Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 1-10927
SIMTROL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 58-2028246
(State of (I.R.S. Employer
incorporation) Identification No.)
2200 Norcross Parkway, Suite 255
Norcross, Georgia 30071
(Address of principal executive offices, including zip code)
(770) 242-7566
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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, and (2) has been subject to such filing requirements
for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Securities April 30, 2005
Common Stock, $.001 Par Value 3,722,914
Transitional Small Business Disclosure Format: YES |_| NO |X|
1
SIMTROL, INC. AND SUBSIDIARIES
Form 10-QSB
Quarter Ended March 31, 2005
Index
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet as of
March 31, 2005..................................................... 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2005 and 2004......................... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2005 and 2004......................... 5
Notes to Condensed Consolidated Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 10
Item 3. Controls and Procedures................................................. 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Purchases of Equity Securities............... 14
Item 6. Exhibits and Reports on Form 8-K....................................... 14
2
SIMTROL, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 96,967
Accounts receivable, net 24,222
Prepaid expenses and other assets 21,009
------------
Total current assets 142,198
Property and equipment, net 27,856
Other long-term assets 1,840
------------
Total assets $ 171,894
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable 178,961
Accrued expenses 42,308
Deferred revenues 4,167
------------
Total Current Liabilities 225,436
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.00025 par value; authorized
800,000 shares, none issued and outstanding --
Common stock, authorized 40,000,000 shares of
$.001 par value; 3,722,914 issued and outstanding 3,723
Additional paid-in capital 62,823,458
Accumulated deficit (62,880,723)
------------
Total stockholders' deficiency (53,542)
------------
Total liabilities and stockholders' deficiency $ 171,894
============
See notes to condensed consolidated financial statements
3
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2005 2004
----------- -----------
Revenues:
Software licenses $ 32,962 $ 25,816
Service 20,333 25,042
----------- -----------
Total revenues 53,195 50,858
Cost of revenues
Software licenses -- 70,522
Service 3,738 --
----------- -----------
Total cost of revenues 3,738 70,522
----------- -----------
Gross profit (loss) 49,457 (19,664)
Operating expenses:
Selling, general, and administrative 247,531 271,547
Research and development 132,741 107,349
----------- -----------
Total operating expenses 380,272 378,896
Loss from operations (330,815) (398,560)
Other income/(expenses)
Gain on debt extinguishment -- 254,302
Other income/(expense), primarily finance charges 276 (162,749)
----------- -----------
Total other income (expenses), net 276 91,553
Net loss $ (330,539) $ (307,007)
=========== ===========
Net loss per common share:
Basic and Diluted $ (0.09) $ (0.13)
Weighted average shares outstanding
Basic and diluted 3,720,802 2,336,494
=========== ===========
See notes to condensed consolidated financial statements.
4
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities (317,084) (392,565)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) on short-term credit facilities -- (1,200)
Net proceeds from convertible debt -- 479,000
Net proceeds from stock issuances -- 5,000
--------- ---------
Net cash provided by financing activities -- 482,800
Increase (decrease) in cash and cash equivalents (317,084) 90,235
Cash and cash equivalents, beginning of the period 414,051 3,998
--------- ---------
Cash and cash equivalents, end of the period $ 96,967 $ 94,233
========= =========
Supplemental schedule of non-cash investing and financing activities:
Issuance of stock warrants $ -- $ 192,602
--------- ---------
Beneficial conversion feature of convertible debt $ -- $ 127,242
--------- ---------
Common stock issued for investor relations services performed $ 7,900 $ --
--------- ---------
See notes to condensed consolidated financial statements
5
SIMTROL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
Note 1 - Nature of Operations and Basis of Presentation
Simtrol, Inc., formerly known as VSI Enterprises, Inc., was incorporated in
Delaware in September 1988 and, together with its wholly-owned subsidiaries (the
"Company"), develops, markets, and supports software-based audiovisual control
systems and videoconferencing products that operate on PC platforms.
