|
Proceeds from convertible notes (net of
$10,150 of issuance costs)
|
|
|
176,350
|
|
|
|
|
Interest paid in stock
|
|
|
|
|
|
|
|
Net change in line of credit
|
|
|
|
|
|
|
|
Proceeds from long term debt and notes
|
|
|
|
|
|
|
|
Proceeds from the sale of common stock
|
|
|
|
|
|
|
|
Proceeds from the exercise of warrants
|
|
|
|
|
|
124,922
|
|
Proceeds from short term notes payable (net
of $0 and $19,550 of issuance costs)
|
|
|
|
|
|
414,950
|
|
Repurchase of stock into treasury
|
|
|
|
|
|
|
|
Proceeds from the issuance of preferred
stock, net of issuance costs of $33,300
|
|
|
429,188
|
|
|
|
|
Proceeds from shareholder loan
|
|
|
|
|
|
|
|
Proceeds from shareholder loan
|
|
|
|
|
|
97,420
|
|
Repayment on bank line of credit
|
|
|
(4,698
|
)
|
|
|
|
Principal repayments of long-term debt
|
|
|
(81,370
|
)
|
|
(109,062
|
)
|
Repayment of loans payable - stockholders
|
|
|
(32,828
|
)
|
|
(17,059
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
449,812
|
|
|
360,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
|
8,698
|
|
|
(690,839
|
)
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
16,186
|
|
|
707,025
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
24,884
|
|
$
|
16,186
|
|
|
|
|
|
|
|
|
|
See report of independent registered public
accounting firm and notes to consolidated financial statements.
F-6
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of a short term note to refinance
existing long term note
|
|
|
|
|
|
267,192
|
|
|
|
|
|
|
|
|
|
Issuance of convertible note for IDS
Acquisition for acquisition of software assets and net working capital
|
|
|
|
|
|
1,544,000
|
|
|
|
|
|
|
|
|
|
Issuance of note payable for IDS
Acquisition
|
|
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
Increase in assets under capitalized leases
|
|
|
|
|
|
95,391
|
|
|
|
|
|
|
|
|
|
Increase in accrued expenses from long term
rent deferral
|
|
|
54,523
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accrued interest due to reclass
from capitalized leases
|
|
|
10,493
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
30,269
|
|
|
97,008
|
|
|
|
|
|
|
|
|
|
Increase in inventory for reclassification
from fixed assets
|
|
|
|
|
|
38,990
|
|
|
|
|
|
|
|
|
|
Change in accrued expenses due to reclass
from long term liabilities
|
|
|
(27,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase in prepaid expenses assocaited
with issuance of stock and debt for investor relations services
|
|
|
|
|
|
134,331
|
|
|
|
|
|
|
|
|
|
Decrease in accrued expenses for issuance
of stock to pay liquidated damages
|
|
|
|
|
|
394,800
|
|
|
|
|
|
|
|
|
|
Issuance of shares for liquidated damages
penalty
|
|
|
4,663
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Preferred B shares for vendor
payments
|
|
|
4,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Preferred B shares to reduce
accrued wages
|
|
|
22,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Preferred B shares as a finders
fee
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Preferred B shares to reduce
shareholder loan
|
|
|
2,093
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Preferred B shares as
compensation
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend on convertible preferred
|
|
|
5,407,446
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in accrued expenses and accounts
payable to adjust shareholder loan balance
|
|
|
(1,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Convertible Debt for interest
and penalty
|
|
|
333,742
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in auto loans related to
reposession sale
|
|
|
36,550
|
|
|
|
|
See report of
independent registered public accounting firm and notes to consolidated
financial statements.
F-7
Notes to Consolidated Financial Statement
s
Note 1. Basis of Presentation and Description
of Business Operations
The
accompanying consolidated financial statements have been prepared in accordance
with the requirements of Form 10-K and include the results of Visual Management
Systems, Inc., formerly known as Wildon Productions, and Visual Management
Systems Holding, Inc., Visual Management Systems LLC and Visual Management
Systems PDG, LLC, its wholly-owned subsidiaries (the Subsidiaries), which are
collectively referred to as the Company.
The
Company delivers protective technology solutions and remote management loss
prevention surveillance systems and provides on-site consultations regarding
its products. The Company also sells, installs, upgrades and services Digital
Video Recording Systems. The Company is New Jersey-based and began operations
in June 2003.
On
July 17, 2007, Visual Management Systems, Inc. (formerly Wildon Productions
Inc.) acquired all of the outstanding capital stock of Visual Management
Systems Holding, Inc. in connection with the merger of its wholly-owned
subsidiary with and into Visual Management Systems Holding, Inc. In connection
with the merger, Wildon Productions Inc. changed its name to Visual Management
Systems, Inc., effected a 1 for 7 reverse stock split (which has been reflected
throughout the financial statements and notes thereto) and the former
shareholders of Visual Management Systems Holding, Inc. received shares of
common stock representing approximately 76.5% of Visual Management Systems,
Inc.s outstanding common stock after giving effect to the merger and the
cancellation of 476,428 shares of common stock that were surrendered by a
shareholder for cancellation at or about the time of the merger. The
transaction described above was accounted for as a reverse merger
(recapitalization) with Visual Management Systems Holding, Inc. being deemed
the accounting acquirer and Visual Management Systems, Inc. (formerly Wildon
Productions Inc.) being deemed the legal acquirer. Accordingly, the historical
financial information presented in the financial statements is that of Visual
Management Systems Holding, Inc. and its subsidiaries for periods prior to the
merger and of the consolidated entities from the date of the merger and
thereafter. The basis of the assets and liabilities of Visual Management
Systems Holding, Inc., the accounting acquirer, has been carried over in the
recapitalization, and the financial statements have been adjusted to give
effect to any difference in the par value of the issuers and the accounting
acquirers stock with an offset to additional paid in capital.
Note 2. Going Concern and Managements Plan
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred significant operating losses for the past several
years, the majority of which are related to the funding of expansion of the
business at the expense of short term profitability. These losses have produced
operating cash flow deficiencies, and negative working capital. As indicated in
the accompanying consolidated financial statements, as of and for the year
ended December 31, 2009 and 2008, the Company had cash balances of $24,884 and
$16,186, incurred a loss from operations of approximately $2.5 million and $6.2
million and a net loss applicable to common stockholders of approximately $9.5
million and $7.9 million, respectively. The Company may
F-8
incur
additional losses for the foreseeable future and will likely need to raise
additional funds in order to realize its business plan. These conditions raise
substantial doubt about the Companys ability to continue as a going concern as
currently conceived. These financial statements do not include any adjustments
relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to continue as
a going concern.
The
Company funded its operations during 2009 with the proceeds of the various
financings it pursued during the year. These included the issuance of Series B
Convertible Preferred Stock yielding net proceeds of $429,188 and the issuance
of convertible notes yielding net proceeds of $176,350.
The
Companys ability to continue in business depends upon the continued
cooperation of our creditors, our ability to generate cash flow to meet our
continuing obligations on a timely basis, our ability to further reduce costs
and our ability to obtain additional financing. Current liabilities at December
31, 2009 were approximately $11.3 million and current assets were approximately $0.2 million. The difference
of approximately $11.1 million is a working capital deficit, which is primarily the result of
current debt obligations and amounts due vendors. At December 31, 2009, the
Company was delinquent with respect to approximately $3,200,000 of scheduled
payments due under outstanding promissory notes and debentures, and the holders
of these instruments have the right to demand payment of an aggregate of
approximately $7,200,000. At December 31, 2009 the Company was also delinquent
approximately $76,000 in federal payroll taxes, approximately $35,000 in state
payroll taxes, approximately $145,000 in state sales taxes and approximately
$87,000 in obligations to employee retirement accounts. Management can give no
assurance that the Company will raise sufficient capital to eliminate our
working capital deficit or that our creditors or any government entity will not
seek to enforce their remedies against us, which include the imposition of
insolvency proceedings. See Note 16. Legal Proceedings.
The
Companys future operations pursuant it to its ongoing business plan are
dependent upon managements ability to either generate sufficient cash flow in
excess of the items necessary to maintain operations as detailed above or find
sources of additional capital. The Company needs to raise additional further
financing to continue to develop its proprietary technology, and re-establish
and grow its sales force. Without the money to fund these components of the
business the Companys competitive position may never mature to a point where
the business plan will be attainable, and further retrenchment of managements
plans may be necessary. If the Company is unsuccessful in obtaining such
profitability, raising funds or additionally curtailing expenses, the Company
may be required to cease operations or file for bankruptcy.
