Attached files
| file | filename |
|---|---|
| EX-31.1 - Clearpoint Business Resources, Inc | v181088_ex31-1.htm |
| EX-10.7.6 - Clearpoint Business Resources, Inc | v181088_ex10-7.htm |
| EX-21.1 - Clearpoint Business Resources, Inc | v181088_ex21-1.htm |
| EX-32.2 - Clearpoint Business Resources, Inc | v181088_ex32-2.htm |
| EX-31.2 - Clearpoint Business Resources, Inc | v181088_ex31-2.htm |
| EX-32.1 - Clearpoint Business Resources, Inc | v181088_ex32-1.htm |
| EX-10.29.6 - Clearpoint Business Resources, Inc | v181088_ex10-29.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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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
or
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¨
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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 __________________to__________________
Commission
file number 000-51200
ClearPoint
Business Resources, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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98-0434371
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State or other jurisdiction of incorporation or
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(I.R.S. Employer Identification No.)
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organization
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1600
Manor Drive, Suite 110, Chalfont, Pennsylvania 18914
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (215) 997-7710
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to section 12(g) of the Act:
Common
Stock, $0.0001 par value
(Title of
class)
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 Section
15(d) of the
Act.
Yes x No o
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes 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 (§ 232.405 of this
chapter) 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 (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in 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 o
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Smaller
reporting company x
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(Do
not check if a smaller reporting company)
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o
No x
As of
June 30, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was approximately $1,187,027, based on the
last reported sale price as quoted on the Over-the-Counter Bulletin
Board. For the purposes of determining this amount only, the
registrant has defined affiliates of the registrant to include the executive
officers and directors of the registrant and holders of more than 10% of the
registrant’s common stock on June 30, 2009.
The
number of shares outstanding of the registrant’s common stock as of March 29,
2010 was 32,922,789 shares.
* On
March 15, 2010, the registrant filed a Form 15 with the Securities and Exchange
Commission to deregister its securities and suspend its obligation to file
periodic reports under the Securities Exchange Act of 1934, as amended, except
that the registrant has filed this Annual Report on Form 10-K for the fiscal
year ended December 31, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
CLEARPOINT
BUSINESS RESOURCES, INC.
TABLE
OF CONTENTS
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FORWARD-LOOKING
STATEMENTS
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1
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PRESENTATION
OF INFORMATION
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1
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PART
I
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3
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Item
1. Business
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3
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Item
1A. Risk Factors
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9
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Item
1B. Unresolved Staff Comments
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21
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Item
2. Properties
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21
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Item
3. Legal Proceedings
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21
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Item
4. (Removed and Reserved)
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25
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PART
II
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26
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Item
5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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26
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Item
6. Selected Financial Data
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28
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Item
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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30
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Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
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67
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Item
8. Financial Statements and Supplementary Data
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68
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Item
9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
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132
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Item
9A(T). Controls and Procedures
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132
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Item
9B. Other Information
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133
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PART
III
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134
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Item
10. Directors, Executive Officers and Corporate
Governance
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134
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Item
11. Executive Compensation
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137
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Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
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146
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Item
13. Certain Relationships and Related Transactions, and
Director Independence
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149
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Item
14. Principal Accounting Fees and Services
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154
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PART
IV
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155
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Item
15. Exhibits, Financial Statement Schedules
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155
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SIGNATURES
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S-1
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EXHIBIT
INDEX
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E-1
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i
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, referred to as
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, referred to as the Exchange Act. Our forward-looking
statements include, but are not limited to, statements regarding our
expectations, hopes, beliefs, intentions or strategies regarding the
future. In addition, any statements that refer to projections,
forecasts or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking
statements. The words “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,”
“predict,” “project,” “should,” “would” and similar expressions may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking.
The
forward-looking statements contained in this Annual Report on Form 10-K are not
guarantees of future performance and are based on our current assumptions,
estimates, forecasts, expectations and beliefs concerning our business and their
potential effects on us and speak only as of the date of such statement. There
can be no assurance that future developments affecting us will be those that we
have anticipated. These forward-looking statements involve a number of risks and
uncertainties (some of which are beyond our control) that may cause actual
results or performance to be materially different from those expressed or
implied by these forward-looking statements. These risks and uncertainties
include, but are not limited to, the following factors:
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·
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our
ability to continue as a going concern and obtain additional financing or
restructure existing debt
obligations;
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·
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our
ability to comply with covenants contained in our agreements with lenders,
including, but not limited to, our ability to service and repay our
outstanding debt obligations;
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·
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limitations
that our outstanding debt obligations impose on our cash flow available
for our operations;
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·
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our
ability to facilitate the market acceptance of our iLabor network and
increase revenues; and
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·
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other
risk factors set forth in this Annual Report on Form
10-K.
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The
foregoing risks are not exhaustive. The “Risk Factors” set forth in
Part I, Item 1A of this Annual Report on Form 10-K include additional risk
factors which could impact our business and financial
performance. Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in these forward-looking
statements. You should not place undue reliance on forward-looking statements as
a prediction of actual results. We undertake no obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
PRESENTATION
OF INFORMATION
Financial
information contained in Part I and Items 6 and 7 of Part II of this Annual
Report on Form 10-K expressed in U.S. dollars is presented in thousands (000’s)
unless otherwise noted. Percentages contained in this report were
calculated, where possible, using the information from our consolidated
financial statements, and not the rounded information contained in this
report. As a result, these percentages may differ slightly from
calculations based upon the rounded figures provided in this report and totals
contained in this report may be affected by rounding.
1
Unless
the context indicates otherwise, references to “ClearPoint Business Resources,
Inc.,” “ClearPoint,” the “Company,” “we,” “us” and “our” in this Annual Report
on Form 10-K refer to ClearPoint Business Resources, Inc. and its
subsidiaries.
2
Company
Overview
ClearPoint
is a workplace management solutions provider. Prior to year 2008,
ClearPoint provided various temporary staffing services as both a direct
provider and as a franchisor. During the year ended December 31,
2008, ClearPoint transitioned its business model from a temporary staffing
provider through a network of branch-based offices or franchises to a provider
that manages clients’ temporary staffing needs through its open Internet
portal-based iLabor network. Under the new business model, ClearPoint
acts as a broker for its clients and network of temporary staffing suppliers
using iLabor.
ClearPoint’s
services focus on assisting clients in managing their contingent labor
needs. iLabor creates a dynamic, competitive open marketplace for
suppliers of temporary labor to bid on and fulfill orders for temporary labor
placed by ClearPoint’s clients. The iLabor network provides services
to clients ranging from small businesses to Fortune 500
companies. The iLabor network specializes in the highly transactional
“go to work” or “on-demand” segment of the temporary labor
market. Historically, this portion of the market has been underserved
by technology solutions. ClearPoint considers the hospitality,
distribution, warehouse, manufacturing, logistics, transportation, convention
services, hotel chains, retail, technology and administrative sectors among the
segments best able to be served by the iLabor network.
iLabor is
an on-demand e-procurement solution which eliminates the need for clients to
install and maintain costly hardware and software applications. A
client can access iLabor through standard Internet connections and web browsers,
which also eliminates the need for time consuming and costly systems
integrations. Regardless of size, number of locations, or number of
temporary staffing companies utilized, ClearPoint’s clients receive one bill,
centralized reporting, company wide metrics, and standardized quality control
from one point of entry, iLabor. The iLabor platform provides real
time feedback on all posted positions and provides a centralized reporting
mechanism for clients to review and monitor their spending on temporary
labor.
Many of
these same benefits of ClearPoint’s product offering are realized by
ClearPoint’s suppliers as well. They incur no software or
implementation fees and can access the application through a standard Internet
browser. They also have the opportunity to access more clients via
the portal and benefit from ClearPoint’s consolidated invoicing and payments,
thereby reducing their internal overhead costs.
ClearPoint
believes that its iLabor technology has allowed ClearPoint to better position
itself in the human capital industry. The iLabor network is a
technology-based procurement method that provides a low cost and easy
alternative for ClearPoint’s clients, as well as traditional staffing companies
in the industry, to procure temporary labor through a ClearPoint-approved
staffing supplier network that has national coverage. It is the
strength of ClearPoint’s base of temporary labor suppliers that enables
ClearPoint to effectively and efficiently meet the stringent demands of iLabor
clients, often within very tight time constraints. The iLabor
platform is a fully scalable product offering that can accommodate significant
growth in transaction volumes for ClearPoint without significant increases to
ClearPoint’s existing cost structure.
ClearPoint’s
VMS system provides human resource outsourcing, customized managed services
programs, and workforce optimization embedded within the clients’ internal
technology infrastructure. ClearPoint’s VMS system is a management
software program that encompasses every facet of the coordinating, ordering,
planning and tracking of all contract/temporary personnel, including contract
employees from various staffing companies.
3
Technology
and Services
ClearPoint
is a technology based service provider in the procurement of temporary
labor. ClearPoint provides the following services:
Management
of Temporary Workforce
iLabor. ClearPoint’s
iLabor network is a proprietary technology-based platform which provides clients
a comprehensive web-based portal to streamline the process involved in
procurement and management of contingent workforces through a network of
ClearPoint-approved staffing suppliers. The iLabor platform provides
a virtual marketplace for the e-procurement of temporary labor and provides
clients with one contract and one contact point to order temporary staff on a
national scale, without the requirement to implement costly systems
integration.
VMS. ClearPoint’s
VMS program provides a system for human resource outsourcing, customized managed
services programs, and workforce optimization embedded within the clients’
internal technology infrastructure. ClearPoint’s human resource
outsourcing service becomes an extension of its client’s human resource
department as a sole source provider of staffing services for both contract and
direct positions. ClearPoint will also design and implement
performance based solutions for its clients and provide value-added consulting
services tailored to the client’s business. ClearPoint’s VMS system
is a management program that encompasses every facet of coordinating, ordering,
planning and tracking of all contract/temporary personnel from various staffing
companies and utilizes ClearPoint’s personnel onsite with its clients to help
them optimize their workforce and reduce expenses.
Business
Services
ClearPoint,
through its approved partners, provides business process outsourcing, support
services and benefits solutions and administration for
clients. ClearPoint designs its business services and outsourcing
programs to be client-specific business service solutions tailored to meet the
needs of the particular client, which are easier and more cost effective for the
client than building the necessary in-house recruiting and credentialing
infrastructure. The goal of each outsourced program is to improve the
client’s process and outcomes for the particular division that will be operated
by ClearPoint. ClearPoint’s outsourcing offering can also include
managing other functions for the client, such as payroll administration,
training and retention programs, risk management and call centers.
Project-Based
Staff Augmentation
Primarily
from ClearPoint’s approved supplier network, ClearPoint provides full service
project solutions, executive search and temporary and permanent placement,
contract recruiting services and short- and long-term hourly-based assignments
for clients in both commercial services and professional
services. ClearPoint’s Project-Based Staff Augmentation for
commercial services specializes in the light industrial, transportation,
logistics and distribution industry.
Clients,
Suppliers and other Contractual Parties
ClearPoint’s
clients range in size from small businesses to Fortune 500 companies located
throughout the United States. ClearPoint’s clients operate primarily
in the transportation, logistics, engineering, scientific, aerospace, allied
health, information technology, manufacturing, distribution, call center,
financial, hospitality, food service, retail, data processing, legal and
administration industries. With the introduction of iLabor,
ClearPoint’s client base now includes other providers of temporary labor which
use iLabor to fill open positions they are not able to fill themselves due to
resource constraints or limitations in geographic coverage, providing them with
incremental revenues and earnings.
4
Historically,
ClearPoint has sought to maintain a diverse client base in an effort to reduce
the impact of client turnover. ClearPoint has traditionally had a
larger concentration in the transportation and retail industries, but has
recently expanded in the hospitality sector as well. No single client accounted
for more than 10% of ClearPoint’s revenues for the year ended December 31,
2009.
ClearPoint
currently works with one client utilizing its VMS system which accounted for
6.7% of ClearPoint’s revenues for the year ended December 31,
2009. ClearPoint maintains onsite personnel managing the client’s
contingent labor needs sourcing, assessing, and screening candidates for
temporary positions within the company.
ClearPoint’s
supplier network ranges from small one-location offices to national firms with
hundreds of office locations across the United States. Suppliers are afforded
many of the same benefits of using iLabor available to ClearPoint’s clients and
can access the system through a standard Internet connection without any cost
for software or implementation. They also receive consolidated
billing and check processing and have the potential to service more clients in
their geographic region with reduced overhead expenses.
In
connection with its prior business model, ClearPoint entered into agreements
with StaffChex, Inc. and Koosharem Corp., doing business as Select Staffing,
pursuant to which ClearPoint receives royalty payments. Royalty
payments received from Select and StaffChex for the year ended December 31, 2009
constituted 88% of ClearPoint’s total revenues for such period. For
additional information regarding agreements with Select and StaffChex, see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Transactions Related to Transition
from Temporary Staffing Business Model to iLabor Network Model.”
Sales
and Marketing
ClearPoint
sells its technology services through both direct and indirect
channels. A direct approach is used to target specific large accounts
within the light industrial market segment and is augmented by indirect channel
partners with specific temporary labor expertise. ClearPoint uses a
solutions sales approach whereby ClearPoint’s products and services are
presented to improve processes, increase efficiency, provide reporting tools and
reduce expenses within an organization. This is typically done
through lead qualification and follow up presentations to involved constituents
of a prospective client.
Research
and Development
ClearPoint
focuses its research and development efforts primarily on the development of
software upgrades to the iLabor system. ClearPoint’s research and
development expenditures totaled $434 and $446 for the years ended December 31,
2009 and 2008, respectively.
Regulation
ClearPoint’s
services are subject to various federal, state and local
regulations. In addition, ClearPoint’s services may be subject to
various state and local tax regulations. Some or all of ClearPoint’s
services are subject to federal and state consumer protection laws and
regulations prohibiting unfair and deceptive trade practices.
ClearPoint
also is subject to regulations applicable to businesses conducting online
commerce. Presently, there are relatively few laws specifically
directed toward online services. However, due to the increasing
popularity and use of the Internet and online services, it is likely that new
laws and regulations will be adopted with respect to the Internet or online
services. These laws and regulations could cover issues such as
online contracts, user privacy, freedom of expression, pricing, fraud, content
and quality of services, taxation, advertising, intellectual property rights and
information security.
5
Intellectual
Property
ClearPoint’s
intellectual property assets take various forms, including know-how and related
trade secrets, trademarks, trade names and copyrights, and related
licensing. In terms of trademarks and brand equity, ClearPoint
currently maintains three pending applications for federal registration with the
U.S. Patent & Trademark Office, namely, applications to protect variations
on the “iLabor” and “ClearPoint iLabor” brand of web-based software and
services, as well as five issued registrations covering “ClearPoint iLabor”,
ClearPoint’s “We Get To The Point” slogan, and two other
marks. ClearPoint is actively prosecuting the above-mentioned pending
applications in the effort to secure registration. In connection with
its proprietary know-how and trade secrets, ClearPoint implements safeguards to
limit access to sensitive information and to secure employee cooperation in
protecting company assets. The technology which ClearPoint deploys
through its iLabor network will be its core product offering as it moves
forward. As a result, continuous enhancements and evaluation of
safeguards of intellectual property constitute an important part of ClearPoint’s
business strategy.
Competition
ClearPoint
competes with e-procurement technology providers in the temporary staffing
industry such as IQNavigator and Fieldglass, Inc., which focus on higher-end
services and on-site vendor management, as well as other traditional temporary
staffing firms offering similar services on a national, regional or local
basis. The staffing business is very competitive and highly
fragmented, with limited barriers to entry into the market, and no company has a
dominant market share in the United States. ClearPoint is not aware
of any competitors that compete directly with its iLabor platform in the light
industrial market segment.
In the
temporary staffing industry, historically, ClearPoint’s strongest competitors,
for both iLabor and VMS, included national staffing companies that have close
existing relationships with clients, greater financial resources and larger
marketing presence, as well as specialty providers in certain
verticals. In addition, such organizations could also discount their
services to a point which would make it difficult for ClearPoint to compete
effectively and maintain or gain a market share. iLabor
differentiates itself from the traditional temporary staffing providers and
e-procurement vendors by leveraging a network of staffing suppliers branching
throughout the United States and focusing on the underserved light industrial
market segment. In the third quarter of 2009, ClearPoint expanded its
offerings to include selective services which provide for résumé-oriented
positions to be filled through the iLabor portal. With the
introduction of iLabor, ClearPoint operates as a clearing house for clients’
temporary staffing requirements, where many of the national staffing companies
have now signed on to the iLabor network, thereby becoming the fulfillment arm
of ClearPoint’s iLabor ordering system. Small, local providers are
also signing on to the iLabor network. ClearPoint’s future success
will depend on the adoption rate of the iLabor procurement system by corporate
buyers of temporary staffing as well as by larger staffing companies looking to
generate incremental revenues and earnings.
Seasonality
ClearPoint
experiences fluctuation in revenue and operating results based on a number of
factors, including the personnel demands of its
clients. Historically, ClearPoint has experienced a rise in demand
from its retail clients in the fourth quarter due to the increase in the
shipment of products for the holiday season. The first quarter has
been traditionally the slowest quarter from a revenue perspective due to
national holidays and client planning cycles. Inclement weather can
cause a slowdown in ClearPoint’s business due to business shutdowns by its
clients.
6
Employees
As of
April 12, 2010, ClearPoint employed 14 full-time staff employees.
Business
Combinations and Transactions Related to iLabor Network Model
ClearPoint
was incorporated in Delaware on July 21, 2004. ClearPoint Resources,
Inc., ClearPoint’s wholly-owned subsidiary (f/k/a Mercer Staffing, Inc. and
ClearPoint Business Resources, Inc.), referred to as CPR, was formed in Delaware
on January 1, 2005, as a holding company of its wholly owned subsidiaries
consisting of, among others, Mercer Ventures, Inc., referred to as MVI, and
Allied Contract Services, LLC. On February 12, 2007, CPR consummated
the merger with Terra Nova. As a result of the merger, CPR
stockholders were issued an aggregate of 6,051,549 shares of Terra Nova common
stock. Upon the closing of the merger, Terra Nova changed its name to
ClearPoint Business Resources, Inc.
On
February 23, 2007, ClearPoint acquired certain assets and liabilities of ALS,
LLC and its subsidiaries, also known as ASG, LLC and referred to as
ALS. The purchase price of $24,400 consisted of cash of $19,000, a
promissory note in the amount of $2,500, referred to as the ALS Note, shares of
common stock with a value of $2,500 (439,367 shares) and the assumption of
approximately $400 of current liabilities. The principal and interest
balance of the promissory note at December 31, 2009 was approximately $2,284 and
was not repaid due to the litigation involving Temporary Services Insurance,
Ltd., referred to as the TSIL litigation. For additional information
regarding the TSIL litigation, see Part I, Item 3 “Legal
Proceedings.” For additional information regarding the transaction
with ALS, see Part II, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital
Resources—ALS.”
On August
14, 2006, ClearPoint acquired 100% of the common stock of StaffBridge, Inc.,
referred to as StaffBridge, for $233 in cash and a note in the amount of
$450,000, referred to as the StaffBridge note. The StaffBridge note
was amended to extend the maturity date to December 31, 2009. On
September 15, 2009, the StaffBridge note was amended to defer payments on the
outstanding balance under the StaffBridge note until February 15,
2010. For additional information regarding the StaffBridge note, see
Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources—StaffBridge.”
For
information related to transactions implementing ClearPoint’s new business
model, see Part II, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Transactions Related to Transition from
Temporary Staffing Business Model to iLabor Network Model.”
Change
of Control and Deregistration
On
February 9, 2010, ClearPoint received a notice of default from ComVest Capital,
LLC, its senior lender, referred to as ComVest, in connection with the Amended
and Restated Revolving Credit Agreement dated as of August 14, 2009, referred to
as the amended ComVest loan agreement. ClearPoint defaulted on
certain of its obligations under the amended ComVest loan
agreement. As a consequence of such defaults, ComVest elected to
invoke the default exercise provision under an amended and restated warrant
issued to ComVest, referred to as the amended ComVest warrant. As a
result, ClearPoint is obligated to issue to ComVest 18,670,825 shares of
ClearPoint’s common stock. As a result of this transaction, effective
April 12, 2010, ComVest owned 51% of ClearPoint’s fully diluted common stock and
approximately 56.7% of outstanding shares of ClearPoint’s common stock. In
connection with this transaction, directors Brendan Calder, Dennis Cook, Parker
Drew, Harry Glasspiegel, Vahan Kololian and Michael Perrucci resigned from
ClearPoint’s board of directors. Gary E. Jaggard, Chief Executive
Officer of ComVest Capital Advisors, LLC, an affiliate of ComVest Group
Holdings, LLC and the Managing Director of ComVest, was appointed by
ClearPoint’s board of directors to serve as a director. The board of
directors also agreed to appoint Robert O’Sullivan, Vice Chairman of ComVest
Group Holdings, LLC, as a director. The date upon which Mr.
O’Sullivan will become a director has not been determined
yet. Michael D. Traina remains a director.
7
On March
31, 2010, ClearPoint filed a Form 15 with the Securities and Exchange Commission
to deregister ClearPoint’s common stock and suspend ClearPoint’s obligation to
file periodic reports under the Exchange Act, except that ClearPoint has filed
this Annual Report on Form 10-K for the fiscal year ended December 31,
2009. The deregistration itself is expected to be effective within 90
days of the filing of the Form 15. ClearPoint’s common stock is now
quoted on the Pink Sheets, a centralized electronic quotation service for
over-the-counter securities. ClearPoint can give no assurance that
trading in its stock will continue on the Pink Sheets or on any other securities
exchange or quotation medium or that its common stock will be actively
traded.
8
Item
1A. Risk Factors.
You
should carefully consider the risks and uncertainties described below, as well
as the other information included in this report, before making your investment
decisions with respect to our securities. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. If any of these risks or uncertainties actually occur, our
business, financial condition and results of operations could be materially and
adversely affected. In that case, the value of our securities could decline
substantially.
Risks
Related to Our Business
Our independent auditors included an explanatory paragraph
regarding our ability to continue as a going concern in the audit report on our
consolidated financial statements for the year ended December 31, 2009 and
notes to our consolidated financial statements for the year ended December 31,
2009 contain a going concern note, which may require us to scale back or cease
operations.
At
December 31, 2009, we had cash and cash equivalents of approximately $75, an
accumulated deficit of approximately $57,566 and working capital deficiency of
approximately $19,353. For the year ended December 31, 2009, we
incurred a net loss of approximately $3,075. Due to such financial
position and results of operations as well as the absence of firm commitments
for any additional financing, our independent registered public accounting firm
included an explanatory paragraph in the audit report on our consolidated
financial statements for the year ended December 31, 2009 regarding our ability
to continue as a going concern and we included “Note 1 – Going Concern” in
notes to our consolidated financial statements for the year ended December 31,
2009, which states that there is substantial doubt about our ability to continue
as a going concern.
If we are
unable to generate sufficient cash from operations and obtain additional
funding, we may not be able to continue operations as proposed, requiring us to
curtail various aspects of our operations or cease operations. In
such event, you may lose a portion or all of your investment. In
addition, the going concern explanatory paragraph in the report of our
independent auditors and/or the going concern note may cause concern to one or
more of our constituencies of debt holders, clients, suppliers, trade creditors
or other contractual parties. If any debt holder’s, client’s,
supplier’s, trade creditor’s or other contractual party’s concern results in
adverse changes in their respective business relations with us, these changes
may materially adversely affect our cash flows and results of
operations.
We
have defaulted on certain of our debt obligations. If we continue to
experience liquidity issues, we may be unable to repay our outstanding debt
obligations when due or restructure such debt obligations, and may seek, or be
forced to seek, protection under the federal bankruptcy laws.
We are
highly leveraged and we have very limited financial resources. At
December 31, 2009, we had cash and cash equivalents of approximately $75 and
approximately $27,546 of total liabilities.
9
Our
ability to borrow under the amended ComVest loan agreement would be compromised
in the event of non-compliance with applicable covenants under such
agreement. Such non-compliance constitutes an event of default and,
unless waived by ComVest, permits the lender to exercise its remedies under the
amended ComVest loan agreement, including declaring all amounts owing to ComVest
to be immediately due and payable. As of April 12, 2010, our
outstanding obligations under the amended ComVest loan agreement were
approximately $10,311, in addition to interest and fees of approximately
$1,281. An event of default under the amended ComVest loan agreement also
requires us to pay higher rates of interest on the amounts we owe to ComVest
and, pursuant to a cross-default provision, may trigger an agreement termination
event under the loan modification and restructure agreement, referred to as the
M&T restructure agreement, with Manufacturers and Traders Trust Company,
referred to as M&T, which would, among other remedies available to M&T,
result in the deferred obligations under such agreement, which constituted, in
the aggregate, approximately $4,800 at December 31, 2009, becoming accelerated
and immediately due and payable. Also listed as an event of default
under the loan agreement with ComVest is a default with respect to any other of
our indebtedness exceeding $100, if the effect of such default would permit the
lender to accelerate the maturity of such indebtedness.
We
defaulted on certain obligations under the amended ComVest loan agreement as a
result of our failure to pay approximately $108 of accrued interest which was
due and payable on February 1, 2010, our failure to pay a $60 installment of a
certain modification fee which was due and payable on January 1, 2010 and the
entry of a judgment against us related to a lawsuit filed by AICCO, Inc. and
delivery of a judgment note in favor of AICCO, Inc. in the amount of
approximately $195. ComVest waived defaults existing under the
Amended Loan Agreement as of February 10, 2010, but as a consequence of such
defaults, ComVest elected to invoke the default exercise provision under the
amended ComVest warrant. As a result, we are obligated to issue to
ComVest 18,670,825 shares of our common stock. In connection
with this transaction, effective April 12, 2010, ComVest owned 51% of our fully
diluted common stock and approximately 56.7% of outstanding shares of our common
stock.
In
addition, we did not make the $166 payment of default interest owed to ComVest
on March 31, 2010. We also did not make scheduled payments of
interest to ComVest on February 1, 2010, March 1, 2010 or April 1, 2010, in the
aggregate amount of $635, consisting of deferred interest payments and loan
modification fees that were due under the amended ComVest loan agreement, as
well as the current monthly interest due from February 1, 2010 through April 1,
2010.
In
September 2009, we restructured the note payable to the former shareholders of
StaffBridge, referred to as the StaffBridge note, and the notes payable to the
sub noteholders to provide that our future payments on such notes began on
February 15, 2010 and March 31, 2010, respectively. We did not make
scheduled payments of principal and interest of $33 and $4, respectively, due to
StaffBridge on February 15, 2010 or March 15, 2010. We also did not
make scheduled payments of principal and interest of $55 and $6, respectively,
to the sub noteholders on March 31, 2010. Our failure to make such
payments constitutes an event of default under the amended ComVest loan
agreement. On April 14, 2010, ComVest waived the foregoing events of
default.
In March,
2010, M&T notified us of the existence of events of default under the
M&T restructure agreement, including our failure to comply with our covenant
to collect the accounts receivable, our failure to deliver certain financial
information to M&T and the existence of events of default under the amended
ComVest loan agreement. An event of default under the M&T
restructure agreement would trigger a cross-default provision pursuant to the
amended ComVest loan agreement, unless such default is waived in writing by
ComVest. Our obligations to M&T are subordinated to our
obligations to ComVest.
If
adequate funds are not available, or are not available on acceptable terms, we
may not be able to repay or restructure our existing debt obligations, or obtain
the necessary waivers, and we may seek protection under the federal bankruptcy
laws or be forced into an involuntary bankruptcy filing.
10
Royalty
payments received primarily from StaffChex and Select constitute a majority of
our revenues, and an adverse effect on our relationship with any of these
companies could cause our revenues to decrease, which will negatively impact our
business, financial condition and results of operations.
The
majority of our revenues are generated from royalty payments made pursuant to
agreements with StaffChex, Inc., referred to as StaffChex, and Koosharem Corp.
doing business as Select Staffing, referred to as Select. For the
year ended December 31, 2009, such royalty payments accounted for approximately
88% of our total revenues. An adverse effect on our relationship with
StaffChex or Select could cause our revenues to decrease, which may negatively
impact our business, financial condition and results of
operations. See Part I, Item 3 “Legal Proceedings” and Part II, Item
7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Transactions Related to Transition
from Temporary Staffing Business Model to iLabor Network Model” for a
description of our dispute with Select and a notice of levy on the StaffChex
royalty payments, respectively.
We
may be unable to obtain additional financing to repay our existing debt
obligations, which will have a material adverse impact on our liquidity and
ability to continue operations.
Our
ability to obtain financing depends, in part, upon prevailing capital market
conditions as well as our operating results, which may negatively impact our
efforts to arrange financing on satisfactory terms.
The going
concern explanatory paragraph in the report of our independent auditors and the
going concern note to our consolidated financial statements for the fiscal year
ended December 31, 2009 indicate an absence of obvious or reasonably assured
sources of future funding necessary to maintain our ongoing
operations. There is no assurance that our capital raising efforts
will be able to attract the additional capital or other funds we need to sustain
our operations. The going concern explanatory paragraph in the report
of our independent auditors and the going concern note may make it more
difficult for us to raise capital. If adequate funds are not
available to us, or are not available on acceptable terms, we may not be able to
repay our existing debt obligations. The failure to obtain additional
capital on acceptable terms will have a material adverse effect on our liquidity
and ability to continue operations. See “—We have defaulted on
certain of our debt obligations. If we continue to experience
liquidity issues, we may be unable to repay our outstanding debt obligations
when due or restructure such debt obligations, and may seek, or be forced to
seek, protection under the federal bankruptcy laws.”
We
incurred losses for the last three years, and continued losses may negatively
impact our business, ability to repay debt, financial condition and results of
operations.
We
incurred net losses of $3,075, $38,786 and $12,390 for the years ended
December 31, 2009, 2008 and 2007, respectively. At December 31, 2009,
we had an accumulated deficit of $57,566. If we continue to
experience losses, it may negatively impact our business, ability to repay debt,
financial condition and results of operations.
Our
indebtedness may limit cash flow available for our operations.
On June
20, 2008, we consolidated and deferred payment on our obligations to M&T and
entered into a $3,000 revolving credit facility and a $9,000 term note with
ComVest. Such debt restructuring effectively replaced M&T with
ComVest as our senior lender. On August 14, 2009, we entered into the
amended ComVest loan agreement to increase the maximum availability under our
revolving credit facility to $10,500 and repaid and terminated the term note
through an advance from the revolving credit facility. Amounts
outstanding under the amended revolving credit facility bear interest at the
rate of 12% per annum. We are obligated to pay ComVest $166
in default interest, which was due on March 31, 2010. We also
did not make scheduled payments of interest to ComVest on February 1, 2010,
March 1, 2010 or April 1, 2010 in the aggregate amount of $635, which consists
of deferred interest payments that were due under the amended ComVest loan
agreement as well as the current monthly interest due from February
1, 2010 through April 1, 2010. We are also obligated to
pay additional default interest for such periods in the aggregate amount of
$32. See “—We have defaulted on certain of our debt
obligations. If we continue to experience liquidity issues, we may be
unable to repay our outstanding debt obligations when due or restructure such
debt obligations, and may seek, or be forced to seek, protection under the
federal bankruptcy laws.” There is no assurance that we will be able
to make future scheduled payments in accordance with the amended ComVest loan
agreement.
11
In
addition, as part of restructuring our debt obligations to M&T, of which
approximately $4,700 was outstanding at December 31, 2009, we agreed to pay
M&T up to $3,000 in cash proceeds arising out of our accounts
receivable. At December 31, 2009, we remitted approximately $1,499 to
M&T against the $3,000 receivable target. We also agreed to pay
M&T our federal and state income tax refunds, which we anticipated to be not
less than $1,000. At December 31, 2009, we remitted approximately
$1,024 of federal tax refunds and approximately $91 of state tax refunds to
M&T.
Our
obligation to dedicate a portion of our cash flow to service our debt reduces
our cash flow available for our operations. The amount of
indebtedness we have could limit our flexibility in planning for, or reacting
to, changes in the markets in which we compete and require us to dedicate more
cash flow to service our debt than we desire. Subject to limitations
in the amended ComVest loan agreement, we may incur additional debt in the
future to finance our operations or otherwise and servicing this debt could
further limit our cash flow.
If
the remedial policies and procedures we have implemented are insufficient to
address the identified material weaknesses in our internal control over
financial reporting, our financial statements may contain material
misstatements.
Our
management performs assessments of the effectiveness of our internal control
over financial reporting. In connection with such evaluation, our
management determined that our internal control over financial reporting was not
effective as of December 31, 2007, based on the criteria in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and identified certain material weaknesses in our
internal control over financial reporting.
Although
we believe that we addressed our material weaknesses in internal control over
financial reporting and our internal control over financial reporting was
effective as of December 31, 2009, we cannot guarantee that any additional
material weaknesses or significant deficiencies will not arise in the future due
to a failure to maintain adequate internal control over financial
reporting. In such case, our financial statements may contain
material misstatements and our operating results may be adversely
affected. Any such failure could also adversely affect the results of
the periodic future management evaluations and annual auditor attestation
reports regarding the effectiveness of our internal control over financial
reporting. Internal control weaknesses could also cause investors, as
well as our clients and staffing suppliers, to lose confidence in our reported
financial information.
If
iLabor does not gain market acceptance, it may negatively impact our business,
financial condition and results of operations.
iLabor
constitutes the major component of our business model. In 2008, we
transitioned from the temporary staffing model to our iLabor technology platform
to enable our clients to procure temporary labor through a ClearPoint approved
staffing supplier network. Due to the transition of our business from
the temporary staffing model to the iLabor network, for the years ended December
31, 2008 and December 31, 2009, revenues from the iLabor network constituted
less than 1% and approximately 10% of our revenue,
respectively. Because it has been recently introduced, our iLabor
model has not been proven in the market and there is no assurance that it will
result in sustainable revenues for us. If iLabor does not gain market
acceptance, it may negatively impact our business, financial condition and
results of operations.
12
Financial
and operating covenants in our agreements with ComVest and M&T may reduce
our operating flexibility, which may have an adverse effect on our business and
financial condition.
The
amended ComVest loan agreement related to our revolving credit facility and/or
the M&T restructure agreement contain various financial covenants as well as
covenants that restrict our ability to, among other matters:
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incur
other indebtedness;
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create
liens or other encumbrances on our
assets;
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enter
into any merger or consolidation
transaction;
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sell,
lease, assign or otherwise dispose of all or substantially all of our
property, business or assets;
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sell
or assign our accounts receivable, promissory notes or trade
acceptances;
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utilize
the cash proceeds arising from our accounts
receivable;
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make
any investment in, or otherwise acquire or hold securities, or make loans
or advances, or enter into any arrangement for the purpose of providing
funds or credit;
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make
acquisitions or investments;
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amend
our organizational documents;
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pay
dividends or make other distributions on our capital
stock;
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make
changes to our business model;
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pay
certain compensation to our executive officers;
and
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make
capital expenditures or incur monthly operating expenses in excess of
specified dollar amounts.
