UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(X) Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2008
Commission File No. 0-27857
ACUNETX, INC.
-------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0249812
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2301 W. 205th Street, #102, Torrance, CA 90501
----------------------------------------------
(Address of principal executive offices)
310-328-0477
------------
(Issuer's telephone number)
Check whether the issuer: (1) 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 for
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of March 31, 2008, the issuer had 65,357,880 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one)
[ ] Yes; [X] No.
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
We desire to take advantage of the "SAFE HARBOR" provisions of the Private
Securities Litigation Reform Act of 1995. This Report on Form 10-QSB contains a
number of forward-looking statements that reflect management's current views and
expectations with respect to our business, strategies, products, future results
and events and financial performance. All statements made in this Report other
than statements of historical fact, including statements that address operating
performance, events or developments that management expects or anticipates will
or may occur in the future, including statements related to distributor
channels, volume growth, revenues, profitability, new products, acquisitions,
adequacy of funds from operations, statements expressing general optimism about
future operating results and non-historical information, are forward-looking
statements. In particular, the words "BELIEVE," "EXPECT," "INTEND,"
"ANTICIPATE," "ESTIMATE," "MAY," "WILL," variations of such words, and similar
expressions identify forward-looking statements, but are not the exclusive means
of identifying such statements and their absence does not mean that the
statement is not forward-looking. These forward-looking statements are subject
to certain risks and uncertainties, including those discussed below. Our actual
results, performance or achievements could differ materially from historical
results as well as those expressed in, anticipated or implied by these
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Readers should not place undue reliance on these forward-looking
statements, which are based on management's current expectations and projections
about future events, are not guarantees of future performance, are subject to
risks, uncertainties and assumptions (including those described below) and apply
only as of the date of this Report. Our actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed below
"Management's Discussion and Analysis and Plan of Operation," as well as those
discussed elsewhere in this Report, and the risks discussed in our most recently
filed Annual Report on Form 10-KSB and in the press releases and other
communications to shareholders issued by us from time to time which attempt to
advise interested parties of the risks and factors that may affect our business.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACUNETX, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 2008 AND 2007
2008 2007
------------ ------------
ASSETS
Current Assets
Cash $ 66,487 $ 87,375
Restricted Cash 90,820 --
Accounts receivable, net 35,517 286,908
Inventory 146,961 209,330
Prepaid expenses and other current assets 36,225 42,000
------------ ------------
Total Current Assets 376,010 625,613
Property and equipment, net 16,187 24,009
Other intangible assets 150,604 136,932
Deferred tax assets 220,635 220,635
Other assets 2,020 1,772
------------ ------------
TOTAL ASSETS $ 765,457 $ 1,008,961
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 377,973 $ 567,474
Accrued liabilities 823,448 385,800
Notes payable to related parties -- 243,731
Current portion of long-term debt 80,475 578
------------ ------------
Total Current Liabilities 1,281,896 1,197,583
Convertible debt, net 109,626 --
Long-Term Debt 176,869 1,137
------------ ------------
Total Liabilities 1,568,391 1,198,720
------------ ------------
Minority Deficit (9,696) --
Stockholders' Deficit
Common stock, $0.001 par value; 100,000,000 shares authorized;
65,357,880 shares issued and outstanding 65,358 62,716
Paid-in capital 11,288,426 10,901,885
Accumulated deficit (12,147,021) (11,154,360)
------------ ------------
Total Stockholders' Deficit (793,238) (189,759)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 765,457 $ 1,008,961
============ ============
See notes to interim unaudited consolidated financial statements
3
ACUNETX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THREE MONTHS ENDED MARCH 31, 2008 2007
---------------------------------------------------------------------------------------
Sales - Products $ 219,588 $ 1,123,946
Cost of sales - products 130,062 228,454
--------------------------------
Gross profit 89,526 895,492
--------------------------------
Operating Expenses:
Selling, general and administrative expenses 328,998 1,039,407
Stock option expense 147,530 139,077
Impairment of goodwill -- 362
--------------------------------
Total Operating Expenses 476,528 1,178,846
--------------------------------
Operating loss (387,002) (283,354)
--------------------------------
Other income(expenses)
Interest and other income 1,338 4,261
Interest and other expenses (20,798) (9,662)
--------------------------------
Total other income (expenses) (19,460) (5,401)
--------------------------------
Net loss before income taxes and minority interest (406,462) (288,755)
Provision for income taxes 800 800
--------------------------------
Net loss before minority interest (407,262) (289,555)
Minority interest in losses of subsidiaries (1,823) --
--------------------------------
Net loss $ (405,439) $ (289,555)
================================
Net Loss per share-Basic and Diluted $ (0.006) $ (0.005)
Weighted average number of common shares 65,286,213 63,038,781
See notes to interim unaudited consolidated financial statements
4
ACUNETX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED MARCH 31, 2008 2007
--------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(405,439) $(289,555)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest (1,823) --
Depreciation and amortization 2,151 5,582
Issuance stock and stock equity awards for services 147,530 139,076
Provision for bad debt 483 8,657
Amortization of debt discount 750 --