Note 3. Significant Accounting Principles
Significant
accounting policies followed by Visual Management Systems, Inc. and its
wholly-owned subsidiaries in the preparation of the accompanying consolidated
financial statements are summarized below:
F-9
Principles of Consolidation
The
consolidated financial statements include the accounts of Visual Management
Systems, Inc. and its wholly owned subsidiaries. All inter-company transactions
and balances have been eliminated in consolidation.
Use of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates include those that relate to the software, potential
litigation and the estimated forfeitures of stock based compensation. It is
reasonably possible that these estimates will change in the near term and such
changes may be material.
Recent Accounting Pronouncements
In
June 2009, the FASB issued authoritative guidance on accounting standards
codification and the hierarchy of generally accepted accounting principles.
The FASB Accounting Standards Codification (Codification) has become the
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in accordance with GAAP. All existing accounting standard documents are
superseded by the Codification and any accounting literature not included in
the Codification will not be authoritative. However, rules and interpretive
releases of the Securities Exchange Commission (SEC) issued under the
authority of federal securities laws will continue to be sources of
authoritative GAAP for SEC registrants. The FASB authoritative guidance is
effective for interim and annual reporting periods ending after September 15,
2009. Therefore, beginning with the Companys quarter ending September 30,
2009, all references made by it to GAAP in its consolidated financial
statements now use the new Codification numbering system. The Codification does
not change or alter existing GAAP and, therefore, it does not have an impact on
the Companys financial position, results of operations and cash flows.
F-10
In January
2010, the FASB issued accounting standards update (ASU) No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value
Measurements (ASU No. 2010-06). ASU No. 2010-06 requires: (1) fair value
disclosures of assets and liabilities by class; (2) disclosures about
significant transfers in and out of Levels 1 and 2 on the fair value hierarchy,
in addition to Level 3; (3) purchases, sales, issuances and settlements be
disclosed on gross basis on the reconciliation of beginning and ending balances
of Level 3 assets and liabilities; and (4) disclosures about valuation methods
and inputs used to measure the fair value of Level 2 assets and liabilities.
ASU No. 2010-06 becomes effective for the first financial reporting period
beginning after December 15, 2009, except for disclosures about purchases,
sales, issuances and settlements of Level 3 assets and liabilities which will
be effective for fiscal years beginning after December 15, 2010. We are
currently assessing what impact, if any, ASU No. 2010-06 will have on our fair
value disclosures; however, we do not expect the adoption of the guidance
provided in this codification update to have any material impact on our
consolidated financial statements.
In October 2009, the Financial
Accounting Standards Board issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605) Multiple- Deliverable Revenue Arrangements, a consensus
of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 amends existing
accounting guidance for separating consideration in multiple-deliverable
arrangements. ASU 2009-13 establishes a selling price hierarchy for determining
the selling price of a deliverable. The selling price used for each deliverable
will be based on vendor-specific objective evidence if available, third-party
evidence if vendor specific evidence is not available, or estimated selling
price if neither vendor-specific evidence nor third-party evidence is
available. ASU 2009-13 eliminates residual method of allocation and requires
that arrangement consideration be allocated at the inception of the arrangement
to all deliverables using the relative selling price method. The relative
selling price method allocates any discount in the arrangement proportionately
to each deliverable on the basis of each deliverables selling price. ASU
2009-13 requires that a vendor determine its best estimate of selling price in
a manner that is consistent with that used to determine the price to sell the
deliverable on a stand-alone basis. ASU 2009-13 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier adoption permitted. We have
not yet determined the impact of the adoption of ASU 2009-13 on our
consolidated financial statements.
F-11
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Companys present or future
consolidated financial statements
Net Income (Loss) Per Share
ASC
Topic 260 (formerly Statement of Financial Accounting Standards (SFAS) No. 128)
Earnings Per Share requires presentation of basic earnings per share (Basic
EPS) and diluted earnings per share (Diluted EPS). Basic earnings (loss) per
share is computed by dividing income (loss) available to common stockholders by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share gives effect to all dilutive potential common shares
outstanding during the period. These potentially dilutive securities were not
included in the calculation of loss per share for the years ended December 31,
2009 and 2008, because the Company incurred a loss during such periods and thus
their effect would have been anti-dilutive. Accordingly, basic and diluted loss
per share is the same for year ended December 31, 2009 and 2008. Potentially
dilutive securities consisted of outstanding warrants and stock options to
acquire an aggregate of 20,024,963 and 14,553,463 shares of common stock, convertible preferred
stock of 211,621,457 and 3,262,500, and convertible debt of 85,182,020 and 10,714,130, at
December 31, 2009 and 2008, respectively.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash balances and trade receivables. Throughout the
year the Company maintains cash balances in excess of insured limits. The
Company does not require collateral from its customers.
Property and Equipment
Property
and equipment are stated at cost. Depreciation charges with respect to property
and equipment have been made by the Company using straight line and declining
balances based on the following estimated useful lives:
|
|
|
Estimated
Classification Life (Years)
|
|
Computer
hardware and software 5 7
|
|
Furniture
and fixtures 7
|
|
Machinery
and equipment 5 7
|
|
Vehicles 5
|
|
Leasehold
improvements - Shorter of useful life or life of lease
|
Expenditures
for repairs and maintenance are charged to operations as incurred. Expenditures
for betterments and major renewals greater than $1,000 are capitalized and,
therefore, are included in property and equipment.
Intangible Assets
Intangible
assets acquired by the Company in connection with its acquisition of certain
assets of Intelligent Digital Systems, LLC (IDS) have been valued using the
income method, based on future economic benefits expected on a net present
value basis. Values assigned to intangible
F-12
assets are
being amortized over the estimated useful lives of the respective intangible
assets. Values assigned to intangible assets acquired and their useful lives
will be reviewed no less frequently then on an annual basis to
determine if there has been any impairment to the then carrying value of the
assets or if a change in amortization period is required, by FASB ASC
350-35-28. The company performed a review of the fair value of the intangible
assets at year end 2009 and determined no adjustments were required to reflect
fair value at December 31, 2009.
The fair value
hierarchy defines three levels of fair value measurement as follows:
Level 1:
Valuations based on quoted prices (unadjusted) in an active market that are
accessible at the measurement date for identical assets or liabilities. The
fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2:
Valuations based on observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in inactive markets; or
model-derived valuations in which all significant inputs are observable or can
be derived principally from or corroborated with observable market data.
Level 3:
Valuations based on unobservable inputs are used when little or no market is
available. The fair value hierarchy gives lowest priority to Level 3 inputs.
In determining
fair value, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent
possible as well as considers counterparty credit risk (or other parties such
as counterparty in a swap) in its assessment of fair value
The amount of
$1,562,692 was assigned to intangible assets. The intangible assets consist of
the DVR Software and Hybrid DVR Software and are being amortized over their
estimated useful lives of 1 and 5 years respectively.
The following
table summarizes the estimated fair values of the assets acquired at the date
of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
Quoted Market Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant Unobservable
Input
(Level 3)
|
|
|
Total
|
|
DVR Software
|
|
|
|
|
|
|
|
$
|
28,555
|
|
|
$
|
28,555
|
|
Hybrid DVR Software
|
|
|
|
|
|
|
|
$
|
1,534,137
|
|
|
|
1,534,137
|
|
Total
|
|
|
|
|
|
|
|
$
|
1,562,692
|
|
|
$
|
1,562,692
|
|
The intangible
software assets were valued using the income method, using the companys best
estimates of future cash flows from the sales of the products including the
software, a 40% tax rate and discount rates between 15% and 20%.
