Table of
Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark
One
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For The Quarterly Period Ended June 30, 2010
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition Period
from to
Commission File Number 001-33521
INFOLOGIX, INC.
(Exact name of registrant as specified in its charter)
Delaware
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20-1983837
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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101 E. County Line Road
Hatboro, PA
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19040
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(Address of principal executive offices)
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(Zip code)
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(215) 604-0691
(Registrants telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
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|
Accelerated filer
o
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Non-accelerated filer
x
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o
No
x
The
number of shares outstanding of each of the issuers classes of common stock as
of the latest practicable date,
Class
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Outstanding at August 12, 2010
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Common Stock, $0.00001 par value per share
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3,729,647 Shares
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Table
of Contents
PART I
- FINANCIAL INFORMATION
Item 1. Financial Statements
INFOLOGIX, INC.
Condensed
Consolidated Balance Sheets
(in thousands, except share amounts)
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June 30,
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December 31,
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2010
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2009
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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2,384
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$
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1,018
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Accounts and other receivables (net of allowance for doubtful accounts
in the amount of $68 and $2 as of June 30, 2010 and December 31, 2009,
respectively)
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12,204
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14,158
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Unbilled revenue
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716
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252
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Inventory, net
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2,182
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1,089
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Inventory deposits
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1,219
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Prepaid expenses and other current assets
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1,124
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674
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Total current assets
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19,829
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17,191
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Property and equipment, net
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443
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600
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Intangible assets, net
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6,578
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7,343
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Goodwill
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10,837
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10,337
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Deferred financing costs
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381
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471
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Total assets
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$
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38,068
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$
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35,942
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LIABILITIES
AND STOCKHOLDERS DEFICIT
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Current liabilities:
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Accounts payable
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$
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7,380
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$
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7,624
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Line of credit
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8,097
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7,559
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Current portion of notes payable
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16,992
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12,336
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Current portion of capital lease obligations
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61
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81
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|
Sales tax payable
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135
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276
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|
Accrued expenses
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3,490
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3,150
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Accrued earn out payable
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2,458
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1,958
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Deferred revenue
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696
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1,690
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Total current liabilities
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39,309
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34,674
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Notes payable, net of current maturities
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187
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231
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Capital lease obligations, net of current maturities
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94
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114
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Derivative liabilities
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668
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2,762
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Deferred income taxes
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687
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592
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Other liabilities
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113
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Total liabilities
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40,945
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38,486
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Commitments and Contingencies
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Stockholders deficit:
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Preferred stock, par value $.00001; authorized 10,000,000 shares; none
issued or outstanding
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Common stock, par value $.00001; authorized 100,000,000 shares; issued
and outstanding 3,729,647 shares and 3,722,156 shares at June 30, 2010 and
December 31, 2009, respectively
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Additional paid in capital
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40,050
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38,132
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Accumulated deficit
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(42,927
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)
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(40,676
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)
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Total stockholders deficit
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(2,877
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)
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(2,544
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)
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|
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Total liabilities and stockholders deficit
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$
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38,068
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$
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35,942
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|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
Table
of Contents
INFOLOGIX, INC.
Condensed
Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share amounts)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2010
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2009
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2010
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2009
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Net revenues
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$
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16,375
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$
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24,411
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$
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30,236
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$
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43,223
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Cost of revenues
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11,527
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19,833
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21,126
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34,510
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Gross profit
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4,848
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4,578
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9,110
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8,713
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Selling, general and administrative expenses
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5,521
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7,748
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11,621
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15,411
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Gain on sale of intangible assets
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(1,863
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)
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(1,863
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)
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Operating income (loss)
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1,190
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(3,170
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)
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(648
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)
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(6,698
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)
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Interest expense
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(1,214
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)
|
(1,189
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)
|
(2,263
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)
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(2,334
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)
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Interest income
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5
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|
15
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Loss on extinguishment of debt
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(420
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)
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(420
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)
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Gain on fair value of derivative liabilities
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679
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764
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|
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|
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Income (loss) before income tax expense
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655
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(4,774
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)
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(2,147
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)
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(9,437
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)
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Income tax expense
|
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(88
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)
|
(7
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)
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(104
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)
|
(14
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)
|
|
|
|
|
|
|
|
|
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Net income (loss)
|
|
$
|
567
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|
$
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(4,781
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)
|
$
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(2,251
|
)
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$
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(9,451
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)
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|
|
|
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Income (loss) per share - basic
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$
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0.15
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$
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(4.65
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)
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$
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(0.60
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)
|
$
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(9.21
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)
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|
|
|
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Income (loss) per share - diluted
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$
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0.12
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$
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(4.65
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)
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$
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(0.60
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)
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$
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(9.21
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)
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Weighted average shares outstanding - basic
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3,729,647
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1,027,408
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3,727,187
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1,025,767
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|
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Weighted average shares outstanding - diluted
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7,420,896
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1,027,408
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3,727,187
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1,025,767
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|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
Table
of Contents
INFOLOGIX, INC.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
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Six Months Ended June 30,
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2010
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2009
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Operating activities:
|
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|
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Net cash (used in) provided by operating
activities
|
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$
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(4,536
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)
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$
|
1,259
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|
|
|
|
|
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|
Investing activities:
|
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Acquisition of property, software and equipment
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(68
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)
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(413
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)
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Proceeds from sale of patent
|
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1,980
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Net cash provided by (used in) investing
activities
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1,912
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(413
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)
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Financing activities:
|
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|
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Proceeds from employee stock purchases
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65
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|
Proceeds from issuance of warrants
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|
78
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|
Payment of deferred financing costs
|
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(68
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)
|
(90
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)
|
Repayment of long-term debt and capital leases
|
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(80
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)
|
(430
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)
|
Proceeds from Equipment Loan
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2,250
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|
|
|
Proceeds from Term Loan C
|
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1,350
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|
Net borrowings from line of credit
|
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538
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|
12
|
|
Net cash provided by (used in) financing
activities
|
|
3,990
|
|
(365
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)
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
1,366
|
|
481
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
1,018
|
|
3,037
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,384
|
|
$
|
3,518
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|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
Table of
Contents
INFOLOGIX, INC.
Condensed
Consolidated Statements of Stockholders Deficit (Unaudited)
(in thousands, except per share amounts
)
|
|
|
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Additional
|
|
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Total
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders
|
|
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|
Shares
|
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Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010
|
|
3,722,156
|
|
|
|
$
|
38,132
|
|
$
|
(40,676
|
)
|
$
|
(2,544
|
)
|
Stock based compensation
|
|
|
|
|
|
642
|
|
|
|
642
|
|
Fractional shares resulting from reverse stock
split
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
Warrant exercise
|
|
7,546
|
|
|
|
|
|
|
|
|
|
Allocated finance costs
|
|
|
|
|
|
12
|
|
|
|
12
|
|
Beneficial conversion feature associated with
convertible debt
|
|
|
|
|
|
945
|
|
|
|
945
|
|
Adjustment of convertible debt discount (see Note
O)
|
|
|
|
|
|
(2,500
|
)
|
|
|
(2,500
|
)
|
Reclassification of warrant liability
|
|
|
|
|
|
2,819
|
|
|
|
2,819
|
|
Net loss
|
|
|
|
|
|
|
|
(2,251
|
)
|
(2,251
|
)
|
Balance, June 30, 2010
|
|
3,729,647
|
|
$
|
|
|
$
|
40,050
|
|
$
|
(42,927
|
)
|
$
|
(2,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements
.
6
Table of
Contents
INFOLOGIX, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share information)
NOTE
ANature of Business, Basis of Presentation and Liquidity
Nature of
business
InfoLogix, Inc.
and its subsidiaries (collectively, the Company) provide enterprise mobility
solutions for the healthcare and commercial markets. The Companys
solutions are designed to allow the real time usage of data throughout an
enterprise in order to enhance workflow, improve customer service, increase
revenue and reduce costs. The products
and services the Company provides include: wireless network design, hardware
and infrastructure, software, consulting, system integration and network and
device management solutions.
On
November 20, 2009, the Company completed a restructuring transaction with
Hercules Technology Growth Capital, Inc. (Hercules) and Hercules
Technology I, LLC (HTI), a wholly-owned subsidiary of Hercules, pursuant to
which $5,000 of the Companys outstanding debt was converted into shares of
common stock and a warrant to purchase shares of the Companys common stock,
and the remaining outstanding debt with Hercules was otherwise restructured
(the Hercules Restructuring). As a result of the Hercules
Restructuring, the Company experienced a change in control and under the terms
of the Debt Conversion Agreement, HTI has certain corporate governance and
other rights with respect to the Company. See Note G- Debt.
Basis of presentation
The
accompanying condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
reporting and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. They do not include all of the disclosures normally made in the
consolidated financial statements contained in the Companys Annual Report on
Form 10-K. In managements opinion, all adjustments considered necessary
for a fair presentation of the consolidated results of operations, financial
position and cash flows for the periods shown have been made. All such adjustments are of a normal and
recurring nature. The notes to the consolidated financial statements contained
in the Annual Report on Form 10-K for the year ended December 31,
2009 should be read in conjunction with these condensed consolidated financial
statements. Operating results for the
three months and six months ended June 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2010.
The
condensed consolidated financial statements include the accounts of
InfoLogix, Inc. and its wholly-owned subsidiaries: InfoLogix Systems Corporation,
OPT Acquisition, LLC, Embedded Technologies, LLC, and InfoLogixDDMS, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes. Management considers materiality and
uses the information available to prepare the consolidated financial statements
including the Companys history, industry standards and the current economic
environment, among other factors, in forming its estimates and judgments.
Because of the uncertainty inherent in such estimates, actual results may
differ from these estimates.
On
January 5, 2010, the Company completed a reverse stock split of its issued
and outstanding common stock by a ratio of one-for-twenty-five. All share and
per share amounts in the accompanying consolidated financial statements have
been adjusted to retroactively reflect the reverse stock split.
Liquidity
The
accompanying financial statements for the three and six months ended June 30,
2010 have been prepared on a going concern basis, which contemplates continuing
operations, securing additional debt or equity financing, restructuring existing debt, effecting one or more
strategic transactions, and realizing assets and liabilities in the ordinary
course of business. However, the Company has incurred significant net losses
from 2006 through the second quarter of 2010, including a net loss in the first
six months of 2010 of $2,251. The Companys losses are attributable to the
difficult economic conditions under which it operates and challenges related to
its transition over the last several years from being primarily a seller of
infrastructure and hardware to becoming a provider of comprehensive enterprise
mobility solutions.
7
Table
of Contents
As
a result of the Companys capital and debt structure and recurring losses, it
has substantial near-term liquidity requirements related to the repayment of a
seller note that becomes due on September 30, 2010, the revolving line of
credit that comes due on May 19, 2011 and earn out payments for past
acquisitions. The Company does not currently expect to generate sufficient cash
flow from operations to fund those obligations. As a result, these factors
raise substantial doubt as to the Companys ability to continue as a going
concern.
The
Company has undertaken a series of actions to reduce costs and is pursuing
various initiatives to continue as a going concern and provide for its future
success. The Companys plan to improve liquidity contemplates additional cost
control measures and may also include additional financing, further
restructuring of its debt and effecting one or more strategic transactions. The
Companys ability to implement these plans successfully is dependent on many
circumstances outside of its direct control, including general economic
conditions and the financial strength of its customers. Any additional
financing the Company is able to secure will likely be subject to a number of
conditions and involve additional costs. Given the current negative conditions
in the economy generally and the credit markets in particular, there is
uncertainty as to whether the Company will be able to generate sufficient
liquidity to repay its outstanding debt, to make its earn out payments, and to
meet its working capital needs. If the Company is unable to improve its
liquidity position, it may not be able to continue as a going concern.
NOTE BRecent Accounting Pronouncements
In
October 2009, the Financial Accounting Standards Board (the FASB) issued
Accounting Standards Update (ASU) No. 2009-13, Revenue Recognition
(Topic 605) - Multiple-Deliverable Revenue Arrangements. ASU No. 2009-13
provides additional guidance on the accounting for revenue recognition for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. This
guidance establishes a selling price hierarchy for determining the selling
price of a deliverable, which is based on: (a) vendor-specific objective
evidence; (b) third-party evidence; or (c) estimates. This guidance
also eliminates the 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. In addition, this
guidance significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. ASU No. 2009-13 is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010 and early adoption is
permitted. A company may elect, but will not be required, to adopt the
amendments in ASU No. 2009-13 retrospectively for all prior periods. The
Company is currently evaluating the requirements of ASU No. 2009-13 and
has not yet determined its impact on the Companys condensed consolidated
financial statements.
In
January 2010, the FASB issued ASU No. 2010-06,
Improving
Disclosures About Fair Value Measurements, which added disclosure
requirements about an entitys use of fair value measurements. Among these
requirements, entities will be required to provide enhanced disclosures about
transfers into and out of the Level 1 (fair value determined based on quoted
prices in active markets for identical assets and liabilities) and Level 2
(fair value determined based on significant other observable inputs)
classifications, provide separate disclosures about purchases, sales, issuances
and settlements relating to the tabular reconciliation of beginning and ending
balances of the Level 3 (fair value determined based on significant
unobservable inputs) classification and provide greater disaggregation for each
class of assets and liabilities that use fair value measurements. Except for
the detailed Level 3 roll-forward disclosures, the new standard is effective
for the Company for interim and annual reporting periods beginning after December 31,
2009. The adoption of this accounting standards amendment did not have a
material impact on the Companys consolidated financial statements. The
requirement to provide detailed disclosures about the purchases, sales,
issuances and settlements in the roll-forward activity for Level 3 fair value
measurements is effective for the Company for interim and annual reporting
periods beginning after December 31, 2010. The Company does not expect
that the adoption of these new disclosure requirements will have a material
impact on its consolidated financial statements.
NOTE CInventory
Inventory consists of the following:
|
|
June 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
Finished goods
|
|
$
|
2,182
|
|
$
|
1,009
|
|
Work in progress
|
|
|
|
80
|
|
|
|
|
|
|
|
Total inventory, net
|
|
$
|
2,182
|
|
$
|
1,089
|
|
8
Table
of Contents
Inventory
deposits of $1,219 at June 30, 2010 represent amounts paid to date to
vendors as advances on future purchases of mobile workstation inventory and are
not included in the table above.