Impairment of goodwill -- 362
(Increase) Decrease in:
Accounts receivable 9,034 (199,164)
Inventory 57,318 42,106
Prepaid and other assets 37,460 53,310
Increase (Decrease) in:
Accounts payable and accrued expenses 12,543 125,288
-------------------------
Net cash used in operating activities (139,993) (114,338)
-------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in restricted cash (15,820) --
Capitalized intellectual property (406) (745)
-------------------------
Net cash used in investing activities (16,226) (745)
-------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from sales of common stocks 15,050 --
Net proceeds from convertible debt 15,000 --
Repayments on notes payable (12,506) (112)
-------------------------
Net cash provided by (used in) financing activities 17,544 (112)
-------------------------
NET DECREASE IN CASH (138,675) (115,195)
CASH BALANCE AT BEGINNING OF PERIOD 205,162 202,570
-------------------------
CASH BALANCE AT END OF PERIOD $ 66,487 $ 87,375
=========================
Supplemental Disclosures of Cash Flow Information:
Taxes Paid $ -- $ --
Interest paid $ 8,746 $ --
Schedule of Noncash Investing and Financing Activities:
Retirement of common stock for an equity-method investment $ -- $ 14,007
Issuance of stock options for accrued expenses $ 1,036 $ --
See notes to interim unaudited consolidated financial statements
5
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND GOING CONCERN
NATURE OF BUSINESS
AcuNetx, Inc., a Nevada corporation, (the "Company" or "AcuNetx", formerly known
as Eye Dynamics, Inc. or "EDI") and its subsidiaries OrthoNetx Inc. and
VisioNetx Inc., combine diagnostic, analytical and therapeutic devices with
proprietary software to permit: health providers to diagnose and treat balance
disorders and various bone deficiencies; law enforcement officers to evaluate
roadside sobriety; and employers in high-risk industries to determine, in
real-time, the mental fitness of their employees to perform mission-critical
tasks. AcuNetx is headquartered in Torrance, California.
AcuNetx is organized around a dedicated medical division (i) IntelliNetx, a
medical division with neurological diagnostic equipment, and two separate
subsidiary companies: (ii) OrthoNetx, Inc., a wholly-owned medical subsidiary
company with devices that create new bone, and (iii) VisioNetx, Inc., a
majority-owned subsidiary company with products for occupational safety and law
enforcement.
The product line of AcuNetx and its subsidiaries include the followings: (a)
Neurological diagnostic equipment that measures, tracks and records human eye
movements, utilizing the company's proprietary technology and computer software,
as a method to diagnose problems of the vestibular (balance) system and other
balance disorders; (b) Devices designed to test individuals for impaired
performance resulting from the influences of alcohol, drugs, illness, stress and
other factors that affect eye and pupil performance. These products target the
occupational safety and law enforcement markets; and, (c) Orthopedic and
craniomaxillofacial (skull and jaw) surgery products, which generate new bone
through the process of distraction osteogenesis; and (d) A proprietary
information technology system called SmartDevice-Connect(TM) ("SDC") that
establishes product registry to individual patients and tracks device behavior
for post-market surveillance, adverse event and outcomes reporting, and creates
"smart devices" that gather and transmit physiological data concerning the
device and its interaction with patients.
GOING CONCERN
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company
incurred operating losses totaling $405,439 and $289,555 for the three months
ended March 31, 2008 and 2007 respectively. In addition, the Company has a
working capital deficit of $905,886 and an accumulated deficit of $12,147,021 as
of March 31, 2008. In the near term, the Company expects the operating cash
flows will not be sufficient to cover all debt and payables although it expects
its sales to grow and will be able to cover current operating costs and to
reduce the working capital deficit.
Management's plans include raising operating capital to take advantage of its
IntelliNetx and HawkEye commercial opportunities. To that end, $150,000 was
borrowed from S&S Health Products (see Note 15) and the Company is seeking a
maximum of $500,000 under a stock subscription agreement that is based on a unit
consisting of $0.07 common stock associated with a $0.10 warrant. This will
enable the Company to focus its efforts on selling its neurological diagnostic
products, which have historically been its primary business, and to increase the
marketing and sales efforts for its HawkEye law enforcement product.
The ability of the Company to continue as a going concern is dependent on its
ability to meet its financing requirements and the success of its future
operations. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
6
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION OF INTERIM INFORMATION: The financial information at March 31, 2008
and 2007 and for the three months ended March 31, 2008 and 2007 is unaudited but
includes all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of the financial
information set forth herein, in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") for interim financial
information, and with the instructions to Form 10-QSB. Accordingly, such
information does not include all of the information and footnotes required by
U.S. GAAP for annual financial statements. For further information refer to the
Consolidated Financial Statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2007.
The results for the three months ended March 31, 2008 may not be indicative of
results for the year ending December 31, 2008 or any future periods.
PRINCIPLE OF CONSOLIDATION AND PRESENTATION: The accompanying financial
statements include the accounts of AcuNetx, Inc. and its subsidiaries after
elimination of all intercompany accounts and transactions. Certain prior period
balances have been reclassified to conform to the current period presentation.
USE OF ESTIMATES: The preparation of the accompanying consolidated financial
statements in conformity with U.S. GAAP requires management to make certain
estimates and assumptions that directly affect the results of reported assets,
liabilities, revenue, and expenses. Actual results may differ from these
estimates.