F-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets
|
|
|
As of December 31, 2009
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
Amortized
Intangible Assets
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization*
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization*
|
|
|
|
|
|
|
|
|
|
|
|
|
DVR Software
|
|
|
$
|
28,555
|
|
$
|
28,555
|
|
$
|
28,555
|
|
$
|
28,555
|
|
Hybrid DVR
Software
|
|
|
$
|
1,534,137
|
|
$
|
804,399
|
|
$
|
1,534,137
|
|
$
|
621,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
1,562,692
|
|
$
|
832,954
|
|
$
|
1,562,692
|
|
$
|
650,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* includes
amortization of $636,242 relating to fair value revaluation of intangible
assets in 2008 $14,277 and $621,965
associated with DVR software and Hybrid DVR software respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense for year
ended 12/31/2009
|
|
$
|
182,434
|
|
|
|
|
$
|
650,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense for years
ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
$
|
182,434
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
$
|
182,434
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
$
|
182,435
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
$
|
182,435
|
|
|
|
|
|
|
|
|
|
|
Capitalized Software
Development Costs
Capitalization
of computer software development costs begins upon the establishment of
technological feasibility, as defined in FASB ASC 985-20-25. The establishment
of technological feasibility and the ongoing assessment of recoverability of
capitalized computer software development costs require considerable judgment
by management with respect to certain external factors, including, but not
limited to, technological feasibility, anticipated future gross revenue,
estimated economic life and changes in software and hardware technology. At
December 31, 2009, the Company has capitalized approximately $180,000 of
software development costs relating to new products, which was all capitalized
during 2008, none in 2009.
Amortization
is provided on a product-by-product basis. The annual amortization is the
greater of the amount computed using (a) the ratio that current gross revenue
for a product bears to the total of current and anticipated future gross
revenue for that product, or (b) the straight-line method over the remaining
estimated economic life of the product. Amortization will start when (a) the
product is available for general release to customers and (b) all research and
development activities relating to the other components of the product are
completed. The Company determined that the Hybrid DVR software products under
development were generally available to customers and as a result, amortization
charges began during the first quarter of 2009. During 2009, amortization
charges totaled approximately $36,000 and were charged to cost of goods sold.
There were no amortization charges during 2008.
The Company
performs reviews of the recoverability of such capitalized software development
costs at each balance sheet date. At the time a determination is made that
capitalized amounts are not recoverable based on the estimated cash flows to be
generated from the applicable software,
F-14
the capitalized cost of each software product
is then valued at the lower of its remaining unamortized costs or net
realizable value.
Revenue Recognition
The Company
generates revenues from the sale and installation of remote management loss
prevention systems, and the distribution of equipment relevant to that
business. Revenue is recognized at the time of the installation or for
distributed products, when products have been shipped, risk of loss and title
to the product transfers to the customer, the selling price is fixed and
determinable and collectability is reasonably assured.
Warranty Reserve
The Companys
products are warranted against defects for twelve months following sale. The
product manufacturers warranty is for the same 12 months. The Company reserves
only for service costs incurred when performing warranty work. Costs incurred
for warranty work is expensed in the period that the work is performed.
Reserves for potential warranty claims are booked at the end of each quarter
and based on the number of return calls to a customer for warranty work. The
reserve is based on several factors including historical sales levels and the
Companys estimate of repair costs. Warranty reserves are made for a quarter,
as that is the longest length of time it takes to effect repairs to items under
warranty.
Advertising
Advertising
costs are expensed as incurred and approximated $0 and $30,600 for the years
ended December 31, 2009 and 2008 respectively.
Income Taxes
The Company utilizes the asset
and liability method of accounting for income taxes pursuant to FASB ASC 740
Accounting for Income Taxes (Prior authoritative literature FASB SFAS No. 109,
Accounting for Income Taxes (SFAS 109)), which requires the recognition of
deferred tax assets and liabilities for both the expected future tax impact of
differences between the financial statement and tax basis of assets and
liabilities, and for the expected future tax benefit to be derived from tax
loss and tax credit carryforwards. FASB ASC 740 (SFAS 109) additionally
requires the establishment of a valuation allowance to reflect the likelihood
of realization of deferred tax assets. We have reported net operating losses
for consecutive years, and do not have projected taxable income in the near
future. This significant evidence causes our management to believe a full
valuation allowance should be recorded against the deferred tax assets.
Equity Based
Compensation
Share-based
compensation is accounted for using the fair value method in accordance with
the Accounting Standards Codification (ASC) Topic 718 (formerly SFAS 123R)
Compensation - Stock Compensation. Under these provisions, we recognize
share-based compensation net of an estimated forfeiture rate; therefore, we
only recognize compensation cost for those shares expected to vest over the
requisite service period of the award (i.e., the period in which the
share-based compensation is earned). The fair value of each stock option award
is estimated on the date of grant using the Black-Scholes option pricing model
based on the underlying common stock closing price as of the date of grant, the
expected term, expected stock price volatility, and expected risk-free interest
rates.
Calculating
share-based compensation expense requires the input of highly subjective
assumptions which include the expected term of the share-based awards, expected
stock price volatility, and expected pre-vesting option forfeitures. We estimate
the expected life of options granted based on historical experience which we
believe is representative of future behavior. We estimate the volatility of the
price of our common stock at the date of grant based on historical volatility
of the price of our common stock for a period equal to the expected term of the
awards. We have used historical volatility due to the limited number of options
traded on our common stock to support the use of an implied volatility or a
combination of both historical and implied volatility.
F-15
The assumptions used in
calculating the fair value of share-based awards represent our best estimates;
however, 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. In addition, we are required to estimate the expected forfeiture
rate and only recognize expense for those shares expected to vest. We estimate
the forfeiture rate based on historical experience of our share-based awards
that are granted, exercised and cancelled. If our actual forfeiture rate is
materially different from our estimate, the share-based compensation expense
could be significantly different from what we have recorded in the current
period.
Note 4. Accounts
Receivable
Accounts
receivable are uncollateralized customer obligations due under normal trade
terms, ordinarily requiring payment within 30 days from the invoice date.
Interest is not charged on unpaid receivables with invoice dates over 30 days
old, though we are permitted under the terms of our existing contracts and
invoices to do so.
Accounts
receivable are stated in the amount billed to the customer. Payments of
accounts receivable are allocated to the specific invoices identified on the
customers remittance advice or, if unspecified, are applied to the earliest
unpaid invoices.
Trade
receivables are presented on the balance sheet as outstanding amounts net of
any allowance for bad debts. The Company maintains an allowance for doubtful
receivables based primarily on historical loss experience. Additional amounts
are provided through charges to income, as management feels necessary, after
evaluation of receivables and current economic conditions. Amounts which are
considered to be uncollectible are charged off and recoveries of amounts
previously charged off are credited to the allowance upon recovery.
The Company
established an allowance account for amounts deemed uncollectible and for
anticipated credits. Such allowance amounted to $4,657 at December 31, 2009 and
$ 58,302 at December 31, 2008.
Note 5. Inventory
Inventory,
which consists of digital video recorders, security cameras and related
installation materials, is stated at the lower of cost or market value. Cost is
computed on the first-in, first-out method. The Company reviews inventory for
slow moving and obsolete inventory during each reporting period. Currently the
Company has no inventory reserve. It purchases the majority of its inventory
for specific jobs, maintain approximately two months of inventory at any one
time, and turn inventory six times a year. Operationally the Company does not
allow its inventory to become obsolete, and in the rare case that an item
becomes slightly aged, it has the ability to rework the item to realize a sale.
The Companys
inventory consisted of a total of approximately $46,460, (approximately $20,000
of raw materials and $26,460 of finished goods) at December 31, 2009, as
compared to a total of $340,650, ($73,000 of raw materials and $267,650 of
finished goods) at December 31, 2008.
F-16
Note 6. Property and
Equipment
The major
classifications of the Companys property and equipment at December 31, 2009
and December 31, 2008 are as follow:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Computer Hardware and Software
|
|
$
|
177,643
|
|
$
|
177,643
|
|
Furniture and Fixtures
|
|
|
35,935
|
|
|
45,727
|
|
Machinery and Equipment
|
|
|
99,387
|
|
|
116,526
|
|
Vehicles
|
|
|
354,140
|
|
|
512,882
|
|
Leasehold Improvements
|
|
|
29,499
|
|
|
29,498
|
|
|
|
|
|
|
|
|
|
Total
Cost
|
|
|
696,604
|
|
|
882,276
|
|
Accumulated Depreciation
|
|
|
(516,531
|
)
|
|
(417,498
|
)
|
|
|
|
|
|
|
|
|
Property and Equipment- net
|
|
$
|
180,073
|
|
$
|
464,778
|
|
|
|
|
|
|
|
|
|
Depreciation
as a charge to operations amounted to $254,163 and $173,715 for the years
ended December 31, 2009 and 2008 respectively.
|
|
|
|
|
|
|
|
|
|
The
following table details equipment currently under capital lease:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Under Capital Lease
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Computer Hardware and Software
|
|
$
|
120,831
|
|
$
|
120,831
|
|
Machinery and equipment
|
|
|
66,262
|
|
|
66,262
|
|
|
|
|
|
|
|
|
|
Total Cost
|
|
|
187,093
|
|
|
187,093
|
|
Accumulated Depreciation
|
|
|
(174,258
|
)
|
|
(117,959
|
)
|
|
|
|
|
|
|
|
|
Equipment Under Capital leases- net
|
|
$
|
12,835
|
|
$
|
69,134
|
|
|
|
|
|
|
|
|
|
Depreciation
as a charge to operations amounted to $56,298 and $84,162 for the years ended
December 31, 2009 and 2008 respectively.
|
Note 7. Capitalized
Leases
Future minimum
lease payments under non-cancelable capital lease obligations at December 31,
2009 were as follows. All equipment leases are currently in default.