NOTE DINTANGIBLE ASSETS
Intangible
assets consist primarily of non-contractual customer relationships, sales
contracts, patents and technology. Intangible assets that have a definite life
are amortized on a straightline basis over their estimated useful lives or
contract periods, generally ranging from 2 to 16 years.
Intangible
assets at June 30, 2010 and December 31, 2009 consist of the
following:
|
|
June 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
Patents
|
|
$
|
2,696
|
|
$
|
2,824
|
|
Computer software
|
|
2,132
|
|
2,063
|
|
Developed technology
|
|
890
|
|
890
|
|
Customer lists
|
|
4,285
|
|
4,285
|
|
Non compete agreements
|
|
289
|
|
289
|
|
Trademarks and trade names
|
|
1,471
|
|
1,469
|
|
|
|
11,763
|
|
11,820
|
|
Less accumlated amortization
|
|
(5,185
|
)
|
(4,477
|
)
|
|
|
|
|
|
|
Total net intangible assets
|
|
$
|
6,578
|
|
$
|
7,343
|
|
In
June 2010, the Company completed the sale of a U.S. and corresponding
Korean patent that it believes is not essential to its business, for $2,200,
providing net proceeds of $1,980 after commissions. The Company has retained a
worldwide, non exclusive, royalty-free license to use the technology covered by
the patent for all of its current and future products. In connection with
this sale, the Company recorded a gain of $1,863, during the three months ended
June 30, 2010.
Amortization
expense for the three months ended June 30, 2010 and 2009 was $325 and
$363, respectively, and $679 and $728 for the six months ended June 30,
2010 and 2009, respectively.
NOTE E
Goodwill
Goodwill is the excess of the purchase price paid over the fair value
of the net assets of businesses acquired. In conjunction with the acquisition
of substantially all of the assets of Delta Health Systems, Inc. (Delta)
in May 2008, the Company entered into an earn out agreement with Delta in
which Delta is eligible to earn additional consideration in the subsequent two
year period after the closing of the transaction. During the three months ended
June 30, 2010 and the six months ended June 30, 2010, the Company
recorded additional goodwill of $204 and $500, respectively, pursuant to the
earn out agreement.
NOTE
FCustomer and Vendor Concentrations
For
the three months ended June 30, 2010, there was one customer that
represented approximately 12% of net revenues and 19% of net accounts
receivable, and for the six months ended June 30, 2010 there were no
individual customers that comprised 10% or more of net revenues.
For
the three and six months ended June 30, 2009, the top two customers
represented approximately 45% and 32%, respectively, of net revenues and 42% of
net accounts receivable at June 30, 2009.
For
the three months ended June 30, 2010 and 2009, the Company had two vendors
that comprised 25% and 40%, respectively, of total operating costs. For the six
months ended June 30, 2010 and 2009, the Company had two vendors that
comprised 21% and 39%, respectively, of total operating costs.
9
Table of
Contents
NOTE
GDebt
On
May 1, 2008, the Company entered into a loan and security agreement with
Hercules (Loan and Security Agreement), which provided the Company with a
revolving credit facility and a term loan facility. The Loan and Security Agreement was
subsequently amended in November 2008 and May 2009, and the Company
and Hercules entered into a forbearance agreement with respect to certain
defaults under the Loan and Security Agreement in July 2009, and the
parties entered into five amendments to the forbearance agreement over the
course of August through October 2009. In connection with the Hercules Restructuring
that closed on November 20, 2009, the Company entered into an amended loan
agreement with Hercules (Amended Loan Agreement), which amended and restated
the Loan and Security Agreement. The Hercules Restructuring also provided the
Company with up to $5,000 in additional availability under a revolving credit
facility with Hercules. In connection with the Hercules Restructuring, the
Company entered into a Debt Conversion Agreement with HTI (Debt Conversion
Agreement), pursuant to which HTI exchanged $5,000 in existing indebtedness
for (i) 2,691,790 shares of common stock, and (ii) a warrant to
purchase 672,948 shares of common stock. The description of the Amended Loan
Agreement below reflects the terms in place since November 20, 2009, and
as amended on February 19, 2010, April 6, 2010 and June 18,
2010. At June 30, 2010, the Companys
indebtedness to Hercules consisted of a $5,500 term loan (Term Loan A), a
$5,000 convertible note (Term Loan B), a $1,350 convertible note (Term Loan
C), a $12,000 revolving line of credit facility, of which $8,097 was
outstanding at June 30, 2010, and an equipment loan with an outstanding
balance of $2,250 (Equipment Loan).
Term
Loan A has a 48-month term, with principal amortization of approximately $153
beginning December 1, 2010. The
outstanding principal balance on Term Loan A bears interest payable monthly at
12% per annum for the initial year; 18% per annum for the subsequent twelve
months and 15% per annum thereafter.
Term
Loan B has a 60-month term and can be converted, at Hercules option or
automatically if the 90 day value weighted adjusted trading price exceeds five
times the conversion price, into shares of the Companys common stock at
$1.8575 per share. If Term Loan B converts pursuant to the mandatory conversion
feature, the Company has the right to
pay a portion of the conversion amount in cash plus applicable fees, interest
and other charges, instead of shares of common stock, under certain
circumstances and as long as the Companys common stock is listed on certain
national exchanges. If not converted, the outstanding principal balance of Term
Loan B is due on November 1, 2014. The outstanding principal balance on
Term Loan B bears interest at 14.5% per annum for the initial twelve months
following closing of the arrangement; 20.5% per annum for the subsequent twelve
months and 17.5% per annum thereafter. A portion (2.5%) of the interest rate on
Term Loan B is to be paid in kind (PIK) compounded monthly. Pursuant to
Amendment 2, as discussed below, Hercules has the option, at its sole
discretion, to require any and all interest on Term Loan B to be payable in
cash, PIK or in shares of common stock of the Company. The number of shares
into which accrued interest will be converted will be determined on 70% of the
adjusted 60-day average trading price of the Companys common stock on the date
of Hercules election to convert the interest into shares. Both term loans A
and B will be assessed a prepayment charge between 1% and 5% of the total term
loan commitment depending on when paid. Term
Loan B may be partially settled in cash upon conversion.
The
revolving credit facility expires on May 1, 2011, but may be extended at
the Companys option for six months if there is then no existing event of
default. Any advances under the revolving credit facility bear interest
initially at 12.0% per annum until the Term Loans are repaid in full, at which
time the interest rate on outstanding advances will be prime plus 4%.The
borrowing capacity under the revolving credit facility is limited to the lesser
of the maximum availability or 85% of the Companys eligible accounts
receivable as defined in the Amended Loan Agreement. Borrowings under the
revolving credit facility include an over advance provision of up to $500,
which will be due 28 days after the over advance is drawn. Over advances bear interest
at 15% per annum. On June 30, 2010, Hercules advanced to the Company an
additional $1,500, applied to the outstanding balance on the Companys
revolving line of credit facility. The advance increased the outstanding
indebtedness on the revolving line of credit to $8,097, and was provided as an
extension above the Companys eligible borrowing base.
On
February 19, 2010, the Company entered into Amendment No. 1 (Amendment
1) to the Amended Loan Agreement, which provided the Company with an Equipment
Loan allowing the Company to request up to $3,000 in borrowings for use in
purchasing equipment. The Company was permitted to borrow in minimum increments
of $250 under the Equipment Loan, subject to valid, verified purchase orders
acceptable to Hercules from suppliers approved by Hercules in its sole
discretion. In connection with any
advances, the Company is charged a fee of 3% of the purchase price identified
in the relevant purchase orders. All customer receipts related to sales of
products financed by the Equipment Loan are placed in a lockbox account under
the exclusive control of Hercules and customer receipts are applied first to
payment of the Equipment Loan fee, second, to the outstanding principal on the
Equipment Loan and third, to all other obligations existing under the Equipment
Loan. After such application, the excess in the lockbox account
10
Table of
Contents
will
be returned to the Company, unless an event of default exists or could
reasonably be expected to exist, in which case, Hercules may apply the excess
in the lockbox account to any obligation under the Amended Loan Agreement. The
Equipment Loan bears interest at a rate of 1.5% per month and is due on December 31,
2010. Hercules commitment to make additional equipment advances terminated on June 30,
2010, which was extended from the original commitment termination date of April 30,
2010.
On
April 6, 2010, the Company entered into Amendment No. 2 (Amendment 2)
to the Amended Loan Agreement with Hercules. Pursuant to Amendment 2, Hercules
funded Term Loan C in an original principal amount of $1,350. The proceeds of
Term Loan C were used to repay outstanding over advances under the revolving
credit facility. Interest on Term Loan C accrues at a rate of 8% per annum and,
at the discretion of Hercules, is payable either in cash or in kind by adding
the accrued interest to the principal of Term Loan C. All principal outstanding
on Term Loan C is due and payable on April 1, 2013. Term Loan C may be
converted into shares of the Companys common stock at a price of $3.276 per
share at any time at Hercules option. The Company may prepay Term Loan C
without incurring a prepayment penalty charge. The Company also entered into a
registration rights agreement with Hercules whereby it agreed to register the
shares underlying Term Loan C and certain interest that may be paid in shares.
Term
Loan C conversion rights are considered a beneficial conversion feature as they
were in the money on the commitment date. In accordance with ASC 470-20, Debt
with Conversion and other Options, the Company separately accounted for the
liability and equity components of this instrument by allocating the proceeds
from issuance of the instrument between the liability component and the
conversion option. The value ascribed to the beneficial conversion option,
$945, was based upon the intrinsic value of the option on the commitment date
and was reported as a debt discount. The debt discount is being amortized as
additional interest expense over the instruments expected life.
On
June 18, 2010, the Company entered into Amendment No. 3 (Amendment 3)
to the Amended Loan Agreement with Hercules. Pursuant to Amendment 3, Hercules
agreed to release its security interest in a U.S. and corresponding Korean
patent to allow the sale as a permitted transfer under the Amended Loan
Agreement. The cash proceeds of $1,980
from the sale of the patent were applied to reduce the outstanding balance
under the revolving credit facility.
The
Amended Loan Agreement contains certain negative covenants and other
stipulations associated with the arrangement, including covenants that restrict
the Companys ability to incur indebtedness, make investments, make payments in
respect of its capital stock, including dividends and repurchases of common
stock, sell or license its assets, and engage in acquisitions without the prior
satisfaction of certain conditions. Additionally, the Amended Loan Agreement
contains the following financial covenants (i) minimum consolidated
adjusted EBITDA measured on a three month rolling basis as of the last day of
each month of between $150 and $2,000, until December 31, 2011 and
thereafter when $3,000 of consolidated adjusted EBITDA is required, (ii) maximum
leverage ratio measured on a rolling twelve month basis as of the last day
of each fiscal quarter commencing June 30,
2010 of 6.0 to 1.0 decreasing to 1.5 to 1.0 by the quarter ending June 30,
2012, (iii) minimum consolidated fixed charge coverage ratio measured on a
rolling twelve month basis as of the last day of a fiscal quarter commencing June 30,
2010 of 0.75 to 1.0 increasing to 2.0 to 1.0 by the quarter ending June 30,
2012, and (iv) at least $1,000 in unrestricted cash at all times. Failure
to maintain the financial covenants, as well as certain other events including
a change in control, are events of default under the Amended Loan Agreement.
Upon an event of default under the Amended Loan Agreement, Hercules may opt to
accelerate and demand payment of all or any part of our obligations. Under the
terms of the Amended Loan Agreement, late fees are equal to 5% of the past due
amount and default rate interest is equal to the applicable regular interest
rate plus 3%. Hercules may elect to have default rate interest payable in cash
or in kind or in shares of the Companys common stock. All default rate
interest paid in kind will be added to the outstanding principal amount on Term
Loan B, notwithstanding on which loan the interest has accrued. If Hercules
elects to have default rate interest paid in shares, the number of shares into
which such accrued default rate interest will be converted will be determined
based on the adjusted 60-day average price discounted by 30%, on the date of
Hercules election to convert the interest into shares.
In
conjunction with Hercules ability to elect to have default interest paid in
shares at a discounted price, the Company recorded additional debt discount and
embedded derivative liabilities totaling $748 at April 6, 2010, as further
discussed in Note N. The debt discount was determined based on the fair value
of this embedded derivate and was allocated to Term Loans A, B and C. The debt
discount is being amortized to interest expense using the effective interest
method over the expected life of the related loan.
On
February 10, 2010, Hercules sent the Company a letter notifying the
Company of an event of default as of February 5, 2010 and charging the
Company a default interest rate of an additional 3% to the applicable regular
interest rate for the period starting February 5, 2010. Events of default
are continuing and default rate interest will be payable monthly on the same
date as regular interest unless Hercules chooses to demand payment of default
interest on another date. As of June 30, 2010, the Company was not in
compliance with the borrowing base requirement related to the revolver, the
minimum EBITDA requirement, Total Leverage Ratio and Fixed Charge Coverage
ratio. As a result of the above defaults, all balances outstanding under the
Amended Loan Agreement at June 30, 2010 have been classified as current in
the accompanying consolidated balance sheet.
Hercules has not chosen to accelerate the Companys obligations under
the Amended Loan Agreement, but has expressly not waived any events of default
or any of its remedies. The Company does not have adequate liquidity to repay
all outstanding amounts under the credit facility and payment acceleration
would have a material adverse effect on the Companys liquidity, business,
financial condition and results of operations.
Notes
payable consist of the following:
11
Table of Contents
|
|
June 30,
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
Term Loan A note payable to Hercules. At
June 30, 2010 and December 31, 2009, the outstanding principal
balance was $5,500 and $5,500, respectively, net of unamortized discount of $196
and zero, respectively.
|
|
$
|
5,304
|
|
$
|
5,500
|
|
|
|
|
|
|
|
Convertible Term Loan B note payable to Hercules.
At June 30, 2010 and December 31, 2009, the outstanding principal
balance including PIK was $5,502 and $5,015, respectively, net of unamortized
discount of $1,068 and $2,514, respectively. See Note O.
|
|
4,434
|
|
2,501
|
|
|
|
|
|
|
|
Convertible Term Loan C note payable to Hercules.
