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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 2002
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Commission File No. 1-10927
SIMTROL, INC.
A Delaware Corporation
(IRS Employer Identification No. 84-1104448)
2200 Norcross Parkway Suite 255
Norcross, Georgia 30071
(770) 242-7566
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, $.001 par value per share
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No[X]
The aggregate market value of the shares of common stock held by non-affiliates
of the registrant was approximately $4,004,000, based on the closing price of
the registrant's common stock as quoted on the Over The Counter Bulletin Board
on May 31, 2003. For the purposes of this response, officers, directors and
holders of 5% or more of the registrant's common stock are considered to be
affiliates of the registrant at that date.
The number of shares outstanding of the registrant's common stock as of May 31,
2003: 21,371,202 shares of $.001 par value common stock.
PART I
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
federal securities laws. Forward-looking statements are those that express
management's views of future events, developments, and trends. In some cases,
these statements may be identified by terminology such as "may," "will,"
"should," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of such terms and other
comparable expressions. Forward-looking statements include statements regarding
our anticipated or projected operating performance, financial results,
liquidity, and capital resources. These statements are based on management's
beliefs, assumptions, and expectations, which in turn are based on the
information currently available to management. Information contained in these
forward-looking statements is inherently uncertain, and our actual operating
performance, financial results, liquidity, and capital resources may differ
materially due to a number of factors, most of which are beyond our ability to
predict or control. Factors that may cause or contribute to such differences
include, but are not limited to, Simtrol's ability to compete successfully in
its industry and to continue to develop products for new and rapidly changing
markets. We also direct your attention to the risk factors affecting our
business that are discussed elsewhere in Item 7. Simtrol disclaims any
obligation to update any of the forward-looking statements contained in this
report to reflect any future events or developments. The following discussions
should be read in conjunction with our consolidated financial statements and the
notes included thereto in Item 8.
ITEM 1. BUSINESS.
General
Simtrol, Inc., ("Simtrol" or "the Company") an Atlanta-based holding company,
was incorporated under the laws of Delaware on September 19, 1988 as Fi-Tek III,
Inc. to raise capital and to seek out business opportunities in which to acquire
an interest. On August 21, 1990, we acquired 89.01% of the total common stock
and common stock equivalents then issued and outstanding of Videoconferencing
Systems, Inc., a Delaware corporation. Videoconferencing Systems was founded in
1985 through the acquisition of a portion of the assets of a Sprint Corporation
videoconferencing subsidiary. In December 1990, the name was changed from Fi-Tek
III, Inc. to VSI Enterprises, Inc. During the first half of 1991, we acquired
the remaining additional outstanding shares of common stock of Videoconferencing
Systems. In September 2001 the name was changed from VSI Enterprises, Inc. to
Simtrol, Inc.
We are a software technology company specializing in Audiovisual (AV) control.
Previously, we primarily designed, manufactured, marketed and supported
software-based command and control systems, including videoconferencing control
systems. We still provide maintenance support for certain of these systems. We
also conducted business under VSI Network Solutions, Inc., a majority owned
subsidiary, doing business as Eastern Telecom, which was engaged in the business
of marketing and selling telecommunications services and products. On February
18, 2000, we entered into a definitive agreement to sell Eastern Telecom, which
was completed on May 18, 2000.
Our principal executive offices and manufacturing facilities are located at 2200
Norcross Parkway, Suite 255, Norcross, Georgia 30071, and our telephone number
is (770) 242-7566.
Recent Developments
During 2002, we continued our previously announced plan to restructure our
company around the sales of the company's ONGOER PC-based control software. The
product was originally available for sale in April 2001 and represented a
departure for the company from its previous business of selling, installing, and
servicing its Omega videoconferencing control systems. The company no longer
sells videoconferencing systems directly, however, the company still maintains
service contracts with certain videoconferencing customers.
Due to the discontinuance of the company's older Omega product line of
videoconferencing systems and the slower than anticipated increase in sales of
ONGOER, in June 2002 we reduced our headcount by approximately 50% in
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order to conserve resources and focus our sales and development efforts
with select audiovisual integrators and on software licensing opportunities in
order to reduce our cash used from operations. The company also moved to
significantly smaller office space in September 2002 to reduce overhead
expenses.
These changes were necessary because during the year following the launch of
ONGOER 1.0, we learned that integrators would have to change the way they sell,
design, program, invoice, install, and support control system solutions should
they wish to use the PC-based ONGOER product. Despite obvious benefits to moving
to a PC-based solution, a complete overhaul of internal operations was simply
not a choice integrators were willing to make during an uncertain economic
climate.
Despite reduced headcount and major reduction in expenses, the company retained
its top software talent and focused on adding important software features to
enhance the product. During the second half of 2002, success on two important
fronts took place. First, the company announced its first licensing agreement
with Polycom, the world's largest videoconferencing company. Under its agreement
with Polycom, the company licenses certain ONGOER code for use in Polycom's
PC-based iPower videoconferencing platform. This software provides Polycom's
customers with control capabilities for three serial devices - a VCR, projector
and document camera. This partnership with Polycom has provided credibility to
the company's software through a proven market leader and has provided for
increased exposure to AV integrators interested in exploring PC-based solutions.
Second, the company has established a strong partnership with Telaid, a
Connecticut-based systems integration and service firm. Together, Telaid and
Simtrol have successfully deployed sixteen ONGOER units at Morgan Stanley. The
Morgan Stanley account was instrumental in shaping the company's second software
product - OnGuard monitoring software. Success at Polycom and Telaid has
provided the company with increased visibility in the AV integration community,
strong reference accounts and valuable feedback on additional software features
that will further enhance the ONGOER and OnGuard products.
The company issued additional convertible notes and private common stock during
the year to fund its operations, however, the company continues to use
significant cash in operations and requires additional debt or equity financing.
This additional financing could be in the form of the sale of assets, debt,
equity, or a combination of these financing methods. The amount of such funding
that may be required will depend primarily on how quickly sales of our ONGOER
product take place and to what extent we are able to work out our overdue
accounts payables with our various vendors. 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.
As of December 31, 2002, we had cash and cash equivalents of $1,307. We do not
have sufficient funds for the next 12 months and have relied on periodic
investments in the form of common stock and convertible debt by certain of our
existing shareholders since the fourth quarter of 2001. 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. Our inability
to pay our audit fees on a timely basis resulted in the delay of the audit's
completion for 2002. 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, 2002 and 2001.
Products
Audio Visual Control and Monitoring Software
Our core business is the design, production, and sale of device control software
named ONGOER(TM) and monitoring software named OnGuard. Together, these software
products allow a PC to manage, control and monitor a wide variety of devices.
ONGOER(TM) allows end users to operate, as a single system, a broad range of
electronic equipment such as projectors, VCRs, computers, sound systems,
lighting and temperature controls and other audio and video devices in a variety
of settings. This is a significant departure from the products currently
available on the A/V control systems market in that it is a software-based
system that can be installed to run on readily available third-party hardware
such as PCs. Major competitors' A/V control systems are based on proprietary
hardware components employing code written in
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proprietary scripting languages. In order to grow sales and to reach and
maintain profitability, management believes that we can better leverage our
technological and service competencies by marketing and selling ONGOER(TM)
through third-party resellers and system integrators specializing in the sale,
installation, support and service of A/V equipment, by licensing our software to
third parties in the audiovisual market, and by entering new markets for control
system technology.
ONGOER(TM) can be operated from any PC running Windows(R) 2000 or Windows(R) XP.
All interfaces, cables and cards and the hardware controller itself can be
purchased on the open market. With its unique open architecture, this software
delivers real-time control to audiovisual-system management. ONGOER's
software-based technology allows integrators to change configurations with ease
and any device that can connect to a PC can be controlled with ONGOER(TM).
We have developed OnROAD, ONGOER's remote operations, administration and
diagnostics utility, to facilitate detection and correction of system problems
from any remote location. Integrators will no longer have to travel to
customers' locations to fix minor problems. OnROAD allows integrators to
diagnose and repair the vast majority of system conflicts remotely. We provide
OnROAD as an integral part of the base software package and no additional
hardware or software is needed to perform these functions.
The PC controller is the heart of the ONGOER(TM) control system. The flexibility
of ONGOER(TM) lets integrators choose the controller: anything from a single-box
chassis to a multiprocessor server. There is no need to have an additional PC or
proprietary hardware controller because the PC can handle all of an AV system's
computing needs, as well as any additional software required for presentations
and other applications.
ONGOER(TM) not only makes the PC a control platform for numerous third-party
audiovisual devices, but its broad range of connection methods extends the
flexibility further. One may choose among numerous devices and connect via a
number of different methods.
End-users normally have contact with ONGOER only through the user interface.
