Attached files
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
10-K
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x
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Annual
Report pursuant to Section 13 or 15(d) of The Securities Exchange Act of
1934:
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| For the fiscal year ended: December 31, 2009 | |
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o
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Transition
report pursuant to Section 13 or 15(d) of The Securities Exchange Act of
1934:
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| For the transition period from: |
000-50081
(Commission
File Number)
Invisa,
Inc.
(Exact
name of small business issuer as specified in its charter)
Nevada
(State or
other jurisdiction of incorporation or organization)
65-1005398
(I.R.S.
employer identification number)
1800
2nd
Street Suite 965
Sarasota,
Florida 34236
(Address
of principal executive offices)
(941)
870-3950
(Issuer’s
telephone number)
Securities
registered under Section 12(b) of the Act: None.
Securities
registered under Section 12(g) of the Act: Common Stock, $0.001 par value per
share.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. o
Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes o No x
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in herein, and will not be contained, to the
best of the 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. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes o No x
1
Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” I Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer (Do not check if a smaller reporting company) o
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Smaller
reporting company x
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As of
June 30, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was approximately $20,546.00, based on the
closing price of the registrant’s common stock of $0.001 per share on June 30,
2009.
On March
24, 2010, 35,156,081 shares of Invisa Common Stock, $0.001 par value, were
outstanding
2
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Page
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Part
I
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4
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7
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9
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10
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10
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10
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Part
II
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10
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11
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11
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Item
7A
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Quantitative
and Qualitative Disclosures about Market Risk
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12
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13
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13
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14
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Part
III
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15
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17
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20
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21
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21
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Part
IV
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22
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Financial
Statements
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F-1
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F-2
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F-3
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F-4
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F-5
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F-7
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27
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Index
to Exhibits
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PART
I
Note
regarding forward-looking statements: Except for statements of historical fact,
certain information contained herein constitutes forward-looking statements
including, without limitation, statements containing the words believes,
anticipates, intends, expects, and words of similar import, as well as all
projections of future results. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results or achievements of Invisa, Inc. to be materially different from any
future results or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, the following: risks
involved in implementing our business strategy; our ability to obtain
financing on acceptable terms; competition; our ability to manage growth; risks
of technological change; our dependence on key personnel; our ability
to protect our intellectual property rights; risks of new technology and new
products; and government regulation.
Invisa,
Inc. is a Nevada corporation that manufactures and sells a line of
SmartGate ® brand
safety sensors used in or with parking gates to protect life and
property. Parking gates are motorized barriers used to control
the flow of vehicular traffic in areas such as parking facilities, vehicle
storage facilities, tollbooths, and metered entry points for highways. Our
SmartGate sensors are based on presence sensing technology that we call
InvisaShield. While we believe that our InvisaShield technology may have
additional applications for safety products, to date all of our revenue has been
derived from the sale of SmartGate sensors used in parking
gates.
We
acquired the InvisaShield™ presence-sensing technology in
2004. Presence sensing is the repeatable detection of people and
conductive objects within a certain perimeter of the
sensor. InvisaShield technology detects objects at a distance
of typically less than one meter. Invisa currently owns the patent
and patent applications, as well as the sole rights to the InvisaShield
technology in all markets worldwide.
Our
offices are located at 1800 2nd
Street, Suite 765, Sarasota, FL 34236, telephone (941) 870-3950.
Our
SmartGate™
Product
Many
products use presence-sensing technology; however, we believe that our
InvisaShield technology is particularly suited to safety sensors for use in the
parking gate market. In 2008 and 2009, all of our revenues were
derived from the sale of SmartGate safety sensors used with powered parking
gates. These gates typically have a power-operated barrier arm made of metal,
wood or PVC. This arm moves vertically between an open and a closed position.
Our device places an invisible presence-sensing field around the potentially
dangerous barrier arm to detect people and vehicles in its path. Our device
signals the powered gate to trigger a predetermined response, such as stopping
and reversing the barrier arm. The retail price for our SmartGate™
sensors allow us to realize an acceptable gross profit margin, however, we
continue to look for ways to decrease our cost of goods and increase our
distribution to improve our profit margins.
Marketing and
Sales
We sell
our safety products to manufacturers, dealers and end-users. As part
of our current sales efforts, we have attended trade shows and have continued
our relationships with our customer list which comprises manufacturers, dealers
and end users. We also receive unsolicited orders either by
telephone, fax or internet. In addition, during fiscal year 2009, we
have sought relationships with architectural engineering firms and
municipalities that are implementing projects requiring parking barrier gates,
such as municipal parking lots and airport reconstruction. Although
we do not maintain a full-time sales force, we do engage outside sales
consultants.
During
fiscal year ended December 31, 2008, Magnetic Automation Corp. was our largest
customer, comprising approximately 21% of our total sales revenue for that
year. However, in 2009, Magnetic discontinued our product line, which
resulted in a reduction in direct sales to Magnetic. Currently,
Magnetic instructs their customers to contact us directly for the purchase of
our products. We believe that a significant portion of those sales
would have otherwise been made to Magnetic.
In 2009, Automatic Systems America was
our largest customer, responsible for 11% of our product
revenues. The sales to Automatic Systems in 2009 include a project
that Automatic Systems is administering for a large governmental end user and no
assurance can be given that we will continue to sell products to Automatic
Systems at the same level once the project is complete.
Technology
InvisaShield
technology uses electronic circuitry that emits, controls, and monitors changes
in an invisible energy field. The field is based, in part, upon low energy radio
waves oscillating within a controlled frequency range. The field that is
monitored can be varied in sensitivity from a distance of approximately one
meter to a centimeter or less, depending upon the selected application.
Circuitry constantly checks the field to test for the presence of people,
vehicles or other conductive objects (objects that conduct electricity) that
would disturb the monitored field.
We
believe that the InvisaShield technology is a novel and proprietary way to
provide presence sensing. At the core of the technology is the ability to
project a field or zone capable of detecting most conductive objects that enter
the field. The field is projected from a metallic substance, referred to as an
antenna, which may consist of wire, self-adhesive metallic tape or other
metallic items. The technology allows flexibility in designing and locating the
antenna. This may offer unique opportunities to place presence-sensing fields
where they can be used more efficiently or effectively. This adaptability may
permit the InvisaShield technology to perform non-contact presence-sensing tasks
not currently possible with competing technologies and/or it may perform
presence-sensing tasks similar to those performed by competing technologies, but
in a more efficient, effective, and reliable manner.
InvisaShield
technology does not depend upon lenses, beams or reflectors, which may require
replacement, cleaning and aligning. Its operating environment, including
electronic noise, mechanical noise, temperature, dust, frost, snow, ice or other
operating conditions, generally does not disrupt the non-intrusive, non-contact
presence-sensing capability of our technology.
We have,
in the past, sought to develop additional products based on our InvisaShield
technology. We have developed pre-production prototypes of safety products for
various power doors such as slide-gates, commercial overhead doors, powered
industrial doors (which are used in commercial, manufacturing and industrial
facilities) and residential garage doors and pre-production prototypes of
security products various applications in museums, retail
and industrial. We have indefinitely delayed such development
projects
Competing Technologies - The
presence-sensing business is highly competitive, consisting of numerous
manufacturers of presence-sensing products based on various technologies,
including infrared, ultrasonic, laser, microwave, and similar technologies. For
the most part, these technologies have been in use for a number of years and, in
many cases, may not be proprietary. Our competitors provide a variety
of presence-sensing and other safety and security alternatives such as motion
detectors, CCTV-based movement detection systems, infrared and visible light
beam detectors, light curtains, on/off switching mats and pads, tape switches,
contact edges, as well as others.
In the
safety and/or security sectors we compete with many companies, including
MillerEdge, Stanley, Optex, Napco, Pelco, and DMP, along with other large and
well-established firms such as Honeywell, Tyco, General Electric, Bosch, and
Siemens. Many of our competitors have substantially greater
development, technical, marketing, sales and financial capabilities than we
have. As a result of these factors, competitors and potential competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements and/or to devote greater resources to the development,
promotion and sale of their products and services than we can.
Patents and Trademarks - We
own five Patents issued by the U.S. Patent Office, three of which were issued in
the year 2006 or the first quarter of 2007: Patent No. 5,337,039 issued on
August 9, 1994, Patent No. 6,819,242 issued on November 16, 2004, Patent No.
7,023,222, B2 issued on April 4, 2006; Patent No. 7,167,093 B2 issued on January
23, 2007 and Patent No. 7,187,282 issued on March 6, 2007. In
addition, we have filed for two patents (as PCT, or Patent Cooperation Treaty
filings), one provisional patent application and have one application pending,
all of which cover improvements to the InvisaShield technology.
We have a
trademark on the trade name “SmartGate” which we use in our safety products
category. We have filed trademark applications for the following: “Invisa”,
“InvisaShield” and the tagline “Safe. Secure. No Question.” We believe that our
patent and trademark position will be useful in our efforts to protect our
perceived competitive advantages.
Materials
and Manufacturing
All
components and parts are modified or manufactured by third parties to our
specifications or are otherwise generally available as off-the-shelf materials.
Our products have a number of components including proprietary electronic
circuitry manufactured to our specifications by third party manufacturers and a
standard power supply available in the marketplace. The antenna is standard
wire, tape or other metallic materials, which can generally be purchased in
bulk. Whenever possible, we use fixed price manufacturing for our electronic
circuitry, placing the responsibility for component supply on the manufacturer.
We believe that there are multiple manufacturers and suppliers for each
component and that adequate components and materials will be available to
support our business plan. We perform some final assembly and predetermined
quality control procedures in our facility using contractors, including contract
piece work in connection with the assembly when needed. All shipping
is done directly from our facility.
Government
Regulation
The
Federal Communications Commission regulates the use of radio frequency or “RF”,
such as that used by our safety products. We currently have FCC Certification
for our product. We will endeavor to continue satisfying all requirements of the
FCC to maintain our FCC Certification.
On March
1, 2001, Underwriters Laboratory (UL) implemented a new safety standard for the
powered gate, door and window industry. This rule, UL-325, while not a
governmental regulation, is considered an indication of reasonable safety for
powered gates, doors and windows, and is a requirement for UL certification for
certain powered gate, door and window operators. Gate and operator manufacturers
that rely upon UL certification or consider UL certification important for
components most likely will require that our products be UL certified before
incorporating our products as original equipment. We do not have a UL
certification and the absence of UL certification for our products may
represent a sales or marketing barrier in certain market categories and to
certain customers.
Our
products have also earned the Conformité Européenne marking (also known as
CE mark) which is a mandatory conformity mark placed on many products used in
the single market in the European Economic Area. The CE mark certifies that
a product has met EU consumer safety, health or environmental
requirements. This marking is mandatory for sales of products in
approximately 27 European countries but is usually preferred by customers
whether or not required in their respective countries.
In
addition to gaining the CE mark, our products are now RoHS compliant and have
been since late 2008. The directive on the restriction of the use of
certain hazardous substances in electrical and electronic equipment 2002/95/EC;
commonly referred to as the Restriction of Hazardous Substances Directive or
RoHS) was adopted in February 2003 by the European Union and took effect in July
2006. This directive restricts the use of six hazardous materials
(lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls and
polybrominated diphenyl ether), in the manufacture of various types of
electronic and electrical equipment. By complying with the RoHS directive, our
customers are assured that our products are free of these hazardous
substances.
Warranty
Our
safety products are sold with a 90-day limited warranty against manufactures
parts and defects. We have had no significant claims expensed under the warranty
in 2008 or 2009.
Employees
We have
no full time employees. Our Chief Financial Officer, who is currently our
Acting President, serves in both capacities on a part-time basis. We
support our operations by using consultants and third party contract piece
workers as required.
Research
and Development
We are
not conducting any research and development with respect to our technology at
this time. Therefore, during the years ended December 31, 2008 and
2009 we incurred no research and development expenses.
You
should carefully consider the risks and uncertainties described below and the
other information in this filing before deciding to purchase our common stock.
If any of these risks or uncertainties occurs, our business, financial condition
or operating results could be materially harmed. In that case, the trading price
of our common stock could decline and you could lose all or part of your
investment. The risks and uncertainties described below are not the only ones we
may face. . We have historically incurred losses and losses are
expected to continue in the future, which means that we may not be able to
continue operations unless we obtain additional funding.
We
continue to incur losses.
In the
twelve months ended December 31, 2009, we sustained a net loss from operations
of $171,970, including a gain of $24,714 to reflect the favorable
settlement of certain debt. Absent a dramatic increase in our market
share or demand for our products, future losses are expected to continue.
Accordingly, we will experience significant liquidity and cash flow problems if
we are not successful in increasing our sales and lowering costs. No
assurances can be given that we will be successful in reaching or maintaining
profitable operations. Our ability to generate revenue and achieve profitability
depends upon our ability to manufacture and sell our products in sufficient
volume to cover our fixed and variable costs of operations.