At June 30, 2010 and December 31, 2009, the outstanding principal
balance was $1,350 and zero, respectively, net of unamortized discount of $873
and zero, respectively.
|
|
477
|
|
|
|
|
|
|
|
|
|
Note payable to Hercules pursuant to the Equipment
Loan.
|
|
2,250
|
|
|
|
|
|
|
|
|
|
Convertible note payable pursuant to an asset
purchase agreement with Healthcare Informatics Associates, Inc.
Principal and accrued interest at 9.0% per annum is due September 30,
2010.
|
|
4,440
|
|
4,252
|
|
|
|
|
|
|
|
Note payable pursuant to an asset purchase
agreement with AMT Systems, Inc. in monthly installments of $9 including
interest at 7.84%, maturing May 31, 2013.
|
|
274
|
|
314
|
|
|
|
|
|
|
|
Total notes payable
|
|
17,179
|
|
12,567
|
|
|
|
|
|
|
|
Less: current maturities
|
|
(16,992
|
)
|
(12,336
|
)
|
|
|
$
|
187
|
|
$
|
231
|
|
NOTE HRelated Party Transactions
Notes
Payable - Stockholder
As
a result of the Hercules Restructuring, Hercules became the Companys majority
stockholder through its wholly-owned subsidiary, HTI. During the three months
ended June 30, 2010 and 2009, Hercules charged the Company interest on
outstanding debt of $824 and $936, respectively, and $1,584 and $1,791 for the
six months ended June 30, 2010 and 2009, respectively, which includes PIK
and default interest.
Professional recruiting services
The
Company maintains a business relationship with Gulian & Associates,
which is owned by the wife of David T. Gulian, the Companys President and
Chief Executive Officer and a director and stockholder of the Company. Under the terms of the arrangement, Gulian & Associates provides the
Company with retainer-based professional recruiting services on a non-exclusive
basis. Gulian & Associates is paid a fee of 20% of a newly hired
persons annual base salary for employees it introduces to the Company. One-third of the estimated fee is due at the
time the hiring request is made. The
remainder is due upon successful placement of a candidate into the role. During
the three months ended June 30, 2010 and 2009, Gulian &
Associates charged fees to the Company of $42 and $78, respectively. During the
six months ended June 30, 2010 and 2009, Gulian & Associates
charged the Company fees of $123 and $146, respectively.
Transaction
commission
During
the three months ended June 30, 2010, the Company made a one-time
commission payment of $220 to The SAGE Group (SAGE), a company in which
Thomas Miller, a member of the Companys board of directors, is a partner. SAGE
provided assistance in identifying a buyer for the Companys patent sale (as
described in Note D). No further payments are required to be made to SAGE.
12
Table of
Contents
NOTE
ICommitments and Contingencies
Litigation
The
Company is involved in disputes or legal actions arising in the ordinary course
of business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Companys financial position, results of
operations or cash flows.
Vendor
commitments
Under
the terms of a master service agreement, the Company granted exclusive rights to
a vendor to provide certain outsourcing services to support the Companys
operations. The Company has a minimum annual commitment to purchase support
services in an aggregate amount of $1,500 per year through 2013. The Company
incurred costs of $141 and $696 for the three months ended June 30, 2010
and 2009, respectively, and $212 and $1,033 of costs for the six months ended June 30,
2010 and 2009, respectively.
NOTE
JIncome Taxes
The
Company has net operating loss carryforwards available for federal and certain
state tax obligations. Because the
Company experienced a change in control as a result of the Hercules
Restructuring, future utilization of the net operating losses is limited under Section 382
of the Internal Revenue Code. The Company has determined that it is more likely
than not that it will not be able to use the net operating losses and other
deferred tax assets and has recorded a full valuation allowance at June 30,
2010. Income tax expense of $88 and $7 for the three months ended June 30,
2010 and 2009, respectively, and $104 and $14 for the six months ended June 30,
2010 and 2009, respectively, results from a deferred tax provision for the
difference between book and tax amortization of indefinite lived assets and
miscellaneous state taxes.
NOTE
K2008 Employee Stock Purchase Plan
The
Company has an employee stock purchase plan (ESPP). The ESPP provides the
Companys employees the opportunity to purchase common stock through
accumulated payroll deductions. The
Company has reserved 40,000 shares for use in the ESPP. The ESPP has
consecutive three month offering periods commencing on the first trading day of
each calendar quarter. The Companys Board of Directors suspended the ESPP
indefinitely effective July 1, 2009.
The
Company issued 82,098 shares for the three months ended March 31, 2009 and
74,769 shares for three months ended June 30, 2009. In connection with the issuance of these
shares, the Company received $35 and $30 in cash in the respective periods. For
the three months and six months ended June 30, 2010, the Company did not
issue any shares under the ESPP.
NOTE
LStock Based Compensation
For
the three months ended June 30, 2010 and 2009, the Company recognized
compensation cost for stock options granted of $325 and $240, respectively, and
for the six months ended June 30, 2010 and 2009, the Company recognized
compensation cost for stock options granted of $642 and $530, respectively.
Option awards generally vest over a 3 to 4 year period of continuous service
and have a ten year contractual term. The fair value of each option
is amortized on a straight-line basis over the options vesting
period. The fair value of each option is estimated on the date of
grant using the Black-Scholes option valuation model. As of June 30, 2010,
the total unrecognized compensation cost related to options amounted to
approximately $1,989 which is expected to be recognized over the options
average remaining vesting period of 2.5 years.
During
the three months ended June 30, 2010 the Company granted 6,000
non-qualified stock options to a member of its board of directors in connection
with his election to the board. During the three months ended June 30,
2009, the Company did not grant any stock options. During the six months ended June 30, 2010
and 2009, the Company granted 719,706 and 400,870 options, respectively.
13
Table
of Contents
NOTE M Operating Segments
The Company has two reportable operating
segments: commercial and healthcare. Each of the reportable segments provides
similar products and services, with a focus on primary vertical markets. The
implementation
and support organizations in both the healthcare and commercial segments
provide solutions that include consulting, business software applications,
mobile managed services, mobile workstations and devices, and wireless
infrastructure. The Company evaluates the performance of its
operating segments based on gross profit and does not allocate assets among
segments. Although there is no intersegment sales or transfers, the Company
shares support, development and administration across both of its segments,.
|
|
Three months ended June 30, 2010
|
|
Six months ended June 30, 2010
|
|
|
|
Healthcare
|
|
Commercial
|
|
Total
|
|
Healthcare
|
|
Commercial
|
|
Total
|
|
Net revenues
|
|
$
|
10,459
|
|
$
|
5,916
|
|
$
|
16,375
|
|
$
|
20,558
|
|
$
|
9,678
|
|
$
|
30,236
|
|
Cost of revenues
|
|
7,011
|
|
4,516
|
|
11,527
|
|
13,799
|
|
7,327
|
|
21,126
|
|
Gross profit
|
|
$
|
3,448
|
|
$
|
1,400
|
|
$
|
4,848
|
|
$
|
6,759
|
|
$
|
2,351
|
|
$
|
9,110
|
|
|
|
Three months ended June 30, 2009
|
|
Six months ended June 30, 2009
|
|
|
|
Healthcare
|
|
Commercial
|
|
Total
|
|
Healthcare
|
|
Commercial
|
|
Total
|
|
Net revenues
|
|
$
|
12,982
|
|
$
|
11,429
|
|
$
|
24,411
|
|
$
|
25,558
|
|
$
|
17,665
|
|
$
|
43,223
|
|
Cost of revenues
|
|
9,746
|
|
10,087
|
|
19,833
|
|
19,027
|
|
15,483
|
|
34,510
|
|
Gross profit
|
|
$
|
3,236
|
|
$
|
1,342
|
|
$
|
4,578
|
|
$
|
6,531
|
|
$
|
2,182
|
|
$
|
8,713
|
|
NOTE N- FAIR VALUE MEASUREMENTS
The
Company categorizes its financial instruments into a three-level fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). If
the inputs used to measure fair value fall within different levels of the
hierarchy, the category level is based on the lowest priority level input that
is significant to the fair value measurement of the instrument. Financial
assets and liabilities recorded at fair value on the Companys consolidated
balance sheets are categorized as follows:
Level
1- Observable inputs such as quoted prices (unadjusted) for identical
assets or liabilities in active markets
Level
2- Inputs, other than quoted prices in active markets that are observable
either directly or indirectly
Level
3- Unobservable inputs for which there is little or no market activity,
which require the Company to develop its own assumptions
The
fair value hierarchy also requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The
fair value of the Companys warrant derivative instruments is estimated using
the Black-Scholes valuation model with observable inputs as discussed further
in Note O. The fair value of the embedded derivatives associated with the
Companys term loans is estimated using a Monte Carlo simulation model.
The
Company recognizes all derivatives as assets or liabilities on its condensed
consolidated balance sheets at fair value with changes in fair value recognized
in current period earnings.
The
following table summarizes the components of the derivative liabilities:
|
|
Fair Value Measurement at June 30, 2010
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Embedded
derivative liability
|
|
|
|
|
|
668
|
|
Warrant
liability
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Embedded
derivative liability
|
|
|
|
|
|
|
|
Warrant
liability
|
|
|
|
2,762
|
|
|
|
|
|
$
|
|
|
$
|
2,762
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivative
On
April 6, 2010, the Company entered into Amendment 2 to its loan agreement
with Hercules as disclosed in Note G.
The amendment changed the terms of interest payment such that interest
on Term Loan B as well as the default interest on Term Loans A, B and C, at
Hercules sole discretion, can be paid in cash, PIK or in shares of common stock
of the Company at 70% of the value of the common stock using a 60-day
average. This feature is considered to be an embedded derivative under
ASC 815-10. The fair value of the embedded derivative was determined to be
$748 as of April 6, 2010 using a valuation model which considered the
projected stock price on the interest payment dates and the impact that the
stock price would have on the form of interest payment. Future stock
prices were projected using a Monte Carlo simulation model. Key inputs
into the model include the spot price of the common stock, estimated risk free
rate and volatility of the common stock. The Company has classified this
embedded derivative within level 3 of the fair value hierarchy.
14
Table of Contents
The
following tables summarize the changes in financial instruments measured at
fair value for which the Company has used Level 3 inputs to determine fair
value. Total realized and unrealized gains and losses recorded for Level 3
instruments are included in the condensed consolidated statement of operations
as a component of the loss on fair value adjustment on derivative liabilities.
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Balance, beginning of period
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Transfers in (out) of level 3 net
|
|
|
|
|
|
|
|
|
|
Originations, net
|
|
748
|
|
|
|
748
|
|
|
|
Change in unrealized gains(losses)
included in earnings at the reporting date
|
|
(80
|
)
|
|
|
(80
|
)
|
|
|
Balance, end of period
|
|
$
|
668
|
|
$
|
|
|
$
|
668
|
|
$
|
|
|
NOTE OFINANCIAL INSTRUMENTS
In
accordance in ASC Topic 815-40, Derivatives and Hedging, warrants outstanding
at December 31, 2009 were recorded as derivative liabilities because the
warrants did not meet the criteria for equity classification. The liabilities were marked to market at the
end of each accounting period until such time as the Company met the
requirements for equity classification.
During the three months ended March 31, 2010, the Company recorded a
gain of $888 related to the change in fair value of derivatives.
During
the three months ended March 31, 2010, the Company changed certain
assumptions related to volatility and dilution used in the valuation of its
warrant liabilities and corrected the calculation used in the valuation of its
warrant liabilities at December 31, 2009.
The resulting charge of $787 is included in the accompanying statement
of operations as an increase to the loss in fair value adjustment on warrant
liabilities for the six month period ended June 30, 2010.
15
Table
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During
the three months ended June 30, 2010, the Company determined that it met
the criteria for equity classification of the warrants as of January 5,
2010. As a result, the Company recorded
a charge of $125 during the second quarter of 2010 to appropriately reflect the
change in fair value on the effective date of the reclassification. The Company
has reclassified the fair value of the warrants to equity as additional paid in
capital.
During
the three months ended June 30, 2010, the Company determined that the
initially recognized debt discount on Term Loan B entered into in November 2009
(see Note G) had been overstated by $1,760, that Term Loan B contained embedded
derivative liabilities that had been understated by $740 and that additional
paid in capital had been overstated by a corresponding $2,500. The value of these embedded derivative
liabilities in November and December 2009 as well as March 31,
2010 was approximately $740. On April 6,
2010, in connection with Amendment 2 to its loan agreement with Hercules (see
Note G), the value of these embedded derivative liabilities became zero. In order to correctly state its balance sheet
at June 30, 2010, during the three months ended June 30, 2010, the
Company reduced additional paid in capital by $2,500, decreased the debt
discount on Term Loan B by $1,760 and recorded a gain of $740 due to the change
in the fair value of these derivative liabilities.
The
correction of the above items did not have any impact on the Companys
consolidated statements of cash flows. Management evaluated the quantitative
and qualitative aspects of the adjustments on 2009 as well as the first and
second quarters of 2010 and concluded these adjustments were not material to
the Companys consolidated financial statements.
The
fair value of warrant liabilities was calculated under the Black-Scholes
pricing model using the Companys stock price on the date of the warrant grant,
the expected volatility, and the risk free interest rate matched to the
warrants expected life, adjusted for the impact of dilution. The Company does
not anticipate paying dividends during the term of the warrants. The Company
uses historical data to estimate volatility assumptions used in the valuation
model. The expected term of warrants is derived from an analysis that
represents the period of time that warrants are expected to be outstanding. The
risk-free rate for periods within the contractual life of the warrant is based
on the U.S. Treasury yield curve in effect at the time of grant.
On March 1, 2010, the Company
issued to Hercules 7,546 common shares upon the cashless exercise of a warrant
to acquire up to 10,000 underlying shares.
The
following table details warrant activity during the six-month period ended June 30,
2010:
Outstanding as of December 31, 2009
|
|
788,948
|
|
Issued
|
|
|
|
Exercised
|
|
10,000
|
|
Forfeited
|
|
|
|
Outstanding as of June 30, 2010
|
|
778,948
|
|
Expiration Date
|
|
Number of
Shares
Underlying
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
2011
|
|
106,000
|
|
$
|
10.49
|
|
2012
|
|
|
|
|
|
2013
|
|
|
|
|
|
2014
|
|
672,948
|
|
$
|
1.86
|
|
|
|
|
|
|
|
Total warrants outstanding
|
|
778,948
|
|
$
|
3.03
|
|
All
outstanding warrants expire no later than November 19, 2014.
