Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31,
2008
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from .
Commission
File No.: 0-13117
Clacendix,
Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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(State
or Other Jurisdiction of
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22-2413505
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Incorporation
or Organization)
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(IRS
Employer Identification Number)
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2001
Route 46 Parsippany, NJ
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07054
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(Address
of Principal Executive Offices)
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(Zip
code)
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Registrant's
telephone number including area
code: (973) 402-4251
Securities
registered pursuant to Section 12(b) of the Act:
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Name
of Each Exchange
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Title of Each Class
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On Which Registered
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None
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None
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Securities registered pursuant to
section 12(g) of the Act:
Common
Stock, $.001 par value
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o
Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o
Yes x No
Indicate
by checkmark 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. x Yes
o
No
Indicate
by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K(§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one):
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller
reporting
company
x
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b2 of the Act). x Yes o No
The
aggregate market value of voting and nonvoting stock held by non-affiliates,
based on the closing price of the Common Stock, par value $0.001 (the "Common Stock")
on June 30, 2008 of $0.04, as reported on the OTC Bulletin Board was
$765,884. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for any other purpose.
There
were 33,056,161 shares of Common Stock outstanding as of March 11,
2009.
DOCUMENTS INCORPORATED BY
REFERENCE: None
Information
Regarding Forward-Looking Statements
References
in this document to "we," "our," "us," and "the Company" refer to Clacendix,
Inc.
A number
of statements contained in this report are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in the applicable statements. You can identify
forward-looking statements by our use of words such as "may", "will", "should",
"could", "expects", "plans", "intends", "anticipates", "believes", "estimates",
"predicts", "potential", or "continue" or the negative or other variations of
these words, or other comparable words or phrases. These statements include, but
are not limited to, statements regarding our ability to complete our business
objectives. These risks and uncertainties include, but are not
limited to,
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·
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our
ability to complete a combination with one or more target
businesses;
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·
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our
success in retaining or recruiting, or changes required in, our officers
or directors following a business
combination;
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·
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our
potential inability to obtain additional financing to complete a business
combination;
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·
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a
limited pool of prospective target
businesses;
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·
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a
potential change in control if we acquire one or more target businesses
for stock;
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·
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our
public securities’ limited liquidity and trading;
or
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·
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our
ongoing financial performance.
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Unless
otherwise required by applicable securities laws, the Company assumes no
obligation to update any such forward-looking statements, or to update the
reasons why actual results could differ from those projected in the
forward-looking statements.
PART
I
Item
1: Business
Sale
of Substantially all of our Operating Assets
On
December 31, 2007, Clacendix, Inc. sold substantially all of its operating
assets to Cryptek, Inc. (“Cryptek”), a privately held Delaware corporation (the
“Transaction”). Stockholder approval was required, and obtained, with
respect to such sale.
The
closing of the Transaction occurred immediately upon the conclusion of the
Annual Meeting of Shareholders held on December 31, 2007. Pursuant to the
Asset Purchase Agreement, the Company sold to Cryptek substantially all of the
operating assets of the Company in exchange for the total consideration of
$3,771,040, made up as follows: (i) $3,200,000 in cash, (ii) $338,187 in
receivables which will flow to the Company, and (iii) $232,853 in certain
assumed liabilities. At the closing of the Transaction, $320,000 was
deducted from the total cash delivered to the Company and deposited in an escrow
account to provide for any claims against the Company’s transferred Intellectual
Property which may arise within one year of the closing date. This
escrow amount has been classified as restricted cash as of December 31, 2008 and
2007.
The
Company realized a gain of $1,453,113 on the sale of substantially all of the
operating assets of the Company. The Company incurred $215,731 in
expenses related to the transaction comprised of legal and accounting fees of
$169,672, shareholder meeting related expenses of $30,327 and other fees of
$15,732. A detailed summary of the assets and liabilities sold as part of the
Transaction is provided below in Item 7.
Historical
Overview
Clacendix,
Inc. (formerly ION Networks, Inc.) is a Delaware corporation founded in 1999
through the combination of two companies, MicroFrame, Inc. (originally founded
in 1982), a New Jersey corporation and SolCom Systems Limited (originally
founded in 1994), a Scottish corporation located in Livingston,
Scotland. The Scottish corporation was dissolved in 2003. On December
31, 2007, the Company changed its name from ION Networks, Inc. to Clacendix,
Inc. Our principal executive offices are located at 2001 Route 46,
Parsippany, New Jersey 07054, and our telephone number is (973)
402-4251.
Prior to
completion of the Transaction, the Company provided remote services delivery and
secure access technology. The Company’s suite of tools enabled
service providers, government and military agencies, and corporate IT
departments to remotely manage, monitor, and secure critical devices on voice
and data networks. The Company's principal business prior to
completion of the Transaction was to address the need for security and network
management and monitoring solutions, primarily for the PBX-based
telecommunications market, resulting in a significant portion of revenues being
generated from sales to various telecommunications companies. In
1999, the Company expanded through the purchase of certain assets of LeeMAH
DataCom Security Corporation.
The
Company is now seeking a target company with which to merge or to complete a
business combination and use the value of the public shell, cash on hand and the
limited Net Operating Loss carry forwards, to secure an equity position in the
newly merged or combined corporate entity. In any transaction, it is
expected that the Company would be the surviving legal entity and the
shareholders of the Company would retain a percentage ownership interest in the
post-transaction company. The Company does not plan to restrict its search
to any specific business, industry or geographic location, and it may
participate in a business venture of virtually any kind or
nature.
The
Company may seek a business opportunity with entities which have recently
commenced operations, or that desire to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. The
Company may acquire assets and establish wholly owned subsidiaries in various
businesses or acquire existing businesses as subsidiaries. The Company can give
no assurance that any such a transaction will occur, or that if such a
transaction were to occur, it would enhance the Company’s future operations or
financial results, or specifically that the Company would become and remain
profitable as a result of such transaction. . If we do not complete a
transaction within a reasonable time frame, we may liquidate.
Employees
As of
December 31, 2008, the Company had 2 full-time employees.
Item
1A. Risk Factors.
We
have no operating history with respect to our new business objective and,
accordingly, you have no basis on which to evaluate our ability to achieve
it.
We
recently sold substantially all of our operating assets. Because we
lack an operating history with respect to our new business objective of
completing a business combination with one or more target businesses, you have
no basis on which to evaluate our ability to achieve such
objective. We are currently in the process of evaluating and
identifying prospective target businesses concerning a business combination but
may be unable to complete a business combination. We will not
generate any future revenues until, at the earliest, after the consummation of a
business combination. If we do not complete a transaction within a
reasonable time frame, we may liquidate.
We
may issue shares of our capital stock or debt securities to complete a business
combination, which would reduce the equity interest of our stockholders and
likely cause a change in control of our ownership.
Our
amended and restated certificate of incorporation authorizes the issuance of up
to 750,000,000 shares of common stock, par value $.001 per share, and
1,000,000 shares of preferred stock, par value $.001 per share. Shares of Common
Stock or Preferred Stock that are redeemed, purchased or otherwise acquired by
the Company may be reissued except as otherwise provided by law. At December 31,
2008, there were 711,419,113 authorized but unissued shares of our common stock
available for issuance (after reservation for the issuance of 2,756,656 shares
issuable pursuant to currently exercisable options, 1,212,500 shares issuable
pursuant to currently exercisable warrants and 1,555,570 shares issuable
pursuant to currently convertible preferred stock) and 844,443 shares of
preferred stock available for issuance. Although we have no
commitment as of the date of this report, we may issue a substantial number of
additional shares of our common or preferred stock, or a combination of common
and preferred stock, to complete a business combination. The issuance of
additional shares of our common stock or any number of shares of our preferred
stock:
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·
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may
significantly reduce the equity interest of
investors;
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·
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may
subordinate further the rights of holders of common stock if we issue
additional preferred stock with rights senior to those afforded to our
common stock;
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·
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may
cause a change in control if a substantial number of our shares of common
stock are issued; and
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·
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may
adversely affect prevailing market prices for our common
stock.
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Similarly,
if we issue debt securities, such debt could result in:
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·
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default
and foreclosure on our assets if our operating revenues after a business
combination are insufficient to repay our debt
obligations;
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·
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acceleration
of our obligations to repay the indebtedness even if we make all principal
and interest payments when due if we breach any covenants that require the
maintenance of certain financial ratios or reserves without a waiver or
renegotiation of that covenant;
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·
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our
immediate payment of all principal and accrued interest, if any, if the
debt security is payable on demand;
and
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·
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our
inability to obtain necessary additional financing if the debt security
contains covenants restricting our ability to obtain such financing while
the debt security is outstanding.
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We
may be restricted from issuing new equity securities.
In
September 2002, we issued shares of Series A Preferred Stock to several
investors. Under the terms of the preferred stock, any issuances of equity
securities or securities convertible into or exercisable for equity securities
require the prior approval of the holders of a majority of the outstanding
shares of Series A Preferred Stock. While two of our directors currently own a
significant portion (48.8%), they do not own a majority of the
preferred stock. While the Company has been successful in obtaining the consent
of a majority of the Series A Preferred Stock when the Board of Directors has
requested, there can be no assurance that the Company will continue to be able
to obtain such consent. If the Company is unable to obtain this approval, the
Company would be prevented from issuing equity securities which would preclude
the Company from raising equity financing, utilizing equity based compensation
plans and from other actions requiring the issuance of equity securities. In
addition, the consent of certain of our existing investors (which consent may
not be unreasonably withheld or delayed) is required in connection with certain
financings involving (subject to certain exclusions) the issuance of securities
in which the purchase price, number of securities, exercise price or conversion
rate are subject to future adjustments. Failure to obtain such consent could
restrict the Company's ability to avail itself of the benefits of such
financings.
We
are dependent upon Mr. Corn and Mr. Delaney and the loss of either of them could
adversely affect our ability to operate.
Our
operations are dependent upon two people, Mr. Corn and Mr. Delaney, our only
employees, at least until we have consummated a business
combination. Although each has agreed to stay with the Company until
March 31, 2009, we cannot assure you that such individuals will remain with us
for a longer period of time. In addition, we cannot assure you that
they will be successful in allocating management time among various business
activities, including identifying potential business combinations and monitoring
the related due diligence. In addition, Mr. Corn and Mr. Delaney are
permitted to engage in other activities that are not in conflict with their
responsibilities to the Company affairs, which could create difficulties when
allocating their time between our operations and their other
commitments. The unexpected loss of the services of either of these
individuals could have a detrimental effect on us.
Since
we have not yet selected a particular industry, geography, or target business
with which to complete a business combination, we are unable to currently
ascertain the merits or risks of the industry or business in which we may
ultimately operate.
We may
consummate a business combination with a company in any industry we choose and
are not limited to any particular industry, geography, or type of
business. Accordingly, there is no current basis for you to evaluate
the possible merits or risks of the particular industry in which we may
ultimately operate or the target business that we may ultimately
acquire. Your only opportunity to evaluate and affect the investment
decision regarding a potential business combination will be limited to voting
for or against the business combination, if submitted to our stockholders for
approval. To the extent we complete a business combination with a
financially unstable company or an entity in its development stage, we may be
affected by numerous risks inherent in the business operations of those
entities. If we complete a business combination with an entity in an
industry characterized by a high level of risk, we may be affected by the
currently unascertainable risks of that industry. Although our management will
endeavor to evaluate the risks inherent in a particular industry, geography, or
target business, we cannot assure you that we will properly ascertain or assess
all of the significant risk factors. We also cannot assure you that an
investment in our securities will not ultimately prove to be less favorable to
investors than a direct investment, if an opportunity were available, in a
target business.
Because
there are numerous companies with a business plan similar to ours seeking to
effectuate a business combination, it may be more difficult for us to do
so.
There are
numerous shell and “blank check” companies that are seeking to carry out a
business plan similar to our current business plan. Furthermore,
there are offerings for blank check companies that are still in the registration
process but have not completed initial public offerings, and there are likely to
be more blank check companies filing registration statements for initial public
offerings prior to our completion of a business combination. While
some of those companies must complete a business combination in specific
industries, a number of them may consummate a business combination in any
industry they choose. Therefore, we may be subject to competition
from these and other companies seeking to execute a business plan similar to
ours. Because of this competition, we cannot assure you that we will
be able to effectuate a business combination.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and
management resources and may increase the time and costs of completing an
acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on
our system of internal control with this Annual Report on Form 10-K for the year
ending December 31, 2008. If we fail to maintain the adequacy of our
internal controls, we could be subject to regulatory scrutiny, civil or criminal
penalties, and stockholder litigation. Any inability to provide
reliable financial reports could harm our business.
Section
404 of the Sarbanes-Oxley Act also requires that our independent registered
public accounting firm issue an attestation report on its evaluation of our
system of internal control over financial reporting with respect to the year
ended December 31, 2009. A target company may not be in compliance with the
provisions of the Sarbanes-Oxley Act regarding adequacy of their internal
controls. The development of the internal controls of any such entity
to achieve compliance with the Sarbanes-Oxley Act may increase the time and
costs necessary to complete any such acquisition. Furthermore, any
failure to implement required new or improved controls, or difficulties
encountered in the implementation of adequate controls over our financial
processes and reporting in the future, could harm our operating results or cause
us to fail to meet our reporting obligations. Inferior internal
controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
stock.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
The
Company leases space in an executive suite located at 2001 Route 46, Parsippany,
New Jersey 07054, through a month-to-month lease at a rate of $250 per month.
This lease may be terminated by either party upon sixty days’ notice. The Company is
entitled to use this space two days per month, without incurring additional
expense. We believe our facilities are adequate and suitable for our
current level of operations. Our management believes that the leased
property is adequately covered by insurance.
Item
3. Legal Proceedings.
None.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
PART
II
Item
5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Market
Information
The
Company's common stock, par value $.001 per share (the "Common Stock"), is
currently quoted on the OTC Bulletin Board under the symbol "IONN.OB". There is
no established public trading market for the Common Stock. The following table
sets forth the high ask and low bid prices of the Common Stock for the periods
indicated as quoted on the OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission, and may not
represent actual transactions.
