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ITEM
6.
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MANAGEMENT’S
PLAN OF OPERATION
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Business
Strategy
On November 1,
2006, the Company appointed Dr. Donald J. Ciappenelli as the Chief Executive Officer of
the Company and Chairman of its Board of Directors. In the latter part of 2006 and
throughout 2007, the Company has vigorously pursued its strategy of acquiring and
commercializing synergistic technologies to develop advanced products, and decided to
open an office in Massachusetts to maximize the Company’s opportunities to find
and develop new technologies and start-up companies that fit its business model for
rapid growth in important markets. In addition, on March 5, 2007 the Company hired Dr.
Howard Benjamin as Vice-President of Research and Development.
The Company may
also make other acquisitions or investments outside of its normal business plan in
order to achieve other objectives, including investments necessary to maintain its
exclusion from regulation as an investment company under the ‘40 Act.
Company
Liquidity and Cash Requirements
The Company has
funded its operations and its investments through proceeds from affiliates of the Majority Stockholder
pursuant to a commitment dated September 30, 1999 to provide or arrange for
funding of up to ten million dollars (the “Funding Arrangement”) and
certain working capital loans. Through March 15, 2006, the Company had received an
aggregate of $8.475 million pursuant to this Funding Arrangement. Accordingly, through
March 15, 2006, an aggregate of 1,614,285 shares of Class A Common Stock had been
issued to the Majority Stockholder or his affiliates pursuant to such agreement.
As of March 15,
2006, there was $3,141,471 of principal and accrued interest due on the working capital
loans. These loans were separate from the $10 million Funding Arrangement.
On March 15,
2006, the Company entered into an Exchange and Termination Agreement (“Exchange
Agreement”), with the M. Lee Pearce 2005 Irrevocable Trust (“2005
Trust”), of which the Majority Stockholder is the sole beneficiary, whereby all
principal and accrued interest due on the loans through the closing date of May 12,
2006 was converted into 31,414,706 shares of the Company’s Class A Common Stock
(the “Shares”), at an effective conversion price of $0.10 per share. In
consideration, the Company agreed to terminate the Funding Arrangement. One of the
conditions to the Exchange Agreement was that the Company reduces the par value of its
Class A Common Stock from $0.20 per share to $0.01 per share. The stockholders approved
the reduction in the par value of its Common Stock at the Annual Meeting held on May
12, 2006.
On January 10,
2005, the Company received cash proceeds in excess of $3.3 million from the disposition
of its investment in Healthology. The Company anticipates that the $3.3 million in
proceeds from the Healthology disposition (and an additional $147,000 generated by the subsequent sale of an
investment in iVillage) will be sufficient to cover operating
expenses through 2008. The Company may seek to raise additional capital in order to
make additional investments or acquisitions beyond those that can be funded from the
foregoing resources or to engage in any other business activity.
Because the
Company does not have any active business operations to generate cash flow funding for
operations once the funds received from the disposition of Healthology are exhausted,
the Company will need to raise additional cash. There can be no assurance that the
Company will be successful in such efforts. Any financing activities by the Company
could result in substantial dilution of existing equity positions and increased
interest expense. Transaction costs to the Company in connection with any such
activities may also be significant.
Changes in
Financial Condition and Results of Operations
The discussion
below describes the Company’s material changes in financial condition as of
December 31, 2007 compared with December 31, 2006 and its material changes in results
of operations when comparing the year ended December 31, 2007 to the year ended
December 31, 2006. All amounts in the discussion below are approximate.
7
Financial
Condition at December 31, 2007 Compared to December 31, 2006
The
Company’s total assets decreased to $2.3 million as of December 31, 2007 compared
to $3.5 million as of December 31, 2006. The decrease is primarily due to the
Company’s operating expenses of approximately $1.6 million during 2007 (including
approximately $360,000 of share based (non cash) compensation expense).
The
Company’s total liabilities decreased to approximately $753,000 as of December
31, 2007 compared to $783,000 as of December 31, 2006. This decrease in liabilities
primarily reflects the approximately $100,000 reduction in accrued professional fees
for the recruitment of the C.E.O. in 2006, offset by an increase in accrued
compensation of approximately $43,000 and an increase of approximately $39,000 in long
term accrued interest payable.
Results of
Operations for the Year Ended December 31, 2007 (“fiscal 2007”) Compared to
the Year Ended December 31, 2006 (“fiscal 2006”)
The
Company’s operating expenses for fiscal 2007 were $1,646,416 compared to $649,654
for fiscal 2006, an increase of approximately $997,000 or 153%. The increase primarily
reflects increases in salaries and benefits, (non-cash) share-based compensation
expense and professional fees incurred in connection with the search and retention of
the Company’s C.E.O. and Vice-President.
The
Company’s net loss for fiscal 2007 was $1,510,991 compared to a net loss of
$531,734 for fiscal 2006. The Company’s net loss for fiscal 2007 primarily
reflects operating expenses of $1,646,416 (including approximately $360,000 in non-cash stock based
compensation expense),
interest expense of $39,375 offset by
interest income of $107,055, and gain on sale of property and equipment of $25,000 and
other income of $37,495. The Company’s net loss in fiscal 2006 primarily reflects
operating expenses of $649,654, interest expense of $100,207 offset by interest income
of $152,423, and gain on sale of the investment in iVillage, Inc. of
$47,704.
Critical
Accounting Estimates
The application
of GAAP involves the exercise of varying degrees of judgment. While the resulting
accounting estimates will, by definition, not always precisely equal the related actual
results, some of these estimates involve more judgment than others.
Accounting
for the Impairment or Disposal of Long-Lived Assets
In October 2001,
the Financial Accounting Standards Board (“FASB”) issued Statement No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” FASB
Statement No. 144 addresses significant issues relating to the implementation of FASB
Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of,” and develops a single accounting model,
based on the framework established in FASB Statement No. 121 for long-lived assets to
be disposed of by sale, whether such assets are or are not deemed to be a business.
FASB Statement No. 144 also modifies the accounting and disclosure rules for
discontinued operations. The standard was adopted on January 1, 2002.
Off-Balance
Sheet Arrangements
As of December
31, 2007, the Company did not have any material off-balance sheet arrangements that
have or are reasonably likely to have a material effect on the current or future
financial condition, results of operations, liquidity, or capital resources.