The
range of assumptions used in the Black-Scholes pricing model to calculate the
fair value of the financial instruments was as follows:
Exercise
price
|
|
$1.86-$50.00
|
|
Estimated
life
|
|
0.90-4.89 years
|
|
Volatility
|
|
100.03%-145.36%
|
|
Risk
free rate
|
|
0.29%-2.20%
|
|
Dividend
rate
|
|
0%
|
|
16
Table of
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NOTE P
Subsequent Events
On
August 12, 2010, Hercules notified the Company of its election to convert
$5,000 of aggregate principal amount of Term Loan B into shares of the
Companys common stock at the conversion price of $1.8575 per share, for an
issuance of 2,691,790 shares of common stock, effective August 13,
2010. As a result of the conversion, on
August 13, 2010, the Companys outstanding principal balance on Term Loan
B, which includes PIK, was $662.
Hercules continues to have the ability to acquire (i) 356,492
shares of the Companys common stock upon conversion of the Term Loan B
principal, (ii) 412,087 shares of the Companys common stock upon conversion
of the Term Loan C principal and (iii) an indeterminate number of shares
upon conversion of a portion of the interest on the Companys indebtedness to
Hercules.
Item 2.
Managements
Discussion
and Analysis of Financial Condition and
Results of Operations
Forward
Looking Statements
This
report contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, that are based on our current
expectations, estimates, forecasts and projections about our company and our
industry. These forward-looking statements reflect our current views
about future events and can be identified by terms such as will, may, believe,
anticipate, intend, estimate, expect, should, project, plan and
similar expressions, although not all forward-looking statements contain
such identifying words. You are cautioned not to place undue reliance on these
forward-looking statements. These forward-looking statements are
not guarantees of future events and involve risks and uncertainties that are
difficult to predict and are based upon assumptions that may prove to be
incorrect. Our actual results could differ materially and adversely from those
anticipated in such forward-looking statements as a result of certain factors,
including but not limited to, for example:
·
our ability to refinance,
replace or restructure our current indebtedness and to comply with the
financial covenants and other terms and conditions contained in the agreements
governing our indebtedness or any replacement indebtedness;
·
our ability to operate
profitably and manage growth of our business;
·
our ability to introduce new
products and services and maintain products and service quality;
·
our ability to implement our
business plan in difficult economic conditions and to adapt to changes in
economic, political, business or industry conditions;
·
our ability to find
additional financing necessary to support our operations and or strategic
objectives while also maintaining our focus on operating and developing our
business;
·
our ability to identify,
pursue and enter into strategic transactions, including acquisitions and
divestitures:
·
our ability to retain,
replace and hire experienced senior management;
·
our relationships with our
customers, key industry relationships and other third parties on which we rely;
·
competition in the
industries in which we compete;
·
our ability to protect our
intellectual property rights;
·
restrictions on our
operations contained in our loan and security agreement or agreement for any
replacement indebtedness; and
·
our ability to improve our
internal controls over financial reporting.
We
have disclosed important factors that could cause our actual results to differ
materially from our expectations under Risk Factors in our Annual Report on
Form 10-K for the year ended December 31, 2009, our Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2010 and
elsewhere in this report. These cautionary statements qualify all
forward-looking statements attributable to us or persons acting on our behalf.
We do not undertake any obligation to update or revise any forward-looking
statements to reflect new information, future events or otherwise, except as
required by federal securities laws.
Overview
The
following discussion and analysis of our financial condition and results of
operations is intended to assist you in understanding our financial condition
and results of operations. This discussion and analysis should be read in
conjunction with our financial statements and the notes thereto included in
Item 1 of this quarterly report, and Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations included in our
Annual Report on Form 10-K for the year ended December 31, 2009. Many
of the amounts and percentages presented in this discussion and analysis have
been rounded for convenience of presentation, and all dollar amounts, except
per share data, which are presented in thousands.
17
Table of
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Recent Developments
Reverse Stock Split
On
January 5, 2010, we effected a one-for-twenty-five reverse stock split of
our issued and outstanding shares of common stock, par value $0.00001 per
share. Unless otherwise indicated, all share amounts discussed herein reflect
the post-split number of shares of our common stock.
Hercules Restructuring Transactions
On
November 20, 2009, we completed a restructuring transaction with our
senior lender Hercules Technology Growth Capital, Inc. (Hercules) and
its wholly-owned subsidiary Hercules Technology I, LLC (HTI), pursuant to
which $5,000 of our outstanding debt to Hercules was converted into shares of
our common stock and a warrant to purchase shares of our common stock, and the
remaining outstanding debt with Hercules was otherwise restructured (the Hercules
Restructuring). As a result of the Hercules Restructuring, we experienced a
change in control and (i) HTI owns 2,691,790 shares or 72% of our
outstanding common stock, as well as a warrant to acquire up to an additional
672,948 shares of our common stock, and (ii) Hercules may convert a
portion of our remaining indebtedness to Hercules into an additional 2,691,790
shares of our common stock and has the option to convert certain term loan
interest into an indeterminate number of shares of our common stock. In
addition, on March 1, 2010, Hercules exercised a warrant initially
received on June 19, 2009 by which it acquired 7,546 shares of our common
stock. As a result of Amendment 2 to our Amended Loan Agreement on April 6,
2010, Hercules may convert the principal of Term Loan C (defined below) into an
additional 412,087 shares of our common stock and has the option to convert
default rate interest into an indeterminate number of shares of our common
stock.
In
connection with the Hercules Restructuring, on November 20, 2009, we and
Hercules entered into an Amended and Restated Loan and Security Agreement (Amended
Loan Agreement), whereby we and Hercules agreed to restructure our remaining
debt not converted into shares of common stock and a warrant. The Amended Loan
Agreement amended and restated our prior loan and security agreement with
Hercules.
On
February 19, 2010, we entered into Amendment No. 1 ( Amendment 1)
to the Amended Loan Agreement. Under the
Equipment Loan provided by Amendment 1, we may request up to $3,000 for use in
purchasing equipment (the Equipment Loan) subject to valid, verified purchase
orders acceptable to Hercules from suppliers approved by Hercules in its sole
discretion.
On
March 25, 2010, Hercules advanced to us an additional $1,350, initially
applied to the outstanding balance on our revolving line of credit facility
under the Amended Loan Agreement. The advance increased our outstanding
indebtedness on the revolving line of credit to $8,909, and was provided as an
extension above our eligible borrowing base provided in the Amended Loan
Agreement.
On
April 6, 2010, we entered into Amendment No. 2 (Amendment 2) to the
Amended Loan Agreement. Pursuant to Amendment No. 2, Hercules funded a
term loan in an original principal amount of $1,350 (Term Loan C). The
proceeds of Term Loan C were used, in part, to repay outstanding over advances
under the revolving credit facility. Interest on Term Loan C will accrue at a
rate of 8% per annum and, at the discretion of Hercules, is payable either in
cash or in kind by adding the accrued interest to the principal of Term Loan C.
All principal outstanding on Term Loan C will be due and payable on April 1,
2013. Term Loan C may be converted into shares of our common stock at a price
of $3.276 per share at any time at Hercules option. We may prepay Term Loan C
without incurring a prepayment penalty charge. We also entered into a
registration rights agreement with Hercules whereby we agreed to register the
shares underlying Term Loan C.
On
June 18, 2010, we entered into Amendment No. 3 (Amendment 3) to the
Amended Loan Agreement with Hercules. Pursuant to Amendment 3, Hercules agreed
to release its security interest in a U.S. and corresponding Korean patent to
allow the sale of that asset as a permitted transfer under the Amended Loan
Agreement. In June 2010, we
completed the sale of the patents, which management believes are non-essential
to our business, for $2,200, providing net proceeds of $1,980 after
commissions. The one time commission payment of $220 was paid to The SAGE
Group, a company in which Thomas Miller, a member of our board of directors, is
a partner. We have retained a worldwide, non exclusive, royalty-free license to
use the technology covered by the patent for all current and future
products. The cash proceeds of $1,980 from the sale of these patents were
applied to reduce the outstanding balance under our revolving credit facility.
On
June 30, 2010, Hercules advanced us an additional $1,500, which was
applied to the outstanding balance on our revolving line of credit. The advance
increased our outstanding indebtedness on the revolving line of credit, to
$8,097, and was provided as an extension above our eligible borrowing base.
On
February 10, 2010, Hercules sent us a letter notifying us of an event of
default because our borrowings under the revolving credit facility exceeded our
borrowing base as of February 5, 2010 and charging us a default interest
rate of an additional 3% to the applicable regular interest rate for the period
starting February 5, 2010. Events of default are continuing and default
rate interest will be payable monthly on the same date as regular interest
unless Hercules chooses to demand payment of default interest on another date.
Hercules may elect to have default rate interest paid in cash, in kind or in shares
of our common stock.
On
August 12, 2010, Hercules notified us of its election to convert $5,000 of
aggregate principal amount of Term Loan B into shares of our common stock at
the conversion price of $1.8575 per share, for an issuance of 2,691,790 shares
of common stock, effective August 13, 2010. As a result of the conversion, on August 13,
2010, our outstanding principal balance on Term Loan B, which includes PIK, was
$662. Hercules continues to have the
ability to acquire (i) 356,492 shares of our common stock upon conversion
of the Term Loan B principal, (ii) 412,087 shares of our common stock upon
conversion of the Term Loan C principal and (iii) an indeterminate number
of shares upon conversion of a portion of the interest on our indebtedness to
Hercules.
18
Table
of Contents
Hercules
has not chosen to accelerate our obligations under the Amended Loan Agreement,
but has expressly not waived any events of default or any of its remedies. We
do not have adequate liquidity to repay all outstanding amounts under the
credit facility and payment acceleration would have a material adverse effect
on our liquidity, business, financial condition and results of operations.
Nasdaq Delisting Notice/Appeal Hearing
Our
common stock is listed on The Nasdaq Capital Market, which imposes, among other
requirements, a requirement that a listed company maintain either a minimum of
$2,500 in stockholders equity, a minimum of $35,000 of market value of listed
securities, or net income from continuing operations of at least $500 in the
most recently completed fiscal year or in two of the three most recently
completed fiscal years. On August 19, 2009, we received a letter from
Nasdaq, notifying us that we were not in compliance with these requirements. On
October 30, 2009, we received notice that Nasdaq granted our request for
an extension to regain compliance with these requirements. We had until November 20,
2009 to regain such compliance. On November 25, 2009, we received notice
from Nasdaq that we had regained compliance with the $2,500 stockholders
equity requirement for continued listing on The Nasdaq Capital Market, but
noting that Nasdaq would continue to monitor our compliance with this listing
rule, and that, if at the time of our next periodic report we did not evidence
compliance, we might be again subject to delisting. On April 20, 2010, we received a new
staff determination letter from Nasdaq regarding our non-compliance with the
Nasdaq continued listing standards. At December 31, 2009, our
stockholders deficit of $2,544 was again below Nasdaqs minimum stockholders
equity requirement. The Nasdaq staff determined to delist our common stock on April 29,
2010 unless we requested a hearing before a Nasdaq Listing Qualifications Panel
(Panel) on or before April 27, 2010. On April 27, 2010, we
requested a hearing before the Panel and, as a result, our common stock
remained listed on Nasdaq pending the issuance of a decision by the Panel
following the hearing, which took place on June 10, 2010. On July 8, 2010, we received a letter
from Nasdaq stating that the Panel granted our request for continued listing on
the Nasdaq Stock Market subject to several conditions including, among other
things, the occurrence of certain events, which may include restructuring our
debt, pursuing additional debt and equity financing and completing one or more
strategic transactions, by August 15, 2010, and our ability to regain
compliance with all the requirements for continued listing on Nasdaq by
October 18, 2010. In connection with the conditions set by NASDAQ,
on August 13, 2010, the original principal of Term Loan B was converted into
shares of our common stock (for more information, see Item 1, Financial
Statements, Note PSubsequent Events).This extension represents the maximum
length of time that a Nasdaq Hearings Panel may grant to regain compliance
under the Nasdaq Listing Rules and, while we are diligently taking steps
to comply with the conditions of the Panels decision, there can be no
assurances that we will be able to do so.
A delisting of our common stock from Nasdaq could adversely affect the
market liquidity of our common stock and cause the market price of our common
stock to decrease and could also adversely affect our ability to obtain
financing for our continued operations and/or result in the loss of confidence
by investors, customers, suppliers and employees. If our common stock is delisted we may seek
to have our stock quoted on the Pink OTC Market (also known as the Pink Sheets)
or trade on the OTC Bulletin Board, however, there can be no assurance that we
will be successful in such efforts.
Change
in independent registered public accounting firm
On
June 10, 2010, we were orally notified by McGladrey &
Pullen, LLP (McGladrey & Pullen), our independent registered public
accounting firm, that it was resigning as our independent registered public
accounting firm, effective immediately. The termination of the
auditor-client relationship was subsequently confirmed in writing. During the
two most recent fiscal years ended December 31, 2009 and 2008, and through
the date of its resignation, we did not have any disagreements with McGladrey &
Pullen on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of McGladrey & Pullen, would have caused
us to make reference to the subject matter of the disagreement. On
June 22, 2010, the Audit Committee of our Board of Directors engaged KPMG
LLP (KPMG) to serve as our new independent registered public accounting firm
for the year ending December 31, 2010, and its engagement commenced
immediately.
General
We
provide end-to-end solutions for electronic medical record (EMR) and supply
chain implementation and mobilization (SCM), with experience in over 2,200
hospitals and businesses in North America. We assist our healthcare and
commercial customers by implementing and optimizing EMR and SCM systems, offering mobility to caregivers and
workforces by making data accessible directly at the point of care or point of
activity, and managing
operations with services to improve clinical and financial performance and
supply chain with services to drive greater efficiency.
We provide solutions to our customers by utilizing a combination of
products and services, including consulting, business software applications,
mobile managed services, mobile devices, and wireless infrastructure. Our
solutions are designed to allow the real time usage of data throughout a
customers enterprise in order to enhance workflow, improve customer service,
increase revenue and reduce costs. We sell wireless communication and computing
devices, including mobile workstations that connect to a customers wireless
network so that information can be accessed from any location within the
enterprise. We also implement customized and third-party software applications with
a particular expertise in electronic medical records in the healthcare industry
and SAP® back-
19
Table of
Contents
end
systems in commercial enterprises. In addition, we offer professional services
that support and complement enterprise-wide software implementations and a
customers wireless computing systems, including consulting, mobile managed
services, training, engineering, technical support and network monitoring.