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in conformity with accounting principles generally
accepted in the United States of America and the instructions of Form 10-QSB. It
is management's opinion that these statements include all adjustments,
consisting of only normal recurring adjustments necessary to present fairly the
financial position, results of operations, and cash flows as of March 31, 2005
and for all periods presented.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. It is
suggested that these unaudited condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and notes thereto
as of December 31, 2004 and for each of the two years ended December 31, 2004
and 2003, which are included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2004 filed with the Securities and Exchange
Commission.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
On May 7, 2004, the Company effected a 1:10 reverse split of the Company's
common stock. All share totals have been adjusted to reflect the 1:10 reverse
split for all periods presented.
Note 2 - Going Concern Uncertainty
As of March 31, 2005, the Company had cash and cash equivalents of $96,967. The
Company does not have sufficient funds for the next twelve (12) months and has
relied on periodic investments in the form of common stock and convertible debt
since the fourth quarter of 2001 to sustain its operations. The Company
currently requires substantial amounts of capital to fund current operations and
for the payment of past due obligations including operating expenses and the
continued development and deployment of its Ongoer product line. On February 4,
2004, the Company issued $575,000 of convertible debt (see Note 5) and continues
to attempt to raise capital. However, there can be no assurance that the Company
will be successful in its attempts to develop and deploy its Ongoer product
line, to generate positive cash flows or raise sufficient capital essential to
its survival. To the extent that the Company is unable to generate or raise the
necessary operating capital, it will become necessary to curtail operations.
Additionally, even if the Company does raise operating capital, there can be no
assurance that the net proceeds will be sufficient to enable it to develop its
business to a level where it will generate profits and positive cash flows. The
Company has a net stockholders' deficit as of March 31, 2005 of $53,542.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. However, the accompanying financial statements have been
prepared on a going concern basis, which contemplate the realization of assets
and satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments relating to the recoverability of the
recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
6
Note 3 - Selected Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Loss Per Share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", requires the presentation of basic and diluted earnings per share
("EPS"). Basic EPS is computed by dividing the loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS includes the potential dilution that could occur if options
or other contracts to issue common stock were exercised or converted. The
following equity securities are not reflected in diluted earnings per share
because their effects would be anti-dilutive.
March 31, 2005 March 31, 2004
--------- ---------
Options 435,875 137,525
Warrants 2,792,436 900,923
Convertible Debt -- 488,569
--------- ---------
Total 3,228,311 1,527,017
--------- ---------
Accordingly, basic and diluted earnings per share are identical.
Stock Based Compensation
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an amendment of FASB Statement No. 123" amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported results.
The Company continues to follow the pro-forma disclosures for stock-based
compensation as permitted in SFAS No. 123. The following table illustrates the
effect on net loss per share if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation:
Three Months Ended
March 31,
2005 2004
======================
Net loss as reported ($330,539) ($307,007)
Less: stock-based employee compensation expense
determined under fair value-based methods for all
awards (53,033) (7,789)
----------------------
Pro forma net loss ($383,572) ($314,796)
======================
Net loss per share as reported-basic and diluted ($ 0.09) ($ 0.13)
Pro forma net loss per share- Basic and diluted ($ 0.10) ($ 0.13)
--------------------------------------------------------------------------------
Pro forma Information
7
The fair value for options issued during the three months ended March 31, 2005
and 2004 were estimated at the date of grant using a Black-Scholes
option-pricing model to be $25,000 and $0, respectively, with the following
weighted-average assumptions.
Assumptions 2005 2004
------------------------
Risk-free rate 4.75% 4.00%
Annual rate of dividends 0 0
Volatility 77% 85%
Average life 5 years 7 years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
Company's employee stock options have characteristics significantly different
from those of traded options, and changes in the subjective input assumptions
can materially affect the fair value estimate.