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These
restrictions may limit our ability to obtain future financing, make capital
expenditures or otherwise take advantage of business opportunities that may
arise from time to time. Our ability to meet the financial covenants can be
affected by events beyond our control, such as general economic
conditions.
In
addition, pursuant to the terms of the agreements with ComVest and M&T, the
failure to comply with covenants constitutes an event of default, including as a
result of cross default provisions, and entitles the lenders to, among other
remedies, declare the loans due and payable. See “—We have defaulted
on certain of our debt obligations. If we continue to experience
liquidity issues, we may be unable to repay our outstanding debt obligations
when due or restructure such debt obligations, and may seek, or be forced to
seek, protection under the federal bankruptcy laws.”
13
We
are subject to various lawsuits, the impact of which on our financial position
and results of operations is uncertain. The inherent uncertainty
related to litigation and the preliminary stage of some of these matters makes
it difficult to predict the ultimate outcome or potential liability that we may
incur as a result.
We are
subject to various lawsuits. See Part I, Item 3 “Legal Proceedings”
for additional information related to these lawsuits. We believe that
we have several defenses to the claims raised in these matters and intend to
vigorously defend them. Due to the inherent uncertainties in
litigation and because the ultimate resolution of these proceedings is
influenced by factors outside of our control, we are currently unable to predict
the ultimate outcome of these matters or their impact on our financial position
or results of operations. Although we accrued for certain of the
liability exposures for these matters on our balance sheet, an adverse decision
in these matters may result in a material adverse effect on our liquidity,
capital resources and results of operations. In addition, to the
extent that our management will be required to participate in or otherwise
devote substantial amounts of time to the defense of these matters, such
activities would result in the diversion of our management resources from our
business operations and the implementation of our business strategy, which may
negatively impact our financial position and results of operations.
Seasonality
causes fluctuations in our revenue and operating results.
Our
clients are concentrated in the technology and retail
industries. Accordingly, our liquidity and results of operations
depend on the trends affecting such industries and the business cycles of these
clients that impact their continued demand for temporary
staffing. Historically, we have experienced a rise in demand from our
retail clients in the third and fourth quarters due to the increase in the
shipment of products for the holiday season. The first quarter has
been traditionally the slowest quarter from a revenue perspective due to
national holidays and client planning cycles. Inclement weather can
cause a slowdown in our business due to business shutdowns by our
clients. Lower demand for temporary staffing related to seasonal or
other trends affecting our clients could have a material adverse effect on our
revenue and operating results.
We
may be unable to protect our proprietary technology and intellectual property
rights or keep pace with that of our competitors.
Our
success depends to a significant degree upon the protection of the intellectual
property rights in our e-procurement platforms, including our software and other
proprietary information and material, and our ability to develop technologies
that are as good as, or better than, our competitors. We may be
unable to deter infringement or misappropriation of our software and other
proprietary information and material, detect unauthorized use or take
appropriate steps to enforce our intellectual property
rights. Additionally, the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States. Our competitors could, without violating our intellectual
property rights, develop technologies that are as good as, or better than, our
technology. Protecting our intellectual property and other
proprietary rights can be expensive. Any increase in the unauthorized
use of our intellectual property could make it more expensive to do business and
consequently harm our operating results. Our failure to protect the
intellectual property rights in our software and other proprietary information
and material, or to develop technologies that are as good as or better than
those of our competitors, could put us at a competitive
disadvantage. These failures could have a material adverse effect on
our business.
The
success of ClearPoint iLabor® depends on the continued growth in the use of the
Internet and the adequacy of the Internet infrastructure.
The
success of our ClearPoint iLabor® products and services is substantially
dependent upon continued growth in the use of the Internet. The
number of clients using the Internet for temporary staffing purposes may not
increase for a number of reasons, including:
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actual
or perceived lack of security of information or privacy
protection;
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possible
disruptions, computer viruses or other damage to Internet servers or to
users’ computers;
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governmental
regulation;
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lack
of access to high-speed communications equipment;
and
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increases
in the cost of accessing the
Internet.
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As
currently configured, the Internet may not support an increase in the number or
requirements of users. In addition, there have been outages and
delays on the Internet as a result of damage to the current
infrastructure. The amount of traffic on our e-procurement platforms
could decline materially if there are outages or delays in the
future. The use of the Internet may also decline if there are delays
in the development or adoption of modifications by third parties that are
required to support increased levels of activity on the Internet. If
any of the foregoing occurs, the number of clients using ClearPoint iLabor®
products and services could decrease. In addition, we may be required
to spend significant capital to adapt our operations to any new or emerging
technologies relating to the Internet.
If
we do not respond to rapid technological changes, our services, proprietary
technology and systems may become noncompetitive or obsolete.
We
currently provide software and technology platforms for the procurement of
temporary labor by our clients. We utilize our proprietary software
and technology solutions, including iLabor and VMS, to provide temporary
staffing solutions to our clients. For the years ended December 31,
2009 and 2008, we spent approximately $434 and $446, respectively, on software
development activities related to our iLabor and VMS solutions. If we
do not invest a significant portion of our capital to continuously develop,
upgrade and customize our iLabor and VMS platforms, we may be unable to compete
effectively.
Due to
the costs and management time required to introduce new services and
enhancements, we may be unable to respond to rapid technological changes in a
timely manner. If competitors introduce new services using new
technologies or if new industry standards and practices emerge, our services and
proprietary technology and systems may become noncompetitive and our ability to
attract and retain clients and new suppliers may be at risk.
In
addition, developing our proprietary technology entails significant
technological and business risks. We may use new technologies
ineffectively or fail to adapt our technology to meet the requirements of
clients and suppliers or emerging industry standards. Finally, the
new technologies may be challenging to develop and implement and may cause us to
incur substantial costs.
We
are subject to various regulations of government authorities. Our
failure to comply with such regulations or changes in existing regulations could
have a material adverse effect on our business.
Our
services are subject to various federal, state and local
regulations. For example, our services may be subject to various
state and local taxing regulations. Some or all of our services are
subject to federal and state consumer protection laws and regulations
prohibiting unfair and deceptive trade practices.
We are
also subject to regulations applicable to businesses conducting online
commerce. Presently, there are relatively few laws specifically
directed toward online services. However, due to the increasing
popularity and use of the Internet and online services, it is likely that new
laws and regulations will be adopted with respect to the Internet or online
services. These laws and regulations could cover issues such as
online contracts, user privacy, freedom of expression, pricing, fraud, content
and quality of services, taxation, advertising, intellectual property rights and
information security. Our failure to comply with existing legislation
or any new legislation affecting our services could have a material adverse
effect on our business.
15
We
operate in a highly competitive industry and may be unable to compete
effectively, which may adversely impact our business, financial condition and
results of operations.
We
operate in a highly competitive industry in which barriers to entry are
relatively low. We will need to maintain and update our product
offering to remain competitive in the industry. Although we are not
aware of any other products similar to ours currently in the light industrial
market, other companies are at liberty to develop and introduce products which
would compete directly with us. To the extent that other companies
have broader financial resources available to them, they may be able to bring a
product to market and maintain it with more resources than we have
available. We also run the risk of large suppliers working directly
with potential clients and establishing relationships that would preclude the
use of our iLabor network.
Interruptions
or delays in service from our iLabor and VMS platforms could materially
adversely affect our business, financial condition and results of
operations.
We
provide much of our services, including iLabor and VMS, through computer
hardware and software that is hosted at a remote third-party site located in New
Jersey. All web-hosting and other technology distribution facilities
are vulnerable to damage or interruption from earthquakes, floods, fires, power
loss, telecommunications failures and similar events. These
facilities are also subject to break-ins, sabotage, intentional acts of
terrorism, vandalism and similar misconduct. Despite precautions that
we take, the occurrence of a natural disaster, act of terrorism or other
unanticipated problem at the facility where our technology is hosted could
result in lengthy interruptions in our service, which could materially adversely
affect our business, financial condition and results of operations.
We are
highly dependent on our senior management and the continued performance and
productivity of our approved supplier base; the loss of their services could
have a material adverse impact on our business, financial condition and results
of operations.
We are
highly dependent on the continued efforts of the members of our senior
management as well as the performance and productivity of our supplier
base. The loss of any of the members of our senior management may
cause a significant disruption in our business. In addition, the loss
of any staffing suppliers in our supplier base may jeopardize existing client
relationships with businesses that use our services based on relationships with
these suppliers. The loss of the services of members of our senior
management or suppliers in our supplier base could have a material adverse
effect on our business, financial condition and results of
operations.
If
our staffing suppliers fail to attract and retain qualified personnel, it may
negatively impact our business, financial condition and results of
operations.
Our
success depends upon our staffing suppliers’ ability to attract and retain
qualified temporary and full-time personnel who possess the skills and
experience necessary to meet the staffing requirements of our
clients. Our suppliers must continually evaluate and upgrade their
base of available qualified personnel to keep pace with changing client needs
and emerging technologies. Furthermore, a substantial number of their
temporary employees during any given year may terminate their employment with
them and accept regular staff employment with our
clients. Competition for individuals, especially qualified
transportation personnel, with proven skills remains intense, and demand for
these individuals is expected to remain strong for the foreseeable
future. There can be no assurance that qualified personnel will
continue to be available to our suppliers in sufficient numbers. If
our suppliers are unable to attract the necessary qualified personnel for our
clients, it may have a negative impact on our business, financial condition and
results of operations.
Our
staffing suppliers may be exposed to employment-related claims and costs that
could materially adversely affect our business, financial condition and results
of operations.
Our
staffing suppliers are in the business of employing people and placing them in
the workplace of our clients. Attendant risks of these activities
include, but are not limited to:
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possible
claims by clients of employee misconduct or
negligence;
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claims
by employees of discrimination or harassment (including claims relating to
actions of our clients);
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fines
and costs related to the inadvertent employment of illegal
aliens;
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payment
of workers’ compensation claims and other similar
claims;
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violations
of wage and hour requirements;
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errors
and omissions of temporary employees (this would include claims of
negligence due to a temporary employee’s lack of intimate familiarity with
a client’s operations); and
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claims
by clients relating to employees’ misuse of client proprietary
information, misappropriation of funds, other criminal activity or torts
or similar claims.
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Some or
all of these claims may give rise to litigation which could include us as a
named party, which could be time-consuming to our management team as well as
costly to us. Such claims could also materially negatively affect our
suppliers’ business and financial position, which could adversely impact the
viability of our supplier network. Therefore, such claims could have
a material adverse effect on our business, financial condition and results of
operations. In addition, there may also be negative publicity with
respect to these problems that could have a material adverse effect on our
business.
Risks
Related to Investment in Our Common Stock
Voting
control by our majority stockholder limits your ability to influence the
outcome of director elections and other matters requiring stockholder
approval.
As of
April 12, 2010, ComVest beneficially owned 56.7% of our common
stock. Accordingly, ComVest can control the election of
directors and, therefore, our policies and direction. In addition,
this concentration of ownership could have the effect of preventing a change in
our control or discouraging a potential acquirer from attempting to obtain
control of us, which in turn could have a material adverse effect on the market
price of our common stock or prevent our stockholders from realizing a premium
over the market price for their shares of common stock. See
“—Anti-takeover provisions to which we may be subject may make it more difficult
for a third party to acquire control of us, even if the change in control would
be beneficial to our stockholders.”
Quotation
of our common stock on the Pink Sheets® will adversely affect the
liquidity, trading market and price of our common stock and our ability to raise
capital.
Because
we have deregistered our common stock under the Exchange Act, we are no longer
subject to the reporting requirements of the Securities and Exchange Commission
and our common stock is no longer quoted on The OTC Bulletin
Board. Our common stock is now quoted on the Pink Sheets® operated by
Pink OTC Markets Inc. The quotation of our common stock on the Pink
Sheets® may reduce the price and liquidity of our common stock. In
addition, the quotation of our common stock on the Pink Sheets® may materially
adversely affect our ability to raise capital on terms acceptable to us or at
all.
Our
common stock may be subject to the “penny stock” rules of the Securities and
Exchange Commission, which make transactions in our stock cumbersome and may
reduce the value of an investment in our common stock.
Under the
rules of the SEC, “penny stock” means, for the purposes relevant to us, any
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions. As of April 12, 2010, the last reported sale
price per share of our common stock was $0.01, and trading in shares of our
common stock may be subject to “penny stock” rules.
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Subject
to certain exemptions, the penny stock rules established by the SEC impose
additional sales practices on broker-dealers and require that a broker or
dealer:
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approve
an investor’s account for transactions in penny stocks;
and
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receive
from the investor a written agreement to the
transaction.
|
In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:
|
|
·
|
obtain
information regarding the investor’s financial situation, investment
experience and objectives; and
|
|
|
·
|
make
a reasonable determination that the transactions in penny stock are
suitable for that investor and that the investor has sufficient knowledge
and experience in financial matters to be capable of evaluating the risks
of transactions in penny stocks.
|
The
broker or dealer must also deliver to the investor, prior to any transactions in
penny stock, a written statement which sets forth the basis on which the broker
or dealer made the suitability determination described above.
Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. In addition, the mark-ups or commissions charged
by the broker-dealers may be greater than any profit a seller may make and
investors may be unable to reap any profit from any sale of the stock, if they
can sell it at all.
Our
stock price may be subject to significant volatility and could suffer a decline
in value.
The stock
market in general and the market for technology-related stocks in particular has
been highly volatile. As a result, the market price of our common
stock is likely to be similarly volatile, and investors in our common stock may
experience a decrease in the value of their stock, including decreases unrelated
to our operating performance or prospects. During 2008, the price of
our common stock ranged from a high of $2.94 to a low of
$0.03. During 2009, the price of our common stock ranged from a high
of $0.40 to a low of $0.01. We believe that many factors, including
several which are beyond our control, have a significant effect on the market
price of our common stock and could cause the market price of our common stock
to decline. These factors include, but are not limited to, those
listed in this “Risk Factors” section and the following:
|
|
·
|
changes
in general economic conditions and the overall performance of the equity
markets;
|
|
|
·
|
announcements
of new technologies or services by us or our
competitors;
|
|
|
·
|
announcements
relating to strategic relationships or
acquisitions;
|
|
|
·
|
developments
with respect to intellectual property
rights;
|
|
|
·
|
publication
of unfavorable research reports about us or our
industry;
|
|
|
·
|
coverage
or lack of coverage by securities
analysts;
|
|
|
·
|
significant
volatility in the market price and trading volume of software companies in
general, and human resources software companies in
particular;
|
|
|
·
|
actual
or anticipated changes in laws and government
regulations;
|
|
|
·
|
changes
in industry trends or conditions;
|
18
|
|
·
|
departures
of key personnel; and
|
|
|
·
|
sales
of a significant number of shares of our common stock or other securities
in the market.
|
In
addition, the stock market in general and the market for technology-related
stocks in particular has experienced significant price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of individual companies. These broad market and industry factors may
seriously harm the market price of our common stock, regardless of our operating
performance.
Our
quarterly operating results may fluctuate significantly, and these fluctuations
may cause our stock price to fall.
As a
result of fluctuations in our revenue and operating expenses, our quarterly
operating results may vary significantly. We may not be able to
curtail our spending quickly enough if our revenue falls short of our
expectations. We expect that our operating expenses will increase
substantially in the future as we expand our selling and marketing activities,
increase our new product development efforts and hire additional
personnel. Our operating results may fluctuate in the future as a
result of factors including, but not limited to, the following:
|
|
·
|
our
ability to increase services sold to existing clients, attract new clients
and suppliers, cross-sell our solutions and satisfy our clients’
requirements;
|
|
|
·
|
changes
in our pricing policies;
|
|
|
·
|
the
introduction of new features to our
solutions;
|
|
|
·
|
the
rate of expansion and effectiveness of our sales
force;
|
|
|
·
|
new
product and service introductions by our
competitors;
|
|
|
·
|
concentration
of marketing expenses for activities, such as trade shows and advertising
campaigns;
|
|
|
·
|
concentration
of research and development costs;
and
|
|
|
·
|
concentration
of expenses associated with commissions earned on
sales.
|
We
believe that period-to-period comparisons of our results of operations are not
necessarily meaningful as our future revenue and results of operations may vary
substantially. It is also possible that in future quarters our
results of operations will be below the expectations of securities market
analysts and investors. In either case, the price of our common stock
could decline materially.
Issuance
of shares of our common stock upon the exercise of our options and warrants may
cause significant dilution of equity interests of existing holders of common
stock, reduce the proportionate voting power of existing holders of common stock
and could potentially reduce the market value of our common stock.
As of
April 12, 2010, 32,922,789 shares of our common stock were
outstanding. We have reserved 2,750,000 shares of common stock in
connection with our 2006 Long Term Incentive Plan, referred to as our 2006 plan,
under which options to purchase 638,100 shares of common stock were outstanding
as of April 12, 2010. We have also reserved approximately
2,657,500 shares of common stock for issuance in connection with previously
issued warrants that are exercisable into common stock, including: 82,500 shares
issuable upon the exercise of the warrants issued to the sub noteholders;
1,500,000 shares issuable upon the exercise of warrants issued to M&T; and
175,000 shares issuable upon the exercise of warrants issued to XRoads Solutions
Group, LLC, referred to as XRoads; and 900,000 shares for issuance to Blue Lake
Rancheria, referred to as Blue Lake.
19
Should
existing holders of options or warrants exercisable into shares of our common
stock exercise such securities into shares of our common stock, it may cause
dilution of equity interests of existing holders of common stock, reduce the
proportionate voting power of existing holders of common stock and reduce the
value of our common stock and outstanding warrants.
Anti-takeover
provisions to which we may be subject may make it more difficult for a third
party to acquire control of us, even if the change in control would be
beneficial to our stockholders.
Anti-takeover
provisions in the General Corporation Law of the State of Delaware, or GCL, our
certificate of incorporation, and our Amended and Restated Bylaws, referred to
as our bylaws, could hinder or delay a change in control of our company,
including transactions in which holders of common stock might otherwise receive
a premium over the market price of their shares at the time of the
transaction. For example, our certificate of incorporation
establishes a classified or “staggered” board of directors, which means that
only approximately one third of our directors is required to stand for election
at each annual meeting of our stockholders. Our certificate of
incorporation authorizes us to issue 60,000,000 shares of common stock and
1,000,000 shares of “blank check” preferred stock. No shares of
preferred stock were outstanding as of April 12, 2009. Under our
certificate of incorporation, our board of directors may issue additional shares
of common stock or issue preferred stock convertible into shares of common
stock, which could significantly dilute the ownership of a potential
acquirer. Also, pursuant to our bylaws, it may be difficult for the
potential acquirer to call a special meeting of our stockholders because only a
majority of the board of directors, our Chief Executive Officer, Chairman, or
Secretary acting at the request of the stockholders owning a majority of our
capital stock entitled to vote may call a special meeting of
stockholders. For a discussion of the anti-takeover effect of the
voting control by our majority stockholder, see “—Voting control by our majority
stockholder may limit your ability to influence the outcome of director
elections and other matters requiring stockholder approval.”
We
may issue shares of preferred stock that could be entitled to dividends,
liquidation preferences and other special rights and preferences not shared by
holders of our common stock.
We are
authorized to issue up to 1,000,000 shares of “blank check” preferred
stock. We may issue shares of preferred stock in one or more series
as our board of directors may from time to time determine without stockholder
approval. The voting powers, preferences and other special rights and
the qualifications, limitations or restrictions of each such series of preferred
stock may differ from each other. The issuance of any such series of
preferred stock could materially adversely affect the rights of holders of our
common stock and could reduce the value of our common stock.
We
do not pay cash dividends on our common stock and do not anticipate doing so in
the foreseeable future.
We are
subject to contractual limitations on the payment of dividends under the amended
ComVest loan agreement, the M&T restructure agreement, and the
GCL. As a Delaware corporation, we may not declare and pay dividends
on our capital stock if the amount paid exceeds an amount equal to the surplus,
which represents the excess of our net assets over paid-in-capital or, if there
is no surplus, our net profits for the current and/or immediately preceding
year. Under applicable Delaware case law, dividends may not be paid
on our common stock if we become insolvent or the payment of dividends will
render us insolvent. We do not pay, and we do not anticipate paying,
any cash dividends on the common stock in the foreseeable
future. Therefore, any gains on your investment in our common stock
will depend on increases in the stock price, which may or may not
occur.
20
Item
1B. Unresolved Staff Comments.
Not
applicable.
The
headquarters of ClearPoint are located at 1600 Manor Drive, Suite 110, Chalfont,
PA 18914. ClearPoint leases approximately 5,500 square feet and pays a
monthly fee of $12, with its lease expiring on May 31, 2010.
Temporary
Services Insurance Ltd.
On
September 21, 2007, TSIL, which claimed to be a captive reinsurance company
offering workers’ compensation insurance to its shareholders through an
insurance program, initiated the TSIL litigation in the U.S. District Court in
Florida against ALS, Advantage Services Group, LLC, certain officers and
shareholders of ALS and Advantage Services Group, LLC, as well as certain other
third party companies, collectively referred to as the ALS defendants, alleging
that it was owed at least $2,161 in unpaid insurance assessments, as well as
other requested damages, from the ALS defendants. Kevin O’Donnell, a
former officer of the ALS companies and a named defendant in the TSIL
litigation, controls KOR Capital, LLC, referred to as KOR, a former franchisee
of ClearPoint.
ClearPoint
was also named as a defendant because it acquired certain assets from ALS and
its wholly owned subsidiaries, including Advantage Services Group II, LLC,
referred to as ASG II, in February 2007, for which it paid a portion of the
purchase price at closing to the ALS defendants, through ALS. It was
alleged that this transfer rendered ASG II, one of the named insureds on the
TSIL policy, insolvent and unable to pay the insurance assessments and damages
owed to TSIL. TSIL requested in its complaint that its damages be
satisfied from the assets transferred to ClearPoint. Agreements
related to the acquisition of certain assets and liabilities of ALS in February
2007 contain provisions under which ClearPoint may seek indemnification from ALS
in connection with the foregoing.
The court
in the TSIL litigation entered an order dated February 22, 2008, referred to as
the TSIL order, requiring ClearPoint not to make any payments to ALS pursuant to
the purchase agreement without first seeking leave of court. On or
about June 20, 2008, in connection with ALS’ agreement to subordinate the ALS
note to certain lenders of ClearPoint, the ALS parties and ClearPoint agreed,
among other things, as follows:
|
|
·
|
That
the ALS parties acknowledge their obligation to indemnify ClearPoint in
connection with the TSIL litigation, subject to certain sections of the
purchase agreement governing ClearPoint’s acquisition the assets and
liabilities of ALS, referred to as the ALS purchase
agreement;
|
|
|
·
|
That
the ALS parties shall be responsible for ClearPoint’s attorney’s fees
incurred in the TSIL litigation from June 20, 2008, not to exceed
$300;
|
|
|
·
|
That
the ALS parties and ClearPoint shall take all appropriate actions to
dismiss all of their respective claims against one another in the TSIL
litigation, and that following such dismissal, ClearPoint shall cooperate
as reasonably requested by the ALS parties in connection with the TSIL
litigation including consenting in connection with a request to lift the
TSIL order, or otherwise permit payment to the ALS parties in accordance
with the terms of the ALS purchase agreement and ALS note;
and
|
21
|
|
·
|
In
addition, ClearPoint agreed not to assert its right to set off from the
ALS note any other amounts in connection with the TSIL litigation until
such time (if at all) as a final judgment is entered against ClearPoint in
the TSIL litigation, or the amount of TSIL’s claims against ClearPoint are
liquidated by settlement or
otherwise.
|
Both TSIL
and ClearPoint filed motions for summary judgment and, on March 26, 2010, the
court granted ClearPoint’s motion for summary judgment in its
favor.
Select
Staffing
On
September 1, 2009, Select filed a complaint in the Superior Court of California
(Santa Barbara County) against ClearPoint alleging that ClearPoint failed to pay
Select pursuant to the Select subcontract since August 2009 and that ClearPoint
failed to perform certain obligations under the Select
subcontract. On December 30, 2009, that complaint was dismissed with
prejudice by mutual agreement of the parties.
For
additional information regarding the Select license agreement and the Select
subcontract, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources—Transactions Related
to Transition from Temporary Staffing Business Model to iLabor Network
Model.”
XL
Specialty Insurance Company
On
November 10, 2008, XL Specialty Insurance Company, referred to as XL, filed a
complaint in the Supreme Court of the State of New York (New York County), and,
on December 9, 2008, XL filed an amended complaint, referred to as the XL
complaint, alleging that, among other things, XL issued workers’ compensation
insurance policies to ClearPoint Advantage, LLC, a wholly owned subsidiary of
CPR and referred to as CP Advantage, during 2007 and CP Advantage failed to make
certain payments with regard to claims made against CP Advantage under the
policies and maintain collateral required by the insurance policy
documents. XL seeks to recover from ClearPoint, as a guarantor of CP
Advantage’s obligations under the insurance
policies, approximately $745, in the aggregate, in
connection with certain claims against and pursuant to the collateral
obligations of, CP Advantage. XL, in addition to damages, seeks
pre-judgment interest, attorneys’ fees, costs and expenses and such other relief
deemed proper by the court. CPR filed its answer in this matter
on February 17, 2009 and contends that a third party is liable for the payments
under the insurance policies pursuant to an agreement governing the sale of
HRO. XL filed a motion for summary judgment on March 31,
2010.
AICCO,
Inc.
On
November 18, 2008, AICCO, Inc., referred to as AICCO, filed a complaint the
Court of Common Pleas of Bucks County, Pennsylvania against ClearPoint, referred
to as the AICCO litigation, alleging that AICCO agreed to finance premiums of
certain insurance policies procured by ClearPoint pursuant to a certain premium
finance agreement among AICCO and ClearPoint. AICCO claimed that
ClearPoint breached the terms of such agreement by failing to make certain
installment payments and sought damages of approximately $167, together with
interest and attorney’s fees and costs. ClearPoint joined two
additional defendants on January 23, 2009. ClearPoint contended that
the joined defendants were liable for the installment payments pursuant to an
agreement governing the sale of HRO. ClearPoint alleged breach of
contract against the joined defendants and sought contribution and
indemnification from such parties in this matter.
22
On June
2, 2009, AICCO filed a motion for summary judgment against ClearPoint and on
July 2, 2009, ClearPoint filed its opposition to such motion, and filed a
cross-motion for summary judgment against the additional
defendants. On July 29, 2009, the additional defendants filed their
opposition to ClearPoint’s cross-motion, and filed a motion for summary judgment
against ClearPoint. On July 31, 2009, AICCO replied to ClearPoint’s
opposition to AICCO’s motion for summary judgment. On August 27,
2009, ClearPoint filed its opposition to the additional defendants’ motion for
summary judgment.
On
December 23, 2009, ClearPoint and AICCO entered into a Settlement Agreement and
Release, referred to as the AICCO settlement. Pursuant to the AICCO
settlement, ClearPoint agreed to pay AICCO an aggregate amount of $190 in full
and final settlement of all claims relating to the AICCO
litigation. ClearPoint agreed to pay such amount as follows: (i) four
monthly installment payments of $15, the first of which was paid on December 29,
2009, and will continue on the 15th day of each month thereafter, including
March 15, 2010, followed by (ii) 12 monthly installment payments of $11,
commencing on April 15, 2010. As of April 12, 2010, ClearPoint is
current on all payments owed pursuant to the AICCO settlement.
In the
event ClearPoint fails to make any payment due under the AICCO settlement, after
AICCO provides ClearPoint with prior written notice and five days’ opportunity
to cure, judgment may be entered against ClearPoint in the amount of
approximately $195, together with an interest rate of 6% per annum accruing as
of the date the missed payment was due, plus costs and attorney’s fees
associated with the entry and execution of such judgment, less any amounts paid
under the AICCO Settlement. Accordingly, on December 23, 2009,
ClearPoint executed a Judgment Note in favor of AICCO providing for such
judgment payment.
Michael
W. O’Donnell
In May
2009, Michael W. O’Donnell filed a claim in the Circuit Court of the Ninth
Judicial Circuit in and for Orange County, Florida seeking an unspecified amount
of unpaid wages and reasonable attorney’s fees related to the termination of his
employment with ClearPoint. On August 21, 2008, Mr. O’Donnell was
notified that his employment was being terminated for cause, as defined in the
Employment Agreement dated February 23, 2007 and the Amended Letter Agreement
dated June 17, 2008 between ClearPoint and the ALS parties, which include Mr.
O’Donnell. ClearPoint has answered Mr. O’Donnell’s claims and
disputed his allegations. Furthermore, on August 7, 2009, ClearPoint
also filed a counter-claim against Mr. O’Donnell for breach of contract arising
out of his failure to honor the terms of the Employment Agreement and the
Amended Letter Agreement.
In
addition, in December 2009, Mr. O’Donnell filed a Demand for Indemnification
pursuant to the Asset Sale and Purchase Agreement dated February 23, 2007, as
amended. Mr. O’Donnell demanded that ClearPoint indemnify him for
potential losses arising out of the lawsuit filed by GE Capital described
below. This litigation is currently in the discovery
phase.
National
Union Fire Insurance
On May
11, 2009, National Union Fire Insurance made a Demand for Arbitration on
ClearPoint asserting a claim for approximately $4,158 for amounts owed for
premiums, adjustments, expenses and fees associated with a workers compensation
policy previously held by ClearPoint and sold as part of the sale of MVI to
TradeShow. ClearPoint complied with the demand and named an
arbitrator for the proceeding. The date of the arbitration has not
yet been scheduled.
23
Blue
Lake Rancheria
On July
14, 2009, Blue Lake Rancheria, referred to as Blue Lake, filed against
ClearPoint a Complaint in the Superior Court of Humboldt County, California
seeking payment of $490 under the Blue Lake note, plus accrued interest and
attorneys’ fees. The lawsuit also names Michael D. Traina,
ClearPoint’s Chairman of the board of directors and Chief Executive Officer, and
Christopher Ferguson, ClearPoint’s stockholder, as
defendants. Messrs. Traina and Ferguson formerly served as guarantors
of the payment of the Blue Lake note. ClearPoint filed a motion to
dismiss the Complaint on September 14, 2009, contending that the Complaint
failed to state a claim for relief and is improperly vague. On
October 5, 2009, Blue Lake filed an Amended Complaint, which ClearPoint has
answered. The case has proceeded to discovery. ClearPoint
asserts, among other things, that the release of the shares from escrow
satisfies the obligation due to Blue Lake, and that Messrs. Traina and Ferguson
are no longer guarantors of the payment of the Blue Lake note.
Allegiant
Professional Business Services Inc.
On
February 8, 2010, ClearPoint was served with a Summons and Complaint that
Allegiant Professional Business Services, Inc., referred to as Allegiant, filed
in the Superior Court of California, County of San Diego, Central Division on
December 21, 2009. The complaint alleged breach of contract and fraud
and sought approximately $91 in damages. On February 22, 2010,
Allegiant agreed to dismiss the complaint without prejudice. Because
the state court docket did not timely reflect the dismissal, ClearPoint filed a
Notice of Removal to federal court on March 2, 2010. On March 15,
2010, the Court signed a stipulated order to dismiss without prejudice and
closed the matter.
Jennifer
Garcia
On August
11, 2009, Jennifer Garcia filed a complaint against ClearPoint in the Superior
Court of San Francisco, California. The Complaint alleges that Ms.
Garcia was personally injured by a temporary employee of ClearPoint while they
were working at a client site in August, 2006. ClearPoint’s insurance
policy provided coverage on a claims-made and reported basis subject to a
retroactive date of June 29, 2006 and therefore, has denied coverage to Ms.
Garcia. Plaintiff is alleging approximately $50 in
damages. ClearPoint is currently in discussions with Ms.
Garcia.
GE
Capital Information Technology Solutions, Inc.
On
November 10, 2009, GE Capital Information Technology Solutions, Inc., referred
to as GE Capital, filed a complaint against ClearPoint in the Circuit Court of
the Ninth Judicial Circuit in Orange County, Florida. On or about
January 6, 2006, ALS entered into an Image Management Plus Agreement with GE
Capital. The Complaint alleges that ALS breached the terms of the
contract by failing to make the payments after February, 2008. GE
Capital accelerated the balance due pursuant to the terms of the
contract. GE Capital demands judgment against ClearPoint and ALS for
damages, interest, attorney fees and other costs of approximately
$15. ClearPoint is currently reviewing the complaint.
General
Although
ClearPoint accrued for certain of the liability exposures for these matters on
its balance sheet, an adverse decision in these matters may result in a material
adverse effect on its liquidity, capital resources and results of
operations. In addition, to the extent that ClearPoint’s management
has been required to participate in or otherwise devote substantial amounts of
time to the defense of these matters, such activities would result in the
diversion of management resources from business operations and the
implementation of ClearPoint’s business strategy, which may negatively impact
ClearPoint’s financial position and results of operations.
The
principal risks that ClearPoint insures against are general liability,
automobile liability, property damage, alternative staffing errors and
omissions, fiduciary liability and fidelity losses. If a potential loss
arising from these lawsuits, claims and actions is probable, reasonably
estimable, and is not an insured risk, ClearPoint records the estimated
liability based on circumstances and assumptions existing at the
time. Whereas management believes the recorded liabilities are
adequate, there are inherent limitations in the estimation process whereby
future actual losses may exceed projected losses, which could materially
adversely affect the financial condition of ClearPoint.
24
Generally,
ClearPoint is engaged in various other litigation matters from time to time in
the normal course of business. Management does not believe that the
ultimate outcome of such matters, either individually or in the aggregate, will
have a material adverse impact on the financial condition or results of
operations of ClearPoint.
25
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
Market
Information
Prior to
February 13, 2007, our units, common stock and warrants were quoted on The OTC
Bulletin Board under the symbols “TNVAU.OB,” “TNVA.OB” and “TNVAW.OB,”
respectively. Our units, common stock and warrants were listed on
Nasdaq under the symbols “CPBRU,” “CPBR” and “CPBRW,” respectively, starting
February 13, 2007. Our securities were suspended from trading on
Nasdaq on September 11, 2008 as a result of our failure to comply with certain
Nasdaq listing requirements, and our securities were delisted from Nasdaq
effective at the opening of the trading session on November 24,
2008. Effective September 11, 2008, our common stock was quoted on
The OTC Bulletin Board under the symbol “CBPR.OB.” Effective
September 15, 2008, our units and warrants were quoted on The OTC Bulletin Board
under the symbols “CBPRU.OB” and “CPBRW.OB,” respectively. Effective
April 17, 2009, our units and warrants expired.