The sale of mobile workstations and other wireless devices has been,
and continues to represent a majority of our net revenues. We are continuing to
transition our business to offer higher margin consulting, other professional
services, and software applications. With our focus on selling services and
software, we believe that we can provide more comprehensive enterprise mobility
solutions to our customers. These solutions involve:
·
Consulting with our
customers to identify opportunities to use mobile technology in their
enterprise to improve operations and the quality of their customer service by
more efficiently managing people and assets.
·
Providing our customers with
ongoing managed services that are designed to supplement their information
technology department, such as training, maintenance and repair, network
monitoring including both on-site and remote, software application upgrades,
network security and workflow consulting.
·
Assessing our customers existing
wireless infrastructurethe cables, routers and network adapters from which a
wireless network is constructedand developing improved network designs to
ensure effective wireless connectivity and infrastructure systems integration.
·
Developing and implementing
custom and industry specific software applications including healthcare
clinical electronic medical records and enterprise-wide systems by using
existing proprietary and third-party software.
·
Delivering and installing
wireless infrastructure and user devices, including mobile workstations.
We manage our business primarily by market verticals, driven by our
sales organization. We have two operating segments consisting of our healthcare
and commercial businesses. The healthcare segment is principally composed of
our activities in hospitals and other related healthcare facilities. The
commercial segment focuses on all other vertical markets including
pharmaceutical, manufacturing, wholesale and retail distribution and service
industries.
In order to improve our operating efficiencies and gross margin, we are
transitioning from custom order processing for our mobile workstations to a
standardized suite of products. In the first quarter of 2010, we started
pre-ordering our new standardized mobile workstations from a third-party vendor
based on our estimates of expected sales, thereby increasing the amount of our
available inventory on-hand. If our estimates as to the amount of workstations
to be sold or the timing of sales do not materially correspond to actual sales,
we will be required to hold workstations in our inventory for periods longer
than we expected.
We serve the healthcare and commercial industries,
which are experiencing significant challenges, primarily due to the continued
weak macroeconomic conditions that have resulted in a decreased demand for
their products and services. As a result, some of our customers may face
business and financial challenges for the remainder of 2010. For example, some of our customers are facing
constraints on their information technology budgets and are seeking more
flexibility in the type of mobility solutions they implement and the timing of
their purchases from us. It is unclear when the general economic climate will
improve and when our customers may benefit from improved conditions.
We conduct substantially all of our operations through our wholly-owned
subsidiary, InfoLogix Systems Corporation. We own our patents and patent
applications through our wholly-owned subsidiaries OPT Acquisition, LLC, Embedded
Technologies, LLC and InfoLogixDDMS, Inc.
Going Concern
The current weak macroeconomic conditions have had a major impact on
the industries we serve. During 2009, we experienced reduced sales and
compressed margins, particularly related to the sales of mobile workstations
and related infrastructure in the healthcare markets that we serve. We believe
this slowdown is primarily the result of adverse economic conditions affecting
the healthcare industry, including constrained budgets promulgated by difficult
access to capital in community and other not-for-profit hospitals. We have
responded to the challenging times by undertaking a series of cost reduction
initiatives, including the elimination of executive bonuses, reduction of
employee salaries and reduction in the number of employees. Economic conditions
did not improve in the first two quarters of 2010 and although we continue to
reduce our expenses successfully, we expect 2010 to continue to be a
challenging year.
Our condensed consolidated financial statements for the three and six
months ended June 30, 2010 have been prepared on a going concern basis,
which contemplates continuing operations, securing additional debt or equity
financing, restructuring our existing debt, effecting one or more strategic
transactions, and realizing assets and liabilities in the ordinary course of
business. However, we have incurred
significant net losses from 2006 through the second quarter of 2010, including
a net loss of $2,251 for the six months ended June 30, 2010. Our losses are partly attributable to costs
related to our debt and our debt restructuring, and the difficult economic
conditions under which we operate, and challenges related to our transition
over the last several years from being primarily a seller of
20
Table of
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infrastructure
and hardware to becoming a provider of comprehensive enterprise mobility
solutions. During this transition period, we have hired experienced management
and staff to execute our business plans and have made strategic acquisitions.
We have also managed our liquidity through this transition, primarily by
funding operations with indebtedness, which at June 30, 2010 included
$22,700 of senior debt at high interest rates and other associated costs.
As a result of our capital and debt structure and recurring losses, we
have substantial liquidity requirements related to the repayment of a seller note
that comes due on September 30, 2010, our indebtedness to Hercules, and
earn out payments for past acquisitions. We do not currently expect to generate
sufficient cash flow from operations to fund those obligations. As a result,
these factors raise substantial doubt as to our ability to continue as a going
concern.
We
have undertaken a series of actions to reduce costs and are pursuing various
initiatives to continue as a going concern and provide for our future success.
To facilitate this process, the Companys Board of Directors has established a
special committee of our independent directors to assist in evaluating and
recommending specific initiatives. Our plan to improve our liquidity
contemplates additional cost control measures and may also include additional
financing, further restructuring of our debt and effecting one or more
strategic transactions. Our ability to implement these plans successfully is
dependent on many circumstances outside of our direct control, including
general economic conditions and the financial strength of our customers. Any additional financing we are able to
secure will likely be subject to a number of conditions and involve additional
costs. Given the current negative conditions in the economy generally and the
credit markets in particular, there is uncertainty as to whether we will be
able to generate sufficient liquidity to repay our outstanding debt, to make
our earn out payments, and to meet working capital needs. If we are unable to
improve our liquidity position, we may not be able to continue as a going
concern.
Characteristics of our net revenues
and expenses
We generate our net revenues through the resale of wireless and mobile
hardware and systems, including mobile workstations, handheld and wearable
computers, peripherals, and related products under which the revenue is
recognized. Sales revenue on product is recognized when both the title and risk
of loss transfer to the customer, generally upon shipment.
We also generate revenues from consulting and professional services on
either a fixed fee or time and expense basis. Net revenues from our consulting
and professional services are primarily recognized on a time and expense basis
at the time the service is delivered and the expenses are incurred. Net revenues
from the sale of our proprietary learning technologies and any professional
consulting or engineering services provided on a fixed-fee basis are recognized
according to a proportionate performance method of accounting and is recognized
ratably over the contract period based upon actual project hours as compared to
budgeted project hours. Payments received in advance of services performed are
recorded as deferred revenue. Certain contract payment terms may result in
customer billing occurring at a pace slower than revenue recognition. The
resulting revenue recognized in excess of amounts billed and project cost is
included in unbilled revenue on our condensed consolidated balance sheet.
We also generate net revenues from the sale of warranties on wireless and
mobile hardware and systems, including mobile workstations, computers,
peripherals, and related products. We
sell original equipment manufacturers component warranties and warranty
programs sponsored by other third parties, including extended warranties, and
recognize the revenue on a net basis upon execution of the warranty
agreement. As we have been transitioning
our business away from the sale of hardware and related warranties, we are not
selling new extended warranty programs except for those serviced by
third-parties and we have taken steps to confirm with our customers that
third-parties are the obligors under their warranties.
Cost of revenues consists of all expenses that are directly
attributable to the costs associated with the purchase, for resale, of wireless
and mobile hardware and systems, including computers, peripherals, and related
products. Fluctuations in our gross margin may occur due to changes in our
ability to obtain discounts on product sales or our ability to negotiate higher
margins on sales contracts with large customers. Cost of sales also consists of
the direct costs associated with those employees or sub-contractors that
perform our professional consulting services on behalf of our customers.
Selling
expenses primarily consist of the salaries, benefits, travel and other costs of
our regional and national account sales representatives, sales management and
business development expenses. General and administrative expenses primarily
consist of the costs attributable to the support of our operations, such as:
costs related to salaries for management, administrative and human resources
personnel, information systems, expenses and office space costs, inside sales
and customer support, warehousing, technical support, financial accounting,
purchasing, insurance, recruiting fees, legal, accounting and other
professional services.
Critical
Accounting Estimates and Policies
Our condensed consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United States
of America (GAAP), which requires us to make estimates and assumptions that
affect the reported amounts of assets
21
Table of
Contents
and
liabilities at the date of the financial statements and the reported amounts of
net revenues and expenses during the reporting periods. Critical accounting
policies are those that require the application of managements most difficult,
subjective, or complex judgments, often because of the need to make estimates
about the effect of matters that are inherently uncertain and that may change
in subsequent periods. In preparing the condensed consolidated financial statements,
management has made estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements, and the
reported amounts of net revenues and expenses during the reporting periods. In preparing the consolidated financial
statements, management has utilized available information, including our past
history, industry standards and the current economic environment, among other
factors, in forming its estimates and judgments, giving due consideration to
materiality. Actual results may differ from these estimates. In addition, other
companies may utilize different estimates, which may impact the comparability
of our results of operations to those of companies in similar businesses. We
believe that of our significant accounting policies, the following may involve
a higher degree of judgment and estimation.
Revenue recognition
Net revenues are generated through product sales, warranty and
maintenance agreements, professional consulting, programming and engineering
services, long-term support services, and educational learning programs. Net
revenues from product sales are recognized when both the title and risk of loss
transfer to the customer, generally upon shipment. Net revenue from the sales
of warranties is recognized upon execution of the warranty agreement. We do not bear associated warranty risk
because it is contracted with third parties, the primary obligors, to fully
assume all risks and obligations.
Revenue from consulting and other professional services is recognized
on either a fee-for-service or fixed fee basis. Revenue from consulting and
other professional services that is contracted as fee-for-service is recognized
in the period in which the services are performed. Direct costs for travel and
accommodations are reimbursable in accordance with the contract terms and are
recognized as revenue in the period the related expense is incurred. Revenue from the sale of proprietary learning
technologies and those consulting and other professional services provided on a
fixed-fee basis is recognized according to a proportionate performance method
of revenue recognition and is recognized over the contract period. Changes in
these assumptions, including estimates on fixed fee contracts, can materially affect
the amount of net revenue recognized in our net income from operations.
Periodically, we recognize revenue and record unbilled revenue as an asset on
our balance sheet to reflect services provided but not yet billed pursuant to
contract terms.
We record amounts billed to our customers for shipping and handling
fees as revenue. All amounts billed in a sale transaction related to shipping
and handling represent revenues earned for the goods provided and requires such
amounts are classified as revenue. Shipping and handling costs are recorded in
general and administrative expenses in the consolidated statement of
operations.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using the first in, first out method.
We periodically review our inventories and make provisions as necessary
for estimated obsolete and slow-moving goods. We mark down inventory in an
amount equal to the difference between cost of inventory and the estimated
market value based on assumptions about future demands, selling prices and
market conditions. The creation of such provisions results in a write-down of
inventory to net realizable value and a charge to cost of revenues.
Goodwill
and other intangible assets
Goodwill
is tested for impairment annually in December by
comparing the fair value of the recorded assets to their carrying amount. The
carrying value of other intangible assets is reviewed for possible impairment
whenever events or changes in circumstances indicate that their carrying value
may not be recoverable. If the carrying
amount of the goodwill or other intangible assets exceeds its fair value, an
impairment loss is recognized. The evaluation of goodwill and other intangible
assets requires the use of judgment and numerous subjective assumptions, which,
if actual experience varies, could result in material differences in the
requirements for impairment charges.
Stock based compensation
We measure stock based compensation awards using a fair value method
and amortize the resulting expense on a straight line basis over the requisite
service period of the award, generally the vesting period.
We estimate the grant date fair value of stock options using the
Black-Scholes option-pricing model which requires the input of highly
subjective assumptions. These assumptions include estimating the expected term
of the award and the estimated volatility of
22
Table of
Contents
our
stock price over the expected term. Changes in these assumptions and in the
estimated forfeitures of stock option awards can materially affect the amount
of stock based compensation recognized in our consolidated statements of
operations.
Gain on fair value of derivative liabilities
Our derivative liabilities
are recorded at fair value, which is estimated using relevant market
information and other assumptions. Fair value estimates involve uncertainties
and matters of judgment regarding assumptions used. Changes in our assumptions
or market conditions could significantly affect the estimates and have a
material impact on our financial position and results of operations.
Results of Operations (unaudited)
Results
of operations expressed as a percentage of net revenues were as follows:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost of revenues
|
|
70.4
|
%
|
81.2
|
%
|
69.9
|
%
|
79.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
29.6
|
%
|
18.8
|
%
|
30.1
|
%
|
20.2
|
%
|
Selling, general and administrative expenses
|
|
33.7
|
%
|
31.7
|
%
|
38.4
|
%
|
35.6
|
%
|
Gain on sale of intangibles
|
|
11.4
|
%
|
0.0
|
%
|
6.2
|
%
|
0.0
|
%
|
Operating income (loss)
|
|
7.3
|
%
|
(12.9
|
)%
|
(2.1
|
)%
|
(15.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(7.4
|
)%
|
(4.9
|
)%
|
(7.6
|
)%
|
(5.4
|
)%
|
Interest income
|
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
Loss on extinguishment of debt
|
|
0.0
|
%
|
(1.8
|
)%
|
0.0
|
%
|
(1.0
|
)%
|
Fair value adjustment on derivative liabilities
|
|
4.1
|
%
|
0.0
|
%
|
2.6
|
%
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
4.0
|
%
|
(19.6
|
)%
|
(7.1
|
)%
|
(21.8
|
)%
|
Income tax expense
|
|
(0.5
|
)%
|
(0.0
|
)%
|
(0.3
|
)%
|
(0.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
3.5
|
%
|
(19.6
|
)%
|
(7.4
|
)%
|
(21.8
|
)%
|
Three Months ended June 30, 2010 compared with
the Three Months ended June 30, 2009
Net revenues
Net
revenues for the three months ended June 30, 2010 and 2009 were as
follows:
23
Table of
Contents
|
|
Three Months Ended June 30,
|
|
Amount of
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
2,780
|
|
$
|
8,310
|
|
$
|
(5,530
|
)
|
(67
|
)%
|
Professional Services
|
|
7,426
|
|
4,233
|
|
3,193
|
|
75
|
%
|
Managed Services
|
|
253
|
|
439
|
|
(186
|
)
|
(42
|
)%
|
Total Healthcare
|
|
10,459
|
|
12,982
|
|
(2,523
|
)
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
3,755
|
|
9,275
|
|
(5,520
|
)
|
(60
|
)%
|
Professional Services
|
|
1,843
|
|
1,662
|
|
181
|
|
11
|
%
|
Managed Services
|
|
318
|
|
492
|
|
(174
|
)
|
(35
|
)%
|
Total Commercial
|
|
5,916
|
|
11,429
|
|
(5,513
|
)
|
(48
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
16,375
|
|
$
|
24,411
|
|
$
|
(8,036
|
)
|
(33
|
)%
|
Net
revenues were $16,375 for the three months ended June 30, 2010, compared
to $24,411 for the three months ended June 30, 2009, representing a
decrease of $8,036 or 33%. The decrease in our Healthcare segment net revenues
was due to fewer infrastructure orders resulting from our transition away from
a former supplier of mobile workstations to the launch of our new suite of
mobile workstations and power systems and the current weak macro-economic
conditions in the first half of 2010. This decrease was partially offset by an
increase in professional services net revenue resulting from increased demand
for EMR implementation and SCM services.