ONGOER(TM) provides a great deal of flexibility in creating methods for human
interaction with the system. Because it relies on third-party hardware,
integrators can choose to incorporate a wide range of devices as user interfaces
such as inexpensive VGA monitors, sophisticated touch screens, personal digital
assistants like Palm Pilots, IPaqs, Visors, and even cellular phones. Graphical
user interfaces can be quickly and easily created with Microsoft(R) Visual
Basic. We also provide our OnLooker product as an integral part of the base
software package. OnLooker includes a library of artwork and customized ActiveX
controls to allow integrators to expedite the user interface development
process.
OnGuard is server-based management and monitoring software. The OnGuard Server
connects via standard TCP/IP networking to a set of ONGOER controllers to
monitor and control devices at remote locations.
OnGuard displays information about device health and status via a standard,
web-based browser interface. Technicians can log in from any place at any time
using standard web browsers to view the entire device control network at a
glance.
Proprietary Technology
Audio Visual Control Systems
ONGOER(TM) is PC-based general-purpose control software running as a system
service on a Windows 2000 or XP platform. ONGOER is capable of controlling any
equipment using a variety of interfaces, including serial, infrared, contact
closure, and others. PCI and AGP cards and Ethernet or USB interfaces may be
utilized to create connectivity to external equipment. Commodity, off-the-shelf
PC hardware is leveraged to create high quality, affordable solutions.
Custom user interfaces may be quickly generated in Visual Basic to assume any
form or function desired. Static or semi-static user interfaces may be
pre-packaged in kit form for mass consumption. Drag and drop "Wizard"
configuration software will be written to make custom user interface creation
accessible to novice programmers.
ONGOER uses a protocol called GoTalk over TCP/IP for command and control
signaling. Technicians can connect to machines and use web-based remote
diagnostics software called OnROAD to solve problems remotely. User
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interfaces can be distributed via standard, familiar PC networking hardware
and software. Powerful monitoring software uses the TCP/IP infrastructure and
GoTalk to offer remote monitoring and management capability.
We regard our ONGOER(TM) software as proprietary and have implemented protective
measures of both a legal (copyright) and practical nature. We derive
considerable practical protection by supplying and licensing only a
non-modifiable run-time version to our customers and keeping confidential all
versions that can be modified. By licensing the software rather than
transferring title, we in most cases have been able to incorporate restrictions
in the licensing agreements, which impose limitations on the disclosure and
transferability of the software. No determination has been made as to the legal
or practical enforceability of these restrictions, or the extent of customer
liability for violations.
Product Development Strategies
We believe that the AV world is converging with the information technology (IT)
world where all devices will have to interconnect. Like PC's and servers, we
believe IT departments will demand AV products (projectors, audio processors,
video codecs, video switchers, cameras, electronic whiteboards, etc.) be
accessible "nodes" on a corporate network, where they can be controlled, managed
and monitored from centralized and/or remote locations. ONGOER and OnGuard
install on PC's and servers and support a product architecture that allows any
device connected to them to be accessible on an IP network.
Two major efforts are underway to increase the value of the ONGOER and OnGuard
software products. The first effort involves an advanced configuration wizard
(dubbed "CWIZ") that will allow integrators to rapidly build user interfaces for
use in ONGOER and OnGuard solution deployments. Currently, user interfaces for
ONGOER and OnGuard solutions are developed using Microsoft's Visual Basic
programming language. While the company will continue to support this
environment, CWIZ is a simple utility that does not require programming
knowledge of Visual Basic. Release 1.0 of CWIZ is scheduled for June 2003. A
formal product name will be announced upon release of 1.0 version software.
The second effort involves the anticipated June 2003 release of a server version
of OnGuard. The current OnGuard product was developed as an application and did
not support a server-based architecture. The engineering plan for the new
OnGuard server product features web client java applet technology in addition to
IP data collection, data forwarding, and configuration components.
Once established in the A/V control systems market, we envision developing
additional applications for other control system markets, including process
control applications in manufacturing environments and the burgeoning home
entertainment market.
Markets
Audio Visual Control Systems
Marketing and selling ONGOER(TM) successfully requires partnerships with
integrators and product companies alike. A sample of some of our partners that
support our technology as potential solutions to their clients:
IBM Global Services - the largest systems integration firm in the world
according to the VARBusiness 500.
Telaid - a national A/V integrator
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Glovicom - a Belgium-based integrator and technology company
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Polycom - the world's largest videoconferencing company
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SMART Technologies - the market leader in electronic whiteboard products
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End user customers of our technology include Fortune 1000 companies, agencies of
state, local and federal governments, and health care facilities. They include
Morgan Stanley, Bank of America, Boeing, Lockheed Martin, Duracell, BellSouth,
and Johnson & Johnson.
Competition
Audio Visual Control Systems
Within the A/V control system market, we primarily compete with two companies,
both of which have significantly greater resources and market share. Both
companies offer control solutions based on proprietary hardware and software. We
offer control solutions utilizing open PC technology.
Our two major competitors in the A/V control systems market are AMX and
Crestron, who combined currently have close to 100% of the sales in this market.
AMX, headquartered in Richardson, Texas, was established in 1982. This publicly
traded company employs about 400 people, with dealers and distributors in 40
countries. AMX has a strong foothold in Fortune 500 companies. Typical AMX
applications include control of devices in corporate boardrooms, meeting
facilities, professional sporting arenas, museums, hospital operating rooms,
transportation systems, and schools.
Headquartered in Rockleigh, New Jersey, Crestron designs and manufactures
control and automation systems for corporate, industrial, educational, and
residential markets.
Both Crestron and AMX offer hardware-based control systems, the cores of which
are proprietary controllers fitted with proprietary cards and connectors
manufactured by or for them, and running proprietary operating systems. These
proprietary controllers communicate with controlled devices by means of code
written in proprietary languages (each company has developed their own).
Integrators who re-sell systems from each of these companies must send their
technical personnel to training courses offered by the companies themselves and
by several independent organizations.
Because ONGOER(TM) is a software-based control system designed to run on
commodity hardware, we believe we have several advantages over AMX and Crestron.
The PC industry is a vast marketplace with enormous economies of scale. Computer
hardware including touch screens, wireless Smart Displays, and serial ports are
extremely powerful and inexpensive. Innovative and wireless network-enabled
devices are regularly introduced into the mass PC market. There are advantages
for end customers in familiarity and cost compared to proprietary,
hardware-based control systems.
Many end customers also strive for a unified collaboration/control solution,
such as the combination of Polycom iPower and Simtrol ONGOER, or the combination
of a SMART Display and Simtrol ONGOER. When the PC is already part of an A/V
room, there are even more compelling cost advantages to adding ONGOER software
to the existing PC and existing display.
End customers are also demanding a new breed of proactively monitored control
solutions. Traditional control systems companies are reacting by introducing
PC-like services and interfaces to PCs and innovative PC wireless Smart
Displays. These PC-like services cannot compete in terms of price and
performance with the much larger PC marketplace.
Traditional control systems position themselves to be the central technology and
view the PC as an "important device." Simtrol believes the PC to be the central
technology and view traditional hardware control boxes as a declining
technology.
Research And Development
Our product engineering, including costs associated with design and
configuration of fully developed Simtrol systems for particular customer
applications is accounted for in our financial statements as research and
development expenses. During the year ended December 31, 2002 our expenditures
for research and development of new products or new components for our ONGOER
product totaled $428,810, a decrease of 53% from the total expenditures of
$919,946 in 2001, which included $122,875 of costs capitalized related to the
development of ONGOER during that year prior to
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the first shipment of the product in April 2001. During the current fiscal
year, we decreased our research and development expenses due principally to
business conditions.
Employees
As of May 31, 2003, we employed 8 persons full time, including two executive
officers. Of the full-time employees who were not executive officers, four were
engaged in research and development, one in service, and one in information
systems. Employee relations are considered good and we have no collective
bargaining contracts covering any of our employees.
Executive Officers
The executive officers of the Company are as follows:
Name Age Position Held
Richard W. Egan 38 Chief Executive Officer
Stephen N. Samp 38 Chief Financial Officer and Secretary
Executive officers are chosen by and serve at the discretion of our
Board of Directors. Executive officers will devote their full time to our
business and affairs.
Richard W. Egan. Mr. Egan has served as a director and our Chief
Executive Officer since May 18, 2000. Mr. Egan joined us in June 1995 and served
as National Account Manager until July 1996 when he took over the position of
Regional Sales Director. From February 1998 to June 1999, he served as Executive
Vice President of Sales. In June 1999, he was appointed President of Simtrol,
Inc. Mr. Egan is a graduate of the Georgia Institute of Technology with a degree
in industrial and systems engineering.