On March
31, 2010, we filed a Form 15 with the Securities and Exchange Commission to
deregister our common stock and suspend our obligation to file periodic
reports under the Exchange Act, except that we have filed this Annual Report on
Form 10-K for the fiscal year ended December 31, 2009. The
deregistration itself is expected to be made effective within 90 days of the
filing of the Form 15. As a result of the deregistration, our common
stock is no longer quoted on The OTC Bulletin Board and is now quoted on the
Pink Sheets.
The
following table sets forth the high and low sales prices per share of our common
stock on The OTC Bulletin Board and Nasdaq, as applicable, for the periods
indicated. The over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily reflect actual transactions. On April 12, 2010, the last
reported sales price of our common stock as reported on The OTC Bulletin Board
was $0.01 per share.
|
(in
dollars)
|
Units
|
Common
Stock
|
Warrants
|
|||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|||||||||||||||||||
|
2009:
|
||||||||||||||||||||||||
|
Fourth
Quarter
|
— | — | 0.06 | 0.01 | — | — | ||||||||||||||||||
|
Third
Quarter
|
— | — | 0.19 | 0.02 | — | — | ||||||||||||||||||
|
Second
Quarter
(beginning
April 18, 2009)
|
— | — | 0.30 | 0.04 | — | — | ||||||||||||||||||
|
Second
Quarter
(through
April 17, 2009)
|
N/A |
(1)
|
N/A |
(1)
|
0.40 | 0.11 | 0.01 | 0.001 | ||||||||||||||||
|
First
Quarter
|
N/A |
(1)
|
N/A |
(1)
|
0.24 | 0.03 | 0.01 | 0.001 | ||||||||||||||||
|
2008:
|
||||||||||||||||||||||||
|
Fourth
Quarter
|
0.12 | 0.10 | 0.24 | 0.02 | 0.01 | 0.001 | ||||||||||||||||||
|
Third
Quarter
(beginning
September 11, 2008)
|
N/A |
(1)
|
N/A |
(1)
|
0.25 | 0.05 | 0.02 | 0.001 | ||||||||||||||||
|
Third
Quarter
(through
September 10, 2008)
|
0.50 | 0.25 | 0.52 | 0.09 | 0.04 | 0.001 | ||||||||||||||||||
|
Second
Quarter
|
1.35 | 0.06 | 1.54 | 0.15 | 0.06 | 0.01 | ||||||||||||||||||
|
First
Quarter
|
2.60 | 2.10 | 2.94 | 1.27 | 0.30 | 0.04 | ||||||||||||||||||
26
Recent
Sales of Unregistered Securities
There
have been no unregistered sales of equity securities during the period covered
by this report that were not previously reported on a Quarterly Report on Form
10-Q or a Current Report on Form 8-K.
Dividend
Policy
We have
not paid any cash dividends on our common stock to date. We do not
anticipate declaring any dividends in the foreseeable future.
We are
subject to contractual limitations on the payment of dividends under the amended
ComVest loan agreement and the M&T restructure agreement. For
additional information regarding such contractual limitations, see Part II, Item
7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources” and Note 11 to our Consolidated
Financial Statements in Part II, Item 8 “Financial Statements and Supplementary
Data” in this Annual Report on Form 10-K. In addition, as a Delaware
corporation, we may not declare and pay dividends on our capital stock if the
amount paid exceeds an amount equal to the surplus, which represents the excess
of our net assets over paid-in-capital or, if there is no surplus, our net
profits for the current and/or immediately preceding fiscal year.
Holders
As of
April 12, 2010, there were 17 record holders of our common stock, solely based
upon the count our transfer agent provided us as of that date and such numbers
do not include:
|
|
·
|
any
beneficial owners of securities whose shares are held in the names of
various dealers, clearing agencies, banks, brokers or other fiduciaries;
and
|
|
|
·
|
broker-dealers
or other participants who hold or clear shares directly or indirectly
through the Depository Trust Company, or its nominee, Cede &
Co.
|
27
The
following selected financial data should be read together with our consolidated
financial statements contained in Part II, Item 8 “Financial Statements and
Supplementary Data” and accompanying notes and Part II, Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
contained in this Annual Report on Form 10-K. The selected consolidated
financial data in this section are not intended to replace our consolidated
financial statements and the accompanying notes. Our historical results
are not necessarily indicative of our future results.
The
selected consolidated financial data set forth below are derived from our
consolidated financial statements. The consolidated statement of
operations data for the fiscal years ended December 31, 2009, 2008, 2007, 2006
and 2005 and the consolidated balance sheet data as of December 31, 2009, 2008,
2007, 2006 and 2005 are derived from our audited consolidated financial
statements and related notes of which the financial statements and notes for the
fiscal years ended December 31, 2009 and 2008 are included in this Annual
Report on Form 10-K.
|
Fiscal Year Ended
December 31,
(in thousands, except per share data)
|
||||||||||||||||||||
|
2009
|
2008
|
2007(a)
|
2006
|
2005
|
||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||
|
Revenue
|
$ | 5,242 | $ | 33,496 | $ | 191,685 | $ | 113,942 | $ | 84,200 | ||||||||||
|
Cost
of services
|
— | 29,108 | 166,631 | 93,337 | 68,789 | |||||||||||||||
|
Gross
profit
|
5,242 | 4,388 | 25,054 | 20,605 | 15,411 | |||||||||||||||
|
SG&A
expense
|
4,831 | 15,559 | 26,705 | 13,550 | 11,025 | |||||||||||||||
|
Restructuring
expense
|
— | 1,350 | 2,201 | — | — | |||||||||||||||
|
Impairment
of goodwill
|
— | 16,822 | — | — | — | |||||||||||||||
|
Fixed
assets impairment expense, net
|
5 | 1,022 | — | — | — | |||||||||||||||
|
Depreciation
and amortization expense
|
628 | 723 | 10,313 | 2,489 | 2,013 | |||||||||||||||
|
Income
(loss) from operations
|
(222 | ) | (31,088 | ) | (14,165 | ) | 4,566 | 2,373 | ||||||||||||
|
Other
income (expense)
|
386 | (86 | ) | (1,608 | ) | 26 | (1 | ) | ||||||||||||
|
Interest
income
|
40 | 7 | 134 | — | — | |||||||||||||||
|
Interest,
OID and warrant liability (expense)
|
(1,827 | ) | (2,025 | ) | (1,872 | ) | (5,072 | ) | (3,648 | ) | ||||||||||
|
Derivative
income (expense)
|
(87 | ) | 34 | — | — | — | ||||||||||||||
|
Gain
on restructuring of debt
|
— | 687 | — | — | — | |||||||||||||||
|
(Loss)
on sale of subsidiary
|
(190 | ) | (1,294 | ) | — | — | — | |||||||||||||
|
(Loss)
on extinguishment of debt
|
(1,175 | ) | — | — | — | — | ||||||||||||||
|
Prepayment
penalty on early retirement of debt
|
— | — | — | — | — | |||||||||||||||
|
Net
(loss) before income tax
|
(3,075 | ) | (33,765 | ) | (17,511 | ) | (480 | ) | (1,276 | ) | ||||||||||
|
Income
tax expense (benefit)
|
— | 5,021 | (5,121 | ) | 945 | (77 | ) | |||||||||||||
|
Net
(loss)
|
$ | (3,075 | ) | $ | (38,786 | ) | $ | (12,390 | ) | $ | (1,425 | ) | $ | (1,199 | ) | |||||
|
Net
(loss) per common share – basic and diluted
|
$ | (0.22 | ) | $ | (2.84 | ) | $ | (1.00 | ) | $ | (0.24 | ) | $ | (0.20 | ) | |||||
|
December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007(a)
|
2006
|
2005
|
||||||||||||||||
|
(in thousands, except per share data)
|
||||||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Working
capital (deficit) (current assets less current
liabilities)
|
$ | (19,592 | ) | $ | (11,937 | ) | $ | (3,188 | ) | $ | 9,070 | $ | 8,601 | |||||||
|
Total
assets
|
2,559 | 5,081 | 55,277 | 22,253 | 22,388 | |||||||||||||||
|
Total
long-term debt, net of current
|
4,872 | 10,306 | 8,523 | 14,965 | 13,927 | |||||||||||||||
|
Stockholders’
equity (deficit)
|
(24,986 | ) | (21,913 | ) | 15,646 | (2,714 | ) | (1,883 | ) | |||||||||||
|
Selected
financial data for the fiscal year ended December 31, 2007 were impacted
by the acquisition of certain assets and assumption of certain liabilities
of ALS in February, 2007. See Part II, Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—ALS” included in this Annual
Report on Form 10-K.
|
28
Our
consolidated financial statements have been prepared assuming that we will
continue as a going concern. However, we had a net loss of $3,075 and
utilized cash of $1,751 in operating activities during the year ended December
31, 2009, and had a stockholders’ deficit of $(24,986). These factors raise
substantial doubt about our ability to continue as a going concern. Our
consolidated financial statements do not include any adjustments that might
result from this uncertainty.
29
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
You
should read the following discussion and analysis of ClearPoint’s financial
condition and results of operations in conjunction with its consolidated
financial statements and the notes to such consolidated financial statements
included elsewhere in this Annual Report on Form 10-K. This discussion contains
forward-looking statements reflecting ClearPoint’s current expectations, which
involve risks and uncertainties. See Part I, Item 1A “Risk Factors” for a
discussion of important factors that could cause actual results to differ
materially from those described or implied by the forward-looking statements
contained in this discussion. Please refer to “Forward-Looking Statements”
included in this Annual Report on Form 10-K.
Overview
ClearPoint
is a workplace management solutions company. ClearPoint focuses its
services on helping companies manage their contingent labor needs. Through
the iLabor Network, ClearPoint provides services to clients ranging from small
businesses to Fortune 500 companies. The iLabor Network specializes in the
highly transactional “go to work” or “on-demand” segment of the temporary labor
market. In the third quarter of 2009, ClearPoint expanded its
offerings to include selective services which provide for résumé-oriented
positions to be filled through the iLabor portal. ClearPoint
considers the hospitality, distribution, warehouse, manufacturing, logistics,
technology, convention services, hotel chains, retail and administrative sectors
among the segments best able to be served by the iLabor Network.
During
the year ended December 31, 2008, ClearPoint transitioned its business model
from a temporary staffing provider through a network of branch-based offices or
franchises to a provider that manages clients’ temporary staffing needs through
its open Internet portal-based iLabor Network. Under its new business model,
ClearPoint acts as a broker for its clients and network of temporary staffing
suppliers.
ClearPoint
derives its revenues from the following sources: (i) royalty payments related to
client contracts which ClearPoint subcontracted or sold to other providers of
temporary staffing services; (ii) revenues generated by the iLabor Network; and
(iii) revenues related to VMS.
Historically,
ClearPoint has funded its cash and liquidity needs through cash generated from
operations and debt financing. ClearPoint incurred net losses of approximately
$3,075 and $38,786 for the fiscal years ended December 31, 2009 and 2008,
respectively. ClearPoint is highly leveraged and has very limited financial
resources. At December 31, 2009, ClearPoint had cash and cash
equivalents of $75, $27,546 of total liabilities and accumulated deficit of
approximately $57,566.
In 2008,
ClearPoint defaulted on its debt obligations to M&T and had to restructure
its outstanding debt obligations. In June, 2008, ClearPoint
replaced M&T with ComVest as its senior lender and entered into
subordination agreements with its other lenders.
During
2009, ClearPoint defaulted on its debt obligations to ComVest. As a
consequence of such defaults, ComVest invoked the default exercise provision
under an amended and restated warrant issued to ComVest. As a result,
ClearPoint is obligated to issue to ComVest 18,670,825 shares of ClearPoint’s
common stock, effectively resulting in ComVest’s control of
ClearPoint.
In
addition, as of April 12, 2010, ClearPoint did not make scheduled payments due
to ComVest and certain other creditors. ClearPoint’s failure to make
such payments constitutes an event of default under the amended ComVest loan
agreement. On April 14, 2010, ComVest waived the foregoing events of
default. See “—Liquidity and Capital Resources” for additional
information regarding ClearPoint’s debt obligations and the above-mentioned
defaults under such obligations.
30
On March
17, 2010, M&T notified ClearPoint of the existence of events of default
under the M&T restructure agreement. An event of default under
the M&T restructure agreement would trigger a cross-default provision
pursuant to the amended ComVest loan agreement, unless such default is waived in
writing by ComVest. ClearPoint’s obligations to M&T are
subordinated to its obligations to ComVest.
As a
result of its liquidity problems, as well as the absence of firm commitments for
any additional financing, ClearPoint’s independent registered public accounting
firm included an explanatory paragraph in its report on ClearPoint’s financial
statements for the fiscal year ended December 31, 2009 regarding ClearPoint’s
ability to continue as a going concern. In addition, ClearPoint included a
“going concern” note in its consolidated financial statements for the fiscal
year ended December 31, 2009 (see Note 1 of the Notes to the Consolidated
Financial Statements included in this Annual Report on Form 10-K).
In
addition, ClearPoint continues to face significant business challenges related
to:
|
|
·
|
its
ability to service and repay its outstanding debt
obligations;
|
|
|
·
|
limitations
imposed by the outstanding debt obligations on the cash flow available for
its operations; and
|
|
|
·
|
its
ability to facilitate the market acceptance of the iLabor
Network.
|
For a
more detailed discussion of these matters, see Part I, Item 1A “Risk
Factors.”
In March,
2010, ClearPoint voluntarily deregistered its common stock and, as a result, its
obligation to file periodic reports with the Securities and Exchange Commission
was immediately suspended, except that ClearPoint has filed this Annual Report
on Form 10-K for the fiscal year ended December 31, 2009. As a result
of the deregistration, ClearPoint’s common stock is now quoted on the Pink
Sheets, a centralized electronic quotation service for over-the-counter
securities. ClearPoint can give no assurance that trading in its
stock will continue on the Pink Sheets or on any other securities exchange or
quotation medium or that its common stock will be actively traded.
Application
of Critical Accounting Policies and Estimates
ClearPoint’s
discussion and analysis of its financial condition and results of operations are
based on ClearPoint’s consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles, or GAAP.
The preparation of financial statements in conformity with these principles in
the United States of America requires ClearPoint to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the financial
statements and also affect the amounts of revenues and expenses reported for
each period.
31
Management
believes the following critical accounting policies reflect the more significant
judgments and estimates used in the preparation of ClearPoint’s consolidated
financial statements, and actual results could differ materially from the
amounts reported based on these policies.
Revenue
Recognition
ClearPoint
recognizes revenue when there is persuasive evidence of an arrangement, delivery
has occurred or services have been rendered, the sales price is determinable,
and collectability is reasonably assured. Revenue earned but not billed is
recorded and accrued as unbilled revenue. In 2008, ClearPoint transitioned from
a short and long term temporary staffing provider through a network of branch
based offices to a provider that manages clients’ temporary staffing spend
through its open Internet portal based iLabor network, as well as its closed
client embedded VMS system.
ClearPoint
evaluated the criteria outlined in Accounting Standards Codification, referred
to as ASC, Topic 605-45, Principal Agent Considerations, in determining that it
was appropriate to record the revenue from the iLabor technology platform on a
net basis after deducting costs related to suppliers for sourcing labor, which
represent the direct costs of the contingent labor supplied, for clients.
Generally, ClearPoint is not the primarily obligated party in iLabor
transactions and the amounts earned are determined using a fixed percentage, a
fixed-payment schedule, or a combination of the two.
Prior to
2008 and for the three months ended March 31, 2008, ClearPoint’s primary major
source of revenue was the temporary placement of workers. This
revenue was recognized when earned and realizable and therefore when the
following criteria had been met: (a) persuasive evidence of an arrangement
exists; (b) services have been rendered; (c) the fee is fixed or determinable;
and (d) collectability is reasonably assured. Revenue is recognized in the
period in which services are provided based on hours worked by the workers. As a
result of changes in ClearPoint’s business model, in 2008, ClearPoint recognized
revenue from four major sources:
· For
the three months ended March 31, 2008, ClearPoint recorded revenue from its
temporary staffing operations, permanent placement fees, and temp-to-hire fees
by formerly Company-owned and franchised operations. Temporary staffing revenue
and the related labor costs and payroll taxes were recorded in the period in
which the services were performed. Temp-to-hire fees were generally recorded
when the temporary employee was hired directly by the customer. ClearPoint
reserved for billing adjustments, principally related to overbillings and client
disputes, made after year end that related to services performed during the
fiscal year. The reserve was estimated based on historical adjustment data as
percent of sales. Permanent placement fees were recorded when the candidate
commenced full-time employment and, if necessary, sales allowances were
established to estimate losses due to placed candidates not remaining employed
for the permanent placement guarantee period, which was typically 30-60
days;
· During
the quarter ended June 30, 2008, ClearPoint completed its transition from the
temporary staffing provider model to its iLabor technology
platform. Under this new model, ClearPoint records revenue on a net
fee basis after deducting costs paid to suppliers for sourcing labor for
ClearPoint’s clients. ClearPoint acts as a broker for its clients and
ClearPoint’s network of temporary staffing suppliers. Revenue from
ClearPoint’s iLabor Network where it electronically procures and consolidates
buying of temporary staffing for clients is recognized on a net
basis;
· ClearPoint
records royalty revenues when earned based upon the terms of the agreements with
Select, StaffChex and Townsend Careers, as defined below (see Note 4 – Business
and Asset Acquisitions and Dispositions and Licensing Agreements);
and
32
· VMS
revenue, which consists of management fees recognized on a net basis and
recorded as the temporary staffing service is rendered to the
client.
ClearPoint
also recorded deferred revenue on the balance sheet as of December 31, 2009 and
December 31, 2008. This amount of deferred revenue is being
recognized ratably over the term of the agreement reached with Select (see Note
4 – Business and Asset Acquisitions and Dispositions and Licensing
Agreements).
Workers’
Compensation Reserves
Prior to
February 29, 2008, ClearPoint was responsible for the workers’ compensation
costs for its temporary and regular employees and was related to domestic
workers’ compensation claims ($250 or $500 per claim, depending on the
policy). ClearPoint accrued the estimated costs of workers’
compensation claims based upon the expected loss rates within the various
temporary employment categories provided by ClearPoint and the estimated costs
of claims reported but not settled and claims incurred but not
reported. As a result of the estimated costs, ClearPoint estimated
that the insurance carriers will issue rebates based on its
findings. During 2008, ClearPoint sold all of its ownership interest
in HRO, its wholly owned subsidiary (see Note 4 – Business and Asset
Acquisitions and Dispositions and Licensing Agreements).
In
connection with the sale of HRO, ClearPoint sold its workers compensation
insurance policies, which included both collateral and insurance premium
liabilities. AICCO was listed as one of the policies which had a
premium liability. On December 23, 2009, ClearPoint and AICCO entered
into the AICCO settlement pursuant to which ClearPoint agreed to pay AICCO an
aggregate amount of $190 in full and final settlement of all claims relating to
the AICCO litigation. This payment is recorded on the income
statement as loss on sale of subsidiary (see Note 4 – Business and Asset
Acquisitions and Dispositions and Licensing
Agreements).
Collectibility
of Accounts Receivable
ClearPoint
provides an allowance for uncollectible accounts receivable based on an
estimation of losses which could occur if clients are unable to make required
payments. ClearPoint evaluates this allowance on a regular basis throughout the
year and makes adjustments as the evaluation warrants. These allowances were
$5,253 at December 31, 2009 and $5,775 at December 31, 2008. ClearPoint’s
estimates are influenced by numerous factors including its large, diverse client
base, which is disbursed across a wide geographical area. One (1) customer
accounted for 12% of the accounts receivable balance as of December 31,
2009. The same customer accounted for 11% of the accounts receivable
balance as of December 31, 2008. If customers’
creditworthiness deteriorates, or if actual defaults are higher than our
historical experience or if other circumstances arise, ClearPoint’s estimates of
the collectibility of amounts due to ClearPoint could be overstated, and
additional allowances could be required, which would have an adverse impact on
ClearPoint’s consolidated financial statements.
Goodwill
ASC Topic
350-20-35 “Goodwill and
Other” requires that goodwill and certain intangible assets with indefinite
useful lives are no longer required to be amortized but instead are subject to
an impairment test performed on an annual basis or whenever events or
circumstances indicate that impairment may have occurred. Intangible assets with
finite useful lives continue to be amortized over their useful lives. The
valuation methodologies considered include analyses of estimated future
discounted cash flows at the reporting unit level, publicly traded companies
multiples within the temporary staffing industry and historical control premiums
paid by acquirers purchasing companies similar to ClearPoint’s. As part of the
assessment, management relied on a number of factors to discount anticipated
future cash flows including operating results, business plans and present value
techniques. Rates used to discount cash flows are dependent upon market interest
rates and the cost of capital at the valuation date. There are inherent
uncertainties related to these factors and management’s judgment in applying
them to the analysis of goodwill impairment. ClearPoint recorded an impairment
of goodwill at March 31, 2008 of $16,822 based upon management’s determination
that the carrying amount of the goodwill was less than its fair value. This
impairment related to the assignment of contracts previously serviced by
ClearPoint but no longer in its control. It was therefore determined that the
previously recorded goodwill could no longer be substantiated. As a result of
the goodwill impairment during the quarter ended March 31, 2008, no goodwill is
recognized in the consolidated balance sheet at December 31,
2009.
33
ClearPoint
accounts for income taxes in accordance with ASC Topic 740 “Income Taxes” by
utilizing an asset and liability approach that requires recording deferred tax
assets and liabilities for the future year consequences of events that have been
recognized in its financial statements or tax returns Under ASC Topic
740, ClearPoint measures these expected future tax consequences based upon
provisions of tax law as currently enacted. Significant judgment is required in
determining any valuation allowance against deferred tax assets. In assessing
the need for a valuation allowance, ClearPoint considers all available evidence,
including historical operating results and estimates of future taxable income.
ClearPoint’s assessment at December 31, 2009 has resulted in a full valuation
allowance being recorded against the deferred tax assets. In the event
ClearPoint changes its determination as to the amount of deferred tax assets
that can be realized, an adjustment to the valuation allowance with a
corresponding effect to the provision for income taxes in the period in which
such determination is made could have an adverse impact on ClearPoint’s
consolidated financial statements. The effects of future changes in tax laws are
not anticipated. Variations in the actual outcome of these future tax
consequences could materially impact ClearPoint’s financial position or its
results of operations. ClearPoint also provides a reserve for tax contingencies
when it believes a probable and estimatable exposure exists.
Litigation
Contingencies
ClearPoint
is subject to various litigation matters which may have an adverse impact on its
consolidated financial statements. An estimated settlement contingency is
required when it is probable and the amount or range of amounts can be
reasonably estimated. ClearPoint regularly evaluates current information
available to determine whether such accruals should be adjusted or whether new
accruals are required. ClearPoint believes that as of December 31, 2009,
it had adequate reserves recorded for asserted claims. Should settlements
be materially different from those reserves, it could have an adverse impact on
ClearPoint’s consolidated financial statements.
Seasonality
ClearPoint
experiences fluctuation in revenue and operating results based on a number of
factors, including, but not limited to, competition in its markets, availability
of qualified personnel and the personnel demands of its clients. Historically,
ClearPoint has experienced a rise in demand from its retail clients in the
third and fourth quarter due to the increase in the product volume for the
holiday season. The first quarter has been traditionally the slowest quarter
from a revenue perspective due to national holidays and client planning cycles.
Inclement weather can cause a slowdown in ClearPoint’s business due to business
shutdowns by its clients. This revenue seasonality will also typically
impact ClearPoint’s profitability as most operating expenses are spread evenly
throughout the year.
34
The
following table summarizes select items of ClearPoint’s consolidated statement
of operations for the fiscal years ended December 31, 2009 and 2008,
respectively.
|
Fiscal Year Ended
December 31,
|
Percentage
Change
|
|||||||||||
|
$ (000’s)
|
2009
|
2008
|
‘09/’08
|
|||||||||
|
Net
revenues
|
$ | 5,242 | $ | 33,496 | (84 | )% | ||||||
|
Cost
of services
|
—
|
29,108 | N/A | |||||||||
|
Gross
profit
|
5,242 | 4,388 | 19 | % | ||||||||
|
SG&A
expenses
|
4,831 | 15,559 | (69 | )% | ||||||||
|
Restructuring
expense
|
— | 1,350 | N/A | |||||||||
|
Impairment
of goodwill
|
— | 16,822 | N/A | |||||||||
|
Fixed
assets impairment expense, net
|
5 | 1,022 | (100 | )% | ||||||||
|
Depreciation
and amortization expense
|
628 | 723 | (13 | )% | ||||||||
|
(Loss)
from operations
|
(222 | ) | (31,088 | ) | (99 | )% | ||||||
|
Other
income (expense)
|
386 | (86 | ) | (549 | )% | |||||||
|
Interest
Income
|
40 | 7 | 471 | % | ||||||||
|
Interest
(expense) and factoring fees
|
(1,472 | ) | (1,515 | ) | (3 | )% | ||||||
|
Interest,
OID and warrant liability (expense)
|
(355 | ) | (510 | ) | (30 | )% | ||||||
|
Derivative
income (loss)
|
(87 | ) | 34 | (356 | )% | |||||||
|
Gain
on restructuring of debt
|
— | 687 | N/A | |||||||||
|
Loss
on extinguishment of debt
|
(1,175 | ) | — | N/A | ||||||||
|
(Loss)
on sale of subsidiary
|
(190 | ) | (1,294 | ) | (85 | )% | ||||||
|
Net
(loss) before income taxes
|
(3,075 | ) | (33,765 | ) | (91 | )% | ||||||
|
Income
tax expense (benefit)
|
— | 5,021 | N/A | |||||||||
|
Net
(loss)
|
$ | (3,075 | ) | $ | (38,786 | ) | (92 | )% | ||||
Fiscal
Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31,
2008
The
following table summarizes select items of ClearPoint’s consolidated statement
of operations for the fiscal years ended December 31, 2009 and December 31,
2008:
|
$
(000’s)
|
2009
|
% of
Revenue
|
2008
|
% of
Revenue
|
||||||||||||
|
Net
revenues
|
$ | 5,242 | 100.0 | % | $ | 33,496 | 100.0 | % | ||||||||
|
Cost
of services
|
— | — | 29,108 | 86.9 | % | |||||||||||
|
Gross
profit
|
5,242 | 100.0 | % | 4,388 | 13.1 | % | ||||||||||
|
Selling,
general and administrative expenses
|
4,831 | 92.2 | % | 15,559 | 46.5 | % | ||||||||||
|
Restructuring
expense
|
— | — | 1,350 | 4.0 | % | |||||||||||
|
Impairment
of goodwill and depreciation and amortization expense
|
633 | 12.1 | % | 18,567 | 55.4 | % | ||||||||||
|
(Loss)
from operations
|
(222 | ) | (4.2 | )% | (31,088 | ) | (92.8 | )% | ||||||||
|
Interest
(expense) and factoring fees
|
(1,472 | ) | (28.1 | )% | (1,515 | ) | (4.5 | )% | ||||||||
|
Interest
(expense) of amortization of OID and warrant liability
|
(355 | ) | (6.8 | )% | (510 | ) | (1.5 | )% | ||||||||
|
(Loss)
on extinguishment of debt
|
(1,175 | ) | (22.4 | )% | — | — | ||||||||||
|
Gain
on restructuring of debt
|
— | — | 687 | 2.1 | % | |||||||||||
|
(Loss)
on sale of subsidiary
|
(190 | ) | (3.6 | )% | (1,294 | ) | (3.9 | )% | ||||||||
|
Other
income (expense)
|
339 | 6.5 | % | (45 | ) | (.1 | )% | |||||||||
|
Net
loss before income taxes
|
(3,075 | ) | (58.7 | )% | (33,765 | ) | (100.8 | )% | ||||||||
|
Income
tax expense (benefit)
|
— | — | 5,021 | 15.0 | % | |||||||||||
|
Net
loss
|
$ | (3,075 | ) | (58.7 | )% | $ | (38,786 | ) | (115.8 | )% | ||||||
Net
Revenues
ClearPoint’s
revenues for the years ended December 31, 2009 and 2008 were $5,242 and $33,496,
respectively, which represented a decrease of $28,254 or 84%. This
decrease was primarily due to the changes in ClearPoint’s business
model. During the year ended December 31, 2009, ClearPoint operated
under its new business model, in which it acts as a broker for its clients
through a network of temporary staffing suppliers. During the year
ended December 31, 2008, ClearPoint transitioned its business model from a
temporary staffing provider to a provider that manages clients’ temporary
staffing needs through its open Internet portal-based iLabor Network.
ClearPoint records the broker fees related to these
transactions. ClearPoint’s former contracts related to temporary
staffing services were sold or subcontracted. During 2008, ClearPoint
recognized revenue from the sale or subcontracting of the former temporary
staffing business as royalty fees from KOR, StaffChex, Townsend Careers, LLC and
TZG Enterprises, LLC, referred to as TZG, and licensing fees from Optos Capital,
LLC, referred to as Optos. See “—Liquidity and Capital
Resources—Transactions Related to Transition from Temporary Staffing Business
Model to iLabor Network Model” for a description of ClearPoint’s agreements with
StaffChex and Select. During the year ended December 31, 2009,
ClearPoint recognized revenue from the sale or subcontracting of the former
temporary staffing business as royalty fees from Select and
StaffChex. ClearPoint recorded $4,611 of royalty and license fees in
net revenue during the year ended December 31, 2009 and $3,868 during the year
ended December 31, 2008.
Cost
of Services and Gross Profit
Cost of
services consists of direct labor expenses for time charged directly to a client
and related payroll taxes, unemployment and workers’ compensation insurance
expenses, employee benefits, and other out-of-pocket expenses directly
associated with the performance of the services to the
client. ClearPoint’s cost of services for the years ended December
31, 2009 and 2008 were $0 and $29,108, respectively, which represented a
decrease of $29,108. This decrease was due to the changes in
ClearPoint’s business model under which all revenues are recorded on a net fee
basis with no cost of sales being recorded in 2009. Under the prior
business model, revenues were recorded on a gross basis with associated cost of
sales being recorded separately. As a percentage of revenues for the
years ended December 31, 2009 and 2008, ClearPoint’s gross profit was 100% and
13.1%, respectively.
Selling,
General and Administrative and Expenses
ClearPoint’s
selling, general and administrative (SG&A) expenses for the years ended
December 31, 2009 and 2008 were $4,831 and $15,559, respectively, which
represented a decrease of $10,728 or 69%. The decrease in SG&A
expenses was the result of ClearPoint’s change in the business model and related
to lower personnel costs, rent, utilities and general
overhead. Overall, SG&A expenses were primarily lower as a result
of a lower headcount, lower office rent and related expenses.
Restructuring
Expenses
ClearPoint’s
restructuring expenses for the years ended December 31, 2009 and 2008 were $0
and $1,350, respectively, which represented a decrease of $1,350.
ClearPoint initiated a restructuring program of its field and
administrative operations in order to further reduce its ongoing SG&A
expenses. As part of the 2008 restructuring program, ClearPoint
closed its remaining branch and administrative office in Florida and eliminated
approximately 20 positions. There were no additional restructuring
programs in 2009.
36
Impairment
of Goodwill and Depreciation and Amortization Expense
ClearPoint’s
recorded impairments of goodwill for the years ended December 31, 2009 and 2008
were $0 and $16,822, respectively, which represented a decrease of
$16,822. ClearPoint recorded an impairment of goodwill for the year
ended December 31, 2008 in the amount of $16,822 based upon management’s
determination that the carrying amount of the goodwill was less than its fair
value. Goodwill had a $0 balance as of December 31, 2008 and
2009.
ClearPoint’s
depreciation and amortization expenses for the years ended December 31, 2009 and
2008 were $628 and $723, respectively, which represented a decrease of $95 or
13.1%. For the year ended December 31, 2008, ClearPoint recorded an
impairment charge of $1,022 related to fixed assets as a result of the
termination of franchise agreements. ClearPoint removed $1,838 of
fixed assets and $816 of accumulated depreciation as a result of this
impairment. For the year ended December 31, 2009, ClearPoint
recorded an impairment charge of $5 related to fixed assets as a result of newer
technology relating to its display booth. ClearPoint removed $6 of fixed
assets and $1 of accumulated depreciation as a result of this
impairment.
Loss
from Operations
ClearPoint’s
loss from operations for the years ended December 31, 2009 and 2008 was $222 and
$31,088, respectively, which represented a decrease in the loss of $30,866 or
99%. The change in loss from operations was primarily due to the
$10,728 reduction of SG&A expenses as described above, and because no
impairment of goodwill was charged in 2009, while $16,822 was charged for the
year ended December 31, 2008.
Interest,
OID and Warrant Liability Expense
ClearPoint’s
interest, original issue discount (OID) and warrant liability expense for the
years ended December 31, 2009 and 2008 were $355 and $510, respectively, which
represented a decrease of $155 or 30%. This decrease was primarily
due to the treatment of the amortization of the original issue discount and
warrant expense related to the original ComVest loan agreement and the amended
ComVest loan agreement in 2009, whereby approximately 48% of the original OID
and warrant liability was written off in conjunction with the
refinancing.
Loss
on Extinguishment of Debt
For the
years ended December 31, 2009 and 2008, Loss on Extinguishment of Debt was
$1,175 and $0, respectively. The August 14, 2009 amended ComVest loan
agreement was accounted for as a debt extinguishment. As a result,
the unamortized debt discount related to the warrant and original issue discount
in the amount of $769, the unamortized debt issue costs attributable to the
ComVest term note in the amount of $259 and the modification fees paid to
ComVest attributable to the retirement of the ComVest term note in the amount of
$147 were recorded as a loss on extinguishment of debt.
Loss
on Sale of Subsidiary
For the
years ended December 31, 2009 and 2008, Loss on Sale of Subsidiary was $190 and
$1,294, respectively, representing a decrease of $1,104 or 85%. On
December 23, 2009, ClearPoint and AICCO entered into the AICCO
settlement. For additional information regarding the AICCO
settlement, see Part I, Item 3. “Legal
Proceedings.” Pursuant to the AICCO settlement, ClearPoint agreed to
pay AICCO an aggregate amount of $190 in full and final settlement of all
claims between ClearPoint and AICCO relating to the AICCO
litigation. This workers compensation premium liability was
transferred in 2008 as part of the initial recording of the loss on sale of
subsidiary of $1,294.
37
Gain
on Restructuring of Debt
For the
years ended December 31, 2009 and 2008, Gain on Restructuring of Debt was $0 and
$687, respectively. ClearPoint accounted for the M&T restructure
agreement pursuant to ASC Topic 470, “Accounting by Debtors and Creditors for
Troubled Debt Restructurings,” which required ClearPoint to reduce the carrying
amount of the old debt (M&T obligations of $10,932) by the minimum cash
value of the put option of the warrants issued ($1,200) and the warrant
liability of $47, determine whether the carrying value of the remaining debt
exceeded the future cash payments of the new debt (M&T loan modification of
$8,600 and future interest payment of $219) ASC Topic 470 also requires
that the new debt be recorded as the total of future cash payments), the excess
of the carrying of the remaining debt over the future cash payments of the new
debt was $866, which was reduced by the unamortized deferred financed cost and
current refinancing cost of $180. As a result of the application of ASC
Topic 470, ClearPoint recorded a gain of $687 ($0.05 per share), which is
reflected in the consolidated statement of operations for the year ended
December 31, 2008 gain on restructuring of debt of $687 as a result of the
M&T restructure agreement.