We
will need to continue financing our operations through third party sources or we
may be unable to fund our operations, promote our products or develop our
technology.
In recent
years, our operations have relied almost entirely on external financing to fund
our operations; however, in 2009 sales revenues satisfied approximately 51% of
our operational costs and expenses. During 2008 and 2009, we
funded our operations with funds borrowed under short term notes which, for the
most part, were secured with the Company’s assets. We anticipate,
based on our current proposed plans and assumptions relating to our operations,
that the line of credit established by our senior lender will provide adequate
funding to continue to operate our business through December 31, 2010. Unless
our sales increase significantly, we will need to raise additional capital to
fund our operating expenses beyond December 31, 2010. We cannot
assure you that financing, whether from external sources or related parties,
will be available if needed or on favorable terms beyond December 31, 2010. If
additional financing is not available when required or is not available on
acceptable terms, we may be unable to support our secured debt, fund our
operations and planned growth, take advantage of business opportunities or
respond to competitive market pressures, any of which could have a material
adverse affect on our long term business plan.
Our
financing requirements could result in dilution to existing
stockholders.
The
additional financings we will require may be obtained through one or more
transactions, which effectively dilute the ownership interests of our
stockholders. Further, we may not be able to secure such additional financing on
terms acceptable to us, if at all. We have the authority to issue additional
shares of common stock, as well as additional classes or series of ownership
interests or debt obligations that may be convertible into any one or more
classes or series of ownership interests. We are authorized to issue 95,000,000
shares of common stock and 5,000,000 shares of preferred stock. Such securities
may be issued without the approval or other consent of our
stockholders.
Our
revenues.
We
anticipate that we will encounter difficulties and risks relating to our sales
revenues, which include, but are not limited to, the introduction of
new products, the ability to hire full time personnel, access to required
capital, management issues, increasing our manufacturing capacity, and other
similar aspects of operations which are important to our business
operations.
We
will be required to compete with larger, more established, and better financed
companies.
There are
a number of well-established companies that are well known in the manufacture
and/or distribution of products for the security and life-safety markets. Such
companies include Honeywell, Tyco, General Electric, Bosch, Siemens and others.
Accordingly, we are subject to the difficult challenge of introducing and
commercializing our new technology and products in a strong competitive
environment. Additionally, our technology and products based thereon will have
to compete with other technologies such as passive infrared and various types of
motion detection that are well known and well accepted.
We
continue to experience uncertainty and risks related to market
acceptance.
We
continue our efforts to expand the market for our safety sensor product, to gain
broader market acceptance and to demonstrate competitive advantages. Our success
is dependent, to a large degree, upon our ability to successfully market our
technology and its perceived competitive advantages. Accordingly, our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered in connection with the operation of a small business in a highly
competitive industry, characterized by frequent new product introductions. We
anticipate that we will continue to be disadvantaged by our limited revenues as
they will inhibit our ability to expand our marketing and sales efforts in the
domestic and international marketplace.
The
limits of our of product liability insurance coverage may affect our
Business.
We may be
exposed to potential product liability claims by consumers. Although we maintain
product liability insurance, there can be no assurance that such insurance will
be sufficient to cover all possible liabilities to which we may be exposed. Any
product liability claim, even one that was not in excess of our insurance
coverage or one that is meritless and/or unsuccessful, could adversely affect
our cash available for other purposes, such as research and development. In
addition, the existence of a product liability claim could affect the market
price of our common stock. Also, certain vendors may require minimum
product liability insurance coverage as a condition precedent to purchasing or
accepting products for retail distribution. Product liability insurance coverage
includes various deductibles, limitations and exclusions from coverage, and in
any event might not fully cover any potential claims. Failure to satisfy such
insurance requirements could impede our ability or our distributors or licensees
ability to achieve broad retail distribution of our proposed products, which
could have a material adverse effect on us.
We
may not be able to effectively protect our intellectual property rights, the
foundation of our business, which could harm our business by making it easier
for our competitors to duplicate our services.
We regard
certain aspects of our products, processes, services and technology as
proprietary. We have taken steps to protect them with patents, copyrights,
trademarks, restrictions on disclosure and other methods. Despite these
precautions, we cannot be certain that third parties will not infringe or
misappropriate our proprietary rights or that third parties will not
independently develop similar products, services and technology. Any
infringement, misappropriation or independent development could cause us to
cease operations.
We have
issued patents and have filed patent applications with respect to various
aspects of our technology. The pending patent applications may not be issued to
us, and if issued, may not protect our intellectual property from competition,
which could seek to design around or invalidate these patents. Our failure to
adequately protect our proprietary rights in our products, services and
technology could harm our business by making it easier for our competitors to
duplicate our services. We may have to resort to litigation to enforce our
intellectual property rights, protect our trade secrets, determine the validity
and scope of the proprietary rights of others, or defend ourselves from claims
of infringement, invalidity or unenforceability. Litigation may be expensive and
divert resources even if we win. This could adversely affect our business,
financial condition and operating results such that it could cause us to reduce
or cease operations.
Other
parties may assert that our technology infringes on their Intellectual property
rights, which could divert management time and resources and possibly force our
Company to redesign our technology.
Technology-based
companies, such as ours, have the potential to be involved in litigation related
to allegations of patent infringement. Although we have no knowledge of any such
claims, from time to time, third parties may assert patent, copyright and other
intellectual property rights to technologies that are important to us. While
there currently are no outstanding infringement claims pending by or against us,
we cannot assure you that third parties will not assert infringement claims
against us in the future, that assertion by such parties will not result in
costly litigation, or that they will not prevail in any such litigation. In
addition, we cannot assure you that we will be able to license any valid and
infringed patents from third parties on commercially reasonable terms or,
alternatively, be able to redesign products on a cost-effective basis to avoid
infringement. Any infringement claim or other litigation against or by us could
have a material adverse effect on us and could cause us to reduce or cease
operations.
We
may not be able to keep up with rapid technological changes, which could render
our products less competitive or obsolete.
Changes
in technology, changes in customer requirements and preferences, introduction of
products and services embodying new or different technologies and the emergence
of new industry standards and practices could render our existing technology and
products less competitive or obsolete. Our future success will depend on our
ability to enhance and improve the responsiveness, functionality, accessibility
and features of our technology and products. We expect that our marketplace will
require extensive technological upgrades and enhancements to accommodate many of
the new products and services that we anticipate will be added to our
marketplace. We cannot assure you that we will be able to expand and upgrade our
technology and systems, or successfully integrate new technologies or systems we
develop in the future, to accommodate such increases in a timely
manner.
We
may not be able to increase sales or if we succeed in increasing sales and
revenue, we may not be able to effectively manage the growth
necessary to execute our business plan, which could adversely affect the quality
of our operations and our costs.
In order
to successfully execute our business plan, we must significantly increase our
sales and revenue. Additionally, we will need to increase the number of
strategic partners, manufacturers, dealers, distributors and customers that use
our products. Lack of growth in sales and revenue will require that we continue
to access financing which will subject us to the risks attendant thereto. On the
other hand, if we succeed in increasing sales and revenue, the resulting growth
will place significant strain on our systems and resources. In the
event of growth, we may not be able to maintain the quality of our operations,
control our costs, continue complying with all applicable regulations and expand
our internal management, technical information and accounting systems in order
to support our desired growth. We cannot be sure that we will manage our growth
effectively, and our failure to do so could cause us to reduce or cease
operations.
We
are thinly staffed.
We have
no full time employees. Our Chief Financial Officer is also serving
as our acting President and is available to the Company on a part time
basis. We also engage consultants and contract piece workers as
necessary. Unless additional employees are hired, the limited size of
our staff could restrict the level and/or nature of our business
operations.
We have promissory notes payable that
are secured by all of our assets and default under these notes could result in
the loss of our assets.
In order to fund our operations, we
have entered into promissory notes payable that are secured by all of our assets
and in some instances by shares of our common stock that were issued to secure
the promissory notes. We currently do not have the available cash or other
financing resources to pay the interest or principal there under. Default under
these promissory notes could result in the loss of all of our assets and
business opportunity. The senior lender has liens on all of our
assets and approximately 49% of the common stock and potentially other shares
which give it significant influence on our ability to issue stock, get
financing, or consummate a business transaction.
None
In the February, 2010, we relocated our
operations to approximately 1,277 square feet of office space located at 1800
2nd
Street in Sarasota, Florida. Our monthly base rental is approximately
$1,600. We rent the facilities pursuant to a lease which expires on
February 28, 2011.
None.
PART
II
Market
Information
Our
Common Stock trades on the NASD OTC BB under the symbol INSA.OB. The following
table sets forth the range of high and low bids to purchase our Common Stock
during the last two fiscal years. Such prices represent quotations between
dealers, without dealer markup, markdown, or commissions, and may not represent
actual transactions.
As of
December 31, 2009 there were 395 stockholders of record
of Invisa Common Stock.
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Quarter
|
High
Bid
|
Low
Bid
|
|
First
Quarter 2008
|
0.01
|
0.01
|
|
Second
Quarter 2008
|
0.02
|
0.01
|
|
Third
Quarter 2008
|
0.02
|
0.01
|
|
Fourth
Quarter 2008
|
0.02
|
0.00
|
|
First
Quarter 2009
|
0.00
|
0.00
|
|
Second
Quarter 2009
|
0.00
|
0.00
|
|
Third
Quarter 2009
|
0.00
|
0.00
|
|
Fourth
Quarter 2009
|
0.02
|
0.02
|
On March
15, 2010, the closing bid and closing ask prices for shares of our Common Stock
in the over-the-counter market, as reported by NASD OTC BB was $0.022 per
share.
We
believe that there are presently approximately 6 market makers for our Common
Stock. When stock is traded in the public market, characteristics of depth,
liquidity and orderliness of the market may depend upon the existence of market
makers as well as the presence of willing buyers and sellers. We do not know if
these or other market makers will continue to make a market in our Common Stock.
Further, the trading volume in our Common Stock has historically been both
sporadic and light.
Dividend
Policy
With the
exception of our Series B Preferred Stock, the payment by the Company of
dividends on its capital stock rests within the sole discretion of its Board of
Directors. The payment of dividends will depend upon our earnings, our capital
requirements and our financial condition, as well as other relevant factors.
With the exception of our Series B Preferred Stock, the Company has not been
required to or declared any cash dividends since its inception, and has no
present intention of paying any cash dividends on its capital stock in the
foreseeable future. Our policy with regard to the Series B Preferred
Stock is to base any dividend paid on a rate that varies with the prime interest
rate. The dividend may be paid in either stock or cash at the option
of the Company.
Transfer
Agent
The
Transfer Agent for the Common Stock of the Company is Continental Stock Transfer
and Trust Company 17 Battery Place, New York, NY 10004.
Recent
Sales of Unregistered Securities
We issued
53,333,333 shares of our common stock in through 2008 to
collateralize several notes totaling $563,400 evidencing loans made to the
Company by a third party lender. The shares were deposited in an escrow
account and will only be delivered to such lender in the event of a default
under or non-payment of the notes. Upon full repayment of the notes, said shares
will be returned to the Company. The shares delivered to the escrow agent
as security for the notes are not being treated as outstanding and will only be
considered as being issued and outstanding if and when the shares are released
by the escrow agent and delivered to the lender as a result of a default under
the promissory notes and related security agreement. (Additionally,
see Note G to the accompanying financial statements.)
In 2008
the Company issued 2,667,361 shares of common stock for employee share-based
compensation and 7,047,594 shares for settlement of debt.
In 2009
the Company granted 375,000 shares of its common stock as compensation to its
Board members.
Not applicable
The
following discussion and analysis of our financial condition and plan of
operations should be read in conjunction with our financial statements and
related notes appearing elsewhere in this filing. This discussion and analysis
contains forward-looking statements including information about possible or
assumed results of our financial conditions, operations, plans, objectives and
performance that involve risk, uncertainties and assumptions. The actual results
may differ materially from those anticipated in such forward-looking statements.
For example, when we indicate that we expect to increase our product sales and
potentially establish additional license relationships, these are
forward-looking statements. The words expect, anticipate, estimate or similar
expressions are also used to indicate forward-looking statements. The cautionary
statements made herein should be read as being applicable to all related
forward-looking statements in this Annual Report on Form 10-K.
Background
of our Company
We
manufacture and sell sensors using the Company’s patented InvisaShield™
presence-sensing technology in the safety market. We market our line
of safety sensors under the name of SmartGate ® brand
safety sensors used in or with parking barrier gates to protect life and
property. All of our sales revenues are derived from the sale of our
SmartGate safety sensors.