Stephen N. Samp. Mr. Samp joined us in April 2002 as Chief Financial
Officer and Secretary. From February 2001 until March 2002 he served as an
independent financial consultant. From March 1998 to February 2001 he served as
Vice President, Chief Financial Officer and Secretary of eOn Communications
(NASDAQ:EONC), a provider of unified voice, e-mail, and Web-based communications
systems and software. From June 1995 to February 1998, he served as Vice
President, Corporate Controller and Chief Accounting Officer of Guardsmark,
Inc., a private security services firm. Mr. Samp received an M.B.A. from The
Wharton School of the University of Pennsylvania and a B.S. from The Ohio State
University.
ITEM 2. PROPERTIES.
We maintain our executive and sales offices, as well as our production
facilities, in 6,400 square feet of leased office and warehouse space in
Norcross, Georgia, under a three-year lease, which expires in August 2005. We
moved to this facility from our former facility in Norcross, Georgia in
September 2002.
ITEM 3. LEGAL PROCEEDINGS.
In November 2000 we were named as a defendant in a lawsuit filed by the
bankruptcy trustee of VSI Network Services, Inc., a subsidiary of ours that
filed for Chapter 7 bankruptcy in 1999. This lawsuit, filed in the Northern
District of Georgia, Atlanta Division was for an accounting and to seek recovery
of alleged preferential transfers of funds. The lawsuit was seeking to recover
approximately $740,000 in alleged preference payments from us. On September 24,
2001, this lawsuit was settled by agreeing to pay $32,000 to the bankruptcy
trustee. This action has been dismissed and we completed payments to the trustee
in 2002.
We are 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 our position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded on the Pink Sheets under the symbol "SMOL.PK"
effective May 23, 2003. Our common stock had previously been traded on the OTC
Bulletin Board under the symbol "SMOL" and prior to that under the symbol "VSIN"
until September 30, 2001 at which time we changed our name to Simtrol, Inc.
Previous to this our common stock had been traded on the Boston Stock Exchange
under the symbol "VSI" from November 1991 until February 18, 1998, when we
voluntarily delisted from the exchange. The common stock was quoted on the
Nasdaq SmallCap Market from February 28, 1992 through September 22, 1999.
The following table sets forth the quarterly high and low bid quotations per
share of common stock on the OTC Bulletin Board as reported for the periods
indicated. These prices also represent inter-dealer quotations without retail
mark-ups, markdowns, or commissions and may not necessarily represent actual
transactions.
HIGH LOW
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FISCAL YEAR ENDED DECEMBER 31, 2001
First Quarter $ 4.50 $ 0.94
Second Quarter 2.10 1.02
Third Quarter 1.90 0.65
Fourth Quarter 0.90 0.46
FISCAL YEAR ENDED DECEMBER 31, 2002
First Quarter $ 1.01 $ 0.46
Second Quarter 0.66 0.15
Third Quarter 0.28 0.08
Fourth Quarter 0.33 0.08
As of May 12, 2003, we had approximately 578 holders of record of common stock
and in excess of 4,200 beneficial holders of Simtrol common shares.
We have never paid cash dividends on our common stock and have no plans to pay
cash dividends in the foreseeable future. The policy of our Board of Directors
is to retain all available earnings for use in the operation and expansion of
our business. Whether dividends may be paid on the Common Shares in the future
will depend upon our earnings, capital requirements, financial condition, prior
rights of the preferred stockholders, and other relevant factors.
Following are the securities authorized for issuance under equity compensation
plans. All remaining securities available for further issuance are from the 2002
Stock Option Plan approved by shareholders of the company on June 12, 2002.
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Equity Compensation Plan Information
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
Equity compensation plans
approved by security
holders 974,500 $1.76 2,160,000
Equity compensation plans
not approved by security
holders 0 0 0
Total 974,500 $1.76 2,160,000
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the five years ended December 31,
2002, 2001, 2000, 1999, and 1998 are derived from our consolidated financial
statements. Operations of Integrated Network Services are included in
discontinued operations as the subsidiary was closed in December 1998.
Information for the years ended December 31, 2000, 1999, and 1998 includes
Eastern Telecom, which was acquired in October 1996. We sold Eastern Telecom on
May 18, 2000; therefore, its results for each year listed below are also stated
as discontinued operations. See Note C to the consolidated financial statements.
Information for the years ended December 31, 2002, 2001, 2000, 1999 and 1998
includes VSI Solutions Inc., which was acquired in April 1995. The data should
be read in conjunction with the consolidated financial statements, related notes
and other financial information included herein.
Year Ended December 31,
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2002 2001 2000 1999 1998
------------- ---------------------------------------------------------
(In thousands, except per share data)
STATEMENTS OF OPERATIONS DATA:
Revenue $ 1,294 $ 1,899 $ 4,041 $ 7,132 $ 13,574
Cost of revenues 1,162 1,312 2,309 3,716 12,243
---------- ---------- ---------- ------------- -----------
Gross Profit 132 587 1,732 3,416 1,331
Operating and other expenses 2,571 7,055 4,044 5,936 9,558
---------- ---------- ---------- ------------- -----------
Net loss from continuing operations
before taxes
(2,439)(1) (6,468)(2) (2,312) (2,520) (8,227)(3)
Income tax benefit - - 325 - -
Net (loss) from continuing
operations (2,439) (6,468) (1,987) (2,520) (5,937)
Income (loss) from discontinued
operations - - 456 (320) (8,709)(3)
Gain on extinguishments of debt 149 - - - -
---------- ---------- ---------- ------------- -----------
Net loss $ (2,290) $ (6,468) $ (1,531) $ (2,840) $ (16,936)
========== ========== ========== ============= ===========
Net loss per share from:
Continuing operations $ (0.15) $ (0.42) $ (0.14) $ (0.20) $ (0.69)
Gain on Extinguishment of debt 0.01 - - - -
Discontinued operations 0.00 0.00 0.03 (0.03) (0.73)
---------- ---------- ---------- ------------- -----------
$ (0.14) $ (0.42) $ (0.11) $ (0.23) $ (1.42)
====== ====== ====== ============= ===========
December 31,
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2002 2001 2000 1999 1998
---------------------------------------- ---------------------------
(In thousands)
BALANCE SHEET DATA:
Working capital (deficit) $ (2,787) $ (1,591) $ 993 $ (951) $ (49)
Total assets 612 1,711 7,234 4,911 8,275
Long-term debt 134 29 42 - 1,106
Stockholders' equity (deficit) (2,416) (764) 5,487 (1,197) 1,003
(1) The Company took a non-cash and non-recurring write-down of its inventory
for $0.3 million in December 2002 to reflect the obsolescence of its Omega
inventories.
(2) The Company took a non-cash and non-recurring write-down of its investments
of $3.4 million in 2001. The write-down included the value of its
investment in the PentaStar Communications Inc. common shares of $1.1
million and the investment of its interest in ACIS, Inc. of $2.3 million.
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(3) The Company took a non-cash and non-recurring charge of approximately $10.3
million in 1998. The charge included: the write-down of obsolete or
slow-moving videoconferencing and demonstration inventory ($1.88 million);
the loss from the sale of investments in two companies ($450,000); a
write-down of capitalized software development costs ($180,000); and the
write-off of most of the goodwill from the acquisitions of VSI Europe in
1992 and Eastern Telecom in 1996 ($7.76 million).
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Form 10-K.
Forward-Looking Statements
Certain statements contained in this filing and in the documents incorporated by
reference 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 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. The words "may," "would," "could," "believe," "intend," "expect,"
"estimates," "anticipates," "intend," and similar expressions and variations
thereof are intended to identify forward-looking statements. Potential risks and
uncertainties include, but are not limited to, economic conditions, competition
and other uncertainties detailed from time-to-time in the Company's Securities
and Exchange Commission filings.
Overview
Simtrol, Inc. is an Atlanta-based holding company. We are a software technology
company specializing in Audio/Visual (AV) control in which we design,
manufacture, market, service and support our Ongoer software control system
designed to run on third-party hardware. Previously, our core business was the
design, manufacture, marketing and servicing of software based command and
control systems, including videoconferencing control systems through our wholly
owned subsidiary, Videoconferencing Systems, Inc. We continue to service the
videoconferencing segment of our business but have discontinued selling to this
market. In addition, we resold voice and data services and equipment on behalf
of large telecommunications companies, through our majority-owned subsidiary,
VSI Network Solutions, Inc., doing business as Eastern Telecom. We sold Eastern
Telecom to PentaStar Communications, Inc.; a Denver, Colorado based
communications services agent on May 18, 2000. The consolidated statements of
operations have been adjusted to reflect the discontinuance of Eastern Telecom's
operations.