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Year Ended December 31, 2008, Quarter
Ended
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HIGH
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LOW
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March
31, 2008
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$ |
0.05 |
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$ |
0.02 |
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June
30, 2008
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0.09 |
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0.03 |
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September
30, 2008
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0.09 |
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0.04 |
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December
31, 2008
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0.05 |
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0.01 |
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Year Ended December 31, 2007, Quarter
Ended
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HIGH
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LOW
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March
31, 2007
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$ |
0.12 |
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$ |
0.08 |
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June
30, 2007
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0.10 |
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0.04 |
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September
30, 2007
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0.06 |
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0.03 |
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December
31, 2007
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0.12 |
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0.02 |
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Security
Holders
As of
March 23, 2009 there were 385 holders of record of the Company’s Common
Stock.
Dividends
The
Company has not paid any cash dividends on its Common Stock during the years
ended December 31, 2008 and December 31, 2007. The Company at the
present time does not intend to pay any cash dividends in the foreseeable
future.
Item
6. Selected Financial Data.
Not
applicable
Item
7: Management's Discussion and Analysis of Financial Condition and Results of
Operation
Management's
Discussion and Analysis
Overview
This
discussion and analysis should be read in conjunction with our consolidated
financial statements and accompanying notes included elsewhere in this Annual
Report. This discussion includes forward-looking statements that
involve risk and uncertainties. The following financial information
for the years ended December 31, 2008 and December 31, 2007 should be considered
in light of the completion of the sale of substantially all of the operating
assets of the Company on December 31, 2007 and the fact that the Company
currently has no operations other than to seek a target company with which to
merge or to complete a business combination, as described above in Item
1. The Company can give no assurance that any such a transaction will
occur, or that if such a transaction were to occur, it would enhance the
Company’s future operations or financial results, or specifically that the
Company would become and remain profitable as a result of such
transaction. If we do not complete a transaction within a
reasonable time frame, we may liquidate.
On
December 31, 2007, Clacendix, Inc. sold substantially all of its operating
assets to Cryptek,
Inc., a privately held Delaware corporation. Stockholder approval was
required, and obtained, with respect to such sale.
A summary
of the assets sold and liabilities assumed as part of the Transaction are as
follows:
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Accounts
receivable, net
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$ |
378,656 |
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Inventories,
net
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267,256 |
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Prepaid
expenses
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43,950 |
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Property,
plant and equipment
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16,005 |
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Capitalized
software
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1,383,417 |
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Other
assets
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12,912 |
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Total
assets sold
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$ |
2,102,196 |
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Accounts
payable
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$ |
16,799 |
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Accrued
expenses
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70,522 |
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Deferred
maintenance
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145,532 |
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Total
liabilities assumed
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$ |
232,853 |
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The
Company realized a gain of $1,453,113 on the sale of substantially all of the
operating assets of the Company. The Company incurred $215,731 in
expenses related to the transaction comprised of legal and accounting fees of
$169,672, shareholder meeting related expenses of $30,327 and other fees of
$15,732.
Results
of Operations
On
December 31, 2007, the Company sold substantially all of its operating assets
hence, during 2008 there were no operations other than activities related to the
maintenance of the public entity and the search for a suitable merger candidate.
Therefore, the Company had no revenue, cost of sales, and depreciation expense
and substantially no research and development expenses and selling
expenses.
The
Company is seeking a target company with which to merge or to complete a
business combination. In any transaction, it is expected that the Company
would be the surviving legal entity and the shareholders of the Company would
retain a percentage ownership interest in the post-transaction company.
The Company does not plan to restrict its search to any specific business,
industry or geographic location, and it may participate in a business venture of
virtually any kind or nature.
The
Company may seek a business opportunity with entities which have recently
commenced operations, or that desire to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. The
Company may acquire assets and establish wholly owned subsidiaries in various
businesses or acquire existing businesses as subsidiaries.
The
Company can give no assurance that any such a transaction will occur, or that if
such a transaction were to occur, it would enhance the Company’s future
operations or financial results, or specifically that the Company would become
and remain profitable as a result of such transaction.
The
comparison of results below should take into account that the Company had no
operating activities during the year ended December 31, 2008
2008
Compared to 2007
The
Company had net loss of $667,432 in 2008 compared to net income of $93,492 in
2007, for a change of $760,924. The decrease was due primarily to a $1,453,113
gain on the sale of assets and proceeds of approximately $490,000 from sale of
unused net operating loss tax benefits offset in part by a reduction in
severance related expenses of $834,986.
Revenues
for 2008 were zero as compared to $3,314,503 for 2007. Cost of sales for the
year ended December 31, 2008 was zero compared to $1,518,067 for the same period
in 2007. This was due to the fact that the company sold substantially all of its
operating assets on December 31, 2007 and therefore had no operating activities
during 2008.
Research
and development expenses decreased to $236 for 2008 from $328,797 for 2007. This
was due to the fact that the Company sold substantially all of its operating
assets on December 31, 2007 and therefore had no operating activities during
2008.
Selling,
general and administrative (“SG&A”) expenses decreased 78% to $694,917 in
2008 from $3,221,267 in 2007. This was due to the fact that the Company sold
substantially all of its operating assets on December 31, 2007 and therefore had
no operating activities during 2008. The only expenses incurred during 2008 were
activities related to the maintenance of the public entity and the search for a
suitable merger candidate of which approximately $409,528 were for salaries and
payroll related expenses for Messrs. Corn and Delaney, professional fees
(including accounting, legal shareholder relations, etc.) of $203,038 and
$46,299 for various non-payroll related insurance expenses.
Depreciation
was zero for 2008 compared to $21,887 for 2007. This was due to the fact that
the Company sold substantially all of its operating assets on December 31, 2007
and therefore had no operating activities during 2008.
The
Company acquired a corporation business tax benefit certificate pursuant to New
Jersey law, which relates to the surrendering of unused New Jersey net operating
losses. During the year ended December 31, 2007, the Company received
cash proceeds relating to the sale of these net operating losses of
approximately $490,000. During the year ended December 31, 2008, the Company did
not receive any proceeds from the sale of its net operating losses since during
2008 it did not meet the net operating loss sale requirements for the state of
NJ program.
Liquidity and
Capital Resources
The
Company will not generate any future revenues until, at the earliest, after the
consummation of a business combination. In addition, the Company may
need to raise additional funds in connection with the completion of such a
transaction.
The
Company's working capital balance as of December 31, 2008 was $1,185,039
compared to $1,841,846 at December 31, 2007. The decrease of $656,807 was due
primarily to the expenses related to the activities for the maintenance of the
public entity and the search for a suitable merger candidate of $695,153 and tax
expense of $14,694 offset in part by interest earned of $42,415. We presently
anticipate that cash requirements during the next twelve months will relate to
maintaining the corporate entity, complying with the periodic reporting
requirements of the Securities and Exchange Commission, evaluating and reviewing
possible business ventures and acquisition opportunities and potentially
negotiating and consummating any such transactions. The Company believes
that it has sufficient cash on hand to meet these cash requirements during the
next year.
Net cash
used in operating activities was $1,365,369 for the year ended December 31, 2008
which included a net loss of $667,432, reduction in accounts payable of $218,660
offset in part by a reduction of other receivables of $396,835 related to
retained accounts receivable collected during 2008 pursuant to the Sale of
substantially all the assets. Cash used in operating activities also
includes the payment of accrued payroll and other expenses from the prior year
in the amount of $879,986.
Net cash
used in investing activities for the year ended December 31, 2008 was zero. Cash
provided by investing activities for the year ended December 31, 2007 was
$2,342,782, which consisted primarily of cash received from the sale of
substantially all the assets of the Company of $2,880,000 offset in part by
investing activities in capitalized software expenditures of
$535,839.
Net cash
provided by financing activities was $315 for the year ended December 31, 2008
related to the exercise of certain stock options compared to $64,213 for the
year ended December 31, 2007. During the year ended December 31, 2007 the cash
provided was primarily from net borrowings from revolving credit facility of
$52,503 and proceeds from the exercise of stock options of $15,696.
Off-Balance
Sheet Arrangements
As of
March 23, 2009, we did not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future material effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources.
Critical
Accounting Policies
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates. As
of December 31, 2008, the Company’s significant estimates include its deferred
tax asset valuation.
Recent Accounting
Pronouncements
In
June 2008, the EITF reached a consensus in Issue No. 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock” (“EITF 07-5”). This Issue addresses the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which is the first part of the scope exception in paragraph 11(a) of SFAS
133. EITF 07-5 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early application is not
permitted. The Company is currently in the process of evaluating the impact of
the adoption of EITF 07-5 on its results of operations and financial
condition.
On
October 10, 2008, the FASB issue FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (FSP).” The FSP
clarifies the application of FASB Statement No. 157 in a market that is not
active. The guidance is primarily focused on addressing how the reporting
entity’s own assumptions should be considered when measuring fair value when
relevant observable inputs does not exist; how available observable inputs in a
market that is not active should be considered when measuring fair value; and
how the use of market quotes should be considered when assessing the relevance
of observable and unobservable inputs available to measure fair value. The
adoption of FSP FAS 157-3 did not have a material impact on the Company’s
financial statements.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities”. This FSP
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (EPS) under the
two-class method described in paragraphs 60 and 61 of FASB Statement No. 128,
Earnings per Share.
FSP EITF
03-6-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those years. The Company is
in the process of determining the impact FSP EITF 03-6-1 will have on its
consolidated financial statements.
In May
2008, the FASB issued Statement No. 162 “The Hierarchy of Generally Accepted
Accounting Principles.” The current hierarchy of generally accepted accounting
principles is set forth in the American Institute of Certified Accountants
(AICPA) Statement of Auditing Standards (SAS) No. 69, “The meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles. Statement
No. 162 is intended to improve financial reporting by identifying a consistent
framework or hierarchy for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles for nongovernmental entities. This
Statement is effective 60 days following the SEC’s approval of the Public
Company Oversight Board Auditing amendments to SAS 69. The Company is currently
evaluating the application of this Statement but does not anticipate that the
Statement will have a material effect on the Company’s results of operations or
financial position.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No. 133” (“SFAS 161”), to
require enhanced disclosures about an entity’s derivative and hedging activities
and thereby improves the transparency of financial reporting. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early adoption encouraged. The Company
is currently evaluating the effect that the adoption of SFAS 161 will have on
its consolidated results of operations and financial condition, but does not
expect it to have a material impact.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS
141R"), which replaces SFAS No. 141, "Business Combinations." SFAS 141R
establishes principles and requirements for determining how an enterprise
recognizes and measures the fair value of certain assets and liabilities
acquired in a business combination, including noncontrolling interests,
contingent consideration, and certain acquired contingencies. SFAS 141R also
requires acquisition-related transaction expenses and restructuring costs be
expensed as incurred rather than capitalized as a component of the business
combination. SFAS 141R will be applicable prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. SFAS 141R would have
an impact on accounting for any businesses acquired after the effective date of
this pronouncement.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 permits companies to choose
to measure certain financial instruments and certain other items at fair
value. The standard requires that unrealized gains and losses on
items for which the fair value option has been elected be reported in
earnings. The Company adopted SFAS 159 beginning in the first quarter
of 2008, without material effect on the Company’s consolidated financial
position or results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 establishes a single definition of fair value and a framework for
measuring fair value, sets out a fair value hierarchy to be used to classify the
source of information used in fair value measurements, and requires new
disclosures of assets and liabilities measured at fair value based on their
level in the hierarchy. This statement applies under other accounting
pronouncements that require or permit fair value measurements. In February 2008,
the FASB issued Staff Positions (“FSPs”) No. 157-1 and No. 157-2, which,
respectively, remove leasing transactions from the scope of SFAS No. 157 and
defer its effective date for one year relative to certain nonfinancial assets
and liabilities. As a result, the application of the definition of fair value
and related disclosures of SFAS No. 157 (as impacted by these two FSPs) was
effective for the Company beginning January 1, 2008 on a prospective basis with
respect to fair value measurements of (a) nonfinancial assets and liabilities
that are recognized or disclosed at fair value in the Company’s financial
statements on a recurring basis (at least annually) and (b) all financial assets
and liabilities. This adoption did not have a material impact on the Company’s
consolidated results of operations or financial condition. The remaining aspects
of SFAS No. 157 for which the effective date was deferred under FSP No. 157-2.
Areas impacted by the deferral relate to nonfinancial assets and liabilities
that are measured at fair value, but are recognized or disclosed at fair value
on a nonrecurring basis. This deferral applies to such items as nonfinancial
assets and liabilities initially measured at fair value in a business
combination (but not measured at fair value in subsequent periods) or
nonfinancial long-lived asset groups measured at fair value for an impairment
assessment. The effects of these remaining aspects of SFAS No. 157 are to be
applied to fair value measurements prospectively beginning January 1, 2009. The
Company does not expect them to have a material impact on the Company’s
consolidated results of operations or financial condition.
Item.7A Quantitative and Qualitative
Disclosure About Market Risk.
Not
applicable.
Item
8. Financial Statements and Supplementary Data.
The
financial statements required hereby are located on pages 25 through
44.
Item 9: Changes in and Disagreements
With Accountants on Accounting and Financial Disclosure
None
Item
9A(T): Controls and Procedures
Disclosure
Controls and Procedures
Prior to
the filing date of this annual report, the Company's management, under the
supervision and with the participation of the Company's Chief Executive Officer
and Chief Financial Officer, performed an evaluation of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the period covered by this report. Based on that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports filed by it
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and include controls and procedures designed to
ensure that information required to be disclosed by the Company in such reports
is accumulated and communicated to the Company’s management, including the Chief
Executive Officer and Chief Financial Officer of the Company, as appropriate to
allow timely decisions regarding required disclosure.
Internal
Control Over Financial Reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The internal control process
has been designed under our supervision to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Company’s financial statements for external reporting purposes in accordance
with accounting principles generally accepted in the United States of
America.
Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008, utilizing the framework
established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, management has determined that the Company’s internal control over
financial reporting as of December 31, 2008 is effective.
Our
internal control over financial reporting. includes
policies and procedures that pertain to the maintenance of records that
accurately and fairly reflect, in reasonable detail, transactions and
dispositions of assets; and provide reasonable assurances that: (1) transactions
are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States;
(2) receipts and expenditures are being made only in accordance with
authorizations of management and the directors of the Company; and (3)
unauthorized acquisitions, use, or disposition of the Company’s assets that
could have a material affect on the Company’s financial statements are prevented
or timely detected.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparations and presentations. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
Changes
to Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
during the three months ended December 31, 2008 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Item
9B: Other Information
None.