OTHER INTANGIBLE ASSETS: Other intangible assets consist primarily of
intellectual property and trademarks. The Company capitalizes intellectual
property costs as incurred, excluding costs associated with Company personnel,
relating to patenting its technology. The majority of capitalized costs
represent legal fees related to a patent application. If the Company elects to
stop pursuing a particular patent application or determines that a patent
application is not likely to be awarded or elects to discontinue payment of
required maintenance fees for a particular patent, the Company, at that time,
records as expense the capitalized amount of such patent application or patent.
Awarded patents will be amortized over the shorter of the economic or legal life
of the patent. Trademarks are not amortized, but rather are tested for
impairment at least annually. There was no impairment of other intangible assets
for the three months ended March 31, 2008 and 2007.
GOODWILL: Goodwill represents the excess of the purchase price in a business
combination over the fair value of net tangible and intangible assets acquired
in a business combination. Goodwill amounts are not amortized, but rather are
tested for impairment at least annually. An impairment of goodwill of $362 was
recorded for the three months ended March 31, 2007. Goodwill was fully impaired
in 2007.
NET INCOME PER SHARE: Basic net income per share includes no dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common stock outstanding for the period. Diluted net income
per share is computed by dividing net income by the weighted average number of
common shares and the dilutive potential common shares outstanding during the
period. Diluted net loss per common share is computed by dividing net loss by
the weighted average number of common shares and excludes dilutive potential
common shares outstanding, as their effective is anti-dilutive. Dilutive
potential common shares consist primarily of stock options, stock warrants and
shares issuable under convertible debt.
STOCK-BASED COMPENSATION: The Company has adopted the fair value recognition
provisions of FASB Statement No.123(R), "SHARE-BASED PAYMENT" (SFAS 123R), using
the modified-prospective-transition method. Under that transition method,
compensation cost recognized in 2007 includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2007
based on the grant date fair value calculated in accordance with the original
provisions of SFAS 123, and (b) compensation cost for all share-based payments
granted subsequent to December 31, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R). For the three months
ended March 31, 2008 and 2007, the Company recognized pre-tax stock option
compensation expense of $147,530 and $139,077, respectively.
7
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and the EITF Issue No. 00-18, "ACCOUNTING FOR EQUITY
INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING, GOODS OR SERVICES." SFAS No. 123 states that equity
instruments that are issued in exchange for the receipt of goods or services
should be measured at the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
Under the guidance in Issue 00-18, the measurement date occurs as of the earlier
of (a) the date at which a performance commitment is reached or (b) absent a
performance commitment, the date at which the performance necessary to earn the
equity instruments is complete (that is, the vesting date).
NEW ACCOUNTING PRONOUNCEMENTS: In March 2008, Financial Accounting Standards
Board {"FASB") issued Statement of Financial Accounting Standards (SFAS) No.
161, "DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS
161"). SFAS 161 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring companies to enhance disclosure
about how these instruments and activities affect their financial position,
performance and cash flows. SFAS 161 also improves the transparency about the
location and amounts of derivative instruments in a company's financial
statements and how they are accounted for under SFAS 133. SFAS 161 is effective
for financial statements issued for fiscal years beginning after November 15,
2008 and interim periods beginning after that date. As such, the Company is
required to adopt these provisions beginning with the quarter ending in February
2009. Adoption of SFAS 161 is not expected to have a material impact on the
Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159 ("SFAS No. 159"), "THE FAIR VALUE
OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT
OF FASB STATEMENT NO. 115." SFAS No. 159 provides an option to report selected
financial assets and financial liabilities using fair value, and establishes
required presentation and disclosures to facilitate comparisons with companies
that use different measurements for similar assets and liabilities. SFAS No. 159
is effective for the Company's fiscal year beginning August 1, 2008, with early
adoption allowed only if SFAS No. 157 is also adopted. The Company is currently
evaluating the potential impact of this standard on the consolidated financial
statements.
In June 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-3,
"ACCOUNTING FOR NONREFUNDABLE ADVANCE PAYMENTS FOR GOODS OR SERVICES TO BE USED
IN FUTURE RESEARCH AND DEVELOPMENT ACTIVITIES" ("EITF 07-3"). EITF 07-3 requires
non-refundable advance payments for goods and services to be used in future
research and development activities to be recorded as an asset and the payments
to be expensed when the research and development activities are performed. EITF
07-1 will be effective for the Company's fiscal year beginning August 1, 2008.
Currently, the Company does not anticipate that this statement will have a
significant impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "BUSINESS
COMBINATIONS" ("SFAS No.141(R)"). SFAS No. 141(R) will replace SFAS 141, and
establishes principles and requirements for how the acquirer in a business
combination reorganizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree; recognizes and measures the goodwill acquired in the
business combination or gain from a bargain purchase; and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS No. 141(R)
applies 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. Currently, the Company does not anticipate that this
Statement will have a significant impact on its consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160, "NON-CONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS - AN AMENDMENT OF ARB NO. 51" ("SFAS No.
160"). This statement requires that noncontrolling or minority interests in
subsidiaries be presented in the consolidated statement of financial position
within equity, but separate from the parents' equity, and that the amount of the
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income. SFAS No. 160 will be effective for the Company's fiscal
year beginning August 1, 2009. The adoption of this statement did not have a
material effect on the Company's consolidated financial statements.
