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, 2006
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) (Zip Code)
(770) 242-7566
(Issuer's telephone number)
Check 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 by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act).
YES |_| NO |X|
State 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 May 10, 2006
------------------- ------------
Common Stock, $.001 Par Value 4,032,310
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
SIMTROL, INC. AND SUBSIDIARIES
Form 10-QSB
Three Months Ended March 31, 2006
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet as of
March 31, 2006........................................... 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2006 and 2005............... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2006 and 2005............... 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis or Plan of
Operations............................................... 10
Item 3. Controls and Procedures.................................. 13
PART II.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds................................................. 14
Item 6. Exhibits................................................. 14
2
SIMTROL, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2006
(UNAUDITED)
ASSETS
Current assets:
Cash $ 144,840
Accounts receivable, net 14,125
Prepaid expenses and other assets 17,319
------------
Total current assets 176,284
Property and equipment, net 18,071
------------
Total assets $ 194,355
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable 163,473
Accrued expenses 25,044
Dividend payable on default of convertible preferred stock 640,516
Deferred revenues 7,485
------------
Total Current Liabilities 836,518
------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.00025 par value; 800,000 shares authorized;
450,000 shares of Series A Convertible Preferred Stock designated
and issued, 384,666 outstanding; liquidation value $1,153,998 96
Common stock, authorized 40,000,000 shares of
$.001 par value; 4,032,310 issued and outstanding 4,032
Additional paid-in capital 63,429,733
Accumulated deficit (64,076,024)
------------
Total stockholders' deficiency (642,163)
------------
Total liabilities and stockholders' deficiency $ 194,355
============
See notes to condensed consolidated financial statements.
3
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2006 2005
----------- -----------
Revenues:
Software licenses $ 22,310 $ 32,862
Service 17,698 20,333
----------- -----------
Total revenues 40,008 53,195
Cost of revenues
Service -- 3,738
----------- -----------
Total cost of revenues -- 3,738
----------- -----------
Gross profit 40,008 49,457
----------- -----------
Operating expenses:
Selling, general, and administrative 326,595 247,531
Research and development 123,372 132,741
----------- -----------
Total operating expenses 449,967 380,272
----------- -----------
Loss from operations (409,959) (330,815)
----------- -----------
Other income
Sale of intellectual property 250,000 --
Other income 171 276
----------- -----------
Total other income 250,171 276
----------- -----------
Net loss $ (159,788) $ (330,539)
Dividend on covenant default of convertible
preferred stock (269,266) --
----------- -----------
Net loss attributable to common shareholders $ (429,054) $ (330,539)
=========== ===========
Net loss per common share:
Basic and Diluted $ (0.11) $ (0.09)
=========== ===========
Weighted average shares outstanding
Basic and diluted 3,863,292 3,720,802
=========== ===========
See notes to condensed consolidated financial statements.
4
SIMTROL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
2006 2005
--------- ---------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net cash used in operating activities $(390,911) $(317,084)
--------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Deposit returned from cancelled offering (12,000) --
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of intellectual property 250,000 --
--------- ---------
Decrease in cash and cash equivalents (152,911) (317,084)
Cash and cash equivalents, beginning of the period 297,751 414,051
--------- ---------
Cash and cash equivalents, end of the period $ 144,840 $ 96,967
========= =========
Supplemental schedule of non-cash investing and financing activities:
Common stock issued for investor relations services performed $ -- $ 7,900
--------- ---------
Issuance of common stock to board members $ 10,100 $ --
--------- ---------
Dividend payable on covenant default of convertible preferred stock $ 269,266 $ --
--------- ---------
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, 2006 AND 2005
(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, 2006
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, 2005 and for each of the two years ended December 31, 2005
and 2004, which are included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2005 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.