Other
Income or Expense
For the
years ended December 31, 2009 and 2008, Other Income or (Expense) were
$386 and $(86), respectively, which represents an increase of $472 or
549%. The increase was primarily due to the recognition of $358 of
other income from the insurance settlement with Sunz Insurance Company, referred
to as Sunz, in 2009 versus the waiver charge by M&T incurred in the second
quarter of 2008 of $100.
Net
Loss
ClearPoint’s
net loss for the years ended December 31, 2009 and 2008 was $3,075 and $38,786,
respectively, which represented a decrease in the loss of $33,711 or
92.1%. The change in net loss was primarily due to increased gross
profit as well as the overall reduction in SG&A expenses. The
change in net loss was also a result of a number of non-cash items during the
year ended December 31, 2008 relating to: debt restructuring transactions of
$1,350, an impairment charge of goodwill of $16,822, an impairment charge of
fixed assets of $1,022 and a recording of deferred tax assets valuation
allowance of $5,021 to the provision for income taxes for deferred tax benefits
recognized in prior periods.
General
Historically,
ClearPoint has funded its cash and liquidity needs through cash generated by
operating activities and through various forms of debt financing. As of
December 31, 2009, cash projected to be generated from operations was not
sufficient to fund operations and meet debt repayment obligations. Based
on ClearPoint’s cash position and working capital deficiency, it may need to
raise additional financing and restructure existing debt in order to support its
business operations. The amount of financing required will be determined
by many factors, some of which are beyond ClearPoint’s control, and may require
financing sooner than currently anticipated. ClearPoint has no commitment for
any additional financing or debt restructuring and can provide no assurance that
such additional financing or debt restructuring will be negotiated on terms
acceptable to ClearPoint, if at all. If ClearPoint is unable to generate
sufficient cash from operations or obtain additional financing and restructuring
existing debt, or if such funds cannot be negotiated on terms favorable to
ClearPoint, there is substantial doubt about the ability of ClearPoint to
continue as a going concern (see also Note 1 of the Notes to the Consolidated
Financial Statements included in this Annual Report on Form
10-K).
38
ClearPoint’s
traditional use of cash flow was for funding payroll in advance of collecting
revenue, particularly during periods of economic upswings and growth and during
periods in which sales are seasonally high throughout the year. Temporary
personnel were generally paid on a weekly basis while payments from clients were
generally received 30 to 60 days after billing. ClearPoint’s iLabor-focused
business model has essentially eliminated these funding requirements because
ClearPoint’s main focus is no longer to act as the employer for the temporary
personnel, but rather to be the facilitator, bringing together clients and
suppliers of temporary labor, via ClearPoint’s iLabor Network. Revenue from
ClearPoint’s iLabor Network where it electronically procures and consolidates
buying of temporary staffing for clients nationally is recognized on a net
basis. ClearPoint contracts directly with clients seeking to procure temporary
staffing services through its iLabor portal. ClearPoint also contracts directly
with, and purchases from, temporary staffing suppliers, the temporary placement
of workers which is then subsequently resold to its clients. There is no
specific fee or other payment charged to ClearPoint’s clients or suppliers in
connection with their respective use of the iLabor Network.
ClearPoint’s
primary cash requirements include the payment of interest and principal on its
debt obligations, payments to suppliers providing temporary staffing services to
ClearPoint’s clients and general working capital of the business.
The table
below sets forth, for the periods indicated, ClearPoint’s beginning balance of
cash and cash equivalents, net cash flows from operating, investing and
financing activities and ClearPoint’s ending balance of cash and cash
equivalents:
|
Fiscal Year Ended
December 31,
|
||||||||
|
$(000’s)
|
2009
|
2008
|
||||||
|
Cash
and cash equivalents at beginning of period
|
$ | 960 | $ | 1,994 | ||||
|
Cash
provided by (used in) operating activities
|
(1,751 | ) | 4,614 | |||||
|
Cash
(used in) investing activities
|
(70 | ) | (571 | ) | ||||
|
Cash
provided by (used in) financing activities
|
936 | (5,077 | ) | |||||
|
Cash
and cash equivalents at end of period
|
$ | 75 | $ | 960 | ||||
Fiscal
Years Ended December 31, 2009 and 2008
Net cash
provided (used) by operating activities was $(1,751) and $4,614 for the years
ended December 31, 2009 and 2008, respectively. The primary change in the
year ended December 31, 2009 that resulted in $1,751 of net cash used was
related to (i) a book loss of $3,075; (ii) non cash items of depreciation
and amortization expense of $628, a loss on extinguishment of debt $1,175, loss
on disposal of fixed assets $5, a decrease in the provision for doubtful
accounts of $403, a loss on sale of subsidiary of $190, an increase in
consulting expenses associated with payment of warrants of $30 interest expense
on original issue discount and warrant liability of $355, a loss on derivative
of $87, and non-cash stock based compensation of $60; and (iii) cash items of a
decrease in accounts receivable of $76 due to the change in business model and
an decrease in unbilled revenue of $51, a decrease in prepaid expenses and other
current assets of $129, a decrease in other assets of $61, an increase in
accounts payable of $91, a decrease in accrued expenses and other accrued
liabilities of $66, a decrease in accrued restructuring costs of $90, and a
decrease in unbilled of $50, a decrease in deferred revenue of $992 and a
decrease in retirement benefits due of $62.
The
primary change in the year ended December 31, 2008 that resulted in $4,614 of
net cash provided was due to (i) a book net loss of $38,786; (ii) non cash items
of a deferred tax of $5,007, refundable federal income tax of $1,024,
depreciation and amortization expense of $18,567 largely due to the write down
of goodwill and fixed assets, a loss on sale of subsidiary $1,294, an
increase in the provision for doubtful accounts of $2,596, an increase in the
provision for franchise receivables of $1,639, an increase in expenses
associated with issuance of warrants of $58, an increase on M&T restructure
forgiveness of debt of $866, the issuance of stock of $387, interest expense
converted to note payable of $92, interest expense on original issue discount
and warrant liability of $510, a gain on derivative of $34, and non-cash stock
based compensation of $49; and (iii) cash items of a decrease in accounts
receivable of $13,701 due to the change in business model and an decrease in
unbilled revenue of $2,037, a decrease in prepaid expenses and other current
assets of $107, an increase in other assets of $626, a decrease in accounts
payable of $155, a decrease in accrued expenses and other accrued liabilities of
$3,341, a decrease in accrued restructuring costs of $582, an
increase in deferred revenue $1,992 and a decrease in retirement benefits due of
$56.
39
Net cash
used in investing activities was $(70) and $(571) for the years ended December
31, 2009 and 2008, respectively. The primary uses of cash for
investing activities for the year ended December 31, 2009 were the purchase of
equipment, furniture and fixtures of $45 and an increase in restricted cash of
$25. The primary uses of cash for investing activities for the year
ended December 31, 2008 were the purchase of equipment, furniture and fixtures
of $571.
Net cash
provided by (used in) financing activities was $936 and $(5,077) for the years
ended December 31, 2009 and 2008, respectively. The primary activities in the
year ended December 31, 2009 were repayments of long term debt of $635,
repayments of ComVest long term debt of $7,654, repayments of ComVest Revolving
credit facility of $6,930, borrowings against ClearPoint’s revolving credit
facility of $16,222, and fees incurred in refinancing $68. The
primary activities in the year ended December 31, 2008 were the net borrowings
from ComVest on the revolving credit facility of $1,530 with repayment of $530
and the borrowing from the ComVest term loan of $8,000 with repayments of
$1,346, the repayment of the M&T term loan of $2,641, the repayment to
M&T on the revolving credit facility of $8,747, repayment of Blue Lake in
the amount of $600 and fees incurred due to the refinancing transaction with
ComVest of $693, proceeds from the issuance of common stock to TerraNova
Partners L.P., referred to as TerraNova Partners, of $100 and repayments of
other notes payable of $150.
40
M&T
On
February 23, 2007, pursuant to a credit agreement, referred to as the M&T
credit agreement, ClearPoint entered into credit facilities with M&T
consisting of a $20,000 revolving credit facility, referred to as the M&T
revolver, expiring in February 2010 and a $3,000 term loan, referred to as the
M&T term loan, expiring in February 2012. In July 2007, ClearPoint
amended the M&T credit agreement to increase the M&T term loan to $5,000
in the first amendment to the M&T credit agreement. On March 21, 2008,
ClearPoint entered into the second amendment to M&T credit agreement, dated
as of March 21, 2008, among ClearPoint and M&T. Pursuant to the second
amendment, the M&T credit agreement was amended, among other matters, as
follows: (i) the aggregate amount of the revolving credit commitments was
gradually reduced from $20,000 to $15,000 at March 21, 2008 and $4,000 at June
30, 2008; (ii) the applicable margin, which is a component of the interest rate
calculations, was increased to (a) 3.5% and 1.25% for any revolving credit loan
that is a “eurodollar loan” and a “base rate loan”, respectively (as defined in
the M&T credit agreement), and (b) 4.5% and 2.25% for any M&T term loan
that is a eurodollar loan and a base rate loan, respectively; (iii) the
applicable commitment fee percentage, which is included in the calculations of
commitment fees payable by ClearPoint on the amount of the unused revolving
credit commitments, was increased to 0.25%; and (iv) the covenants related to
the ratios of total debt or senior debt, as applicable, to modified earnings
before interest, taxes, depreciation and amortization, or EBITDA, were amended
to lower the ratios as of September 30, 2008.
On April
14, 2008, ClearPoint entered into a waiver, referred to as the M&T waiver,
to the M&T credit agreement. Pursuant to the M&T waiver, the required
lenders under the M&T credit agreement waived compliance with certain
financial covenants set forth in the M&T credit agreement for the period
ended December 31, 2007. In connection with the M&T waiver, ClearPoint paid
a $100 fee to M&T. ClearPoint was not in compliance with the financial and
reporting covenants at March 31, 2008. ClearPoint did not receive a waiver for
such non-compliance from M&T. On May 9, 2008, ClearPoint received a letter
from M&T indicating, among other matters, that the principal amount of
revolving credit loans outstanding under the M&T credit agreement shall be
limited to a maximum amount of $7,300 for the period ended May 16,
2008.
On May
21, 2008, ClearPoint received a notice of default from M&T in connection
with the M&T credit agreement. ClearPoint defaulted on its obligations under
the M&T credit agreement as a result of its failure to comply with financial
covenants contained in the M&T credit agreement, including obligations to
maintain certain leverage and fixed charge coverage ratios. As a consequence of
the default, M&T exercised its right to declare all outstanding obligations
under the credit facilities to be immediately due and payable and demanded the
immediate payment of approximately $12,800, consisting of approximately (i)
$7,400 under the M&T revolver; (ii) $3,900 under the M&T term loan; and
(iii) $1,500 under a letter of credit. Also pursuant to the notice of default,
M&T exercised its right to terminate the M&T revolver and the M&T
term loan and to terminate its obligation to make any additional loans or issue
additional letters of credit to ClearPoint.
ClearPoint
and M&T entered into the M&T restructure agreement dated June 20, 2008
pursuant to which the parties agreed to: (i) consolidate the certain obligations
owing to M&T, referred to as the M&T obligations, (ii) reduce the
carrying amount of the consolidated obligations from $10,900, which consisted of
the M&T revolver and M&T term loan of approximately $7,000 and $3,900,
respectively (net of additional cash payments made during negotiations), to
$8,600, (iii) subordinate the M&T obligations to the obligations owing to
ComVest, referred to as the ComVest obligations, and (iv) permit ClearPoint to
repay the M&T obligations on a deferred term basis. The M&T restructure
agreement provides that on the earlier of the first day of the calendar month
following ClearPoint’s full satisfaction of the ComVest obligations or January
1, 2011, referred to as the obligations amortization date, ClearPoint shall
repay a total of $3,000 in principal amount, referred to as the M&T deferred
obligations, to M&T in 36 equal monthly payments plus interest on the
outstanding balance of such amount at a rate of 5% per annum, subject to
increase to 12% per annum upon occurrence of certain agreement termination
events and spring back events, as defined below. In the event of a sale of
substantially all of ClearPoint’s or any subsidiary’s assets, a capital infusion
or an infusion of subordinated indebtedness, ClearPoint must prepay the M&T
deferred obligations by an amount equal to 25% of such proceeds as are payable
to ComVest under such circumstances.
41
The
$8,600 being paid to M&T is comprised of the following components: $3,000
note payable; guarantee of $3,000 of accounts receivable; pledging a minimum of
a $1,000 tax refund, $1,000 cash payment made at the time of closing of the
ComVest transactions described below; and $600 of the $1,500 certificate of
deposit held by M&T.
ClearPoint
issued to M&T warrants to purchase its common stock of which warrants to
purchase 1,200,000 shares of common stock have an exercise price of $0.01 per
share and warrants to purchase 300,000 shares of common stock have an exercise
price of $1.00 per share, collectively referred to as the M&T warrants.
In accordance with ASC 480 “Distinguishing Liabilities from Equity,” the
fair value of all of the M&T warrants has been classified as a liability
because M&T has the right to put the warrants back to ClearPoint in exchange
for a cash settlement of $1.00 per share. ClearPoint valued the
warrants at $1,247 using the Black-Scholes valuation model and the value was
offset against the gain on restructuring of debt. At December 31,
2009, ClearPoint’s consolidated balance sheet included a warrant liability of
$1,203 related to the fair value of the M&T warrants.
In
addition, prior to the obligations amortization date, ClearPoint must pay
M&T: (i) cash proceeds arising out of certain of its and its subsidiaries’
accounts receivable, referred to as the M&T accounts receivable, in an
amount not less than $3,000 and (ii) existing and future federal and state
income tax refunds of not less than $1,000 due or which become due to ClearPoint
for any period prior to January 1, 2008. In the event such payments by
ClearPoint are less than the stated minimum amounts, such shortfall will be
added to the M&T deferred obligations. Excesses of either amounts paid by
ClearPoint will be remitted to ClearPoint and/or applied to the M&T deferred
obligations in accordance with the M&T restructure agreement. ClearPoint
remitted all applicable federal and state income tax refunds to M&T required
under the M&T restructure agreement. At December 31, 2009, income tax
refunds of $1,024 resulting from net operating loss carry-backs and $93 in
refunds of overpayments were received by ClearPoint and remitted to
M&T. At December 31, 2009, ClearPoint remitted to M&T a total
of approximately $2,500 which was comprised of approximately $1,383 applied to
the $3,000 M&T accounts receivable target and $1,117 applied to the
$1,000 federal and state income tax refund target. The excess of $117
over the $1,000 tax refund target will be credited to the M&T deferred
obligations. At December 31, 2009, the outstanding balance related to
the $3,000 M&T accounts receivable target was $1,500.
On March
17, 2010, ClearPoint received a letter from M&T in connection with the
M&T restructure agreement. The letter stated that it serves as a
notice of existence of events of default under the M&T restructure
agreement, including ClearPoint’s failure to comply with its covenant to collect
the M&T accounts receiveable, ClearPoint’s failure to deliver certain
financial information to M&T and the existence of events of default under
the amended ComVest loan agreement. In addition, M&T requested an
explanation of ClearPoint’s efforts to collect the M&T accounts receivable,
evidence that remittances from the M&T accounts receiveable were applied in
accordance with the M&T restructure agreement and copies of all information
furnished to ComVest pursuant to the amended ComVest loan
agreement. The letter further provided M&T reserved all of
its rights, benefits and security against ClearPoint in connection with such
alleged defaults, including the right to accelerate the M&T deferred
obligations. An event of default under the M&T restructure agreement
would trigger a cross-default provision pursuant to the amended ComVest loan
agreement, unless such default is waived in writing by ComVest. If
the cross-default provision is triggered, ComVest may, among other things,
declare all outstanding obligations under the amended ComVest loan agreement to
be immediately due and payable. ClearPoint’s obligations to M&T
are subordinated to its obligations to ComVest pursuant to the ComVest-M&T
agreement described below.
42
ClearPoint
accounted for the M&T restructure agreement pursuant to ASC Topic 470,
“Troubled Debt Restructurings by Debtors,” which required ClearPoint to reduce
the carrying amount of the old debt (M&T obligations of $10,932) by the
minimum cash value of the put option of the warrants issued ($1,200) and the
warrant liability of $47, and determine whether the carrying value of the
remaining debt exceeded the future cash payments of the new debt (M&T loan
modification of $8,600 and future interest payment of $219). ASC
Topic 470, also requires that the new debt be recorded as the total of future
cash payments. The excess of the carrying amount of the remaining
debt over the future cash payments of the new debt was $866, which was reduced
by the unamortized deferred financed cost and current refinancing cost of $180.
As a result of the application of ASC Topic 470, ClearPoint recorded a
gain of $687 ($0.05 per share), which is reflected in the consolidated statement
of operations for the year ended December 31, 2008.
M&T
issued (i) a certain certificate of deposit to ClearPoint in the amount of
$1,500, referred to as the COD, and (ii) a certain standby letter of credit for
the account of ClearPoint in favor of Ace Risk Management, referred to as the
Ace letter of credit. On June 27, 2008, M&T liquidated the COD and applied
$600 to ClearPoint’s outstanding obligations. To the extent M&T is required
to make payments under the Ace letter of credit in excess of $900 at any time,
such excess shall be added to the M&T deferred obligations. Excesses of such
amount paid will be remitted to ClearPoint and/or applied to the M&T
deferred obligations in accordance with the M&T restructure
agreement. As of December 31, 2009 no excess was paid. On March
17, 2010 M&T notified ClearPoint that an excess amount of $94 has been paid
by M&T and has also been added to the M&T deferred
obligations.
Pursuant
to the M&T restructure agreement, ClearPoint must comply with various
covenants while the M&T deferred obligations are outstanding and provided
that (i) no bankruptcy or insolvency event has taken place and (ii) ClearPoint
and/or its subsidiaries have not terminated operation of their business without
the prior written consent of M&T, each being referred to as a spring back
event. Such covenants include, but are not limited to: delivery to M&T of
financial and other information delivered to ComVest; restrictions on the
aggregate compensation which may be paid to the Chief Executive Officer and
Chief Financial Officer of ClearPoint; limitations on dividends and
distributions of cash or property to equity security holders of ClearPoint
and/or redemptions or purchases of capital stock or equity securities of other
entities; and restrictions on collateralizing subordinated indebtedness. At
December 31, 2009, ClearPoint was in compliance with all applicable covenants
set forth in the M&T restructure agreement.
The
M&T restructure agreement provides that ClearPoint may continue to pay
regularly scheduled payments (but not prepayments or accelerated payments) on
(i) existing subordinated indebtedness, except to the extent prohibited by the
ComVest transaction documents and (ii) the Blue Lake note. For each $50
paid on account of the Blue Lake note, Michael D. Traina, ClearPoint’s
Chairman of the board of directors and Chief Executive Officer, and
Christopher Ferguson, ClearPoint’s former director, President and Secretary,
shall, on a several basis, be liable as sureties for the M&T deferred
obligations, each in the amount of $10, subject to an aggregate amount of each
surety’s liability of $150.
43
The
M&T restructure agreement lists various agreement termination events
including, but not limited to: default in payment of principal or interest or
any other obligations when due and payable under the M&T restructure
agreement; default in the observance of any covenant which is not cured within
30 days; and occurrence of an event of default under the ComVest loan agreement
which is not cured pursuant to the applicable grace or notice period. Upon
the occurrence of an agreement termination event, and at all times during the
continuance thereof, the M&T deferred obligations are accelerated and become
immediately due and payable. In addition, upon the occurrence of any spring back
event, the amount equal to (a) all outstanding principal balance of the M&T
obligations, together with accrued and unpaid interest thereon and costs and
expenses reimbursable pursuant to the M&T credit agreement less (b) any
amount received by M&T pursuant to the M&T restructure agreement on
account of the M&T deferred obligations or the M&T obligations, referred
to as the spring back amount, is automatically accelerated and becomes
immediately due and payable. Pursuant to one of the conditions to closing the
transaction with M&T, as set forth in the M&T restructure agreement,
ClearPoint paid $1,000 to M&T for application to the M&T
obligations.
The
M&T restructure agreement does not terminate or extinguish any of the liens
or security interests granted to M&T pursuant to the M&T credit
agreement and related documents.
ComVest
ComVest Loan Agreement dated
June 20, 2008
On June
20, 2008, ClearPoint entered into the ComVest loan agreement with ComVest.
Pursuant to the ComVest loan agreement, ComVest extended to ClearPoint: (i) a
secured revolving credit facility for up to $3,000, referred to as the ComVest
revolver, and (ii) a term loan, referred to as the ComVest term loan and,
together with the ComVest revolver, the ComVest loans, in the principal amount
of $9,000, of which $1,000 is treated as an original issue discount, and
ClearPoint received $8,000 in respect of the ComVest term loan.
Amortization related to the original issue discount of $1,000 amounted to
$217 and $312 for the years ended December 31, 2009 and December 31, 2008,
respectively.
ClearPoint
also issued to ComVest a warrant to purchase 2,210,825 shares of common stock at
an exercise price of $0.01 per share, referred to as the ComVest warrant. The
ComVest warrant was valued at $634 and treated as a discount to the long term
portion of the debt and was amortized over the life of the long term
debt. Amortization related to the warrant amounted to $138 and $198
for the years ended December 31, 2009 and December 31, 2008,
respectively. As a result of the amended ComVest loan agreement
described below, and in accordance with ASC 470-50-40-17, the unamortized debt
discount related to the ComVest warrant in the amount of $299 was written off as
part of the loss on extinguishment of debt.
The
amounts due under the ComVest revolver bore interest at a rate per annum equal
to the greater of: (i) the prime rate of interest announced by Citibank, N.A.
plus 2.25% or (ii) 7.25%. The ComVest loans provided that the stated
interest rates were subject to increase by 500 basis points during the
continuance of an event of default under the ComVest loan
agreement.
For the
year ended December 31, 2009, ClearPoint remitted approximately $963 of
principal and interest payments pursuant to the ComVest term loan, all of
which was derived from its royalty receipts, $103 of interest payments
pursuant to the ComVest revolver, all of which was derived from its operating
cash. As of December 31, 2009, ClearPoint remitted, since inception of the
loan, $2,693 of principal and interest payments, pursuant to the ComVest term
loan, of which $2,084 was derived from its royalty receipts and $609 was derived
from its other operations and $643 of principal and interest payments, pursuant
to the ComVest revolver, all of which was derived from its other
operations.
44
In
connection with the ComVest loan agreement described above, ComVest entered into
a Subordination and Intercreditor Agreement, referred to as the ComVest-M&T
agreement, dated June 20, 2008 with M&T. The ComVest loans issued to
ClearPoint pursuant to the ComVest loan agreement effectively replaced M&T
with ComVest as a senior lender of ClearPoint. Pursuant to the ComVest-M&T
agreement, the parties confirmed their agreements and understandings with
respect to the relative priorities of their respective claims and liens against
ClearPoint. The ComVest-M&T agreement provides that, subject to certain
exceptions, M&T may not receive payment on certain of the M&T
obligations, as described in the ComVest-M&T agreement, or seek enforcement
against the collateral securing the M&T obligations from ClearPoint or any
other person, other than from Messrs. Traina and/or Christopher Ferguson
pursuant to personal guarantees, until the ComVest obligations have been
satisfied in full. In addition, the ComVest-M&T agreement provides for
priorities with respect to the various components of collateral securing
ClearPoint’s obligations to the parties and sets forth certain restrictions on
the parties with respect to collection of such obligations.
ClearPoint
paid to ComVest non-refundable closing fees in the amount of $530, charged to
the ComVest revolving credit facility, simultaneously with funding of the
amounts payable to ClearPoint under the ComVest loan agreement. In addition,
ClearPoint was to pay to ComVest a monthly collateral monitoring, availability
and administrative fee equal to 0.15% of the average daily principal amount
outstanding under the ComVest revolver during the preceding calendar month, up
to $4.50 per month. ClearPoint utilized the proceeds of the ComVest loans
to repay approximately $1,050 pursuant to the M&T restructure agreement owed
to M&T and approximately $530 in closing costs and expenses.
As of
June 30, 2009, ClearPoint was in default on principal installment payments due
for February, 2009 through June, 2009 under the ComVest term loan in the
aggregate amount of $702. In addition, ClearPoint was in default on
principal installment payments due for July, 2009 under the ComVest term loan in
the aggregate amount of $439 and was in default on interest payments due for
July, 2009 in the aggregate amount of $61. ClearPoint was also in default
on interest payments due for July, 2009 under the ComVest revolving credit
facility in the aggregate amount of $18. The failure to make such payments
constituted events of default under the ComVest loan agreement. ClearPoint was
obligated to pay a default interest rate of 500 basis points over the prevailing
rate, which difference between the default rate and the prevailing rate was not
paid. On May 19, 2009, ComVest executed a waiver letter, referred to as
the term loan waiver, related to the ComVest loan agreement for the periods of
February, 2009 through April, 2009. Pursuant to the term loan waiver,
ComVest waived the defaults during the foregoing period, provided that ComVest
reserved the right to collect at a later time, but no later than the maturity
date of the ComVest term loan under the ComVest loan agreement, the increased
interest ComVest was permitted to charge during the continuance of such
defaults.
On August
14, 2009, in connection with entering into the amended ComVest loan agreement
described below, ComVest executed a waiver letter, which waived ClearPoint’s
defaults under the ComVest loan agreement from May, 2009 through August 14,
2009, including defaults under the StaffBridge note, the Blue Lake note and the
sub notes described below, provided ClearPoint paid to ComVest approximately
$166 (or sooner if there is a further event of default), constituting the
difference between interest calculated at the default rate and at the
non-default rate on the balance of the ComVest term loan and revolving credit
facility of $7,100 and $2,900, respectively, under the original ComVest loan
agreement. ClearPoint has not paid the default interest payment of
$166.
Amended ComVest Loan
Agreement dated August 14, 2009
On August
14, 2009, ClearPoint entered into the amended ComVest loan agreement with
ComVest. The amended ComVest loan agreement amended and restated the original
ComVest loan agreement, as amended. Pursuant to the amended ComVest loan
agreement, the maximum availability under the secured revolving credit facility,
referred to as the amended ComVest revolver, was increased from $3,000 to
$10,500, referred to as the amended ComVest revolver maximum. The remaining
outstanding principal balances of $2,900 under the revolving credit note and
$7,100 under the term loan extended by ComVest pursuant to the ComVest loan
agreement were paid in full by an advance from the amended ComVest revolver, and
the ComVest term loan was cancelled. In accordance with ASC 470-50-40, the
August 14, 2009 debt modification was accounted for as a debt
extinguishment. As a result, the unamortized debt discount related to
the ComVest warrant and original issue discount in the amount of $769, the
unamortized debt issue costs attributable to the ComVest term loan in the amount
of $259 and the modification fees paid to ComVest attributable to the retirement
of the ComVest term loan in the amount of $147 were recorded as a loss on
extinguishment of debt.
45
Effective
as of the first business day of each of the first twelve (12) calendar weeks in
each calendar quarter beginning with the calendar quarter ending March 31, 2010,
the amended ComVest revolver maximum will be reduced by an amount equal to
1/12th of the amount, calculated as of the last day of the immediately preceding
calendar quarter, equal to the sum of: (i) the amount (if any) by which the
amended ComVest revolver maximum exceeds the amounts outstanding under the
amended ComVest revolver, plus (ii) all cash and cash equivalents of ClearPoint
and its subsidiaries determined in accordance with accounting principles
generally accepted in the United States on a consolidated basis, minus (iii) all
documented reasonable costs and expenses incurred and paid in cash by ClearPoint
between August 14, 2009 and such quarter-end in connection with the registration
of the resale of shares underlying the amended ComVest warrant. To the extent
the amounts outstanding under the amended ComVest revolver exceed the amended
ComVest revolver maximum, ClearPoint must make a payment to ComVest to reduce
the amount outstanding to an amount less than or equal to the amended ComVest
revolver maximum. ClearPoint may borrow under the amended ComVest revolver from
time to time, up to the then applicable amended ComVest revolver
maximum.
ClearPoint
may request an increase in the amended ComVest revolver maximum to an aggregate
amount not in excess of $11,250 minus: (i) any and all required reductions as
described above, and (ii) the outstanding principal amount of any indebtedness
incurred after August 14, 2009, up to a maximum principal amount outstanding of
$750 minus any increase in the amended ComVest revolver maximum then in effect.
To request such an increase, ClearPoint must introduce to ComVest a participant
reasonably satisfactory to ComVest to participate in the advances under the
amended ComVest revolver in a principal amount not less than the requested
increase in the amended ComVest revolver maximum, on a pari passu basis with
ComVest.
The
amounts due under the amended ComVest revolver bear interest at a rate per annum
equal to 12%, subject to increase by 400 basis points during the continuance of
any event of default under the amended ComVest loan agreement. Subject to
certain exceptions, the interest payments will be deferred as
follows:
(i)
interest in respect of all periods through and including September 30, 2009 will
accrue but will not be due and payable in cash except as and when provided in
paragraph (iii) below;
(ii) 10%
of all interest accruing during the period from October 1, 2009 through and
including December 31, 2009 will be due and payable in cash monthly in arrears
on the first day of each calendar month commencing November 1, 2009 and
continuing through and including January 1, 2010, and the remaining 90% of such
accrued interest will be due and payable in accordance with the following
paragraph (iii);
(iii) all
accrued interest described in paragraph (i) above, and the deferred portion of
accrued interest described in paragraph (ii) above, will be due and payable (A)
as to 10% thereof, on April 1, 2010, (B) as to 15% thereof, on July 1, 2010, (C)
as to 35% thereof, on October 1, 2010, and (D) as to the remaining 40% thereof,
on December 31, 2010; and
(iv) accrued
interest in respect of all periods from and after January 1, 2010 will be due
and payable in cash monthly in arrears on the first day of each calendar month
commencing February 1, 2010 and upon the maturity of the amended ComVest
revolver.
46
The
amended ComVest revolver matures on December 31, 2010, subject to extension to
December 31, 2011, in ComVest’s sole and absolute discretion, if ClearPoint
requests the extension no earlier than September 30, 2010 and no later than
October 31, 2010 and there are no continuing events of default on the originally
scheduled amended ComVest revolver maturity date (which defaults may be waived
in ComVest’s sole and absolute discretion).
In
addition, the amended ComVest loan agreement provides that ComVest must
pre-approve the hiring of all members of senior management of ClearPoint and all
employment agreements or other contracts with respect to senior
management. Under the amended ComVest loan agreement, ClearPoint must
make all necessary adjustments to its system of internal control over financial
reporting and disclosure controls and procedures no later than December 31,
2009.
The
amended ComVest loan agreement also requires ClearPoint to, subject to certain
exceptions, obtain ComVest’s written consent until all obligations under the
amended ComVest loan agreement have been satisfied in full in connection with
certain transactions including, but not limited to, incurrence of additional
indebtedness or liens on ClearPoint’s assets; sales of assets; making
investments in securities or extension of credit to third parties; purchase of
property or business combination transactions; declaration or payment of
dividends or redemption of ClearPoint’s equity securities; payment of certain
compensation to ClearPoint’s executive officers; changing ClearPoint’s business
model or ceasing substantially all of its operations for a period exceeding ten
days; sale of accounts receivable; amendment of ClearPoint’s organizational
documents; certain transactions with ClearPoint’s affiliates; making certain
capital expenditures, and incurring monthly operating expenses in excess of
specified dollar amounts. In addition, beginning with the fiscal quarter ending
March 31, 2010, ClearPoint must maintain certain fixed charge coverage ratios
set forth in the amended ComVest loan agreement.
The
amended ComVest loan agreement lists various events of default including, but
not limited to: default in the payment of principal or interest under all
obligations of ClearPoint under the amended ComVest loan agreement or in the
observance or performance of any covenant set forth in the amended ComVest loan
agreement; default of ClearPoint or any of its subsidiaries under any
indebtedness exceeding $100 (excluding any amount due to Blue Lake and any
litigation brought with respect to amounts owed to Blue Lake, so long as such
amounts are paid solely in shares of ClearPoint’s common stock); occurrence of
certain bankruptcy or insolvency events; and existence of any litigation,
arbitration or other legal proceedings, other than certain specified litigation,
brought by any creditors of ClearPoint or any subsidiary in an aggregate claimed
amount exceeding $300.
Upon the
occurrence of an event of default, and at all times during the continuance of an
event of default, (i) at the option of ComVest (except with respect to
bankruptcy defaults for which acceleration is automatic) all obligations of
ClearPoint under the amended ComVest loan agreement become immediately due and
payable, both as to principal, interest and other charges, without any
requirement for demand or notice by ComVest, and bear interest at the default
rates of interest as described above; (ii) ComVest may file suit against
ClearPoint and its subsidiaries under the amended ComVest loan agreement and/or
seek specific performance thereunder; (iii) ComVest may exercise its rights
under the collateral agreement, as defined below, against the assets of
ClearPoint and its subsidiaries; (iv) the amended ComVest revolver may be
immediately terminated or reduced, at ComVest’s option; and (v) upon ComVest’s
request, ClearPoint will provide it with immediate, full and unobstructed access
to and control of its books, records, systems and other elements of its business
and management.
47
ClearPoint’s
obligations under the amended ComVest loan agreement and the amended ComVest
revolver are jointly and severally guaranteed by each of its direct and indirect
subsidiaries, referred to as the guarantors, pursuant to the Guaranty Agreement,
dated as of June 20, 2008, referred to as the guaranty agreement, and the
Reaffirmation of Guaranty, dated as of August 14, 2009, referred to as the
reaffirmation of guaranty, and are secured by a security interest in all of
ClearPoint’s and its subsidiaries’ assets, referred to as the collateral, as set
forth in the Collateral Agreement dated June 20, 2008, referred to as the
collateral agreement. Pursuant to the guaranty agreement and the reaffirmation
of guaranty, in the event ClearPoint’s obligations are declared immediately due
and payable, then the guarantors will, upon demand by ComVest, pay all or such
portion of ClearPoint’s obligations under the amended ComVest loan agreement
declared due and payable.
Upon the
occurrence of an event of default under the amended ComVest loan agreement, as
described above, ComVest may enforce against the guarantors their obligations
set forth in the guaranty agreement. Pursuant to the collateral agreement, upon
an event of default under the amended ComVest loan agreement, ComVest may
exercise any remedies available to it under the Uniform Commercial Code, and
other applicable law, including applying all or any part of the collateral or
proceeds from its disposition as payment in whole or in part of ClearPoint’s
obligations under the amended ComVest loan agreement.