8
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 2007, the FASB ratified the consensus reached on Emerging Issues
Task Force Issue No. 07-1, "ACCOUNTING FOR COLLABORATIVE ARRANGEMENTS RELATED TO
THE DEVELOPMENT AND COMMERCIALIZATION OF INTELLECTUAL PROPERTY" ("EITF 07-1").
EITF 07-1 defines collaborative arrangements and establishes reporting
requirements for transactions between participants in a collaborative
arrangement and between participants in the arrangement and third parties. EITF
07-1 will be effective for the Company's fiscal year beginning August 1, 2009.
The Company is currently evaluating the potential impact of this standard on the
consolidated financial statements.
In December 2007, the SEC issued Staff Accounting Bulletin No. 110 ("SAB 110").
SAB 110 permits companies to continue to use the simplified method, under
certain circumstances, in estimating the expected term of "plain vanilla"
options beyond December 31, 2007. SAB 110 updates guidance provided in SAB 107
that previously stated that the Staff would not expect a company to use the
simplified method for share option grants after December 31, 2007. Adoption of
SAB 110 is not expected to have a material impact on the Company's consolidated
financial statements.
9
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - BALANCE SHEET DETAILS
The following tables provide details of selected balance sheet items:
AT MARCH 31,
Accounts Receivable, Net 2008 2007
------------------------ --------- ---------
Accounts Receivable $ 45,221 $ 300,910
Allowance for Bad Debt (9,704) (14,002)
--------- ---------
Total Accounts Receivable, Net $ 35,517 $ 286,908
========= =========
INVENTORY
---------
Finished Goods $ 84,019 $ 182,067
Demo units 82,992 84,126
Allowance for loss in inventory (20,050) (56,863)
--------- ---------
Total Inventory $ 146,961 $ 209,330
========= =========
PREPAID EXPENSES AND OTHER CURRENT ASSETS
-----------------------------------------
Prepaid Insurance $ 17,932 $ 19,847
Prepaid rent and deposit 186 278
Other Prepaid Expenses 18,107 21,875
--------- ---------
Total Prepaids and Others $ 36,225 $ 42,000
========= =========
PROPERTY AND EQUIPMENT, NET
---------------------------
Furniture and Fixtures $ 9,531 $ 9,531
Equipment 40,530 40,530
Software 5,757 5,757
--------- ---------
55,818 55,818
Accumulated Depreciation (39,630) (31,809)
--------- ---------
Total Property and Equipment, Net $ 16,187 $ 24,009
========= =========
ACCRUED LIABILITIES
-------------------
Warranty reserve $ 5,338 $ 7,649
Accrued payroll and related taxes 111,149 60,457
Accrued consulting fees 361,691 96,391
Commissions payable 1,862 81,821
Accrued vacation 20,508 20,709
Accrued professional fees 181,733 --
Related party payable 25,533 --
Other accrued liabilities 115,634 118,773
--------- ---------
Total Accrued Liabilities $ 823,448 $ 385,800
========= ==========
10
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4 - OTHER INTANGIBLE ASSETS
During the three months ended March 31, 2008, the Company capitalized
intellectual property cost of $406. The Company's intangible assets consisted of
the following at March 31, 2008 and 2007:
2008 2007
--------- ---------
Pending Intellectual Property $ 128,925 $ 126,860
Awarded patents 21,954 --
Trademarks -- 10,072
Accumulated amortization (274) --
--------- ---------
Total Accounts Receivable, Net $ 150,604 $ 136,932
========= =========
Amortization of intangibles was $274 for the three months ended March 31, 2008.
No amortization of intangibles was recorded for the three months ended March
31, 2007 as no patents were awarded as of that date.
Based on the carrying amount of the intangibles as of March 31, 2008, and
assuming no impairment of the underlying assets, the estimated future
amortization is as follows:
Years ended December 31,
----------------------------------
2008 (From April 1, 2008) $ 1,566
2009 1,291
2010 1,291
2011 1,291
2012 and over 16,514
------------
Total $ 21,954
============
NOTE 5 - SETTLEMENT ON NOTES RECEIVABLE
In March 2007, the Company entered into a settlement agreement with a former
employee who created indebtedness to the Company of $49,489 in 2001 to 2004 and
had agreed to a Note Receivable (Receivable). The employee had been in default
on payments on this Receivable, which was fully reserved in 2004. The agreement
calls for the former employee to repay the Company $55,000 at a rate of $4,000
per month beginning in April 2007. The Company collected $24,000 through March
31, 2008. The former employee is six months in arrears of payments as of March
31, 2008. The Company is currently seeking to collect the stock certificate of a
public company which was provided as a security in the agreement.
NOTE 6 - BORROWINGS
NOTE PAYABLE TO RELATED PARTY
-----------------------------
The Company has an installment note payable to a related party with monthly
payments of $14,263, including interest at 13%. The original note amount was
$300,000 maturing on December 31, 2007. As of March 31, 2007, the loan balance
and the related accrued interest were $243,731 and $13,530, respectively. The
note was restructured on June 30, 2007 -see Long-Term Debt.
11
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - BORROWINGS (CONTINUED)
LONG-TERM DEBT
--------------
At March 31, 2008 2007
--------------------------------------------------------------------------------------------------------------
Installment note payable secured by computer equipment.