We
financed our operations in 2008 and 2009 through revenues derived from the sale
of our SmartGate ® brand
safety sensors and short-term debt financing. We are focusing our efforts on
increasing our sales of our products and reducing operating costs, where
possible. In March 2010 the company’s senior lender agreed to extend
the maturity date of the Senior Secured Promissory Notes and the related accrued
interest until March 1, 2012, and put it place a line of credit which we believe
is sufficient to finance our operations through December 31,
2010. (See Note J)-
.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2009
Net Sales - During the years
ended December 31, 2008 and 2009, product sales totaled $102,297and $147,589,
respectively. We had a gross profit of $41,739 for the year ended December
31, 2008 and gross profit of $83,476 for the year ended December
31, 2009. Gross margin
was 40 percent during 2008 and 57 percent during 2009. We attribute
the increase in our sales and gross margin in 2009 to an increase in the retail
price of our products as well as the success of our new marketing strategy of
targeting project work and municipalities while maintaining our current customer
relationships.
Selling, General and Administrative
Expenses - During the years 2008 and 2009, selling, general and
administrative expenses totaled $256,999 and $219,533,
respectively. We were successful in decreasing our expenses in 2009
by reducing our insurance costs through lower premiums, decreasing our leasehold
costs and reducing professional services expenses.
Interest (expense) and other,
Net - The interest expense during 2008 of $56,348 and during 2009 of
$62,202 relates primarily to financing costs and interest due to certain
stockholders under lines of credit to the Company. During 2008 and
2009, the Company settled certain debts for cash and stock resulting in the
extinguishment gain of $377,454 and $24,714, respectively.
Net Income (Loss) applicable to
Common Stockholders and Net Income (Loss) Per Share applicable to Common
Stockholders - The Company’s net income (loss) applicable to Common
Stockholders and net income (loss) per share applicable to Common Stockholders
for these periods decreased from net income of $18,096 and $0.00 in 2008 to
a net loss of $226,315 and ($0.00) in 2009.
Plan
of Development and Operations
We obtained funding of $262,730, in the
form of short-term debt financing in 2008, and an additional $69,370 in 2009,
which together with our cash from sales supported our
operations. We have extended the maturity of our short-term
debt to March 1, 2012, and put in place a line of credit which we believe is
sufficient to finance our operations through December 31, 2010. (See
Note J)-. In addition, we will explore other business opportunities
such as licensing and business combinations as they may arise.
Liquidity
and Capital Resources
At
December 31, 2009, we had a cash and cash equivalents
totaling $157.
As of December 31, 2009, the Company
has borrowed $628,320 which includes $64,920 in interest payments due and owing
from its senior lender. The financing arrangements are set forth in a
series of Notes having similar terms but varying terms and maturity dates,
specifically (i) $128,320 in 2009, (ii) $100,000 in July 2008, (iii) $150,000 in
March 2008 and (iv) $250,000 prior to 2008. Each note bears interest
at 10 percent per annum and is secured by all of the assets of the
Company. Additionally, the Company has pledged an aggregate of
53,333,333 shares of its common stock, and has committed additional capital
stock, when available, as additional security for the notes. These
shares have been issued and are being held in escrow as additional collateral
against the notes. Upon full repayment of the notes, said
shares will be returned to the Company. The shares delivered to the
escrow agent as security for the notes are treated as issued on the stockholder
lists of the Company but will not be deemed outstanding unless the
shares are released by the escrow agent and delivered to the lender as a result
of a default or non payment under the promissory notes and related security
agreement.
In March 2010, as part of a restructure
of the senior debt of the Company, the senior lender agreed to extend the
maturity date of its $628,320 principal amount of notes and accrued interest to
March 1, 2012, through a series of note extension agreements. With
the exception of the extension of the maturity date to March 1, 2012, all of the
terms and provisions of the original notes remain in full force and effect,
including, without limitation all security thereon. The senior lender
also established a $150,000 line of credit to finance operations of the Company
through December 31, 2010. The revolving credit facility has similar
terms and provisions to the previous notes between the Company and the senior
lender and is due and payable on March 1, 2012.
The Company had negative working capital at December 31, 2009, totaling $584,313
including $157 in cash and cash equivalents. To finance planned operations
through at least the next 12 months, we will rely upon our sales revenues and
the line of $150,000 line of credit established by our senior
lender. We believe that the line of credit facility and our
sales revenue will be sufficient to finance our operations through December 31,
2010. However, we will continue to explore other avenues of
financing, such as licensing of our product and/or our technology and potential
strategic or business relationships or combinations, and to a lesser degree
private equity and debt financing.
While we are confident that the current funding and sales revenue available to
us will be sufficient to finance our operations through December 31, 2010, it is
important to note that additional funding, if needed, may not be available when
required or it may not be available on acceptable terms. Should we require
additional funding, we may need to reduce or refocus our operations or obtain
funds through arrangements that would be less attractive to us or which may
require us to relinquish rights to certain or potential markets, either of which
could have a material adverse effect on our business, financial condition and
results of operations.
The Financial Statements of the Company and the accompanying notes
thereto, and the Report of Independent Registered Certified Public Accounting
Firm are included as part of this Form 10-K beginning on Page
F-1.
None
Evaluation
of Disclosure Controls and Procedures
The
Company maintains “disclosure controls and procedures” as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), that are designed to ensure that information
required to be disclosed by us in reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Acting
President, Chief Financial Officer, and Board of Directors, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management
recognizes that disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable assurance of achieving the desired
objectives, and we necessarily are required to apply our judgment in evaluating
the cost-benefit relationship of possible disclosure controls and
procedures.
13
Our
management, including our Acting President and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2009 and concluded that our
disclosure controls and procedures were effective as of December 31,
2009.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. The Company’s internal control system is designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes, in accordance
with generally accepted accounting principles. Because of inherent limitations,
a system of internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate due to
change in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our management, including our Acting
President and Chief Financial Officer, conducted an evaluation of the
effectiveness of our internal control over financial reporting and concluded
that our internal control over financial reporting was effective as of December
31, 2009.
This Form 10-K does not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the SEC that permit the Company to provide only management’s
report in this annual report.
Changes
in Internal Controls over Financial Reporting
During
the quarter ended December 31, 2009, there were no changes in the Company’s
internal control over financial reporting (as defined in Rule 13a-15(f) and
15d–15(f) under the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
None.
PART
III
The
Company’s Directors are elected at the Annual Meeting of Stockholders and hold
office until their successors are elected and qualified. The Company’s officers
are appointed annually by the Board of Directors and serve at the pleasure of
the Board. There are no family relationships between any of the officers,
directors or significant employees of the Company.
The
directors, executive officers, and significant employees of the Company at
December 31, 2009 are as follows:
|
Positions
and Offices Presently
|
||||
|
Name
|
Age
|
Held
with the Company
|
||
|
Edmund
C. King
|
75
|
Director,
Acting President, Chief Financial Officer, Treasurer
|
||
|
Gregory
J. Newell
|
60
|
Director
|
||
|
John
E. Scates
|
53
|
Director
|
EDMUND C. KING has served as
our Chief Financial Officer and Director since February 9, 2000. In 2007, Mr.
King began serving as our Acting President. Until October 1, 1991,
Mr. King was a partner in Ernst & Young, an international accounting and
consulting firm. While at Ernst & Young, Mr. King was that firm’s Southern
California senior healthcare partner and prior to that directed the Southern
California healthcare practice for Arthur Young & Company, one of the
predecessor firms of Ernst & Young. During his 30 years with Ernst &
Young, Mr. King counseled clients in structuring acquisitions and divestitures;
advised on the development of strategic plans; directed the preparation of
feasibility studies; assisted with operational and financial restructuring;
directed and supervised audits of client financial statements; and provided
expert witness testimony and technical SEC consultation. Commencing in 1999, Mr.
King became a financial consultant to SmartGate, L.C. that we acquired in
February 2000. Mr. King has served as Chief Financial Officer and Director of
SmartPlug, Inc. since November 2000 and Chief Financial Officer and Director of
FlashPoint International, Inc. since October 2001. From January 1992, Mr. King
has been a general partner of Trouver, an investment banking and financial
consulting partnership. Mr. King is also a member of the Board of Directors of
LTC Properties, Inc., an NYSE listed real estate investment trust. Mr. King is a
graduate of Brigham Young University, having served on the National Advisory
Council of that school’s Marriott School of Management, and has completed a
Harvard University management course sponsored by Ernst & Young. Mr. King
also has served as Chairman of the HFMA’s Long-Term Care Committee (Los Angeles
Chapter) and is a past member of the National Association of Corporate
Directors. He holds CPA certificate in the state of California.
Mr. King
was nominated to serve our Board of Directors shortly after our Company was
formed. As part of his experience in public accounting and, then,
later as a financial advisor, Mr. King was involved in the issues of a newly
formed public company and also in the raising of capital in various
industries. The Board of Directors believed this background and
experience would be a beneficial fit with the Company’s needs and would provide
the company with an experienced individual to analyze the Company’s
operations.
Ambassador
GREGORY J. NEWELL has
served as a Director of the Company since June 13, 2002. Ambassador Newell is an
international business development strategist and former: U.S. Ambassador; U. S.
Assistant Secretary of State; and White House Commissioned Officer, having
served under four U.S. Presidents. From 1992 to the present, Ambassador Newell
has served as President of International Commerce Development Corporation in
Provo, Utah, an international business-consulting firm. From 1989 to 1991,
Ambassador Newell served as President and International Development Strategist
of Dow, Lohnes & Albertson International, a subsidiary of one of Washington,
D.C.’s oldest and largest law firms. Ambassador Newell was U.S. Ambassador to
Sweden from 1985 to 1989. Prior to that he was U.S. Assistant Secretary of State
for International Organizational Affairs serving as the senior U.S. government
official responsible for the formulation and execution of U.S. multilateral
foreign policy in 96 international organizations including the United Nations,
where he served as senior advisor to the 37th, 38th, 39th and 40th United
Nations General Assemblies. He served as Director of Presidential Appointments
and Scheduling and Special Assistant to President Ronald Reagan and Staff
Assistant to President Gerald R. Ford. Ambassador Newell has also served on the
boards of the Landmark Legal Foundation, Sutherland Institute and the
Swedish-American Chamber of Commerce.
Mr.
Newell was nominated to serve our Board of Directors at a time when the Company
was attempting to expand its market presence. His background includes
an emphasis on marketing activities in government as well as private
industry. As a result, he provides not only knowledge of product and
service marketing but also brings business insight into the governmental
regulatory environment.
JOHN E. SCATES, a garage door
industry engineer and consultant, was appointed to the Company’s Board of
Directors on June 27, 2002. From June 1997 to the present, Mr. Scates has been
President and Owner of Scates, Inc., a product design and failure analysis
consultancy in Carrollton, Texas. From May 1993 to May 1997, Mr. Scates served
as Manager of Research and Development for Windsor Door, Little Rock, Arkansas.
From February 1985 to May 1993, Mr. Scates served as Manager of Structures at
Overhead Door R & D/engineering, Dallas, Texas. Mr. Scates earned a BS
Degree in Mechanical Engineering, Summa Cum Laude from Texas A & M
University in 1979. Mr. Scates is licensed as a Professional Engineer in Texas,
Florida and North Carolina.
Mr.
Scates was nominated to serve on our Board of Directors at such time when we
were seeking to expand our product offerings. He is
knowledgeable of the powered gate industry and brings experience in research and
manufacturing.
Significant
Employees
At December 31, 2009 we had no full
time employees. Our Chief Financial Officer, who also serves as our Acting
President, is employed on a part-time basis. We support operations by
using consultants and contract piece workers as required.
Compensation
Committee and Compensation of Directors
Messrs.,
Newell and Scates serve on the Compensation Committee, which determines the
compensation amounts to be paid to our directors, officers and
employees.
Report
of the Audit Committee
The Audit
Committee is composed of two independent directors and operates under a written
charter adopted by the Board of Directors. A copy of the Audit Committee Charter
(as amended) is filed herewith as exhibit 10.58. As described above,
the Audit Committee is responsible for appointing and replacing our independent
accountants; reviewing the results and scope of the independent accountants’
audit and the services provided by the independent accountants; reviewing
compliance with legal and regulatory requirements; evaluating our audit and
internal control functions; and ensuring the integrity of our financial
statements. In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited financial statements in the Annual Report with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Audit
Committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of our accounting principles, and such
other matters as are required to be discussed with the Committee in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). In addition, the Audit Committee has discussed with the independent
auditors the auditors’ independence from management and the Company, including
the matters in the written disclosures required by the Independence Standards
Board and considered compatibility of non-audit services with the auditors’
independence.
