[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
11-2920559
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S
Employer Identification Number)
|
8000
Regency Pkwy., Cary, North Carolina
|
27518
|
(Address
of principal executive offices)
|
(Zip
Code)
|
PART
I. Financial
Information
|
Page
Number
|
Item
1. Financial Statements
|
|
Consolidated
balance sheets as of September 30, 2007 (unaudited) and December
31,
2006
|
3
|
Consolidated
statements of operations for the three and nine months ended September
30,
2007 and 2006 (unaudited)
|
4
|
Consolidated
statements of cash flows for the nine months ended September 30,
2007 and
2006 (unaudited)
|
5
|
Consolidated
statements of comprehensive loss for the three and nine months ended
September 30, 2007 and 2006 (unaudited)
|
6
|
Notes
to consolidated financial
statements (unaudited)
|
7
|
Item
2. Management’s Discussion
and
Analysis of Financial Condition and Results of Operations
|
15
|
Item
3. Quantitative
and
Qualitative Disclosures about Market Risk
|
24
|
Item
4. Controls
and
Procedures
|
24
|
PART
II. Other
Information
|
|
Item
1. Legal
Proceedings
|
24
|
Item
1A. Risk Factors
|
25
|
Item
2. Unregistered
Sales of
Equity Securities and Use of Proceeds
|
26
|
Item
3. Defaults
Upon Senior Securities
|
26
|
Item
4. Submission
of Matters to a Vote of Security Holders
|
26
|
Item
5. Other
Information
|
26
|
Item
6. Exhibits
|
26
|
SIGNATURE
|
27
|
September
30,
2007
|
December
31,
2006
|
|||||||
ASSETS
|
||||||||
Current assets: | ||||||||
Cash
and cash equivalents
|
$ | 17 | $ | 310 | ||||
Assets
of operations to be abandoned
|
78 | 80 | ||||||
Trade
accounts receivable, net
|
269 | 170 | ||||||
Notes
receivable
|
5 | -- | ||||||
Prepaid
expenses and other current assets
|
59 | 22 | ||||||
Total
current
assets
|
428
|
582
|
||||||
Property
and equipment,
net
|
20
|
15
|
||||||
Total
assets
|
$ |
448
|
$ |
597
|
||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Short-term
debt
|
$ |
813
|
$ |
2,899
|
||||
Accounts
payable
|
2,304
|
2,360
|
||||||
Accrued
expenses:
|
||||||||
Salaries,
wages, and related
items
|
1,025
|
1,012
|
||||||
Other
|
1,940
|
1,732
|
||||||
Liabilities
of operations to be
abandoned
|
451
|
435
|
||||||
Deferred
revenue
|
147
|
38
|
||||||
Total
current
liabilities
|
6,680
|
8,476
|
||||||
Non-current
liabilities
|
1,971
|
33
|
||||||
Total
liabilities
|
8,651
|
8,509
|
||||||
Stockholders' (deficit):
|
||||||||
Preferred
stock
|
--
|
--
|
||||||
Common
stock
|
41
|
35
|
||||||
Additional
paid-in
capital
|
228,063
|
226,407
|
||||||
Accumulated
deficit
|
(236,292 | ) | (234,345 | ) | ||||
Accumulated
other comprehensive
loss
|
(15 | ) | (9 | ) | ||||
Total
stockholders' (deficit)
|
(8,203 | ) | (7,912 | ) | ||||
Total
liabilities and
stockholders' (deficit)
|
$ |
448
|
$ |
597
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Revenue:
|
||||||||||||||||
Software
|
$ |
1
|
$ |
100
|
$ |
1
|
$ |
207
|
||||||||
Maintenance
|
84
|
23
|
202
|
101
|
||||||||||||
Services
|
302
|
125
|
732
|
541
|
||||||||||||
Total
operating
revenue
|
387
|
248
|
935
|
849
|
||||||||||||
Cost
of revenue
|
||||||||||||||||
Software
|
--
|
3
|
--
|
8
|
||||||||||||
Maintenance
|
94
|
50
|
201
|
163
|
||||||||||||
Services
|
211
|
135
|
427
|
429
|
||||||||||||
Total
cost of
revenue
|
305
|
188
|
628
|
600
|
||||||||||||
Gross
margin
|
82
|
60
|
307
|
249
|
||||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and
marketing
|
241
|
104
|
572
|
301
|
||||||||||||
Research
and product
development
|
217
|
150
|
475
|
393
|
||||||||||||
General
and
administrative
|