Our command and control solutions allow end users to operate, as a single
system, a broad range of electronic equipment such as projectors, VCRs,
computers, sound systems, lighting and temperature controls and other
audio/video devices in a variety of settings. A typical customer is a large,
multi-site organization that utilizes sophisticated audio, video and
communications network technologies that require complex command and control
solutions. These solutions can be used in a variety of settings, including
corporate meetings and conferences, distance learning and judicial arraignment
systems. These customers also require superior after-the-sale service.
Historically, we have utilized a direct sales model. However, in order to
attempt to grow sales and to reach and maintain profitability, management
believes that we can better leverage our technological and service competencies
by marketing and selling our products through third party resellers and system
integrators, who specialize in the sale, installation, support and service of
audio/visual equipment, and by entering new markets for our control system
technology.
During 2000, we undertook a restructuring of our business operations and balance
sheet that are intended to achieve profitable operations and provide positive
operating cash flows. As part of this restructuring, we raised additional equity
capital and paid off our debt holders. This restructuring included raising
additional equity capital through the private sale of common stock and
exchanging our common stock for shares of Eastern Telecom held by its minority
interest holders, restructuring and then subsequently retiring our debt, selling
non-strategic assets and aggressively managing accounts receivable and
inventory.
These restructuring initiatives have enabled us to reposition our product line
and to expand our presence in the audio/visual command and control systems
market. This market, which to some degree overlaps the high-end
videoconferencing market historically served by us, is almost exclusively
maintained by thousands of resellers and system integrators. Our products have
been re-engineered such that they may also be sold through these third party
channels. We believe we offer a functionally superior, lower cost, fully
integrated solution which provides command and control and remote diagnostics
for audio, visual and room environment devices, and for network connectivity.
13
Once established in the audio/visual command and control market, we envision
developing additional applications for other command and control system markets,
including process control applications in manufacturing environments and the
burgeoning home entertainment market, that may involve licensing our control
software to existing OEM vendors, in addition to third-party reseller channels.
Critical Accounting Policies
We prepare the consolidated financial statements of Simtrol, Inc. 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:
- - 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. (See
Note A to our consolidated financial statements).
- - 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,
on a straight-line basis over three years or the useful life of the
product, whichever is shorter. Management is required to use professional
judgment in determining whether development costs meet the criteria for
immediate expense or capitalization.
- - 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. During 2002, we wrote off the remainder of
our inventory due to obsolescence and the lack of market for our older
hardware products.
Financial Condition
During the year ended December 31, 2002, our total assets decreased
approximately 64% to $611,651 from $1,711,236 at December 31, 2001. Significant
decreases in inventory due to obsolescence and accounts receivable due to our
lower sales volume during the year accounted for a majority of the decrease.
Capitalized software decreased $277,625 during the year due to amortization of
cost capitalized prior to March 2001 for ONGOER, at which time we began shipping
our Ongoer product to customers. Current liabilities increased in 2002 by
$447,864, or 18%, compared to 2001 principally due to an increase in convertible
debt of $861,710, offset partly by a decrease in deferred revenue of $390,167.
In order to continue funding operations of the Company, the Company issued a
total of $760,000 of Convertible Debt to numerous private investors, including
four members of the Board of Directors, at various times during 2002. The debt
accrues interest at prime rate plus 1% and was originally due on December 31,
2002. The proceeds of this debt were utilized for working capital purposes. In
conjunction with the issuance of the convertible debt, the Company issued
760,000 common stock purchase warrants to the holders of the Debt. The Debt is
convertible immediately into restricted shares of common stock of the Company at
prices ranging from $0.47 to $0.79 per share, which represented the market
prices of the company's traded common stock on the date of the issuances of the
Debt. The warrants, which expire at various dates in 2007, were exercisable
immediately at prices ranging from $0.47 to $0.79 per share, the market price of
the company's traded common stock on the day the warrants were issued. Each
warrant entitles the holder to purchase one common share of the restricted
common stock of the Company.
14
As the company was unable to repay this debt on its original due date of
December 31, 2002, the company negotiated extensions with the note holders. One
note holder converted their note and all accrued interest into 21,832 shares of
restricted common stock on December 31, 2002. The conversion price of the note
was adjusted to $0.24 at the time of the conversion. The conversion price of the
remaining debt that was extended was also set at $0.24 per share and the notes
bear interest at prime plus 1%. The warrant prices were adjusted to $0.24 from
various previous exercise prices as part of the renegotiation of the debt on
December 31, 2002. Subsequent to December 31, 2002, $735,000 of the convertible
debt and the accrued interest on this debt was converted into 3,204,083 shares
of restricted common stock of the company in accordance with the terms of the
notes. $420,000 of the debt is currently outstanding.
On August 5, 2002, the company completed the sale of 1,627,000 of its common
shares for aggregate gross proceeds of $325,400, in a private placement of its
stock to a limited number of accredited investors, including Board members. The
share price was $0.20 per share. Offering costs totaled approximately $70,000.
The proceeds of the offering were used to fund current operational and overhead
expenses of the company during the year. Additionally, the company issued
291,667 shares of restricted common stock in December 2002 to a limited number
of accredited investors, including two directors of the company. The share price
was $0.24 and total proceeds were $70,000. The proceeds were used to fund
current operational and overhead expenses of the company during the year.
The company is a debtor under various operating leases for equipment and office
space. The company does not believe that it has entered any transactions that
require additional disclosure beyond that contained in its financial and that
such statements properly reflect the obligations of the company.
Results Of Operations
Revenues
Revenues were $1,294,015, $1,899,328 and $4,041,204 in fiscal 2002, 2001 and
2000, respectively. The decrease in revenues of 32% from 2001 to 2002 and 53%
from 2000 to 2001 were primarily due to our decision to develop and sell our new
Ongoer software product line versus our older Omega videoconferencing systems.
Sales of Ongoer software have not been sufficient to replace the decrease in
Omega system sales as well as the decrease in Omega maintenance revenue as
former customers have either replaced these older systems with newer equipment
or declined maintenance contracts due to budgetary considerations.
Gross Profit
Gross profit as a percentage of revenues was approximately 11%, 31% and 43% in
fiscal years 2002, 2001, and 2000, respectively. The decrease in gross margin in
fiscal year 2002 as compared to fiscal year 2001 was due primarily to the
write-off of the remainder of our inventory due to obsolescence in 2002 and the
inclusion of a full year of capitalized software amortization in 2002 for the
Ongoer (TM) product line, which began shipping in March 2001. It is our policy
that software development costs are capitalized once the product becomes
technologically feasible and then these costs are amortized over 36 months once
the first sale is made. Amortization costs for the twelve months ended December
31, 2002 and 2001 were $277,624 and $208,215, respectively. The write-offs for
obsolescent inventory totaled $30,000 in 2002, $120,000 in 2001, and $208,000 in
2000.
Special Charge
In the fourth quarter of 2002, the company wrote off its remaining inventory of
$296,953 as it was deemed that the inventory was obsolete due to the non-renewal
of most of the maintenance contracts on Omega systems.
Selling, General & Administrative Expenses
Selling, general and administrative expenses were $1,584,178, $2,663,939, and
$3,288,724 for fiscal 2002, 2001 and 2000, respectively. The 41% decrease from
fiscal 2001 to 2002 resulted primarily from decreases in personnel and the
company's move to a significantly smaller headquarters in 2002 and the 19%
decrease 2000 to 2001 resulted from the consolidation of operations, reductions
in personnel and ongoing efforts to cut costs.
15
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 three years or the useful life of the
product, whichever is shorter. These expensed costs were $428,810, $797,071 and
$495,589 for fiscal 2002, 2001, and 2000, respectively. The 46% decrease from
2001 to 2002 was due primarily to reductions in personnel during the year due to
business conditions, while the 61% increase from fiscal 2000 to fiscal 2001 was
the result of adding personnel to aid in the development of the new ONGOER(TM)
product line and no longer capitalizing software development cost on this
product.
Impairment Loss
In 2001, an impairment loss of $2,302,000 was charged to operations due to the
write-down of our investment in ACIS, Inc., in accordance with FAS 121. As a
result of continued inactivity in the operations of ACIS, we wrote our
investment down to an estimated fair market value of $0.
Loss on Decline in Market Value of Investment
We wrote the remainder of our investment in PentaStar Communications off during
2002, approximately $11,000, as PentaStar went into receivership during the
year. We wrote down the investment $1,131,147 in 2001 based on announcements at
that time that PentaStar was having liquidity problems. The 57,122 common shares
of PentaStar Communications, Inc., held in escrow, were part of the sale price
of Eastern Telecom, Inc. in 2000. The shares have no value and were abandoned by
the company during 2002. The declines in the market value of the stock were
deemed other than temporary as described in FAS 115.