The Audit
Committee discussed with our independent auditors the overall scope and plans
for their audit. The Committee meets with the independent auditors, with and
without management present, to discuss the results of their examination, and the
overall quality of our financial reporting. The Audit Committee held
4 meetings during 2009.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to our Board of Directors, and the Board approved, that the audited
financial statements be included in our Annual Report on Form 10-K for the 2009
fiscal year for filing with the Securities and Exchange Commission. The Audit
Committee and the Board of Directors have also recommended the selection of our
independent auditors.
|
THE
AUDIT COMMITTEE
|
|
Gregory
Newell, Chairman
|
|
John
Scates
|
Board
Meetings and Independence
During
the year ended December 31, 2009, the Board of Directors of the Company
held 4 telephonic
meetings. Each director attended at least 75% of the aggregate
of (1) the total number of meetings of the Board (held during the period
for which he has been a director) and (2) the total number of meetings held
by all committees of the Board on which he served (during the periods that he
served).
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers to send reports of their ownership of the
equity securities of the Company and of changes in such ownership to the SEC.
SEC regulations also require the Company to identify in this Annual Report on
Form 10-K any person subject to this requirement who failed to file any such
report on a timely basis, including the following: Edmund C. King,
John E. Scates and Gregory J Newell.
Code
of Ethics
Our board
of directors has adopted a Code of Business Conduct and Ethics and Compliance
Program which is applicable to Invisa, Inc. and to all our directors, officers
and employees, including Invisa, Inc.’s principal executive officer and
principal financial officer, principal accounting officer or comptroller, or
other persons performing similar functions.
A copy of
the Company’s Code of Ethics may be obtained free of charge by making the
request to the Company in writing.
Director
Compensation
We do not
have a formal plan for compensating our directors but during the 2009 fiscal
year each of our Directors were granted 125,000 shares, respectfully, of the
Company’s common stock.
Our
bylaws provide for us to indemnify our directors and officers to the extent
permitted by Nevada law, with respect to actions taken by them on our behalf. We
maintain a policy of directors’ and officers’ liability insurance for this
purpose.
Compensation
Committee Interlocks and Insider Participation
We have
no interlocking director relationships. None of our executive officers is a
member of the Compensation Committee of any company in which any director or
executive officer is a member of our board of directors.
|
EXECUTIVE
COMPENSATION
|
Compensation
Discussion & Analysis
Overview.
This
Compensation Discussion and Analysis is intended to describe the material
factors underlying the compensation policies and decisions of the Company with
regard to compensation paid to our executive officers in 2008 and 2009. The
Compensation Committee oversees the Company’s executive compensation in
accordance with its Charter and recommends to the Board of Directors
compensation for the named executive officers. The Compensation Committee
receives input and recommendations when requested from our executive
officers.
Our only
named executive officer at the end of fiscal 2009, Mr. Edmund King, does not
have a written employment agreement and works on a part-time basis for the
Company. Mr. King received no salary or other cash compensation during fiscal
2009 but did receive 125,000 shares of the Company’s common stock.
However the Company charged $36,000 to operations for the value of his
services.
Our
compensation philosophy for our executive officers has been shaped by our lack
of long-term financing and our severe shortage of operating capital.
Accordingly, our compensation decisions and particularly our approach to
allocating compensation between cash and non-cash elements of the compensation
package reflect our goal to preserve cash whenever possible. In fiscal 2007 our
compensation decisions for our executive officers emphasized option grants which
we believe support our goals with regard to both retention and motivation of our
executive officers. In making our compensation decisions, we strive to be aware
of the level of compensation which is paid to executive officers of various
companies that we consider to be comparable to us in size. Our goal is for the
compensation paid to our named executive officers to be at or below the fiftieth
percentile of the companies that we have identified as being comparable
companies.
Base Salaries.
Mr. King
did not receive any base salary in fiscal 2009; however, a proforma amount of
$36,000 has been charged to operations and credited to additional paid in
capital.
Option
Grants.
No Options were granted
in fiscal year 2009.
Perquisites.
Consistent
with our philosophy to preserve cash, we have sought to limit perquisites.
Perquisites paid to our named executive officers are discussed as footnotes to
the following Summary Compensation Table. Our current policy for paying medical
and dental insurance is not to pay insurance premiums. Our policy is not to pay
for life insurance, long-term and short-term disability insurances and
accidental death and dismemberment insurance. Our policy with regard to unused
vacation for our executive group is to pay at the base salary rate for vacation
not used during the calendar year of termination.
Change
in Control Severance Policy.
None.
REPORT
OF COMPENSATION COMMITTEE
The
Compensation Committee of the Board of Directors has reviewed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K and
discussed it with the Company’s management. Based on the Compensation
Committee’s review and discussions with management, the Compensation Committee
recommends to the Board of Directors that the Compensation Discussion and
Analysis be included in the Company’s Annual Report on Form 10-K for fiscal
2009.
|
John
E Scates, Chairman
Gregory
J Newell
|
DIRECTOR
COMPENSATION
FOR
THE THREE YEARS ENDED DECEMBER 31, 2009
|
Name
|
Fees
Earned
or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in Pension
Value and
Non Qualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
|
Edmund
C. King -
|
2007 |
----
|
----
|
20,000
|
----
|
----
|
----
|
----
|
|
|
2008 |
----
|
----
|
----
|
----
|
----
|
----
|
----
|
|
|
2009 |
----
|
1,000
|
----
|
----
|
----
|
----
|
----
|
|
Greg
Newell
-
|
2007 |
----
|
----
|
----
|
----
|
----
|
----
|
----
|
|
|
2008 |
----
|
----
|
----
|
----
|
----
|
----
|
----
|
|
|
2009 |
----
|
1,000
|
----
|
----
|
----
|
----
|
----
|
|
John
Scates
-
|
2007 |
----
|
----
|
----
|
----
|
----
|
----
|
----
|
|
|
2008 |
----
|
----
|
----
|
----
|
----
|
----
|
----
|
|
|
2009 |
----
|
1,000
|
----
|
----
|
----
|
----
|
----
|
Employment
Agreements with Executives
We have
no written employment agreements.
Equity
Incentive Plans
We have
five stock plans as listed below:
|
Plan
|
Shares
Authorized
for
Issuance
|
|
2000
Plan
|
1,200,000
|
|
2002
Plan
|
1,500,000
|
|
2003
Plan
|
1,500,000
|
|
2003A
Plan
|
3,500,000
|
|
2006
Plan
|
2,500,000
|
|
10,200,000
|
All of
the Plans have been approved by the Board of Directors and all, except for the
2006 Plan, have been approved by the Shareholders. All of the plans
authorize awards of incentive stock options or non-qualified stock options to
employees, directors, and consultants of our company and affiliates. The
purposes of the Plans are as follows: to encourage and enable employees,
directors, and consultants to acquire a proprietary interest in the growth and
performance of our company; to generate an increased incentive for key employees
and directors to contribute to our future success and prosperity, thus enhancing
the value of our company for the benefit of our stockholders; and to enhance the
ability of our company to attract and retain key employees and directors who are
essential to progress, growth, and profitability.
The Plans
are administered by the Compensation Committee of our Board (the
“Administrator”). All members of our Compensation Committee are non-employee
directors and outside directors, as defined in the Plans. Subject to the
limitations set forth in the Plans, the administrator has the authority to grant
options, to determine the purchase price of the shares of our common stock
covered by each option, to establish the term of each option, to determine the
number of shares of our common stock to be covered by each option, to establish
vesting schedules, to designate options as incentive stock options or
non-qualified stock options, and to determine the persons to whom grants are to
be made.
The
Administrator establishes the option exercise price, which in the case of
incentive stock options, must be at least the market price (as such term is
defined in the Plans) of our common stock on the date of the grant or, with
respect to optionees who own at least 10% of the total combined voting power of
all classes of our stock (a “10% Stockholder”), 110% of the market price on the
date of the grant.
Options
granted under the Plans are generally not transferable by the optionee except by
will or the laws of descent and distribution, or pursuant to written agreement
approved by the administrator relating to any non-qualified stock options in any
manner authorized under applicable law. Except as provided in the applicable
stock option agreement, options must be exercised within 90 days of termination
for any reason other than disability, retirement, or death, within one year of
termination by disability or retirement, or by a designated beneficiary within
two years of death.
Except as
provided to the contrary in the option agreement, options granted under the
Plans vest in one-third annual increments, beginning on the grant date of the
option. In no event may an incentive stock option be granted more than 10 years
from the effective date of the plan or be exercised after either the expiration
of 10 years from the grant date, or five years from the grant date in the case
of a 10% Stockholder.
Incentive
stock options may not vest for the first time with the respect to any optionee
in a calendar year with a market price exceeding $100,000. Any option grants
that exceed that amount shall be automatically treated as non-statutory stock
options.
The Plans
may be suspended, terminated, modified, or amended by our board, but no such
suspension, termination, modification, or amendment may adversely affect the
terms of any option previously granted without the consent of the affected
optionee, and any amendment will be subject to stockholder approval to the
extent required by applicable law, rules, or regulations.
We, from
time to time, grant to our directors, executive officers and employees options
to purchase our common stock under the Plans. As of December 31, 2009, Invisa
had no options to purchase shares of common stock outstanding or
exercisable.
401(k)
Savings Plan
We do not
have a 401(k) savings plan.
Limitation
of Liability and Indemnification of Officers and Directors;
Insurance
Our
Officers and Directors are indemnified to the fullest extent provided by Nevada
law.
We
maintain a policy of directors’ and officers’ liability insurance to indemnify
our directors and officers with respect to actions taken by them on our
behalf.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers, or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in such Act and is therefore unenforceable.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
The
following table sets forth the beneficial ownership of shares of our common
stock as of December 31, 2009 for:
|
•
|
each
person (or group of affiliated persons) known by us to beneficially own
more than 5% of our common stock;
|
|
•
|
each
of our directors;
|
|
•
|
each
named executive officer; and
|
|
•
|
all
of our directors and executive officers as a
group.
|
Information
with respect to beneficial ownership has been furnished by each director,
officer or beneficial owner of more than 5% of our common stock. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
requires that such person have voting or investment power with respect to
securities. In computing the number of shares beneficially owned by a person
listed below and the percentage ownership of such person, shares of common stock
underlying options, warrants or convertible securities held by each such person
that are exercisable or convertible within 60 days of December 31, 2009 are
deemed outstanding, but are not deemed outstanding for computing the percentage
ownership of any other person.
Except as
otherwise noted below, and subject to applicable community property laws, the
persons named have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them.
|
Name and Address of Beneficial
Owner (1)
|
Reporting Status
|
Aggregate
Number of Shares
Beneficially
Owned
(2)
|
Percentage
of
Shares
Beneficially
Owned
|
|
Stephen
A. Michael
|
5%
Stockholder
|
3,939,261
|
10.08%
|
|
Michael
R. Ries (Trustee)
|
5%
Stockholder
|
1,864,584
|
5.04
|
|
Frank
A Ficarra (Trustee)
|
5%
Stockholder
|
1,864,584
|
5.04
|
|
Samuel
S Duffey
|
5%
Stockholder
|
5,082,740 (3)
|
12.63
|
|
Edmund
C. King
|
Acting
President, CFO, Director
|
1,201,772 (4)
|
3.31
|
|
Gregory
J. Newell
|
Director
|
328,565
|
0.93
|
|
John
E. Scates
|
Director
|
328,565
|
0.93
|
|
All
officers and directors as a group
|
1,858,902
|
5.02
%
|
|
(1)
|
Unless
otherwise provided herein all addresses are C/O Invisa, Inc., 1800 2nd
Street, Suite 965 Sarasota, FL 34236. The address for Mr. Ries is 4837
Swift Road, Suite 210, Sarasota, Florida 34231; for Mr. Ficarra is 4837
Swift Road, Suite 210, Sarasota, Florida
34231;
|
|
(2)
|
The
percentage calculations are based on 35,156,081 shares that were
outstanding as of December 31, 2009 plus the respective
beneficial shares owned by each selling stockholder. Beneficial
ownership is determined in accordance with rules of the Securities and
Exchange Commission and includes voting power and/or investment power with
respect to securities. Shares of common stock subject to options or
warrants currently exercisable or exercisable within 60 days of December
31, 2009 are deemed outstanding for computing the number, and the
percentages of outstanding shares beneficially owned by the person holding
such options, but are not deemed outstanding for computing the percentage
beneficially owned by any other
person.
|
|
(3)
|
Includes
4,528,666 shares held in the name of Friday Harbour and 554,074 in Mr.
Duffey’s name.
|
|
(4)
|
Includes
1,196,792 shares held in Mr. King’s name, and 5,000 shares held in the
name of the King Family Trust.
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Other
than the compensation discussed herein, we had no items to disclose hereunder
for 2009 except Mr. King had loaned $20,124 to the Company during
2007 and an additional $136 in 2008 aggregating $20,260. The loans were not
secured and are interest free; they remain outstanding and unpaid at December
31, 2009 and on the date hereof
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
During
2009 and 2008, annual fees approved for the year-end audit and interim reviews
aggregated approximately $32,000 for each year. In addition, during
2009 and 2008 tax-related fees approved for compliance aggregated,
approximately, $4,000 and $4,000 respectively.