The following summarizes the stock option transactions for the three months
ended March 31, 2005 and 2004:
Weighted
Average
Exercise
Options Price
Options outstanding at January 1, 2004 137,525 $ 13.20
Granted -- --
Exercised -- --
Terminated -- --
--------
Options outstanding at March 31, 2004 137,525 $ 13.20
========
Options outstanding at January 1, 2005 410,275 $ 5.66
Granted 50,000 $ 0.77
Exercised --
Terminated (24,400) $ 5.95
--------
Options outstanding at March 31, 2005 435,875 $ 5.08
========
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment." This
statement is a revision of SFAS Statement No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related implementation guidance. SFAS No. 123R addresses all
forms of share based payment ("SBP") awards including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. Under SFAS No. 123R, SBP awards result in a cost that will
be measured at fair value on the awards' grant date, based on the estimated
number of awards that are expected to vest. This statement is effective for
public entities that file as small business issuers - as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
8
The adoption of this pronouncement is not expected to have a material effect on
the Company's financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets." This Statement amends APB Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges occurring in
fiscal periods beginning after December 16, 2004. The provisions of SFAS No. 153
should be applied prospectively.
The adoption of this pronouncement is not expected to have a material effect on
the Company's financial statements.
Revenue Recognition
Revenues consist of the sale of software control devices, videoconferencing
systems and related maintenance contracts on these systems. The Company sold two
different products during 2005 and 2004: its PC-based software products, ONGOER
and OnGuard, and its older proprietary hardware and software product, Omega.
Revenue from the sale of hardware and software is recognized upon the transfer
of title when shipped. Revenue on maintenance contracts is recognized ratably
over the term of the related sales contract. As of March 31, 2005, there was
$4,167 of deferred revenues.
Note 4 - Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Note 5 - Convertible Debt
On February 4, 2004, the Company completed the sale of convertible notes with a
principal balance of $575,000 ("2004 Debt"), in a private placement to a limited
number of accredited investors, including one Board member who purchased
$15,000. The Company raised net proceeds of $479,000 from the sale (placement
fee of $96,000 was capitalized as financing costs) and the proceeds of the
offering were used to fund current operational and overhead expenses. The
interest rate of the notes was 10% per annum and the conversion price of the
notes was $2.00 per share for all principal and accrued interest. The due date
of the notes was August 4, 2004 and the notes were convertible to shares of
common stock at any time before that date.
In conjunction with the issuance of the 2004 Debt, the Company also issued
warrants to the noteholders to purchase an aggregate of 287,500 shares of common
stock with an exercise price of $2.00 per share (fair value of the warrants was
$91,202). Each warrant enabled the holder to purchase the same number of shares
as the holder would receive upon conversion of such holder's notes. The Company
also issued 169,000 warrants to Westminster Securities as a placement fee for
the financing (fair value of the Westminster warrants was $101,400). Noteholders
received additional warrants at the date of origination to purchase an aggregate
of 575,000 shares of stock (fair value of $179,789), which may only be exercised
in the event a holder actually elects to convert his or her notes into the
Company's common stock. The exercise price of the warrants is $2.00 per share of
common stock.
Associated with this debt, a beneficial conversion feature of $127,242 was
recorded to reflect the discount on the 2004 Debt based on the relative fair
values of the warrants and conversion feature of the 2004 Debt. For the three
months ended March 31, 2004, $72,815 was expensed as financing costs relating to
the amortization of the beneficial conversion feature and warrant value.
All the above debt discounts were amortized to financing costs over the term of
the 2004 Debt, except for the $179,789 attributed to the 575,000 warrants that
could be exercised in the event of a conversion of the 2004 Debt. In June 2004,
$525,000 of the 2004 Debt was converted into 271,409 shares of common stock. As
a result, the Company recorded $164,155 of warrant value as debt conversion
expense in June 2004. A total of $50,000 plus all applicable accrued interest
was repaid during June 2004 with proceeds from the sale of common stock.
Additionally, the $101,400 capitalized as a financing fee for the warrants
granted to Westminster Securities was amortized over the life of the 2004 Debt.
Approximately $33,800 of this amount was amortized as a financing expense in the
three months ended March 31, 2004.