Note 2 - Going Concern Uncertainty
As of March 31, 2006, the Company had cash of $144,840. The Company does not
have sufficient funds to support its operations 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 and OnGuard
product lines. During 2005, the Company issued $1,350,000 of convertible
preferred stock (see Note 5). During 2004, the Company issued $575,000 of
convertible debt and sold 915,104 shares of its common stock for aggregate
proceeds of $1,537,463. On February 15, 2006, the Company sold various patents
(see note 7). On February 15, 2006 the Company also formed a joint venture,
named Justice Digital Solutions, LLC ("JDS"), with Integrated Digital Systems,
LLC ("IDS"), a multifaceted integrator based in Livonia, Michigan to develop and
sell a judicial arraignment software solution based on the success of a
deployment in Oakland County, Michigan. However, there can be no assurance that
the Company will be successful in its attempts to develop and deploy its ONGOER
and OnGuard product lines, or that JDS will be successful in its attempts to
sell its judicial arraignment software, 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.
6
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.
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, 2006 March 31, 2005
-------------- --------------
Options 1,034,450 435,875
Warrants 4,937,880 2,792,436
Convertible Preferred Stock 1,538,664 --
-------------- --------------
Total 7,510,994 3,228,311
============== ==============
Accordingly, basic and diluted earnings per share are identical.
Stock Based Compensation
The Company implemented FAS 123R in the first quarter of 2006. The statement
requires companies to expense the value of employee stock options and similar
awards. Under FAS 123R, share-based payment 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. Compensation costs for awards that vest
will not be reversed if the awards expire without being exercised. Stock
compensation expense under FAS 123R was $58,099 during the three months ended
March 31, 2006. Of this total, $12,223 was classified as research and
development expense and $45,876 was classified as selling, general, and
administrative expense.
Under accounting provisions of FAS 123R, the Company's net loss to common
shareholders and net loss per common share would have been adjusted to the pro
forma amounts indicated below during the three months ended March 31, 2005.
Three Months Ended
March 31, 2005
==================
Net loss as reported ($330,539)
Less: stock-based employee compensation expense
determined under fair value-based methods for all
awards (53,033)
------------------
Pro forma net loss ($383,572)
==================
Net loss per share as reported-basic and diluted ($0.09)
Pro forma net loss per share- Basic and diluted ($0.10)
7
Pro forma Information
There were no options issued during the three months ended March 31, 2006. The
fair value for options issued during the three months ended March 31, 2005 were
estimated at the date of grant using a Black-Scholes option-pricing model to be
$25,000, with the following weighted-average assumptions.
Assumptions 2005
-------
Risk-free rate 4.75%
Annual rate of dividends 0
Volatility 77%
Average life 5 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.
New Accounting Pronouncements
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 did not have
a material effect on the Company's consolidated financial statements.
In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Errors
Corrections, a replacement of APB Opinion No. 20 and SFAS No. 3." This statement
applies to all voluntary changes in accounting principle, and changes the
requirements for accounting for and reporting of a change in accounting
principle. SFAS No. 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impractical. APB Opinion No. 20 previously required that most voluntary changes
in accounting principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
SFAS No. 154 improves financial reporting because its requirements enhance the
consistency of financial reporting between periods. During the reporting period,
the Company did not have any accounting changes or error corrections.
In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard 155 - Accounting for Certain Hybrid
Financial Instruments ("SFAS 155"), which eliminates the exemption from applying
SFAS 133 to interests in securitized financial assets so that similar
instruments are accounted for similarly regardless of the form of the
instruments. SFAS 155 also allows the election of fair value measurement at
acquisition, at issuance, or when a previously recognized financial instrument
is subject to a remeasurement event. Adoption is effective for all financial
instruments acquired or issued after the beginning of the first fiscal year that
begins after September 15, 2006. Early adoption is permitted. The adoption of
SFAS 155 is not expected to have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
8
In March 2006, the FASB issued Statement of Financial Accounting Standard 156 -
Accounting for Servicing of Financial Assets ("SFAS 156"), which requires all
separately recognized servicing assets and servicing liabilities be initially
measured at fair value. SFAS 156 permits, but does not require, the subsequent
measurement of servicing assets and servicing liabilities at fair value.
Adoption is required as of the beginning of the first fiscal year that begins
after September 15, 2006. Early adoption is permitted. The adoption of SFAS 156
is not expected to have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
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 2006 and 2005: its PC-based software products, ONGOER
and OnGuard, and its older proprietary hardware and software product, Omega.