The decrease in our Commercial segment net revenues was due to lower
resales of infrastructure and hardware products as we continue to transition
our business to offer higher margin consulting and other professional services.
The reimbursable expense revenue included in our professional services revenue
totaled $788 and $592 for the three months ended June 30, 2010 and 2009,
respectively.
Cost of
revenues
Cost
of revenues for the three months ended June 30, 2010 and 2009 was as
follows:
|
|
Three Months Ended June 30,
|
|
Amount of
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
2,241
|
|
$
|
6,389
|
|
$
|
(4,148
|
)
|
(65
|
)%
|
Professional Services
|
|
4,729
|
|
3,475
|
|
1,254
|
|
36
|
%
|
Managed Services
|
|
41
|
|
(118
|
)
|
159
|
|
135
|
%
|
Total Healthcare
|
|
7,011
|
|
9,746
|
|
(2,735
|
)
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
3,008
|
|
8,526
|
|
(5,518
|
)
|
(65
|
)%
|
Professional Services
|
|
1,369
|
|
1,414
|
|
(45
|
)
|
(3
|
)%
|
Managed Services
|
|
139
|
|
147
|
|
(8
|
)
|
(6
|
)%
|
Total Commercial
|
|
4,516
|
|
10,087
|
|
(5,571
|
)
|
(55
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
$
|
11,527
|
|
$
|
19,833
|
|
$
|
(8,306
|
)
|
(42
|
)%
|
Our cost of revenues was $11,527 for the three months ended June 30,
2010, compared to $19,833 for the three months ended June 30, 2009, a
decrease of $8,306 or 42%. The decrease in our Healthcare segment cost of
revenues was a result of lower spending on infrastructure due to decreased
sales of our mobile workstation products as we transition to our new suite of
mobile workstations and power systems. The decrease in our Commercial segment
cost of sales was a result of lower resales of hardware and infrastructure
24
Table of
Contents
as
we transition our business to more consulting and professional services,
partially offset by costs associated with increasing our consulting staff to
support an increased number of SCM engagements and to prepare for future growth
as we continue to expand our professional services business
.
The reimbursable expenses included in our professional services cost of revenue
totaled $788 and $595 for the three months ended June 30, 2010 and 2009,
respectively.
Gross
profit
Gross
profit for the three months ended June 30, 2010 and 2009 was as follows:
|
|
Three Months Ended June 30,
|
|
Amount of
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
539
|
|
$
|
1,921
|
|
$
|
(1,382
|
)
|
(72
|
)%
|
Professional Services
|
|
2,697
|
|
758
|
|
1,939
|
|
256
|
%
|
Managed Services
|
|
212
|
|
557
|
|
(345
|
)
|
(62
|
)%
|
Total Healthcare
|
|
3,448
|
|
3,236
|
|
212
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
747
|
|
749
|
|
(2
|
)
|
(0
|
)%
|
Professional Services
|
|
474
|
|
248
|
|
226
|
|
91
|
%
|
Managed Services
|
|
179
|
|
345
|
|
(166
|
)
|
(48
|
)%
|
Total Commercial
|
|
1,400
|
|
1,342
|
|
58
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
4,848
|
|
$
|
4,578
|
|
$
|
270
|
|
6
|
%
|
Gross
profit percentage for the three months ended June 30, 2010 and 2009 was as
follows:
|
|
Three Months Ended June 30,
|
|
Amount of
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
Infrastructure
|
|
19
|
%
|
23
|
%
|
(4
|
)%
|
Professional Services
|
|
36
|
%
|
18
|
%
|
18
|
%
|
Managed Services
|
|
84
|
%
|
127
|
%
|
(43
|
)%
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
Infrastructure
|
|
20
|
%
|
8
|
%
|
12
|
%
|
Professional Services
|
|
26
|
%
|
15
|
%
|
11
|
%
|
Managed Services
|
|
56
|
%
|
70
|
%
|
(14
|
)%
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
30
|
%
|
19
|
%
|
11
|
%
|
Our
gross profit was $4,848 for the three months ended June 30, 2010, compared
to $4,578 for the three months ended June 30, 2009, an increase of $270 or
6%, resulting in a gross margin of 30% for the three months ended June 30,
2010, up from 19% for the three months ended June 30, 2009. The increase
in our gross margin was the result of a shift in our overall product and
service mix from lower margin product and infrastructure sales and related
hardware resales, as we continue to emphasize higher margin consulting and
professional services, which benefited our Healthcare segment as the industry
demonstrated a focus on EMR assessment and implementation projects and our
Commercial segment benefited from customers evaluating and initiating SCM
solutions
.
We continue to experience downward
pressure on our gross margin from the sale of infrastructure and third-party
hardware. Consistent with our overall strategic plan, we continue to migrate
the business toward an overall greater mix of solutions that includes
consulting and other professional
services.
25
Table of
Contents
Selling,
general and administrative expenses
Our
selling, general and administrative expenses were $5,521 for the three months
ended June 30, 2010, compared with $7,748 for the three months ended June 30,
2009, a decrease of $2,227, or 29%. Selling expenses were $2,026 for the
three months ended June 30, 2010, compared with $2,943 for the three
months ended June 30, 2009, a decrease of $917, or 31%. The decrease in our selling expenses for the
comparable period was primarily attributable to lower salary expense, benefits,
commissions and recruiting costs resulting from staffing reductions and other
cost control measures. General and administrative expenses were $2,750
for the three months ended June 30, 2010, compared with $4,090 for the
three months ended June 30, 2009, a decrease of $1,340, or 33%. The
decrease in our general and administrative expenses for the comparable period
was primarily attributable to a reduction in salary expense, including
consultants training expense, benefits, travel costs, and lower marketing
expenses.
Our
depreciation and amortization expense, included with selling, general and
administrative expenses discussed above, decreased to $420 for the three months
ended June 30, 2010 from $475 for the three months ended June 30,
2009, a decrease of $55 or 11%, as the result of fewer purchases of capitalized
assets required to run our business, such as laptop computers, servers and
communication equipment.
Our
stock based compensation expense, included with selling, general and
administrative expenses discussed above, increased to $325 for the three months
ended June 30, 2010 from $240 for the three months ended June 30,
2009, a increase of $85 or 35%. The increase is primarily the result of
granting options in the first quarter of 2010.
Interest
expense
Our
interest expense was $1,214 for the three months ended June 30, 2010,
compared to $1,189 for the three months ended June 30, 2009, an increase
of $25 or 2%. The increase in interest expense was a result of the
restructuring of our debt with Hercules in the fourth quarter of 2009,
additional borrowings in February and April 2010, and the default
interest rate imposed in April 2010. We expect our interest expense will
increase in future quarters. See Liquidity and Capital Resources below
.
Net
loss
Our
net income was $567 for the three months ended June 30, 2010 compared with
a net loss of $4,781 for the three months ended June 30, 2009. The
decrease in our net loss was primarily due to our continued efforts to reduce
our selling, general and administrative costs through a variety of cost-cutting
measures and an increase in gross profit as we continue to transition from
infrastructure hardware sales to higher margin consulting and professional
services in our role as a comprehensive solutions provider. In the three months
ended June 30, 2010, our net income included a gain on sale of patents of
$1,863 and a gain of $679 for the fair value adjustment of our derivative
liabilities
.
During the
three
months ended June 30, 2010, our warrants were reclassified from warrant
liability to equity upon meeting the criteria for equity classification in
accordance with generally accepted accounting principles (GAAP). The charge
to earnings during the quarter was based upon the change in fair value from the
last measurement date to the date the warrants qualified for equity treatment.
Six Months ended June 30, 2010 compared with
the Six Months ended June 30, 2009
Net revenues
Net
revenues for the six months ended June 30, 2010 and 2009 were as follows:
26
Table of
Contents
|
|
Six Months Ended June 30,
|
|
Amount of
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
6,297
|
|
$
|
16,236
|
|
$
|
(9,939
|
)
|
(61
|
)%
|
Professional Services
|
|
13,883
|
|
8,799
|
|
5,084
|
|
58
|
%
|
Managed Services
|
|
378
|
|
523
|
|
(145
|
)
|
(28
|
)%
|
Total Healthcare
|
|
20,558
|
|
25,558
|
|
(5,000
|
)
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
5,562
|
|
14,215
|
|
(8,653
|
)
|
(61
|
)%
|
Professional Services
|
|
3,522
|
|
2,526
|
|
996
|
|
39
|
%
|
Managed Services
|
|
594
|
|
924
|
|
(330
|
)
|
(36
|
)%
|
Total Commercial
|
|
9,678
|
|
17,665
|
|
(7,987
|
)
|
(45
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
30,236
|
|
$
|
43,223
|
|
$
|
(12,987
|
)
|
(30
|
)%
|
Net
revenues were $30,236 for the six months ended June 30, 2010, compared to
$43,223 for the six months ended June 30, 2009, representing a decrease of
$12,987 or 30%. The decrease in our Healthcare segment net revenues was due to
fewer infrastructure orders resulting from our transition away from a former
supplier of mobile workstations to the launch of our new suite of mobile
workstations and power systems and the current weak macro-economic conditions
in the first half of 2010. This decrease was partially offset by an increase in
professional services net revenue resulting from increased demand for EMR
implementation and SCM services. The
decrease in our Commercial segment net revenues was due to lower resales of
infrastructure and hardware products as we continue to transition our business
to offer higher margin consulting and other professional services. The
reimbursable expense revenue included in our professional services revenue
totaled $1,525 and $1,020 for the six months ended June 30, 2010 and 2009,
respectively.
Cost of
revenues
Cost
of revenues for the six months ended June 30, 2010 and 2009 was as
follows:
|
|
Six Months Ended June 30,
|
|
Amount of
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
5,062
|
|
$
|
12,339
|
|
$
|
(7,277
|
)
|
(59
|
)%
|
Professional Services
|
|
8,693
|
|
6,770
|
|
1,923
|
|
28
|
%
|
Managed Services
|
|
44
|
|
(82
|
)
|
126
|
|
(154
|
)%
|
Total Healthcare
|
|
13,799
|
|
19,027
|
|
(5,228
|
)
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
4,323
|
|
12,896
|
|
(8,573
|
)
|
(66
|
)%
|
Professional Services
|
|
2,745
|
|
2,225
|
|
520
|
|
23
|
%
|
Managed Services
|
|
259
|
|
362
|
|
(103
|
)
|
(28
|
)%
|
Total Commercial
|
|
7,327
|
|
15,483
|
|
(8,156
|
)
|
(53
|
)%
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
$
|
21,126
|
|
$
|
34,510
|
|
$
|
(13,384
|
)
|
(39
|
)%
|
Our cost of revenues was $ 21,126 for the six months ended June 30,
2010, compared to $34,510 for the six months ended June 30, 2009, a
decrease of $13,384 or 39%. The decrease in our Healthcare segment cost of
revenues was a result of lower spending on infrastructure due to decreased
sales of our mobile workstation products as we transition to our new suite of
mobile workstations and power systems. The decrease in our Commercial segment
cost of sales was a result of lower resales of hardware and infrastructure as
we transition our business, partially offset by costs associated with
increasing our consulting staff to support an increased number
27
Table of
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of
SCM engagements and to prepare for future growth as we continue to expand our
professional services business
.
The
reimbursable expenses included in our professional services cost of revenue
totaled $1,525 and $ 1,020 for the six months ended June 30, 2010 and
2009, respectively.
Gross
profit
Gross
profit for the six months ended June 30, 2010 and 2009 was as follows:
|
|
Six Months Ended June 30,
|
|
Amount of
|
|
Percentage
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
1,235
|
|
$
|
3,897
|
|
$
|
(2,662
|
)
|
(68
|
)%
|
Professional Services
|
|
5,190
|
|
2,029
|
|
3,161
|
|
156
|
%
|
Managed Services
|
|
334
|
|
605
|
|
(271
|
)
|
(45
|
)%
|
Total Healthcare
|
|
6,759
|
|
6,531
|
|
228
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
1,239
|
|
1,319
|
|
(80
|
)
|
(6
|
)%
|
Professional Services
|
|
777
|
|
301
|
|
476
|
|
158
|
%
|
Managed Services
|
|
335
|
|
562
|
|
(227
|
)
|
(40
|
)%
|
Total Commercial
|
|
2,351
|
|
2,182
|
|
169
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
9,110
|
|
$
|
8,713
|
|
$
|
397
|
|
5
|
%
|
Gross
profit percentage for the six months ended June 30, 2010 and 2009 was as
follows:
|
|
Six Months Ended June 30,
|
|
Amount of
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
Infrastructure
|
|
20
|
%
|
24
|
%
|
(4
|
)%
|
Professional Services
|
|
37
|
%
|
23
|
%
|
14
|
%
|
Managed Services
|
|
88
|
%
|
116
|
%
|
(28
|
)%
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
Infrastructure
|
|
22
|
%
|
9
|
%
|
13
|
%
|
Professional Services
|
|
22
|
%
|
12
|
%
|
10
|
%
|
Managed Services
|
|
56
|
%
|
61
|
%
|
(5
|
)%
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
30
|
%
|
20
|
%
|
10
|
%
|
Our
gross profit was $9,110 for the six months ended June 30, 2010, compared
to $8,713 for the six months ended June 30, 2009, an increase of $397 or
5%, resulting in a gross margin of 30% for the six months ended June 30,
2010, up from 20% for the six months ended June 30, 2009. The increase in
our gross margin is the result of a shift in our overall product and service
mix from lower margin product and infrastructure sales and related hardware
resales, as we continue to emphasize higher margin consulting and professional
services, which benefited our Healthcare segment as the industry demonstrated a
focus on EMR assessment and implementation projects and our Commercial segment
benefited from customers evaluating and initiating SCM solutions
.