9
During 2001, the Company issued $400,000 of convertible debt to two stockholders
("2001 Debt"). The 2001 Debt accrued interest at prime rate plus 1% (6.5% at the
time), was originally due February 7, 2002 and was collateralized by all of the
assets of the Company. In January 2004, the 2001 Debt was extended to December
31, 2004 and the debt holders agreed to convert all principal and interest to
common stock at the close of the private placement of equity securities.
Additionally, the Company agreed to issue the debt holders warrants to purchase
two shares of stock for each share of stock created by conversion of the 2001
Debt, contingent upon the conversion of the principal note and interest to
common stock.
Note 6 - Stockholders' Deficiency
During the three months ended March 31, 2004, the Company issued 2,604 shares of
its common stock for gross proceeds of $5,000 ($1.92 per share). Offering costs
were de minimis.
During the three months ended March 31, 2005, the Company issued 10,000 shares
of restricted common stock in exchange for investor relations services performed
for the Company by an investor relations consultant, valued at $7,900.
Note 7- Major Customers
Revenue from four customers comprised approximately $50,485 (95%) of
consolidated revenues for the three months ended March 31, 2005. At March 31,
2005, related accounts receivable from these customers comprised 100% of
consolidated receivables.
Revenue from three customers comprised approximately $50,858 (100%) of
consolidated revenues for the three months ended March 31, 2004.
Note 8 - Gain on Debt Extinguishment
A gain of $254,302 was recorded during the three months ended March 31, 2004 as
a result of the Company entering into various settlement agreements with
vendors. The gains were recorded at the time of the final payments under the
various agreements. No such settlements were recorded during the three months
ended March 31, 2005.
Note 9 - Subsequent Event
On May 9, 2005 the Board of Directors of the Company designated the preferences,
rights, and limitations of Series A Convertible Preferred Stock, of which up to
450,000 shares may be issued. Each share of Series A Convertible Preferred Stock
has a stated value of $3.00 and is convertible into four shares of common stock.
On May 10, 2005 the Company completed the sale of 90,667 units consisting of one
share of Series A Convertible Preferred Stock, a warrant to purchase one share
of common stock at an exercise price of $1.00 per share, and a warrant to
purchase one share of common stock at an exercise price of $1.25 per share. Net
proceeds to the Company were approximately $226,000 (offering costs of
approximately $46,000).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion highlights the material factors affecting our results
of operations and the significant changes in the balance sheet items. The notes
to our unaudited condensed consolidated financial statements included in this
report and the notes to our consolidated financial statements included in our
Form 10-KSB for the year ended December 31, 2004 should be read in conjunction
with this discussion and our consolidated financial statements.
10
Critical Accounting Policies
We prepare our unaudited condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America. As such, we are required to make certain estimates, judgments and
assumptions that we believe are reasonable based upon the information available.
These estimates and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. The significant accounting
policies which we believe are the most critical to aid in fully understanding
and evaluating our reported financial results include the following:
o Revenue recognition. Our revenue recognition policy is significant because
our revenue is a key component of our results of operations. In addition,
our revenue recognition determines the timing of certain expenses. We
follow very specific and detailed guidelines in measuring revenue;
however, certain judgments affect the application of our revenue policy.
Revenue results are difficult to predict, and any shortfall in revenue or
delay in recognizing revenue could cause our operating results to vary
significantly from quarter to quarter and could result in future operating
losses. Revenue consists of the sale of software control devices,
videoconferencing systems and related maintenance contracts on these
systems. We sold two different products during the presented periods: our
PC based software product Ongoer and our older proprietary hardware and
software product, Omega. Revenue on the sale of software and hardware is
recognized upon shipment. Revenue on maintenance contracts is recognized
ratably over the term of the related contract.
o Capitalized software research and development costs. Our policy on
capitalized software costs determines the timing of our recognition of
certain development costs. In addition, this policy determines whether the
cost is classified as development expense or capitalized. Software
development costs incurred after technological feasibility has been
established are capitalized and amortized, commencing with product
release, using the greater of the income forecast method or on a
straight-line basis over the useful life of the product. Management is
required to use professional judgment in determining whether development
costs meet the criteria for immediate expense or capitalization.
o Impairments of Assets/Investments. We record impairment losses on assets
and investments 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. Our cash flow estimates are based on historical results adjusted to
reflect our best estimate of future market and operating conditions. The
net carrying value of assets not recoverable is reduced to fair value. Our
estimates of fair value represent our best estimate based on industry
trends and reference to market rates and transactions.