546
|
260
|
1,069
|
709
|
||||||||||||
(Gain)
on disposal of
asset
|
--
|
(23 | ) |
--
|
(24 | ) | ||||||||||
Total
operating
expenses
|
1,004
|
491
|
2,116
|
1,379
|
||||||||||||
Loss
from operations
|
(922 | ) | (431 | ) | (1,809 | ) | (1,130 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(64 | ) | (219 | ) | (186 | ) | (599 | ) | ||||||||
Other
income/(expense)
|
21
|
3
|
49
|
(9 | ) | |||||||||||
Loss
before provision for income taxes
|
(965 | ) | (647 | ) | (1,946 | ) | (1,738 | ) | ||||||||
Income
tax provision
|
1
|
--
|
1
|
--
|
||||||||||||
Net
loss
|
$ | (966 | ) | $ | (647 | ) | $ | (1,947 | ) | $ | (1,738 | ) | ||||
Net
loss per share applicable to common shareholders—basic and
diluted
|
$ | (0.02 | ) | $ | (1.46 | ) | $ | (0.06 | ) | $ | (3.62 | ) | ||||
Weighted
average common shares outstanding -- basic and
diluted
|
39,020
|
444
|
34,785
|
480
|
Nine
Months Ended September 30,
|
||||||||
2007
|
2006
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (1,947 | ) | $ | (1,738 | ) | ||
Adjustments
to reconcile net loss
to net cash used in operating activities:
|
||||||||
Depreciation
and
amortization
|
2
|
9
|
||||||
Stock
compensation expense
|
582 | -- | ||||||
Gain
on disposal of
assets
|
--
|
23
|
||||||
Changes
in assets and
liabilities, net of assets acquired andliabilities
assumed:
|
||||||||
Trade
accounts receivable and
related party receivables
|
(99 | ) | (135 | ) | ||||
Assets
and liabilities –
discontinued operations
|
18
|
(37 | ) | |||||
Prepaid
expenses and other
assets
|
(42 | ) |
23
|
|||||
Accounts
payable and accrued
expenses
|
(21 | ) |
648
|
|||||
Deferred
revenue
|
109
|
(32 | ) | |||||
Net
cash used in operating
activities
|
(1,398 | ) | (1,239 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchases
of
equipment
|
(7 | ) | (13 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from the issuance of
common stock
|
1,023
|
--
|
||||||
Borrowings
under credit facility,
term loans, notes payable
|
156
|
1,432
|
||||||
Repayments
of term loans, credit
facility and notes payable
|
(61 | ) | (105 | ) | ||||
Net
cash provided by financing
activities
|
1,118
|
1,327
|
||||||
Effect
of exchange rate changes on cash
|
(6 | ) | (2 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
(293 | ) |
73
|
|||||
Cash
and cash equivalents:
|
||||||||
Beginning
of
period
|
310
|
29
|
||||||
End
of period
|
$ |
17
|
$ |
102
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
loss
|
$ | (966 | ) | $ | (647 | ) | $ | (1,947 | ) | $ | (1,738 | ) | ||||
Other
comprehensive loss, net of tax:
|
||||||||||||||||
Foreign
currency translation adjustment
|
(6 | ) | (1 | ) | (6 | ) | (5 | ) | ||||||||
Comprehensive
loss
|
$ | (972 | ) | $ | (648 | ) | $ | (1,953 | ) | $ | (1,743 | ) |
Shares
|
||||
Outstanding
on January 1, 2007
|
45,315
|
|||
Granted
|
2,756,173
|
|||
Exercised
|
--
|
|||
Forfeited
|
(50 | ) | ||
Outstanding
on September 30, 2007
|
2,801,438
|
|||
Weighted
average exercise price of outstanding options
|
$ |
5.76
|
||
Shares
available for future grants on September 30, 2007
|
1,745,027
|
(dollars
in thousands)
|
September
30, 2007
|
December
31, 2006
|
||||||
Term
loan (a)
|
$ |
--
|
$ |
1,971
|
||||
Note
payable; related party (b)
|
9
|
9
|
||||||
Notes
payable (c)
|
804
|
919
|
||||||
$ |
813
|
$ |
2,899
|
(a)
|
In
October 2007, the Company, in conjunction with BluePhoenix Solutions,
the guarantor, retired the Note payable to Bank Hapoalim and entered
into
a new note in the principal amount of $1,021,000 maturing in December
2011. See Note 4. Long-term Debt and Note 10. Subsequent
Events.