Part
III
Item
10: Directors, Executive Officers, and Corporate Governance
The
directors and executive officers of the Company as of December 31, 2008 are as
follows:
|
Name
|
|
Age
|
|
Position Held with the
Company
|
|
|
|
|
|
|
|
Norman
E. Corn
|
|
62
|
|
Chief
Executive Officer and Director
|
|
|
|
|
|
|
|
Patrick
E. Delaney
|
|
55
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
Stephen
M. Deixler
|
|
73
|
|
Chairman
of the Board of Directors
|
|
|
|
|
|
|
|
Frank
S. Russo
|
|
66
|
|
Director
|
NORMAN E.
CORN has been a director of the Company since November 2005 and has served as
Chief Executive Officer since August 2003. Prior to joining the Company, from
2000 until 2003, Mr. Corn was Executive Vice President of Liquent, Inc., a
Pennsylvania-based software company that provides electronic publishing
solutions, focused on the life sciences industry. Mr. Corn also served from 1994
to 2000 as CEO of TCG Software, Inc., an offshore software services organization
providing custom development to large corporate enterprises in the US. Mr. Corn
has led other companies, including Axiom Systems Group, The Cobre Group, Inc.,
The Office Works, Inc. and Longview Results, Inc., having spent the early part
of his career in sales, marketing and executive positions at AT&T and
IBM.
PATRICK
E. DELANEY has served as Chief Financial Officer since September 2003. Prior to
joining the Company, from 2000 until 2003, Mr. Delaney was the President of
Taracon, Inc. a privately owned independent consulting firm that provides
management consulting for early and mid-stage technology and financial services
companies. Mr. Delaney also served as Chief Financial Officer for two publicly
traded telecommunications providers, Pointe Communications Corporation from 1993
to 2000 and Advanced Telecommunications Corporation from 1986 to 1993. Mr.
Delaney has served other companies in executive capacities including RealCom
Communications, Argo Communications and ACF Industries.
STEPHEN
M. DEIXLER has been Chairman of the Board of Directors since May 1982 and served
as Chief Executive Officer of the Company from April 1996 to May 1997. He was
President of the Company from May 1982 to June 1985 and served as Treasurer of
the Company from its formation in 1982 until September 1993. During the period
from March 2003 to September 2003, Mr. Deixler served as the interim Chief
Financial Officer of the Company. He also serves as Chairman of the Board of
Trilogy Leasing Co., LLC and President of Resource Planning Inc. Mr. Deixler was
the Chairman of Princeton Credit Corporation until April 1995.
FRANK S.
RUSSO has served as a director of the Company since November 2000. Mr. Russo was
with AT&T Corporation from September 1980 to September 2000 and most
recently served as its Corporate Strategy and Business Development Vice
President. While at AT&T, Mr. Russo held a number of other management
positions including that of General Manager, Network Management Services from
which he helped architect and launch AT&T's entry into the global network
outsourcing and professional services business. Mr. Russo retired from AT&T
in 2000. Prior to joining AT&T, Mr. Russo was employed by IBM Corporation in
a variety of system engineering, sales and sales management positions. Mr. Russo
served on the Board of Directors of Oak Industries, Inc., a manufacturer of
highly engineered components, from January 1999 to February 2000, and currently
serves on the Board of Directors of Retail Solutions, a private e-commerce
company headquartered in Waltham, Massachusetts.
Audit
Committee Financial Expert
The
Company’s
Audit Committee currently consists of Messrs. Stephen M. Deixler and Frank S.
Russo. The Board of Directors has determined, based on information
provided to it by Mr. Deixler, that Mr. Deixler qualifies as a “audit committee
"financial
expert.” as
defined by Item 407(d)(5)(ii) of Regulation S-K. In addition, the
Board of Directors has determined that Mr. Deixler is “independent” within the
meaning of Nasdaq Rule 4200(a)(15).
Section
16(a) Beneficial Ownership Reporting Compliance.
Section
16(a) of the Exchange Act, requires the Company's directors, executive officers
and persons who own more than 10% of the Company's Common Stock (collectively,
"Reporting Persons") to file reports of ownership and changes in ownership of
the Company's Common Stock with the Securities and Exchange Commission. Copies
of these reports are also required to be delivered to the
Company.
Each of
Messrs. Deixler, Russo and Levine failed to file a Form 4 with respect to the
grant to each such director of options to purchase 1,500 shares of common stock
on March 25, 2008.
Each of
Messrs. Deixler, Russo and Levine failed to file a Form 4 with respect to the
grant to each such director of options to purchase 14,500 shares of common stock
on May 19, 2008.
Each of
Messrs. Deixler, Russo and Levine failed to file a Form 4 with respect to the
grant to each such director of options to purchase 1,500 shares of common stock
on August 11, 2008.
Each of
Messrs. Deixler and Russo failed to file four Form 4s with respect to grants to
each such director of options to purchase 1,500 shares of common stock, on each
of November 11, 2008, December 4, 2008, December 15, 2008 and December 30, 2008,
as compensation for attendance at various Board meetings. Code of
Ethics
The
Company has a Code of Ethics in place for all of its employees, including its
principal executive officer, principal financial officer, and principal
accounting officer or controller. A copy of the Company's Code of Ethics will be
provided free of charge, upon written request to Clacendix, Inc., 2001 Route 46,
Parsippany, NJ 07054.
Stockholder
Recommendations of Board Nominees
There
have been no material changes to the procedures by which our stockholders may
recommend nominees to our Board of Directors since our last proxy statement
filed with the SEC.
Item
11: Executive Compensation
SUMMARY
COMPENSATION TABLE
The
following table sets forth the compensation earned, whether paid or deferred, by
the Company's principal executive officer at December 31, 2008 (“PEO”), and the
other most highly compensated executive officer other than the PEO at December
31, 2008 (the "Named Executive Officers") for services rendered in all
capacities to the Company.
|
Name and Principal Position
|
Year
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Option
Awards
($)(1)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norman
E. Corn/
Chief
Executive Officer
|
2008
|
|
|
167,083 |
|
|
|
- |
|
|
|
3,585 |
|
|
|
6,429 |
(2) |
|
|
177,097 |
|
|
|
2007
|
|
|
235,000 |
|
|
|
- |
|
|
|
- |
|
|
|
369,730 |
(3) |
|
|
604,730 |
|
|
Patrick
E. Delaney
Chief
Financial Officer
|
2008
|
|
|
150,000 |
|
|
|
- |
|
|
|
3,585 |
|
|
|
5,700 |
(2) |
|
|
159,285 |
|
|
|
2007
|
|
|
200,000 |
|
|
|
- |
|
|
|
- |
|
|
|
305,700 |
(4) |
|
|
505,700 |
|
(1) The
amounts in the “Option Awards” column reflect the dollar amounts recognized as
compensation expense for financial statement reporting purposes for stock
options for the fiscal year ended December 31, 2007 in accordance with
SFAS123(R). The assumptions we used to calculate these amounts are discussed in
the notes to our consolidated financial statements included in this Form 10-K
for the year ended December 31, 2008 and our Form 10-KSB for the year ended
December 31, 2007.
(2)
Includes life and disability insurance premiums paid by the
Company.
(3)
Includes auto allowance, life insurance and disability insurance premiums paid
by the Company, and a severance amount of $352,500.
(4)
Includes auto allowance and medical benefit premiums paid by the Company, and a
severance amount of $300,000.
Narrative Disclosure to Summary
Compensation Table
Mr. Corn,
the Company’s Chief Executive Officer, and Mr. Delaney, the Company’s Chief
Financial Officer are currently employed by the Company through March
31, 2009, unless terminated earlier by either the Company or the relevant
officer upon thirty days prior notice. Effective July 1, 2008, each
of Messrs. Corn and Delaney’s compensation was adjusted to an annualized base
salary of $100,000, as compared to previous annual base salaries of $235,000 and
$200,000, respectively. Mr. Corn is eligible to receive reimbursement
for life and disability insurance. Mr. Delaney is eligible to receive
to receive reimbursement for medical benefits and life and disability
insurance. In addition, Messrs. Corn and Delaney will continue to
receive reimbursement for reasonable business expenses.
In
connection with the consummation of the sale of substantially all the operating
assets of the Company and Mr. Corn’s original agreement to remain with the
Company through June 30, 2008 in order to facilitate either a business
combination with a third party or the liquidation of the Company, the Company
agreed to pay Mr. Corn a total of $352,500. As agreed, on January 15,
2008, $176,250 of such amount was paid, and on July 15, 2008, the remaining
$176,250 was paid to Mr. Corn. In addition, as previously disclosed,
the Company agreed similarly to pay Mr. Delaney a total of
$300,000. As agreed, on January 15, 2008, $150,000 of such amount was
paid and on July 15, 2008, the remaining $150,000 was paid to Mr.
Delaney. These amounts are the equivalent of the 18 months of salary
that would have been due and payable as severance to each of Messrs. Corn and
Delaney under their respective employment agreements had they been terminated as
a result of a change of control of the Company for any reason other than
cause. No additional severance compensation is due to Messrs. Corn
and Delaney.
Previously,
the Company was a party to an employment agreement with Mr. Corn dated August
15, 2003, as amended effective November 10, 2004 and December 19, 2007, which
had no specific stated termination date. Pursuant to the agreement
Mr. Corn served as our Chief Executive Officer, at will, at an annual base
salary of $235,000, as stated above. In addition, he received
reimbursement for life and disability insurance. On January 28, 2004,
we awarded Mr. Corn 800,000 fully vested incentive stock options to purchase
common stock at $0.115 per share and 750,000 fully vested non-qualified stock
options to purchase common stock at $0.06 per share, of which 488,404
expired on January 28, 2009. On January 23, 2006, the Company awarded
Mr. Corn 250,000 stock options to purchase common stock at $0.18 per share which
vest on a pro-rata basis over a three year period from grant date and any
unvested shares would vest upon a change of control as defined in the 2006 Stock
Option Plan.
In
addition, the Company was previously a party to an employment agreement with Mr.
Delaney, dated September 15, 2003, as amended effective November 10, 2004 and
December 19, 2007, which had no specific stated termination
date. Pursuant to the agreement, Mr. Delaney served as our Chief
Financial Officer at will, at an annual base salary of $200,000, as stated
above. In addition, he received reimbursement for medical benefits
and life and disability insurance. On January
28,
2004, we awarded Mr. Delaney 800,000 fully vested incentive stock options
to purchase common stock at $0.115 per share and 250,000 fully vested
non-qualified stock options to purchase common stock at $0.045 per share, all of
which expired on January 28, 2009. On January 23, 2006, the Company
awarded Mr. Delaney 250,000 stock options to purchase common stock at $0.18 per
share which vest on a pro-rata basis over a three year period from grant date
and any unvested shares would vest upon a change of control as defined in the
2006 Stock Option Plan.
Outstanding
Equity Awards at December 31, 2008:
The
following table sets forth the number and value of options held by each of the
Named Executive Officers as of December 31, 2008.
|
Option Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
UnExercisable
|
|
|
Option
Exercise Price
($)
|
|
Option
Expiration
Date(2)
|
|
Norman
E. Corn
|
|
|
800,000 |
|
|
|
- |
|
|
|
0.115 |
|
1/28/09
|
|
Norman
E. Corn
|
|
|
488,404 |
|
|
|
- |
|
|
|
0.060 |
|
1/28/09
|
|
Norman
E. Corn/(1)
|
|
|
229,376 |
|
|
|
20,624 |
|
|
|
0.180 |
|
1/23/11
|
|
Patrick
E. Delaney
|
|
|
800,000 |
|
|
|
- |
|
|
|
0.115 |
|
1/28/09
|
|
Patrick
E. Delaney/(1)
|
|
|
229,376 |
|
|
|
20,624 |
|
|
|
0.180 |
|
1/23/11
|
(1) All options vest as follows: 34% of the
total number of shares subject to each option vest and become exercisable 12
months from date of grant, and options to purchase the remaining 66% of the
number of shares subject to each option vest and become exercisable in 8 equal
installments of 8.25% of the number of shares subject to each option, at the end
of every three month period following the 12 month anniversary of the grant
date. Outstanding un-vested options will vest upon change of control as defined
in the 2006 Stock Option Plan.
(2)
All options have a 5 year term.
Director
Compensation for the Fiscal Year ended December 31, 2008.
The
following table shows director compensation for all directors who are not Named
Executive Officers earned for the year ended December 31, 2008.
|
Name
|
|
Option
Awards($)(4)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
Stephen
M. Deixler/(1)
|
|
|
821 |
|
|
|
821 |
|
|
Frank
S Russo/(2)
|
|
|
747 |
|
|
|
747 |
|
|
Philip
Levine/(3)
|
|
|
821 |
|
|
|
821 |
|
(1) Mr. Deixler has 105,500
options outstanding as of December 31,
2008.
(2) Mr. Russo has 104,000 options
outstanding as of December 31,
2008.
(3) Mr. Levine had no options
outstanding as of December 31,
2008. Mr. Levine resigned from the Board of Directors of the Company,
effective September 1, 2008.
(4) The amounts in the
“Option Awards” column reflect the dollar amounts recognized as compensation
expense for financial statement reporting purposes for stock options for the
fiscal year ended December 31, 2008 in accordance with SFAS123(R). The
assumptions we used to calculate these amounts are discussed in Note 2 to our
consolidated financial statements included in this Form 10-K for the year ended
December 31, 2008.
Narrative
Disclosure to Director Compensation
Each
year, our directors who are not also employees receive fully vested options to
purchase 10,000 shares of our Common Stock for each of the following
memberships: board of directors and audit, compensation and nominating
committees. These Directors are also granted fully vested options to purchase an
additional 1,500 shares of our Common Stock for each Board meeting they attend.