Revenues from the sale of hardware and software are recognized upon the transfer
of title when shipped. Revenues on maintenance contracts are recognized ratably
over the term of the related sales contract. As of March 31, 2006, there was
$7,485 of deferred revenues.
Note 4 - Commitments and Contingencies
The Company is not currently involved in any legal proceedings.
Note 5 - Stockholders' Deficiency
During the three months ended March 31, 2005, the Company issued 10,000 shares
of common stock in exchange for investor relations services performed for the
Company by an investor relations consultant, valued at $7,900. This amount was
recorded as selling, general, and administrative expense.
During the three months ended March 31, 2006, the Company issued 15,290 shares
of stock valued at $10,100 to Board Members for attendance at meetings. This
amount was recorded as selling, general, and administrative expense.
All amounts were recorded at the fair value of the stock on the date of the
issuances.
During 2005, the Company issued 450,000 units of securities, with each unit
consisting of: one share of Series A Convertible Preferred Stock, a warrant to
purchase two shares of common stock at an exercise price of $1.00 per common
share expiring in five years, and a warrant to purchase two shares of common
stock at an exercise price of $1.25 per common share expiring in five years, for
total gross proceeds of $1,350,000 (net proceeds of $1,162,396 after offering
costs including placement fees). Terms of the Series A Convertible Preferred
Stock include the following:
o beginning the quarter ending December 31, 2005 and for every
subsequent quarter the Series A Preferred Stock is outstanding, if
the Company's net working capital (defined as current assets less
current liabilities) is less than twenty five per cent (25%) of the
total amount of gross proceeds raised in the Offering (defined as a
"Quarterly Default"), then for each Quarterly Default, the Holders
of the Series A Preferred Stock will receive additional shares of
Series A Preferred Stock equal to 25% of the number of shares of
Series A Preferred Stock held by the Holder at the time of the
Quarterly Default. The net working capital will be tested on a
quarterly basis, based on the Company's most recent Form 10-QSB or
Form 10-KSB or other appropriate filing. At March 31, 2006, the
Company failed to meet the net working capital test and a Quarterly
Default will exist upon the filing of this Form 10-QSB. As a result,
the holders of the Series A Preferred Stock as of March 31, 2006
will receive an additional 124,292 shares of Series A Preferred
Stock and, therefore, the Company recorded a dividend payable on the
covenant default of convertible preferred stock of $269,266 as of
March 31, 2006.
On February 22, 2006, two holders of Series A Preferred Stock of Simtrol, Inc.
(the "Company") elected to convert an aggregate of 65,334 shares of Series A
Preferred Stock to common stock of the Company, pursuant to the conversion terms
of the Series A Preferred Stock. On February 22, 2006, the Company issued an
aggregate of 261,336 shares of its common stock to the two shareholders upon the
surrender of their Series A Preferred Stock for conversion.
9
Note 6- Major Customers
Revenue from four customers comprised approximately $33,756 (84%) of
consolidated revenues for the three months ended March 31, 2006. At March 31,
2006, related accounts receivable of $8,228 from these customers comprised 58%
of consolidated receivables.
Revenue from four customers comprised approximately $50,485 (95%) of
consolidated revenues for the three months ended March 31, 2005.
Note 7 - Sale of Intellectual Property
On February 15, 2006, Simtrol, Inc. and Acacia Research Corporation ("Acacia")
entered into an agreement pursuant to which Simtrol sold to Acacia U.S. Patent
No(s). 5515099, 5526037, 5528289, 5568183, 5583565, and 55998209 (the
"Patents"). The patents relate primarily to remote control of video cameras and
other devices used in areas such as videoconferencing and surveillance systems.
The uses of the patented technology include improved remote management of video
camera functions such as pan, tilt, and focus, and improved device control in a
networked videoconferencing system.
Under the terms of the agreement, Simtrol received an initial payment of
$250,000 in March 2006 and will receive ongoing royalty payments of twenty
percent of the net proceeds received by Acacia in connection with (i) the
licensing by Acacia of the patented technology to third parties and (ii) any
successful patent infringement action commenced by Acacia with respect to the
Patents, provided that Acacia shall be entitled to recoup the initial payment
fully prior to making any royalty payments to Simtrol. This amount was recorded
as other income during the three months ended March 31, 2006.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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 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, 2005 should be read in conjunction with this
discussion and our consolidated financial statements.