The Audit
Committee has established its pre-approval policies and procedures, pursuant to
which the Audit Committee approved the foregoing audit services, provided by
Stark, Winter Schenkein & Co., LLP in and 2008 and 2009 and Kingery &
Crouse, PA in 2010. Consistent with the Audit Committee’s responsibility for
engaging the Company’s independent auditors, all audit and permitted non-audit
services require pre-approval by the Audit Committee. The full Audit Committee
approves proposed services and fee estimates for these services. The Audit
Committee chairperson or its designee has been designated by the Audit Committee
to approve any services arising during the year that were not pre-approved by
the Audit Committee. Services approved by the Audit Committee chairperson are
communicated to the full Audit Committee at its next regular meeting and the
Audit Committee reviews services and fees for the year at each such
meeting.
Effective
January 2010, Stark, Winter Schenkein & Co., LLP was replaced by Kingery
& Crouse, PA as the Company’s independent auditors.
PART
IV
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a) The
following documents are filed as part of this Report:
Exhibits
The
following exhibits are filed as part of, or incorporated by reference into, this
amendment to annual report on Form 10-K/A:
INDEX
TO EXHIBITS
|
ITEM
NO.
|
DESCRIPTION
|
|
2.1
1
|
Agreement
of Merger and Plan of Reorganization dated 2/25/02 by and among SmartGate
Inc., SmartGate/RadioMetrix Acquisition Corp. and Radio Metrix Inc.,
Letter of Clarification, and Amendment dated as of April 24,
2003
|
|
10.1
1
|
Quarterly
Revenue Based Payment Agreement by and among the Company and Stephen A.
Michael, Spencer Charles Duffey Irrevocable Trust u/a/ d July 29, 1998,
Elizabeth Rosemary Duffey Irrevocable Trust u/a/d July 29, 1998, Robert T.
Roth, William W. Dolan dated as of February 25, 2002; and Amendment dated
as of April 24, 2003
|
|
10.2
1
|
Promissory
Note, Security Agreement, and Escrow Agreement - Re: Daimler Capital
Partners, Ltd. - loan and stock options; Stock Option Agreement with
Daimler Capital Partners, Ltd. - October 28, 2002; Stock Option Agreement
with Daimler Capital Partners, Ltd. - February 28, 2003
|
|
10.3
1
|
Form
of Plan 2003 Option Agreement with Joseph F. Movizzo - May 13, 2003
(including form of Letter of Investment Intent)
|
|
10.4
1
|
Consulting
Agreement - March 2003 between Crescent Fund, Inc. and the
Company
|
|
10.5
1
|
Agreement
dated as of April 24, 2003 between Alan A. Feldman and the
Company
|
|
10.6
1
|
Financing
Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the
Company
|
|
10.7
1
|
Series
2003A 7% Convertible Note Due June 9, 2004, dated May 9, 2003 from the
Company to BarBell Group, Inc.
|
|
10.8
1
|
Investment
Agreement dated as of May 9, 2003 between BarBell Group, Inc. and the
Company
|
|
10.9
1
|
Warrant
to Purchase Shares of Common Stock dated as of May 9, 2003, issued by the
Company to BarBell Group, Inc.
|
|
10.10
1
|
Registration
Rights Agreement dated as of May 9, 2003 between the Company and BarBell
Group, Inc.
|
|
10.11
1
|
Broker-Dealer
Placement Agent Selling Agreement - May 2003 between Capstone Partners LC
and the Company
|
|
10.12
2
|
Amended
and Restated Regulation S Subscription Agreement - July 22, 2003 between
Capstone Partners LC and the Company
|
|
10.13
2
|
Amended
and Restated Regulation S Subscription Agreement - July 22, 2003 executed
by Nautilus Technologies, Ltd. - subscribing for 125,000
Units
|
|
|
|
|
10.14
2
|
Amended
and Restated Regulation S Subscription Agreement - July 22, 2003 executed
by GM Capital Partners, Ltd. - subscribing for 50,500
Units
|
|
10.15
2
|
Amended
and Restated Regulation S Subscription Agreement - July 22, 2003 executed
by Kallur Enterprises, Ltd. - subscribing for 50,000
Units
|
|
10.16
2
|
Publicity
Agreement - July 2003 between Capital Financial Media, Inc. and the
Company
|
|
10.17
2
|
Consulting
Agreement - July 2003 between National Financial Communications Corp. and
the Company
|
|
|
10.18
2
|
Agreement
- July 2003 between Brooks Houghton & Company, Inc. and the
Company
|
|
|
10.19
2
|
Non-Exclusive
Financial Advisor Agreement - July 2003 between Source Capital Group, Inc.
and the Company
|
|
|
10.20
2
|
Consulting
Agreement - July 2003 between Patrick W.H. Garrard d/b/a The Garrard Group
of West Redding, CT and the Company
|
|
|
10.21
2
|
Investment
Agreement Modification I dated as of July 21, 2003 by and among Invisa,
Inc. and BarBell Group, Inc.
|
|
|
10.22
2
|
Joint
Development Agreement - July 2003 between Dominator International Ltd. And
SmartGate, L.C.
|
|
|
10.23
3
|
Engagement
Agreement dated September 9, 2003 between G.M. Capital Partners, Ltd and
Invisa, Inc.
|
|
|
10.24
4
|
Employment
Agreement dated November 6, 2003 between Herb Lustig and Invisa,
Inc.
|
|
|
10.25
4
|
Severance
Agreement dated November 13, 2003 between Samuel S. Duffey and Invisa,
Inc.
|
|
|
10.26
4
|
Agreement
dated November 13, 2003 between Invisa, Inc. and the Duffey related
shareholders
|
|
|
10.27
5
|
SDR
Metro Inc. letter extension agreement
|
|
|
10.28
5
|
SDR
Metro Inc. confirmation letter agreement
|
|
|
10.29
5
|
Severance
Agreement dated January 26, 2004 between Stephen A. Michael and Invisa,
Inc.
|
|
|
10.30
5
|
Consulting
Agreement dated January 26, 2004 between Stephen A. Michael and Invisa,
Inc.
|
|
|
10.31
5
|
Severance
Agreement dated December 31, 2003 between William W. Dolan and Invisa,
Inc.
|
|
|
10.32
5
|
Agreement
dated February 11, 2004 between The Video Agency, Inc. and Invisa,
Inc.
|
|
|
10.33
5
|
Employment
Agreement dated March 2004 between Charles Yanak and Invisa,
Inc.
|
|
|
10.34
5
|
2003-A
Employee, Director, Consultant and Advisor Stock Compensation
Plan.
|
|
|
10.35
5
|
First
Amendment to Invisa, Inc., 2003 Incentive Plan Date As of November 6,
2003
|
|
|
10.36
5
|
Stock
Option Agreement for Herb M. Lustig dated November 6,
2003
|
|
|
10.37
6
|
Subscription
Agreement for issuance of 22,000 shares of Series A Convertible Preferred
Stock and Common Stock Warrants
|
|
|
10.38
6
|
Registration
Rights Agreement
|
|
|
10.39
6
|
Warrants
to Purchase Common Stock (Mercator Momentum Fund, LP, Mercator Advisory
Group, LLC, and Monarch Pointe Fund, Ltd.)
|
|
|
10.40
6
|
Certificate
of Designations of Preferences and Rights of Series A Convertible
Preferred Stock.
|
|
|
10.41
7
|
Marketing
Agreement between Aurelius Consulting Group and Invisa,
Inc.
|
|
|
10.42
7
|
Lease
Agreement among HAR-WAL ASSOCIATES, INC. and WR-I ASSOCIATES, LTD. and
Invisa, Inc. dated September dated September 23, 2004
|
|
|
10.43
11
|
Business
consulting agreement
|
|
|
10.44
11
|
Opinion
of counsel regarding legality of Common Stock
|
|
|
10.45
|
Consent
of Aidman, Piser and Company, PA
|
|
|
10.46
11
|
Consent
of Legal Counsel
|
|
|
10.47
11
|
Power
of Attorney relating to subsequent amendments
|
|
|
10.48
9
|
Promissory
note agreements dated October 10, 2006 by and between Invisa, Inc. and
M.A.G. Capital, LLC; Mercator Momentum Fund III, LP and Monarch Pointe
Fund, Ltd. Borrowing Certificates and Forms of
Assignments
|
|
|
10.499
|
Warrant
Agreement dated October 10, 2006 by and between Invisa, Inc. and Ocean
Park Advisors, LLP
|
|
|
10.50
9
|
UCC
Financing Statements
|
|
|
10.51
9
|
Schedule
of Advances: Permitted Payments
|
|
|
10.52
10
|
Business
Consulting Agreement dated August 14, 2006 between Invisa, Inc. and John
Anderson
|
|
|
10.53
17
|
Carl
A. Parks Employment agreement
|
|
|
10.54
16
|
Forbearance
and Modification agreement dated July 27, 2007
|
|
|
10.55
16
|
Promissory
Note dated July 25, 2007
|
|
|
10.56
15
|
Promissory
Note dated March 6, 2007
|
|
|
10.57
16
|
Forbearance
and Modification Agreement
|
|
|
10.58
18
|
Audit
Committee Charter
|
|
|
10.59
18
|
Senior
Secured Promissory Note date March 28, 2008
|
|
|
10.60
18
|
Forbearance
and Modification Agreement dated March 28, 2008
|
|
|
10.61
18
|
Extension
of Promissory Note dated April 11, 2008
|
|
|
10.62
19
|
Senior
Secured Promissory Note dated July 1, 2008
|
|
|
10.63
19
|
Forbearance
and Modification Agreement dated June 1, 2008
|
|
|
10.64 20
|
Note
and Share Exchange Agreement dated July 31, 2008
|
|
|
10.6520
|
Certificate
of Designations of Preferences and Rights dated December 22,
2008.
|
|
|
10.668
|
Senior
Secured Promissory Note dated March 24, 2010.
|
|
|
10.678
|
Senior
Secured Promissory Note (Line of Credit) dated March 24,
2010.
|
|||
|
10.688
|
Note
Extension Agreement dated March 24, 2010.
|
|||
|
10.698
|
Note
Extension Agreement dated March 24, 2010.
|
|||
|
10.708
|
Note
Extension Agreement dated March 24, 2010.
|
|||
|
10.718
|
Note
Extension Agreement dated March 24, 2010.
|
|||
|
10.728
|
Note
Extension Agreement dated March 24, 2010.
|
|||
|
10.738
|
Terms
of Exchange dated January 11, 2010.
|
|||
|
10.748
|
Amended
and Restated Certificate of Designations of Preferences and
Rights of Series B of Convertible Preferred Stock of Invisa, Inc. dated
January 11, 2010.
|
|||
|
10.758
|
Letter
Term Sheet and Consent Documents dated January 11, 2010.
|
|||
|
10.768
|
Share
Exchange Agreement dated January 11, 2010.
|
|||
|
10.778
|
Property
Lease dated February 8, 2010.
|
|||
|
31.18
|
Chief
Executive Officer Certification Pursuant to Securities Exchange Act Rules
13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|||
|
31.2
8
|
Chief
Financial Officer Certification Pursuant to Securities Exchange Act Rules
13a-14 and 15d-14 as Adopted Pursuant to the Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|||
|
32.1
8
|
Certification
Pursuant to 18 U.S.C. Section 1350.
|
|||
|
32.2
8
|
Certification
Pursuant to 18 U.S.C. Section 1350.
|
|||
|
1
|
Previously
filed on June 23, 2003 with Invisa’s Form 10-KSB for the year ended
December 31, 2002 and are incorporated by reference.
|
|||
|
2
|
Previously
filed on August 1, 2003 with Invisa’s Form 10-QSB for the quarter period
ended June 30, 2003 and are incorporated by reference.
|
|||
|
3
|
Previously
filed on September 17, 2003 with Invisa’s Form 8-KA (Amendment No. 1)
dated September 9, 2003 and is incorporated by
reference.
|
|
4
|
Previously
filed on November 14, 2003 with Invisa’s Form 8-K dated November 6, 2003
and are incorporated by reference.
|
|
5
|
Previously
filed on April 14, 2004 with Invisa Form 10-KSB for the year ended
December 31, 2003 and incorporated herein by
reference.
|
|
6
|
Previously
filed on August 18, 2004 with Invisa Form 10-QSB and incorporated herein
by reference.
|
|
7
|
Previously
filed on February 7, 2005 with Invisa Form 10-KSB for the year ended
December 31, 2004 and incorporated herein by
reference.
|
|
8
|
Filed
herewith.
|
|
9
|
Previously
filed on October 10, 2006 with Invisa Form 8-K/A dated October 10, 2006
and are incorporated by reference.