Results of Operations
Revenues
Revenues were $53,195 and $50,858 for the three months ended March 31, 2005 and
2004, respectively. The 5% increase for the three months ended March 31, 2005
was primarily due to increased software revenues of $7,146, partially offset by
lower service revenues of $4,719. We discontinued selling our older Omega
platform in 2001 in order to concentrate resources on development and sale of
our new Ongoer(TM) and OnGuard software products. The lower Omega revenues were
due mainly to the discontinuance of maintenance contracts by many of our
customers.
Cost of Revenues and Gross Profit
Cost of revenues decreased $66,784, or 95%, for the three months ended March 31,
2005 compared to the three months ended March 31, 2004 due primarily to the
amortization of $69,406 of previously capitalized research and development
costs. All such capitalized costs were amortized as of March 31, 2004.
11
Gross margins were approximately 93% and (39%) for the three months ended March
31, 2005 and 2004, respectively. The increase resulted primarily from higher
software revenues in the current year and the amortization of capitalized
software costs, equal to $69,406 in the three months ended March 31, 2004.
Amortization of capitalized research and development software costs ended in
March 31, 2004.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were $247,531 and $271,547 for
the three months ended March 31, 2005 and 2004, respectively. The decrease in
the three-month period ended March 31, 2005 compared to the similar period in
2004 resulted primarily from lower auditing and accounting fees of $25,000 and
lower non-refundable investment banking fees of $13,000 incurred in the three
months ended March 31, 2004. The company filed all required SEC filings for 2003
during the quarter ended March 31, 2004 and engaged Westminster Securities to
assist in raising capital during 2004.
Research and Development Expenses
We charge research and development costs to expense as incurred until
technological feasibility of a software product has been established. Software
development costs incurred after technological feasibility has been established
are capitalized and amortized over the useful life of the product. Research and
development costs expensed were $132,741 and $107,349 for the three months ended
March 31, 2005 and 2004, respectively. During the three months ended March 31,
2005 and 2004, we did not capitalize any software development costs related to
new products under development.
Gain on Debt Extinguishments
A gain of $254,302 was recorded during the three months ended March 31, 2004 to
reflect the payoffs of various liabilities for less than their previously
recorded balances. No similar debt extinguishments took place during the three
months ended March 31, 2005.
Other (Income)/Expense, Primarily Finance Charges
Other (income) expense, primarily finance charges of ($276) and $162,749 for the
three months ended March 31, 2005 and 2004 consisted primarily of interest
earned on our cash balances during the three months ended March 31, 2005 and,
during the three months ended March 31, 2004, finance charges associated with
our issuance of convertible debt since the fourth quarter 2001 to fund our
operations. See note 5 to the unaudited condensed consolidated financial
statements. The interest expense in the prior year is due primarily to the
issuance of an additional $575,000 of convertible debt during the three months
ended March 31, 2004.
Net Loss
Net loss for the three months ended March 31, 2005 was $330,539 compared to a
net loss of $307,007 for the three months ended March 31, 2004. The higher loss
during the current period was due primarily to the gain of $254,302 recorded on
debt extinguishments during the three months ended March 31, 2004, which was
partially offset by higher other expense, primarily finance charges of $162,749
incurred during that period.
Financial Condition
During the quarter ended March 31, 2005, total assets decreased approximately
65% to $171,894 from $489,560 at December 31, 2004. This was primarily the
result of a decrease in cash during the quarter of $317,084 due to the net loss
during the quarter of $330,566.
Current liabilities increased $4,973 or 2%, due primarily to an increase in
accrued expenses at March 31, 2005.