In
connection with the amended ComVest loan agreement, each of Messrs. Michael D.
Traina, ClearPoint’s Chairman of the board of directors and Chief Executive
Officer, and John G. Phillips, ClearPoint’s Chief Financial Officer, reaffirmed
their respective validity guaranties previously given to ComVest on June 20,
2008, referred to as the validity guaranty, by executing a reaffirmation of
validity guaranties, dated August 14, 2009, referred to as the reaffirmation of
validity guaranties. The validity guaranty provides that each officer will not,
intentionally or through conduct constituting gross negligence, and ClearPoint
will not, through intentional acts of either Mr. Traina or Mr. Phillips or
through conduct constituting gross negligence by each such officer, provide
inaccurate or misleading information to ComVest, conceal any information
required to be delivered to ComVest or fail to cause the collateral to be
delivered to ComVest when required or otherwise take any action that constitutes
fraud. In the event of a breach or violation of the obligations of Messrs.
Traina or Phillips under the validity guaranty, the officer must indemnify and
hold ComVest harmless from any loss or damage resulting from such breach or
violation.
ClearPoint
is obligated to pay ComVest modification fees in the amount of $210, charged to
the amended ComVest revolver, which were payable $60 on January 1, 2010 and $50
on each of April 1, 2010, July 1, 2010 and October 1,
2010. ClearPoint did not pay the modification fee installments due on
January 1, 2010 or April 1, 2010. In addition, on the first business
day of each calendar month prior to the maturity date of the amended ComVest
revolver and on the amended ComVest revolver maturity date or the earlier
termination of the amended ComVest revolver, ClearPoint must pay ComVest a
monthly unused commitment fee equal to 0.25% of the amount by which the amended
ComVest revolver maximum exceeds the average daily outstanding principal amount
of advances during the immediately preceding calendar month, charged to the
amended ComVest revolver.
Change of Control Pursuant
to Exercise of ComVest Warrant
In
connection with the amended ComVest loan agreement, ClearPoint issued to ComVest
the amended ComVest warrant, dated August 14, 2009, to purchase, in the
aggregate, 2,210,825 shares of ClearPoint’s common stock. The amended
ComVest warrant provided that, upon the occurrence and during the continuation
of certain events of default under the amended ComVest loan agreement, and upon
five business days’ notice to ClearPoint, the amended ComVest warrant was
exercisable for a number of shares of common stock that constituted 51% of
ClearPoint’s fully diluted common stock at the time of exercise, referred to as
a default exercise. The exercise price of the amended ComVest
warrant related to the default exercise was $0.001 per share of
Common Stock.
48
On
February 9, 2010, ClearPoint received a notice of default from ComVest in
connection with the amended ComVest loan agreement. ClearPoint
defaulted on its obligations under the amended ComVest loan agreement as a
result of: (i) its failure to pay approximately $108 of accrued interest which
was due and payable on February 1, 2010; (ii) its failure to pay a $60
installment of a certain modification fee which was due and payable on January
1, 2010; and (iii) the entry of a judgment against ClearPoint related
to the AICCO litigation and delivery of a judgment note in favor of
AICCO in the amount of approximately $195. Pursuant to a letter dated
February 10, 2010, ComVest waived existing defaults under the amended ComVest
loan agreement.
As a
consequence of such defaults, ComVest elected to invoke the default exercise
provision under the amended ComVest warrant. As a result, ClearPoint
is obligated to issue to ComVest 18,670,825 shares of common stock and received
approximately $19 from ComVest as the exercise price. In connection
with this transaction, effective April 12, 2010, ComVest owned 51% of the
ClearPoint’s fully diluted common stock and approximately 56.7% of outstanding
shares of the ClearPoint’s common stock.
ClearPoint
did not make scheduled payments of interest to ComVest under the amended ComVest
loan agreement on February 1, 2010, March 1, 2010 or April 1, 2010, in the
aggregate amount of $635, consisting of deferred interest payments and loan
modification fees that were due under the amended ComVest loan agreement as well
as the current monthly interest due from February 1, 2010 through April 1,
2010. In addition, ClearPoint has not made scheduled payments due on the
StaffBridge note and the sub notes as described below under “—StaffBridge” and
“—Notes Issued to Blue Lake and Sub Noteholders,”
respectively. ClearPoint’s failure to pay such amounts constitutes an
event of default under the amended ComVest loan agreement. As of
April 12, 2010, ClearPoint’s outstanding obligations under the amended
ComVest loan agreement were approximately $10,500, in addition to interest fees
of approximately $1,281. On April 14, 2010, ComVest waived the
foregoing events of default.
Merger
On
February 12, 2007, ClearPoint consummated the merger with Terra Nova. As a
result, CPBR Acquisition, Inc., referred to as CPBR, a Delaware corporation and
wholly-owned subsidiary of Terra Nova, merged with and into ClearPoint. At the
closing of the merger, ClearPoint stockholders were issued an aggregate of
6,051,549 shares of Terra Nova common stock. Ten percent of the Terra Nova
common stock being issued to ClearPoint stockholders at the time of the merger
was placed into escrow to secure the indemnity rights of Terra Nova under the
merger agreement and are governed by the terms of an escrow agreement. A further
10% of the Terra Nova common stock being issued to ClearPoint stockholders at
the time of the merger was placed into escrow to be released upon finalization
of certain closing conditions pursuant to the merger agreement which release has
since occurred. Upon the closing of the merger, Terra Nova changed its name to
ClearPoint Business Resources, Inc.
Upon
consummation of the merger, $30,600 was released from a trust fund to be used by
the combined company. After payments totaling approximately $3,300 for
professional fees and other direct and indirect costs related to the merger, the
net proceeds amounted to $27,300. The merger was accounted for under the
purchase method of accounting as a reverse acquisition in accordance with
accounting principles generally accepted in the United States of America for
accounting and financial reporting purposes. Under this method of accounting,
Terra Nova was treated as the “acquired” company for financial reporting
purposes. In accordance with guidance applicable to these circumstances, this
merger was considered to be a capital transaction in substance. Accordingly, for
accounting purposes, the merger was treated as the equivalent of ClearPoint
issuing stock for the net monetary assets of Terra Nova, accompanied by a
recapitalization. All historical share and per share amounts have been
retroactively adjusted to give effect to the reverse acquisition of Terra Nova
and related recapitalization.
49
ALS
On
February 23, 2007, ClearPoint acquired certain assets and liabilities of ALS
(see Note 4 of the Notes to the Consolidated Financial Statements for the year
ended December 31, 2009). The purchase price of $24,400 consisted of cash of
$19,000, a note of $2,500 at an interest rate of 7%, referred to as the ALS
note, shares of common stock with a value of $2,500 (439,367 shares) and the
assumption of approximately $400 of current liabilities. ALS’ stockholders
may also receive up to two additional $1,000 payments in shares of common stock
based on financial and integration performance metrics of ClearPoint in calendar
years 2007 and 2008. No such payments have been made to date. The balance of the
ALS note payable at December 31, 2009 was not repaid due to the pending
litigation with TSIL. For additional information regarding the litigation
with TSIL, referred to as the TSIL litigation, see Part I, Item 3 “Legal
Proceedings.”
In
connection with the transaction with ComVest described above, on June 20, 2008,
ClearPoint entered into a letter agreement dated June 20, 2008, referred to as
the ALS agreement, with ALS and certain other parties, referred to as the ALS
parties, whereby the parties agreed, among other things: (i) to execute the ALS
subordination letter dated June 20, 2008, as described below; (ii) to amend the
ALS note to provide for an outstanding principal amount of $2,156 (remaining
principal balance of $2,023 plus accrued interest of $133), which balance was
$2,284 including interest at December 31, 2009, bearing interest at a rate of 5%
per annum payable in 24 equal monthly installments, payable as permitted
pursuant to the ALS subordination letter; (iii) that ClearPoint would issue
350,000 shares of common stock to ALS, referred to as the ALS shares, in
accordance with the acquisition of ALS concurrently with the execution of the
ALS agreement; (iv) that ALS may defend and indemnify ClearPoint in connection
with the TSIL litigation and (v) that the parties will take all appropriate
actions to dismiss their claims against each other in connection with the TSIL
litigation.
ClearPoint
presented the ALS note on the balance sheet net of other assets of $300 related
to expenses for the TSIL litigation and an advance payment of $330 on the ALS
note, which nets out to $1,638. On November 21, 2008, a joint stipulation for
voluntary dismissal was filed with the court pursuant to which ClearPoint and
ALS jointly dismissed such claims with prejudice. On December 8, 2008, the court
entered an order dismissing all claims between ClearPoint and ALS with
prejudice. ClearPoint valued the ALS shares issued at their fair market value as
of the date of issuance of $102 and recorded that amount as expense.
ClearPoint has no future obligation to issue any additional shares of
common stock to ALS.
Pursuant
to a subordination letter sent by ALS to ComVest, M&T and ClearPoint dated
June 20, 2008, referred to as the ALS subordination letter, ALS agreed that
ClearPoint may not make and ALS may not receive payments on the ALS note,
provided however, that (i) upon payment in full of all obligations under the
ComVest term loan so long as ClearPoint is otherwise permitted to make such
payments, ClearPoint shall make monthly interest payments on the outstanding
principal balance of the ALS note and (ii) upon payment in full of the M&T
obligations, ClearPoint shall make 24 equal monthly installments on the ALS
note, as amended pursuant to the ALS agreement described above. The transaction
did not classify as a restructuring of debt. For the years ended December 31,
2009 and 2008, ClearPoint accrued $82 and $50, respectively, in interest expense
associated with the ALS note. As of December 31, 2009, ClearPoint had $261
of accrued interest payable recorded on its consolidated balance sheet
associated with the ALS note.
50
StaffBridge
On August
14, 2006, ClearPoint acquired 100% of the common stock of StaffBridge for $233
in cash and the StaffBridge note in the amount of $450 due December 31, 2007.
The StaffBridge note, due to former shareholders of StaffBridge, referred to as
the StaffBridge shareholders, bears interest at 6% per annum and is payable
quarterly. On December 31, 2007, the StaffBridge note was amended to extend the
maturity date to June 30, 2008. In addition, the principal amount of the
StaffBridge note was increased to $487 to include accrued interest and the
interest rate was increased to 8% per annum payable in monthly installments
starting January 15, 2008. ClearPoint incurred an origination fee equal to 4% of
the principal amount payable in the form of 9,496 shares of common stock. As of
June 30, 2008, ClearPoint did not pay any monthly interest installments pursuant
to the amended StaffBridge note. The failure to pay such interest installments
would permit noteholders to declare all amounts owing under the StaffBridge note
due and payable. On August 13, 2008, the outstanding accrued interest of $24 was
paid and ComVest waived any default related thereto effective June 30, 2008. In
addition, in connection with the financing transaction with ComVest, on June 30,
2008, the StaffBridge shareholders executed a certain Debt Extension Agreement,
referred to as the debt extension agreement, and entered into a subordination
agreement, referred to as the StaffBridge subordination agreement, with ComVest
and CPR.
Pursuant
to the debt extension agreement, the StaffBridge shareholders agreed that, in
connection with the receipt from ClearPoint of $150 payable for work performed
by TSP 2, Inc., an entity controlled by certain StaffBridge shareholders and a
contractor for ClearPoint, referred to as TSP, the StaffBridge note was amended,
effective June 30, 2008, to extend the maturity date to December 31, 2008 and to
reduce the outstanding principal amount to approximately $337.
Pursuant
to the StaffBridge subordination agreement, the StaffBridge shareholders agreed
to subordinate ClearPoint’s obligations to them under the StaffBridge note to
the ComVest obligations. So long as no event of default under the ComVest loan
agreement has occurred, ClearPoint may continue to make scheduled payments of
principal and accrued interest when due in accordance with the StaffBridge note.
In the case of an event of default under the ComVest loan agreement, ClearPoint
may not pay and the StaffBridge shareholders may not seek payment on the
StaffBridge note until the ComVest obligations have been satisfied in full. The
StaffBridge subordination agreement also sets forth priorities among the parties
with respect to distributions of ClearPoint’s assets made for the benefit of
ClearPoint’s creditors.
Effective
December 31, 2008, the StaffBridge note was further amended pursuant to a second
Debt Extension Agreement dated December 31, 2008 to provide for the following
payment schedule of the outstanding amount due under the StaffBridge note: $100
was paid on or about December 31, 2008 and the remaining balance was to be paid
in four equal quarterly payments of $59, beginning on March 31, 2009 and ending
on December 31, 2009. Amendment No. 1 to the ComVest loan agreement contains
ComVest’s acknowledgement and consent to ClearPoint’s amendment of the payment
terms and payment schedule of the StaffBridge note pursuant to the second debt
extension agreement.
ClearPoint
did not make the required quarterly payment to StaffBridge for the quarter ended
June 30, 2009 of $59 and was also in arrears on interest payments due in the
amount of $2. An event of default under the StaffBridge note triggers a
cross-default provision pursuant to the ComVest loan agreement. In addition, a
default under the ComVest loan agreement would trigger a cross-default provision
pursuant to the M&T restructure agreement unless the default under the
ComVest loan agreement is waived in writing by ComVest. On August 14, 2009,
ComVest executed a waiver letter, which waived all of ClearPoint’s defaults
under the StaffBridge note through August 14, 2009. On September 15, 2009, the
StaffBridge note was amended pursuant a Debt Extension Agreement Amendment dated
September 3, 2009, pursuant to which the outstanding balance under the
StaffBridge note shall be paid in monthly installments beginning February 15,
2010. Each monthly installment payment under the StaffBridge note will be
in the total amount of $17, consisting of (i) $16 with respect to the
outstanding principal balance and (ii) $1 relating to accrued and unpaid
interest as of August 31, 2009 and interest for the period of September 1, 2009
through January 31, 2010 calculated at the rate of 8% per
annum.
51
ClearPoint
did not make required payments due on February 15, 2010 or March 15, 2010 under
the StaffBridge note, in the aggregate amount of $37, consisting of $33 in
principal and $4 in interest. The failure to pay such interest
installments would permit the noteholders to declare all amounts owing under the
StaffBridge note due and payable, which would also constitute a cross-default
under the amended ComVest loan agreement.
Promissory
Notes Issued to Blue Lake and Sub Noteholders
Blue
Lake
On March
1, 2005, CPR issued the Blue Lake note to Blue Lake in the amount of $1,290
which was due March 31, 2008. Interest of 6% per annum was payable quarterly.
This note has been guaranteed by Michael D. Traina and Christopher Ferguson and
was primarily used to assist ClearPoint in funding its workers’ compensation
insurance policy. The Blue Lake note matured on March 31, 2008. Effective March
31, 2008, CPR amended and restated the Blue Lake note and extended its maturity
date under an agreement dated as of March 31, 2008, by and between CPR and Blue
Lake, referred to as the Blue Lake agreement. Pursuant to the Blue Lake
agreement, on April 14, 2008, CPR and Blue Lake entered into an Amended and
Restated Promissory Note with a principal amount of $1,290, which was due and
payable as follows: (i) $200 was paid on April 8, 2008, (ii) $50 is payable on
the first business day of each calendar month for twelve consecutive months
(totaling $600 in the aggregate), the first payment to occur on May 1, 2008 and
the last to occur on April 1, 2009, and (iii) on April 30, 2009, CPR was
obligated to pay to Blue Lake the balance of the principal amount, equal to
$490, plus accrued interest. The interest rate was increased from 6% to 10% per
annum. ClearPoint agreed to issue 900,000 shares, referred to as the escrow
shares, of common stock in the name of Blue Lake to be held in escrow, pursuant
to an escrow agreement, as security for the payment of the principal amount and
interest under the Blue Lake note.
CPR did
not make the required payments of: (i) $50 in January, 2009 and (ii) $490, plus
accrued interest, of which $8 has been accrued as of December 31, 2009, in
April, 2009 under the Blue Lake note. On May 1, 2009, ClearPoint received a
notice from Blue Lake indicating CPR’s failure to pay such amounts and demanding
that ClearPoint immediately pay a total of approximately $573. Pursuant to
the terms of the Blue Lake note, CPR’s failure to make the foregoing payments
when due constitutes an event of default if not cured within five business days
of receipt of written notice from Blue Lake. ClearPoint did not cure such
default on or prior to May 8, 2009. On May 7, 2009, Blue Lake requested
disbursement of the escrow shares and, pursuant to the escrow agreement, the
escrow agent is obligated to deliver the escrow shares to Blue Lake ten calendar
days after receipt of the request for disbursement.
An event
of default under the Blue Lake note triggers a cross-default provision pursuant
to the ComVest loan agreement. In addition, a default under the ComVest loan
agreement would trigger a cross-default provision pursuant to the M&T
restructure agreement, unless the default under the ComVest loan agreement is
waived in writing by ComVest. On May 13, 2009, ComVest executed the Blue Lake
waiver to the ComVest loan agreement, pursuant to which, effective May 1, 2009,
ComVest waived the cross-default provision which was triggered by CPR’s failure
to make the payments due under the Blue Lake note and all remedies available to
ComVest as a result of the failure to make such payments, provided that such
payments due under the Blue Lake note are paid solely in escrow shares. On
July 14, 2009, Blue Lake filed a Complaint in the Superior Court of Humboldt
County, California seeking payment of the $490,000, plus accrued interest and
fees. For additional information regarding this Complaint, see Part I, Item 3
“Legal Proceedings.”
On August
14, 2009, ComVest executed a waiver letter, which waived all of ClearPoint’s
defaults under the Blue Lake note through August 14, 2009. In addition, the
amended ComVest loan agreement specifically excludes from the definition of an
event of default any litigation brought in respect of the Blue Lake note,
provided that and so long as payments under the Blue Lake note are paid solely
in shares of ClearPoint’s common stock. See “—Debt Restructuring – M&T and
ComVest—ComVest.”
52
Sub
Noteholders
On March
1, 2005, CPR issued a 12% amended and restated note in the original principal
amount of $300 due March 31, 2008 to Fergco Bros. LLC, referred to as Fergco, a
New Jersey limited liability company of which Christopher Ferguson owns a 25%
ownership interest. The balance of this note payable at December 31,
2009 was $300, referred to as the $300 note.
On March
1, 2005, CPR issued 12% amended and restated notes in the aggregate original
principal amount of $310 due March 31, 2008 to several ClearPoint stockholders
who do not individually own 5% or more of the outstanding securities of
ClearPoint and who are not members of the immediate family of any ClearPoint
director or executive officer, except for $100 owed to Alyson Drew, the spouse
of Parker Drew, a former director of ClearPoint. The balance of these
notes payable at December 31, 2009 was $250, referred to as the $250
notes.
Effective
March 31, 2008, CPR amended and restated the $300 note and the $250 notes,
collectively referred to as the sub notes, and extended their maturity dates to
March 31, 2009 under the amended sub notes, dated March 31, 2008 and issued by
CPR to each sub noteholder, collectively referred to as the amended sub
notes. All sums outstanding from time to time under each amended sub
note bear the same interest of 12% per annum as under the sub note, payable
quarterly, with all principal payable on the maturity date. In
consideration of each sub noteholder agreeing to extend the maturity date of the
sub note, ClearPoint issued warrants, referred to as the initial sub note
warrants, to the sub noteholders to purchase, in the aggregate, 82,500 shares of
common stock, referred to as the sub note warrant shares, at an exercise price
of $1.55 per share. The initial sub note warrant was immediately
exercisable during the period commencing on March 31, 2008 and ending on March
31, 2010. CPR had the right in its sole discretion, to extend the
maturity date of the amended sub notes to March 31, 2010, and in connection with
such extension, the sub noteholders had the right to receive additional sub note
warrants, referred to as the additional sub note warrants to purchase, in the
aggregate, an additional 82,500 shares of common stock.
On June
20, 2008, CPR exercised its right to extend the maturity date of the amended sub
notes to March 31, 2010 and, in connection with such extension, the sub
noteholders received additional sub note warrants to purchase the 82,500 sub
note warrant shares at an exercise price of $1.55 per share. The
additional sub note warrant is immediately exercisable during the period
commencing on June 20, 2008 and ending on March 31, 2011. The
exercise price and the number of sub note warrant shares are subject to
adjustment in certain events, including a stock split and reverse stock
split.
In
connection with the transaction with ComVest described above, ComVest entered
into a Subordination Agreement dated June 20, 2008, referred to as the
noteholder subordination agreement, with each of the sub noteholders and
CPR. Pursuant to the noteholder subordination agreement, the sub
noteholders agreed to subordinate ClearPoint’s obligations to them under the
amended sub notes to the ComVest obligations. So long as no event of
default under the ComVest loan agreement has occurred, ClearPoint may continue
to make scheduled payments of principal and accrued interest when due in
accordance with the sub notes, as amended. In the case of an event of
default under the ComVest loan agreement, ClearPoint may not pay and the sub
noteholders may not seek payment on the sub notes, as amended, until the ComVest
obligations have been satisfied in full. The noteholder subordination
agreement also sets forth priorities among the parties with respect to
distributions of ClearPoint’s assets made for the benefit of ClearPoint’s
creditors.
53
CPR did
not make the required interest payments under the amended sub notes for the
quarter ended June 30, 2009 in the aggregate amount of $28. Pursuant
to the terms of the amended sub notes, CPR’s failure to make the foregoing
payments when due constitutes an event of default if not cured within five
business days of receipt of written notice from a sub noteholder. An
event of default under the amended sub notes triggers a cross-default provision
pursuant to the ComVest loan agreement. In addition, a default under
the ComVest loan agreement would trigger a cross-default provision pursuant to
the M&T restructure agreement unless the default under the ComVest loan
agreement is waived in writing by ComVest. On August 14, 2009,
ComVest executed a waiver letter, which waived all of ClearPoint’s defaults
under the amended sub notes through August 14, 2009. See “—Debt
Restructuring – M&T and ComVest—ComVest.”
On
September 11, 14 and 15, 2009, CPR amended and restated the sub notes by issuing
third amended and restated promissory notes dated September 8, 2009, referred to
as the third amended sub notes, to Fergco, Alyson Drew, B&N Associates, LLC
and Matthew Kingfield, respectively, for $550 in aggregate principal
amount. As of the dates of issuance of the third amended sub notes,
ClearPoint was in default in the aggregate amount of $28 in past due interest
under the sub notes. Pursuant to the third amended sub notes,
principal amounts shall be due and payable in monthly installments equal to 10%
of the principal amount of the third amended sub notes beginning March 31,
2010. The third amended sub notes continue to bear interest at the rate of
12% per annum. Interest due for the period of May 1, 2009 through
August 31, 2009 and additional interest accruing for the period of September 1,
2009 through February 28, 2010 shall be deferred and paid in monthly
installments beginning March 31, 2010. Interest payments for the
period beginning March 1, 2010 and future periods will be paid monthly, one
month in arrears, beginning April 30, 2010. CPR has the right to
prepay all or any portion of the third amended sub notes from time to time
without premium or penalty. Any prepayment shall be applied first to
accrued but unpaid interest and then applied to reduce the principal amount
owed. The third amended sub notes provide that CPR’s failure to make
any payment of principal or interest due shall constitute an event of default if
uncured for five days after written notice has been given by the sub noteholders
to CPR. Upon the occurrence of an event of default and at any time
thereafter, all amounts outstanding under the third amended sub notes shall
become immediately due and payable.
ClearPoint
did not make payments due under the third amended sub notes on March 31, 2010 in
the aggregate amount of $61, consisting of $55 in principal and $6 in
interest. The failure to pay such interest installments would permit
the sub noteholders to declare all amounts owing under the third amended sub
notes due and payable, which would also constitute a cross-default under the
amended ComVest loan agreement.
On
February 22, 2008, CPR issued promissory notes, referred to as the promissory
notes, in the aggregate principal amount of $800, with $400 to each of Michael
D. Traina and Christopher Ferguson in consideration for loans totaling $800 made
to CPR. The terms of the promissory notes issued to Messrs. Traina
and Ferguson were identical. The principal amount of each promissory
note was $400, they bore interest at the rate of 6% per annum, which was to be
paid quarterly, and they were due on February 22, 2009. The
promissory notes were subordinate and junior in right of payment to the prior
payment of any and all amounts due to M&T pursuant to the M&T credit
agreement.
On
February 28, 2008, ClearPoint Workforce, LLC, a wholly-owned subsidiary of CPR,
referred to as CPW, advanced $800, on behalf of Optos, to the provider of Optos’
outsourced employee leasing program. The advanced funds were utilized
for Optos’ payroll. In consideration of making the advance on its
behalf, Optos assumed the promissory notes, and the underlying payment
obligations, issued by CPR on February 22, 2008.
On June
6, 2008, ClearPoint issued notes, referred to as the bridge notes, to each of
Michael D. Traina, Parker Drew and TerraNova Partners, collectively referred to
as the bridge lenders, in the principal amounts of $104, $50 and $100,
respectively. During the course of negotiations with ComVest, Mr.
Traina agreed to loan an additional $5 to ClearPoint. TerraNova
Partners is 100% owned by Vahan Kololian, ClearPoint’s former lead
director. Mr. Kololian also controls 100% of the voting interest and
55% of the non-voting equity interest in the general partner of TerraNova
Partners.
54
The
bridge notes contained identical terms. The bridge notes were
unsecured and payable on demand. No interest accrued on the unpaid
principal balance of the bridge notes until demand. After demand, the
bridge notes would bear interest at an annual rate of 5%.
On June
26, 2008, ClearPoint issued amended and restated bridge notes, referred to as
the amended bridge notes, to each bridge lender. The amended bridge
notes contained identical terms and provided that (i) the principal amount of
the amended bridge notes will bear interest at a rate of 8% per annum, payable
quarterly and (ii) ClearPoint had the right to repay the amended bridge notes in
shares of common stock at a price equal to the closing price of the common stock
on June 26, 2008. The amended bridge notes did not contain the
provision stating that the principal balance will bear interest only upon demand
for payment by the bridge lender, as provided in the original bridge
notes. Mr. Drew’s amended bridge note was repaid in full and Mr.
Traina was repaid $5 during the quarter ended June 30, 2008. The
balance of Mr. Traina’s loan was repaid in July 2008. On August 12,
2008, ClearPoint’s board of directors approved the payment of the amended bridge
note issued to TerraNova Partners in 204,082 shares of common stock in
accordance with the terms of the amended bridge note.
Transactions
Related to Transition from Temporary Staffing Business Model to iLabor Network
Model
HRO
On
February 7, 2008, CPR entered into a purchase agreement effective as of February
7, 2008, referred to as the HRO purchase agreement, with HRO, CPR’s wholly owned
subsidiary, and AMS Outsourcing, Inc., referred to as AMS. Pursuant
to the HRO purchase agreement, CPR sold all of the issued and outstanding
securities of HRO to AMS for an aggregate purchase price payable in the form of
an earnout payment equal to 20% of the earnings before interest, taxes,
depreciation and amortization of the operations of HRO for a period of 24 months
following February 7, 2008. AMS was obligated to pay such fee in
arrears on the first business day of every month. Unpaid fees were
subject to interest at a rate of 1.5% per month. As of December 31,
2009, AMS did not pay to CPR the earnout payments required under the HRO
purchase agreement.
ClearPoint
ceased recording revenues related to the MVI purchase agreement and the HRO
purchase agreement during the year ended December 31, 2008.
KOR
On August
30, 2007, ClearPoint entered into an agreement, referred to as the KOR
agreement, with KOR, a Florida limited liability company controlled by Kevin
O’Donnell, a former officer of ClearPoint, pursuant to which ClearPoint granted
to KOR an exclusive right and license (i) to set up and operate, in parts of
northern California and Florida, a franchise of ClearPoint’s system and
procedures for the operation of light industrial and clerical temporary staffing
services and (ii) to use in connection with the operation certain of
ClearPoint’s proprietary intellectual property. The KOR agreement
replaced the agreement between ClearPoint and KOR entered on July 9,
2007. In consideration for the grant and license, KOR was required to
pay to ClearPoint, on a weekly basis, a royalty equal to 4.5% of all gross
revenues earned by KOR from its operations. KOR also agreed to pay
ClearPoint, on a weekly basis, a royalty equal to 50% of the net income from
KOR’s operations. Through this relationship KOR operated and managed
up to twelve of ClearPoint’s former branches. The KOR agreement was
terminated on March 5, 2008 as described below.
55
StaffChex
On
February 28, 2008, CPR entered into a purchase agreement, referred to as the
StaffChex purchase agreement, with StaffChex subject to certain conditions for
the completion of the transaction. Under the StaffChex purchase
agreement, StaffChex assumed certain liabilities of CPR and acquired from CPR
all of the customer account property, as defined in the StaffChex purchase
agreement, related to the temporary staffing services serviced by (i) KOR,
pursuant to the KOR agreement dated August 30, 2007 and (ii) StaffChex
Servicing, LLC, referred to as StaffChex Servicing, pursuant to an Exclusive
Supplier Agreement dated September 2, 2007. In consideration for the
customer account property acquired from CPR, StaffChex issued to CPR 15,444
shares of common stock and CPR is entitled to receive an additional 15,568
shares of StaffChex common stock, pursuant to the earnout provisions set forth
in the StaffChex purchase agreement, which have been met. As a
result, CPR is entitled to 31,012 (16.4%) of StaffChex’s outstanding stock, of
which 15,568 shares have not yet been issued.
In
addition, CPR entered into an iLabor agreement with StaffChex, referred to as
the StaffChex iLabor agreement, whereby StaffChex agreed to process its
temporary labor requests through iLabor and to pay to CPR a percentage, referred
to as the royalty (as of December 31, 2009, the percentage was 0.75%), of
StaffChex’s total collections from its total billings for temporary staffing
services provided to ClearPoint’s clients through the iLabor network or
otherwise. On March 5, 2008, CPR completed the disposition of all of
the customer account property related to the temporary staffing services
formerly provided by StaffChex Servicing and KOR, agreements with whom were
terminated on February 28, 2008 and March 5, 2008,
respectively. ClearPoint did not incur any early termination
penalties in connection with such terminations.
On March
16, 2009, CPR and StaffChex entered into Amendment No. 1 to the StaffChex iLabor
agreement pursuant to which the payment terms of the StaffChex iLabor agreement
were restated as follows: for weekly collections of less than $1,400, the
royalty is 1.25% and for weekly collections of $1,400 or more, the royalty is
2%. If collections for a calendar year exceed $110,000, the royalty
will be 1.5% for each dollar exceeding $110,000 and if such collections exceed
$150,000, the royalty will be 1.25% for each dollar exceeding
$150,000. Unpaid royalties shall bear interest at the rate of 1.5%
per month. Weekly payments commenced on March 18, 2009. In
addition, StaffChex agreed to make 104 weekly payments of $4 followed by 52
weekly payments of $3 for past-due royalties owed through February 28,
2009. Such additional payments commenced on June 3,
2009.
On
September 1, 2009, StaffChex notified ClearPoint that a Notice of Levy, referred
to as the levy, had been placed by the California Employment Development
Department, referred to as the EDD, in the amount of $272 for payroll taxes
owed by ClearPoint subsidiaries. The levy instructed StaffChex to
forward all royalty payments due to ClearPoint to the State of California until
such time as ClearPoint satisfies the tax liability. ClearPoint
negotiated an Installment Agreement with the EDD pursuant to which the parties
agreed that StaffChex will remit the first $25 of royalties on a monthly
basis to the EDD.
As of
November 18, 2009, StaffChex was delinquent on royalty payments due to CPR in
the amount of $56. On November 18, 2009, StaffChex transferred
certain contracts, referred to as the StaffChex accounts, to CPR pursuant to a
certain Assignment and Assumption Agreement, Option and Bill of Sale dated
November 18, 2009, referred to as the StaffChex assignment
agreement. Pursuant to the StaffChex assignment agreement, CPR
assumed the obligations under the StaffChex accounts, with certain exceptions,
including, but not limited to, obligations relating to certain tax liabilities,
payment obligations of StaffChex arising prior to November 18, 2009, liabilities
related to claims arising out of events or conditions or actual or alleged
violations of law occurring prior to November 18, 2009 and any liability of
StaffChex based on its acts or omissions after November 18, 2009. In
consideration for the assignment of the StaffChex accounts, CPR (1) assigned its
right, title and interest to 12,405 shares of StaffChex common stock to
StaffChex and StaffChex agreed to reissue 18,607 shares of StaffChex common
stock to CPR, referred to as the reissued StaffChex shares and (2) granted
StaffChex an option to purchase the reissued StaffChex shares for a purchase
price of $250 at any time prior to the earlier of (i) November 18, 2011 or (ii)
the date on which CPR assigns and delivers such reissued StaffChex shares to
StaffChex in accordance with the “success fee” described below.
56
In
addition, CPR agreed to amend the StaffChex iLabor agreement to reduce the
royalties. On November 18, 2009, CPR and StaffChex entered into
Amendment No. 2 to the StaffChex iLabor agreement in order to provide for
payment of past-due amounts owed by StaffChex under the StaffChex iLabor
agreement and to restate the payment terms thereunder effective as of November
1, 2009. Amendment No. 2 provides that during the first full week
after the transfer of the StaffChex accounts, such accounts are expected to meet
or exceed minimum billings of $96 per week, referred to as the guaranteed
billings. In the event the StaffChex accounts do not meet the
guaranteed billings in a given week, StaffChex will transfer such additional
contracts whose billings, when added to those of the StaffChex accounts, will
satisfy the guaranteed billings. CPR may, in its reasonable
discretion, accept or reject the StaffChex accounts. In addition, as of the
effective date of Amendment No. 2 and through January 31, 2010, the royalties
were equal to 0.75%, provided that such amount shall be payable in two portions:
(i) 0.25%, to the extent not already paid by StaffChex, shall be payable weekly
through January 31, 2010 and (ii) the balance of 0.50% will be deferred and paid
with past-due royalties (as defined below). Royalties owed for the
period of September 28, 2009 through November 1, 2009 equaled 1.25% and
were payable in weekly installments beginning March 1, 2010 through May 31,
2010, in addition to any other amounts owed pursuant to Amendment No.
2.
It is
expected that for the six month period of February 1, 2010 through July 31,
2010, the average monthly billings of the StaffChex accounts will meet or exceed
a minimum of $625 per month. If such monthly billings do not meet
this minimum amount, then 5% of the shortfall will be due and payable in equal
installments over the 16-week period beginning September 1, 2010. Upon the
date on which billings from the StaffChex accounts meet or exceed a total of
$308 per week for six consecutive weeks, CPR will pay a “success fee” in the
form of an immediate transfer and assignment of reissued StaffChex shares to
StaffChex and the StaffChex iLabor Agreement will automatically terminate and be
of no further force and effect, provided, however, that provisions relating to
the payment of amounts deferred or past-due which are otherwise payable shall
survive such termination.