|
|
10
|
Previously
filed on August 17, 2006 with Invisa Form 8-K dated August 14, 2006 and
are incorporated by reference.
|
|
11
|
Previously
filed on August 14, 2006 with Invisa Form S-8 dated August 14, 2006 and
are incorporated by reference
|
|
12
|
Previously
filed on April 14, 2007 with Invisa For 10-KSB and incorporated herein by
reference.
|
|
13
|
Previously
filed on August 1, 2007 with Invisa’s Form 8-K and incorporated
herein.
|
|
14
|
Previously
filed on July 26, 2007 with Invisa’s Form 8-K and incorporated
herein.
|
|
14 1
|
Code
of Business Conduct and Ethics and Compliance Program
|
|
15
|
Previously
filed on March 6, 2007 with Invisa’s Form 8-K and incorporated
herein.
|
|
16
|
Previously
filed on November 14, 2007 with Invisa Form 10-QSB and incorporated herein
by reference.
|
|
17
|
Previously
filed on April 18, 2007 with Invisa Form 10-KSB and incorporated herein by
reference.
|
|
18
|
Previously
filed on April 14, 2008 with Invisa Form 10-KSB and incorporated herein by
reference.
|
|
19
|
Previously
filed on July 30, 2008 with Invisa Form 8-K and incorporated herein by
reference.
|
|
20
|
Previously
filed on January 13, 2009 with Invisa Form 8-K and incorporated herein by
reference.
|
26
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
INVISA,
INC.
|
||
|
Dated: March 31, 2010
|
By:
|
/s/ Edmund
C. King
|
|
Edmund
C. King
|
||
|
Acting
President
|
||
|
Dated: March
31, 20010
|
By:
|
/s/ Edmund
C King
|
|
Edmund
C King
|
||
|
Chief
Financial Officer
|
||
NOW ALL PERSONS BY THESE
PRESENTS , that each of the undersigned hereby constitutes and appoints
Edmund C. King as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and on his behalf to sign,
execute and file this annual report on Form 10-K and any or all amendments
without limitation to this annual report, and to file the same, with all
exhibits thereto and any and all documents required to be filed with respect
therewith, with the Securities and Exchange Commission or any regulatory
authority, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith and about the premises in order to effectuate
the same as fully to all intents and purposes as he might or could do if
personally present, hereby ratifying and confirming all that such
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done.
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Dated: March 31, 20010
|
/s/
Edmund C. King
|
|
Edmund
C. King, Acting President
|
|
|
Dated: March 31, 20010
|
/s/
Edmund C. King
|
|
Edmund
C. King, Chief Financial Officer, Director
|
|
|
Dated: March 31, 20010
|
/s/
Gregory J. Newell
|
|
Gregory
J. Newell, Director
|
|
|
Dated: March 31, 20010
|
/s/
John E. Scates
|
|
John
E. Scates, Director
|
Board of
Directors and Stockholders
Invisa,
Inc.
We have audited the accompanying
balance sheets of Invisa, Inc. (the “Company”) as of December 31, 2008 and 2009,
and the related statements of operations, stockholders’ (deficit), and cash
flows for the years then ended. 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 standards of the Public Company Accounting Oversight Board (United States
of America). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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 Invisa, Inc. as of December 31, 2008 and 2009, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
|
/s/ Kingery & Crouse,
PA
Kingery
& Crouse, PA
Certified
Public Accountants
|
|
Tampa,
Florida
March
31, 2010
|
Invisa,
Inc.
|
December
31,
|
||||||||
|
2008
|
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | ---- | $ | 157 | ||||
|
Accounts
receivable
|
6,498 | 6,187 | ||||||
|
Inventories
|
35,115 | 15,724 | ||||||
|
Prepaids
and other assets
|
5,366 | 5,158 | ||||||
|
Total
current assets
|
46,979 | 27,226 | ||||||
|
Furniture,
fixtures and equipment, net of $39,718 and $40,130, respectively of
accumulated depreciation
|
2,800 | 2,389 | ||||||
|
Total
assets
|
$ | 49,779 | $ | 29,615 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
|
Current
liabilities:
|
||||||||
|
Bank
overdraft
|
$ | 191 | $ | ---- | ||||
|
Accounts
payable, trade
|
118,410 | 98,108 | ||||||
|
Accrued
interest expense
|
30,377 | 92,376 | ||||||
|
Due
to stockholders and officers
|
105,334 | 105,334 | ||||||
|
Notes
Payable
|
494,030 | ---- | ||||||
|
Preferred
dividends payable
|
261,375 | 315,720 | ||||||
|
Total
current liabilities
|
1,009,717 | 611,538 | ||||||
|
Notes
Payable
|
---- | 563,400 | ||||||
|
Stockholders’
Deficit
|
||||||||
|
Convertible
Preferred Stock, 5 million shares authorized ($0.001 par
value):
|
||||||||
|
Series
A, 14,500 and 9,715, respectively, shares issued and
outstanding
|
798,500 | 798,500 | ||||||
|
Series
B, 10,000 and 9,000, respectively, shares issued and
outstanding
|
900,000 | 900,000 | ||||||
|
Series
C, 6,668 and 6,668, respectively, shares issued and
outstanding
|
654,907 | 654,907 | ||||||
|
Common
Stock; 95,000,000 shares authorized ($.001 par value), 34,781,081and
35,156,081, respectively, shares issued and outstanding
|
34,781 | 35,156 | ||||||
|
Additional
paid-in capital
|
31,975,470 | 32,016,025 | ||||||
|
Accumulated
deficit
|
(35,323,596 | ) | (35,549,911 | ) | ||||
|
Total
stockholders’ deficit
|
(959,938 | ) | (1,145,323 | ) | ||||
|
Total
liabilities and stockholders’ deficit
|
$ | 49,779 | $ | 29,615 | ||||
See notes
to financial statements.
Invisa,
Inc.
|
Years
Ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Net
sales
|
$ | 102,297 | $ | 147,589 | ||||
|
Other
operating revenues
|
---- | ---- | ||||||
| 102,297 | 147,589 | |||||||
|
Costs
and expenses:
|
||||||||
|
Cost
of goods sold
|
60,558 | 64,113 | ||||||
|
Selling,
general and administrative expenses
|
256,999 | 219,533 | ||||||
|
Loss
from operations
|
(215,260 | ) | (136,057 | ) | ||||
|
Other
income (expense):
|
||||||||
|
Interest
(expense)and other, net
|
(56,348 | ) | (62,202 | ) | ||||
|
Debt
extinguishment gain
|
377,454 | 24,714 | ||||||
|
Other
|
---- | 1,575 | ||||||
| 321,106 | (35,913 | ) | ||||||
|
Income
(Loss) before income
tax
|
105,846 | (171,970 | ) | |||||
|
Income
tax
|
---- | ---- | ||||||
|
Net
Income (Loss)
|
105,846 | (171,970 | ) | |||||
|
Preferred
Stock dividends
|
(87,750 | ) | (54,345 | ) | ||||
|
Net
Income (Loss) applicable to Common Stockholders
|
$ | 18,096 | $ | (226,315 | ) | |||
|
Net
Income (Loss) per share applicable to Common Stockholders:
|
||||||||
|
Basic
and diluted
|
$ | 0.00 | $ | (0.00 | ) | |||
|
Weighted
average Common Stock shares outstanding:
Basic
and diluted
|
33,230,793 | 34,875,602 | ||||||
See notes
to financial statements.
Invisa,
Inc.
|
Convertible
Preferred
Stock
|
Common
Stock
|
Additional
paid
–
in
capital
|
Accumulated
Deficit
|
Total
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2007 | 24,500 | $ | 2,277,000 | 25,066,126 | $ | 25,066 | $ | 31,797,807 | $ | (35,341,692 | ) | $ | (1,241,820 | ) | ||||||||||||||
|
Employee
share-based compensation
|
---- | ---- | 2,667,361 | 2,667 | 24,006 | ---- | 26,674 | |||||||||||||||||||||
|
Pro
Forma officer compensation
|
---- | ---- | ---- | ---- | 35,500 | ---- | 35,500 | |||||||||||||||||||||
|
Shares
issued for settlement of
debt
|
---- | ---- | 7,047,594 | 7,048 | 62,709 | ---- | 69,757 | |||||||||||||||||||||
|
Contribution
to capital
|
---- | ---- | ---- | ---- | 55,448 | ---- | 55,448 | |||||||||||||||||||||
|
Preferred
Stock Series B dividend
|
---- | ---- | ---- | ---- | ---- | (87,750 | ) | (87,750 | ) | |||||||||||||||||||
|
Preferred
Series C Stock (6,185 shares) issued for settlement of debt, dividends and
Preferred Series A and B Stock (4,785 shares and 1,000 shares,
respectively)
|
400 | 35,541 | ---- | ---- | ---- | ---- | 35,541 | |||||||||||||||||||||
|
Preferred
Series C Stock issued for settlement of debt
|
483 | 40,866 | ---- | ---- | ---- | ---- | 40,866 | |||||||||||||||||||||
|
Net
Income
|
---- | ---- | ---- | ---- | ---- | 105,846 | 105,846 | |||||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2008
|
25,383 | 2,353,407 | 34,781,081 | 34,781 | 31,975,470 | (35,323,596 | ) | (959,938 | ) | |||||||||||||||||||
|
Pro
Forma officer compensation
|
---- | ---- | ---- | ---- | 36,000 | ---- | 36,000 | |||||||||||||||||||||
|
Shares
issued for settlement of
debt
|
---- | ---- | ---- | ---- | 1,930 | ---- | 1,930 | |||||||||||||||||||||
|
Preferred
Stock Series B dividend
|
---- | ---- | ---- | ---- | ---- | (54,345 | ) | (54,345 | ) | |||||||||||||||||||
|
Issuance
of Common Stock to Board Members
|
---- | ---- | 375,000 | 375 | 2,625 | 3,000 | ||||||||||||||||||||||
|
Preferred
Series C Stock issued for settlement of debt
|
---- | ---- | ---- | ---- | ---- | ---- | ---- | |||||||||||||||||||||
|
Net
Income
|
---- | ---- | ---- | ---- | ---- | (171,970 | ) | (171,970 | ) | |||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2009
|
25,383 | $ | 2,353,407 | 35,156,081 | $ | 35,156 | $ | 32,016,025 | $ | (35,549,911 | ) | $ | (1,145,323 | ) | ||||||||||||||
See notes
to financial statements.
Invisa,
Inc.
|
Years
Ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income (loss)
|
$ | 105,846 | $ | (171,970 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||
|
Depreciation
and amortization
|
515 | 411 | ||||||
|
Share
Based Compensation and Proforma officer compensation
|
62,174 | 39,000 | ||||||
|
Debt
extinguishment gain
|
(377,454 | ) | (24,714 | ) | ||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
12,827 | 311 | ||||||
|
Inventories
|
(14,663 | ) | 19,391 | |||||
|
Prepaids
and other assets
|
(1,068 | ) | 209 | |||||
|
Accounts
payable, trade
|
(53,276 | ) | 6,341 | |||||
|
Accrued
expenses
|
---- | 61,999 | ||||||
|
Net
cash used in operating activities
|
(265,099 | ) | (69,022 | ) | ||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchases
of furniture, fixtures and equipment
|
(103 | ) | ---- | |||||
|
Net
cash used in investing activities
|
(103 | ) | ---- | |||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from notes payable
|
262,730 | 69,370 | ||||||
|
Bank
overdraft
|
191 | (191 | ) | |||||
|
Net
cash provided by financing activities
|
262,921 | 69,179 | ||||||
|
Net
(decrease) increase in cash
|
(2,281 | ) | 157 | |||||
|
Cash
at beginning of period
|
2,281 | ---- | ||||||
|
Cash
(overdraft) at end of period
|
$ | ---- | $ | 157 | ||||
See notes
to financial statements.
Invisa,
Inc.
STATEMENTS
OF CASH FLOWS - CONTINUED
|
Year
Ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||
|
Cash
paid for interest
|
$ | 37,132 | $ | 203 | ||||
|
Cash
paid for Income Taxes
|
$ | ---- | $ | ---- | ||||
|
Non-cash
financing and investing activities:
|
||||||||
|
Exchange
of liabilities for Common Stock
|
$ | 69,757 | $ | ----- | ||||
|
Preferred
dividends accrued as liabilities
|
$ | 87,750 | $ | 54,345 | ||||
|
Exchange
of liabilities for Preferred Stock and dividends paid in Preferred
Stock
|
$ | 76,407 | $ | ---- | ||||
See
notes to financial statements.
Invisa,
Inc.
NOTE A -
DESCRIPTION OF ORGANIZATION AND BUSINESS
Invisa,
Inc., (the “Company” or “Invisa”) is an enterprise that incorporates safety
system technology and products into automated closure devices, such as parking
gates, sliding gates, overhead garage doors and commercial overhead doors.