F-17
|
|
|
|
|
Equipment leases
|
|
|
2010
|
|
Total future minimum lease
payments
|
|
$
|
105,889
|
|
Less: imputed interest
|
|
|
|
|
|
|
|
|
|
Present value of minimum
lease payments
|
|
$
|
105,889
|
|
Less Current Portion
|
|
$
|
105,889
|
|
Capital Leases Net of
Current Portion
|
|
|
0
|
|
Note 8. Deferred
Financing Costs
Costs
associated with debt financing arrangements are capitalized and on a straight
line basis over the life of the respective debt.
The following
represents the Companys deferred financing costs:
|
|
|
|
|
|
|
|
Deferred
Financing Costs
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
1,089,322
|
|
$
|
1,851,091
|
|
Additions
|
|
|
12,042
|
|
|
27,176
|
|
Amortization
|
|
|
(778,511
|
)
|
|
(788,945
|
)
|
Balance as of December 31
|
|
$
|
322,853
|
|
$
|
1,089,322
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
at December 31
|
|
$
|
1,681,098
|
|
$
|
902,587
|
|
Deferred financing cost additions of
approximately $12,000 and $27,000 in 2009 and 2008 respectively, were for the
costs associated with the issuance of debt, and are being amortized over a 12
month period.
Estimated future
amortization expense for deferred financing costs over the next five years are
estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated future
amortization of deferred financing costs
|
|
$ 322,059
|
|
$ 768
|
|
$ 26
|
|
$
|
|
$
|
|
F-18
Note 9. Income Taxes
The federal
and state components of the provision for income taxes are as follows for
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income tax
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
0
|
|
|
0
|
|
|
State and local
|
|
|
5,000
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
0
|
|
|
0
|
|
|
State and
local
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
5,000
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities
are taxes the Company expects to pay in future periods. Similarly, deferred
income tax assets are recorded for expected reductions in taxes payable in
future periods. Deferred income taxes arise because of differences in the book
and tax basis of certain assets and liabilities.
Deferred
income tax liabilities and assets consist of the following as of December 31,
2009 and 2008 :
|
|
|
|
|
|
|
|
Deferred
taxes are provided for the differences in the tax and accounting basis of
assets and liabilities as follows:
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Net
operating loss
|
|
$
|
4,763,292
|
|
$
|
3,801,376
|
|
Reserves
and accruals
|
|
|
708,345
|
|
|
755,908
|
|
Stock
based compensation
|
|
|
448,295
|
|
|
544,724
|
|
Amortization
|
|
|
597,997
|
|
|
405,381
|
|
Property,
plant and equipment
|
|
|
3,173
|
|
|
4,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred income tax assets
|
|
|
6,521,102
|
|
|
5,511,484
|
|
|
|
|
|
|
|
|
|
Deferred
income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
expense
|
|
|
74,400
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset before valuation allowance
|
|
|
6,446,702
|
|
|
5,463,484
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(6,446,702
|
)
|
|
(5,463,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax asset
|
|
$
|
0
|
|
$
|
0
|
|
The
companys effective tax rate differs from the expected federal income tax rate
as follows:
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Income
tax at statutory rates (34%)
|
|
$
|
(1,399,672
|
)
|
$
|
(2,699,191
|
)
|
Permanent differences
|
|
|
416,454
|
|
|
155,101
|
|
State income tax expense - net
of federal benefit
|
|
|
0
|
|
|
0
|
|
Change in valuation allowance
|
|
|
983,218
|
|
|
2,544,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit) provision
|
|
$
|
0
|
|
$
|
0
|
|
The Company
has net operating loss carryforwards of approximately $11.9 million. These
losses will begin to expire in 2024. Internal Revenue Code Section 382 places a
limitation on the utilization of Federal net operating loss and other credit
carryforwards when an ownership change, as defined by the tax law, occurs.
Generally, this occurs when a greater that 50 percentage point change in
ownership occurs. In July 2007, the Company completed a reverse
merger and in November 2007, as a result of the completion of the Companys
private placement transaction, the investors in the private placement as a
group, upon conversion, would become the beneficial owners of approximately 50%
of the Companys outstanding shares, after consideration of the conversion of
convertible promissory notes issued to those investors in conjunction with the
transaction. Accordingly, the actual utilization of net operating loss carryforwards
and other deferred tax assets for tax purposes will be limited annually under
code section 382 to a percentage of the fair market value of the Company at the
date of this ownership change, and this effect will reduce the amount of these
loss carryforwards which the Company will be able to utilize to offset against
future taxable income. A valuation allowance has been provided against the net
deferred tax assets available due to the uncertainty of the Companys ability
to generate long-term taxable income. The Company expects to reduce its
valuation allowance if and when it believes that it is more likely than not
that it will be realized.
The Company
accounts for income taxes under the provisions of ASC 740 (SFAS No. 109,
Accounting for Income Taxes), which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. At the date of adoption, and as of
December 31, 2009, the Company does not have a liability for unrecognized tax
benefits. The Company files income tax returns in the U.S. federal jurisdiction
and various states. The Company has filed its 2008 Federal tax return but has
not filed its 2008 state tax returns. The Companys policy is to record
interest and penalties on uncertain tax provisions as income tax expense. As of
December 31, 2009, the Company has no accrued interest or penalties related to
uncertain tax positions. We have reviewed our corporate tax returns in an
effort to search for tax positions that (on a more likely than not basis) would
not be sustained if the Company were to undergo a tax audit. Based on the
aforementioned procedures, the Company has concluded that there are no tax
positions that (on a more likely than not basis) would be sustained under a tax
audit.
F-19
Note 10.
Stockholders Equity
Issuance of Equity Compensation to J.H.
Darbie and Co., Inc.
In January 2009, the Company
issued 150,000 shares of common stock to J.H. Darbie and Co., Inc. with a fair
market value of $28,500 based on the closing price of the Companys stock on
the date of share issuance, as compensation for consulting services relating to
an Investment Banking Agreement between the Company and J.H. Darbie, Co. Inc.
That agreement terminated on February 28, 2009.
F-20
Issuance of Equity Compensation to John
Whitman
In February
2009, the Company issued 140,000 shares of the common stock to John Whitman,
pursuant to the Companys Equity Incentive Plan, with a fair market value of
$5,600 based on the closing price of the Companys stock on the date of share
issuance, as compensation for management consulting services rendered to the
Company pursuant to an Agreement between the Company and John Whitman.
Exercise of Warrants
Between May
and July 2009 the Company issued 190,166 shares of its common stock to former
holders of original issue discount notes originally issued by the Company in
March 2007. The shares were issued as the result of the cashless exercise of
warrants to purchase 200,000 shares of the Companys common stock, issued to
the holders as additional consideration for purchase of the notes.
Conversion of Preferred Stock
Between May
and December 2009 holders of shares of the Companys Series A Convertible
Preferred Stock converted 87.6 shares of the Series A Preferred Stock into
43,800,000 shares of the Companys common stock. In connection with these
conversions the Company recorded a deemed dividend of approximately $1,798,000.
In addition, upon conversion, holders of the Series A shares were entitled to
receive 109,500 shares of the Companys common stock in consideration of
penalty provisions of the registration rights agreement under which the Series
A shares were issued. The Company accrued an expense of approximately $6,500 as
a result of the issuance relating to the penalty provisions.
Between April
and December 2009 holders of shares of the Companys Series B Convertible
Preferred Stock converted 307 shares of the Series B Preferred Stock into
61,400,000 shares of the Companys common stock. In connection with these
conversions the Company recorded a deemed dividend of approximately $3,100,000.