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 products ONGOER and OnGuard, and our older proprietary
hardware and software product, Omega. Revenue on the sale of hardware is
recognized upon shipment. We recognize revenue from Ongoer software sales
upon shipment as we sell the product to audiovisual integrators. Revenue
on Omega maintenance contracts is recognized over the term of the related
contract.
10
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 Impairment 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.
FINANCIAL CONDITION
During the three months ended March 31, 2006, total assets decreased
approximately 43% to $194,355 from $338,638 at December 31, 2005. The decrease
in assets was primarily due to cash used to fund operations during the period.
Current liabilities increased $226,671 or 37%, due primarily to the recording of
a dividend payable on the covenant default of convertible preferred stock of
$269,266 as of March 31, 2006. See note 5 to the unaudited condensed
consolidated financial statements.
See note 2 to the unaudited condensed consolidated financial statements
regarding the Company's going concern uncertainty.
The Company does not have any material off-balance sheet arrangements.
Results of Operations
Revenues
Revenues were $40,008 and $53,195 for the three months ended March 31, 2006 and
2005, respectively. The 25% decrease for the three months ended March 31, 2006
was primarily due to decreased software revenues. The lower service revenues
were due mainly to the discontinuance of maintenance contracts by some of our
customers on our older Omega product.
Cost of Revenues and Gross Profit
Cost of revenues decreased $3,738, or 100%, for the three months ended March 31,
2006 compared to the three months ended March 31, 2005 due primarily to warranty
purchases made by us during the prior period for some third party equipment that
we had under service contracts with our customers. No such warranty purchases
were made during the current period.
Gross margins were approximately 100% and 93% for the three months ended March
31, 2006 and 2005, respectively.
Selling, General, and Administrative Expenses
11
Selling, general, and administrative expenses were $326,595 and $247,531 for the
three months ended March 31, 2006 and 2005, respectively. The increase in the
three-month period ended March 31, 2006 resulted primarily from increased
headcount as we hired additional personnel after March 31, 2005.
During the three months ended March 31, 2006 stock-based compensation of $35,776
was included in selling, general, and administrative expenses to record the
amortization of the estimated fair value of the portion of previously granted
stock options that vested during the current period.
During the three months ended March 31, 2006, the Company issued 15,290 shares
of stock valued at $10,100 to Board Members for attendance at meetings. This
amount was recorded as selling, general, and administrative expense.
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 were $123,372 and $132,741 for the three months ended March
31, 2006 and 2005, respectively. During the three months ended March 31, 2006
and 2005, we did not capitalize any software development costs related to new
products under development.
During the three months ended March 31, 2006 stock-based compensation of $12,223
was included in research and development expense to record the amortization of
the estimated fair value of the portion of previously granted stock options that
vested during the current period.
Other (Income)/Expense, Primarily Finance Charges
Other income of $250,171 for the three months ended March 31, 2006 consisted
primarily of the $250,000 we received from licensing our patent portfolio
related to our older videoconferencing technology. See note 7 to the unaudited
condensed consolidated financial statements.
Net Loss
Net loss for the three months ended March 31, 2006 was $159,788 compared to a
net loss of $330,539 for the three months ended March 31, 2005. The lower loss
during the current period was due primarily to the $250,000 received from the
licensing of our patent portfolio related to our older videoconferencing
technology. See note 7 to the unaudited condensed consolidated financial
statements.
LIQUIDITY AND SOURCES OF CAPITAL
General
As of March 31, 2006, we had cash of $144,840. 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 the continued development and deployment of our
ONGOER and OnGuard product lines. 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 registered public accountant's audit opinion states
that these matters have raised substantial doubt about our ability to continue
as a going concern for the year ended December 31, 2005.