Interest and Other Expenses
Other expenses were $557,675, $160,754, and $259,831 for fiscal 2002, 2001 and
2000, respectively. The increase from 2001 to 2002 consisted primarily of
finance charges associated with the Company's issuance of convertible debt
during the fourth quarter of 2001 and the first two quarters of 2002. See note F
to the financial statements. The decrease from 2000 to 2001 was the result of a
decrease in interest expense as we paid down our debt.
Net Loss from Continuing Operations
Net losses from continuing operations were $2,438,702, $6,468,180 and $1,986,872
for fiscal 2002, 2001 and 2000, respectively. The decreased loss in 2002 was
primarily due to the impairment loss recorded in 2001 on our investment in ACIS,
Inc., our lower operating expenses that resulted from our reductions in
personnel during 2002 as well as our move to a smaller headquarters space. The
increase in the loss from 2000 to 2001 was the result of lower revenues, the
impairment loss associated with our investment in ACIS, Inc. and a write down of
the PentaStar shares due to a decline in value that we viewed as other than
temporary.
Extraordinary Gain on Debt Extinguishments
Extraordinary gains in 2002 were due to debt extinguishments of $84,350 related
to the company's inactive subsidiary, Integrated Network Services, Inc. (INS)
and the $64,565 reduction of accounts payable to Glovicom, N.V., resulting from
the exchange of Simtrol's warrant to purchase 19% of Glovicom for this amount in
the second quarter 2002.
Discontinued Operations
On May 18, 2000, we sold Eastern Telecom, our network reselling subsidiary and,
as a result have accounted for Eastern Telecom as discontinued operations.
Operating loss from discontinued operations was $32,556 in 2000. Operations of
Integrated Network Services were included in discontinued operations as the
subsidiary was closed in December 1998.
Net Loss
16
The net loss for 2002 was $2,289,787, or $0.14 per share, compared to a net loss
for 2001 of $6,468,180, or $0.42 per share, and a net loss of $1,530,599 or
$0.11 per share for 2000. The decreased net loss for 2002 was due mainly to the
impairment loss and loss on investments in 2001, as well as the lower operating
expenses incurred during the current year as a result of decreased personnel.
The net loss for 2001 was due to lower revenues versus 2000 as the company
discontinued selling new Omegas systems during the year.
Liquidity and Sources of Capital
General
As of December 31, 2002, we had cash and cash equivalents of $1,307. We do not
have sufficient funds for the next 12 months and have relied on periodic
investments in the form of common stock and convertible debt by certain of our
existing shareholders since the fourth quarter of 2001. 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. Our inability
to pay our audit fees on a timely basis resulted in the delay of the audit's
completion for 2002. 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, 2002 and 2001.
We used $1,314,790 in cash from operating activities in 2002, primarily due to
our loss of $2,289,787, partially offset by decreased accounts receivable of
$309,819 due to lower volumes and improved collections, as well as the $296,593
write-off of inventory due to obsolescence. The decrease in cash used from
operations in 2001 of $1,859,929 was due mainly to the reduced operations of the
company due to business conditions. Cash used in investing activities consisted
of $21,318 for 2002 compared to $145,381 used in 2001, which consisted primarily
of $122,876 used for software development. The current year expenditures
consisted of leasehold improvements on our new office space. Cash provided by
financing activities in 2002 of $1,264,651 was due primarily to the $760,000
raised through issuance of convertible debt, $325,400 net proceeds raised
through the sale of restricted common stock, and $176,813 net borrowings under a
note payable and capital leases. Cash provided by financing in 2001 consisted
primarily of $400,000 of convertible debt issued to two of our directors in
November 2001. See notes F and H to the financial statements.
In order to continue funding operations of the company during 2002, the Company
issued a total of $760,000 of Convertible Debt to numerous private investors,
including four members of the Board of Directors, at various times during 2002.
The debt accrues interest at prime rate plus 1% and was originally due on
December 31, 2002. The proceeds of this debt were utilized for working capital
purposes. In conjunction with the issuance of the convertible debt, the Company
issued 760,000 common stock purchase warrants to the holders of the Debt. The
Debt is convertible immediately into restricted shares of common stock of the
Company at prices ranging from $0.47 to $0.79 per share, which represented the
market prices of the company's traded common stock on the date of the issuances
of the Debt. The warrants, which expire at various dates in 2007, were
exercisable immediately at prices ranging from $0.47 to $0.79 per share, the
market price of the company's traded common stock on the day the warrants were
issued. Each warrant entitles the holder to purchase one common share of the
restricted common stock of the Company.
As the company was unable to repay this debt on its original due date of
December 31, 2002, the company negotiated extensions with the note holders. One
note holder converted their note and all accrued interest into 21,832 shares of
restricted common stock on December 31, 2002. The conversion price of the note
was adjusted to $0.24 at the time of the conversion. The conversion price of the
remaining debt that was extended was also set at $0.24 per share and the notes
bear interest at prime plus 1%. The warrant prices were adjusted to $0.24 from
various previous exercise prices as part of the renegotiation of the debt on
December 31, 2002. Subsequent to December 31, 2002, $735,000 of the convertible
debt and the accrued interest on this debt was converted into 3,204,083 shares
of restricted common stock of the company in accordance with the terms of the
notes. $420,000 of the debt is currently outstanding.
On August 5, 2002, the company completed the sale of 1,627,000 of its common
shares for aggregate gross proceeds of $325,400, in a private placement of its
stock to a limited number of accredited investors, including Board members. The
share price was $0.20 per share. Offering costs totaled approximately $70,000.
The proceeds of the offering were used to fund current operational and overhead
expenses of the company during the year. Additionally, the company issued
291,667 shares of restricted common stock in December 2002 to a limited number
of accredited investors,
17
including two directors of the company. The share price was $0.24 and total
proceeds were $70,000. The proceeds were used to fund current operational and
overhead expenses of the company during the year.
In November and December 2001 we issued convertible debt to two Directors of the
Company in return for advancing us $400,000 to meet general operating expenses.
This debt matures on February 7, 2002, is convertible into shares of the Company
at $0.49 per share and bear interest at prime plus 1%. In exchange for this
convertible debt we issued warrants to these Directors on the basis of one
warrant for each $1.00 advanced. In the event that this debt must be extended
these Directors shall receive additional warrants. We received a 60-day
extension on February 7, 2002 and issued 100,000 additional warrants to each
Director. In return for this funding we pledged certain assets of the Company.
In March 2000, we raised a total of approximately $5.6 million in new equity
through two related transactions. In the first transaction, we raised $4,054,876
through the sale of 1,351,625 shares of common stock at $3.00 per share to 38
accredited investors. Approximately $826,668 of the proceeds was used to repay
the remaining balance of the 7% Secured Convertible Debenture held by Thompson
Kernaghan & Co. Ltd. ("Kernaghan"). Under the terms of a debt restructuring
agreement, Kernaghan had the option to convert the Secured Convertible Debenture
into shares of our common stock beginning January 1, 2000 at the initial rate of
7.5% per month, with a conversion price equal to the lesser of $1.00 or the
5-day average closing bid price of our common stock prior to the date of any
such transaction, with a floor of $0.50 per share. Kernaghan had previously
converted $144,529 of principal plus accrued interest into 216,945 shares of our
common stock.
In the second transaction, we exchanged 524,126 of our common shares for 240,265
(24%) of the Eastern Telecom shares held by its minority shareholders. By this
transaction, we retired 68% of our put obligations under a shareholders
agreement that gave Eastern Telecom's minority shareholders the right to put
their shares to us at $6.50 per share. The remaining minority interest shares
were repurchased pursuant to the terms of a shareholders agreement.
On May 18, 2000 we received $1,787,000 in cash from the sale of Eastern Telecom,
of which $500,000 was placed in escrow pending the collection of specified
accounts receivable. As of December 31, 2002 approximately $416,000 of those
accounts receivable had been collected and remitted to the company. The
remainder has been deemed uncollectible and a reserve has been established for
this amount. We also received 57,122 shares of Pentastar Communications stock
with a market value as of December 31, 2000 of $1,256,684. This stock was also
held in escrow and was ultimately never released. As Pentastar Communications
went into receivership in 2002, the remaining balance of these shares was
written off. The Eastern Telecom assets were combined with the assets of
USTeleCenters, Inc. and Vermont Network Services Corporation and under an
earn-out provision in the sales agreement, we were entitled to additional
compensation based on the combined financial results of the combined Eastern
Telecom, USTeleCenters and Vermont Network Services acquired operations for
calendar year 2000. These earn-out targets were not met and no additional
compensation was received.
We expect to spend less than $25,000 on capital expenditures in fiscal 2003.
Operating Loss Carryforwards
As of December 31, 2002, we had operating loss carryforwards for U.S. income tax
purposes of approximately $41,000,000 available to reduce future taxable income
through 2022. We also have investment, research and experimental credits of
approximately $156,000 available to reduce future income taxes payable through
2022. During 1993, we experienced a change in control, as defined under Section
382 of the Internal Revenue Code. As a result, the utilization of approximately
$7,000,000 in tax loss carryforwards will be limited to approximately $1,000,000
annually.