In
addition, pursuant to Amendment No. 2, StaffChex agreed to continue making
scheduled weekly payments of $4 until June 1, 2011, and 52 weekly payments of $3
thereafter, for past-due royalties owed through February 28, 2009, referred to
as the past-due royalties, commencing on June 1, 2011. The failure of
StaffChex to make payments due pursuant to the StaffChex iLabor Agreement
constitutes a material breach. In the event of nonpayment, StaffChex
will have a 10-day cure period to make any delinquent payments. If
such payments remain outstanding following the cure period, the royalties shall
revert to 1.25% and StaffChex agreed to direct its affiliated receivables
factoring company to make the required payment to CPR.
Effective
January 11, 2010, CPR and StaffChex entered into Amendment No. 3 to the
StaffChex iLabor Agreement pursuant to which the parties agreed that the
royalties shall equal 0.75% of which 0.50% shall be deferred in accordance with
Amendment No. 2 until February 1, 2010. As of April 12, 2010,
StaffChex was current on payments pursuant to the StaffChex iLabor
Agreement. Additionally, StaffChex agreed to direct Wells Fargo
Business Credit to pay ClearPoint $3 per week, effective January 11, 2010 in
lieu of StaffChex accounts until such time as the StaffChex accounts increase to
$96. For the period of December 14, 2009 through January 8, 2010,
StaffChex will pay ClearPoint 3% of actual billings for the StaffChex
accounts. All amounts due to ClearPoint shall be paid directly from
Wells Fargo Business Credit on a weekly basis pursuant to a certain Account
Transfer Agreement dated May 16, 2008.
57
TZG, Optos and
Select
On August
13, 2007, ClearPoint entered into an agreement with TZG, a Delaware limited
liability company controlled by J. Todd Warner, a former officer of ClearPoint,
pursuant to which ClearPoint granted to TZG an exclusive right and license (i)
to set up and operate a franchise of ClearPoint’s system and procedures for the
operation of transportation and light industrial temporary staffing services and
(ii) to use in connection with the operation certain of ClearPoint’s proprietary
intellectual property. In consideration for the grant and license,
TZG was required to pay to ClearPoint, on a weekly basis, a royalty equal to 6%
of all gross revenues earned by TZG from the operation. Through this
relationship, TZG operated and managed up to twenty-five of ClearPoint’s
branches. The TZG agreement was terminated on February 28, 2008, as
described below.
On
February 28, 2008, CPR and its subsidiary, CPW, entered into a Licensing
Agreement, referred to as the Optos licensing agreement, with Optos, of which
Christopher Ferguson is the sole member. Pursuant to the Optos
licensing agreement, ClearPoint (i) granted to Optos a non-exclusive license to
use the ClearPoint property and the program, both as defined in the Optos
licensing agreement, which include certain intellectual property of CPR, and
(ii) licensed and subcontracted to Optos the client list previously serviced by
TZG, pursuant to the TZG agreement dated August 13, 2007, and all contracts and
contract rights for the clients included on such list. In
consideration of the licensing of the program, which is part of the ClearPoint
property, CPR was entitled to receive a fee equal to 5.2% of total cash receipts
of Optos related to temporary staffing services. With CPR’s consent,
Optos granted, as additional security under certain of its credit agreements,
conditional assignment of Optos’ interest in the Optos licensing agreement to
its lender under such credit agreements. The foregoing agreement with
TZG was terminated on February 28, 2008 in connection with the Optos licensing
agreement. ClearPoint did not incur any early termination penalties
in connection with such termination.
On April
8, 2008, the Optos licensing agreement was terminated. In
consideration for terminating the Optos licensing agreement, CPR and Optos have
agreed that there will be a net termination fee for any reasonable net costs or
profit incurred, if any, when winding up the operations associated with
termination. This fee is estimated to be $500 and has been recorded
as an expense. The payment of the net termination fee will be in the
form of cash and shares of common stock of ClearPoint.
On April
8, 2008, CPR entered into a License Agreement dated April 8, 2008, referred to
as the Select license agreement, with Select. The initial term of the
Select license agreement was for a period of six years. Pursuant to
the Select license agreement, CPR granted to Select a non-exclusive,
non-transferable right and license to use the iLabor network as a hosted
front-office tool. CPR exclusively retains all right, title and
interest in and to the iLabor network. In addition, Select agreed to
become a supplier of temporary personnel to third party clients through the
iLabor network and to fulfill agreed-upon orders for such personnel accepted by
Select through the iLabor network. CPR also agreed to permit Select
to use the iLabor network to find and select third-party, temporary personnel
suppliers to fulfill orders for Select’s end-user client. In
consideration of the license granted, Select agreed to pay a non-refundable fee
equal to $1,200, of which $900 was paid on April 8, 2008 and $300 was due on
July 1, 2008, but was not paid. The July payment was waived and
incorporated into the Select settlement agreement described
below. Under the Select license agreement, if Select used the iLabor
network to find and select third-party, temporary personnel suppliers to fulfill
orders for Select’s end-user clients, then the parties would split the net
amount billed to the end-user clients less the amount paid to such
vendors.
58
Effective
March 30, 2008, CPR entered into the Temporary Help Services Subcontract dated
April 8, 2008, referred to as the Select subcontract, with
Select. The Select subcontract expires April 7,
2013. Pursuant to the Select subcontract, CPR subcontracts to Select
the client contracts and contract rights previously serviced on behalf of CPR by
other entities, referred to as the customers. Pursuant to the Select
subcontract, the parties agree that Select will directly interface with the
customers, but at no time will CPR relinquish its ownership, right, title or
interest in or to its contracts with the customers, referred to as the
contracts. Subject to certain exceptions, upon expiration of the
Select subcontract, CPR will abandon such rights in the contracts and Select may
solicit the customers serviced under the Select subcontract. Select
is responsible for invoicing the customers and for collection of payment with
regard to services provided to customers by Select. During each one
year period of the term of the Select subcontract, Select was obligated to pay
CPR 10% of such year’s annual gross sales, not exceeding $36,000 annually in
gross sales, generated by the client contracts as well as certain other revenue
generated by location, referred to as the subcontract fee.
On July
29, 2008, Select, together with Real Time Staffing Services, Inc., referred to
as Real Time, filed a complaint against ClearPoint and on August 1, 2008, Select
filed an amended complaint, referred to as the Select litigation, claiming that
ClearPoint owed it $1,033 for services performed and other
damages. For additional information regarding the Select litigation,
see Part I, Item 3 “Legal Proceedings.”
On August
22, 2008, CPR, Real Time and Select entered into a Settlement Agreement and
Release, referred to as the Select settlement agreement, pursuant to which each
party released the others from all prior, existing and future claims including,
without limitation, the parties’ claims with respect to the Select litigation,
the Select license agreement and the Select subcontract. Pursuant to
the Select settlement agreement, the parties also agreed (i) that CPR would
retain $900 paid to it under the Select license agreement; (ii) to allocate
between them amounts paid or payable with respect to certain client accounts;
(iii) to execute an amendment to the Select subcontract, as described below; and
(iv) that Select would file the required documents to dismiss the Select
litigation with prejudice. In addition, the parties agreed not to
commence any future action arising from the claims released under the Select
settlement agreement, and on August 28, 2008, the Select litigation was
dismissed.
Also,
pursuant to the Select settlement agreement, the parties terminated the Select
license agreement effective August 22, 2008. There were no
termination penalties incurred in connection with the termination of the Select
license agreement.
In
connection with the Select settlement agreement, on August 22, 2008, CPR and
Select entered into the first amendment to the Select subcontract, referred to
as the subcontract amendment. Pursuant to the subcontract amendment,
the following changes were made to the Select subcontract:
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·
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The
subcontract fee was amended to provide that Select would pay CPR, for 28
consecutive months, 25% of each month’s gross sales generated by the
customers and contracts as well as, without duplication, sales generated
by certain locations in accordance with the Select subcontract, subject to
a maximum fee of $250 per month. The payments are subject to
acceleration upon occurrence of certain breaches of the Select subcontract
or bankruptcy filings by Select.
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·
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The
term of the Select subcontract was amended to provide that the term will
expire upon the payment of all fees owed under the Select subcontract, as
amended.
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On
September 1, 2009, Select filed a new complaint in the Superior Court of
California (Santa Barbara County) against ClearPoint alleging that ClearPoint
failed to pay Select approximately $107 pursuant to the Select subcontract since
August 2009 and that ClearPoint failed to perform certain obligations under the
Select subcontract. On December 30, 2009, the complaint was dismissed
with prejudice by mutual agreement of the parties.
59
Advisory
Services Agreement
TerraNova
Management Corp., an affiliate of Mr. Kololian and the manager of TerraNova
Partners, referred to as TNMC, was retained to provide certain advisory services
to ClearPoint, effective upon the closing of the merger with Terra Nova,
pursuant to the Advisory Services Agreement between TNMC and ClearPoint, dated
February 12, 2007, referred to as the initial TNMC
agreement. Pursuant to the initial TNMC agreement, TNMC provided
services to ClearPoint including: advice and assistance in analysis and
consideration of various financial and strategic alternatives, as well as
assisting with transition services. Pursuant to the terms of the
initial TNMC agreement, it was terminated effective February 11, 2008, however
TNMC continued to provide substantially similar services under substantially
similar terms to ClearPoint on a monthly basis. No payments were
accrued or paid to TNMC for January, 2008.
On June
26, 2008, ClearPoint entered into a new Advisory Services Agreement, referred to
as the TNMC advisory services agreement, with TNMC in order to: (i) provide
compensation to TNMC for its services since the expiration of the initial TNMC
agreement and (ii) engage TNMC to provide future advisory
services. Pursuant to the TNMC advisory services agreement, TNMC is
obligated to provide advice and assistance to ClearPoint in its analysis and
consideration of various financial and strategic alternatives, referred to as
the advisory services, however the advisory services will not include advice
with respect to investments in securities or transactions involving the trading
of securities or exchange contracts. The TNMC advisory services
agreement was effective as of June 26, 2008, continues for a one year term and
is automatically renewed for successive one-year terms unless terminated by
either party by written notice not less than 30 days prior the expiration of the
then-current term. The TNMC advisory services agreement was
automatically renewed on June 26, 2009 pursuant to its terms.
ClearPoint
agreed to compensate TNMC for services rendered since expiration of the initial
TNMC agreement and for advisory services going forward in accordance with the
rates set forth in the TNMC advisory services agreement and to reimburse TNMC
for reasonable travel, lodging and meal expenses relating to the provision of
the advisory services. Monthly fees payable to TNMC pursuant to the
TNMC advisory services agreement are capped at $50 per month. Fees
payable to TNMC may be paid 100% in shares of common stock, at ClearPoint’s
option. At ClearPoint’s option, 75% of the fees payable to TNMC
beginning in the month of June, 2008 may be paid in shares of common stock and,
with the agreement of TNMC, the remaining 25% may also be paid in shares of
common stock. Shares of common stock made as payments under the TNMC
advisory services agreement are priced at the month-end closing price for each
month of services rendered. ClearPoint incurred approximately $293 in
fees owing to TNMC for its services in the year ended December 31,
2008. ClearPoint’s board of directors approved payment of $266 for
the advisory services in the form of an aggregate of 479,470 shares of common
stock for the months of February through August, 2008 as follows: on August 12,
2008, the board of directors approved payment for the months of February, March,
April, May and June, 2008 in 417,008 shares of common stock and, on November 7,
2008, the board of directors approved payment for the months of July and August,
2008 in 62,462 shares of common stock. ClearPoint recorded
approximately $99 for reimbursement of expenses incurred by TNMC in
connection with the advisory services provided from February, 2008 through
December 31, 2009. ClearPoint incurred approximately $15 for
reimbursement of expenses incurred by TNMC for advisory services during the year
ended December 31, 2009.
60
Agreements
with Christopher Ferguson, Kurt Braun and John Phillips
On
February 28, 2008, Christopher Ferguson resigned as ClearPoint’s and CPR’s
director, President and Secretary in connection with the Optos licensing
agreement described above. ClearPoint and Mr. Ferguson entered into
the Separation of Employment Agreement and General Release, referred to as the
Ferguson separation agreement. In consideration for Mr. Ferguson’s
agreement to be legally bound by the terms of the Ferguson separation agreement
and his release of his claims, if any, under the Ferguson separation agreement,
Mr. Ferguson was entitled to be reimbursed for any health insurance payments for
Mr. Ferguson for a period equal to 52 weeks. For the years ended
December 31, 2009 and December 31, 2008, Mr. Ferguson was reimbursed $9 and $12,
respectively, for health insurance payments. Pursuant to the Ferguson
separation agreement, ClearPoint entered into a consulting agreement with Mr.
Ferguson pursuant to which he was entitled to be paid $25 per month for twelve
months. In return, Mr. Ferguson was obligated to assist ClearPoint
with matters relating to the performance of his former duties and worked with
ClearPoint to effectively transition his responsibilities. As of
December 31, 2009, ClearPoint paid Mr. Ferguson approximately $58 pursuant to
the consulting agreement and recorded a related party liability of $257 as of
December 31, 2009 pursuant to the consulting agreement. ClearPoint
agreed to resume making payments to Mr. Ferguson in the first quarter of 2010
and recorded the short and long term portions of such obligation of $257 and $0,
respectively, at December 31, 2009. Such payments were not made to
Mr. Ferguson as of April 12, 2010.
On June
20, 2008, Kurt Braun, ClearPoint’s former Chief Financial Officer, resigned
effective June 20, 2008. In connection with Mr. Braun’s resignation
as ClearPoint’s Chief Financial Officer, ClearPoint and Mr. Braun entered into a
Separation of Employment Agreement and General Release, referred to as the Braun
separation agreement. In consideration of Mr. Braun’s agreement to be
legally bound by the terms of the Braun separation agreement, his release of his
claims, if any, under the Braun separation agreement, and his agreement to
provide the transitional services to ClearPoint, ClearPoint agreed to, among
other things: (i) pay Mr. Braun $75, minus all payroll deductions required by
law or authorized by Mr. Braun, to be paid as salary continuation over 26 weeks;
(ii) continue to pay all existing insurance premiums for Mr. Braun and his
immediate family through the 26 week period, and thereafter permit Mr. Braun, at
his own expense, to continue to receive such coverage in accordance with COBRA
regulations; (iii) pay Mr. Braun the balance of any accrued but unused vacation
or paid time off hours, minus all payroll deductions required by law or
authorized by Mr. Braun; and (iv) amend Mr. Braun’s Nonqualified Stock Option
Agreement, dated March 30, 2007, to permit Mr. Braun to exercise the option to
purchase 90,000 of the 140,000 shares underlying the option until March 30,
2010. The balance of the shares underlying the option expired on June
20, 2008 in accordance with ClearPoint’s 2006 plan. As of December
31, 2009, ClearPoint paid Mr. Braun approximately $75 as severance under the
Braun separation agreement.
On June
20, 2008, John G. Phillips and ClearPoint entered into an Employment Agreement,
referred to as the Phillips employment agreement. Pursuant to the
Phillips employment agreement, Mr. Phillips’ current base salary is $175 per
year, which may be increased in accordance with ClearPoint’s normal compensation
review practices. On November 7, 2008, ClearPoint’s board of
directors increased Mr. Phillips’ base salary to $195 effective November 10,
2008. Mr. Phillips is also entitled to participate in any benefit
plan of ClearPoint currently available to executive officers to the extent he is
eligible under the provisions thereof, and ClearPoint will pay health, dental
and life insurance premiums for Mr. Phillips and members of his immediate
family. Mr. Phillips is entitled to receive short- and long-term
disability insurance, and is entitled to three weeks of paid time off per
year. Mr. Phillips may be entitled to discretionary bonuses as
determined by ClearPoint’s Chief Executive Officer, the board of directors and
the Compensation Committee of the board of directors. On August 20,
2008, Mr. Phillips was granted a stock option to purchase 50,000 shares of
common stock. The option vests in three equal annual installments
beginning August 20, 2009 and expires August 20, 2018. The exercise
price of the option is $0.30 per share.
61
Agreement
with XRoads Solutions
On
January 13, 2009, ClearPoint entered into the XRoads
agreement. Pursuant to the XRoads agreement, among other matters,
XRoads agreed to provide the services of Brian Delle Donne to serve as
ClearPoint’s Interim Chief Operating Officer, referred to as the XRoads
engagement. In such capacity, Mr. Delle Donne had direct
responsibility over ClearPoint’s day to day operations and reported to Michael
D. Traina, ClearPoint’s Chief Executive Officer. XRoads was required
to submit bi-weekly oral or written progress reports to ClearPoint’s board of
directors. The term of the XRoads agreement commenced on January 13,
2009 and continued until May 13, 2009. Effective May 14, 2009, the
XRoads agreement was amended pursuant to Amendment No. 1 dated May 18, 2009,
referred to as the XRoads amendment. Pursuant to the XRoads
amendment, the term of the XRoads agreement was extended to run from May 14,
2009 through August 13, 2009, referred to as the XRoads
extension. The XRoads agreement provided that either ClearPoint or
XRoads could terminate the XRoads agreement at any time with at least 30 days
prior written notice. On July 6, 2009, ClearPoint sent such
thirty-day termination notice to XRoads. The XRoads agreement and
Brian Delle Donne’s services as ClearPoint’s Interim Chief Operating Officer
were terminated effective August 7, 2009.
ClearPoint
paid XRoads $50 per month for each of the first four months of Mr. Delle Donne’s
services. The terms and conditions of the original XRoads agreement
which were not affected by the XRoads amendment remained in full force and
effect during the XRoads extension. ClearPoint agreed to pay XRoads
$45 per 30 day period of the XRoads extension. During the fiscal year
ended December 31, 2009, pursuant to the XRoads agreement, ClearPoint paid
XRoads a total of $290 and the $10 retainer for reimbursement of
expenses. Any amounts not paid when due pursuant to the XRoads
agreement bear interest at an annual rate of 12% or the maximum rate allowed by
law, whichever is less.
ClearPoint
accrued an aggregate of $39 pursuant to the XRoads agreement, consisting of $37
in fees related to services provided by XRoads, $1 in accrued interest and $1 in
reimbursement of expense. On November 18, 2009, ClearPoint and XRoads
entered into a Settlement Agreement and Mutual Release, referred to as the
XRoads settlement, relating to the payment of amounts due under the XRoads
agreement. Pursuant to the XRoads settlement, ClearPoint agreed to pay
XRoads, in full and complete satisfaction and settlement of all obligations
under the XRoads agreement, the sum of $40, which was paid in full to XRoads in
six weekly installments beginning December 4, 2009 and ending January 8, 2010.
In consideration for the payment of such amounts, ClearPoint and XRoads
agreed to release each other from all claims related to the XRoads
agreement. In addition, ClearPoint issued XRoads a warrant to
purchase up to 100,000 shares of common stock at the exercise price of $0.12 per
share, exercisable through December 31, 2010 in connection with the expiration
of the XRoads agreement on May 13, 2009. In connection with the
XRoads extension, ClearPoint issued an additional warrant to purchase up to
75,000 shares of common stock the exercise price of $0.29 per share, exercisable
through April 30, 2011.
Warrants
and Unit Purchase Option Issued in 2005 Public Offering
As a
result of the 2005 public offering, there were 11,040,000 common stock purchase
warrants issued and outstanding at the beginning of the year ended December 31,
2009, which included warrants that were part of the outstanding
units. Each warrant entitled the holder to purchase one share of
common stock at an exercise price of $5.00 per share commencing on February 12,
2007 (the completion of the merger with Terra Nova). Such warrants
expired on April 17, 2009 according to their terms. In connection
with the 2005 public offering, an option was issued for $100 to the
representative of the underwriters to purchase 240,000 units at an exercise
price of $9.90 per unit with each unit consisting of one share of common stock
and two common stock purchase warrants. In addition, the warrants
underlying such units were exercisable at $6.65 per share. The option
expired on April 17, 2009 according to its terms.
62
Income
Taxes
As of
December 31, 2009, ClearPoint had a current and long term deferred tax asset of
$0. Deferred tax assets and liabilities are determined based on temporary
differences between income and expenses reported for financial reporting and tax
reporting. ClearPoint is required to record a valuation allowance to
reduce its net deferred tax assets to the amount that it believes is more likely
than not to be realized. In assessing the need for a valuation allowance,
ClearPoint historically had considered all positive and negative evidence,
including scheduled reversals of deferred tax liabilities, prudent and feasible
tax planning strategies and recent financial performance. ClearPoint determined
that the negative evidence, including historic and current losses, as well as
uncertainties related to the ability to utilize federal and state net loss
carry-forwards, outweighed any objectively verifiable positive factors, and as
such, concluded that a full valuation allowance against the deferred tax assets
was necessary
Contingencies
and Litigation
ClearPoint
is involved in various litigation matters. For a description of such
matters, see Note 18 to the Notes to Consolidated Financial Statements and Part
I, Item 3 “Legal Proceedings.” ClearPoint has accrued for some, but
not all, of these matters where payment is deemed probable and an estimate or
range of outcomes can be made. An adverse decision in a matter for which
ClearPoint has no reserve may result in a material adverse effect on its
liquidity, capital resources and results of operations. In addition, to the
extent that ClearPoint’s management has been required to participate in or
otherwise devote substantial amounts of time to the defense of these matters,
such activities would result in the diversion of management resources from
business operations and the implementation of ClearPoint’s business strategy,
which may negatively impact ClearPoint’s financial position and results of
operations.
The
principal risks that ClearPoint insures against are general liability,
automobile liability, property damage, alternative staffing errors and
omissions, fiduciary liability and fidelity losses. If a potential loss arising
from these lawsuits, claims and actions is probable, reasonably estimable, and
is not an insured risk, ClearPoint records the estimated liability based on
circumstances and assumptions existing at the time. Whereas management believes
the recorded liabilities are adequate, there are inherent limitations in the
estimation process whereby future actual losses may exceed projected losses,
which could materially adversely affect the financial condition of
ClearPoint.
Generally,
ClearPoint is engaged in various other litigation matters from time to time in
the normal course of business. Management does not believe that the
ultimate outcome of such matters, either individually or in the aggregate, will
have a material adverse impact on the financial condition or results of
operations of ClearPoint.
Recent
Accounting Pronouncements
Recently Adopted
Standards
In
September 2009, ClearPoint adopted ASC 105-10-05, which provides for the FASB
Accounting Standards Codification™ (the “Codification”) to become the single
official source of authoritative, nongovernmental U.S. generally accepted
accounting principles (“GAAP”) to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. The Codification
does not change GAAP, but combines all authoritative standards into a
comprehensive, topically organized online database. ASC 105-10-05 explicitly
recognizes rules and interpretative releases of the Securities and Exchange
Commission under federal securities laws as authoritative GAAP for SEC
registrants. Subsequent revisions to GAAP will be incorporated into the ASC
through Accounting Standards Updates (ASU). ASC 105-10-05 is
effective for interim and annual periods ending after September 15, 2009, and
was effective for ClearPoint in the third quarter of 2009. The adoption of ASC
105-10-05 impacted ClearPoint’s financial statement disclosures, as all
references to authoritative accounting literature were updated to and in
accordance with the Codification. The adoption of ASC 105-10-05 did not have a
material impact on ClearPoint’s consolidated results of operations and financial
condition.
63
In
December 2007, the FASB issued an accounting standard codified within ASC
805, “Business Combinations” which changed the accounting for business
acquisitions. Under this standard, business combinations continue to
be required to be accounted for at fair value under the acquisition method of
accounting, but the standard changed the method of applying the acquisition
method in a number of significant aspects. Acquisition costs will generally be
expensed as incurred; noncontrolling interests will be valued at fair value at
the acquisition date; in-process research and development will be recorded at
fair value as an indefinite-lived intangible asset at the acquisition date,
until either abandoned or completed, at which point the useful lives will be
determined; and restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition date. The standard is
effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008. Adoption of the standard did not have a
significant impact on ClearPoint’s financial position and results of operations;
however, any business combination entered into after the adoption may
significantly impact ClearPoint’s financial position and results of operations
when compared to acquisitions accounted for under prior GAAP and result in
more earnings volatility and generally lower earnings due to the expensing of
deal costs and restructuring costs of acquired companies.
In
February 2009, the FASB issued an accounting standard codified within ASC
805, “Business Combinations” which amends the provisions related to the initial
recognition and measurement, subsequent measurement, and disclosure of assets
and liabilities arising from contingencies in a business combination. The
standard applies to all assets acquired and liabilities assumed in a business
combination that arise from contingencies that would be within the scope of ASC
450, “Contingencies”, if not acquired or assumed in a business combination,
except for assets or liabilities arising from contingencies that are subject to
specific guidance in ASC 805. The standard applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
adoption of the standard effective January 1, 2009 did not have an impact on
ClearPoint’s financial position and results of operations.
In March
2008, the FASB issued an accounting standard related to disclosures about
derivative instruments and hedging activities, codified within ASC 815,
“Derivatives and Hedging”. Provisions of this standard change the
disclosure requirements for derivative instruments and hedging activities
including enhanced disclosures about (a) how and why derivative instruments
are used, (b) how derivative instruments and related hedged items are
accounted for under ASC 815 and its related interpretations, and (c) how
derivative instruments and related hedged items affect our financial position,
financial performance, and cash flows. This statement was effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. ClearPoint adopted the standard on January 1,
2009.
In
April 2008, the FASB issued an accounting standard codified within ASC 350,
“Intangibles - Goodwill and Other” which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset Under this standard,
entities estimating the useful life of a recognized intangible asset must
consider their historical experience in renewing or extending similar
arrangements or, in the absence of historical experience, must consider
assumptions that market participants would use about renewal or
extension. The intent of the standard is to improve the consistency
between the useful life of a recognized intangible asset and the period of
expected cash flows used to measure the fair value of the asset. Adoption of the
standard was effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. ClearPoint adopted the standard on January 1, 2009. ClearPoint does not
expect the standard to have a material impact on its accounting for future
acquisitions of intangible assets.
64
In June
2008, the FASB issued new guidance regarding the classification of financial
instruments that are indexed to a company’s own stock. The new
guidance revised the criteria for determining whether an instrument is indexed
to a company’s own stock and the resultant accounting treatment of those
instruments. The new guidance is effective for annual periods
beginning after December 15, 2008. The adoption of this new guidance
on January 1, 2009 did not have a material impact on ClearPoint’s consolidated
financial statements.
In
November 2008, the FASB issued an accounting standard codified within ASC
350, “Intangibles - Goodwill and Other” that applies to defensive assets which
are acquired intangible assets which the acquirer does not intend to actively
use, but intends to hold to prevent its competitors from obtaining access to the
asset. The standard clarifies that defensive intangible assets are separately
identifiable and should be accounted for as a separate unit of accounting in
accordance with guidance provided within ASC 805, “Business Combinations” and
ASC 820, “Fair Value Measurements and Disclosures”. The standard was
effective for intangible assets acquired in fiscal years beginning on or after
December 15, 2008. ClearPoint adopted this standard effective
January 1, 2009 and will apply the provisions of this guidance to intangible
assets acquired on or after that date. ClearPoint does not expect the standard
to have a material impact on its accounting for future acquisitions of
intangible assets.
In
April 2009, the FASB issued an accounting standard codified within ASC 825,
“Financial Instruments” that requires disclosures about the fair value of
financial instruments that are not reflected in the consolidated balance sheets
at fair value whenever summarized financial information for interim reporting
periods is presented. Entities are required to disclose the methods and
significant assumptions used to estimate the fair value of financial instruments
and describe changes in methods and significant assumptions, if any, during the
period. The standard was effective for interim reporting periods ending after
June 15, 2009 and was adopted by ClearPoint in the second quarter of
2009.
In
April 2009, the FASB issued an accounting standard codified within ASC 820,
“Fair Value Measurements and Disclosures,” which provides guidance on
determining fair value when there is no active market or where the price inputs
being used represent distressed sales. The standard reaffirms the
objective of fair value measurement, which is to reflect how much an asset would
be sold for in an orderly transaction. It also reaffirms the need to use
judgment to determine if a formerly active market has become inactive, as well
as to determine fair values when markets have become inactive. The standard is
effective for interim and annual periods ending after June 15, 2009 and was
adopted by ClearPoint in the second quarter of 2009. The adoption of this
accounting pronouncement did not have a material impact on ClearPoint’s
consolidated results of operations and financial condition.
In April
2009, the FASB issued an accounting standard codified within ASC Topic 320,
“Investments – Debt and Equity Securities.” This standard
provides a framework to perform another-than-temporary impairment analysis, in
compliance with GAAP, which determines whether the holder of an investment in a
debt or equity security, for which changes in fair value are not regularly
recognized in earnings, should recognize a loss in earnings when the investment
is impaired. Additionally, this standard amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. The standard is effective for interim reporting
periods ending after June 15, 2009. ClearPoint adopted this standard
during the quarter ended June 30, 2009. The adoption did not have a
material impact on ClearPoint’s consolidated financial statements.
65
In
May 2009, the FASB issued an accounting standard codified within ASC 855
“Subsequent Events,” which sets forth 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. It
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date
represents the date the financial statements were issued or were available to be
issued. The standard was effective for interim or annual periods
ending after June 15, 2009 and was adopted by ClearPoint in the second quarter
of 2009. In February 2010, the FASB issued Accounting Standards
Update No. 2010-09 (“ASC Update 2010-09”) “Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements.” This ASU amends FASB
Codification topic 855. The amendments in ASU 2010-09 remove the requirement in
ASC 855-10 for a SEC filer to disclose a date through which subsequent events
have been evaluated in both issued and revised financial statements. This ASU
was effective upon issuance and ClearPoint adopted this ASU as of December
31, 2009. Except for the removal of disclosure requirements in ASC 855-10, the
adoption of this standard did not have a material impact on ClearPoint’s
consolidated financial statements.
In August
2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and
Disclosures – Measuring Liabilities at Fair Value.”. The ASU provides additional
guidance for the fair value measurement of liabilities under ASC 820 “Fair Value
Measurements and Disclosures”. The ASU provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using certain techniques. The ASU also clarifies that when estimating the fair
value of a liability, a reporting entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of a liability. It also clarifies that both a quoted
price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required
are Level 1 fair value measurements. ClearPoint adopted the ASU in
the fourth fiscal quarter of 2009. The adoption of the ASU did not
have a material impact on ClearPoint’s consolidated results of operations and
financial condition.
Standards Issued But Not Yet
Adopted
In
December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities” which amends
ASC 810, “Consolidation” to address the elimination of the concept of a
qualifying special purpose entity. The standard also replaces the
quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity
with an approach focused on identifying which enterprise has the power to direct
the activities of a variable interest entity and the obligation to absorb losses
of the entity or the right to receive benefits from the entity. This standard
also requires continuous reassessments of whether an enterprise is the primary
beneficiary of a VIE whereas previous accounting guidance required
reconsideration of whether an enterprise was the primary beneficiary of a VIE
only when specific events had occurred. The standard provides more
timely and useful information about an enterprise’s involvement with a variable
interest entity and will be effective as of the beginning of interim and annual
reporting periods that begin after November 15, 2009, which for ClearPoint
would be January 1, 2009. ClearPoint does not expect the adoption of
this standard to have a material effect on its consolidated results of
operations and financial condition.
66
In
January 2010, the FASB issued ASU No. 2010-6, “Improving Disclosures About Fair
Value Measurements,” which provides amendments to ASC 820 “Fair Value
Measurements and Disclosures,” including requiring reporting entities to make
more robust disclosures about (1) the different classes of assets and
liabilities measured at fair value, (2) the valuation techniques and inputs
used, (3) the activity in Level 3 fair value measurements including information
on purchases, sales, issuances, and settlements on a gross basis and (4) the
transfers between Levels 1, 2, and 3. The standard is effective for
annual reporting periods beginning after December 15, 2009, except for Level 3
reconciliation disclosures which are effective for annual periods beginning
after December 15, 2010. ClearPoint does not expect the adoption of this
standard to have a material impact on its consolidated financial
statements.
In
October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue
Arrangements, (amendments to ASC Topic 605, Revenue Recognition)” (ASU 2009-13)
and ASU 2009-14, “Certain Arrangements That Include Software Elements,
(amendments to ASC Topic 985, Software)” (ASU 2009-14). ASU 2009-13
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
The amendments eliminate the residual method of revenue allocation and require
revenue to be allocated using the relative selling price method. ASU
2009-14 removes tangible products from the scope of software revenue guidance
and provides guidance on determining whether software deliverables in an
arrangement that includes a tangible product are covered by the scope of the
software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on
a prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. ClearPoint is currently evaluating the impact of the adoption of
these ASUs on the its consolidated results of operations or financial
condition.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not
applicable.
67
Item
8. Financial Statements and Supplementary Data.
The
following is a summary of the unaudited quarterly financial information for the
fiscal years ended December 31, 2009 and 2008:
|
2009
– Quarter Ended (unaudited)
|
||||||||||||||||
|
($
in thousands, except per share data)
|
||||||||||||||||
|
December
31,
|
September
30,
|
June
30,
|
March
31,
|
|||||||||||||
|
Revenue
|
$ | 1,299 | $ | 1,355 | $ | 1,351 | $ | 1,237 | ||||||||
|
Cost
of Services
|
— | — | — | — | ||||||||||||
|
Gross
Profit
|
1,299 | 1,355 | 1,351 | 1,237 | ||||||||||||
|
Selling,
general and administrative expenses
|
963 | 1,343 | 1,335 | 1,190 | ||||||||||||
|
Restructuring
expense (reductions)
|
— | — | — | |||||||||||||
|
Impairment
of goodwill
|
— | — | — | — | ||||||||||||
|
Loss
on disposal of fixed assets
|
— | — | — | 5 | ||||||||||||
|
Depreciation
and amortization expense
|
90 | 158 | 158 | 222 | ||||||||||||
|
Income
(loss) before income taxes
|
246 | (146 | ) | (142 | ) | (180 | ) | |||||||||
|
Other
income (expense)
|
— | — | 358 | 28 | ||||||||||||
|
Interest
Income ( expense)
|
33 | 3 | 2 | 2 | ||||||||||||
|
Interest,
OID and warrant liability (expense)
|
(291 | ) | (590 | ) | (511 | ) | (435 | ) | ||||||||
|
Derivative
Income (expense)
|
(85 | ) | 42 | 9 | (53 | ) | ||||||||||
|
Gain
(loss) on sale of subsidiary
|
(190 | ) | — | — | — | |||||||||||
|
Loss
on extinguishment of debt
|
— | (1,175 | ) | — | — | |||||||||||
|
Net
loss before income taxes
|
(287 | ) | (1,866 | ) | (284 | ) | (638 | ) | ||||||||
|
Income
tax expense (benefit)
|
— | — | — | — | ||||||||||||
|
Net
(loss) income
|
$ | (287 | ) | $ | (1,866 | ) | $ | (284 | ) | $ | (638 | ) | ||||
|
Net
(loss) per share
|
$ | (0.03 | ) | $ | (0.13 | ) | $ | (0.02 | ) | $ | (0.04 | ) | ||||
|
2008
– Quarter Ended (unaudited)
|
||||||||||||||||
|
($
in thousands, except per share data)
|
||||||||||||||||
|
December
31,
|
September
30,
|
June
30,
|
March
31,
|
|||||||||||||
|
Revenue
|
$ | 2,764 | $ | 3,221 | $ | 3,292 | $ | 24,220 | ||||||||
|
Cost
of Services
|
1,371 | 2,084 | 2,910 | 22,744 | ||||||||||||
|
Gross
Profit
|
1,393 | 1,137 | 382 | 1,476 | ||||||||||||
|
Selling,
general and administrative expenses
|
1,623 | 1,986 | 6,392 | 5,558 | ||||||||||||
|
Restructuring
expense (reductions)
|
(750 | ) | — | — | 2,100 | |||||||||||
|
Impairment
of goodwill
|
— | — | — | 16,822 | ||||||||||||
|
Fixed
assets impairment expense, net
|
— | — | — | 1,022 | ||||||||||||
|
Depreciation
and amortization expense
|
219 | 219 | 163 | 122 | ||||||||||||
|
Income
(loss) before income taxes
|
301 | (1,068 | ) | (6,173 | ) | (24,148 | ) | |||||||||
|
Other
income (expense)
|
(284 | ) | (1 | ) | 300 | (101 | ) | |||||||||
|
Interest
Income ( expense)
|
(5 | ) | 12 | — | — | |||||||||||
|
Interest,
OID and warrant liability (expense)
|
(578 | ) | (541 | ) | (358 | ) | (548 | ) | ||||||||
|
Derivative
Income
|
8 | 26 | — | — | ||||||||||||
|
Gain
on restructuring of debt
|
— | — | 687 | — | ||||||||||||
|
Gain
(loss) on sale of subsidiary
|
— | — | 600 | (1,894 | ) (2) | |||||||||||
|
Net
loss before income taxes
|
(558 | ) | (1,572 | ) | (4,944 | ) | (26,691 | ) | ||||||||
|
Income
tax expense (benefit)
|
14 | — | — | 5,007 | ||||||||||||
|
Net
(loss)
|
$ | (572 | ) | $ | (1,572 | ) | $ | (4,944 | )(2) | $ | (31,698 | ) | ||||
|
Net
(loss) per share
|
$ | (0.04 | ) | $ | (0.11 | ) | $ | (0.37 | ) | $ | (2.40 | ) | ||||
|
(1)
|
Includes
gain of restructuring of debt and gain on sale of
subsidiary.
|
|
(2)
|
Includes
the loss on the sale of subsidiary.
|
68
Net
income (loss) per share is computed independently for each quarter presented.