Monthly payments total $81, including interest at 18.99%. The
original note amount was $2,062. Matures July 21, 2009. $ 1,138 $ 1,715
(a) Reconstructed note payable to related party. Monthly interest payment only at
13% through January 31. 2008. Effective February 1, 2008, principal and
interest payment based on a 36-month amortization. Matures August 1, 2009. 256,206 -
--------------------------------------------------------------------------------------------------------------
257,344 1,715
Less: Current Maturities (80,475) (578)
--------------------------------------------------------------------------------------------------------------
Long-term debt $ 176,869 $ 1,137
==============================================================================================================
(a) On June 30, 2007, the Company entered into an Agreement for Extension and
Amendment of a Note ("Agreement") with a related party. Under the Agreement, the
Company's subsidiary, OrthoNetx, Inc. executed an Amended and Extended
Promissory Note in favor of a related party, in the principal amount of
$268,551. The new note replaces a promissory note issued by OrthoNetx, Inc. on
January 30, 2005 in the original amount of $300,000. The new note bears interest
at 13% per annum, and provides for payments of interest that commenced on
August1, 2007. Payments of principal and interest commenced on February 1, 2008,
based on a 36-month amortization schedule. All principal and interest is due on
August 1, 2009. As of March 31, 2008, the Company has made all scheduled
interest payments. Under the Agreement, the Company entered into a Commercial
Guaranty under which it guaranteed payment of the note. Also, the related party
entered into a termination of guaranty to release the former CEO from his
guaranty of the original note.
CONVERTIBLE DEBT, NET
---------------------
At March 31, 2008 2007
--------------------------------------------------------------------------------------------------------------
10% Series A Convertible Promissory Note, matures on December 31, 2010 $ 25,000 $ -
8% Convertible Promissory Notes, matures commencing May 18, 2009 90,000 -
--------------------------------------------------------------------------------------------------------------
115,000 -
Less: Unamortized debt discount (5,375) -
--------------------------------------------------------------------------------------------------------------
Convertible debt, net $ 109,625 $ -
--------------------------------------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES
Provision for income taxes consisted of a minimum state franchise tax of $800
for three months ended March 31, 2008 and 2007.
The Company had removed the valuation allowance on December 31, 2003 because it
believed it was more likely than not that all deferred tax assets would be
realized in the foreseeable future and would be reflected as a credit to
operations. However, as of December 31, 2005, the Company's ability to utilize
its federal net operating loss carryforwards was uncertain due to the merger
with OrthoNetx which had net operating loss carryforwards of approximately $1.7
million. Thus a valuation reserve was provided against the Company's net
deferred tax assets.
As of December 31, 2007, the Company has net operating loss carryforwards of
approximately, $6,800,000 and $4,300,000 to reduce future federal and state
taxable income, respectively. To the extent not utilized, the federal net
operating loss carryforwards will begin to expire in fiscal 2009 and the state
net operating loss carryforwards will begin to expire in fiscal 2012.
12
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 8 - STOCKHOLDERS' EQUITY
SALES OF COMMON STOCK
---------------------
In February 2008, the Company sold 215,000 equity units, consisting of 215,000
shares of common stock and warrants, and received $15,050 in gross proceeds.
COMMON STOCK RETIREMENT
-----------------------
In March 2007, the Company retired 483,100 shares of its common stock to rescind
an equity-method investment. The market value of the shares returned to the
Company at closing was equal to the carrying value. Accordingly, the Company did
not recognize any gain or loss on this transaction.
NOTE 9 - STOCK OPTIONS
ACUNETX, INC.
-------------
On March 27, 2006 the Board of Directors approved and adopted the 2006 Stock
Option Plan to provide for the issuance of incentive stock options and/or
nonstatutory options to employees and nonstatutory options to consultants and
other service providers. Generally, all options granted to employees and
consultants expire ten and three years, respectively, from the date of grant.
All options have an exercise price equal to or higher than the fair market value
of the Company's stock on the date the options were granted. Options generally
vest over three years. The plan reserves 14 million shares of common stock under
the Plan and is effective through December 31, 2015.
A summary of the status of stock options issued by the Company as of March 31,
2008 and 2007 is presented in the following table.
2008 2007
-------------------------------------------------------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
-------------------------------------------------------------------
Outstanding at beginning of year 5,525,768 $0.15 7,309,102 $0.21
Granted 3,830,000 $0.07 1,500,000 $0.09
Exercised/Expired/Cancelled - $0.00 (3,360,001) $0.21
------------------ -----------------
Outstanding at end of period 9,355,768 $0.12 5,449,101 $0.20
================== =================
Exercisable at end of period 7,855,768 $0.12 4,449,101 $0.17
================== =================
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes Merton option valuation model. The assumptions are
listed in the table below. Expected volatilities are based on the historical
volatility of the Company's stock. The risk-free rate for periods within the
expected life of the option is based on the U.S. Treasury yield curve in effect
at the time of grant.
2008 2007
------------------------------
Weighted average fair value per option granted $ 0.06 $ 0.09
Risk-free interest rate 3.28% 4.75%
Expected dividend yield 0.00% 0.00%
Expected lives 5.00 5.00
Expected volatility 134.64% 120.88%
As of March 31, 2008 there was $73,167 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
plans. That cost is expected to be recognized over a weighted average period of
2.75 years.
13
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------------
NOTE 9 - STOCK OPTIONS (CONTINUED)
The following table sets forth additional information about stock options
outstanding at March 31, 2008:
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise Options
Prices Outstanding Life Price Exercisable
-------------------------------------------------------------------------------------------------------
$0.01-$0.30 9,355,768 5.68 years $ 0.12 7,855,768
VISIONETX, INC.