Options are granted at exercise prices per share equal to the fair market value
of common stock on the date of the grant. In addition, we reimburse
all such Directors who travel more than fifty miles to a meeting of the Board of
Directors for all reasonable travel expenses.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Equity
Compensation Plan Information
As of
December 31, 2008
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
remaining available for
|
|
|
|
|
Number of securities to
|
|
|
Weighted-average
|
|
|
future issuance under
|
|
|
|
|
be issued upon exercise
|
|
|
exercise price of
|
|
|
equity compensation plans
|
|
|
|
|
of outstanding options,
|
|
|
outstanding options,
|
|
|
(excluding securities
|
|
|
|
|
warrants, and rights
|
|
|
warrants, and rights
|
|
|
reflected in column (a))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security
holders/(1)/
|
|
|
2,268,252 |
|
|
|
0.12 |
|
|
|
1,690,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by
security holders/(2)/
|
|
|
1,700,904 |
|
|
|
0.09 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,969,156 |
|
|
|
0.21 |
|
|
|
1,690,576 |
|
|
(1)
|
Shareholder
Approved Plans
|
On
January 23, 2006, the Company adopted its 2006 Stock Option Plan (the "2006
Plan"). The aggregate number of shares of common stock for which options may be
granted under the 2006 Plan is 4,000,000. The maximum number of options which
may be granted to an employee during any calendar year under the 2006 Plan is
300,000. The term of these non-transferable stock options may not exceed ten
years. The exercise price of these stock options may not be less than 100% (110%
if the person granted such options owns more than ten percent of the outstanding
common stock) of the fair value of one share of common stock on the date of
grant. On November 8, 2006 the shareholders approved the plan. As of December
31, 2008, 371,500 options were outstanding under the 2006 Plan, of which 350,876
were exercisable.
In
November 2000, the Company adopted its 2000 Stock Option Plan (the "2000 Plan").
The aggregate number of shares of common stock for which options may be granted
under the 2000 Plan is 3,000,000. The maximum number of options which may be
granted to an employee during any calendar year under the 2000 Plan is 400,000.
The term of these non-transferable stock options may not exceed ten years. The
exercise price of these stock options may not be less than 100% (110% if the
person granted such options owns more than ten percent of the outstanding common
stock) of the fair value of one share of common stock on the date of grant. As
of December 31, 2008, 838,000 options were outstanding and exercisable under the
2000 Plan.
In June
1998, the Company adopted its 1998 Stock Option Plan (the "1998 Plan"). The
aggregate number of shares of common stock for which options may be granted
under the 1998 Plan is 3,000,000. The maximum number of options which may be
granted to an employee during any calendar year under the 1998 Plan is 400,000.
The term of these non-transferable stock options may not exceed ten years. The
exercise price of these stock options may not be less than 100% (110% if the
person granted such options owns more than ten percent of the outstanding common
stock) of the fair value of one share of common stock on the date of grant. As
of December 31, 2008, 1,100,000 options were outstanding under the 1998 Plan, of
which 1,079,376 options were exercisable.
In August
1994, the Company adopted its 1994 Stock Option Plan (the "1994 Plan"). The
aggregate number of shares of common stock for which options may be granted
under the 1994 Plan, as amended, is 1,250,000. The term of these
non-transferable stock options may not exceed ten years. The exercise price of
these stock options may not be less than 100% (110% if the person granted such
options owns more than ten percent of the outstanding common stock) of the fair
market value of one common stock on the date of grant. As of December 31, 2008,
no options were outstanding and exercisable under the 1994
Plan.
During
the years ended 2008 and 2007, there were no options granted under the Company's
Time Accelerated Restricted Stock Award Plan ("TARSAP"). The options vest after
seven years, however, under the TARSAP, the vesting is accelerated to the last
day of the fiscal year in which the options are granted if the Company meets
certain predetermined sales targets. The Company did not meet the targets for
2001 and, as such, all options granted under the TARSAP in 2001 will vest seven
years from the original date of grant. As of December 31, 2008, no options were
outstanding and exercisable under the TARSAP Plan.
|
(2)
|
Non-Shareholder
Approved Plans and Awards
|
During
2007, the Company granted 1,775,000 warrants to purchase shares of Common Stock
outside of the shareholder approved plans. Of this grant, 562,500 warrants were
canceled and returned to the Company during 2007. The awards were
made to employees, directors and consultants, and except as noted below, have
been granted with an exercise price equal to the fair market value of the Common
Stock on the date of grant. The Company has not reserved a specific number of
shares for such awards. The non-shareholder approved awards are more
specifically described below.
In
January 2004, the Company issued options to certain officers to purchase
1,000,000 shares of the Company’s Common Stock, which vested immediately. The
exercise price of the options ranged from $0.045 to $0.06. At December 31, 2008,
488,404 options were outstanding and exercisable.
On
January 26, 2007, the Company entered into an agreement with a consultant. In
connection with this agreement, the Company issued fully vested warrants with a
two year term to purchase 1,500,000 shares of the Company’s Common Stock at
$0.10 per share for a total value of $133,709 based on the Black-Scholes model.
On May 1, 2007, the Company amended this previous agreement made on January 26,
2007 with a consultant. In connection with this amendment, the Company received
back fully vested warrants with a two year term to purchase 562,500 shares of
the Company’s Common Stock at $0.10 per share for a total value of $50,141 based
on the Black-Scholes model. The remaining value of approximately $48,000 was
credited to deferred compensation. At December 31,2008, warrants to purchase
937,500 shares of Common Stock were outstanding and exercisable. The warrants
under the amended agreement expired unexercised on January 28,
2009.
On July
17, 2007, the Company received in aggregate of $50,000 from two investors
through the issuance of promissory notes due the earlier of the receipt of any
proceeds from the sale of State of New Jersey Net Operating Losses or six months
from the date of the note. The interest rate on the notes is 20% per annum and
the effective interest rate is 20.86%. In conjunction with these notes, the
Company granted to the note holders warrants with a two year term to purchase an
aggregate of 50,000 shares of common stock for $0.05 per share. This note was
recorded net of a debt discount of $2,050 based on the relative fair value of
the warrants. The deferred debt discount was amortized to interest expense. At
December 31,2008, warrants to purchase 50,000 shares of Common Stock were
outstanding and exercisable.
On August
21, 2007, a Board member of the Company advanced an aggregate of $125,000
through the issuance of promissory notes due the earlier of the receipt of any
proceeds from the sale of State of New Jersey Net Operating Losses or six months
from the date of the note. The interest rate on the note is 20% per annum and
the effective interest rate is 20.86%. In conjunction with this note, the
Company granted to the note holder warrants with a two year term to purchase an
aggregate of 125,000 shares of common stock for $0.05 per share. This note was
recorded net of a debt discount of $5,125 based on the relative fair value of
the warrants. The deferred debt discount was amortized to interest
expense. At December 31,2008, warrants to purchase 125,000 shares of Common
Stock were outstanding and exercisable.
On
September 10, 2007, the Company received in aggregate of $100,000 from an
investor through the issuance of a promissory note due the earlier of the
receipt of any proceeds from the sale of State of New Jersey Net Operating
Losses or six months from the date of the note. The interest rate on the note is
20% per annum and the effective interest rate is 20.86%. In conjunction with
this note, the Company granted to the note holder warrants with a two year term
to purchase an aggregate of 100,000 shares of common stock for $0.05 per share.
This note was recorded net of a debt discount of $4,100 based on the relative
fair value of the warrants. The deferred debt discount was amortized to interest
expense. At December 31,2008, warrants to purchase 100,000 shares of Common
Stock were outstanding and exercisable.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 17, 2009 by each person (or
group within the meaning of Section 13(d)(3) of the Exchange Act) known by the
Company to own beneficially 5% percent or more of the Company's Common Stock,
and by the Company's directors and Named Executive Officers, both individually
and as a group. Unless otherwise noted, the address of each person in
the table is c/o the Company, 2001 Route 46, Parsippany, NJ
07054.
As used
in these two tables, "beneficial ownership" means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within sixty days from March 17, 2009 through the exercise of any
option, warrant or right. Shares of Common Stock subject to options, warrants or
rights (including conversion from Preferred Stock) which are currently
exercisable or exercisable within sixty days are deemed outstanding for
computing the ownership percentage of the person holding such options, warrants
or rights, but are not deemed outstanding for computing the ownership percentage
of any other person. The amounts and percentages are based upon 33,056,161 shares
of Common Stock and 155,557 shares of Preferred Stock outstanding as of March
26, 2009.
|
Title of Class
|
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
Percent of
Class
|
|
|
Common
Stock
|
|
Austin
W. Marxe
David
M. Greenhouse
527
Madison Avenue, Suite 2600
New
York, NY 10022
|
|
11,258,068
|
/(1)/
|
|
34.06 |
% |
|
Common
Stock
|
|
Norman
E. Corn
|
|
485,972
|
/(2)/
|
|
1.47 |
% |
|
Common
Stock
|
|
Patrick
E. Delaney
|
|
459,376
|
/(3)/
|
|
1.39 |
% |
|
Common
Stock
|
|
Stephen
M. Deixler
|
|
2,741,016
|
/(4)/
|
|
8.29 |
% |
|
Common
Stock
|
|
Frank
S. Russo
|
|
381,780
|
/(5)/
|
|
1.15 |
% |
|
Common
Stock
|
|
Directors
and Executive Officers as a group (5 persons)
|
|
4,068,144
|
|
|
12.31 |
% |
(1) Based on a Schedule
13D/A filed on March 9, 2007 by Austin W. Marxe (“Marxe”) and David M.
Greenhouse (“Greenhouse”). Marxe and Greenhouse share sole voting and
investment power over 1,929,971 shares of Common Stock owned by Special
Situations Cayman Fund, L.P., 1,213,957 shares of Common Stock owned by Special
Situations Fund III, L.P., 5,052,040 shares of Common Stock owned by Special
Situations Fund III QP, L.P., 2,084,729 shares of Common Stock owned
by Special Situations Private Equity Fund, L.P., 153,901 shares of Common Stock
owned by Special Situations Technology Fund, L.P. and 823,470 shares of common
stock owned by Special Situations Technology Fund II, L.P.
(2)
Includes 224,376 shares of Common Stock subject to options that are currently
exercisable or exercisable within 60 days of March 31, 2009.
(3) Includes
209,276 shares of Common Stock subject to options that are currently exercisable
or exercisable within 60 days of March 31, 2009.
(4) Does
not include 967,477 shares of Common Stock owned by Mr. Deixler's mother,
children and grandchildren as to which shares Mr. Deixler disclaims beneficial
ownership. Includes 480,560 shares of Common Stock subject to conversion from
48,056 shares of Preferred Stock within 60 days of March 31, 2008, 130,500
shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of March 31, 2008, and 2,200 shares of common stock
owned by Mr. Deixler’s wife in which he claims beneficial ownership
of.
(5) Includes
277,780 shares of Common Stock subject to conversion from 27,778 shares of
Preferred Stock within 60 days of March 31, 2008 and 104,000 shares of Common
Stock subject to options that are currently exercisable or exercisable within 60
days of March 31, 2009.
Item 13. Certain Relationships and
Related Transactions, and Director Independence.
Related
Party Transactions
None.
Director
Independence
The Board
of Directors has determined that Stephen M. Deixler and Frank S. Russo,
constituting a majority of the directors and who are currently the only members
of the audit committee, compensation committee and nominating committee are
“independent” within the meaning of Nasdaq Rule 4200(a)(15), and that they are
also “independent” for purposes of Rule 10A-3 of the Exchange
Act. Norman E. Corn is not “independent” within the meaning of
Nasdaq Rule 4200(a)(15) but does participate, although not as a member of the
Nominating Committee, in the nominating process. In addition, Philip
Levine, who resigned from the Board of Directors of the Company, effective
September 1, 2008, and who was formerly a member of the audit committee,
compensation committee and nominating committee, was “independent” within the
meaning of Nasdaq Rule 4200(a)(15) and for purposes of Rule 10A-3 of the
Exchange Act.
In making
each of these independence determinations, the Board considered and broadly
assessed, from the standpoint of materiality and independence, all of the
information provided by each director in response to detailed inquiries
concerning the director’s independence and any direct or indirect business,
family, employment, transactional or other relationship or affiliation of such
director with the Company.
Item
14. Principal Accounting Fees and Services
The
following table presents fees for professional services rendered by Marcum &
Kliegman LLP (“Marcum”) for the audit of the Company’s annual consolidated
financial statements for the years ended December 31, 2008, and December 31,
2007, and fees billed for other services rendered by Marcum during those
periods.
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Audit
Fees(1)
|
|
$ |
57,350 |
|
|
$ |
106,915 |
|
|
|
|
|
|
|
|
|
|
|
|
Audit
Related Fees(2)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Fees (3)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
All
Other Fees(4)
|
|
|
- |
|
|
|
- |
|
|
(1)
|
Audit
fees were principally for audit work performed on our annual financial
statements and review of our interim financial
statements
|
|
(2)
|
Marcum
did not provide any “audit-related services” during the
period.
|
|
(3)
|
Marcum
did not provide any “tax services” during the
period.
|
|
(4)
|
Marcum
did not provide any “other services” during the
period.
|
The Audit
Committee has adopted a formal policy concerning the pre-approval of audit and
non-audit services to be provided by the Company’s independent registered public
accounting firm. The policy requires that all services to be
performed by the Company’s independent registered public accounting firm,
including audit services, audit-related services and permitted non-audit
services, be pre-approved by the Audit Committee. The policy permits
the Audit Committee to delegate pre-approval authority to one or more members,
provided that any pre-approval decisions are reported to the Audit Committee at
its next meeting. Specific services being provided by the independent registered
public accounting firm are regularly reviewed in accordance with the
pre-approval policy. At subsequent Audit Committee meetings, the Audit Committee
receives updates on services being provided by the independent registered public
accounting firm, and management may present additional services for
approval. Since the May 6, 2003 effective date of the SEC rule
applicable to services being provided by the independent accountants, each new
engagement of the Company’s independent registered public accounting firm was
approved in advance by the Audit Committee.
Item
15. Exhibits, Financial Statement Schedules
(a)
Exhibits:
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation of the Company, as amended through December 31, 2005.