Therefore, the sum of the quarterly net income (loss) per share figures in 2009
and 2008 does not necessarily equal to the total computed for the entire
year.
69
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
ClearPoint
Business Resources, Inc. and Subsidiaries
Chalfont,
Pennsylvania
We have
audited the accompanying consolidated balance sheet of ClearPoint Business
Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2009 and the
related consolidated statements of operations, stockholders’ equity (deficit),
and cash flows for the year 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit 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 also 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 audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ClearPoint Business
Resources, Inc. and Subsidiaries as of December 31, 2009, and the results of its
operations and its cash flows for year then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements as of and for the year ended
December 31, 2009 have been prepared assuming that the Company will continue as
a going concern. As disclosed in Note 1 to the consolidated financial
statements, the Company’s recurring losses from operations, net working capital
deficiency, stockholders’ deficit, debt covenant violations, and inability to
generate sufficient cash flow to meet its obligations and sustain its operations
raise substantial doubt about its ability to continue as a going
concern. Management’s plans concerning these matters are also
disclosed in Note 1 to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As
disclosed in Note 19 to the consolidated financial statements, the Company filed
Form 15 with the Securities and Exchange Commission on March 31, 2010 to
deregister the Company’s common stock and suspend the Company’s obligation to
file periodic reports under the Securities Exchange Act of 1934.
|
/s/ ASHER & COMPANY,
Ltd.
|
|
|
Philadelphia,
Pennsylvania
|
|
|
April
15, 2010
|
70
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
ClearPoint
Business Resources, Inc. and Subsidiaries
Chalfont,
Pennsylvania
We have
audited the accompanying consolidated balance sheet of ClearPoint Business
Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2008 and the
related consolidated statements of operations, stockholders’ equity (deficit),
and cash flows for the year 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit 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 also 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 audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ClearPoint Business
Resources, Inc. and Subsidiaries as of December 31, 2008, and the results of
their operations and their cash flows for year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements for the year ended December 31,
2008, have been prepared assuming that the Company will continue as a going
concern. As disclosed in Note 1 to the consolidated financial
statements, the Company’s recurring losses from operations, accumulated deficit,
and inability to generate sufficient cash flow to meet its obligations and
sustain its operations raise substantial doubt about its ability to continue as
a going concern. Management’s plans concerning these matters are also
disclosed in Note 1 to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As
disclosed in Note 13 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements,” effective January 1, 2008.
|
/s/Parente Randolph, LLC
|
|
|
Parente
Randolph, LLC
|
|
|
Morristown,
New Jersey
|
|
|
April
13, 2009
|
71
CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
-ASSETS-
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 74,551 | $ | 960,145 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts of $5,252,759 and
$5,774,921 at December 31, 2009 and 2008,
respectively
|
872,329 | 1,073,420 | ||||||
|
Unbilled
revenue
|
76,734 | 127,685 | ||||||
|
Notes
receivable - StaffChex
|
251,906 | — | ||||||
|
Prepaid
expenses and other current assets
|
115,083 | 217,882 | ||||||
|
Refundable
federal income tax
|
— | 26,128 | ||||||
|
TOTAL
CURRENT ASSETS
|
1,390,603 | 2,405,260 | ||||||
|
EQUIPMENT,
FURNITURE AND FIXTURES, net
|
591,403 | 1,296,689 | ||||||
|
INTANGIBLE
ASSETS, net
|
83,333 | 133,333 | ||||||
|
DEFERRED
FINANCING COSTS, net
|
175,838 | 536,444 | ||||||
|
NOTES
RECEIVABLE, long term
|
275,661 | — | ||||||
|
RESTRICTED
CASH
|
25,000 | — | ||||||
|
OTHER
ASSETS
|
17,550 | 709,404 | ||||||
|
TOTAL
ASSETS
|
$ | 2,559,388 | $ | 5,081,130 | ||||
See notes
to consolidated financial statements.
72
CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS—(Continued)
-LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)-
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Current
portion of long-term debt
|
$ | 13,100,585 | $ | 5,950,209 | ||||
|
Accounts
payable
|
2,816,409 | 2,725,659 | ||||||
|
Accrued
expenses and other current liabilities
|
3,668,912 | 4,080,875 | ||||||
|
Current
portion of retirement benefit payable
|
84,420 | 146,900 | ||||||
|
Current
portion of deferred revenue
|
1,000,438 | 996,104 | ||||||
|
Current
portion of accrued restructuring costs – related party
|
256,709 | 256,709 | ||||||
|
Current
portion of accrued restructuring costs
|
55,134 | 186,055 | ||||||
|
TOTAL
CURRENT LIABILITIES
|
20,982,607 | 14,342,511 | ||||||
|
ACCRUED
RESTRUCTURING COSTS, net of current
|
40,834 | — | ||||||
|
LONG-TERM
DEBT, net of current
|
4,872,097 | 10,306,054 | ||||||
|
OTHER
LIABILITIES
|
126,250 | — | ||||||
|
LIABILITY
FOR WARRANTS ISSUED
|
1,388,393 | 1,213,433 | ||||||
|
DEFERRED
REVENUE, net of current
|
— | 996,104 | ||||||
|
RETIREMENT
BENEFIT PAYABLE, net of current
|
135,646 | 135,646 | ||||||
|
TOTAL
LIABILITIES
|
27,545,827 | 26,993,748 | ||||||
|
Commitments
and contingencies
|
||||||||
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
||||||||
|
Preferred
stock, $.0001 par value, authorized 1,000,000 shares; none
issued
|
— | — | ||||||
|
Common
stock, $.0001 par value (60,000,000 shares authorized December 31, 2009
and 2008; 14,251,964 shares issued and outstanding, December 31, 2009;
14,251,964 shares issued and outstanding, December 31,
2008.)
|
1,425 | 1,425 | ||||||
|
Additional
paid in capital
|
32,578,031 | 32,576,500 | ||||||
|
Accumulated
deficit
|
(57,565,895 | ) | (54,490,543 | ) | ||||
|
TOTAL
STOCKHOLDERS’ EQUITY (DEFICIT)
|
(24,986,439 | ) | (21,912,618 | ) | ||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
$ | 2,559,388 | $ | 5,081,130 | ||||
See notes
to consolidated financial statements.
73
CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Years
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
REVENUE
|
$ | 5,241,706 | $ | 33,496,240 | ||||
|
COST
OF SERVICES
|
— | 29,107,840 | ||||||
|
GROSS
PROFIT
|
5,241,706 | 4,388,400 | ||||||
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
4,831,488 | 15,559,077 | ||||||
|
RESTRUCTURING
EXPENSE
|
— | 1,349,944 | ||||||
|
DEPRECIATION
AND AMORTIZATION
|
627,941 | 723,275 | ||||||
|
IMPAIRMENT
OF GOODWILL
|
— | 16,821,586 | ||||||
|
LONG
LIVED ASSETS IMPAIRMENT AND ABANDONMENT
|
4,708 | 1,022,210 | ||||||
|
(LOSS)
FROM OPERATIONS
|
(222,431 | ) | (31,087,692 | ) | ||||
|
OTHER
INCOME (EXPENSE)
|
||||||||
|
Interest
income
|
39,866 | 10,670 | ||||||
|
Interest
expense and factoring fees
|
(1,472,023 | ) | (1,515,010 | ) | ||||
|
Interest
expense of amortization of OID and warrant liability
|
(355,135 | ) | (509,532 | ) | ||||
|
Mark
to market gain (loss) on Derivative Instruments
|
(86,529 | ) | 33,813 | |||||
|
Gain
on restructuring of debt
|
— | 686,797 | ||||||
|
Other
income (expense)
|
386,225 | (89,375 | ) | |||||
|
(Loss)
on sale of subsidiary
|
(190,000 | ) | (1,294,220 | ) | ||||
|
Loss
on extinguishment of debt
|
(1,175,325 | ) | — | |||||
|
TOTAL
OTHER INCOME (EXPENSE)
|
(2,852,921 | ) | (2,676,857 | ) | ||||
|
LOSS
BEFORE INCOME TAX (BENEFIT) EXPENSE
|
(3,075,352 | ) | (33,764,549 | ) | ||||
|
INCOME
TAX (BENEFIT) EXPENSE
|
— | 5,021,192 | ||||||
|
NET
LOSS
|
$ | (3,075,352 | ) | $ | (38,785,741 | ) | ||
|
NET
LOSS PER COMMON SHARE
|
||||||||
|
Basic
and Diluted
|
$ | (0.22 | ) | $ | (2.84 | ) | ||
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
14,251,964 | 13,644,900 | ||||||
|
Basic
and Diluted
|
||||||||
See notes
to consolidated financial statements.
74
CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
Common
Stock
|
Additional
Paid
in
|
Accumulated
|
Total
Stockholders’
Equity
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
(Deficit)
|
(Deficit)
|
||||||||||||||||
|
Balance
as of January 1, 2008
|
13,208,916 | $ | 1,321 | $ | 31,349,176 | $ | (15,704,802 | ) | $ | 15,645,695 | ||||||||||
|
Issuance
of common stock in connection with the amendment of the ALS
Note
|
350,000 | 35 | 101,465 | 101,500 | ||||||||||||||||
|
Issuance
of common stock in connection with the amendment of the
StaffBridge note
|
9,496 | 1 | 19,469 | 19,470 | ||||||||||||||||
|
Issuance
of warrants to ComVest related to the restructuring of
debt
|
634,000 | 634,000 | ||||||||||||||||||
|
Issuance
of warrants to sub debt holders in connection with amending the maturity
dates of the sub debt
|
50,000 | 50,000 | ||||||||||||||||||
|
Issuance
of warrants to sub debt holders in connection with an additional amendment
extension of the due dates of maturity dates of the sub
debt
|
7,616 | 7,616 | ||||||||||||||||||
|
Issuance
of common stock in exchange for payment of advisory services and repayment
of bridge loan to TNMC
|
683,552 | 68 | 365,931 | 365,999 | ||||||||||||||||
|
Issuance
of stock options
|
— | — | 48,843 | — | 48,843 | |||||||||||||||
|
Net
loss
|
— | — | — | (38,785,741 | ) | (38,785,741 | ) | |||||||||||||
|
Balance
as of December 31, 2008
|
14,251,964 | $ | 1,425 | $ | 32,576,500 | $ | (54,490,543 | ) | $ | (21,912,618 | ) | |||||||||
|
Issuance
of warrants as payment for advisory service
|
— | — | 30,333 | — | 30,333 | |||||||||||||||
|
Reclassification
of ComVest warrants to liabilities
|
— | — | (88,431 | ) | — | (88,431 | ) | |||||||||||||
|
Stock
based compensation
|
— | — | 59,629 | — | 59,629 | |||||||||||||||
|
Net
loss
|
— | — | — | (3,075,352 | ) | (3,075,352 | ) | |||||||||||||
|
Balance
as of December 31, 2009
|
14,251,964 | $ | 1,425 | $ | 32,578,031 | $ | (57,565,895 | ) | $ | (24,986,439 | ) | |||||||||
See notes
to consolidated financial statements.
75
CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Years
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net
(loss)
|
$ | (3,075,352 | ) | $ | (38,785,741 | ) | ||
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
|
Deferred
income taxes (benefit)
|
— | 5,007,180 | ||||||
|
Depreciation
and amortization
|
627,941 | 723,275 | ||||||
|
Loss
on extinguishment of debt
|
1,175,325 | — | ||||||
|
Long
lived assets impairment and abandonment
|
4,708 | 1,022,210 | ||||||
|
Impairment
of goodwill
|
— | 16,821,586 | ||||||
|
Provision
for (reduction in) doubtful accounts
|
(402,542 | ) | 2,596,030 | |||||
|
Provision
for franchise receivables
|
— | 1,638,879 | ||||||
|
Loss
(gain) on sale of subsidiary
|
190,000 | 1,294,220 | ||||||
|
Issuance
of warrants
|
— | 57,616 | ||||||
|
Consulting
expense paid in warrants
|
30,333 | — | ||||||
|
Stock
based compensation
|
59,629 | 48,843 | ||||||
|
Gain
on M&T restructuring forgiveness of debt
|
— | (866,480 | ) | |||||
|
Issuance
of stock
|
— | 120,970 | ||||||
|
Issuance
of stock to related party
|
— | 266,000 | ||||||
|
Interest
expense converted to note payable
|
— | 92,248 | ||||||
|
Interest
expense – original issue discount and warrant liability
|
355,135 | 509,532 | ||||||
|
Mark
to market (gain) loss on derivative instruments
|
86,529 | (33,813 | ) | |||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Decrease
in accounts receivable
|
76,066 | 13,701,356 | ||||||
|
Decrease
in unbilled revenue
|
50,951 | 2,036,647 | ||||||
|
Decrease
in prepaid expenses and other current assets
|
128,927 | 106,864 | ||||||
|
Refundable
federal income taxes
|
— | 1,023,872 | ||||||
|
(Increase)
decrease in other assets
|
61,100 | (625,743 | ) | |||||
|
Increase
(decrease) in accounts payable
|
90,750 | (154,866 | ) | |||||
|
(Decrease)
in accrued expense and other current
liabilities
|
(66,073 | ) | (3,340,689 | ) | ||||
|
Increase
(decrease) in deferred revenue
|
(991,770 | ) | 1,992,210 | |||||
|
(Decrease)
in accrued restructuring costs
|
(90,086 | ) | (581,838 | ) | ||||
|
(Decrease)
in retirement benefits payable
|
(62,480 | ) | (55,504 | ) | ||||
|
Total
adjustments to net loss
|
1,324,443 | 43,400,605 | ||||||
|
Net
cash provided by (used in) operating activities
|
(1,750,909 | ) | 4,614,864 | |||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchase
of equipment, furniture and fixtures
|
(44,968 | ) | (571,078 | ) | ||||
|
(Increase)
in restricted cash
|
(25,000 | ) | — | |||||
|
Net
cash (used in) investing activities
|
(69,968 | ) | (571,078 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
(Repayments)
of long-term debt
|
(634,795 | ) | (11,988,209 | ) | ||||
|
Proceeds
from issuance of ComVest debt
|
— | 8,000,000 | ||||||
|
(Repayments)
of ComVest term note
|
(7,654,010 | ) | (1,345,991 | ) | ||||
|
Borrowings
on revolving credit facility – ComVest
|
16,221,523 | 1,530,000 | ||||||
|
(Repayments)
on revolving credit facility - ComVest
|
(6,929,654 | ) | (530,000 | ) | ||||
|
Net
(repayments) on notes payable — other
|
— | (150,000 | ) | |||||
76
|
Years
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Proceeds
from issuance of common stock
|
— | 100,000 | ||||||
|
Fees
incurred in refinancing
|
(67,781 | ) | (693,082 | ) | ||||
|
Net
cash provided by (used in) financing activities
|
935,283 | (5,077,282 | ) | |||||
|
Net
increase (decrease) in cash and cash equivalents
|
(885,594 | ) | (1,033,496 | ) | ||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
960,145 | 1,993,641 | ||||||
|
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 74,551 | $ | 960,145 | ||||
77
CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS—(Continued)
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
Years
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
paid during the year for:
|
||||||||
|
Interest
|
$ | 589,383 | $ | 1,460,508 | ||||
|
Income
taxes
|
$ | — | $ | — | ||||
|
Cash
received during the year for:
|
||||||||
|
Income
taxes
|
$ | — | $ | 1,023,872 | ||||
SUPPLEMENTAL
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
Years
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Non
cash transactions:
|
||||||||
|
ComVest
Warrants issued and amortizable Original Issue Discount
|
$ | — | $ | 634,000 | ||||
|
ComVest
financing and amortizable Original Issue Discount Income
taxes
|
$ | — | $ | 1,000,000 | ||||
|
ALS
accrued interest converted to note payable
|
$ | — | $ | 40,413 | ||||
|
ComVest
accrued interest and fees converted to note payable
|
$ | 91,192 | $ | — | ||||
|
ALS
accrued interest converted to note payable
|
$ | 630,754 | $ | — | ||||
|
Settlement
of alliance lawsuit – offset fixed assets against accrued
expenses
|
$ | 400,000 | $ | — | ||||
See notes
to consolidated financial statements.
78
CLEARPOINT
BUSINESS RESOURCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — GOING CONCERN:
Historically,
ClearPoint Business Resources, Inc. (“ClearPoint” or the “Company”) has funded
its cash and liquidity needs through cash generated from operations and debt
financing. At December 31, 2009, the Company had an accumulated deficit of
$57,565,895 and working capital deficiency of $19,592,004. For the year
ended December 31, 2009, the Company incurred a net loss of $3,075,352.
Although the Company restructured its debt and obtained new financing in
the third quarter of 2009, cash projected to be generated from operations may
not be sufficient to fund operations and meet debt repayment obligations during
the next twelve months. In order to meet its future cash and liquidity needs,
the Company may be required to raise additional financing or
restructure its existing debt. There is no assurance that the Company will
be successful in obtaining additional financing or restructuring of its existing
debt. If the Company does not generate sufficient cash from operations, raise
additional financing or restructure existing debt, there is substantial doubt
about the ability of the Company to continue as a going concern. On February 9,
2010, as a consequence of certain defaults under the Amended Loan Agreement with
ComVest, ComVest exercised the default exercise provision under the Amended
ComVest Warrant. As a result, ComVest now beneficially owns a
majority of the Company’s common stock (see Note 11 – Debt
Obligations). The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern, which
contemplates, among other things, the realization of assets and satisfaction of
liabilities in the normal course of business. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE
2 — ORGANIZATION AND BASIS OF PRESENTATION:
The
accompanying consolidated financial statements of the Company and its wholly
owned subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules and regulations
of the Securities and Exchange Commission (“SEC”).
ClearPoint
provides comprehensive workforce management technology solutions throughout the
United States, including its iLabor technology platform (“iLabor” or the “iLabor
Network”), vendor management services (“VMS”) and staff augmentation programs.
Since its inception, the Company has enhanced its platform through organic
growth and the integration of acquisitions. Prior to fiscal year
2008, ClearPoint provided various temporary staffing services as both a direct
provider and as a franchisor. During the year ended December 31, 2008,
ClearPoint transitioned its business model from a temporary staffing provider
through a network of branch-based offices or franchises to a provider that
manages clients’ temporary staffing needs through its open Internet portal-based
iLabor Network. Under the new business model, ClearPoint acts as a broker for
its clients and network of temporary staffing suppliers using iLabor. The
Company derives its revenues from fees related to iLabor technology, royalty
fees related to contracts entered into under the previous business model and VMS
fees. All core operations are centralized at its offices in Chalfont,
Pennsylvania.
On
February 12, 2007, ClearPoint Resources, Inc., ClearPoint’s wholly-owned
subsidiary (“CPR”), consummated a merger (the “Merger”) with Terra Nova
Acquisition Corporation (“Terra Nova”), a blank check company. As a result, CPBR
Acquisition, Inc. (“CPBR”), a Delaware corporation and wholly-owned subsidiary
of Terra Nova, merged with CPR. At the closing of the Merger, CPR
stockholders were issued an aggregate of 6,051,549 shares of Terra Nova common
stock. Ten percent (10%) of the Terra Nova common stock being issued to CPR
stockholders at the time of the Merger was released from escrow subsequent to
the indemnity rights provision of the Merger agreement being met. A
further ten percent (10%) of the Terra Nova common stock being issued to CPR
stockholders at the time of the Merger was released from escrow subsequent to
certain closing conditions pursuant to the Merger agreement being
met.
79
The
merger agreement also provides for CPR’s original stockholders to receive
additional performance payments, in the form of cash and/or shares, contingent
upon the future performance of the combined company’s share price. The
performance payments are payable in a combination of cash and shares. No such
payments have been made to date and none are yet due. Upon the closing, Terra
Nova changed its name to ClearPoint Business Resources, Inc.
Upon
consummation of the Merger, $30.6 million was released from the Terra NovaTrust
Fund to be used by the combined company. After payments totaling approximately
$3.3 million for professional fees and other direct and indirect costs related
to the Merger, the net proceeds amounted to $27.3 million, all of which were
used by ClearPoint as follows: (i) to retire the outstanding debt to Bridge
Healthcare Finance, LLC and Bridge Opportunity Finance, LLC (collectively,
“Bridge”) (see Note 11 – Debt Obligations), of $12.45 million, (ii) to pay an
early debt retirement penalty in the amount of $1.95 million to Bridge, (iii) to
pay for the redemption of warrants related to its credit facility with Bridge in
the amount of $3.29 million and (iv) to partially fund the acquisition of ALS,
LLC (see Note 4 – Business and Asset Acquisitions and Dispositions and Licensing
Agreements), and certain other related transaction costs.
The
Merger was accounted for under the purchase method of accounting as a reverse
acquisition in accordance with accounting principles generally accepted in the
United States of America for accounting and financial reporting purposes. Under
this method of accounting, Terra Nova was treated as the “acquired” company for
financial reporting purposes. In accordance with guidance applicable to these
circumstances, this Merger was considered to be a capital transaction in
substance. Accordingly, for accounting purposes, the Merger was treated as the
equivalent of ClearPoint issuing stock for the net monetary assets of Terra
Nova, accompanied by a recapitalization.
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The
Company’s accounting policies are in accordance with accounting principles
generally accepted in the United States of America. Outlined below are those
policies considered particularly significant.
(a)
Basis of Presentation:
The
accompanying consolidated financial statements include the accounts of
ClearPoint and its wholly owned subsidiaries ClearPoint Resources, Inc. and
Emgate Solutions, LLC. All significant inter-company
transactions and balances have been eliminated.
(b)
Use of Estimates:
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(c)
Revenue Recognition:
The
Company recognizes revenue when there is persuasive evidence of an arrangement,
delivery has occurred or services have been rendered, the sales price is fixed
or determinable, and collectability is reasonably assured. Revenue earned but
not billed is recorded and accrued as unbilled revenue. In 2008, the Company
transitioned from a short and long term temporary staffing provider through a
network of branch based offices to a provider that manages clients’ temporary
staffing spend through its open Internet portal based iLabor network, as well as
its closed client embedded VMS system.
80
The
Company evaluated the criteria outlined in Accounting Standards Codification
(“ASC”) Topic 605-45, Principal Agent Considerations, in determining that it was
appropriate to record the revenue from the iLabor technology platform on a net
basis after deducting costs related to suppliers for sourcing labor, which
represent the direct costs of the contingent labor supplied, for clients.
Generally, the Company is not the primarily obligated party in iLabor
transactions and the amounts earned are determined using a fixed percentage, a
fixed-payment schedule, or a combination of the two.
Prior to
2008 and for the three months ended March 31, 2008, the Company’s primary major
source of revenue was the temporary placement of workers. This revenue was
recognized when earned and realizable and therefore when the following criteria
had been met: (a) persuasive evidence of an arrangement exists; (b) services
have been rendered; (c) the fee is fixed or determinable; and (d) collectability
is reasonably assured. Revenue is recognized in the period in which services are
provided based on hours worked by the workers. As a result of changes in the
Company’s business model, in 2008, the Company recognized revenue from four
major sources:
|
|
·
|
For
the three months ended March 31, 2008, the Company recorded revenue from
its temporary staffing operations, permanent placement fees, and
temp-to-hire fees by formerly Company-owned and franchised operations.
Temporary staffing revenue and the related labor costs and payroll taxes
were recorded in the period in which the services were performed.
Temp-to-hire fees were generally recorded when the temporary employee was
hired directly by the customer. ClearPoint reserved for billing
adjustments, principally related to overbillings and client disputes, made
after year end that related to services performed during the fiscal year.
The reserve was estimated based on historical adjustment data as percent
of sales. Permanent placement fees were recorded when the candidate
commenced full-time employment and, if necessary, sales allowances were
established to estimate losses due to placed candidates not remaining
employed for the permanent placement guarantee period, which was typically
30-60 days;
|
|
|
·
|
During
the quarter ended June 30, 2008, the Company completed its transition from
the temporary staffing provider model to its iLabor technology
platform. Under this new model, the Company records revenue on
a net fee basis after deducting costs paid to suppliers for sourcing labor
for the Company’s clients. The Company acts as a broker for its clients
and the Company’s network of temporary staffing suppliers. Revenue from
the Company’s iLabor Network where it electronically procures and
consolidates buying of temporary staffing for clients is recognized on a
net basis;
|
|
|
·
|
The
Company records royalty revenues when earned based upon the terms of the
agreements with Select, StaffChex and Townsend Careers, as defined below
(see Note 4 – Business and Asset Acquisitions and Dispositions and
Licensing Agreements); and
|
|
|
·
|
VMS
revenue, which consists of management fees recognized on a net basis and
recorded as the temporary staffing service is rendered to the
client.
|
The
Company also recorded deferred revenue on the balance sheet as of December 31,
2009 and December 31, 2008. This amount of deferred revenue is being
recognized ratably over the term of the agreement reached with Select (see Note
4 – Business and Asset Acquisitions and Dispositions and Licensing
Agreements).
One (1) customer accounted for 12% and another customer for 76%
of the revenue for the year ended December 31, 2009. The same
customers accounted for 3% and 5% of the revenue, respectively, for the year
ended December 31, 2008.
81
(d)
Accounts Receivable:
The
Company’s trade accounts receivable are generally uncollateralized. Management
closely monitors outstanding accounts receivable and provides an allowance for
doubtful accounts equal to the estimated collection losses that will be incurred
in collection of all receivables. Receivables are written off when
deemed uncollectible.
(e)
Vendor Managed Services Receivables and Payables:
The
Company manages networks of temporary service providers (“vendors”) on behalf of
clients and receives a fee for this service. The Company’s obligation to pay the
vendor is conditioned upon receiving payment from the client for services
rendered by the vendor’s personnel. As the right of offset between client and
vendor does not exist, the receivable from the client which is included in
accounts receivable, and payable to the vendor, which is included as a
liability, are not offset and are recorded on a gross basis. Included in the
Company’s accounts receivable at December 31, 2009 and 2008 was VMS
receivables of $756,275 and $1,154,716, respectively. Included in the Company’s
accounts payable at December 31, 2009 and 2008 was VMS payables of
$1,279,531 and $291,153, respectively.
(f)
Workers’ Compensation:
Prior to
February 29, 2008, the Company was responsible for the workers’ compensation
costs for its temporary and regular employees and was related to domestic
workers’ compensation claims ($250,000 or $500,000 per claim, depending on the
policy). The Company accrued the estimated costs of workers’ compensation claims
based upon the expected loss rates within the various temporary employment
categories provided by the Company and the estimated costs of claims reported
but not settled and claims incurred but not reported. As a result of
the estimated costs, the Company estimated that the insurance carriers will
issue rebates based on their findings. During 2008, the Company sold all of its
ownership interest in its wholly owned subsidiary, ClearPoint HRO, LLC (“HRO”)
(see Note 4 – Business and Asset Acquisitions and Dispositions and Licensing
Agreements).
In
connection with the sale of HRO, the Company sold its workers compensation
insurance policies, which included collateral as well as insurance premium
liabilities. AICCO, Inc. (“AICCO”) was listed as one of the insurance
policies which the Company owed. As a result of the sale of HRO, this
liability was transferred and assumed by AMS Outsourcing, Inc. and remained
unpaid. On December 23, 2009, the Company and AICCO entered into a
Settlement Agreement and Release pursuant to which the Company agreed to pay
AICCO an aggregate amount of $190,000 in full and final settlement of all claims
relating to certain litigation involving AICCO (see Note 18 –
Litigation). This payment is recorded on the income statement as loss
on sale of subsidiary.
(g)
Equipment, Furniture and Fixtures:
Equipment,
furniture, and fixtures are stated at cost. Depreciation and amortization is
provided using the straight-line method over the estimated useful asset lives of
three (3) to seven (7) years. The Company also provides for
amortization of leasehold improvements over the lives of the respective lease
term or the service life of the improvement, whichever is shorter.
(h)
Intangible Assets:
The
Company’s identifiable intangible asset with a definitive life is comprised of a
covenant not to compete, which is amortized on a straight-line basis over its
expected useful life of five (5) years.
82
(i)
Goodwill:
In
accordance with ASC Topic 350-20-35, goodwill was not amortized and was assigned
to specific reporting units and reviewed for possible impairment at least
annually or more frequently upon the occurrence of an event or when
circumstances indicate that the reporting unit’s carrying amount of goodwill is
greater than its fair value. As a result of the change in the Company’s business
model in 2008 and the loss of cash flows related to the prior business model,
the Company determined that an impairment of goodwill existed during 2008 and
recognized an impairment charge of $16,821,586. As of December 31,
2008, goodwill was fully impaired.
(j)
Advertising Expense:
The
Company expenses advertising costs in the period in which they are incurred.
Advertising expenses for the years ended December 31, 2009 and 2008 were
$31,674 and $127,980, respectively.
(k)
Deferred Financing Costs:
Deferred
financing costs consist of legal, banking, and other related fees that were
capitalized in connection with obtaining various loans and are being amortized
over the life of the related loan. Deferred financing costs of $175,838 at
December 31, 2009 and $536,444 at December 31, 2008 were net of
accumulated amortization of $65,584 and $197,002, respectively. On August 14,
2009, the Company entered into a modification of the ComVest Term Loan and
Revolver that was accounted for as a debt extinguishment. As a result
of the debt extinguishment, the unamortized balance of the deferred financing
costs attributable to the ComVest term loan in the amount of $258,991 were
written off and included in the loss on extinguishment of debt.
Amortization
of financing costs for the years ended December 31, 2009 and 2008 was
$232,395 and $211,510, respectively.
(l)
Income Taxes:
The
Company accounts for income taxes in accordance with ASC Topic 740, “Income
Taxes.” Under ASC Topic 740, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets
and liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are reflected on the
balance sheet when it is determined that it is more likely than not that the
asset will be realized.
The
Company utilizes a two-step approach to recognizing and measuring uncertain tax
positions (tax contingencies). The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence
indicates it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation
processes. The second step is to measure the tax benefit as the
largest amount which is more than 50% likely of being realized upon ultimate
settlement. For the years ended December 31, 2009 and 2008, the
Company did not identify any uncertain tax positions taken or expected to be
taken in an income tax return which would require adjustment to or disclosure in
its financial statements.
The
Company’s practice is to recognize interest and/or penalties related to income
tax matters in income tax expense. As of December 31, 2009 and 2008,
the Company had no accrued interest or penalties. The Company
currently has no federal or state tax audits in progress although years 2006
through 2008 are open and subject to a federal or state
audit.
(m)
Stock-based Employee Compensation:
The
Company accounts for stock-based compensation in accordance with the recognition
and measurement provisions of ASC Topic 718, “Compensation -Stock
Compensation,” related to share-based payment transactions, including employee
stock options, to be recognized in the financial statements. The Company
measures and recognizes the cost of stock-based awards granted to employees and
directors based on the grant-date fair value of the award and recognizes expense
over the vesting period. The Company estimates the grant date fair
value of each award using a Black-Scholes option-pricing model. In
addition, the Company adheres to the guidance set forth within SEC Staff
Accounting Bulletin No. 107 (“SAB 107”), which certain SEC rules and regulations
and provides interpretations with respect to the valuation of share-based
payments for public companies.
83
(n)
Loss Per Share:
The
Company accounts for earnings per share pursuant with ASC Topic 260, “Earnings
Per Share,” which requires disclosure on the financial statements of “basic” and
“diluted” earnings (loss) per share. Basic earnings (loss) per share
is computed by dividing net income (loss) by the weighted average number of
common shares outstanding for the year. Diluted earnings (loss) per
share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding plus potentially dilutive securities outstanding
for each year. Potentially dilutive securities include stock options
and warrants.
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2009 and 2008:
|
Year
Ended
December
31, 2009
|
Year
Ended
December
31, 2008
|
|||||||
|
Numerator
|
||||||||
|
Net
(Loss)
|
$ | (3,075,353 | ) | $ | (38,785,741 | ) | ||
|
Denominator
|
||||||||
|
Basic
and diluted weighted average shares
|
14,251,964 | 13,334,900 | ||||||
|
Basic
and diluted earnings per share
|
$ | (0.22 | ) | $ | (2.84 | ) | ||
Diluted
loss per share for the years ended December 31, 2009 and 2008 is the same as
basic loss per share, since the effects of the calculation were anti-dilutive
due to the fact that the Company incurred losses for all periods
presented. The following securities, presented on a common share
equivalent basis, have been excluded from the per share
computations:
|
For
the years ended
|
||||||||
|
December
31, 2009
|
December
31, 2008
|
|||||||
|
Stock
Options
|
928,100 | 1,002,008 | ||||||
|
Warrants
|
4,050,825 | 11,505,000 | ||||||
| 4,978,925 | 12,705,800 | |||||||
(o)
Impairment of Long Lived Assets:
Long-lived
assets such as equipment, furniture and fixtures, and amortizable intangible
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset many not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to the undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset exceeds the fair value of the
asset.