18
Contractual obligations under lease arrangements are as follows:
Contractual Payments due by period
obligations
More
Less than 3-5 than 5
Total 1 year 1-3 years years years
Long-Term Debt 215,246 83,707 131,539 0 0
Obligations
Capital Lease 29,484 29,484 0 0 0
Obligations
Operating Lease 234,688 71,096 137,358 26,234 0
Obligations
Purchase 0 0 0 0 0
Obligations
Other Long-Term
Liabilities
Reflected on 1,155,000 1,155,000 0 0 0
Balance Sheet
under GAAP
Total 1,634,418 1,339,287 268,897 26,234 0
19
Factors Affecting Future Performance
The following summarizes certain of the risks inherent in our business:
We may not be able to obtain additional capital to finance our operations when
needed.
We require additional capital or other funding to finance our operations, as we
do not generate sufficient cash from operations to sustain the operation of the
company. If we are unable to attain sufficient funding, our operations may not
continue. We may seek additional equity financing through the sale of securities
on a public or a private placement basis on such terms as are reasonably
attainable. We may not be able to obtain such financing when needed, or that if
obtained, it may not be sufficient or on terms and conditions acceptable to us.
If we sell shares of our common stock, our existing shareholders will suffer
dilution, which could be material.
We may not be able to achieve or sustain profitability in the future.
After 17 years of operations, we have not reported any profits for a full year
of operations and, as of December 31, 2002, we had an accumulated deficit of
$60.0 million. We may not be able to achieve or sustain profitability in the
future, as sales of our Ongoer product have not proven to be sufficient to fund
our operations. As a result, we may incur additional losses and negative cash
flow from operations for the foreseeable future.
If we fail to secure sufficient capital or fail to create a strong marketing
support team, then our efforts to penetrate new markets could fail, resulting in
decreased cash flow.
Expanding our presence in the audio/visual command and control market will
require capital for further software product development, and the creation of
new sales channels. The inability to secure sufficient capital or the failure to
create a strong sales channel/marketing support organization could result in a
failed effort to penetrate these new markets, and adversely affect operating
results and cash flow.
If we fail to develop competitive products in response to technological changes,
our business will not grow or remain competitive.
The market for our products is characterized by rapidly changing technology,
evolving industry standards and frequent product introductions. Product
introductions are generally characterized by increased functionality and quality
at reduced prices. If we are unable, for technological or other reasons, to
develop competitive products in a timely manner in response to changes in the
industry, our business and operating results would be significantly harmed. For
example, the successful launch of ONGOER(TM), our second-generation PC-based
device controller, depends on our ability to complete the design and development
of complex audio/visual control software built on a new software kernel
co-developed with ACIS, Inc.
Our ability to successfully develop and introduce on a timely basis new and
enhanced products that embody new technology, and achieve levels of
functionality and prices that are acceptable to the market will be a significant
factor in our ability to grow and to remain competitive. For instance, the
ability to transact business via the Internet is becoming increasingly
important. Accordingly, in order to remain competitive, we are currently
developing a system, that will allow us to deliver products and services to our
customers via the Internet. We may not be able to timely or effectively
implement this strategy.
Operating results could be adversely affected by a disruption in supply or a
significant price increase of videoconferencing components or failure of a third
party supplier to remain competitive in price.
Substantially all of our videoconferencing components, subsystems and assemblies
are made by outside vendors. Disruption in supply, a significant increase in
price of one or more of these components or failure of a third party supplier to
remain competitive in functionality or price could result in lost sales. We
could experience such problems in the future. Similarly, excessive rework costs
associated with defective components or process errors associated with our
anticipated new product line of videoconferencing systems could adversely affect
our business and operating results.
20
We depend on purchases from a few significant customers, and any loss
cancellation, or reduction of purchases by these customers could harm our
business.
We currently sell control software and service previously sold videoconferencing
systems for a small number of major customers. During the year ended December
31, 2002, approximately 50% of our revenues were from three large customers.
Further, we do not have long term contracts with any of our other customers, so
our customers could stop purchasing our products at any time. In October 2002,
one customer that represented approximately 24% of our revenue for 2002 did not
renew their maintenance contract on their Omega systems. The loss of any of
additional major customers, or any reduction in purchases by these customers,
could significantly harm our business.
If we cannot attract, retain, train or manage our key management or technical
personnel effectively, our ability to develop and sell new products could be
hindered, resulting in a reduction in sales.
Our development, management of our growth and other activities depend on the
efforts of key management and technical employees. Competition for such persons
is intense. Because we do not have long-term employment agreements with our key
management personnel or technical employees, we could lose one or more of our
key management or technical personnel, which could result in significant harm to
our business. Our future success is also dependent upon our ability to
effectively attract, retain, train, motivate and manage our employees, and
failure to do so could hinder the development and marketing of our products and
result in a reduction in sales, and our customers could shift their purchases to
our competitors.
We may not be able to maintain or improve our competitive position because there
are competitors who currently engage in or may enter the market with far greater
technical and financial resources than we have.
Competition in the command and control and video communications markets is
intense. We expect other competitors, some with significantly greater technical
and financial resources, may enter these markets. If we cannot continue to offer
new command and control and videoconferencing products with improved performance
and reduced cost, our competitive position will erode. Moreover, competitive
price reductions may adversely affect our results of operations. In the command
and control market, our primary competitors are AMX, Inc. and Crestron
Electronics, Inc.
Fluctuations in our quarterly performance could adversely affect our total
revenues and net income levels.
Our revenues have historically occurred predominantly in the third month of each
fiscal quarter. Accordingly, our quarterly results of operations are difficult
to predict, and delays in the closing of sales near the end of the quarter could
cause quarterly revenues and, to a greater degree, operating and net income to
fall substantially short of anticipated levels. Our total revenues and net
income levels could also be adversely affected by:
- - cancellations or delays of orders,
- - interruptions or delays in the supply of key components,
- - changes in customer base or product mix,
- - seasonal patterns of capital spending by customers,
- - delays in purchase decisions due to new product announcements by us or our
competitors, and
- - increased competition and reductions in average selling prices.
We may not be able to regain our Nasdaq listing.
Effective as of the close of business on September 22, 1999, our common stock
was delisted from the Nasdaq SmallCap Market and began trading on the OTC
Bulletin Board. The delisting occurred as a result of the minimum bid price on
our common stock being less than $1.00 per share and our net tangible assets
being under $2.0 million. Because the requirements for a new listing on the
Nasdaq Stock Market are substantially more onerous than the requirements for
continued listing, we may not be in a position in the future to reapply for
listing on Nasdaq. Because the OTC Bulletin Board is generally a less efficient
market than the Nasdaq Stock Market, the liquidity and volatility of our shares
could be adversely impacted. Furthermore, institutional investors are less
likely to be interested in stocks trading on the OTC Bulletin Board.
21
The Securities and Exchange Commission's rules regarding penny stocks may
restrict your ability to resell our shares.
Our common stock is subject to Rules 15g-1 through 15g-9 of the Securities
Exchange Act of 1934, which imposes additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors. Generally, accredited investors include
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual incomes exceeding $200,000 individually or
$300,000 jointly with their spouses. The broker/dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. The broker/dealer must furnish
the purchaser a document outlining the risks associated with investing in penny
stocks. Furthermore, the broker/dealer must inform the purchaser of:
- - the bid and offer price quotes for penny stock,
- - the number of shares to which the quoted prices apply;
- - the brokerage firm's compensation for the trade; and
- - the compensation received by the brokerage firm's salesperson for the
trade.
Consequently, the rules may adversely affect the ability of broker/dealers to
sell our common stock, which may affect your ability to resell our common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We conduct most of our business in the United States and therefore, we believe
our exposure to foreign currency exchange rate risk at December 31, 2002 was not
material. The value of our financial instruments is generally not significantly
impacted by changes in interest rates and we have no investments in derivatives.
Fluctuations in interest rates are not expected to have a material impact on
interest expense.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 2002 and December
31, 2001
Consolidated Statements of Operations for Years Ended December 31,
2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for Years Ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for Years Ended December 31,
2002, 2001 and 2000
Notes to Consolidated Financial Statements
22
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
Simtrol, Inc.