Issuance of Equity Compensation to Finders
for Issuance of Series B Convertible Preferred Stock
Between April
and June 2009, The Company issued 14,583 shares of the Companys common stock,
to finders in connection with the Companys offering of Series B Convertible
Preferred Stock.
Conversion of Convertible Notes.
Between
October and December 2009, the Company issued 12,650,000 shares of the
Companys common stock upon the conversion of an aggregate of $126,500 worth of
12% Convertible Notes.
F-21
Note 11. Warrants
Issuance of Warrants to Finders for Issuance
of Series B Convertible Preferred Stock
Between April
and June 2009, The Company issued warrants to purchase 6,830,000 shares of the
Companys Common Stock at a range of exercise prices from $.04 to $0.13 per
share, to finders in connection with the Companys offering of Series B
Convertible Preferred Stock.
Issuance of Warrants to Finders for Issuance
of Convertible Notes
Between April
and June 2009, The Company issued warrants to purchase 50,000 shares of the
Companys Common Stock at $.04 per share, to finders in connection with the
Companys offering of 12% Convertible Notes.
Exercise of Warrants
Between May
and July 2009 the Company issued 190,166 shares of its common stock to former
holders of original issue discount notes originally issued by the Company in
March 2007. The shares were issued as the result of the cashless exercise of
warrants to purchase 200,000 shares of the Companys common stock, issued to
the holders as additional consideration for purchase of the notes.
Summary
The following table presents the Companys 2009 and
2008 activity involving warrants to purchase shares of the common stock
of the corporation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Exercise
Price
(weighted
average)
|
|
|
Shares
|
|
Exercise
Price
(weighted
average)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -
beginning of year
|
|
|
13,328,463
|
|
$
|
0.410
|
|
|
|
13,537,600
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances
|
|
|
|
6,880,000
|
|
|
0.068
|
|
|
|
180,000
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
|
(200,000
|
)
|
|
0.005
|
|
|
|
(329,137
|
)
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
|
|
|
|
|
|
|
|
(60,000
|
)
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -
end of year
|
|
|
20,008,463
|
|
$
|
0.091
|
|
|
|
13,328,463
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approx
Remaining
Term
|
|
Exercise
Price
(weighted
average)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2009
|
|
|
|
|
12/31/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
Shares
|
|
(Years)
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placement Agent
|
|
Common
|
|
|
19,320
|
|
|
1.5
|
|
$
|
0.005
|
|
|
|
19,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred A Shareholders
|
|
|
|
|
616,000
|
|
|
1.5
|
|
|
0.005
|
|
|
|
616,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge Note Investors
|
|
|
|
|
20,000
|
|
|
1.2
|
|
|
0.005
|
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt Holders
|
|
|
|
|
11,250,000
|
|
|
4.9
|
|
|
0.120
|
|
|
|
11,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placement Agent
|
|
2007 Debt
|
|
|
1,223,143
|
|
|
2.9
|
|
|
0.005
|
|
|
|
1,223,143
|
|
Placement Agent
|
|
Preferred B
|
|
|
6,830,000
|
|
|
4.3
|
|
|
0.068
|
|
|
|
|
|
Placement Agent
|
|
2009 Debt
|
|
|
50,000
|
|
|
4.9
|
|
|
0.040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,008,463
|
|
|
4.5
|
|
$
|
0.091
|
|
|
|
13,328,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. Stock Options
Visual Management System Equity Incentive
Plan
The Company
adopted an Equity Incentive Plan (the Plan) in connection with its
acquisition of Visual Management Systems Holding, Inc.
Options
granted under the Plan become vested 50% one year from the date of grant and in
full two years from the date of grant. Options are exercisable immediately upon
vesting. No shares are reserved for the Plan and all shares are expected to be
issued from authorized shares not yet outstanding, or from Treasury Stock, if
available.
The Company
estimated the fair value of each option award on the date of grant using the
Black Scholes valuation model. Assumptions about stock-price volatility have
been estimated by management based upon the implied volatilities of other
publicly traded companies within the industry. The risk-free rate for periods
within the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of grant. Forfeitures were estimated as
managements best approximation.
The following table
presents the weighted-average assumptions used to estimate the fair values of
the stock options granted in 2008. There were no grants in 2009.
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Free Rate of Return
|
|
NA
|
|
|
|
4.00
|
%
|
|
|
Option lives
|
|
NA
|
|
years
|
|
9.83
|
|
years
|
|
Annual Volatility
|
|
NA
|
|
|
|
120
|
%
|
|
|
Forfeiture Rate
|
|
19
|
%
|
|
|
15
|
%
|
|
|
F-23
Summary
The following
table presents the Companys 2009 and 2008 activity involving options to
purchase shares of the common stock of the corporation. There were no grants in
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
Shares
|
|
Weighted
Avg
Exercise Price
|
|
Shares
|
|
Weighted
Avg
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
1,225,000
|
|
$
|
1.02
|
|
1,234,500
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
546,500
|
|
|
0.39
|
|
Forfeited
|
|
208,500
|
|
|
3.09
|
|
556,000
|
|
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
1,016,500
|
|
$
|
0.60
|
|
1,225,000
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at December 31
|
|
879,500
|
|
$
|
0.63
|
|
746,750
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
during the year
|
|
NA
|
|
|
|
|
$ 0.42
|
|
|
|
|
The aggregate intrinsic value of outstanding
and exercisable options to purchase shares at December 31, 2009 was $0.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise prices
|
|
Shares
Outstanding
at 12/31/09
|
|
Weighted
Avg
Life
|
|
Weighted
Avg
Exercise
Price
|
|
Exercisable
at 12/31/09
|
|
Weighted
Avg
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.25
|
|
|
20,000
|
|
|
8.9
|
|
|
|
$
|
0.25
|
|
|
20,000
|
|
|
|
$
|
0.25
|
|
|
|
$
|
0.40
|
|
|
912,000
|
|
|
6.7
|
|
|
|
$
|
0.40
|
|
|
775,000
|
|
|
|
$
|
0.40
|
|
|
|
$
|
2.50
|
|
|
48,500
|
|
|
7.2
|
|
|
|
$
|
2.50
|
|
|
48,500
|
|
|
|
$
|
2.50
|
|
|
|
$
|
3.00
|
|
|
18,000
|
|
|
3.1
|
|
|
|
$
|
3.00
|
|
|
18,000
|
|
|
|
$
|
3.00
|
|
|
|
$
|
3.50
|
|
|
18,000
|
|
|
2.6
|
|
|
|
$
|
3.50
|
|
|
18,000
|
|
|
|
$
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,016,500
|
|
|
6.7
|
|
|
|
$
|
1.02
|
|
|
879,500
|
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized
compensation expense from the vesting of stock options of $79,303 and $388,489
for the years ended December 31, 2009 and 2008 respectively. The Companys
future compensation expense from these stock options is expected to be $26,530.
F-24
Note 13. Financing Activity
Equity Financing
Throughout
2009, the Company issued 500 shares of Series B Convertible Preferred Stock to
accredited investors for an aggregate purchase price of $500,000. The Company
received net proceeds of $429,188 as a result of the offering. Each Series B
convertible preferred share bears a stated value of $1,000 and is convertible
into shares of our common stock at a rate of $0.005 per share. As part of the
offering placement agents received 14,583 shares of the Companys common stock,
and warrants to purchase 6,830,000 shares of the Companys common stock at a
range of exercise prices from $0.04 to $0.12, with those exercise prices determined
by the then market of price of our common stock on the date of closing. As a
result of the issuance the Company accrued a deemed dividend of approximately
$500,000.
Debt Financing
Throughout
2009, the Company issued an aggregate of $186,500 worth of 12%
Convertible Notes. The Company received net proceeds of $176,350, as a result
of the offering. Each 12% Convertible Note is convertible into shares
of the Companys common stock at a rate of $0.01 per share. As part of the offering
placement agents received warrants to purchase 50,000 shares of our common
stock at an exercise price of $0.04, determined by the then market of price of
the common stock on the date of closing.
Between
August and November 2009, the Company issued $229,046 worth of 12%
Convertible Notes in exchange for Original Discount Notes previously issued by
it in 2008 with aggregate principal plus accrued and unpaid interest of
$229,046.