/(7)/
|
|
|
|
|
|
3.2
|
|
Certificate
of Amendment of the Certificate of Incorporation of Clacendix, Inc., filed
on July 15, 2008. *
|
|
|
|
|
|
3.3
|
|
By-Laws
of the Company. /(1)/
|
|
|
|
|
|
4.1
|
|
1994
Stock Option Plan of the Company. /(7)/
|
|
|
|
|
|
4.2
|
|
1998
Stock Option Plan of the Company. /(1)/+
|
|
|
|
|
|
4.3
|
|
2000
Stock Option Plan of the Company. /(7)/
|
|
|
|
|
|
4.4
|
|
2006
Stock Option Plan of the Company. /(7)/
|
|
|
|
|
|
4.5
|
|
Form
of Warrant Agreement by and between the Company and McGat Enterprises,
LLC, dated January 29, 2007. /(10)/
|
|
|
|
|
|
4.6
|
|
Form
of Warrant Agreement by and between the Company and Allan Dlugash dated
August 13, 2007.*
|
|
|
|
|
|
4.7
|
|
Form
of Warrant Agreement by and between the Company and Ira Kevelson dated
August 13, 2007.*
|
|
|
|
|
|
4.8
|
|
Form
of Warrant Agreement by and between the Company and Frank Russo dated
August 13, 2007.*
|
|
|
|
|
|
4.9
|
|
Form
of Warrant Agreement by and between the Company and Carmen Vena dated
September 9, 2007.*
|
|
|
|
|
|
10.1
|
|
Stock
Purchase Agreement dated August 11, 2000 by and between the Company and
the parties identified therein. /(2)/
|
|
|
|
|
|
10.2
|
|
Purchase
Agreement by and between the Company and the Selling Shareholders set
forth therein dated February 7, 2002. /(3)/
|
|
|
|
|
|
10.3
|
|
Amended
and Restated Employment Agreement dated September 8, 2003, by and between
the Company and Norman E. Corn. /(5)/+
|
|
|
|
|
|
10.4
|
|
First
Amendment to the Amended and Restated Employment Agreement dated September
8, 2003 by and between the Company and Norman E. Corn dated November 10,
2004. /(6)/+
|
|
|
|
|
|
10.5
|
|
Employment
Agreement dated September 15, 2003 by and between the Company and Patrick
E. Delaney. /(4)/+
|
|
|
|
|
|
10.6
|
|
First
Amendment to the Employment Agreement dated September 15, 2003 by and
between the Company and Patrick E. Delaney dated November 10, 2004.
/(6)/+
|
|
|
|
|
|
10.7
|
|
Option
Agreement dated January 28, 2004 by and between the Company and Norman E.
Corn. /(6)/+
|
|
|
|
|
|
10.8
|
|
Option
Agreement dated January 28, 2004 by and between the Company and Patrick E.
Delaney. /(6)/+
|
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
10.9
|
|
Purchase
Agreement by and between the Company and the purchasers named therein
dated March 31, 2005. /(8)/
|
|
|
|
|
|
10.10
|
|
Registration
Rights Agreement by and between the Company and the investors named
therein dated March 31, 2005. /(8)/
|
|
|
|
|
|
10.11
|
|
Form
of Incentive Stock Option Agreement under ION Networks, Inc. 2006 Stock
Incentive Plan. /(9)/+
|
|
|
|
|
|
10.12
|
|
Form
of Nonqualified Stock Option Agreement under ION Networks, Inc. 2006 Stock
Incentive Plan. /(9)/+
|
|
|
|
|
|
10.13
|
|
Form
of Restrictive Stock Option Agreement under ION Networks, Inc. 2006 Stock
Incentive Plan. /(9)/+
|
|
|
|
|
|
10.14
|
|
Asset
Purchase Agreement by and between Cryptek, Inc. and ION Networks, Inc.
dated November 19, 2007. /(11)/
|
|
|
|
|
|
10.15
|
|
Letter
Agreement dated December 19, 2007, between the Company and Norman E. Corn.
/(12)/+
|
|
|
|
|
|
10.16
|
|
Letter
Agreement dated December 19, 2007, between the Company and Patrick E.
Delaney. /(12)/+
|
|
|
|
|
|
21.1
|
|
List
of Subsidiaries. /(6)/
|
|
|
|
|
|
23.1
|
|
Independent
Registered Public Accountants Consent *
|
|
|
|
|
|
31.1
|
|
Certification
of CEO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*
|
|
|
|
|
|
31.2
|
|
Certification
of CFO Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*
|
|
|
|
|
|
32.1
|
|
Certification
of CEO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
*
|
|
|
|
|
|
32.2
|
|
Certification
of CFO Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
*
|
(1)
Incorporated by reference to the Company's Registration Statement on Form S-8
filed on April 22, 1999.
(2)
Incorporated by reference to the Company’s Annual report on Form 10-KSB filed on
June 29, 2001.
(3)
Incorporated by reference to the Company’s Registration Statement on Form S-3
filed on March 4, 2002.
(4)
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
on November 17, 2003.
(5)
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
on September 12, 2003.
(6)
Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on
March 24, 2005.
(7)
Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on
March 29, 2006.
(8)
Incorporated by reference to the registrant’s Form 8-K filed with the SEC on
April 5, 2005.
(9)
Incorporated by reference to the registrant’s Form 8-K filed with the SEC on
November 14, 2006.
(10)
Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed on
March 30, 2007.
(11)
Incorporated by reference to the Company’s Quarterly Report on Form 10-QSB filed
on November 19, 2007.
(12)
Incorporated by reference to the Company’s Annual Report on Form 10-KSB filed
for the year ended December 31, 2007.
* Filed
herewith
+
Management contract for compensatory plan or arrangement
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated:
March 26, 2009
|
|
CLACENDIX,
INC.
|
|
|
|
|
|
By:
|
/s/ Norman E. Corn
|
|
|
|
|
Norman
E. Corn
|
|
|
|
Chief
Executive Officer and
|
|
|
|
Director
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
March 27, 2009:
|
Signature
|
|
Title
|
|
|
|
|
|
/s/ Norman E. Corn
|
|
Chief
Executive Officer and Director
|
|
Norman
E. Corn
|
|
|
|
|
|
|
|
/s/ Patrick E. Delaney
|
|
Chief
Financial Officer and Principal Accounting
|
|
Patrick
E. Delaney
|
|
Officer
|
|
|
|
|
|
/s/ Stephen M. Deixler
|
|
Chairman
of the Board of Directors
|
|
Stephen
M. Deixler
|
|
|
|
|
|
|
|
/s/ Frank S. Russo
|
|
Director
|
|
Frank
S. Russo
|
|
|
Clacendix,
Inc. and Subsidiary
(A
Development Stage Company Commencing January 1, 2008)
Index
to Consolidated Financial Statements
For the Years Ended December
31, 2008 and 2007
|
|
|
Page(s)
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
26
|
|
|
|
|
|
Consolidated
Financial Statements:
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
|
27
|
|
|
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008 and
2007
|
|
28
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008 and
2007
|
|
29
|
|
|
|
|
|
Consolidated
Statements of Stockholders' Equity for the Years Ended December 31, 2008
and 2007
|
|
30
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
31-44
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Audit Committee of the Board of Directors and Stockholders of
Clacendix,
Inc.
We have
audited the accompanying consolidated balance sheets of Clacendix, Inc. and
Subsidiary (A Development Stage Company Commencing January 1, 2008) (the
“Company”) as of December 31, 2008 and December 31, 2007, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Clacendix, Inc. and
Subsidiary as of December 31, 2008 and 2007, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with United
States generally accepted accounting principles.
/s/
Marcum & Kliegman LLP
New York,
New York
March 26,
2009
CLACENDIX,
INC. AND SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY COMMENCING JANUARY 1, 2008)
CONSOLIDATED
BALANCE SHEETS
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
Assets
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,160,587 |
|
|
$ |
2,525,641 |
|
|
Restricted
cash
|
|
|
321,329 |
|
|
|
320,000 |
|
|
Other
receivables
|
|
|
1,033 |
|
|
|
397,868 |
|
|
Prepaid
expenses and other current assets
|
|
|
3,239 |
|
|
|
9,527 |
|
|
Total
assets
|
|
$ |
1,486,188 |
|
|
$ |
3,253,036 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
115,220 |
|
|
$ |
333,880 |
|
|
Accrued
expenses
|
|
|
152,853 |
|
|
|
164,248 |
|
|
Accrued
payroll and related liabilities
|
|
|
17,262 |
|
|
|
897,248 |
|
|
Accrued
interest – related party
|
|
|
15,814 |
|
|
|
15,814 |
|
|
Total
liabilities
|
|
|
301,149 |
|
|
|
1,411,190 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
Preferred
stock – par value $.001 per share; authorized 1,000,000 shares;
200,000
shares designated Series A; 155,557 shares issued and outstanding
(aggregate liquidation preference $280,003)
|
|
|
156 |
|
|
|
156 |
|
|
Common
stock – par value $.001 per share; authorized 750,000,000 shares; 33,056,161
and 33,047,161 shares issued and outstanding at December 31, 2008 and
2007, respectively
|
|
|
33,057 |
|
|
|
33,048 |
|
|
Additional
paid-in capital
|
|
|
45,873,145 |
|
|
|
45,862,529 |
|
|
Accumulated
deficit
|
|
|
(44,053,887 |
) |
|
|
(44,053,887 |
) |
|
Deficit
accumulated during the development stage
|
|
|
(667,432 |
) |
|
|
- |
|
|
Total
stockholders’ equity
|
|
|
1,185,039 |
|
|
|
1,841,846 |
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
1,486,188 |
|
|
$ |
3,253,036 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CLACENDIX,
INC. AND SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY COMMENCING JANUARY 1, 2008)
Consolidated
Statements of Operations
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
2008
(A)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
- |
|
|
$ |
3,314,503 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
- |
|
|
|
1,518,067 |
|
|
Gross
margin
|
|
|
- |
|
|
|
1,796,436 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
236 |
|
|
|
328,797 |
|
|
Selling,
general and administrative expenses
|
|
|
694,917 |
|
|
|
3,221,267 |
|
|
Depreciation
expense
|
|
|
- |
|
|
|
21,887 |
|
|
Total
operating expenses
|
|
|
695,153 |
|
|
|
3,571,951 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(695,153 |
) |
|
|
(1,775,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of assets
|
|
|
- |
|
|
|
1,453,113 |
|
|
Other
income
|
|
|
- |
|
|
|
3,301 |
|
|
Interest
expense- related party
|
|
|
- |
|
|
|
(10,012 |
) |
|
Interest
income/(expense)
|
|
|
42,415 |
|
|
|
(66,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax (expense) benefit
|
|
|
(652,738 |
) |
|
|
(395,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income
tax (expense)/benefit
|
|
|
(14,694 |
) |
|
|
489,298 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(667,432 |
) |
|
$ |
93,492 |
|
|
|
|
|
|
|
|
|
|
|
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
Net
(loss) income per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
Diluted
|
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
33,048,493 |
|
|
|
32,799,899 |
|
|
Diluted
|
|
|
33,048,493 |
|
|
|
34,553,372 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
(A) Also
represents the development stage period from January 1, 2008 (inception) through
December 31, 2008.
CLACENDIX,
INC. AND SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY COMMENCING JANUARY 1, 2008)
Consolidated
Statements of Cash Flows
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
2008
(A)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(667,432 |
) |
|
$ |
93,492 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income/(loss) to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
- |
|
|
|
386,183 |
|
|
Provision
for inventory reserve
|
|
|
- |
|
|
|
(28,638 |
) |
|
Non-cash
stock-based compensation
|
|
|
10,310 |
|
|
|
114,328 |
|
|
Gain
on sale of assets
|
|
|
- |
|
|
|
(1,453,113 |
) |
|
Interest
income on restricted cash
|
|
|
(1,329 |
) |
|
|
- |
|
|
Deferred
rent
|
|
|
- |
|
|
|
2,683 |
|
|
Deferred
compensation
|
|
|
- |
|
|
|
47,355 |
|
|
Amortization
of deferred financing costs
|
|
|
- |
|
|
|
25,775 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
- |
|
|
|
70,172 |
|
|
Other
receivables
|
|
|
396,835 |
|
|
|
(397,868 |
) |
|
Inventories
|
|
|
- |
|
|
|
309,428 |
|
|
Prepaid
expenses and other current assets
|
|
|
6,288 |
|
|
|
(26,160 |
) |
|
Other
assets
|
|
|
- |
|
|
|
10,085 |
|
|
Accounts
payable
|
|
|
(218,660 |
) |
|
|
89,231 |
|
|
Accrued
expenses
|
|
|
(11,395 |
) |
|
|
(199,115 |
) |
|
Accrued
payroll and related liabilities
|
|
|
(879,986 |
) |
|
|
815,732 |
|
|
Deferred
income
|
|
|
- |
|
|
|
(6,860 |
) |
|
Net
cash used in operating activities
|
|
|
(1,365,369 |
) |
|
|
(147,290 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
- |
|
|
|
(1,379 |
) |
|
Capitalized
software expenditures
|
|
|
- |
|
|
|
(535,839 |
) |
|
Proceeds
from the sale of assets
|
|
|
- |
|
|
|
2,880,000 |
|
|
Net
cash provided by investing activities
|
|
|
- |
|
|
|
2,342,782 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Principal
payments on debt and capital leases
|
|
|
- |
|
|
|
(2,319 |
) |
|
Proceeds
from notes payable
|
|
|
- |
|
|
|
150,000 |
|
|
Proceeds
from notes payable - related parties
|
|
|
- |
|
|
|
175,000 |
|
|
Repayment of
notes payable
|
|
|
- |
|
|
|
(150,000 |
) |
|
Repayment
of notes payable - related parties
|
|
|
- |
|
|
|
(175,000 |
) |
|
Borrowings
from revolving credit facility
|
|
|
- |
|
|
|
1,166,788 |
|
|
Repayments
of revolving credit facility
|
|
|
- |
|
|
|
(1,114,285 |
) |
|
Proceeds
from the exercise of stock options
|
|
|
315 |
|
|
|
15,696 |
|
|
Deferred
financing costs
|
|
|
- |
|
|
|
(1,667 |
) |
|
Net
cash provided by financing activities
|
|
|
315 |
|
|
|
64,213 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)increase in cash and cash equivalents
|
|
|
(1,365,054 |
) |
|
|
2,259,705 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents – beginning of year
|
|
|
2,525,641 |
|
|
|
265,936 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents – end of year
|
|
$ |
1,160,587 |
|
|
$ |
2,525,641 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid during period for interest
|
|
$ |
- |
|
|
$ |
43,459 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during period for taxes
|
|
$ |
- |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
(A) Also
represents the development stage period from January 1, 2008 (inception) through
December 31, 2008.