We have audited the accompanying consolidated balance sheets of Simtrol, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 2002 and 2001 and the
related statements of operations, stockholders' deficit, and cash flows for the
years ended December 31, 2002, 2001, and 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Simtrol, Inc. and subsidiaries
as of December 31, 2002 and 2001, and the results of its operations and its cash
flows for the years ended December 31, 2002, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has experienced net losses of $2,289,787,
$6,468,180, and $1,530,599 for the years ended December 31, 2002, 2001, and 2000
respectively. Additionally, the Company's current liabilities exceeded its
current assets by $2,787,219 and the Company had a stockholders' deficit of
$2,415,906 at December 31, 2002. These factors, amongst others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note B. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
May 16, 2003
23
Simtrol, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
----------------------------------------
2002 2001
-------------------- -------------------
CURRENT ASSETS
Cash and cash equivalents $ 1,307 72,764
Accounts receivable, less allowance for doubtful accounts
of $215,270 and $226,244 at December 31, 2002 and 2001,
respectively 65,498 375,347
Inventories, less allowance for obsolescence of $1,068,888 and
$826,585 at December 31, 2002 and 2001, respectively - 395,012
Prepaid expenses 39,170 11,591
-------------------- -------------------
Total current assets 105,975 854,714
PROPERTY AND EQUIPMENT, net 147,459 206,400
OTHER ASSETS
Software development costs, net 347,030 624,655
Investments - 10,853
Other long term assets 11,187 14,614
-------------------- -------------------
358,217 650,122
-------------------- -------------------
611,651 $ 1,711,236
==================== ===================
The accompanying notes are an integral part of these statements.
24
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2002 2001
------------------ ---------------
CURRENT LIABILITIES
Current portion of note and lease payable $ 110,366 $ 38,453
Convertible debt 1,155,000 293,290
Accounts payable 926,539 1,042,995
Accrued expenses 465,873 360,659
Deferred revenue 235,416 625,583
Current liabilities of discontinued operations - 84,350
------------------ ---------------
Total current liabilities 2,893,194 2,445,330
Note and lease payable, less current portion 134,363 29,462
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' DEFICIT
Preferred stock, $.00025 par value; authorized
800,000 shares, none issued and outstanding - -
Common stock, authorized 40,000,000 shares of
$.001 par value; issued and outstanding
17,182,953 shares at December 31, 2002
and 15,238,703 at December 31, 2001 17,183 15,239
Additional paid-in capital 57,572,918 56,937,425
Accumulated deficit (60,006,007) (57,716,220)
------------------ ---------------
Total Stockholders' Deficit (2,415,906) (763,556)
------------------ ---------------
$ 611,651 $ 1,711,236
================== ===============
The accompanying notes are an integral part of these statements
25
Simtrol, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended December 31,
--------------------------------------------
2002 2001 2000
------------- ------------- -------------
Revenue 1,294,015 $1,899,328 $4,041,204
Cost of revenue 865,101 1,312,597 2,308,932
Inventory Obsolescence Charge (Note A-4) 296,953 - -
------------- ------------- -------------
Gross Profit 131,961 586,731 1,732,272
Operating Expenses
Selling, general and administrative 1,584,178 2,663,939 3,288,724
Research and development 428,810 797,071 495,589
Impairment loss - 2,302,000 -
------------- ------------- -------------
Total Operating Expenses 2,012,988 5,763,010 3,784,313
------------- ------------- -------------
Loss from operations (1,881,027) (5,176,279) (2,052,041)
Loss on decline in market value of investment - (1,131,147) -
Other expenses, primarily financing charges (557,675) (160,754) (259,831)
------------- ------------- -------------
Net loss from continuing operations
before income taxes (2,438,702) (6,468,180) (2,311,872)
Income taxes - benefit - - 325,000
------------- ------------- -------------
Net loss from continuing operations (2,438,702) (6,468,180) (1,986,872)
Discontinued operations:
Operating loss from
discontinued operations - - (32,556)
Gain on sale of a subsidiary, net of taxes - - 488,829
------------- ------------- -------------
- - 456,273
Extraordinary gain on debt extinguishments 148,915 - -
------------- ------------- -------------
Net loss $ (2,289,787) $ (6,468,180) $ (1,530,599)
============= ============= =============
Net loss per common share:
Loss from continuing operations (0.15) $ (0.42) $ (0.14)
Gain (loss) from discontinued operations 0.00 0.00 0.03
Gain on extinguishments of debt 0.01 - -
------------- ------------- -------------
(0.14) $ (0.42) (0.11)
============= ============= =============
Weighted average shares outstanding 16,110,577 15,222,410 14,571,780
============= ============= =============
The accompanying notes are an integral part of these statements
26
Simtrol, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2002, 2001 and 2000
----------------------
Common stock
---------------------- Accumulated
Additional other
Number of Par paid in Accumulated comprehensive
Shares value capital deficit income Total
------------ --------- ------------- ------------- ------------ ------------
Balance, January 1, 2000 12,300,144 $12,300 $48,508,074 $(49,717,441) $ - $(1,197,067)
------------ --------- ------------- ------------- ------------ ------------
Net loss for the year (1,530,599) - (1,530,599)
Other comprehensive income (loss)
Unrealized gain on investments - - - - 114,684 114,684
Comprehensive income (loss) - - - (1,530,599) 114,684 (1,415,915)
------------ --------- ------------- ------------- ------------ ------------
Issuance of common shares in private
placement 1,351,625 1,352 4,053,524 - - 4,054,876
Issuance of common shares in conversion of
minority interest 524,126 524 1,572,009 1,572,533
Issuance of common shares for investment in
ACIS 500,000 500 2,154,500 - - 2,155,000
Exercise of stock warrants 151,898 152 78,944 - - 79,096
Exercise of stock options 118,480 118 93,790 - - 93,908
Issuance of common shares for conversion of
convertible debenture s 216,945 217 144,529 - - 144,746
------------ --------- ------------- ------------- ------------ ------------
Balance, December 31, 2000 15,163,218 15,163 56,605,370 (51,248,040) 114,684 5,487,177
------------ --------- ------------- ------------- ------------ ------------
Net loss for the year (6,468,180) (6,468,180)
Other comprehensive income (loss)
Realized loss on investments - - - - (114,684) (114,684)
------------ --------- ------------- ------------- ------------ ------------
Comprehensive income (loss) - - - (6,468,180) (114,684) (6,582,864)
------------ --------- ------------- ------------- ------------ ------------
Beneficial conversion feature of
convertible debt - - 124,332 - - 124,332
Warrants issued to debt holders - - 127,173 - - 127,173
Exercise of stock options 30,031 30 21,051 - - 21,081
Issuance of common shares for purchase of
Quality Software Associates 45,454 46 59,499 - - 59,545
------------ --------- ------------- ------------- ------------ ------------
Balance, December 31, 2001 15,238,703 15,239 56,937,425 (57,716,220) - (763,556)
------------ --------- ------------- ------------- ------------ ------------
Net Loss for the period (2,289,787) (2,289,787)
------------ --------- ------------- ------------- ------------ ------------
Comprehensive loss (2,289,787) - (2,289,787)
------------ --------- ------------- ------------- ------------ ------------
Exercise of Warrants 3,751 4 2,434 2,438
FMV of warrants issued and beneficial
conversion feature 304,599 304,599
Issuance of common stock in Private
Placements net of expenses 1,918,667 1,918 323,482 325,400
Conversion of Convertible Debt 21,832 22 4,978 5,000
------------ --------- ------------- ------------- ------------ ------------
17,182,953 $17,183 $57,572,918 $(60,006,007) $ $(2,415,906)
============ ========= ============= ============= ============ ============
The accompanying notes are an integral part of these statements.