Note 14. Commitments and Contingencies
Office Leases
As of December
31, 2009, the Companys corporate headquarters are located in Toms River, New
Jersey under a lease for approximately 4,500 square feet of office space
expiring in January, 2011. Under the terms of the leases the Company pays
monthly rent of approximately $4,083 per month. The Company records rent on a
straight line basis.
F-25
The minimum
annual rent under non-cancelable leases for the periods subsequent to December
31, 2009, are as follows:
|
|
|
|
|
Year
Ending December 31
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
48,996
|
|
|
|
|
|
|
2011
|
|
$
|
4,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
53,079
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
The Company had borrowings
under the credit facilities listed below as of December 31, 2009 and 2008,
respectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JP Morgan Chase
|
|
$
|
45,283
|
|
$
|
49,981
|
|
On October 4, 2006, the
Company entered into a Business Creditlink agreement with JP Morgan Chase under
which the Company was provided with a $50,000 line of credit. During the fourth
quarter of 2006,the Company drew $50,000 for general corporate purposes. No
additional funds may be drawn against this facility.
Borrowings under the credit
facilty are secured by all of the Companys assets and is personally guaranteed
by the Companys CEO.
F-26
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Debt
summary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
line of credit
|
|
$
|
45,283
|
|
|
$
|
49,981
|
|
|
|
|
|
|
|
|
|
|
Convertible
Notes Payable
|
|
|
289,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
term notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
issue discount notes
|
|
|
150,000
|
|
|
|
400,000
|
|
Unamortized
discount
|
|
|
|
|
|
|
(15,167
|
)
|
Short
term note
|
|
|
267,192
|
|
|
|
267,192
|
|
Shareholder
loan
|
|
|
63,111
|
|
|
|
80,361
|
|
Short
term note-IDS
|
|
|
24,000
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
504,303
|
|
|
|
756,386
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long term debt:
|
|
|
|
|
|
|
|
|
Short
term note
|
|
|
|
|
|
|
|
|
Auto
Loans
|
|
|
108,181
|
|
|
|
93,193
|
|
Chase
Note
|
|
|
7,140
|
|
|
|
7,545
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
115,321
|
|
|
|
100,738
|
|
|
|
|
|
|
|
|
|
|
Current
portion of obligations under capital lease
|
|
|
105,889
|
|
|
|
110,212
|
|
|
|
|
|
|
|
|
|
|
Current
portion of convertible notes payable:
|
|
|
|
|
|
|
|
|
Series
A convertible debenture
|
|
|
4,083,742
|
|
|
|
3,750,000
|
|
Unamortized
discount
|
|
|
(123,333
|
)
|
|
|
(423,333
|
)
|
Convertible
Notes Payable
|
|
|
|
|
|
|
|
|
Unsecured
convertible note (IDS)
|
|
|
1,544,000
|
|
|
|
1,544,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,504,409
|
|
|
|
4,870,667
|
|
|
|
|
|
|
|
|
|
|
Long
term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
loans
|
|
|
77,234
|
|
|
|
204,131
|
|
Chase
note
|
|
|
24,511
|
|
|
|
30,117
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
101,745
|
|
|
|
234,248
|
|
Chase Loan
The Company is
party to a $50,000 term loan agreement with JPMorgan Chase Bank, N.A. which
provides for interest at a rate of 8.61% per annum and which is payable in
equal monthly installments through October 2013. As of December 31, 2009 and
2008, $31,651 and $37,662, respectively, was outstanding under the loan agreement.
F-27
Auto Loans
The Company
had $185,415 and $295,673 in principal balance on auto loans outstanding as of
December 31, 2009 and 2008, respectively. These loans, which bear interest at
rates ranging from 3.9% to 8.69%, mature at various dates through November
2012.
Leased Equipment
The Company
enters into operating leases in the ordinary course of business for office and
other equipment. The current
outstanding value of leased equipment is $12,886
Loan from Former Chief Operating Officer
In 2008 Caroline
Gonzalez the Companys former Chief Operating Officer, and the wife of our
Chief Executive Officer loaned the Company $97,420 via extension of lines of credit on
personal credit cards issued to her by traditional unsecured consumer credit
providers. Since the date of the loan the Company has been making monthly
payments pursuant to the relevant card terms, which include interest rates
ranging from 9.49% to 27.99%. As of December 31, 2009 the outstanding balance
on these accounts was $63,111.
Original Issue Discount Notes
Between April
and September 2008, the Company issued a series of original issue discount
notes to individual investors. These notes totaled $499,450 in face value, and
yielded net proceeds to us of $414,950 after fees paid to consultants and placement
agents. $99,450 in total face value of the OID Notes was retired via payments
to the holders made in June 2008 and October 2008. $250,000 in total face value
of the OID notes was retired via conversion into $229,046 of 12% one-year
convertible notes (which included accrued and unpaid interest) and cash
payments of $29,500. The remaining $150,000 in total face value of OID notes
remain unpaid, and are past due.
November 2007 Debentures
On November
30, 2007, the Company entered into a securities purchase agreement with three
affiliated institutional investors for the sale of original issue discount 5%
senior secured convertible debentures and common stock purchase warrants (the
November 2007 Private Placement). In this transaction, the Company issued an
aggregate of $3.75 million principal amount of debentures at an original issue
discount of 20% and warrants to purchase an aggregate of 11,250,000 shares of
its common stock. The warrants expire in November 2014 and initially had an
exercise price of $1.15 per share, subject to adjustment, including full
ratchet anti-dilution protection.
Since January
1, 2008, the Company has been required to make quarterly payments of interest
under the convertible debentures issued in our November 2007 Private Placement.
The Company has also been required to make monthly principal payments in the
aggregate of $208,333 since November 2008. On August 28, 2008, the Company
entered into an Amendment and Waiver Agreement with each of the holders of
these debentures pursuant to which the debenture holders have:
F-28
-
waived the Companys compliance with the provisions of the debentures which
require us to have a registration statement covering the shares issuable upon
the conversion of the debentures declared effective under the Securities Act of
1933 and maintain the effectiveness of such registration statement;
-
waived the anti-dilution provisions of the debentures which, as a result of
prior transactions, would have otherwise resulted in an adjustment to the
conversion price of the debentures to $.40 per share;
-
waived certain provisions of the agreement pursuant to which the debentures
were issued which restrict the Companys ability to issue common stock and
securities convertible into or exercisable for common stock;
-
waived all registration rights previously granted to the debenture holders with
respect to the shares issuable upon the conversion of the debentures and
exercise of the warrants issued to the debenture holders in connection with the
transaction, provided that the Company does not fail to satisfy the current
public information requirements under Rule 144(c) of the Securities Act of 1933
for a period of three (3) consecutive trading days or more. In the event of such
a public information failure the Company will be required to file a
registration statement covering the shares issuable upon the debentures and
warrants and will be subject to monetary penalties if it fails to obtain and
maintain the effectiveness of the registration statement.
In
consideration of the waivers and in lieu of (i) $250,000 of liquidated damages
that the debenture holders alleged were owed as a result of the our failure to
register the shares underlying the debentures and warrants for public resale
and (ii) $46,875 of accrued and unpaid interest owed to the debenture holders,
the Company agreed to issue shares of its common stock valued at $296,875
(based upon a per share price equal to 80% of the average of the value weighted
average price of the common stock for the 20 trading days prior to the date of
the amendment and waiver) to the debenture holders pro-rata according to their
percentage ownership of the debentures. The Company agreed to register the new
shares for resale under the Securities Act of 1933, as amended.
The exercise
price of the warrants was also adjusted to $.40 per share.
In August
2009, the Company entered into an additional Amendment and Waiver Agreement
with each of the holders of the debentures pursuant to which:
- The Companys default for past incidents of non-payment of interest and
principal on the debentures was waived.
- The total outstanding principal balance of the debentures was increased from
$3,750,000 to $4,083,742, representing the inclusion of accrued interest.
- The conversion price of the debentures was adjusted to $0.10 per share of the
Companys common stock. As of January 1, 2010 the conversion price became the
lesser of $0.10 or 80% of the lowest daily volume weighted average price during
the 20 Trading Days immediately prior to the applicable Conversion Date, but in
no case less than $0.00625.
F-29
- The conversion price of warrants issued to the holders of the debentures at
the time of their original investment was adjusted to $0.12 per share.
Since entering
into this agreement monthly redemptions of principal for the debentures have
became due. Each of these monthly redemption amounts totals $208,333 and has
not been paid by us. Additional redemption payments will also come due on the
first day of each calendar month through May 2010, a date upon which the entire
principal balance of the debentures will have come due.