12
Liquidity and Sources of Capital
General
As of March 31, 2005, we had cash and cash equivalents of $96,967. We do not
have sufficient funds to meet our cash flow requirements for the next twelve
(12) months. We have relied on periodic investments in the form of common stock
and convertible debt by certain of our existing stockholders since the fourth
quarter of 2001 to sustain our operations. We currently require substantial
amounts of capital to fund current operations and for the payment of past due
obligations including payroll and other operating expenses and the continued
development and deployment of our Ongoer product line. Due to recurring losses
from operations, an accumulated deficit, negative working capital and our
inability to date to obtain sufficient financing to support current and
anticipated levels of operations, our independent public accountant's audit
opinion states that these matters have raised substantial doubt about our
ability to continue as a going concern at December 31, 2004.
We used $317,084 in cash from operating activities in the three months ended
March 31, 2005 due primarily to our net loss during the period of $330,539. We
used $392,565 in cash from operating activities in the three months ended March
31, 2004 primarily due to our loss of $307,007, which included a gain on debt
extinguishments of $254,302 and the costs associated with filing of our overdue
financial filings with the SEC, discontinuing the previous year's deferral of a
portion of employees' salaries, and reducing accounts payable with proceeds of
the convertible debt issued during the three months ended March 31, 2004. Cash
provided by financing activities in the three months ended March 31, 2004
consisted primarily of $479,000 of net proceeds from convertible debt issued in
February 2004. .
We will require additional funding during the remainder of fiscal 2005 and
thereafter to fund our development and operating activities. This additional
funding could be in the form of the sale of assets, debt, equity, or a
combination of these financing methods. However, there can be no assurance that
we will be able to obtain such financing if and when needed, or that if
obtained, such financing will be sufficient or on terms and conditions
acceptable to us. If we are unable to obtain this additional funding, our
business, financial condition and results of operations would be adversely
affected. The accompanying unaudited condensed financial statements contemplate
our continuation as a going concern. However, we have sustained substantial
losses from operations in recent years, and such losses have continued through
March 31, 2005. We have also used, rather than provided, cash in our operations
for the three months ended March 31, 2005.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon our continued operations, which in turn is dependent
upon our ability to meet our financing requirements on a continuing basis and
attract additional financing. The unaudited condensed financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should we be unable to continue in existence.
In response to the matters described in the preceding paragraphs, we are
currently conducting a private placement of units consisting of shares of
convertible preferred stock and warrants to raise additional capital to support
our operations. On May 10, 2005, we completed the sale of $272,000 of securities
in this private placement. For additional information regarding the private
placement, see Part II, Item 5 of this report.
We expect to spend less than $25,000 for capital expenditures in the remainder
of fiscal 2005.
Forward-Looking Statements
Certain statements contained herein are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to financial results and plans for future sales and business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition, our ability
to complete the development and market our new Ongoer product line and other
uncertainties detailed from time to time in our Securities and Exchange
Commission filings, including our Annual Report on Form 10-KSB and our quarterly
reports on Form 10-QSB.
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ITEM 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports is
recorded, processed, summarized, and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
An evaluation was performed under the supervision and with the participation of
our management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2005. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that our
disclosure controls and procedures were effective. During the quarter ended
March 31, 2005, there were no changes in our internal control over financial
reporting that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
In connection with its audit of our consolidated financial statements as of and
for the year ended December 31, 2004, Marcum & Kliegman LLP advised our
management and Audit Committee that it had identified a deficiency in internal
controls, which was designated a "material weakness." The material weakness
indicated that there was inadequate segregation of duties within our accounting
function. We believe this resulted from continued cost cutting efforts, which
resulted in the termination of various accounting personnel during 2002 and
2003. Management believes that sufficient compensating controls have been
implemented to minimize the risks associated with this material weakness,
including additional Chief Executive Officer and Board of Directors oversight.