---------------
On August 16, 2007, the shareholders of VisioNetx, Inc. approved the adoption of
the 2007 Stock Incentive Plan to provide for the issuance of incentive stock
options and/or nonstatutory options to officers, directors, employees, and
consultants who provide services to VisioNetx. All options have an exercise
price equal to or higher than the fair market value of VisioNetx common stock on
the date the options were granted. Options generally vest over three years and
exercisable from five to ten years from the date of grant. The plan reserves 1
million shares of common stock.
A summary of the status of stock options issued by VisioNetx as of March 31,
2008 is presented in the following table.
2008
----------------------------------
Weighted
Number Average
of Exercise
Shares Price
----------------------------------
Outstanding at beginning of year 479,500 $0.10
Granted 96,000 $0.10
Exercised/Expired/Cancelled - $0.00
--------------
Outstanding at end of period 575,500 $0.10
==============
Exercisable at end of period 229,486 $0.10
==============
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes Merton option valuation model. The assumptions are
listed in the table below. Expected volatilities are based on the historical
volatility of the Company's stock. The risk-free rate for periods within the
expected life of the option is based on the U.S. Treasury yield curve in effect
at the time of grant.
2008
-------------
Weighted average fair value per option granted $ 0.04
Risk-free interest rate 3.45%
Expected dividend yield 0.00%
Expected lives 5.00
Expected volatility 134.64%
As of March 31, 2008 there was $16,934 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
plans. That cost is expected to be recognized over a weighted average period of
2 years.
The following table sets forth additional information about stock options
outstanding at March 31, 2008:
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise Options
Prices Outstanding Life Price Exercisable
----------------------------------------------------------------------------------------------------------
$ 0.10 575,000 7.67 years $ 0.10 229,486
14
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 10 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
For three months ended March 31, 2008 2007
--------------------------------------------------------------------------------
Numerator:
Net loss $ (405,439) $ (289,555)
Denominator:
Weighted average of common shares 65,286,213 63,038,781
Net loss per share - basic and diluted $ (0.006) $ (0.005)
As the Company incurred a net loss for the three months ended March 31, 2008,
the effect of dilutive securities totaling 3,124,853 equivalent shares were also
excluded from the calculation of diluted loss per share because their effect was
antidilutive.
The Company had no dilutive securities as of March 31, 2007. Stock options and
warrants to purchase approximately 14,582,436 shares of the Company's common
stocks were outstanding, but were not included in the computation of diluted net
loss per share for the three months ended March 31, 2007 because the exercise
price of the stock options and warrants was greater than the average share price
of the common shares, and, therefore, the effect would have been antidilutive.
NOTE 11 - MAJOR CUSTOMERS AND CREDIT CONCENTRATION
An independent sales representative accounted for $82,500, or 42.4%, of
IntelliNetx revenues for the three months ended March 31, 2008. During the three
months ended March 31, 2007, this sales representative accounted for revenues of
$818,535, or 69.2%, of IntelliNetx revenues.
The Company maintains cash deposits with major banks, which from time to time
may exceed federally insured limits. The Company periodically assesses the
financial condition of the institutions and believes that the risk of any loss
is minimal.
NOTE 12 - SEGMENT INFORMATION
The Company evaluates its reporting segments in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The Chief
Executive Officer has been identified as the Chief Operating Decision Maker as
defined by SFAS No. 131. The Chief Executive Officer allocates resources to each
segment based on their business prospects, competitive factors, net sales and
operating results.
The Company has three market-oriented operating segments: (i) IntelliNetx
division, (ii) OrthoNetx, Inc., and (iii) VisioNetx, Inc. The IntelliNetx
division markets patented medical devices that assist in the diagnosis of
dizziness and vertigo, and rehabilitate those in danger of falling as a result
of balance disorders. The OrthoNetx division markets patented medical devices
that mechanically induce new bone formation in patients with skeletal
deformities of the face, skull, jaws, extremities and dentition. The VisioNetx
division markets patented products that track and analyze human eye movements
for impairment screening. The Company also has other subsidiaries that do not
meet the quantitative thresholds of a reportable segment.
The Company reviews the operating companies' income to evaluate segment
performance and allocate resources. Operating companies' income for the
reportable segments excludes income taxes and amortization of goodwill.
Provision for income taxes is centrally managed at the corporate level and,
accordingly, such items are not presented by segment. The segments' accounting
policies are the same as those described in the summary of significant
accounting policies.
The Company does not track its assets by operating segments. Consequently, it is
not practical to show assets by operating segments.
15
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - SEGMENT INFORMATION (CONTINUED)
Summarized financial information of the Company's results by operating segment
is as follows:
THREE MONTHS ENDED
MARCH 31,
2008 2007
--------------------------------------------------------------------------------
Net Revenue to external customers:
INX $ 200,822 $1,119,546
ONX 18,766
VNX -- 4,400
---------- ----------
Consolidated Net Revenue to external customers $ 219,588 $1,123,946
========== ==========
Cost of Revenue:
INX $ 90,750 $ 226,585
ONX 39,312
VNX -- 1,869
---------- ----------
Consolidated Cost of Revenue $ 130,062 $ 228,454
========== ==========
Gross Margin:
INX $ 110,072 $ 892,961
ONX (20,546) --
VNX -- 2,531
---------- ----------
Consolidated Gross Margin $ 89,526 $ 895,492
========== ==========
Inter-segment transactions are recorded at cost. The margins reported reflect
only the direct controllable expenses of each line of business and do not
represent the actual margins for each operating segment because they do not
contain an allocation of product development, information technology, marketing
and promotion, stock-based compensation, and corporate and general and
administrative expenses incurred in support of the lines of business.