We continue to experience downward pressure on our gross
margin from the sale of infrastructure and third-party hardware. Consistent
with our overall strategic plan, we continue to migrate the business toward an
overall greater mix of solutions that include consulting and other professional
services.
28
Table of
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Selling,
general and administrative expenses
Our
selling, general and administrative expenses were $11,621 for the six months
ended June 30, 2010, compared with $15,411 for the six months ended June 30,
2009, a decrease of $3,790, or 25%. Selling expenses were $4,421 for the
six months ended June 30, 2010, compared with $5,653 for the six months
ended June 30, 2009, a decrease of $1,232, or 22%. The decrease in our selling expenses for the
comparable period was primarily attributable to lower salary expense, benefits,
commissions and recruiting related costs resulting from staffing reductions and
other cost control measures. General and administrative expenses were
$5,685 for the six months ended June 30, 2010, compared with $8,278 for
the six months ended June 30, 2009, a decrease of $2,593, or 31%.
The decrease in our general and administrative expenses for the comparable
period was primarily attributable to a reduction in salary expense, including
consultants training expense, benefits and travel costs, and lower marketing
expenses.
Our
depreciation and amortization expense, included with selling, general and
administrative expenses discussed above, decreased to $873 for the six months
ended June 30, 2010 from $950 for the six months ended June 30, 2009,
a decrease of $77 or 8%, as the result of fewer purchases of capitalized assets
required to run our business, such as laptop computers, servers and
communication equipment.
Our
stock based compensation expense, included with selling, general and administrative
expenses discussed above, increased to $642 for the six months ended June 30,
2010 from $530 for the six months ended June 30, 2009, a increase of $112
or 21%. The increase is primarily the result of granting options in the first
quarter of 2010.
Interest
expense
Our
interest expense was $2,263 for the six months ended June 30, 2010,
compared to $2,334 for the six months ended June 30, 2009, a decrease of $71
or 3%. The decrease in interest expense is a result of the restructuring of our
debt with Hercules in the fourth quarter of 2009 offset by additional
borrowings in February and April 2010, and the default interest rate
imposed in April 2010, We expect our interest expense will increase in
future quarters. See Liquidity and Capital Resources below
.
Net
loss
Our
net loss was $2,251 for the six months ended June 30, 2010 compared with a
net loss of $9,451 for the six months ended June 30, 2009, a decrease of $7,200
or 76%. The decrease in our net loss was primarily due to our continued efforts
to reduce our selling, general and administrative costs through a variety of
cost-cutting measures and an increase in gross profit as we continue to
transition from infrastructure hardware sales to higher margin professional and
consulting services in our role as a comprehensive solutions provider.
In the six months ended June 30,
2010, our net loss included a gain on sale of patents of $1,863 and a gain of
$764 for the fair value adjustment of our derivative liabilities. During the
six months ended June 30, 2010, our warrants were
reclassified from warrant liability to equity upon meeting the criteria for
equity classification in accordance with GAAP. The charge to earnings was based
upon the change in fair value at the end of each reporting period or at the
date the warrants qualified for equity treatment offset by change in
assumptions that impacted the warrant liability value at December 31, 2009
that was reflected in the first quarter of 2010.
Liquidity
and capital resources
At June 30, 2010, we had cash and cash equivalents of $2,384,
compared to $1,018 at December 31, 2009. Historically, we have funded our
operating losses primarily through the private sale of equity securities and
through current and long term debt and working capital. At June 30, 2010,
our total liabilities were $40,945 and were comprised mostly of term debt,
borrowings outstanding under our credit line, notes due to sellers related to
prior acquisitions, and outstanding accounts payable. Net cash used in
operating activities for the six months ended June 30, 2010 was $4,536,
related to interest payments on our borrowings and other operating expenses.
Net cash provided by investing activities was $1,912 for the six months ended June 30,
2010, primarily from proceeds from the sale of a non-essential patent.
Net cash provided by financing activities was $3,990 for
the six months ended June 30, 2010, primarily due to increased borrowings
under our Amended Loan Agreement with Hercules.
Given
the amount of our current cash and cash equivalents, and accounts receivable,
we believe that we will have sufficient liquidity to meet our short-term
operating cash flow needs. We have, however, substantial liquidity requirements
related to the repayment of a seller note in the amount of approximately $4,440
that comes due on September 30, 2010, our revolving line of credit under
our Amended Loan Agreement with Hercules, and earn out payment obligations from
past acquisitions. We do not currently expect to generate sufficient cash flow
from operations to fund those obligations. We have undertaken a series of
actions to reduce costs and have explored potential sources of financing and
other strategic initiatives. On February 10, 2010, Hercules sent us a
letter notifying us of an event of default because our borrowings under the
revolving credit facility exceeded our borrowing base. Hercules has not chosen
to accelerate our obligations under the Amended Loan Agreement, but has
expressly not waived any events of default or any of its remedies under Amended
Loan Agreement. We do not have adequate liquidity to repay all outstanding
amounts under the credit facility and payment acceleration would have a
material adverse effect on our liquidity, business, financial condition and
results
29
Table of
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of
operations. Even without acceleration of our obligations to Hercules and even
with the restructuring of our debt with Hercules on November 20, 2009,
subsequent additional borrowings from Hercules in February and April 2010
and the sale of a patent in June 2010, we continue to believe that we need
to restructure our debt, pursue additional debt and equity financing, complete
one or more strategic transactions, and continue further cost control actions
to meet our liquidity needs. Our continued operations are dependent on our
ability to implement those plans successfully. If we fail to do so, we may not
be able to continue as a going concern. For a discussion of our plans with
respect to these matters, see Going Concern.
Senior indebtedness
On May 1, 2008, we and our subsidiaries entered into a loan and
security agreement with Hercules (Loan and Security Agreement), which provided
us with a revolving credit facility and a term loan facility. The Loan and
Security Agreement was subsequently amended in November 2008 and May 2009,
and we entered into a forbearance agreement with respect to certain defaults
under the Loan and Security Agreement in July 2009, and we entered into
five amendments to the forbearance agreement over the course of August through
October 2009. In connection with the Hercules Restructuring that closed on
November 20, 2009, we entered into the Amended Loan Agreement with
Hercules, which amended and restated the Loan and Security Agreement. The
description of the Amended Loan Agreement below reflects the terms in place
since November 20, 2009, as amended on February 19, 2010 (to provide
the Equipment Loan), April 6, 2010 (to issue Term Loan C) and June 18,
2010 (to facilitate sale of a patent).
Under the Amended Loan Agreement, our indebtedness to Hercules consists
of three term loans and an Equipment Loan aggregating approximately $14,600 and
a revolving credit facility of $12,000, of which $8,097 was outstanding at August 3,
2010. The revolving credit facility expires on May 1, 2011, but may be
extended at our option for six months if there is no existing event of default.
Any advances under the revolving credit facility bear interest initially at
12.0% per annum until the term loans, as described below, are repaid in full,
when the interest rate on outstanding advances will be prime plus 4%.
Borrowings under the revolving credit facility are based on eligible accounts
receivables, including an over advance provision of up to $500, which will be
due 28 days after the over advance is drawn. On June 30, 2010, Hercules
advanced us an additional $1,500, which was applied to the outstanding balance
of our revolving line of credit and was provided as an extension above our
eligible borrowing base. Over advances bear interest at 15% per annum.
The term loans are comprised of a $5,500 term loan due
on November 1, 2013 (Term Loan A), a $5,000 convertible term loan due on
November 1, 2014 (Term Loan B), and a $1,350 convertible term loan due
on April 1, 2013 (Term Loan C). Principal amortization on Term Loan A
begins on December 1, 2010. Term Loan B may be converted into shares of
our common stock at a price of $1.8575 per share at Hercules option, or
automatically if the 90-day value weighted adjusted trading price of our common
stock exceeds five times the conversion price. Term Loan B also has a mandatory
conversion feature and we have the right to pay a portion of the conversion
amount in cash plus applicable fees, interest and other charges instead of
shares of common stock under certain circumstances. If not converted, the
principal balance on Term Loan B is due November 2014. Term Loan C may be
converted into shares of our common stock at a price of $3.276 per share at
Hercules option. If not converted, the principal balance of Term Loan C is due
April 2013.
Term Loan A bears interest at (i) 12% per annum
for the first year, (ii) 18% per annum for the next year, and (iii) 15%
thereafter. All interest on Term Loan A is payable in cash monthly commencing December 1,
2009. Term Loan B bears interest at (i) 14.5% per annum for the first
year, (ii) 20.5% per annum for the next year, and (iii) 17.5%
thereafter. A portion (2.5%) of the interest rate on Term Loan B is to be paid
in kind (PIK) compounded monthly. The balance of the interest on Term Loan B
is payable in cash monthly commencing December 1, 2009. Hercules also has
the option, in its sole discretion, to require any and all interest on Term
Loan B to be paid in cash, PIK or in shares of our common stock. The number of
shares into which accrued interest will be converted will be determined based
on 70% of the adjusted 60-day average trading price of our common stock on the
date of Hercules election to convert the interest into shares. In the event
Term Loan A or Term Loan B is prepaid, a prepayment charge on the principal
prepaid is 5% if prepaid during the first 12 months, 3% if prepaid during the
next 12 months and 1% thereafter will be due, provided that, if Term Loan A or
Term Loan B is prepaid during the first 12 months and there is then no event of
default, Hercules will waive the prepayment charge on both term loans. Term
Loan C bears interest at a rate of 8% per annum and, at the discretion of
Hercules, is payable either in cash or PIK.
Interest is payable monthly commencing on May 1, 2010. We may
prepay Term Loan C without incurring a prepayment penalty charge.
On
February 19, 2010, Hercules provided us with an Equipment Loan allowing us
to request up to $3,000 in borrowings for use in purchasing equipment. We could borrow in minimum increments of $250
under the Equipment Loan, subject to valid, verified purchase orders acceptable
to Hercules from suppliers approved by Hercules in its sole discretion. In connection with any advances, we are
charged a fee of 3% of the purchase price identified in the relevant purchase
orders. All customer receipts related to sales of products financed by the
Equipment Loan are placed in a lockbox account under the exclusive control of
Hercules and customer receipts are applied first to payment of the Equipment
Loan fee, second, to the outstanding principal on the Equipment Loan and third,
to all other obligations existing under the Equipment Loan. After such
application, the excess in the lockbox account will be returned
30
Table of
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to
us, unless an event of default exists or could reasonably be expected to exist,
in which case, Hercules may apply the excess in the lockbox account to any
obligation under the Amended Loan Agreement. The Equipment Loan bears interest
at a rate of 1.5% per month and Hercules commitment to make additional
equipment advances terminated on June 30, 2010, which was extended from
the original commitment termination date of April 30, 2010. At June 30,
2010, we had an outstanding balance of $2,250 under this facility.
On April 6, 2010, we entered into Amendment No. 2
(Amendment 2) to the Amended Loan Agreement with Hercules. Pursuant to
Amendment 2, Hercules funded Term Loan C in an original principal amount of
$1,350. The proceeds of Term Loan C were used to repay outstanding over
advances under the revolving credit facility. Interest on Term Loan C accrues
at a rate of 8% per annum and, at the discretion of Hercules, is payable either
in cash or in kind by adding the accrued interest to the principal of Term Loan
C. All principal outstanding on Term Loan is due and payable on April 1,
2013. Term Loan C may be converted into shares of our common stock at a price
of $3.276 per share at any time at Hercules option. We may prepay Term Loan C
without incurring a prepayment penalty charge. We also entered into a
registration rights agreement with Hercules whereby it agreed to register the
shares underlying Term Loan C and certain interest that may be paid in shares.
Amendment 2
also amended the interest payment options under Term Loan B such that Hercules
now has the option, in its sole discretion, to require any and all interest on
Term Loan B to be paid in cash, in kind or in shares of our common stock. The
number of shares into which accrued interest will be converted will be
determined based on 70% of the adjusted 60-day average trading price of our
common stock on the date of Hercules election to convert the interest into
shares.
Amendment
2 also amended the default interest payment options under the Amended Loan
Agreement. Whereas prior to Amendment 2, default rate interest was payable in
cash or in kind by adding the accrued interest to the outstanding principal
amount, pursuant to Amendment 2, Hercules now has the option to elect to have
default rate interest paid in cash, in kind or in shares of our common stock.
All default rate interest paid in kind will be added to the outstanding
principal amount on Term Loan B, notwithstanding on which loan the interest has
accrued. If Hercules elects to have default rate interest paid in shares, the
number of shares into which such accrued default rate interest will be
converted will be determined based on 70% of the adjusted 60-day average price
on the date of Hercules election to convert the interest into shares.
The Amended Loan Agreement contains certain negative
covenants and other stipulations associated with the arrangement, including
covenants that restrict our ability to incur indebtedness, make investments,
make payments in respect of our capital stock, including dividends and
repurchases of common stock, sell or license our assets, and engage in
acquisitions without the prior satisfaction of certain conditions.
Additionally, the Amended Loan Agreement contains the following financial
covenants (i) minimum consolidated adjusted EBITDA measured on a three
month rolling basis as of the last day of each month of between $150 and
$2,000, until December 31, 2011 and thereafter when $3,000 of consolidated
adjusted EBITDA is required, (ii) maximum leverage ratio measured on a
rolling twelve month basis as of the last day of each fiscal quarter commencing
June 30, 2010 of 6.0 to 1.0 decreasing to 1.5 to 1.0 by the quarter ending
June 30, 2012, (iii) minimum consolidated fixed charge coverage ratio
measured on a rolling twelve month basis as of the last day of a fiscal quarter
commencing June 30, 2010 of 0.75 to 1.0 increasing to 2.0 to 1.0 by the
quarter ending June 30, 2012, and (iv) at least $1,000 in
unrestricted cash at all times. Failures
to maintain the financial covenants, as well as certain other events, are
events of default under the Amended Loan Agreement. Upon an event of default
under the Amended Loan Agreement, Hercules may opt to accelerate and demand
payment of all or any part of our obligations.