Part II
ITEM 2. CHANGES IN SECURITIES AND PURCHASES OF EQUITY SECURITIES
In January 2005, we issued 10,000 shares of restricted common stock in exchange
for investor relations services provided to us by an investor relations
consultant.
The offers and sales of the above-described securities were exempt from the
registration requirements of the Securities Act of 1933 (the "Act") pursuant to
Rule 506 and Section 4(2) of the Act. In connection with the offers and sales,
we did not conduct any general solicitation or advertising, and we complied with
the requirements of Regulation D relating to the restrictions on the
transferability of the shares issued.
ITEM 5. OTHER INFORMATION
In order to raise additional capital to support our operations, we are currently
conducting a private placement of a minimum of $250,000 and a maximum of
$1,250,000 of units consisting of one share of convertible preferred stock and
warrants to purchase one share of our common stock at an exercise price of $1.00
per share and one share of our common stock at an exercise price of $1.25 per
share. Each share of preferred stock has a stated value of $3.00 and is
convertible into shares of common stock of the Company at a conversion price of
$0.75 (resulting in each share being convertible into four shares of common
stock). A copy of the Certificate of Designations establishing the terms of the
preferred stock being sold in the private placement is attached hereto as
Exhibit 3.12.
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On May 10, 2005, we completed the sale of $272,000 of securities in this private
placement to seven accredited investors. We plan to conduct additional closings
in the event we receive additional subscriptions to purchase units in the
private placement.
Westminster Securities Corporation is acting as our placement agent in the
offering, and will receive a cash fee equal to 12% of the gross proceeds that we
sell in the private placement and warrants to purchase a number of shares of our
common stock equal to 12% of the number of shares of common stock underlying the
preferred stock and warrants that we sell in the private placement.
The offers and sales of the securities in the private placement are exempt from
the registration requirements of the Securities Act of 1933 (the "Act") pursuant
to Rule 506 and Section 4(2) of the Act. In connection with the offers and
sales, we will not conduct any general solicitation or advertising, and we will
comply with the requirements of Regulation D relating to the restrictions on the
transferability of the shares issued.
ITEM 6. EXHIBITS
(a) Exhibits. The following exhibits are filed with or incorporated by reference
into this report.
Exhibit No. Description
3.1 Certificate of Incorporation, including Certificate of Stock
Designation dated September 25, 1990, and amendments dated
December 26, 1990, August 19, 1991 and October 17, 1991
(incorporated herein by reference to Exhibit 3-1 of the
Post-Effective Amendment No. 3 to the Company's Registration
Statement on Form S-18 (File No. 33-27040-D))
3.2 Amended Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 of the Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-18 (File No.
33-27040-D))
3.3 Certificate of Amendment to Certificate of Incorporation filed
on February 10, 1993 (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1992)
3.6 Certificate of Amendment to Certificate of Incorporation filed
on February 13, 1995 (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994)
3.7 Certificate of Amendment to Certificate of Incorporation filed
on September 8, 1995 (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
3.9 Certificate of Amendment of Certificate of Incorporation filed
on January 13, 1999 (incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998, as amended)
3.10 Certificate of Amendment to Certificate of Incorporation filed
on June 28, 1999 (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999)
3.11 Certificate of Amendment to Certificate of Incorporation filed
on May 7, 2004
3.12 Certificate of Designation of Preferences, Rights, and
Limitations of Series A Convertible Preferred Stock
15
31.1 Certification of the Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a).
31.2 Certification of the Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a).
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIMTROL, INC.
Date: May 16, 2005 /s/ Richard W. Egan
-----------------------------------------
Chief Executive Officer
(Principal executive officer)
/s/ Stephen N. Samp
-----------------------------------------
Chief Financial Officer
(Principal financial and accounting officer)
16
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.12 Certificate of Designation of Preferences, Rights, and Limitations
of Series A Convertible Preferred Stock
31.1 Certification of the Chief Executive Officer pursuant to Exchange
Act Rule 13a-14(a).
31.2 Certification of the Chief Financial Officer pursuant to Exchange
Act Rule 13a-14(a).
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
17