Quarterly
interest payments owed by the Company to the holders of the debentures in the
amount of $51,000 also have come due and were also not paid by the Company
except for those payments in stock pursuant to a Waiver and Amendment, and a payment in May 2008 of $62,500.
Non-payment of
these amounts, and the failure to file an appropriate registration statement
may be considered default events under the relevant agreements between us and
the holders of the debentures, but no formal notice of default or request for
remedies in the case of default have been issued to the Company by the holders.
As a result of default, the holders have the right to demand payment of
approximately $5,300,000 (representing 130% of the principal amount of the
debentures currently outstanding), as well as all accrued and unpaid interest.
The Company continues to communicate with the holders and are seeking a
resolution to the Companys non-payment situation.
IDS Asset Purchase Convertible Note
In connection
with the April 3, 2008 purchase of substantially all the assets of IDS (the
Asset Purchase), the Company issued to IDS an unsecured convertible note in
the principal amount of $1.54 million, bearing no interest until April 3, 2011.
If not converted, or paid within 30 days of maturity, then from and after the
maturity date, the convertible note will bear annual interest at 12%. The
convertible note is convertible at the discretion of IDS into shares of the
Companys common stock after May 31, 2010, or upon the approval of a majority
in interest of the holders of the Companys then outstanding 5% secured
convertible debentures, or any securities issued on conversion thereof, at an
initial conversion price of $1.15 per share which has subsequently been adjusted to $0.10 per share.
The Company has agreed to register the shares issuable upon the conversion of the note for public resale.
As of December
31, 2009, $24,000 of payments were past due under the note issued to IDS. In
April 2009, IDS and its principal shareholder instituted an action seeking to
collect the entire $1,544,000 due under the note as well as $206,250 remaining
due under the consulting agreement entered into in connection with the Asset
Purchase. See Note 17. Legal Proceedings.
Promissory Note
On June 10, 2008, the Company
issued a promissory note in the principal amount of $267,192 (the New Note) to the Russ &
Russ PC Defined Benefit Pension Plan - a pension plan formed for the benefit of
Mr. Russ - in exchange for the surrender of a promissory note in the principal
amount of $250,000 (the Old Note) which was issued by us to an individual lender in October
2007 and assigned to the pension plan before the exchange. At the time of the
exchange, accrued and unpaid interest under the Old Note, which was past due,
was $17,192. The New Note provided for interest at a rate of 10% per annum and
became due on December 10, 2008. As further consideration for entering into the
exchange transaction, the Company issued to Mr. Russ options to acquire 20,000
shares of the
F-30
our common
stock under the Companys Equity Incentive plan at an exercise price of $0.40
per share. The Company has not paid the holder of the note. IDS and its
principal shareholder instituted an action seeking to collect the past due
amount. See Note 17. Legal Proceedings.
A summary of
our contractual obligations as of December 31, 2009 is as follows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chase Term Loan
|
|
$
|
7,140
|
|
$
|
7,780
|
|
$
|
8,477
|
|
$
|
8,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto Loans
|
|
$
|
108,181
|
|
$
|
45,510
|
|
$
|
31,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased Equipment
|
|
$
|
105,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory Note
|
|
$
|
267,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note
|
|
$
|
1,544,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OID Notes
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12% One-Year Convertible
Notes
|
|
$
|
289,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2007 Debentures
|
|
$
|
4,083,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDS Short Term
|
|
$
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer Note
|
|
$
|
63,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Tax Liability
At December
31, 2009 the Company was also delinquent approximately $76,000 in federal
payroll taxes, approximately $35,000 in state payroll taxes, approximately
$145,000 in state sales taxes and approximately $87,000 in obligations to
employee retirement accounts, exclusive of estimated penalty and interest,
which has been accrued.
Note 15. Related
Party Transactions
See Note 14. Commitments and Contingencies:
Loan from Former Chief Operating Officer
Marty McFeely a member of the Companys Board of Directors, is also
Chief Financial Officer of El Rancho foods, a customer of the Companys Sales
to El Rancho amounted to approximately $165,149 and $72,145 in 2009 and 2008,
respectively.
The following table sets forth the details of the purchases of
shares of the Companys Series B Convertible Preferred Stock made by
the Companys officers and members of the Companys board of directors as part of its 2009 offering.
|
|
|
|
|
|
|
|
Name
|
|
Purchase Price
|
|
Number of Shares
|
|
|
|
|
|
|
|
Jason
Gonzalez (1)
|
|
$
|
10,000
|
|
|
10
|
|
Jonathan
Bergman
|
|
$
|
5,000
|
|
|
5
|
|
W. Geoffrey
Martin
|
|
$
|
5,000
|
|
|
5
|
|
J.D. Gardner
|
|
$
|
2,000
|
|
|
2
|
|
Michael Ryan
(2)
|
|
$
|
40,000
|
|
|
40
|
|
William
Malenbaum
|
|
$
|
4,000
|
|
|
4
|
|
Robert Moe
|
|
$
|
1,000
|
|
|
1
|
|
Jack Jacobs
|
|
$
|
5,000
|
|
|
5
|
|
Marty
McFeely
|
|
$
|
1,000
|
|
|
1
|
|
|
|
(1)
|
Includes purchases by Caroline Gonzalez, the Companys former
Chief Operating Officer, and the wife of its Chief Executive officer
Jason Gonzalez
|
|
(2)
|
Includes purchases by Elizabeth May,
the wife of the Companys director Michael Ryan
|
Note 16. Legal Proceedings
On March 27,
2009, the Company was served with a summons and a complaint in which the
Company, its CEO Jason Gonzalez, its current Board members Robert Moe, Martin
McFeely, Michael Ryan and Col. Jack Jacobs (ret.), and its former CFO Howard
Herman were named as defendants in a suit filed by Mr. Russ, IDS and the Russ
& Russ PC Defined Benefit Pension Plan. In the complaint, which was filed
in the United States District Court for the Eastern District of New York, the
plaintiffs allege, among other things, misrepresentation, securities fraud and
F-31
breach of duty
by the defendants, pertaining to, among other things, the Companys restatement
of our financial results for the periods ended August 31, 2007 and September
30, 2007, and the Asset Purchase. The Complaint also asserts claims regarding
non-payment of amounts allegedly due to the Plaintiffs pursuant to agreements
entered into in connection with the Asset Purchase and the issuance of a note
to Russ and Russ PC Defined Benefit Pension Plan. The Company believes that the
Plaintiffs claims regarding misrepresentation, securities fraud and breach of
duty are entirely without merit and intend to vigorously defend against them.
The plaintiffs seek compensatory and punitive damages in a number of their
claims. If the plaintiffs succeed in any of their claims and obtain a judgment
against the Company, payment of that judgment would have a material adverse
effect on the Companys financial condition and results of operations. The
filing of this lawsuit substantially reduces the likelihood of the Company ever
receiving any return on its investment in its joint venture with IDS.
On January 2,
2010, in response to the Companys motion, the Court in this matter issued an
Order dismissing the securities claims in the Complaint on the grounds that the
note issued to IDS was not a security. This also invalidated the jurisdiction
of the Complaint as no federal subject matter remained, but Plaintiff was
granted leave to amend to plead diversity jurisdiction. At the same time the
Court ruled on Plaintiffs motion to attach our and the named individual
defendants New York assets. The Court denied the attachment of the individual
defendants assets on the grounds that plaintiffs had not established the
required probability of success but granted the attachment against the Company
on the grounds that a judgment on the claims for non-payment was probable. On
April 9, 2009 that attachment was issued against our New York Assets. It is the
Companys position that the attachment of its New York assets is not material
to us, because the Company has no New York assets.
The Company
has been named as the defendant in a number of lawsuits pertaining to vendor
lines of credit which have gone beyond permitted amounts and terms. These suits
seek judgment ranging in value from approximately $4,000 to $200,000. Only the
largest of these individual lawsuits represents a substantial risk to the
Companys ongoing operations, but taken in whole they are likely to have a
material adverse effect on its financial conditions and results of operations.
The Company are the
Defendant in a lawsuit filed in New Hampshire by PC Connection, its former vendor. The complaint seeks approximately
$30,000. The case is pending.
The Company are the
Defendant in a lawsuit filed in California by Northern Video, its former vendor. The complaint seeks approximately $67,000.
The case is pending.