CLACENDIX,
INC. AND SUBSIDIARY
(A
DEVELOPMENT STAGE COMPANY COMMENCING JANUARY 1, 2008)
Consolidated
Statements of Stockholders’ Equity
For
the Years Ended December 31, 2008 and 2007
|
|
|
Preferred
|
|
|
Common
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Deficit
Accumulated
During the
Development
Stage
|
|
|
Deferred
Compensation
|
|
|
Total
Stockholders’
Equity
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Shares
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2006
|
|
|
155,557 |
|
|
$ |
156 |
|
|
|
32,785,565 |
|
|
$ |
32,786 |
|
|
$ |
45,685,412 |
|
|
$ |
(44,147,379 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,570,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
93,492 |
|
|
|
- |
|
|
|
- |
|
|
|
93,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options and warrants, net at $0.06 per share
|
|
|
- |
|
|
|
- |
|
|
|
261,596 |
|
|
|
262 |
|
|
|
15,434 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
114,328 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
114,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants to consultant at $0.09 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
133,709 |
|
|
|
- |
|
|
|
- |
|
|
|
(133,709 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelation
of warrants to consultant
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(86,354 |
) |
|
|
- |
|
|
|
- |
|
|
|
86,354 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
47,355 |
|
|
|
47,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2007
|
|
|
155,557 |
|
|
|
156 |
|
|
|
33,047,161 |
|
|
|
33,048 |
|
|
|
45,862,529 |
|
|
|
(44,053,887 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,841,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss incurred during the development stage
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(667,432 |
) |
|
|
- |
|
|
|
(667,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
$0.03
per share
|
|
|
- |
|
|
|
- |
|
|
|
9,000 |
|
|
|
9 |
|
|
|
306 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,310 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2008
|
|
|
155,557 |
|
|
$ |
156 |
|
|
|
33,056,161 |
|
|
$ |
33,057 |
|
|
$ |
45,873,145 |
|
|
$ |
(44,053,887 |
) |
|
$ |
(667,432 |
) |
|
$ |
- |
|
|
$ |
1,185,039 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Clacendix,
Inc. and Subsidiary
(A
Development Stage Company Commencing January 1, 2008)
Notes to Consolidated Financial
Statements
1. Organization,
Basis of Presentation and Plan of Operation
Organization
and Basis of Presentation
ION
Networks, Inc. (“ION”), a Delaware corporation founded in 1999 through the
combination of two companies — MicroFrame, a New Jersey Corporation (the
predecessor entity to ION, originally founded in 1982), and SolCom Systems
Limited, a Scottish corporation located in Livingston, Scotland (originally
founded in 1994), designed, developed, manufactured and sold network and
information security and management products to corporations, service providers
and government agencies. On December 31, 2007, ION Networks, Inc.
changed its name to Clacendix, Inc. The accompanying consolidated financial
statements include the accounts of Clacendix, Inc. and ION Networks, N.V., a
wholly-owned, inactive subsidiary (collectively, the “Company”).
As
discussed further below, on December 31, 2007, the Company sold substantially
all of its operating assets. The Company is currently operating as a shell
company with no active operations. Effective January 1, 2008, the
Company commenced reporting as a development stage enterprise under SFAS No. 7
(“Accounting and Reporting for Development Stage Enterprises”).
Sale
of Substantially All of the Operating Assets
On
December 31, 2007, the shareholders of the Company voted in favor of the
Transaction to sell substantially all of the operating assets of the Company to
Cryptek, Inc., a Delaware Corporation (“Cryptek”). The consent of the majority
of the stockholders of the Company was a requirement of the Asset Purchase
Agreement and was obtained at the Annual Meeting of Shareholders.
The
closing of the Transaction occurred immediately upon the conclusion of the
Annual Meeting of Shareholders. Pursuant to the Asset Purchase Agreement,
the Company sold to Cryptek, Inc. substantially all of the operating assets of
the Company in exchange for the total consideration of $3,771,040 which was made
up as follows: (i) $3,200,000 in cash, (ii) $338,187 in receivables receipts
which will flow to the Company and (iii) $232,853 in certain assumed
liabilities. At the closing of the Transaction, $320,000 was reduced from
the total cash delivered to the Company and deposited in an escrow account to
provide for any claims against the Company’s transferred Intellectual Property
which may arise within one year of the closing date. This escrow
amount has been classified as Restricted Cash as of December 31, 2008 and 2007.
During 2009, the escrow amount was refunded to the Company per the terms of the
purchase agreement.
A summary
of the assets sold and liabilities assumed as part of the transaction are as
follows:
|
Accounts
receivable, net
|
|
$ |
378,656 |
|
|
Inventories,
net
|
|
|
267,256 |
|
|
Prepaid
expenses
|
|
|
43,950 |
|
|
Property,
plant and equipment
|
|
|
16,005 |
|
|
Capitalized
software
|
|
|
1,383,417 |
|
|
Other
assets
|
|
|
12,912 |
|
|
Total
assets sold
|
|
$ |
2,102,196 |
|
|
Accounts
payable
|
|
$ |
16,799 |
|
|
Accrued
expenses
|
|
|
70,522 |
|
|
Deferred
maintenance
|
|
|
145,532 |
|
|
Total
liabilities assumed
|
|
$ |
232,853 |
|
The
Company realized a gain of $1,453,113 on the sale of substantially all of the
operating assets of the Company. The Company incurred $215,731 in
expenses related to the transaction comprised of legal and accounting fees of
$169,672, shareholder meeting related expenses of $30,327 and other fees of
$15,732.
Plan
of Operation
The plan
of operation of the Company is to seek a target company with which to merge or
to complete a business combination. In any transaction, it is expected
that the Company would be the surviving legal entity and the shareholders of the
Company would retain a percentage ownership interest in the post-transaction
company. The Company does not plan to restrict its search to any specific
business, industry or geographic location, and it may participate in a business
venture of virtually any kind or nature.
The
Company may seek a business opportunity with entities which have recently
commenced operations, or that desire to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. The
Company may acquire assets and establish wholly owned subsidiaries in various
businesses or acquire existing businesses as subsidiaries.
The
Company can give no assurance that any such a transaction will occur, or that if
such a transaction were to occur, it would enhance the Company’s future
operations or financial results, or specifically that the Company would become
and remain profitable as a result of such transaction. If the Company is not
able to complete a transaction within a reasonable time frame, the Company may
liquidate.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of
Clacendix, Inc. and ION Networks, NV, a wholly-owned inactive subsidiary. All
material inter-company balances and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles (United States) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates. As of December 31,
2008, the Company’s significant estimates include its deferred tax asset
valuation.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with maturity of three months or
less at the time of purchase to be cash equivalents. Cash equivalents include
demand deposits and money market accounts.
Restricted
Cash
The
Company considers as restricted cash, amounts held in an escrow account to
secure any representation and warranty claims against the intellectual property
as delineated in the asset purchase agreement by and between ION Networks, Inc.
and Cryptek.
Allowance
for Doubtful Accounts Receivable
Prior to
the sale of substantially all the operating assets of the Company, the accounts
receivable were reduced by an allowance to estimate the amount that will
actually be collected from our customers.
Inventories
Prior to
the sale of substantially all the operating assets of the Company, the
inventories were stated at the lower of cost (average cost) or market. Reserves
for slow moving and obsolete inventories were provided based on historical
experience and current product demand.
Property
and Equipment
Prior to
the sale of substantially all the operating assets of the Company, property and
equipment were stated at cost. Depreciation was calculated using the
straight-line method over the estimated useful lives of the assets, which are
generally two to five years. Expenditures for maintenance and repairs, which do
not extend the economic useful life of the related assets, were charged to
operations as incurred. Gains or losses on disposal of property and equipment
are reflected in the consolidated statements of operations in the period of
disposal.
Deferred
Financing Costs
Costs
incurred in conjunction with borrowing facilities have been capitalized as
Deferred Financing Costs and were amortized over the term of the respective
agreements.
Capitalized
Software
Prior to
the sale of substantially all the operating assets of the Company, the Company
capitalized computer software development costs in accordance with the
provisions of Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
("SFAS No. 86"). SFAS No. 86 requires that the Company capitalize computer
software development costs upon the establishment of the technological
feasibility of a product, to the extent that such costs are expected to be
recovered through future sales of the product. Management is required to use
professional judgment in determining whether development costs meet the criteria
for immediate expense or capitalization. Capitalized costs were amortized by the
greater of the amount computed using (i) the ratio that current gross revenues
from the sales of software bear to the total of current and anticipated future
gross revenues from the sales of that software, or (ii) the straight-line method
over the estimated useful life of the product.
The
Company recorded impairment losses on capitalized software and other long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount of those items. The Company’s
cash flow estimates were based on historical results adjusted to reflect its
best estimate of future market and operating conditions. The net carrying value
of assets not recoverable is reduced to fair value. While the Company believes
that its estimates of future cash flows are reasonable, different assumptions
regarding such cash flows could materially affect the Company’s
estimates.
The
Company capitalized $535,839 of software development costs for the year ended
December 31, 2007. Amortization expense totaled $364,296 for the year December
31, 2007 and was included in cost of sales in the accompanying consolidated
financial statements. On December 31, 2007, all of the Company’s remaining
capitalized software was sold to Cryptek as part of the sale of substantially
all of the operating assets of the Company.
Research
and Development Costs
Prior to
the sale of substantially all the operating assets of the Company, the Company
charged all costs incurred to establish the technological feasibility or
enhancement of a product to research and development expense in the period
incurred.
Advertising
Costs
Advertising
costs were expensed as incurred. The Company incurred approximately $1,000 in
advertising costs for the year ended December 31, 2007. There were no expenses
during the year ended December 31, 2008.
Revenue
Recognition
Prior to
the sale of substantially all the operating assets of the Company, the Company
recognized revenue from product sales of hardware and software to end-users,
value added resellers (VARs) and original equipment manufacturers (OEMs) upon
shipment and passage of title if no significant vendor obligations exist and
collectibility is probable. The Company did not offer customers the right to
return products, however the Company records warranty costs at the time revenue
is recognized. Management estimated the anticipated warranty costs but actual
results could differ from those estimates.
In
addition, the Company sold internally developed stand-alone finished software
packages (“PRIISMS Software”), which permit end-users to monitor, secure and
administer voice and data communications networks. The software
packages permit the customer to utilize the PRIISMS software pursuant to the
terms of the license. Other than during an initial ninety-day warranty period
from the date of shipment, the purchaser is not entitled to
upgrades/enhancements or services that can be attributable to a multi-element
arrangement. In addition, the customer did not have any rights to exchange or
return the software. Since the software package sale did not require significant
production, modification or customization, the Company recognized revenue at
such time the product was shipped and title passes and collectibility was
probable in accordance with the accounting guidance under Statement Position
97-2, “Software Revenue Recognition.”
The
Company sold separate customer maintenance contracts and maintenance revenue was
recognized on a straight-line basis over the period the service was provided,
generally one year. On some occasions, maintenance was provided on a time and
material basis in which case revenue was recognized upon shipment of the
repaired item.
Shipping
and Handling Costs
Prior to
the sale of substantially all the operating assets of the Company, shipping and
handling costs incurred were recorded as part of cost of sales.
Fair
Value of Financial Instruments
The
carrying value of items included in working capital approximates fair value
because of the relatively short maturity of these instruments.
Net
Income/(Loss) Per Share of Common Stock
Basic net
income/(loss) per share is computed by dividing net income (loss) attributable
to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted net income/(loss) per share
reflects the potential dilution that could occur if securities or other
instruments to issue common stock were exercised or converted into common
stock.
The
following table sets forth the components used in the computation of basic and
diluted income/(loss) per common share:
|
|
|
For the years ended
|
|
|
|
|
December 31, 2008*
|
|
|
December 31, 2007**
|
|
|
Weighted
average common shares outstanding, basic
|
|
|
33,048,493 |
|
|
|
32,799,899 |
|
|
Incremental
shares of common stock equivalents
|
|
|
- |
|
|
|
37,321 |
|
|
Conversion
of preferred stock to common stock
|
|
|
- |
|
|
|
1,555,570 |
|
|
Conversion
of in the money warrants to common stock
|
|
|
- |
|
|
|
160,582 |
|
|
Weighted
average common shares outstanding, diluted
|
|
|
33,048,493 |
|
|
|
34,553,372 |
|
*
Potential common shares relating to options, warrants and convertible preferred
stock of 5,562,974 for the year ended December 31, 2008, were excluded from the
computation of diluted earnings per share, as their inclusion would be anti
dilutive.
**
Potential common shares relating to options, warrants and convertible preferred
stock of 7,029,679 for the year ended December 31, 2007, were excluded from the
computation of diluted earnings per share, as their exercise prices were greater
than the average market price of the common stock during the
period.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with the fair value
recognition provisions of Statement of Financial Accounting Standards (“SFAS”)
No. 123R. Stock-based compensation expense for all share-based payment awards is
based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123R. The Company recognizes these compensation costs over the
requisite service period of the award, which is generally the option vesting
term. Option valuation models require the input of highly subjective
assumptions including the expected life of the option. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options. The fair value of share-based payment awards was
estimated using the Black-Scholes option pricing model. The Company
accounts for the expected life of options in accordance with the “simplified”
method provisions of SEC Staff Accounting Bulletin (“SAB”) No. 110 (December
2007), which enables the use of the simplified method for “plain vanilla” share
options as defined in SAB No. 107.
Stock
based compensation for the years ended December 31, 2008 and 2007 was recorded
in the consolidated statements of operations as follows:
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
$ |
- |
|
|
$ |
4,614 |
|
|
Research
and Development Expenses
|
|
|
- |
|
|
|
34,232 |
|
|
Selling,
General and Administrative Expenses
|
|
|
10,310 |
|
|
|
75,482 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,310 |
|
|
$ |
114,328 |
|
The fair
value of share-based payment awards was estimated using the Black-Scholes
pricing model with the following assumptions and weighted average fair values as
follows:
|
|
|
Years
Ended
December 31
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free
interest rate
|
|
|
1.47%-3.27%
|
|
|
|
3.39%-5.05%
|
|
|
Dividend
yield
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Expected
volatility
|
|
|
227-265%
|
|
|
|
202-224%
|
|
|
Expected
life in years
|
|
|
5
|
|
|
|
5
|
|
|
Expected
forfeiture rate (through term)
|
|
|
0%
|
|
|
|
0%
|
|
Income
Taxes
In
accordance with SFAS 109, “Accounting for Income Taxes,” deferred income tax
assets and liabilities are computed annually based on enacted tax laws and rates
for temporary differences between the financial accounting and income tax bases
of assets and liabilities. A valuation allowance is established, when
necessary, to reduce deferred income tax assets to the amount that is more
likely than not to be realized.
Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more likely than not to be sustained
upon examination by taxing authorities. Differences between tax positions taken
or expected to be taken in a tax return and the benefit recognized and measured
pursuant to the interpretation are referred to as “unrecognized benefits”. A
liability is recognized (or amount of net operating loss carry forward or amount
of tax refundable is reduced) for an unrecognized tax benefit because it
represents an enterprise’s potential future obligation to the taxing authority
for a tax position that was not recognized as a result of applying the
provisions of FIN 48.
In
accordance with FIN 48, interest costs related to unrecognized tax benefits are
required to be calculated (if applicable) and would be classified as “Interest
expense” in the consolidated statements of operations. Penalties would be
recognized as a component of “Selling, general and administrative
expenses.”
In many
cases the Company’s tax positions are related to tax years that remain
subject to examination by relevant tax authorities. The Company files income tax
returns in the United States (federal) and in various state and local
jurisdictions. In most instances, the Company is no longer subject to federal,
state and local income tax examinations by tax authorities for years prior to
2005.
The
adoption of the provisions of FIN 48 did not have a material impact on
the Company’s consolidated financial position and results of operations. As
of December 31, 2008, the Company believes that there are no significant
uncertain tax positions requiring recognition in these consolidated financial
statements.
Warranty
Costs
Prior to
the sale of substantially all the operating assets of the Company, the Company
estimated its warranty costs based on historical warranty claim experience.
Future costs for warranties applicable to sales recognized in the current period
were charged to cost of sales. Adjustments were made when actual warranty claim
experience differed from estimates.
3. Restructuring
and Other Credits
The
Company’s accounts payable balance includes invoices for professional services
in the amount of $88,687. Accrued expenses include professional services in the
amount of $118,671. These items arose from alleged services provided to the
Company between November 2002 and August 2003. The Company is
disputing these amounts with the vendors, and at the present time management is
unable to estimate the final outcome of these disputes but believes that the
final settlement amount should not exceed the total of the above
amounts.
4.
Property and Equipment
Depreciation
expense for property and equipment for the year ended December 31, 2007 amounted
to $21,887. During the year ended December 31, 2007 the Company retired fully
depreciated assets amounting to $21,011.
5.
Notes Payable
Related
Parties
In June
2007, certain Board members and an officer of the Company advanced an aggregate
of $50,000 through the issuance of promissory notes due the earlier of the
receipt of any proceeds from the sale of State of New Jersey Net Operating
Losses or six months from the date of the note. The interest rate on the note
was prime plus 1.75% per annum. In December 2007, this note was paid in full.
During the year ended December 31, 2007, the Company incurred interest expense
of $2,341 relating to this note.
On August
21, 2007, a Board member of the Company advanced an aggregate of $125,000
through the issuance of promissory notes due the earlier of the receipt of any
proceeds from the sale of State of New Jersey Net Operating Losses or six months
from the date of the note. The interest rate on the note is 20% per annum and
the effective interest rate is 20.86%. In conjunction with this note, the
Company granted to the note holder warrants to purchase an aggregate of 125,000
shares of common stock for $0.05 per share. This note was recorded net of a debt
discount of $5,125 based on the relative fair value of the warrants, which was
being amortized to expense over the terms of the note. In December 2007, this
note was paid in full and the remaining debt discount was charged to expense.
During the year ended December 31, 2007, the Company incurred interest expense
of $7,671 relating to this note.
Non-related
parties
On July
17, 2007, the Company received in aggregate of $50,000 from two investors
through the issuance of promissory notes due the earlier of the receipt of any
proceeds from the sale of State of New Jersey Net Operating Losses or six months
from the date of the note. The interest rate on the notes are 20% per annum and
the effective interest rate is 20.86%. In conjunction with these notes, the
Company granted to the note holders warrants to purchase an aggregate of 50,000
shares of common stock for $0.05 per share. This note was recorded net of a debt
discount of $2,050 based on the relative fair value of the warrants, which was
being amortized to interest expense over the terms of the note. In December
2007, this note was paid in full and the remaining debt discount was charged to
interest expense.
On
September 10, 2007, the Company received in aggregate of $100,000 from an
investor through the issuance of a promissory note due the earlier of the
receipt of any proceeds from the sale of State of New Jersey Net Operating
Losses or six months from the date of the note. The interest rate on the note is
20% per annum and the effective interest rate is 20.86%. In conjunction with
this note, the Company granted to the note holder warrants to purchase an
aggregate of 100,000 shares of common stock for $0.05 per share. This note was
recorded net of a debt discount of $4,100 based on the relative fair value of
the warrants, which was being amortized to expense over the terms of the note.
In December 2007, this note was paid in full and the remaining debt discount was
charged to expense.
6. Convertible
Debenture – Related Party
On August
5, 2004, the Company issued a convertible debenture (the “Debenture”) for
$200,000 cash to Stephen M. Deixler, one of the Company’s directors. The
Debenture would have matured on August 5, 2008 and had an interest rate of five
(5%) percent per annum, compounded annually. On February 15, 2006, Mr. Deixler
converted the Debenture into 2,409,639 shares of common stock. The accrued
interest of $15,814 can only be converted by the borrower and is included in
current liabilities as of December 31, 2008 and 2007.
7.
Revolving Credit Facility
On
September 21, 2005, the Company entered into the asset based Revolving Credit
Facility for $2.5 million with Bridge Bank, N.A. The Revolving Credit Facility
had a two-year term, which upon maturity required payment of the outstanding
principal and interest balance. The Revolving Credit Facility provided for
advances of up to $2.0 million based on a certain percentage of eligible
accounts receivable and inventory. The annual interest rate was prime plus
1.75%, with a minimum prime rate of 6.25%. Certain assets of the Company secured
the Revolving Credit Facility, and the Company was subject to certain financial
and restrictive covenants, as defined in the agreement.
On July
26, 2007, the Company amended its Revolving Credit Facility with Bridge Bank,
N.A. The amended facility had a two-year term, and provides for
advances based on certain eligible accounts receivables, which also serves as
collateral for the loan. The annual interest rate is prime plus 1.75%. The
financial covenant requirements of the Company were eliminated with the amended
Revolving Credit Facility. As of December 31, 2007, the Company paid all
outstanding balances and fees and terminated the Revolving Credit
Facility.
8.
Income Taxes
Income
Taxes
As of
December 31, 2008, the Company has available federal and state net operating
loss carry forwards of approximately $44,735,000 and $12,903,000, respectively,
to offset future taxable income. The federal net operating loss carry forwards
expire during the years 2011 through 2028. In addition, the Company has
investment tax credits and research and development credits carry forwards
aggregating approximately $340,000, which may provide future tax benefits,
expiring from 2009 through 2020. The Internal Revenue Code contains provisions
which will limit the net operating loss carry forward available for use in any
given year if significant changes in ownership interest of the Company
occur.
The
Company obtained a corporation business tax benefit certificate pursuant to New
Jersey law which allows the sale of unused New Jersey net operating losses and
investment credit carry forwards. For the year ended December 31, 2007, the
Company received a benefit of $492,069.
The tax
effect of temporary differences which make up the significant components of the
net deferred tax asset and liability at December 31, 2008 and 2007 are as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
Current
deferred tax assets
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
35,474 |
|
|
$ |
171,974 |
|
|
Valuation
allowance
|
|
|
(35,474 |
) |
|
|
(171,974 |
) |
|
Net
current deferred tax assets
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
deferred tax assets
|
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
|
15,984,060 |
|
|
|
15,657,994 |
|
|
Research
and development credit
|
|
|
342,058 |
|
|
|
405,078 |
|
|
Stock
based compensation
|
|
|
44,032 |
|
|
|
79,465 |
|
|
Total
noncurrent deferred tax assets
|
|
|
16,370,150 |
|
|
|
16,142,537 |
|
|
Valuation
allowance
|
|
|
(16,370,150 |
) |
|
|
(16,142,537 |
) |
|
Net
noncurrent deferred tax assets
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net
noncurrent deferred tax (liabilities) assets
|
|
$ |
- |
|
|
$ |
- |
|
The
Company has recorded a full valuation allowance against the deferred tax assets,
including the federal and state net operating loss carry forwards as management
believes that it is more likely than not that substantially all of the deferred
tax assets will not be realized. During the years ended December 31, 2008
and 2007, the Company had an annual change in the valuation allowance of
approximately $227,000 and $415,000, respectively.
The
reconciliation of the statutory U.S. Federal income tax rate to the Company’s
effective income tax rate is as follows:
|
|
|
Year ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Statutory
federal income tax rate (benefit)
|
|
|
(34.00 |
)
% |
|
|
34.00
|
% |
|
State
taxes
|
|
|
(6.00 |
) |
|
|
6.00 |
|
|
State
alternative minimum tax
|
|
|
2.00 |
|
|
|
- |
|
|
Sales
of net operating losses
|
|
|
— |
|
|
|
(210.00 |
) |
|
Change
in valuation allowance
|
|
|
34.00 |
|
|
|
178.00 |
|
|
Change
in estimate of prior year tax provision
|
|
|
6.00 |
|
|
|
(8.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
2.00 |
% |
|
|
0.00 |
% |
9.
Stockholders' Equity
Preferred Stock
–The Company has designated 200,000 of the 1,000,000 authorized shares of
preferred stock as Series A Preferred Stock ("Preferred Stock"). The Preferred
Stock is non-voting, has a standard liquidation preference equal to its purchase
price, and does not pay dividends. As of December 31, 2008 and 2007, there were
155,557 shares of Series A Preferred Stock outstanding, which are convertible to
1,555,570 shares of common stock. The holders can call the conversion of the
Preferred Stock at any time.
Common
Stock
On
December 12, 2007, an officer of the Company exercised 261,596 options to
purchase common stock at $0.06 per share for total proceeds of
$15,696.
On
December 31, 2007, at the Company’s annual shareholders’ meeting, the
shareholders’ approved a proposal to amend Article Fourth of the certificate of
incorporation of the Company to increase the number of authorized shares of
common stock from 50,000,000 to 750,000,000. This amendment to the
certificate of incorporation of incorporation was filed on July 14,
2008.
On
November 8, 2008, a former director of the Company exercised 9,000 options to
purchase common stock for total proceeds of $315.
Stock Option
Plans
On
January 23, 2006, the Company adopted its 2006 Stock Option Plan (the "2006
Plan"). The aggregate number of shares of common stock for which options may be
granted under the 2006 Plan is 4,000,000. The maximum number of options which
may be granted to an employee during any calendar year under the 2006 Plan is
300,000. The term of these non-transferable stock options may not exceed ten
years. The exercise price of these stock options may not be less than 100% (110%
if the person granted such options owns more than ten percent of the outstanding
common stock) of the fair value of one share of common stock on the date of
grant. On November 8, 2006 the shareholders approved the plan. As of December
31, 2008, 371,500 options were outstanding under the 2006 Plan, of which 350,876
were exercisable.
In
November 2000, the Company adopted its 2000 Stock Option Plan (the "2000 Plan").
The aggregate number of shares of common stock for which options may be granted
under the 2000 Plan is 3,000,000. The maximum number of options which may be
granted to an employee during any calendar year under the 2000 Plan is 400,000.
The term of these non-transferable stock options may not exceed ten years. The
exercise price of these stock options may not be less than 100% (110% if the
person granted such options owns more than ten percent of the outstanding common
stock) of the fair value of one share of common stock on the date of grant. As
of December 31, 2008, 838,000 options were outstanding and exercisable under the
2000 Plan.
In June
1998, the Company adopted its 1998 Stock Option Plan (the "1998 Plan"). The
aggregate number of shares of common stock for which options may be granted
under the 1998 Plan is 3,000,000. The maximum number of options which may be
granted to an employee during any calendar year under the 1998 Plan is 400,000.
The term of these non-transferable stock options may not exceed ten years. The
exercise price of these stock options may not be less than 100% (110% if the
person granted such options owns more than ten percent of the outstanding common
stock) of the fair value of one share of common stock on the date of grant. As
of December 31, 2008, 1,100,000 options were outstanding under the 1998 Plan, of
which 1,079,376 options were exercisable.
In August
1994, the Company adopted its 1994 Stock Option Plan (the "1994 Plan"). The
aggregate number of shares of common stock for which options may be granted
under the 1994 Plan, as amended, is 1,250,000. The term of these
non-transferable stock options may not exceed ten years. The exercise price of
these stock options may not be less than 100% (110% if the person granted such
options owns more than ten percent of the outstanding common stock) of the fair
market value of one common stock on the date of grant. As of December 31, 2008,
no options were outstanding and exercisable under the 1994 Plan.
During
the years ended 2008 and 2007, there were no options granted under the Company's
Time Accelerated Restricted Stock Award Plan ("TARSAP"). The options vest after
seven years, however, under the TARSAP, the vesting is accelerated to the last
day of the fiscal year in which the options are granted if the Company meets
certain predetermined sales targets. All options granted under the TARSAP in
2001 will vest seven years from the original date of grant. As of December 31,
2008, no options were outstanding and exercisable under the TARSAP
Plan.
Warrants
On
January 26, 2007, the Company entered into an agreement with a consultant. In
connection with this agreement, the Company issued fully vested warrants with a
two year term to purchase 1,500,000 shares of the Company’s Common Stock at
$0.10 per share for a total value of $133,709 based on the Black-Scholes model.
On May 1, 2007, the Company amended this previous agreement made on January 26,
2007 with a consultant. In connection with this amendment, the Company received
back warrants to purchase 562,500 shares of the Company’s Common Stock at $0.10
per share for a total value of $50,141 based on the Black-Scholes model. The
remaining value of approximately $47,000 was credited to deferred
compensation. During
October 2007, the Company terminated its Sales Outsourcing Agreement with McGat
Enterprises, LLC. The remaining warrants expired unexercised on January 28,
2009.
On July
17, 2007, in connection with the issuance of a promissory note to a related
party, the Company granted to the note holders warrants to purchase an aggregate
of 50,000 shares of common stock for $0.05 per share. See Note 5.
On August
21, 2007, in connection with the issuance of a promissory note to a related
party, the Company granted to the note holder warrants to purchase an aggregate
of 125,000 shares of common stock for $0.05 per share. See Note 5.
On
September 10, 2007, in connection with the issuance of a promissory note, the
Company granted to the note holder warrants to purchase an aggregate of 100,000
shares of common stock for $0.05 per share. See Note 5.