For Three Months Ended March 31, 2008 2007
--------------------------------------------------------------------------------
Total margin for reportable segments $ 89,526 $ 895,492
Corporate and general and administrative expenses (328,998) (1,039,407)
Stock option expenses (147,530) (139,077)
Impairment of goodwill 0 (362)
Interest and Other Expense (20,798) (9,662)
Interest and Other Income 1,338 4,261
--------------------------
Net loss before income taxes and minority interest $ (406,462) $ (288,755)
==========================
NOTE 13 - RELATED PARTY TRANSACTION
The Company's employees periodically pay business-related expenses using
personal funds. Until reimbursed, these expenses are recorded in "Accrued
Liabilities" and listed as "Related party payables" in the balance sheet details
above. At March 31, 2008 the company had a current related party payable to the
Company's CEO, in the amount of $24,952.
16
ACUNETX, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 14 - GUARANTEES AND PRODUCT WARRANTIES
The Company from time to time enters into certain types of contracts that
contingently require the Company to indemnify parties against third party
claims. These contracts primarily relate to: (i) divestiture agreements, under
which the Company may provide customary indemnifications to purchasers of the
Company's businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities, and other claims arising from the Company's use of the applicable
premises; and (iii) certain agreements with the Company's officers, directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship.
The terms of such obligations vary. Generally, a maximum obligation is not
explicitly stated. Because the obligated amounts of these types of agreements
often are not explicitly stated, the overall maximum amount of the obligations
cannot be reasonably estimated. Historically, the Company has not been obligated
to make significant payments for these obligations, and no liabilities have been
recorded for these obligations on its balance sheet as of March 31, 2008.
In general, the Company offers a one-year warranty for most of the products it
sells. To date, the Company has not incurred any material costs associated with
these warranties. The Company provides reserves for the estimated costs of
product warranties based on its historical experience of known product failure
rates, use of materials to repair or replace defective products and service
delivery costs incurred in correcting product failures. In addition, from time
to time, specific warranty accruals may be made if unforeseen technical problems
arise with specific products. The Company periodically assesses the adequacy of
its recorded warranty liabilities and adjusts the amounts as necessary.
The following table presents the changes in the Company's warranty reserve
during the first three months of 2008 and 2007:
For Three Months ended March 31, 2008 2007
---------------------------------------- --------- ---------
Beginning balance $ 11,339 $ 7,200
Provision for warranty (6,001) 2,249
Utilization of reserve - (1,800)
--------- ---------
Ending balance $ 5,338 $ 7,649
========= =========
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to March 31, 2008, the Company executed a promissory note for
$150,000 in favor of S&S Health Products, Inc. The note carries an interest rate
at 10% per annum and matures on April 1, 2011. In addition, the note provides
that S&S will have the right to purchase up to twenty (20) IntelliNetx I systems
and up to twenty IntelliNetx DX Screener systems at discounted prices for a
period of five years.
Subsequent to March 31, 2008, VisioNetx entered into a placement agent agreement
planning to raise at least $5 million through equity or debt financing.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Information in this Item 2, "Management's
Discussion and Analysis or Plan of Operation," and elsewhere in this 10-QSB that
does not consist of historical facts, are "forward-looking statements."
Statements accompanied or qualified by, or containing, words such as "may,"
"will," "should," "believes," "expects," "intends," "plans," "projects,"
"estimates," "predicts," "potential," "outlook," "forecast," "anticipates,"
"presume," and "assume" constitute forward-looking statements and, as such, are
not a guarantee of future performance. The statements involve factors, risks and
uncertainties, the impact or occurrence of which can cause actual results to
differ materially from the expected results described in such statements. Risks
and uncertainties can include, among others, fluctuations in general business
cycles and changing economic conditions; changing product demand and industry
capacity; increased competition and pricing pressures; advances in technology
that can reduce the demand for the Company's products, as well as other factors,
many or all of which may be beyond the Company's control. Consequently,
investors should not place undue reliance on forward-looking statements as
predictive of future results. The Company disclaims any obligation to release
publicly any updates or revisions to the forward-looking statements herein to
reflect any change in the Company's expectations with regard thereto, or any
changes in events, conditions or circumstances on which any such statement is
based.
BUSINESS OVERVIEW
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, included
elsewhere in this Quarterly Report on Form 10-QSB. Except for the historical
information contained in this report, the following discussion contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Quarterly Report on Form 10-QSB should be
read as being applicable to all related forward-looking statements wherever they
appear in this Quarterly Report on Form 10-QSB. The Company's actual results may
differ materially from the results discussed in the forward-looking statements,
as a result of certain factors including, but not limited to, those discussed
elsewhere in this Quarterly Report on Form 10-QSB.