|
(b)
|
From
time to time the Company entered into promissory notes with one of
the
Company's directors and the former Chief Information Officer, Anthony
Pizi. As of September 30, 2007, the Company is indebted to Mr. Pizi
in the
amount of $9,000. The notes bear interest at 12%
annum.
|
(c)
|
The
Company does not have a revolving credit facility and from time to
time
has issued a series of short-term promissory notes to private lenders,
which provide for short-term borrowings both unsecured and secured
by
accounts receivable. In addition, the Company has settled
certain litigation and agreed to issue a series of promissory notes
to
support its obligations in the aggregate principal amount of $124,000.
The
notes bear interest between 10% and 12% per
annum.
|
September
30,
|
||||||||
2007
|
2006
|
|||||||
Stock
options, common share equivalent
|
2,801,438
|
47,953
|
||||||
Warrants,
common share equivalent
|
300,100
|
193,761
|
||||||
Preferred
stock, common share equivalent
|
1,603,618
|
85,046
|
||||||
4,705,156
|
326,760
|
Three
Months Ended September 30, 2007
|
Three
Months Ended September 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
385
|
$ |
2
|
$ |
387
|
$ |
247
|
$ |
1
|
$ |
248
|
||||||||||||
Total
cost of revenue
|
305
|
--
|
305
|
188
|
--
|
188
|
||||||||||||||||||
Gross
margin
|
80
|
2
|
82
|
59
|
1
|
60
|
||||||||||||||||||
Total
operating expenses
|
961
|
43
|
1,004
|
488
|
26
|
514
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (881 | ) | $ | (41 | ) | $ | (922 | ) | $ | (429 | ) | $ | (25 | ) | $ | (454 | ) |
Nine
Months Ended September 30, 2007
|
Nine
Months Ended September 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
931
|
$ |
4
|
$ |
935
|
$ |
843
|
$ |
6
|
$ |
849
|
||||||||||||
Total
cost of revenue
|
628
|
--
|
628
|
600
|
--
|
600
|
||||||||||||||||||
Gross
margin (loss)
|
303
|
4
|
307
|
243
|
6
|
249
|
||||||||||||||||||
Total
operating expenses
|
2,021
|
95
|
2,116
|
1,332
|
71
|
1,403
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (1,718 | ) | $ | (91 | ) | $ | (1,809 | ) | $ | (1,089 | ) | $ | (65 | ) | $ | (1,154 | ) |
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Total
segment operating expenses
|
$ |
1,004
|
$ |
514
|
$ |
2,116
|
$ |
1,403
|
||||||||
(Gain)
on disposal of asset
|
--
|
(23 | ) |
--
|
(24 | ) | ||||||||||
Total
operating expenses
|
$ |
1,004
|
$ |
491
|
$ |
2,116
|
$ |
1,379
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Total
segment profitability (loss)
|
$ | (922 | ) | $ | (454 | ) | $ | (1,809 | ) | $ | (1,154 | ) | ||||
Gain
on disposal of asset
|
--
|
23
|
--
|
24
|
||||||||||||
Interest
and other income/(expense), net
|
(43 | ) | (216 | ) | (137 | ) | (608 | ) | ||||||||
Total
loss before income taxes
|
$ | (965 | ) | $ | (647 | ) | $ | (1,946 | ) | $ | (1,738 | ) |
September
30,
|
||||||||
2007
|
2006
|
|||||||
Desktop
Integration
|
$ |
20
|
$ |
14
|
||||
Messaging
and Application Engineering
|
--
|
--
|
||||||
Total
assets
|
$ |
20
|
$ |
14
|
|
·
|
We
had no software sales and only limited revenues which have been
insufficient to cover operating expenses, therefore, there is substantial
doubt as to whether we can continue as a going
concern;
|
|
·
|
We
have a history of losses and expect that we will continue to experience
losses at least through 2007;
|
|
·
|
We
require additional capital to fund our operations and funding may
not be
available or if available on terms that are
acceptable;
|
|
·
|
We
may sell additional securities from time to time that may result