Details
of warrants outstanding are as follows:
|
|
|
Warrants
|
|
|
Average
Exercise price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2006
|
|
|
676,087 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,775,000 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(350,000 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(562,500 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2007
|
|
|
1,538,587 |
|
|
$ |
0.12 |
|
|
1.38
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(326,087 |
) |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2008
|
|
|
1,212,500 |
|
|
$ |
0.09 |
|
|
0.44
years
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at December 31, 2008
|
|
|
1,212,500 |
|
|
$ |
0.09 |
|
|
0.44
years
|
|
|
$ |
- |
|
Options
On
February 28, 2007, the Company granted board members immediately exercisable
options to purchase an aggregate of 9,000 shares of common stock with an
exercise price of $0.10 for a total value of $599, under a previously approved
stock holder option plan.
On May 9,
2007, the Company granted board members immediately exercisable options to
purchase an aggregate of 4,500 shares of common stock with an exercise price of
$0.07 for a total value of $311, under a previously approved stock holder option
plan.
On May 9,
2007, the Company granted an employee 200,000 options to purchase common stock,
of which 34% vest on the first anniversary of the option grant date and 8.25%
vest each quarter there after, with an exercise price of $0.07 for a total value
of $13,157, under a previously approved stock holder option plan.
On June
7, 2007, the Company granted board members immediately exercisable options to
purchase an aggregate of 3,000 shares of common stock with an exercise price of
$0.045 for a total value of $148, under a previously approved stock holder
option plan.
On August
8, 2007, the Company granted board members immediately exercisable options to
purchase an aggregate of 4,500 shares of common stock with an exercise price of
$0.05 for a total value of $222, under a previously approved stock holder option
plan.
On
November 6, 2007, the Company granted board members immediately exercisable
options to purchase an aggregate of 9,000 shares of common stock with an
exercise price of $0.05 for a total value of $444, under a previously approved
stock holder option plan.
On
December 6, 2007, the Company granted board members immediately exercisable
options to purchase an aggregate of 9,000 shares of common stock with an
exercise price of $0.04 for a total value of $356, under a previously approved
stock holder option plan.
On
December 7, 2007, the Company granted board members immediately exercisable
options to purchase an aggregate of 4,500 shares of common stock with an
exercise price of $0.03 for a total value of $133, under a previously approved
stock holder option plan.
On
December 19, 2007, the Company granted board members immediately exercisable
options to purchase an aggregate of 4,500 shares of common stock with an
exercise price of $0.04 for a total value of $178, under a previously approved
stock holder option plan.
On March
31, 2008, 895,928 options related to employees who terminated on December 31,
2007, hired by Cryptek, Inc., were canceled pursuant to the terms of
the stock option plans.
On March
25, 2008, the Company granted board members immediately exercisable options to
purchase an aggregate of 4,500 shares of common stock with an exercise price of
$0.03 for a total value of $135, under a previously approved stock holder option
plan.
On May
19, 2008, the Company granted board members immediately exercisable options to
purchase an aggregate of 43,500 shares of common stock with an exercise price of
$0.06 for a total value of $2,586, under a previously approved stock holder
option plan.
On August
11, 2008, the Company granted board members immediately exercisable options to
purchase an aggregate of 4,500 shares of common stock with an exercise price of
$0.04 for a total value of $178, under a previously approved stock holder option
plan.
On
November 11, 2008, December 4, 2008, December 15, 2008 and December 30, 2008 the
Company granted board members immediately exercisable options to purchase an
aggregate of 12,000 shares of common stock with an exercise price of $0.02 for a
total value of $240 for each meeting date, under a previously approved stock
holder option plan.
Details
of the options outstanding under all plans are as follows:
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price ($)
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2006
|
|
|
6,794,856 |
|
|
|
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
248,000 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,068,353 |
) |
|
|
0.58 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(261,596 |
) |
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(222,500 |
) |
|
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2007
|
|
|
5,490,407 |
|
|
|
0.25 |
|
|
2.75
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
64,500 |
|
|
|
0.05 |
|
|
4.58
years
|
|
|
|
|
|
|
Expired
|
|
|
(25,000 |
) |
|
|
1.96 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,000 |
) |
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(2,723,003 |
) |
|
|
0.41 |
|
|
2.54
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2008
|
|
|
2,797,904 |
|
|
|
0.12 |
|
|
0.63
years
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2008
|
|
|
2,756,656 |
|
|
|
0.12 |
|
|
0.61
years
|
|
|
$ |
- |
|
|
Range of Exercise
|
|
Number
Outstanding
|
|
|
Weighted Average
Remaining Years of
Contractual Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.00
– 0.10
|
|
|
609,904 |
|
|
|
0.78 |
|
|
$ |
0.06 |
|
|
|
609,904 |
|
|
$ |
0.06 |
|
|
$0.10
– 0.25
|
|
|
2,185,000 |
|
|
|
0.59 |
|
|
|
0.13 |
|
|
|
2,143,752 |
|
|
|
0.13 |
|
|
$0.25
– 0.50
|
|
|
3,000 |
|
|
|
0.84 |
|
|
|
0.35 |
|
|
|
3,000 |
|
|
|
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.00
– $0.50
|
|
|
2,797,904 |
|
|
|
0.63 |
|
|
$ |
0.12 |
|
|
|
2,756,656 |
|
|
$ |
0.12 |
|
The
weighted-average grant-date fair value of options granted during the year ended
December 31, 2008 and 2007 amounted to $0.05 and $0.07 per share,
respectively. As of December 31, 2008, the fair value of unvested options
was $0.
10.
Commitments
Operating
Leases
The
Company entered into a lease on August 1, 2003 for approximately 7,000 square
feet for its principal executive offices at 120 Corporate Blvd., South
Plainfield, New Jersey. The Company extended the lease on May 11, 2006 for an
additional 5 years. The agreement called for an escalating base rent of $4,665
per month effective August 2006 through July 2007, $4,815 per month effective
August 2007 through July 2008, and an additional increase of $145 every August
thereafter through August 2010, and additional payments to the landlord relating
to certain taxes and operating expenses. The tenant has the option to terminate
the Lease effective July 31, 2009 with six months written notice to the
Landlord. In accordance with SFAS No. 13 (“Accounting for Leases”), the Company
accounts for rent expense using the straight line method of accounting, accruing
the difference between actual rent due and the straight line amount. On December
31, 2007, the lease was assumed by Cryptek.
The
Company leases space in an executive suite located at 2001 Route 46, Parsippany,
New Jersey 07054, through a month-to-month lease at a rate of $250 per month.
This lease may be terminated by either party upon sixty days’ notice. The Company is
entitled to use this space two days per month, without incurring additional
expense.
The
Company also leased certain equipment under agreements which are classified as
capital leases. Each of the capital lease agreements expire within five years
and have purchase options at the end of the lease term. These leases were
assumed by Cryptek on December 31, 2007.
Rent
expense under operating leases for the years ended December 31, 2008 and 2007
was approximately $3,000 and $88,000, respectively.
Employment
Contracts
The
Company entered into an agreement with the Chief Executive Officer and Chief
Financial Officer to remain at the Company and receive a salary equal to their
rate of pay as of December 31, 2007 of $235,000 and $200,000, respectively, with
a reduction in certain benefits until June 30, 2008. On June 19,
2008, the Board of Directors of Clacendix extended the employment terms of the
Chief Executive Officer and Chief Financial Officer, through March 31, 2009,
unless terminated earlier by either party upon thirty days prior notice.
Effective July 1, 2008, CEO and CFO compensation has been adjusted to an annual
base salary of $100,000 each, as compared to previous annual base salaries of
$235,000 and $200,000, respectively, in addition to certain employee
benefits.
The
Company had been a party to certain employment contracts with various officers
which included a severance provision which entitles the officer to payments
ranging from three to eighteen months of the officers’ then current annual
salary if the officer is terminated without cause (as defined in the agreement).
As of December 31, 2007, the Company accrued $834,986 for severance costs due to
certain provisions in the contracts which were triggered by the sale of
substantially all the operating assets. This amount was reflected on the
consolidated statements of operation in selling, general and administrative
expenses during the year ended December 31, 2007.
11. Contingent
Liabilities
On
December 8, 2008, the Company received a notice from a potential merger
candidate stating that it had breached certain terms of a non-binding letter of
intent (“LOI”) and would pursue available remedies. While no
litigation has been brought, management of the Company has indicated that they
believe that any such claims are unfounded and that the Company has a
reasonable position in defense of these claims and intends to vigorously defend
itself if any litigation is commenced.
12. Employee
Benefit Plan
Effective
April 1, 1993, the Company adopted a defined contribution savings plan. The
terms of the plan provide for eligible employees who have met certain age and
service requirements to participate by electing to contribute up to 15% of their
gross salary to the plan, as defined, with a discretionary contribution by the
Company matching 30% of an employee's contribution in cash up to a maximum of 6%
of gross salary, as defined. Company contributions vest at the rate of 25% of
the balance at each employee's second, third, fourth, and fifth anniversary of
employment. The employees' contributions are immediately vested. As
of January 1, 2003, the Company per the provisions of the plan decided not to
make discretionary contributions until further notice.
13. New
Accounting Pronouncements
In
June 2008, the EITF reached a consensus in Issue No. 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity’s Own Stock” (“EITF 07-5”). This Issue addresses the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which is the first part of the scope exception in paragraph 11(a) of SFAS
133. EITF 07-5 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early application is not
permitted. The Company is currently in the process of evaluating the impact of
the adoption of EITF 07-5 on its results of operations and financial
condition.
On
October 10, 2008, the FASB issue FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (FSP).” The FSP
clarifies the application of FASB Statement No. 157 in a market that is not
active. The guidance is primarily focused on addressing how the reporting
entity’s own assumptions should be considered when measuring fair value when
relevant observable inputs does not exist; how available observable inputs in a
market that is not active should be considered when measuring fair value; and
how the use of market quotes should be considered when assessing the relevance
of observable and unobservable inputs available to measure fair value. The
adoption of FSP FAS 157-3 did not have a material impact on the Company’s
financial statements.
In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities”. This FSP
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share (EPS) under the
two-class method described in paragraphs 60 and 61 of FASB Statement No. 128,
Earnings per Share.
FSP EITF
03-6-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those years. The Company is
in the process of determining the impact FSP EITF 03-6-1 will have on its
consolidated financial statements.
In May
2008, the FASB issued Statement No. 162 “The Hierarchy of Generally Accepted
Accounting Principles.” The current hierarchy of generally accepted accounting
principles is set forth in the American Institute of Certified Accountants
(AICPA) Statement of Auditing Standards (SAS) No. 69, “The meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles. Statement
No. 162 is intended to improve financial reporting by identifying a consistent
framework or hierarchy for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles for nongovernmental entities. This
Statement is effective 60 days following the SEC’s approval of the Public
Company Oversight Board Auditing amendments to SAS 69. The Company does not
anticipate that the Statement will have a material effect on the Company’s
results of operations or financial position.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities-an amendment of FASB Statement No. 133” (“SFAS 161”), to
require enhanced disclosures about an entity’s derivative and hedging activities
and thereby improves the transparency of financial reporting. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early adoption encouraged. The Company
is currently evaluating the effect that the adoption of SFAS 161 will have on
its consolidated results of operations and financial condition, but does not
expect it to have a material impact.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations" ("SFAS
141R"), which replaces SFAS No. 141, "Business Combinations." SFAS 141R
establishes principles and requirements for determining how an enterprise
recognizes and measures the fair value of certain assets and liabilities
acquired in a business combination, including noncontrolling interests,
contingent consideration, and certain acquired contingencies. SFAS 141R also
requires acquisition-related transaction expenses and restructuring costs be
expensed as incurred rather than capitalized as a component of the business
combination. SFAS 141R will be applicable prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. SFAS 141R would have
an impact on accounting for any businesses acquired after the effective date of
this pronouncement.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 permits companies to choose
to measure certain financial instruments and certain other items at fair
value. The standard requires that unrealized gains and losses on
items for which the fair value option has been elected be reported in
earnings. The Company adopted SFAS 159 beginning in the first quarter
of 2008, without material effect on the Company’s consolidated financial
position or results of operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 establishes a single definition of fair value and a framework for
measuring fair value, sets out a fair value hierarchy to be used to classify the
source of information used in fair value measurements, and requires new
disclosures of assets and liabilities measured at fair value based on their
level in the hierarchy. This statement applies under other accounting
pronouncements that require or permit fair value measurements. In February 2008,
the FASB issued Staff Positions (“FSPs”) No. 157-1 and No. 157-2, which,
respectively, remove leasing transactions from the scope of SFAS No. 157 and
defer its effective date for one year relative to certain nonfinancial assets
and liabilities. As a result, the application of the definition of fair value
and related disclosures of SFAS No. 157 (as impacted by these two FSPs) was
effective for the Company beginning January 1, 2008 on a prospective basis with
respect to fair value measurements of (a) nonfinancial assets and liabilities
that are recognized or disclosed at fair value in the Company’s financial
statements on a recurring basis (at least annually) and (b) all financial assets
and liabilities. This adoption did not have a material impact on the Company’s
consolidated results of operations or financial condition. The remaining aspects
of SFAS No. 157 for which the effective date was deferred under FSP No. 157-2.
Areas impacted by the deferral relate to nonfinancial assets and liabilities
that are measured at fair value, but are recognized or disclosed at fair value
on a nonrecurring basis. This deferral applies to such items as nonfinancial
assets and liabilities initially measured at fair value in a business
combination (but not measured at fair value in subsequent periods) or
nonfinancial long-lived asset groups measured at fair value for an impairment
assessment. The effects of these remaining aspects of SFAS No. 157 are to be
applied to fair value measurements prospectively beginning January 1, 2009. The
Company does not expect them to have a material impact on the Company’s
consolidated results of operations or financial condition.
14. Concentrations
The
Company's domestic and foreign export sales for the year ended December 31, 2007
were as follows:
|
United
States
|
|
$ |
2,653,907 |
|
|
Europe
|
|
|
414,458 |
|
|
Pacific
Rim
|
|
|
217,086 |
|
|
Other
|
|
|
29,052 |
|
|
|
|
$ |
3,314,503 |
|
For the
year ended December 31, 2007, a majority of the Company’s net sales came from
four customers (stated as an approximate percentage of revenue) consists of 18%,
14%, 14% and 11% of total revenue.
The
Company maintains deposits in financial institutions located in the United
States. From time to time, the Company’s balance may be uninsured or
in deposit accounts that exceed the Federal Deposit Insurance Corporation
(“FDIC”) insurance limits.
15.
Subsequent Events
None.