In the first quarter of 2008, the VNG line of products accounted for 94.3% of
the Company's revenue. The balance of the revenue came from HawkEye sales and
other R&D projects. While the current products are being sold into a relatively
mature market, recent research has indicated that additional markets may be
suitable for the Company's lines, and the company will continue to explore those
opportunities with its distributors and partners.
Several ongoing initiatives are important to the Company's future success.
First, it established VisioNetx, Inc. which provides a better capitalization
structure for raising the funds necessary to commercialize its technology for
the detection of impairment in the workplace. Second, it licensed the
HawkEye(TM) eye observation and recording system from VisioNetx, which should
allow AcuNetx management to address this market and generate revenues from the
product. Third, it continues to pursue marketing and sales activities for its
IntelliNetx division, to take advantage of the growing global opportunity for
balance assessment and fall prevention in the elderly, which it believes has the
potential to develop into a substantial growth market.
18
In the first quarter of 2008 the company's Balance Wellness Screener was
introduced to the market place offering a low cost, `standard of care', product
for non-specialized healthcare physicians. This paradigm can open a
significantly larger customer base for the company's product, as it has a
potential domestic customer base of over 400,000 healthcare physicians, compared
to less then 50,000 of specialists for its current medical product line.
The Company believes that the OrthoNetx product line still has potential value
in its marketplace, and the relationship with Robinson MedSurg LLC is an
important step to maximize this opportunity.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
The first quarters of 2008 and 2007 represent the combined results of AcuNetx,
Inc. and its subsidiaries, OrthoNetx Inc. and VisioNetx Inc. One significant
aspect in the Company's year-to-year comparison is a change in revenue
recognition with regard to one of the company's key distributors. In the first
quarter of 2007, the Company sold its products directly to end customers and
paid the distributor sales commissions based on sales to these customers. Since
July of 2007, the Company sells its products directly to this distributor at
wholesale prices. This change results in lower revenues for the same unit volume
of sales, along with lower gross profits, as costs do not change.
Correspondingly, a decrease in commission expense occurs as the distributor is
no longer receiving commissions.
Revenues during the first quarter of 2008 were $219,588 compared to $1,123,946
for the corresponding period in 2007. System unit shipments decreased to 11
units in the first quarter from 32 units in the prior year as a result of two
significant factors: (i) the overall uncertainty with the domestic economy, and
(ii) the lack of adequate funds to market the company's products. Gross profit,
as a percentage of sales, decreased from 79.6% to 40.7%. Total operating
expenses decreased by $702,318, from $1,178,846 in the first quarter of 2007 to
$476,528 in the first quarter of 2008. Selling, general and administrative
expenses decreased from $1,039,407, in the first quarter of 2007, to $328,998 in
the first quarter of 2008. Net loss increased from $289,555($0.005 per share) in
the first quarter of 2007 to $405,439 ($0.006 per share) in the first quarter of
2008. Management believes that the Company's efforts to raise marketing capital
and the introduction of its Screener product should bring the company back on
track as in previous quarters.
In regards to the Company's subsidiaries, VisioNetx, Inc. is in discussions with
funding sources to secure the investment necessary to implement its business
plan, and OrthoNetx inventory is being delivered to Robinson MedSurg, LLC per
the distribution agreement between the companies.
The Company is distributing VNG products under the IntelliNetx brand through a
number of new channels. These sales should result in an improvement to the
bottom line as the company has negotiated a more favorable margin structure with
these channels. The company is working with all of its marketing channels to
formulate a consistent message to highlight its product and company strengths.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
19
MATERIAL COMMITMENTS
The Company has no material commitments.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2008, the Company had $66,487 in cash and cash equivalents,
$90,000 in restricted cash, $35,517 in net accounts receivable, and $146,961 in
inventory. Conversely, the Company had $1,281,896 of current liabilities, which
included accounts payable of $377,973. The Company also had accrued liabilities
of $823,448 and a $256,206 note payable. Long-term liabilities were $286,494. As
of March 31, 2008, AcuNetx had an accumulated deficit of $12,147,021.
AcuNetx has no plans for significant capital equipment expenditures for the
foreseeable future.
ITEM 3 - CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the Company's disclosure controls and procedures. Based upon
that evaluation, our CEO and CFO concluded that as of March 31, 2008 our
disclosure controls and procedures were effective in timely alerting them to the
material information relating to the Company (or the Company's consolidated
subsidiaries) required to be included in the Company's periodic filings with the
SEC, such that the information relating to the Company required to be disclosed
in SEC reports (i) is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and (ii) is accumulated and
communicated to the Company's management, including our CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure.
There has been no material change in our internal control over financial
reporting during the three months ended March 31, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In February 2008, the Company sold 215,000 units, each consisting of
one share of Common Stock and a warrant to purchase one share of Common Stock,
to a small group of private investors. The Company received gross proceeds of
$15,050.
The Company believes the offer and sale of the units was exempt from
the registration requirements of the Securities Act of 1933 by reason of Section
4(2) thereof and Regulation D promulgated thereunder.
20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS
31.1 Certification of the Company's Chief Executive Officer Pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
31.2 Certification of the Company's Acting Chief Financial Officer
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934
32.1 Certification of the Company's Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
32.2 Certification of the Company's Acting Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 15, 2008 By: /s/ Ronald A. Waldorf
--------------------- ---------------------
Ronald A. Waldorf, Chief Executive Officer
21