in
subsequent dilution of our equity or impose covenants that we may
find
burdensome or difficult to meet;
|
|
·
|
We
depend on an unproven strategy for ongoing
revenue;
|
|
·
|
Economic
conditions could adversely affect our revenue growth and cause us not to
achieve desired revenue;
|
|
·
|
The
“penny stock rule” makes it cumbersome for brokers and dealers to trade in
our common stock, making the market for our common stock less liquid
which
could cause the price of our stock to
decline;
|
|
·
|
Because
we cannot accurately predict the amount and timing of individual
sales,
our quarterly operating results may vary significantly, which could
adversely impact our stock price;
|
|
·
|
Loss
of key personnel associated with Cicero® development could adversely
affect our business;
|
|
·
|
Different
competitive approaches or internally developed solutions to the same
business problem could delay or prevent adoption of
Cicero®;
|
|
·
|
Our
ability to compete may be subject to factors outside our
control;
|
|
·
|
The
markets for our products are characterized by rapidly changing
technologies, evolving industr standards, and frequent new product
introductions;
|
|
·
|
We
may face damage to the reputation of our software and a loss of revenue
if
our software products fail to perform as intended or contain significant
defects;
|
|
·
|
We
may be unable to enforce or defend our ownership and use of proprietary
and licensed technology;
|
|
·
|
Our
business may be adversely impacted if we do not provide professional
services to implement our
solutions;
|
|
·
|
Because
our software could interfere with the operations of customers, we
may be
subject to potential product liability and warranty claims by these
customers;
|
|
·
|
We
have not paid any cash dividends on our common stock and it is likely
that
no cash dividends will be paid in the future;
and
|
|
·
|
Provisions
of our charter and bylaws and Delaware law could deter takeover
attempts.
|
Three
Months Ended September 30, 2007
|
Three
Months Ended September 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
385
|
$ |
2
|
$ |
387
|
$ |
247
|
$ |
1
|
$ |
248
|
||||||||||||
Total
cost of revenue
|
305
|
--
|
305
|
188
|
--
|
188
|
||||||||||||||||||
Gross
margin
|
80
|
2
|
82
|
59
|
1
|
60
|
||||||||||||||||||
Total
operating expenses
|
961
|
43
|
1,004
|
488
|
26
|
514
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (881 | ) | $ | (41 | ) | $ | (922 | ) | $ | (429 | ) | $ | (25 | ) | $ | (454 | ) |
Nine
Months Ended September 30, 2007
|
Nine
Months Ended September 30, 2006
|
|||||||||||||||||||||||
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
Desktop
Integration
|
Messaging
and Application Engineering
|
Total
|
|||||||||||||||||||
Total
revenue
|
$ |
931
|
$ |
4
|
$ |
935
|
$ |
843
|
$ |
6
|
$ |
849
|
||||||||||||
Total
cost of revenue
|
628
|
--
|
628
|
600
|
--
|
600
|
||||||||||||||||||
Gross
margin (loss)
|
303
|
4
|
307
|
243
|
6
|
249
|
||||||||||||||||||
Total
operating expenses
|
2,021
|
95
|
2,116
|
1,332
|
71
|
1,403
|
||||||||||||||||||
Segment
profitability (loss)
|
$ | (1,718 | ) | $ | (91 | ) | $ | (1,809 | ) | $ | (1,089 | ) | $ | (65 | ) | $ | (1,154 | ) |
Exhibit
No.
|
Description
|
31.1
|
Certification
of Chief Executive Officer/Chief Financial Officer pursuant to Rule
13a-14(a) (filed herewith).
|
32.1
|
Certification
of John P. Broderick pursuant to 18 USC § 1350, as adopted pursuant to
§906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|