The Company are the Defendant
in a lawsuit filed in New Jersey by American Express, its former provider of charge card services. The complaint
seeks approximately $80,000. The case is pending.
The Company are the
Defendant in a lawsuit filed in New Jersey by Anixter, its former vendor. The complaint seeks approximately $120,000. The
case is pending.
The Company are the Defendant
in a lawsuit filed in New Jersey by CIT, its former provider of credit for the purchase of business management
software. The complaint seeks approximately $120,000. The case is pending.
The Company are the Defendant
in a lawsuit filed in New Jersey by ACIC, its former bonding company for government contract work for the East
Brunswick, NJ Board of Education, Pleasantville, NJ Public Schools, and Raritan Valley Community College. The complaint seeks
approximately $200,000. The case is pending.
Note 17. Subsequent
Events
Issuance of
Convertible Notes.
Between
January 1, 2010 and thru April 13, 2010, the Company issued an aggregate of
$105,500 worth of 12% Convertible Notes. Each 12% One-Year Convertible
Note is convertible into shares of our common stock at a rate of $0.01 per
share.
Conversion of
Convertible Notes.
Between
January 1, 2010 and thru April 13, 2010, an aggregate of approximately $130,000
of the 12% Convertible Note holders converted into 13.05 million
shares of the companys common stock.
F-32
Conversion of
Convertible Preferred B
Between
January 1, 2010 and thru April 13, 2010, holders of the Companys Convertible
Preferred B converted 19 shares into 3.8 million shares of the companys common
stock.
F-33
INDEX
OF EXHIBITS
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Exhibit No.
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Exhibits
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2.1
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Agreement of
Merger and Plan of Reorganization among the Registrant, VMS Acquisition Corp.
and Visual Management Systems Holdings, Inc. (1)
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2.2
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Asset
Purchase Agreement dated as of April 3, 2008 among Visual Management Systems,
Inc, Intelligent Digital Systems, LLC, IDS Patent Holding, LLC and Jay Edmond
Russ (8)
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3.1
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Amended and
Restated Certificate of Incorporation of the Registrant. (2)
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3.1.1
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Certificate of
Amendment to the Companys Amended and Restated Certificate of Incorporation (9)
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3.1.2
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Certificate of
Designation creating Class B Convertible Preferred Stock (9)
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3.2
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By-laws of
Registrant. (3)
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4.1
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Equity
Incentive Plan. (2)
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4.2
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Form of
Warrants to purchase shares of Common Stock at a price of $3.50 per share.
(2)
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4.3
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Form of
Warrants issued to Placement Agent (and sub-agents) to purchase shares of
Common Stock at a price of $2.50 per share. (5)
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4.4
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Form of
Convertible Notes issued by Visual Management Systems Holding, Inc. in the
aggregate principal amount of $150,000. (4)
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4.5
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Form of
Warrant issued by Visual Management Systems Holding, Inc. with respect to an
aggregate 200,000 shares of Visual Management Systems Holding, Inc. Common
Stock. (4)
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4.6
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Securities
Purchase Agreement by and among the Company and the investors identified
therein, dated as of November 28, 2007. (5)
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4.7
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Form of 5%
Secured Debenture. (5)
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4.8
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Form of
Common Stock Purchase Warrant. (5)
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4.9
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Registration
Rights Agreement executed by the Company and for the benefit of the holders
of the 5% Secured Debentures. (5)
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4.10
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Form of
Placement Agent Warrant. (5)
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4.11
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Unsecured
Convertible Promissory Note dated April 3, 2008 issued to Intelligent Digital
Systems, LLC. (8)
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4.12
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Form of 12% Convertible Note (10)
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10.2
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Placement
Agent Agreement by and among the Placement Agent named therein, the Company
and Visual Management Systems Holding, Inc. (2)
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E-1
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10.3
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Form of Lock
Up Agreement between the Registrant and executive officers and certain
stockholders. (2)
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10.4
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Form of
Private Placement Subscription Agreement. (2)
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10.5
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Employment
Agreement dated as of January 1, 2007 between Visual Management Systems, Inc.
and Jason Gonzalez. (4)
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10.6
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Employment
Agreement dated as of January 1, 2007 between Visual Management Systems, Inc.
and Howard Herman. (4)
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10.7
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Employment
Agreement dated as of January 1, 2007 between Visual Management Systems, Inc.
and Caroline Gonzalez. (4)
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10.8
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Employment
Agreement dated as of January 1, 2007 between Visual Management Systems, Inc.
and Jonathan Bergman. (4)
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10.9
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Employment
Agreement dated as of January 1, 2007 between Visual Management Systems, Inc.
and Kevin Sangirardi. (4)
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10.10
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Security
Agreement dated November 30, 2007 executed by the Company and its
subsidiaries for the benefit of the holders of the 5% Secured Debentures. (5)
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10.11
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Subsidiary
Guaranty executed by the subsidiaries of the Company for the benefit of the
holders of the 5% Secured Debentures. (5)
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10.12
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Letter of
Intent between Visual Management Systems, Inc. and Intelligent Data Systems,
LLC (6)
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10.13
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Placement
Agent Agreement between the Company and Kuhns Brothers, Inc. (8)
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10.14
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Consulting
Agreement dated as of April 3, 2008 between Visual Management Systems, Inc.
and Jay Edmond Russ(8)
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10.15
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Operating
Agreement of IDS Patent Holding, LLC effective as of April 2, 2008(8)
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10.16
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Exclusive
Patent and Trade Secret License Agreement effective as of April 2, 2008
between Visual Management Systems, Inc. and IDS Paten Holding, LLC. (8)
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10.17
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Registration
Rights Agreement dated as of April 2, 2008 between Visual Management Systems,
Inc. and Intelligent Digital Systems, LLC. (8)
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10.18
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Promissory Note dated issued to the Russ & Russ P.C. Defined Benefit Plan (11)
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10.19
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Employment Agreement dated as of June 10, 2008 between Visual Management Systems, Inc. and James D. Gardner (11)
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10.20
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Deferred Compensation Plan of Registrant (11)
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10.21
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Amendment and Waiver Agreement dated as of August 29, 2008 between the Registrant and holders of its 5% Secured Convertible Debentures (12)
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10.22
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Amendment and Waiver Agreement dated as of August 2009 between the Registrant and holders of its 5% Secured Convertible Debentures (10)
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E-2
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21.1
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Subsidiaries
of issuer. (7)
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24.1
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Power of
Attorney (included on signature page).
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31.1
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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32.2
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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(1)
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Incorporated by reference
to Exhibit 10.1 to the Companys Report on Form 8-K filed with the Securities
and Exchange Commission on June 18, 2007
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(2)
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Incorporated by reference
to similarly numbered exhibit to the Registrants Report on Form 8-K filed
with the Securities and Exchange Commission on July 23, 2007.
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(3)
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Incorporated by reference
to Exhibit 3.2 to the Registrants Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on May 9, 2006.
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(4)
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Incorporated by reference
to similarly numbered exhibit to the Registrants Report on Form 8-K/A filed
with the Securities and Exchange Commission on April 14, 2008
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(5)
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Incorporated by reference
to similarly numbered exhibit to the Registrants Report on Form 8-K filed
with the Securities and Exchange Commission on December 5, 2007.
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(6)
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Incorporated by reference
to similarly numbered exhibit to the Registrants Report on Form 8-K filed
with the Securities and Exchange Commission on February 12, 2008.
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(7)
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Incorporated by reference
to similarly numbered exhibit to the Registrants Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on December 21,
2007.
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(8)
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Incorporated
by reference to similarly numbered exhibit to the Registrants Report on Form
8-K filed with the Securities and Exchange Commission on April 8, 2008.
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(9)
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Incorporated by reference to similarly numbered exhibit
to the Registrants Report on Form 8-K, filed with the Securities
and Exchange Commission on March 31, 2009.
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(10)
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Incorporated by reference to similarly numbered
exhibit to the Registrants Report on Form 10-Q for the Quarter ended June 30, 2009, filed with the Securities and Exchange Commission on August 19, 2009.
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(11)
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Incorporated by reference to similarly numbered exhibit to Amendment No. 2 to the Registrants
Registration Statement on Form S-1, filed with the Securities and Exchange Commission on July 18, 2008.
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(12)
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Incorporated by reference to similarly numbered exhibit to the
Registrants Report on Form 8-K, filed with the Securities and Exchange Commission on August 29, 2008
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E-3