27
Simtrol, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 31,
--------------------------------------------
2002 2001 2000
------------- ------------- -------------
Cash flows from operating activities:
Net loss $ (2,289,787) $ (6,468,180) $ (1,530,599)
Adjustments to reconcile net loss to net cash used in operating
activities:
(Gain) loss on sale of subsidiary - - (813,829)
Loss in decline of market value of investments 10,853 1,131,147 -
Inventory obsolescence charge 296,593 - -
Loss on disposal of equipment 12,931 - -
Impairment loss on investments - 2,302,000 -
Depreciation and amortization 794,796 504,502 327,381
Debt Extinguishments (148,915) - -
Changes in operating assets and liabilities:
Accounts receivable 309,849 304,619 856,051
Inventories 59,886 12,032 369,296
Prepaid expenses and other assets (24,152) (11,591) -
Accounts payable (51,891) 550,403 (488,278)
Accrued expenses 105,214 (107,537) (748,493)
Deferred revenue (390,167) (77,324) (297,605)
Effect of operating activities of discontinued operations - - 21,340
------------- ------------- -------------
Net cash used by operating activities (1,314,790) (1,859,929) (2,304,736)
Cash flows from investing activities:
Purchases of property and equipment, continuing operations (21,318) (22,505) (116,141)
Proceeds from sale of minority interest in subsidiary - - -
Change in other assets, continuing operations - (122,876) (530,399)
Proceeds from sale of subsidiary - - 1,287,835
Effect of investing activities of discontinued operations - - (1,572)
------------- ------------- -------------
Net cash provided by (used in) investing activities (21,318) (145,381) 639,723
------------- ------------- -------------
Cash flows from financing activities:
Net borrowings (payments) on notes payable and short term credit 176,813 (148,813) (861,160)
facilities
Proceeds from convertible debt 760,000 400,000 -
Proceeds from exercise of stock options and warrants 2,438 21,081 173,004
Proceeds from private placement, net of issuance costs 325,400 - 4,054,876
Payment for minority interest - - (759,845)
------------- ------------- -------------
Net cash provided by financing activities 1,264,651 272,268 2,606,875
Increase (decrease) in cash and cash equivalents (71,457) (1,733,042) 941,862
Cash of subsidiary bought or sold - 26,258 -
Change in cash and cash equivalents included in net current assets
of discontinued operations - - 38,860
Cash and cash equivalents at beginning of the period 72,764 1,779,548 798,826
------------- ------------- -------------
Cash and cash equivalents at end of the period 1,307 72,764 1,779,548
============= ============= =============
Supplementary disclosure:
Interest paid - 13,791 115,831
============= ============= =============
Income taxes paid - - -
============= ============= =============
Supplemental schedule of non cash investing and financing activities:
Non cash investing and financing activities:
Conversion of debt to common stock 5,000 - 144,746
============= ============= =============
Issuance of stock warrants 239,607 124,332 -
============= ============= =============
Issuance of common stock for investment in ACIS - - 2,155,000
============= ============= =============
Issuance of common stock in conversion of Minority Interest - - 1,572,533
============= ============= =============
Notes payable for capital lease - - 66,733
============= ============= =============
Beneficial conversion feature of convertible debt 64,993 120,977 -
============= ============= =============
The accompanying notes are an integral part of these statements.
28
Simtrol, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 audio/visual control
systems and videoconferencing products that operate on PC platforms.
1. Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount 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.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned and majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
3. Cash and Cash Equivalents
For financial reporting purposes, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
4. Inventories
Inventories consisted of videoconferencing system components and parts and
were valued at the lower of cost (first-in, first-out method) or market. At
December 31, 2002, the Company provided an obsolescence allowance of $296,953
against its inventory as a result of certain significant customers declining
to renew their maintenance contracts on videoconferencing equipment.
5. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated useful lives ranging from 3-10 years on a straight-line
basis for financial reporting purposes and accelerated methods for tax
reporting purposes.
6. Software Development Costs
All software development costs are charged to expense as incurred until
technological feasibility has been established for the product. Software
development costs incurred after technological feasibility has been
established are capitalized and amortized, commencing with product release,
on a straight-line basis over three years or the useful life of the product,
whichever is shorter. Accumulated amortization of software development costs
was $1,861,040 and $1,583,416 at December 31, 2002 and 2001, respectively.
Amortization expense charged to operations was $277,624, $208,218, and
$25,696 for the years ended December 31, 2002, 2001 and 2000, respectively.
The Company capitalized $0, $122,875, and $530,399 of software development
costs in 2002, 2001 and 2000, respectively.
29
Simtrol, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - Continued
7. Investments
Investments consisted of investments in equity securities and a 5% cost
investment in another entity.
The investment in equity securities consisted of 57,122 shares of PentaStar
Communications, Inc. common stock, received in conjunction with the Company's
sale of Eastern Telecom Inc. ("ETI") (see note C). The investment in equity
securities was accounted for as available-for-sale and was stated at fair
market value with unrealized gains and losses on this investment included in
the shareholders' equity section of the balance sheet. On April 1, 2002,
PentaStar was placed into receivership. As a result, at March 31, 2002, the
company wrote off the remainder of the investment balance, $10,853, in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities, as
management determined that the decline in the market value of this investment
represented an impairment that was other than temporary. At December 31,
2001, management had adjusted the cost basis of this investment and recorded
a realized loss of $1,131,147 due to cash flow difficulties experienced by
PentaStar during that year.
On March 3, 2000, the Company issued 500,000 shares of its common stock in
exchange for 250,000 shares of ACIS, Inc. ("ACIS"), representing
approximately 5% of ACIS' common stock. ACIS is a Texas based, software
technology Company, principally owned by the Company's previous Chief
Technology Officer. ACIS is involved in the development of an advanced
operating kernel to support the Company's new product architecture for
PC-based device control. In further consideration of the Company's
development contribution, ACIS granted the Company a warrant to acquire up to
20% of ACIS' common stock at an exercise price of $2.00 per share. This
option was exercisable by the Company any time through March 31, 2002. This
investment in ACIS was recorded at cost of $2,302,000. On March 31, 2002, the
option expired as the company chose not to exercise it.
At December 31, 2001, as a result of continued inactivity in the operations
of ACIS and the downturn in the technology industry as a whole, an impairment
loss of $2,302,000 was incurred related to the write down of the Company's
investment in ACIS to its estimated fair market value. SFAS No. 121,
Accounting For The Impairment Of Long-Lived Assets and For Long-Lived Assets
To Be Disposed Of, requires impairment losses to be recognized for long-lived
assets when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount. In accordance with SFAS No. 121, the impairment charge was
taken when it was determined that sufficient time had passed since the
initial investment in ACIS was made for management to adequately assess its
value, which was December 31, 2001. No impairment charge was recorded in 2002
or 2000.
8. Comprehensive Income (Loss)
Comprehensive income (loss) includes the changes in equity resulting from
transactions with non-owners for the periods reported. There were no
additional components of comprehensive income in the year ended December 31,
2002. For the period ended December 31, 2001 and 2000, the unrealized gain on
investments was the only component of comprehensive income
30
Simtrol, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - Continued
9. Revenue Recognition
Revenue consists of the sale of software control devices, videoconferencing
systems and related maintenance contracts on these systems. The Company sold two
different products during the presented periods: the PC-based software product
Ongoer and the older proprietary hardware and software product, Omega. Revenue
on the sale of hardware is recognized upon shipment. Revenue from Ongoer
software sales is recognized upon shipment as the company sells the product to
audiovisual integrators. Revenues from the sale and installation of Omega
systems in previous years were recognized upon completion of the installation.
The company did not install any Omega systems during the year ended December 31,
2002. Revenue on maintenance contracts is recognized over the term of the
related contract resulting in $235,416 and $625,583 of deferred revenue at
December 31, 2002 and 2001, respectively.
The Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin
("SAB") 101, Revenue Recognition in Financial Statements, in December 1999. SAB
101 summarizes certain of the SEC staff's views in applying accounting
principles generally accepted in the United States to revenue recognition in
financial statements. The Company has determined that they are in compliance
with SAB 101.
10. Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates are recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred
tax assets when it is more likely than not that the asset will not be realized.
11. Stock Based Compensation
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." FAS 148 amends FAS 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, FAS 148 amends the disclosure requirements
of FAS 123 to require more prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
additional disclosure requirements of FAS 148 which are effective for fiscal
years ending after December 15, 2002, has been adopted by the Company (see Note
I).
The Company has elected to continue to follow the intrinsic value method of
accounting as prescribed by Accounting Principles Board Opinion No. 25 (or APB
25), "Accounting for Stock Issued to Employees," to account for employee stock
options. Under APB 25, no compensation expense is recognized unless the exercise
price of the company's employee stock options is less than the market price of
the underlying stock on the date of grant. The Company has not recorded such
expenses in any of the periods presented as the options are granted with an
exercise price equal to the fair market value of the underlying stock on the
date of grant.
31
Simtrol, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE A NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - Continued
12. Net Loss Per Common Share
Basic net earnings (loss) per share is computed by dividing net earnings
(loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted net earnings (loss) per
share gives effect to all potentially dilutive securities. There is no
difference between basic loss per share and diluted loss per share for any
period presented.
The following securities could potentially dilute basic earnings per share in
the future and were not included in the computation of diluted net loss per
share because they would have been antidilutive for the periods presented:
2002 2001 2000
-------------- ------------- --------------
Common stock options 974,500 919,331 972,198
Common stock warrants 3,149,963 2,198,714 1,788,714
--------- --------- ---------
Total securities 4,124,463 3,118,045 2,760,912
========= ========== =========
13. Fair Value of Financial Instruments
Management believes that the carrying amounts of certain financial
instruments, including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate their fair values as of
each balance sheet date given the relatively short maturity of each of these
instruments. The fair value of the Company's debt approximates fair value
based on borrowing rates currently available to the Company for borrowings
with comparable terms and conditions.
14. Advertising Expenses
The Company expenses all advertising expenses as incurred. Advertising
expenses for the years ended December 31, 2002, 2001, and 2000 were $0,
$17,105 and $7,861, respectively.
15. Technological Change and New