12
We used $390,911 in cash from operating activities in the three months ended
March 31, 2006 due primarily to our net loss during the period of $159,788. We
used $317,084 in cash from operating activities in the three months ended March
31, 2005 primarily due to our loss of $330,539. The increase in cash used during
the current period was due mainly to the hiring of additional personnel after
March 31, 2005. Cash used in financing activities in the three months ended
March 31, 2006 of $12,000 was due to the return of a deposit received from a
potential investor in a cancelled offering at December 31, 2005. We received
$250,000 from investing activities during the three months ended March 31, 2006
for the sale of our patent technology related to our former videoconferencing
business. See note 7 to condensed consolidated financial statements.
We will require additional funding during the remainder of fiscal 2006 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, 2006. We used $390,911 cash in our operations for the three months
ended March 31, 2006.
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.
We expect to spend less than $50,000 for capital expenditures in the remainder
of fiscal 2006.
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 of and market our new ONGOER and OnGuard product
lines 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.
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. As of March 31, 2006, 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. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were effective.
In connection with its audit of our consolidated financial statements as of
December 31, 2005 and for the years ended December 31, 2004 and 2005, Marcum &
Kliegman LLP advised our management and Audit Committee that it had identified a
deficiency in internal controls, which was designated a "material weakness", as
defined below. The material weakness indicated that there was inadequate
segregation of duties within our accounting function.
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Subsequent to the 2004 audit the Company instituted additional controls
consisting of an increased level of Chief Executive Officer and Board of
Directors oversight. During the current period, management deemed these
additional mitigating controls to be effective in minimizing the risks
associated with the inadequate segregation of duties and management believes
there is a significant deficiency, rather than a material weakness, as defined
below, that results from inadequate segregation of duties at a detail level
within the accounting department.
A material weakness is a significant deficiency (or a combination of significant
deficiencies) that result in a more-than-remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
A significant deficiency is a control deficiency (or combination of internal
control deficiencies) that adversely affects the Company's ability to initiate,
authorize, record, process, or report external financial data reliably in
accordance with GAAP such that there is a more-than-remote likelihood that a
misstatement of the Company's annual or interim financial statements that is
more than inconsequential will not be prevented or detected. The standard
specifies that a misstatement is inconsequential if a reasonable person would
conclude, after considering the possibility of further undetected misstatements,
that the misstatement, either individually or when combined with other
misstatements, would clearly be immaterial to the financial statements. If a
reasonable person could not reach such a conclusion regarding a particular
misstatement, that misstatement would be more than inconsequential.
Part II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 22, 2006, two holders of Series A Preferred Stock of Simtrol, Inc.
(the "Company") elected to convert an aggregate of 65,334 shares of Series A
Preferred Stock to common stock of the Company, pursuant to the conversion terms
of the Series A Preferred Stock. On February 22, 2006, the Company issued an
aggregate of 261,336 shares of its common stock to the two shareholders upon the
surrender of their Series A Preferred Stock for conversion. These shares are
registered for resale under the Securities Act.
In March 2006, the Company issued 15,290 shares of stock to Board Members for
attendance at meetings.
The offer and sale of the shares 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 sales, the shares were acquired for
investment purposes and not with a view towards distribution and 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 6. EXHIBITS
The following exhibits are filed with or incorporated by reference into this
report. The exhibits which are denominated by an asterisk (*) were previously
filed as a part of, and are hereby incorporated by reference from either (i) the
Post-Effective Amendment No. 1 to the Company's Registration Statement on Form
S-18 (File No. 33-27040-D) (referred to as "S-18 No. 1") or (ii) the Company's
Registration Statement Form SB-2 (File No. 333-128420) (referred to as "SB-2").
Exhibit No. Description
3.1* Certificate of Incorporation as amended through April 22, 2005
(SB-2, Exhibit 3.1)
3.2* Amended Bylaws of the Company as presently in use (S-18 No. 1,
Exhibit 3.2)
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.
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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 15, 2006 /s/ Richard W. Egan
------------------------------------
Chief Executive Officer
(Principal executive officer)
/s/ Stephen N. Samp
------------------------------------
Chief Financial Officer
(Principal financial and
accounting officer)
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EXHIBIT INDEX
Exhibit No. Description
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.
16