Invisa has also demonstrated production-ready prototypes of security products
for the museum and other markets. The Company is currently
manufacturing and selling powered closure safety devices.
NOTE B -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. The Company maintains its cash
and cash equivalents at a major commercial bank. Such amounts are occasionally
in excess of the maximum federally insured amounts.
Accounts
Receivable, Major Customer Information and Export Sales
Accounts
receivable are due primarily from companies in the gate manufacturing industry
located throughout the United States and the United Kingdom. Credit is extended
based on an evaluation of the customers’ financial condition and, generally,
collateral is not required. Account balances are evaluated for collectability
based on the condition of the customers’ credit including repayment history and
trends and relative economic and business conditions. Bad debts have not been
significant. During 2008, Magnetic Automation Corp. was our largest
customer, comprising approximately 21% of our product revenues. During 2009,
Automatic Systems America was our largest customer, comprising approximately 11%
of our product revenues.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using
an averaging method, which approximates the first-in, first-out
method. Inventory consists principally of finished goods and raw
materials.
Furniture,
Fixtures and Equipment
Furniture,
fixtures, and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives, principally five years.
Leasehold improvements are amortized over the term of the lease or the estimated
useful lives, whichever is shorter. Depreciation expense was
$515 and $411 for 2008
and 2009 respectively.
Revenue
In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured.
Product
sales under fixed price arrangements are recognized as revenue upon shipment of
product (when title transfers to the purchaser) and collectability is assured.
Other operating revenues relate to services and are recorded when services are
complete.
Shipping
costs
Shipping
and handling costs are included in cost of sales in the accompanying statements
of operations.
Research
and Development Costs
Research
and development costs consist of direct costs that are associated with the
development of the Company’s technology. These costs are expensed as
incurred. During the years 2008 and 2009, the Company did not incur
research and development expense.
Advertising
Costs
The
Company’s policy is to expense advertising costs as incurred.
Warranty
Costs
The
Company warrants its products for ninety days. Estimated warranty costs are
recognized in the period product is shipped. However, there have been no
significant warranty costs incurred through December 31, 2009, nor are any
significant amounts expected to occur subsequently. Accordingly, no warranty
liability has been recognized for any period presented.
Income
Taxes
The Company follows ASC 740 Income
Taxes for recording the provision for income taxes. Deferred tax assets and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change.
Beginning
January 1, 2007, we adopted ASC 740-10-05 Accounting for Uncertainty in Income
Taxes. The Interpretation prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. The amount recognized is measured as the
largest amount of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement.
Financial
Instruments
The
Company’s financial instruments include cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, notes payable and due to
stockholders. The carrying amounts of these financial instruments approximate
their fair value, due to the short-term nature of these items and the use of
market rates of interest. The carrying value of the Company’s
long-term debt approximates fair value based on the terms and conditions of
similar debt instruments.
Derivative
Financial Instruments
The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow risks or market-risk that may affect the fair values of
its financial instruments. However, certain other financial instruments, such as
warrants and embedded conversion features that are indexed to the Company’s
common stock, are classified as liabilities when either (a) the holder possesses
rights to net cash settlement or (b) physical or net-share settlement is not
within the control of the Company. In such instances, net-cash settlement is
assumed for financial accounting and reporting, even when the terms of the
underlying contracts do not provide for net-cash settlement. Such financial
instruments are initially recorded at fair value and subsequently adjusted to
fair value at the close of each reporting period.
Impairment
of Long-Lived Assets
The
Company evaluates the recoverability of its long-lived assets or asset groups,
annually; or whenever adverse events or changes in business climate indicate
that the expected undiscounted future cash flows from the related asset may be
less than previously anticipated. If the net book value of the related asset
exceeds the undiscounted future cash flows of the asset, the carrying amount
would be reduced to the present value of its expected future cash flows and an
impairment loss would be recognized. There were no impairments in 2008 or
2009.
Income
(Loss) per Share
Basic earnings (loss) per share are
calculated by dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings (loss) per
share is calculated by dividing net income (loss) by the weighted average number
of common shares and dilutive common stock equivalents outstanding. During
periods in which the Company incurs losses common stock equivalents, if any, are
not considered, as their effect would be anti dilutive.
At
December 31, 2009 the preferred stock was convertible into 20,757,500 shares of common stock,
which has not been considered in the calculation of diluted loss per share since
the effect would be anti-dilutive.
Equity-Based
Compensation
The Company accounts for stock based
compensation in accordance with ASC 718 Stock Compensation. This Statement
requires that the cost resulting from all share-based transactions be recorded
in the financial statements. The Statement establishes fair value as the
measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement in accounting for
share-based payment transactions with employees. The Statement also establishes
fair value as the measurement objective for transactions in which an entity
acquires goods or services from non-employees in share-based payment transactions.
Recent
Accounting Pronouncements
Recently
Issued Accounting Pronouncements
Adoption
of New Accounting Standards
Accounting
Standards Codification
In June 2009, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (the “Codification”). This standard replaces
SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles,
and establishes only two levels of U.S. generally accepted accounting principles
(“GAAP”), authoritative and nonauthoritative. The FASB ASC has become the source
of authoritative, nongovernmental GAAP, except for rules and interpretive
releases of the SEC, which are sources of authoritative GAAP for SEC
registrants. All other nongrandfathered, non-SEC accounting literature not
included in the Codification will become nonauthoritative. This standard is
effective for financial statements for interim or annual reporting periods
ending after September 15, 2009. The adoption of the Codification changed
the Company’s references to GAAP accounting standards but did not impact the
Company’s results of operations, financial position or liquidity.
Participating
Securities Granted in Share-Based Transactions
Effective January 1, 2009, the
Company adopted a new accounting standard included in ASC 260, Earnings Per
Share (formerly FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)
03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities). The new guidance
clarifies that non-vested share-based payment awards that entitle their holders
to receive nonforfeitable dividends or dividend equivalents before vesting
should be considered participating securities and included in basic earnings per
share. The Company’s adoption of the new accounting standard did not have a
material effect on previously issued or current earnings per share.
Business
Combinations and Noncontrolling Interests
Effective January 1, 2009, the
Company adopted a new accounting standard included in ASC 805, Business
Combinations (formerly SFAS No. 141(R), Business
Combinations). The new standard applies to all transactions or other
events in which an entity obtains control of one or more businesses.
Additionally, the new standard requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement date for all assets acquired and liabilities assumed; and requires
the acquirer to disclose additional information needed to evaluate and
understand the nature and financial effect of the business combination. The
Company’s adoption of the new accounting standard did not have a material effect
on the Company’s consolidated financial statements.
Effective January 1, 2009, the
Company adopted a new accounting standard included in ASC 810, Consolidations
(formerly SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements). The new accounting standard establishes accounting and
reporting standards for the noncontrolling interest (or minority interests) in a
subsidiary and for the deconsolidation of a subsidiary by requiring all
noncontrolling interests in subsidiaries be reported in the same way, as equity
in the consolidated financial statements. As such, this guidance has eliminated
the diversity in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity transactions.
The Company’s adoption of this new accounting standard did not have a material
effect on the Company’s consolidated financial statements.
Fair
Value Measurement and Disclosure
Effective January 1, 2009, the
Company adopted a new accounting standard included in ASC 820, Fair Value
Measurements and Disclosures (“ASC 820”) (formerly FASB FSP No 157-2, Effective
Date of FASB Statement No. 157), which delayed the effective date for
disclosing all non-financial assets and non-financial liabilities, except for
items that are recognized or disclosed at fair value on a recurring basis (at
least annually). This standard did not have a material impact on the Company’s
consolidated financial statements.
In April 2009, the FASB issued
new guidance for determining when a transaction is not orderly and for
estimating fair value when there has been a significant decrease in the volume
and level of activity for an asset or liability. The new guidance, which is now
part of ASC 820 (formerly FSP 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly), requires disclosure of the
inputs and valuation techniques used, as well as any changes in valuation
techniques and inputs used during the period, to measure fair value in interim
and annual periods. In addition, the presentation of the fair value hierarchy is
required to be presented by major security type as described in ASC 320,
Investments — Debt and Equity Securities . The provisions of the new standard
were effective for interim periods ending after June 15, 2009. The adoption
of the new standard on April 1, 2009 did not have a material on the
Company’s consolidated financial statements.
In April 2009, the Company
adopted a new accounting standard included in ASC 820, (formerly FSP 107-1 and
Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value
of Financial Instruments). The new standard requires disclosures of
the fair value of financial instruments for interim reporting periods of
publicly traded companies in addition to the annual disclosure required at
year-end. The provisions of the new standard were effective for the interim
periods ending after June 15, 2009. The Company’s adoption of this new
accounting standard did not have a material effect on the Company’s consolidated
financial statements.
In August 2009, the FASB issued
new guidance relating to the accounting for the fair value measurement of
liabilities. The new guidance, which is now part of ASC 820, provides
clarification that in certain circumstances in which a quoted price in an active
market for the identical liability is not available, a company is required to
measure fair value using one or more of the following valuation techniques: the
quoted price of the identical liability when traded as an asset, the quoted
prices for similar liabilities or similar liabilities when traded as assets, or
another valuation technique that is consistent with the principles of fair value
measurements. The new guidance clarifies that a company is not required to
include an adjustment for restrictions that prevent the transfer of the
liability and if an adjustment is applied to the quoted price used in a
valuation technique, the result is a Level 2 or 3 fair value measurement. The
new guidance is effective for interim and annual periods beginning after
August 27, 2009. The Company’s adoption of the new guidance did not have a
material effect on the Company’s consolidated financial statements.
Derivative
Instruments and Hedging Activities
Effective January 1, 2009, the
Company adopted a new accounting standard included in ASC 815, Derivatives and
Hedging (SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No.133). The new accounting standard requires
enhanced disclosures about an entity’s derivative and hedging activities and is
effective for fiscal years and interim periods beginning after November 15,
2008. Since the new accounting standard only required additional disclosure, the
adoption did not impact the Company’s consolidated financial
statements.
Other-Than-Temporary
Impairments
In April 2009, the FASB issued
new guidance for the accounting for other-than-temporary impairments. Under the
new guidance, which is part of ASC 320, Investments — Debt and Equity Securities
(formerly FSP 115-2 and 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments), and other-than-temporary impairment is
recognized when an entity has the intent to sell a debt security or when it is
more likely than not that an entity will be required to sell the debt security
before its anticipated recovery in value. The new guidance does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities and is effective for
interim and annual reporting periods ending after June 15, 2009. The
Company’s adoption of the new guidance did not have a material effect on the
Company’s consolidated financial statements.
Subsequent
Events
In May 2009,
the FASB issued new guidance for subsequent events. The new guidance, which is
part of ASC 855, Subsequent Events (formerly SFAS
No. 165, Subsequent Events) is intended to establish
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. Specifically, this guidance sets forth the period after
the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements, and the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. The new
guidance is effective for fiscal years and interim periods ended after
June 15, 2009 and will be applied prospectively. The Company’s adoption of
the new guidance did not have a material effect on the Company’s consolidated
financial statements. The Company evaluated subsequent events through the date
the accompanying financial statements were issued, which was March 31,
2010.
Accounting
Standards Not Yet Effective
Accounting
for the Transfers of Financial Assets
In June 2009, the FASB issued
new guidance relating to the accounting for transfers of financial assets. The
new guidance, which was issued as SFAS No. 166, Accounting for Transfers of
Financial Assets, an amendment to SFAS No. 140, was
adopted into Codification in December 2009 through the issuance of
Accounting Standards Updated (“ASU”) 2009-16. The new standard eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional disclosures in order to
enhance information reported to users of financial statements by providing
greater transparency about transfers of financial assets, including
securitization transactions, and an entity’s continuing involvement in and
exposure to the risks related to transferred financial assets. The new guidance
is effective for fiscal years beginning after November 15, 2009. The
Company will adopt the new guidance in 2010 and is evaluating the impact it will
have to the Company’s consolidated financial statements.
Accounting
for Variable Interest Entities
In June 2009, the FASB issued
revised guidance on the accounting for variable interest entities. The revised
guidance, which was issued as SFAS No. 167, Amending FASB Interpretation
No. 46(R), was adopted into Codification in December 2009 through the
issuance of ASU 2009-17. The revised guidance amends FASB Interpretation
No. 46(R), Consolidation of Variable Interest Entities, in determining
whether an enterprise has a controlling financial interest in a variable
interest entity. This determination identifies the primary beneficiary of a
variable interest entity as the enterprise that has both the power to direct the
activities of a variable interest entity that most significantly impacts the
entity’s economic performance, and the obligation to absorb losses or the right
to receive benefits of the entity that could potentially be significant to the
variable interest entity. The revised guidance requires ongoing reassessments of
whether an enterprise is the primary beneficiary and eliminates the quantitative
approach previously required for determining the primary beneficiary. The
Company does not expect that the provisions of the new guidance will have a
material effect on its consolidated financial statements.