We were assessed a transaction fee of $450 in
connection with the Hercules Restructuring, which is payable in 12 equal
monthly installments beginning in April 2010. The outstanding balance is
included in accrued expenses on the accompanying balance sheet at June 30,
2010. Our obligations under the Amended Loan Agreement are secured by all of
our personal property, including all of our equity interests in our respective
subsidiaries.
On
February 10, 2010, Hercules sent us a letter notifying us of an event of
default because our borrowings under the revolving credit facility exceeded our
borrowing base as of February 5, 2010 and charging us default interest of
an additional 3% to the applicable regular interest rate for the period
starting February 5, 2010. Events of default are continuing and default
rate interest will be payable monthly on the same date as regular interest
unless Hercules chooses to demand payment of default interest on another date.
Under the terms of our Amended Loan Agreement late fees are equal to 5% of the
past due amount and default rate interest is equal to the applicable regular
interest rate plus 3%. Hercules may elect to have default rate interest paid in
cash, in kind or in shares of our common stock. All default rate interest paid
in kind will be added to the outstanding principal amount on Term Loan B,
notwithstanding on which loan the interest has accrued. If Hercules elects to
have default rate interest paid in shares, the number of shares into which such
accrued default rate interest will be converted will be determined based on the
adjusted 60-day average trading price of our common stock on the date of
Hercules election to convert the interest into shares.
Hercules has not chosen to accelerate our obligations under the Amended
Loan Agreement, but has expressly not waived any events of default or any of
its remedies under the loan and security agreement. We do not have adequate
liquidity to repay all
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Table of
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outstanding
amounts under the credit facility and payment acceleration would have a
material adverse effect on our liquidity, business, financial condition and
results of operations.
As
a result of the event of default and our noncompliance with the minimum EBITDA
requirement, total leverage ratio and fixed charge coverage ratio required
under the Amended Loan Agreement, we are prohibited from satisfying our earn
out obligations related to our acquisition of the assets of Healthcare
Informatics Associates, Inc. (HIA) and Delta Health Systems, Inc.
We also have a seller note to HIA that is payable on September 30, 2010.
If we are in default under our indebtedness to Hercules at September 30,
2010, we will not be permitted to repay the seller note at the date. We are in
discussions with HIA about modifying the earn out payment and the seller note.
Inflation
To
date, the effects of inflation on our consolidated financial results have not
been significant; however, we cannot be certain that inflation will not affect
us materially in the future.
Off Balance Sheet Arrangements
We
do not currently have any off-balance sheet arrangements.
New Accounting Standards
In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition
(Topic 605) - Multiple-Deliverable Revenue Arrangements. ASU No. 2009-13
provides additional guidance on the accounting for revenue recognition for
multiple-deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than as a combined unit. This
guidance establishes a selling price hierarchy for determining the selling
price of a deliverable, which is based on: (a) vendor-specific objective
evidence; (b) third-party evidence; or (c) estimates. This guidance
also eliminates the 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. In addition, this
guidance significantly expands required disclosures related to a vendors
multiple-deliverable revenue arrangements. ASU No. 2009-13 is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010 and early adoption is
permitted. A company may elect, but will not be required, to adopt the
amendments in ASU No. 2009-13 retrospectively for all prior periods. We
are currently evaluating the requirements of ASU No. 2009-13 and have not
yet determined its impact on our condensed consolidated financial statements.
In January 2010, the
FASB issued ASU No. 2010-06,
Improving Disclosures About Fair Value
Measurements, which added disclosure requirements about an entitys use
of fair value measurements. Among these requirements, entities will be required
to provide enhanced disclosures about transfers into and out of the Level 1
(fair value determined based on quoted prices in active markets for identical
assets and liabilities) and Level 2 (fair value determined based on significant
other observable inputs) classifications, provide separate disclosures about
purchases, sales, issuances and settlements relating to the tabular
reconciliation of beginning and ending balances of the Level 3 (fair value
determined based on significant unobservable inputs) classification and provide
greater disaggregation for each class of assets and liabilities that use fair
value measurements. Except for the detailed Level 3 roll-forward disclosures,
the new standard is effective for us for interim and annual reporting periods
beginning after December 31, 2009. The adoption of this accounting
standards amendment did not have a material impact on our consolidated
financial statements. The requirement to provide detailed disclosures about the
purchases, sales, issuances and settlements in the roll-forward activity for
Level 3 fair value measurements is effective for us for interim and annual
reporting periods beginning after December 31, 2010. We do not expect that
the adoption of these new disclosure requirements will have a material impact
on its consolidated financial statements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
The
primary objective of our investment activities is to preserve principal. Our
funds are currently held in checking accounts and money market funds which do
not subject us to risk of a loss of principal due to changes in prevailing
interest rates and from time to time, in a portfolio of cash and cash
equivalents that include investments in investment-grade securities, such as
commercial paper, money market funds, government debt securities and
certificates of deposit with maturities of less than nine months. Some of these
securities may be subject to market risk due to changes in prevailing interest
rates, which may cause fluctuations in market value. We do not enter into
derivatives or other financial instruments for trading or speculative purposes.
Two
of the main risks associated with these investments are interest rate risk and
credit risk. Typically, when interest rates rise, there is a
corresponding decline in the market value of debt securities.
Fluctuations in interest rates would not have a material effect
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on
our financial statements because of the short-term nature of the securities in
which we invest and our intention to hold the securities to maturity.
Credit risk refers to the possibility that the issuer of the debt securities
will not be able to make principal and interest payments. We have limited
the investments to investment grade or comparable securities and have not
experienced any losses on our investments to date due to credit risk.
The fair value of our cash and cash equivalents at June 30, 2010,
approximated its carrying value due to the short-term maturities of these
investments. The potential decrease in fair value resulting from a hypothetical
10% increase in interest rates for our investment portfolio is not material.
The carrying value of our long-term debt at June 30, 2010
approximated its fair value. Advances under our revolving credit facility bear
interest initially at 12% per annum until our term loans are repaid in full, at
which time the interest rate on the outstanding advances will be prime plus
4%. Interest rates under our four term
loans range between 8% and 23% over the next several years (including the
default interest rate). Because our
interest rates are fixed, an increase in market rates of interest will not
impact our annual interest expense until the term loans are repaid.
The balance of our other long term liabilities consists of two notes,
bearing interest at fixed rates of 7.84% per annum and 9% per annum, issued in
connection with acquisitions that took place during 2007. A change in interest
rates would not have any effect on our annual interest expense for this debt.
Item 4.
Controls and Procedures
a)
Evaluation
of disclosure controls
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934, as amended (Exchange Act), is recorded,
processed, summarized and reported within the time periods specified in the SECs
rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(b) under the Exchange Act, we carried out
an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based on the
results of the evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were not
effective.
b)
Changes
in internal control over financial reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in SEC Rule 13a-15(f) under
the Exchange Act. Our 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 for external purposes in
accordance with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures that are
designed to: (1) maintain records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our
management and our 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.
In
connection with its audit of our consolidated financial statements for the
period ended December 31, 2009, our independent registered public
accounting firm at such time, McGladrey & Pullen, LLP, identified a
material weakness in internal control related to our accounting for the
Hercules Restructuring. Specifically, our independent registered public
accounting firm found that we failed to properly apply the Debt Topic of the
FASB Accounting Standards Codification and failed to timely make certain
material adjustments required in connection with the Hercules Restructuring,
including recording a $6,777 loss on debt extinguishment and a $4,294 increase
in additional-paid-in-capital.
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We have taken and
continue to take appropriate and reasonable steps to make the necessary
improvements to remediate these deficiencies, including:
·
continuing
to educate our management and finance personnel concerning accounting and
reporting requirements;
·
implementing
personnel, policy and procedure changes as part of our on-going program to
strengthen the organization structure, financial reporting procedures and
system of internal control over financial reporting;
·
continuing
to utilize professional services firms to assist with accounting and financial
reporting; and
·
maintaining
increased management oversight of accounting and reporting functions in the
future.
Additionally,
we continue to improve and implement more rigorous period end reporting
processes to include improved controls and procedures, resulting in frequent
process refinement. Our remediation
efforts are continuing and we expect to make additional changes to our control
environment and accounting and reporting processes that we believe will
strengthen our internal control over financial reporting. We have
dedicated considerable resources to the design, implementation, documentation,
and testing of our internal controls and although we believe the steps taken to
date have improved the effectiveness of our internal control over financial
reporting, we have not completed all the corrective processes and
procedures. Accordingly, we will continue to monitor the
effectiveness of our internal control over financial reporting and as required,
perform additional procedures to ensure that our financial statements are
fairly stated in all material respects.
We do not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect all errors. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control systems objectives will
be met. The design of any system of controls is based, in part, upon
certain assumptions about the likelihood of future events and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.
Except
as set forth above, there was no change in our internal control over financial
reporting that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
In the normal course of business, we have become and
might in the future become involved in legal actions relating to our business.
In managements opinion, the resolution of any such pending legal actions is
not expected to have a material adverse effect on our consolidated financial
position or results of operations.
Item 1A.
Risk
Factors
The
risks and uncertainties described below are in addition to those included in
our Annual Report on Form 10-K for the year ended December 31, 2009
and our Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2010 and are not the only risks we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also affect our
business and results of operations.
Our stock may be delisted from The Nasdaq Capital
Market if we do not maintain certain levels of stockholders equity, market
value of listed securities, or net income from continuing operations.
Our
common stock is listed on The Nasdaq Capital Market, which imposes, among other
requirements, a requirement that a listed company maintain either a minimum of
$2,500 in stockholders equity, a minimum of $35,000 of market value of listed
securities, or net income from continuing operations of at least $500 in the
most recently completed fiscal year or in two of the three most recently
completed fiscal years. On August 19, 2009, we received a letter from
Nasdaq, notifying us that we were not in compliance with these requirements. On
October 30, 2009, we received notice that Nasdaq granted our request for
an extension to regain compliance with these requirements. We had until November 20,
2009 to regain such compliance. On November 25, 2009, we received notice
from Nasdaq that we had regained compliance with the $2,500 stockholders
equity requirement for continued listing on The Nasdaq Capital Market, but
noting that Nasdaq would continue to monitor our compliance with this listing
rule, and that, if at the time of our next periodic report we did not evidence
compliance, we might be again subject to delisting. On April 20, 2010, we received a new
staff determination letter from Nasdaq regarding our non-compliance with the
Nasdaq continued listing standards. At December 31, 2009, our
stockholders deficit of $2,544 again was below Nasdaqs minimum stockholders
equity requirement. The Nasdaq staff determined to delist our common stock on April 29,
2010 unless we requested a hearing before a Nasdaq Listing Qualifications Panel
(Panel) on or before April 27, 2010. On April 27, 2010, we
requested a hearing before the Panel and, as a result, our common stock
remained listed on Nasdaq pending the issuance of a decision by the Panel
following the hearing, which took place on June 10, 2010. On July 8, 2010, we received a letter
from Nasdaq stating that the Panel granted our request for continued listing on
the Nasdaq Stock
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Market
subject to several conditions including, among other things, the occurrence of
certain events, which may include restructuring our debt, pursuing additional
debt and equity financing and completing one or more strategic transactions, by
August 15, 2010, and our ability to regain compliance with all the
requirements for continued listing on Nasdaq by October 18, 2010. In
connection with the conditions set by NASDAQ, on August 13, 2010, the original
principal of Term Loan B was converted into shares of our common stock (for
more information, see Item 1, Financial Statements, Note PSubsequent Events). This extension represents the maximum length
of time that a Nasdaq Hearings Panel may grant to regain compliance under the
Nasdaq Listing Rules and, while we are diligently taking steps to comply
with the conditions of the Panel decision, there can be no assurances that we
will be able to do so. A delisting of
our common stock from Nasdaq could adversely affect the market liquidity of our
common stock and cause the market price of our common stock to decrease and
could also adversely affect our ability to obtain financing for our operations
and/or result in the loss of confidence by investors, customers, suppliers and
employees. If our common stock is
delisted we may seek to have our stock quoted on the Pink OTC Market (also
known as the Pink Sheets) or trade on the OTC Bulletin Board, however, there
can be no assurance that we will be successful in such efforts.
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults
Upon Senior Securities
None.
Item 4.
Reserved
Item 5.
Other
Information
None.
Item 6.
Exhibits
Exhibit No.
|
|
Description
|
|
|
|
4.1
|
|
Amendment No. 3,
dated as of June 18, 2010, to the Amended and Restated Loan and Security
Agreement, dated as of November 20, 2009, as amended, by and among
InfoLogix, Inc., InfoLogix Systems Corporation, Embedded
Technologies, LLC, Opt Acquisition LLC and InfoLogix-DDMS, Inc., as
Borrowers and Hercules Technology Growth Capital, Inc., as Lender.+
|
|
|
|
10.1
|
|
Patent Purchase Agreement
by and among Embedded Technologies, LLC and Intellectual Ventures Fund 68 LLC
dated as of June 3, 2010.+
|
|
|
|
10.2
|
|
Letter Agreement dated
June 28, 2010 amending the Registration Rights Agreement dated as of April 6,
2010 by and between Hercules Technology Growth Capital, Inc. and
Infologix, Inc. +
|
|
|
|
31.1
|
|
Certification pursuant to
Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.2
|
|
Certification
pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
32.1
|
|
Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+
|
|
|
|
32.2
|
|
Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+
|
(*)
Filed herewith.
(+)
Furnished
herewith.
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SIGNATURES
Pursuant
to the requirements of section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned; thereunto duly authorized, in Hatboro, Pennsylvania on August 16,
2010.
|
INFOLOGIX, INC.
|
|
|
|
By:
|
/s/
David T. Gulian
|
|
David
T. Gulian
|
|
President
and Chief Executive Officer
|
|
|
|
By:
|
/s/
John A. Roberts
|
|
John
A. Roberts
|
|
Chief
Financial Officer and Principal Accounting Officer
|
36
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