Revenue
Recognition
In October 2009, the FASB issued
ASU 2009-13, Multiple-Deliverable Revenue Arrangements. The new standard changes
the requirements for establishing separate units of accounting in a multiple
element arrangement and requires the allocation of arrangement consideration to
each deliverable based on the relative selling price. The selling price for each
deliverable is based on vendor-specific objective evidence (“VSOE”) if
available, third-party evidence if VSOE is not available, or estimated selling
price if neither VSOE or third-party evidence is available. ASU 2009-13 is
effective for revenue arrangements entered into in fiscal years beginning on or
after June 15, 2010. The Company does not expect that the provisions of the
new guidance will have a material effect on its consolidated financial
statements.
NOTE
C - COMMON AND PREFERRED STOCK
In
September 2004, the Company issued 22,000 shares of Series A Convertible
Preferred Stock in the face amount of $2,200,000 for $1,937,000 (net of $263,000
transaction expenses) which was paid in the respective amounts of $1,158,200 and
$778,800 at closing. Additionally, the transaction included:
|
●
|
Issuance
of Detachable Warrants to acquire up to 1,500,000 shares of the Company’s
Common Stock at $1.00 per share. The Warrants expire on August 16,
2007. The terms of these Warrants were revised in August 2007
to extend the expiration date to August 2010 however the warrants were
cancelled in 2008.
|
|
●
|
In
addition to the transaction costs referred to above, the Company granted
162,500 shares of Common Stock and Detachable Warrants to acquire up to
162,500 shares of the Company’s Common Stock at $1.00 per share to a
broker. The term of the Warrants was three
years.
|
|
●
|
The
Preferred Stock is non-voting, entitled to dividends only when, or if,
declared by the Board of Directors and has preference over the Common
Stock in the event of the Company’s liquidation. The Preferred Stock is
convertible into Common Stock at the option of the holder. The conversion
price is equal to 80% of the market price at the time of conversion,
subject to a floor of $0.50 per share and a ceiling of $1.17 per share.
During 2005, the floor was modified to $0.12 per share as an inducement to
execute the Series B Convertible Preferred Stock transaction discussed
below.
|
The Company accounted for the host
instrument as equity under the ASC guidance and accounted for both the
beneficial conversion feature and the warrants as equity as well.
In August
2005, the Company issued 10,000 shares of Series B Convertible Preferred Stock
in the face amount of $1,000,000 for $878,000 (net of $122,000 transaction
expenses) which was paid in the respective amounts of $378,000 and $500,000 at
closing. Additionally, the transaction included:
|
|
●
|
Detachable
warrants to acquire up to 2,500,000 shares of the Company’s Common Stock
at $0.30 per share. The warrants expire on August 31, 2010 and are subject
to call by the Company upon the Common Stock trading at a price of $0.60,
a minimum trading volume of 60,000 shares for 20 consecutive days and the
registration statement being effective.
|
|
|
●
|
In
addition to the transaction costs referred to above, the Company granted
warrants to acquire up to 666,667 shares of the Company’s Common Stock at
$0.16 per share to a broker. The term of the warrants was three
years.
|
|
|
●
|
The
Preferred Stock is non-voting and is entitled to receive dividends at an
annual rate equal to the lower of the Prime Rate plus 3.5% or 9%. The
dividend may either be paid in cash or registered shares of the Company’s
Common Stock, subject to certain limitations. The Preferred Stock is
convertible into Common Stock at the option of the holder. The conversion
price is equal to 80% of the market price at the time of conversion,
subject to a floor of $0.12 per share and a ceiling of $0.275 per
share.
|
The
Series B Preferred Stock and Series A Preferred Stock as amended permit the
Company, in its discretion, to redeem part or all of the outstanding Preferred A
and B Stock at 125 percent of par value per share until August 2007 and
thereafter at 150 percent of par value, plus any accrued dividends.
The Company accounted for the host
instrument as equity under ASC guidance and accounted for both the beneficial
conversion feature and the warrants as equity as well.
In
2007, 20,000,000 and in 2008 an additional 33,333,333 shares of the
Company’s authorized but unissued common stock were delivered by the Company to
an escrow agent to hold as security for certain short term note obligations of
the Company. The aggregate 53,333,333 shares are not being treated as
outstanding and will only be considered as being issued and outstanding if and
when the shares are released by the escrow agent and delivered to the lender as
a result of a default under the promissory notes and related security
agreement.
In 2008 the Company issued 9,714,955
shares of Common stock in exchange for the redemption of 12,989,167 outstanding
warrants and options and settlement of certain debt totaling
$341,071.
In 2008 the Company also issued 6,205
shares of its Series C Convertible Preferred stock in exchange for 4,785 and
1,000 shares, respectively of its Series A and Series B Convertible Preferred
stock. In addition, the Company issued 483 shares of its Preferred C
stock for settlement of debt. The C preferred stock is (i) non
voting, (ii) entitled to receive dividends, when, and/if declared by the Board
of Directors, (iii) senior to the common stock in liquidation and (iv)
convertible into common stock at $0.12 per common share at the option of the
holder and under certain conditions at the option of the Company.
In 2009 the Company’s Board authorized
the grant of 375,000 shares of its common stock to its Directors as
compensation. Value of the shares was based on the market price at
date of grant aggregated $3,000.
NOTE D-
STOCK OPTION AND WARRANT ACTIVITY
The
Company has five stock-based compensation plans which provides for the granting
of options to purchase the Company’s Common Stock to employees, directors,
consultants and advisors. The options granted are subject to a vesting schedule
as set forth in each individual option agreement.
|
Maximum
Shares
|
||||
|
of
Common
Stock
|
||||
|
Plan
|
which
can be
issued
|
|||
|
2000
Plan
|
1,200,000 | |||
|
2002
Plan
|
1,500,000 | |||
|
2003
Plan
|
1,500,000 | |||
|
2003A
Plan
|
3,500,000 | |||
|
2006
Plan
|
2,500,000 | |||
| 10,200,000 | ||||
Activity
with respect to the stock-based compensation plans is summarized as
follows:
|
Shares
|
Range
of
Exercise Prices |
Weighted-
average
Option
per
price per
share
|
|
|
Outstanding
at December 31, 2007
|
5,840,000
|
$0.11
|
$0.11
|
|
Options
Granted
|
----
|
----
|
----
|
|
Options
Canceled/Expired
|
(5,840,000)
|
$0.11
|
$0.11
|
|
Options
Outstanding at December 31, 2008 and 2009
|
----
|
----
|
----
|
Aggregate
intrinsic value of options outstanding at December 31, 2009 is
$0.00.
The total
intrinsic value of options exercised during 2008 and 2009 was $0.00 and $0.00,
respectively.
Activity
with respect to warrants for common stock is as follows:
|
Shares
|
Range
of
Exercise Prices |
Weighted-
average
Option
per
price per
share
|
|
|
Outstanding
at December 31, 2007
|
7,149,167
|
0.62
|
0.62
|
|
Warrants
canceled/expired
|
(7,149,167)
|
0.62
|
0.62
|
|
Outstanding
at December 31, 2008
|
----
|
----
|
As of
December 31, 2009, there was no unrecognized compensation cost related to
non-vested share-based compensation arrangements.
NOTE E -
COMMITMENT AND CONCENTRATIONS
Operating
Leases
In February 2010, the Company began
occupying space in a building in Sarasota, Florida under a lease with a one year
term expiring February 28, 2010, and annual lease payments of approximately
$23,208. Rent expense for the years ended December 31, 2008 and 2009, was $8,535
and $5,530, respectively.
Concentrations
During 2008, one customer
comprised approximately 21% of total sales revenue.
During
2009, one customer comprised approximately 11% of our total sales
revenue.
NOTE F -
DUE TO STOCKHOLDERS AND OFFICERS
Due to
stockholders and officers consists of the following at December 31, 2008 and
2009:
|
Monarch
Point Fund, Ltd
|
$
|
85,074
|
||
|
Edmund
C. King
|
20,260
|
|||
|
Total
|
$
|
105,334
|
These
advances are due on demand and bear interest at 10% to Monarch Point Fund, Ltd.
and no interest is due on the remaining note of $20,260.
NOTE G -
LINES OF CREDIT
The
Company has four lines of credit with a private investor. The credit
facilities allow for advances up to $500,000, bear interest at 10% and have a
first security interest in all of the Company’s assets. Additionally
the credit facilities are secured by a security interest in 53,333,333 shares of
the Company’s common stock which are held in escrow. Because the
credit facilities are not in default the shares are not treated as issued and
outstanding. At December 31, 2009, $563,400 is
outstanding. The Notes were due December 31, 2009, but under an oral
understanding had been held in abeyance while discussions are in progress for
anticipated additional financing under proposed terms consistent with the
existent notes. Accrued interest under these obligations totaled
$64,920 at December 31, 2009; interest expense was $56,348 and $62,202 during
2008 and 2009, respectively. (See Note J)
NOTE H –
GAIN ON THE SETTLEMENT OF DEBT
During
2008 and 2009 the Company recorded a gain on the settlement of debt as
follows:
|
Cash:
|
2008
|
2009
|
||||||
|
Amount
of debt settled
|
$ | 190,955 | $ | 24,714 | ||||
|
Cash
payments
|
(84,815 | ) | ---- | |||||
|
Gain
|
106,140 | 24,714 | ||||||
|
Common
stock:
|
||||||||
|
Amount
of debt settled
|
341,071 | ---- | ||||||
|
Fair
value of common shares issued
|
(69,757 | ) | ---- | |||||
|
Gain
|
271,314 | ---- | ||||||
| $ | 377,454 | $ | 24,714 | |||||
NOTE I
- INCOME TAXES
Deferred
taxes are recorded for all the tax effects of existing temporary differences in
the Company’s assets and liabilities for income tax and financial reporting
purposes. Due to the valuation allowance for deferred tax assets, as noted
below, there was no net deferred tax benefit or expense for the years ended
December 31, 2008 or 2009.
Reconciliation
of the federal statutory income tax rate of 34.0% to the effective income tax
rate is as follows at December 31:
|
2008
|
2009
|
||||||
|
Federal
statutory income tax rate
|
(34.0)%
|
(34.0)%
|
|||||
|
State
income taxes, net of federal tax benefit
|
(3.5)%
|
(3.5)%
|
|||||
|
Deferred
tax asset valuation allowance
|
37.5%
|
37.5%
|
|||||
|
-0-%
|
-0-%
|
||||||
ASC
guidance requires that a deferred tax asset be reduced by a valuation allowance
if, based on the weight of available evidence it is more likely than not (a
likelihood of more than 50 percent) that some portion or all of the deferred tax
assets will not be realized. The valuation allowance should be sufficient to
reduce the deferred tax asset to the amount that is more likely than not to be
realized. As a result the Company recorded a valuation allowance with respect to
all the Company’s deferred tax assets.
The
Company has a federal net operating loss carryforward of approximately $16.9
million as of December 31, 2009 which expire through 2029. Under Section 382 and
383 of the Internal Revenue Code, if an ownership change occurs with respect to
a “loss corporation”, as defined, there are annual limitations on the amount of
the net operating loss and other deductions, which are available to the Company.
The Company has not determined the impact of these limitations at this
time.
Since
inception, we have been subject to tax by both federal and state taxing
authorities. Until the respective statutes of limitations expire, we are subject
to income tax audits in the jurisdictions in which we operate. We are no longer
subject to U.S. federal tax examinations for fiscal years prior to 2005, and we
are not subject to audits prior to the 2005 fiscal year for the state
jurisdiction.
NOTE
J: SUBSEQUENT EVENTS
In March 2010, the
Company’s senior lender agreed to extend the maturity dates of the outstanding
Senior Secured Promissory Notes aggregating $628,320 (including $64,920 accrued
interest) at December 31, 2009 until March 1, 2012. Terms and
provisions of the notes otherwise remained unchanged.
The Senior Lender also established a
$150,000 Revolving Line of Credit to finance operations of the Company through
December 31, 2010. The Revolving Line has similar terms and
provisions to the previous notes between the Company and the Senior Lender and
is due and payable March 1, 2012.
In January 2010, the Company commenced
an exchange offer, which remains open, of Series B Preferred Stockholders to
convert their shares into shares of Series C Preferred Stock. In
conjunction with the January 2010 offer, the Company has restated its Series B
Stock Certificate of Designation to eliminate any further accrual of dividends
and provide that the Company may satisfy its obligation with respect to accrued
but unpaid dividends either (a) in cash, (b) by issuance of its additional
Series B Stock or (c) by issuance of common stock of the Company.
F-15