(p)
Concentration of Credit Risk:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents, and accounts receivable,
unbilled revenues and royalty payments associated with the prior business
model.
84
(i)
Cash, Cash Equivalents and Restricted Cash:
The
Company places its cash and cash equivalents with financial institutions. It is
the Company’s policy to monitor the financial strength of these institutions on
a regular basis and perform periodic reviews of the relative credit rating of
these institutions to lower its risk. At times, during 2009 and 2008, the
Company’s cash and cash equivalent balances exceeded the Federal Deposit
Insurance Corporation (“FDIC”) insurance limit of $100,000 which was
subsequently increased to $250,000 on interest bearing accounts of/in financial
institution. The FDIC also removed its $100,000 limit on non-interest
bearing accounts all together. The Company has not experienced any
losses in such accounts, and it believes it is not exposed to any significant
credit risk on cash and cash equivalents. The balance in interest
bearing accounts at December 31, 2009 was not more than the FDIC limit of
$250,000. The uninsured cash and cash equivalents totaled $0 at
December 31, 2009.
At
December 31, 2009, the Company had $25,000 of restricted cash, which is
classified as a non-current asset. The restricted cash serves as
collateral for an irrevocable standby letter of credit that provides financial
assurance that the Company will fulfill its obligations with respect to the
settlement of Sunz Insurance (see Note 18 – Litigation). The cash is
held in custody by the issuing bank, is restricted as to withdrawal or use, and
is currently invested in money market funds. Income from these
investments is paid to the Company.
(ii)
Accounts Receivable and Unbilled Revenues:
The
Company does not require collateral or other security to support customer
receivables or unbilled revenues. One (1) customer accounted for 12% of the
accounts receivable balance as of December 31, 2009. One (1)
customer accounted for 11% of the accounts receivable balance as of December 31,
2008. The Company believes that credit risk is dispersed and low due
to large number of customers in different regions and different
industries.
(q)
Reclassifications:
Certain
items were reclassified in the 2008 consolidated balance sheet and statement of
cash flows to conform with the 2009 presentation. These reclassifications had no
material impact on the Company’s 2008 consolidated balance sheet and statement
of cash flows.
(r) Recent Accounting
Pronouncements:
Recently Adopted
Standards
In
September 2009, the Company adopted ASC 105-10-05, which provides for the FASB
Accounting Standards Codification™ (the “Codification”) to become the single
official source of authoritative, nongovernmental U.S. generally accepted
accounting principles (“GAAP”) to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. The Codification
does not change GAAP, but combines all authoritative standards into a
comprehensive, topically organized online database. ASC 105-10-05 explicitly
recognizes rules and interpretative releases of the Securities and Exchange
Commission under federal securities laws as authoritative GAAP for SEC
registrants. Subsequent revisions to GAAP will be incorporated into the ASC
through Accounting Standards Updates (ASU). ASC 105-10-05 is
effective for interim and annual periods ending after September 15, 2009, and
was effective for the Company in the third quarter of 2009. The adoption of ASC
105-10-05 impacted the Company’s financial statement disclosures, as all
references to authoritative accounting literature were updated to and in
accordance with the Codification. The adoption of ASC 105-10-05 did not have a
material impact on the Company’s consolidated results of operations and
financial condition.
85
In
December 2007, the FASB issued an accounting standard codified within ASC
805, “Business Combinations” which changed the accounting for business
acquisitions. Under this standard, business combinations continue to
be required to be accounted for at fair value under the acquisition method of
accounting, but the standard changed the method of applying the acquisition
method in a number of significant aspects. Acquisition costs will generally be
expensed as incurred; noncontrolling interests will be valued at fair value at
the acquisition date; in-process research and development will be recorded at
fair value as an indefinite-lived intangible asset at the acquisition date,
until either abandoned or completed, at which point the useful lives will be
determined; and restructuring costs associated with a business combination will
generally be expensed subsequent to the acquisition date. The standard is
effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008. Adoption of the standard did not have a
significant impact on the Company’s financial position and results of
operations; however, any business combination entered into after the adoption
may significantly impact the Company’s financial position and results of
operations when compared to acquisitions accounted for under prior GAAP and
result in more earnings volatility and generally lower earnings due to the
expensing of deal costs and restructuring costs of acquired
companies.
In
February 2009, the FASB issued an accounting standard codified within ASC
805, “Business Combinations” which amends the provisions related to the initial
recognition and measurement, subsequent measurement, and disclosure of assets
and liabilities arising from contingencies in a business combination. The
standard applies to all assets acquired and liabilities assumed in a business
combination that arise from contingencies that would be within the scope of ASC
450, “Contingencies”, if not acquired or assumed in a business combination,
except for assets or liabilities arising from contingencies that are subject to
specific guidance in ASC 805. The standard applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
adoption of the standard effective January 1, 2009 did not have an impact on the
Company’s financial position and results of operations.
In March
2008, the FASB issued an accounting standard related to disclosures about
derivative instruments and hedging activities, codified within ASC 815,
“Derivatives and Hedging”. Provisions of this standard change the
disclosure requirements for derivative instruments and hedging activities
including enhanced disclosures about (a) how and why derivative instruments
are used, (b) how derivative instruments and related hedged items are
accounted for under ASC 815 and its related interpretations, and (c) how
derivative instruments and related hedged items affect our financial position,
financial performance, and cash flows. This statement was effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company adopted the standard on January 1,
2009.
In
April 2008, the FASB issued an accounting standard codified within ASC 350,
“Intangibles - Goodwill and Other” which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset Under this standard,
entities estimating the useful life of a recognized intangible asset must
consider their historical experience in renewing or extending similar
arrangements or, in the absence of historical experience, must consider
assumptions that market participants would use about renewal or
extension. The intent of the standard is to improve the consistency
between the useful life of a recognized intangible asset and the period of
expected cash flows used to measure the fair value of the asset. Adoption of the
standard was effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. The Company adopted the standard on January 1, 2009. The Company does not
expect the standard to have a material impact on its accounting for future
acquisitions of intangible assets.
86
In June
2008, the FASB issued new guidance regarding the classification of financial
instruments that are indexed to a company’s own stock. The new
guidance revised the criteria for determining whether an instrument is indexed
to a company’s own stock and the resultant accounting treatment of those
instruments. The new guidance is effective for annual periods
beginning after December 15, 2008. The adoption of this new guidance
on January 1, 2009 did not have a material impact on the Company’s consolidated
financial statements.
In
November 2008, the FASB issued an accounting standard codified within ASC
350, “Intangibles - Goodwill and Other” that applies to defensive assets which
are acquired intangible assets which the acquirer does not intend to actively
use, but intends to hold to prevent its competitors from obtaining access to the
asset. The standard clarifies that defensive intangible assets are separately
identifiable and should be accounted for as a separate unit of accounting in
accordance with guidance provided within ASC 805, “Business Combinations” and
ASC 820, “Fair Value Measurements and Disclosures”. The standard was
effective for intangible assets acquired in fiscal years beginning on or after
December 15, 2008. The Company adopted this standard effective
January 1, 2009 and will apply the provisions of this guidance to intangible
assets acquired on or after that date. The Company does not expect the standard
to have a material impact on its accounting for future acquisitions of
intangible assets.
In
April 2009, the FASB issued an accounting standard codified within ASC 825,
“Financial Instruments” that requires disclosures about the fair value of
financial instruments that are not reflected in the consolidated balance sheets
at fair value whenever summarized financial information for interim reporting
periods is presented. Entities are required to disclose the methods and
significant assumptions used to estimate the fair value of financial instruments
and describe changes in methods and significant assumptions, if any, during the
period. The standard was effective for interim reporting periods ending after
June 15, 2009 and was adopted by the Company in the second quarter of
2009. The Company does not expect the standard to have a material
impact on its accounting for Financial Instruments.
In
April 2009, the FASB issued an accounting standard codified within ASC 820,
“Fair Value Measurements and Disclosures,” which provides guidance on
determining fair value when there is no active market or where the price inputs
being used represent distressed sales. The standard reaffirms the
objective of fair value measurement, which is to reflect how much an asset would
be sold for in an orderly transaction. It also reaffirms the need to use
judgment to determine if a formerly active market has become inactive, as well
as to determine fair values when markets have become inactive. The standard is
effective for interim and annual periods ending after June 15, 2009 and was
adopted by the Company in the second quarter of 2009. The adoption of this
accounting pronouncement did not have a material impact on the Company’s
consolidated results of operations and financial condition.
In April
2009, the FASB issued an accounting standard codified within ASC Topic 320,
“Investments – Debt and Equity Securities.” This standard
provides a framework to perform another-than-temporary impairment analysis, in
compliance with GAAP, which determines whether the holder of an investment in a
debt or equity security, for which changes in fair value are not regularly
recognized in earnings, should recognize a loss in earnings when the investment
is impaired. Additionally, this standard amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. The standard is effective for interim reporting
periods ending after June 15, 2009. The Company adopted this standard
during the quarter ended June 30, 2009. The adoption did not have a
material impact on the Company’s consolidated financial statements.
87
In
May 2009, the FASB issued an accounting standard codified within ASC 855
“Subsequent Events,” which sets forth 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. It
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date
represents the date the financial statements were issued or were available to be
issued. The standard was effective for interim or annual periods
ending after June 15, 2009 and was adopted by the Company in the second quarter
of 2009. In February 2010, the FASB issued Accounting Standards
Update No. 2010-09 (“ASC Update 2010-09”) “Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements.” This ASU amends FASB
Codification topic 855. The amendments in ASU 2010-09 remove the requirement in
ASC 855-10 for a SEC filer to disclose a date through which subsequent events
have been evaluated in both issued and revised financial statements. This ASU
was effective upon issuance and the Company adopted this ASU as of December
31, 2009. Except for the removal of disclosure requirements in ASC 855-10, the
adoption of this standard did not have a material impact on the Company’s
consolidated financial statements.
In August
2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and
Disclosures – Measuring Liabilities at Fair Value.” The ASU provides additional
guidance for the fair value measurement of liabilities under ASC 820 “Fair Value
Measurements and Disclosures”. The ASU provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using certain techniques. The ASU also clarifies that when estimating the fair
value of a liability, a reporting entity is not required to include a separate
input or adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of a liability. It also clarifies that both a quoted
price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required
are Level 1 fair value measurements. The Company adopted the ASU in
the fourth fiscal quarter of 2009. The adoption of the ASU did not
have a material impact on the Company’s consolidated results of operations and
financial condition.
Standards Issued But Not Yet
Adopted
In
December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities” which amends
ASC 810, “Consolidation” to address the elimination of the concept of a
qualifying special purpose entity. The standard also replaces the
quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity
with an approach focused on identifying which enterprise has the power to direct
the activities of a variable interest entity and the obligation to absorb losses
of the entity or the right to receive benefits from the entity. This standard
also requires continuous reassessments of whether an enterprise is the primary
beneficiary of a VIE whereas previous accounting guidance required
reconsideration of whether an enterprise was the primary beneficiary of a VIE
only when specific events had occurred. The standard provides more
timely and useful information about an enterprise’s involvement with a variable
interest entity and will be effective as of the beginning of interim and annual
reporting periods that begin after November 15, 2009, which for the Company
would be January 1, 2010. The Company does not expect the adoption of
this standard to have a material effect on its consolidated results of
operations and financial condition.
88
In
January 2010, the FASB issued ASU No. 2010-6, “Improving Disclosures About Fair
Value Measurements,” which provides amendments to ASC 820 “Fair Value
Measurements and Disclosures,” including requiring reporting entities to make
more robust disclosures about (1) the different classes of assets and
liabilities measured at fair value, (2) the valuation techniques and inputs
used, (3) the activity in Level 3 fair value measurements including information
on purchases, sales, issuances, and settlements on a gross basis and (4) the
transfers between Levels 1, 2, and 3. The standard is effective for
annual reporting periods beginning after December 15, 2009, except for Level 3
reconciliation disclosures which are effective for annual periods beginning
after December 15, 2010. The Company does not expect the adoption of this
standard to have a material impact on its consolidated financial
statements.
In
October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue
Arrangements, (amendments to ASC Topic 605, Revenue Recognition)” (ASU 2009-13)
and ASU 2009-14, “Certain Arrangements That Include Software Elements,
(amendments to ASC Topic 985, Software)” (ASU 2009-14). ASU 2009-13
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
The amendments eliminate the residual method of revenue allocation and require
revenue to be allocated using the relative selling price method. ASU
2009-14 removes tangible products from the scope of software revenue guidance
and provides guidance on determining whether software deliverables in an
arrangement that includes a tangible product are covered by the scope of the
software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on
a prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The Company is currently evaluating the impact of the adoption of
these ASUs on its consolidated results of operations or financial
condition.
NOTE
4 — BUSINESS AND ASSET ACQUISITIONS AND DISPOSITIONS AND LICENSING
AGREEMENTS:
(a) Asset
Purchase Agreement with StaffChex
On
February 28, 2008, ClearPoint entered into an Asset Purchase Agreement (the
“StaffChex Purchase Agreement”) with StaffChex, Inc. (“StaffChex”), a privately
owned company. Under the StaffChex Purchase Agreement, StaffChex acquired all of
the rights to customer accounts, as defined in the StaffChex Purchase Agreement,
related to the temporary staffing services serviced by (i) KOR Capital, LLC
(“KOR”) pursuant to the Franchise Agreement – Management Agreement, dated August
30, 2007, and (ii) StaffChex Servicing, LLC (“StaffChex Servicing”), an
affiliate of StaffChex, pursuant to the Exclusive Supplier Agreement, dated
September 2, 2007. The prior agreements with StaffChex Servicing and KOR were
terminated on February 28, 2008 and March 5, 2008, respectively. The Company did
not incur any early termination penalties in connection with such terminations.
In consideration for the customer accounts acquired from ClearPoint, StaffChex
issued to ClearPoint 15,444 shares of common stock of StaffChex, and ClearPoint
is entitled to receive an additional 15,568 shares of StaffChex common stock,
pursuant to the earnout provisions set forth in the StaffChex Purchase
Agreement, which have been met. As a result, the Company was entitled to 31,012
shares (16.4%) of StaffChex’s outstanding stock, of which 15,568 shares were not
issued to the Company. In addition, pursuant to Amendment No. 2 to
the iLabor Agreement, StaffChex is only obligated to issue 3,163 shares to the
Company.
ClearPoint
is accounting for its investment in StaffChex under the cost method. In
addition, ClearPoint entered into an iLabor agreement with StaffChex (the
“iLabor Agreement”) whereby StaffChex agreed to process its temporary labor
requests through iLabor and to pay to ClearPoint 2.25% (such percentage subject
to reduction based on meeting certain volume targets) of StaffChex’s total
collections from its total billings under the acquired customer accounts for
temporary staffing services (the “Royalty”).
89
On March
16, 2009, the Company and StaffChex entered into Amendment No. 1 to the iLabor
Agreement (the “Amendment”) pursuant to which the payment terms of the iLabor
Agreement were restated. The Amendment provides that the Company will
pay StaffChex for client-approved billable work hours at the agreed-upon hourly
rate with respect to such client. Royalties payable to the Company
shall be calculated based on weekly collections. For weekly
collections of less than $1.4 million, the Royalty is one and one-quarter
percent (1.25%) and for weekly collections of more than $1.4 million, the
Royalty is two percent (2%). These weekly payments commenced on March
18, 2009. In addition, StaffChex agreed to make 104 weekly payments
of $4,096 followed by 52 weekly payments of $3,105 for past-due Royalties owed
through February 28, 2009. Such additional payments commenced on June
3, 2009. The failure of StaffChex to make payments due pursuant to
the iLabor Agreement constitutes a material breach of the iLabor
Agreement. In the event of nonpayment, StaffChex will have a ten (10)
day cure period to make any delinquent payments. If such payments
remain outstanding following the cure period, StaffChex agreed to direct its
affiliated receivables factoring company to make the required payment to the
Company. In addition, the Amendment provides that StaffChex may not
assign, convey, sell, transfer or lease the customer account property or the
underlying customer agreements transferred to StaffChex without the prior
written consent of the Company. Such consent will not be required in
connection with a transaction occurring after February 28, 2012 and that is part
of a sale of 100% of the stock of StaffChex or all or substantially all of its
assets. ClearPoint recognizes 1.25% of StaffChex cash
receipts. For the years ended December 31, 2009 and December 31,
2008, ClearPoint recognized $615,042 and $1,147,997 respectively, in royalty
fees. The Employment Development Department (“EDD”) of the State of
California placed a levy on StaffChex in the amount of $272,425, against the
Royalties owed to the Company in connection with payroll taxes owed to the EDD
by the Company. The Company negotiated an Installment Agreement on
October 8, 2009, with the EDD whereby StaffChex will remit the first $25,000 of
Royalties on a monthly basis to EDD.
On
November 18, 2009, StaffChex transferred certain contracts (the “Transferred
Accounts”) to CPR pursuant to a certain Assignment and Assumption Agreement,
Option and Bill of Sale dated November 18, 2009 (the “Assignment
Agreement”). Pursuant to the Assignment Agreement, CPR assumed the
obligations under the Transferred Accounts, with certain exceptions, including,
but not limited to, obligations relating to certain tax liabilities, payment
obligations of StaffChex arising prior to November 18, 2009, liabilities related
to claims arising out of events or conditions or actual or alleged violations of
law occurring prior to November 18, 2009 and any liability of StaffChex based on
its acts or omissions after November 18, 2009. In consideration for
the assignment of the Transferred Accounts, CPR (1) assigned its right, title
and interest to 12,405 shares of StaffChex Stock to StaffChex and StaffChex
agreed to reissue 18,607 shares of StaffChex Stock to CPR (the “Reissued
Shares”) and (2) granted StaffChex an option to purchase the Reissued Shares for
a purchase price of $250,000 at any time prior to the earlier of (i) November
18, 2011 or (ii) the date on which CPR assigns and delivers such Reissued Shares
to StaffChex in accordance with the “success fee” described below.
In
addition, CPR agreed to amend the iLabor Agreement to reduce the
Royalties. On November 18, 2009, CPR and StaffChex entered into
Amendment No. 2 to the iLabor Agreement (“Amendment No. 2”) in order to provide
for payment of past-due amounts owed by StaffChex under the iLabor Agreement and
to restate the payment terms thereunder effective as of November 1, 2009 (the
“Effective Date”).
90
Amendment
No. 2 provides that during the first full week after the transfer of the
Transferred Accounts, such accounts are expected to meet or exceed minimum
billings of $96,153 per week (the “Guaranteed Billings”). In the
event the Transferred Accounts do not meet the Guaranteed Billings in a given
week, StaffChex will transfer such additional contracts whose billings, when
added to those of the Transferred Accounts, will satisfy the Guaranteed
Billings. CPR may, in its reasonable discretion, accept or reject the
Transferred Accounts.
In
addition, pursuant to Amendment No. 2, as of the Effective Date and through
January 31, 2010, the Royalties shall equal 0.75%, provided that such amount
shall be payable in two portions: (i) 0.25%, to the extent not already paid by
StaffChex, shall be payable weekly from the Effective Date through January 31,
2010 and (ii) the balance of 0.50% (the “Deferred Amount”) will be deferred and
paid with Past-Due Royalties (as defined below). Royalties owed for
the period of September 28, 2009 through the Effective Date shall equal 1.25%
and will be paid in weekly installments beginning March 1, 2010 through May 31,
2010, in addition to any other amounts owed pursuant to Amendment No.
2.
Upon the
date on which billings from the Transferred Accounts meet or exceed a total of
$307,682 per week for six consecutive weeks, CPR will pay a “success fee” in the
form of an immediate transfer and assignment of Reissued Shares to StaffChex and
the iLabor Agreement will automatically terminate and be of no further force and
effect, provided, however, that provisions relating to the payment of amounts
deferred or past-due which are otherwise payable shall survive such
termination.
It is
expected that for the six month period of February 1, 2010 through July 31,
2010, the average monthly billings of the Transferred Accounts will meet or
exceed a minimum of $625,000 per month. If such monthly billings do
not meet this minimum amount, then 5% of the shortfall will be due and payable
in equal installments over the 16-week period beginning September 1,
2010.
In
addition, pursuant to Amendment No. 2, StaffChex agreed to continue making
scheduled weekly payments of $4,096 until June 1, 2011, and 52 weekly payments
of $3,105 thereafter, for past-due Royalties owed through February 28, 2009
commencing on June 1, 2011. The failure of StaffChex to make payments
due pursuant to the StaffChex iLabor Agreement constitutes a material
breach. In the event of nonpayment, StaffChex will have a 10-day cure
period to make any delinquent payments. If such payments remain
outstanding following the cure period, the Royalties shall revert to 1.25% and
StaffChex agreed to direct its affiliated receivables factoring company to make
the required payment to CPR.
Effective
January 11, 2010, CPR and StaffChex entered into Amendment No. 3 to the iLabor
Agreement pursuant to which the parties agreed that the Royalties shall equal
0.75% of which 0.50% shall be deferred in accordance with Amendment No. 2 until
February 1, 2010. Additionally, StaffChex agreed to direct Wells
Fargo Business Credit to pay ClearPoint $2,885 per week, effective January 11,
2010 in lieu of StaffChex accounts until such time as the StaffChex accounts
increase to $96,153. For the period of December 14, 2009 through
January 8, 2010, StaffChex will pay ClearPoint 3% of actual billings for the
StaffChex accounts. All amounts due to ClearPoint shall be paid
directly from Wells Fargo Business Credit on a weekly basis pursuant to a
certain Account Transfer Agreement dated May 15, 2008. As
of April 12, 2010, StaffChex was current on all payments pursuant to the iLabor
Agreement.
(b) Sale
of ClearPoint HRO
On March
5, 2008, ClearPoint completed the disposition and transfer of the balances of
customer accounts related to its temporary staffing business. On February 7,
2008, CPR and ClearPoint HRO, LLC (“HRO”), a wholly owned subsidiary of CPR,
entered into a Purchase Agreement (the “HRO Purchase Agreement”) with AMS
Outsourcing, Inc. (“AMS”). Pursuant to the HRO Purchase Agreement, CPR sold all
of its ownership interest of HRO to AMS for an aggregate purchase price payable
in the form of an earnout payment equal to 20% of the earnings before interest,
taxes, depreciation and amortization of the operations of HRO for a period of
twenty four (24) months following February 7, 2008. To date, no such earnout has
been earned or received.
91
Subsequent
to the original estimated loss of $1,894,220 recorded on the sale of HRO, CPR
recorded a $600,000 reversal of the originally estimated loss in the second
quarter of 2008 in conjunction with the refinancing of debt owed to
Manufacturers and Traders Trust Company (“M&T”) reducing the certificate of
deposit sold.
Management
considered the guidance of ASC Topic 205-20, “Presentation of Financial
Statements – Discontinued Operations,” and determined that the disposition and
transfer to AMS of certain customer account balances related to the Company’s
temporary staffing business did not meet the criteria to be reported as
discontinued operations. A summary of the assets sold and
liabilities assumed in the transaction, resulting in a loss on sale of
subsidiary of $1,294,220 for the year ended December 31, 2008, is as
follows:
|
Assets
sold:
|
||||
|
Prepaid
expenses
|
$ | 153,861 | ||
|
Certificate
of deposit
|
900,000 | |||
|
Other
current assets
|
1,128,271 | |||
|
Expected
Workers’ Compensation Collateral Refunds
|
5,091,858 | |||
| 7,273,990 | ||||
|
Liabilities
assumed
|
||||
|
Accrued
payroll and related taxes
|
(3,838,611 | ) | ||
|
Letter
of credit – Workers compensation insurance policy
|
(1,500,000 | ) | ||
|
Accrued
expenses and other liabilities
|
(641,159 | ) | ||
| (5,979,770 | ) | |||
|
Loss
on sale for the year ended December 31, 2008
|
$ | (1,294,220 | ) | |
For the
year ended December 31, 2009, ClearPoint and AICCO (formerly AMS)
entered into a Settlement Agreement and Release, referred to as the AICCO
settlement. Pursuant to the AICCO settlement, ClearPoint agreed to
pay AICCO an aggregate amount of $190,000 in full and final settlement of all
claims relating to the AICCO litigation. As a result, this
$190,000 settlement amount is recorded on the income statement as a
loss on sale of subsidiary for the year ended December 31, 2009 as it relates to
a change in the estimate of the liabilities assumed in the original sale in
2008. (See Note 18 – Litigation).
92
(c) License
Agreements
On
February 28, 2008, CPR and ClearPoint Workforce, LLC (“CPW”), a wholly owned
subsidiary of CPR, entered into a Licensing Agreement (the “Optos Licensing
Agreement”) with Optos Capital, LLC (“Optos”), of which Christopher Ferguson, a
stockholder of the Company, is the sole member. Pursuant to the Optos Licensing
Agreement, the Company (i) granted to Optos a non-exclusive license to use the
ClearPoint Property and the Program, both as defined in the Optos Licensing
Agreement, which included certain intellectual property of CPR, and (ii)
licensed and subcontracted to Optos the client list previously serviced by TZG
Enterprises, LLC (“TZG”), a Delaware limited liability company controlled by J.
Todd Warner, a former officer of the Company, pursuant to an Agreement dated
August 13, 2007 (the “TZG Agreement”) and all contracts and contract rights for
the clients included on such list. In consideration of the licensing
of the Program, which was part of the ClearPoint Property, CPR was entitled to
receive a fee equal to 5.2% of total cash receipts of Optos related to temporary
staffing services. On April 8, 2008, the Optos Licensing Agreement was
terminated. In consideration for terminating the Optos Licensing
Agreement, CPR and Optos agreed that there would be a net termination fee for
any reasonable net costs or profit incurred, if any, when winding up the
operations associated with termination. The estimated net termination fee of
$500,000 was recognized in selling, general and administrative expenses in 2008
and was included in accrued expenses at December 31, 2009 and December 31,
2008. The payment of the net termination fee is expected to be in the
form of cash and shares of common stock of the Company. See Note 17 –
Related Party Transactions for a description of the fees payable under the Optos
Licensing Agreement recorded by the Company.
On April
8, 2008, CPR entered into a License Agreement dated April 8, 2008 (the “Select
License Agreement”) with Koosharem Corp., doing business as Select Staffing
(“Select”) and a Temporary Help Services Subcontract dated April 8, 2008 (the
“Select Subcontract”) with Select. Pursuant to the Select License
Agreement and the Select Subcontract, CPR was entitled to receive annually the
first 10% of all gross billings of the subcontracted contracts up to $36 million
of gross billings ($3.6 million per year to CPR) and whereby Select licensed use
of the iLabor network in exchange for a $1.2 million payment ($900,000 paid on
April 8, 2008 and $300,000 was payable on July 1, 2008, but was not
paid). On July 29, 2008, Select and Real Time Staffing Services, Inc.
(“Real Time”), filed a complaint (the “Select Litigation”) in the Superior Court
of California (Santa Barbara County), against the Company alleging that the
Company owed it $1,033,210 for services performed for the Company’s
clients. On August 22, 2008, CPR, Select and Real Time entered into a
Settlement Agreement and Release (the “Select Settlement Agreement”) pursuant to
which each party released the others from all prior, existing and future claims
including, without limitation, the parties’ claims with respect to the Select
Litigation the Select License Agreement and the Select
Subcontract. Pursuant to the Select Settlement Agreement, the parties
also agreed (i) that CPR would retain the $900,000 paid to it under the Select
License Agreement; (ii) to allocate between Select and CPR amounts paid or
payable with respect to certain client accounts; (iii) to execute an amendment
to the Select Subcontract (the “Subcontract Amendment”), as described below; and
(iv) that Select would file the required documents to dismiss the Select
Litigation with prejudice. In addition, Select and CPR agreed not to commence
any future action arising from the claims released under the Select Settlement
Agreement, and, on August 28, 2008, this lawsuit was dismissed. The
monthly revenue fees are split between the parties as provided in the Select
License Agreement. Effective September 21, 2008, licensing fees related to the
Select License Agreement consisted of amortizing deferred revenue of $83,000
plus an additional $250,000 of cash paid by Select over the life of the
contract, which was 28 months. As of December 31, 2009, Select was
current in its payments to CPR. As of December 31, 2009, Select was
current in its payments to CPR.
The
deferred revenue of $1,000,438 as of December 31, 2009, which has a remaining
life of 12 months, was comprised of the remaining balance of the original
$900,000 payment, cash received on behalf of Select and relief of certain
accounts payable owed to Select as of the settlement date. The
deferred revenue of $1,992,208 as of December 31, 2008, which had a remaining
life of 24 months, was comprised of the remaining balance of the original
$900,000 payment, cash received on behalf of Select and relief of certain
accounts payable owed to Select as of the settlement date (see Note 18 –
Litigation for further detail).
93
Pursuant
to the Subcontract Amendment dated August 22, 2008, the Subcontract fee was
amended to provide that Select would pay CPR, for twenty-eight consecutive
months, 25% of each month’s gross sales generated by the customers and contracts
described in the Select Subcontract as well as, without duplication, sales
generated by certain locations in accordance with the Select Subcontract,
subject to a maximum fee of $250,000 per month. The payments are
subject to acceleration upon occurrence of certain breaches of the Select
Subcontract or bankruptcy filings by Select. In addition, the term of
the Select Subcontract was amended to provide that the term will expire upon the
payment of all fees owed under the Select Subcontract, as amended.
On
September 1, 2009, Select filed a new complaint in the Superior Court of
California (Santa Barbara County) against ClearPoint alleging that ClearPoint
failed to pay Select approximately $107,000 pursuant to the Select Subcontract
since August 2009 and that ClearPoint failed to perform certain obligations
under the Select Subcontract. On December 30, 2009, the complaint was
dismissed with prejudice by mutual agreement of the parties.
On May
22, 2008, ClearPoint entered into an amendment to a Managed Services Agreement
with Townsend Careers, LLC (“Townsend Careers”) to take over certain contracts
that were being serviced out of ClearPoint’s former Baltimore, MD office. Under
the terms of the agreement, Townsend Careers agreed to pay ClearPoint a royalty
fee of 6% of billings. Beginning in the fiscal quarter ended June 30,
2008, the Company ceased recording fees under such agreement due to non-payment
by Townsend Careers. In addition, all fees recorded have been written
off because of non payment by Townsend.
NOTE
5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS:
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Prepaid
insurance
|
$ | 87,670 | $ | 125,410 | ||||
|
Other
current assets
|
27,413 | 92,472 | ||||||
| $ | 115,083 | $ | 217,882 | |||||
NOTE
6 — EQUIPMENT, FURNITURE AND FIXTURES:
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Furniture
and fixtures
|
$ | 40,078 | $ | 29,150 | ||||
|
Computer
software and equipment
|
1,368,571 | 1,740,180 | ||||||
|
Leasehold
improvements
|
9,201 | 9,201 | ||||||
| 1,417,850 | 1,778,531 | |||||||
|
Less,
accumulated depreciation
|
(826,447 | ) | (481,842 | ) | ||||
|
Equipment,
furniture and fixtures, net
|
$ | 591,403 | $ | 1,296,689 | ||||
Depreciation
expense for the years ended December 31, 2009 and 2008 was $345,546 and
$427,706, respectively. Alliance assisted the Company in develping
the technology platform for the iLabor network. On September 17, 2009, the
Company and Alliacne entered into a Settlement Agreement and Release pursuant to
which the Company agreed to pay Alliance an aggregate amount of $200,000 in full
and final settlement of all claims relating to certain litigation involving
Alliance. In connection with such Settlement Agreement and Release,
the software development fees owed to Alliance for this project were reduced by
$400,000 and, as a result, the Company reduced its capitalized software by
$400,000 and reversed $200,000 of depreciation expense previously recorded for
this asset (see
Note 18 – Litigation).
94
In March 2008, the Company recorded a
loss of $1,022,210 as a result of the abandonment of leasehold improvements,
furniture and fixtures and computer equipment resulting from termination of
the TZG and KOR agreements described in
Note 4 — Business and
Asset Acquisitions and Licensing Agreements.
The
Company removed $1,837,918 of fixed assets and $815,708 of accumulated
depreciation as a result of this impairment.
NOTE
7 — INTANGIBLE ASSETS:
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Covenant
not to compete
|
$ | 250,000 | $ | 250,000 | ||||
|
Less,
accumulated amortization
|
(166,667 | ) | (116,667 | ) | ||||
|
Intangibles,
net
|
$ | 83,333 | $ | 133,333 | ||||
The
covenant not to compete is being amortized over its five (5) year life.
Amortization expense of intangible assets for the years ended December 31 2009
and 2008 was $50,000 for both years respectively. Amortization expense expected
to be incurred for the fiscal years ending December 31, 2010 and 2011 is $50,000
and $33,333, respectively.
NOTE
8 — OTHER ASSETS
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Due
from ALS
|
$ | — | $ | 500,667 | ||||
|
Long
term portion of related party receivable
|
— | 181,400 | ||||||
|
Security
deposits
|
17,550 | 27,337 | ||||||
| $ | 17,550 | $ | 709,404 | |||||
NOTE
9 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
Other
accrued expenses
|
$ | 1,653,381 | $ | 2,422,166 | ||||
|
Accrued
interest
|
994,269 | 196,029 | ||||||
|
Insurance
premiums payable
|
521,262 | 962,680 | ||||||
|
Accrued
termination fee - Optos
|
500,000 | 500,000 | ||||||
| $ | 3,668,912 | $ | 4,080,875 | |||||
NOTE
10 — ACCRUED RESTRUCTURING COSTS:
Effective
June 29, 2007, the Company’s management approved a restructuring program to
consolidate operations and reduce costs of its field and administrative
operations. As part of the restructuring program, the Company closed 24 branch
and administrative offices and eliminated approximately 75 positions. The
Company initially recorded $1,902,000 of restructuring charges for costs of
severance, related benefits and outplacement services related to the termination
of these employees and $950,000 of charges relating to the early termination of
office spaces leases for a total of $2,852,000 in 2007. The Company subsequently
reduced the initial expense recorded in 2007 by $650,884 due to decreases in
anticipated severance costs resulting in a net charge of
$2,210,116. These expenses were present valued and accrued and will
be paid out over a one year period. During the year ended December
31, 2008, the Company paid out $678,865 related to the 2007 restructuring
reserve and recognized a reduction of initially estimated restructuring costs of
$196,994 due to severance and related benefits for which the Company believes it
is no longer liable as a result of a breach of contract as well as $95,913
related to early termination settlements of office spaces. During the year ended
December 31, 2009, the Company paid out $45,365 related to the 2007
restructuring reserve.
95
As a
result of the sale of certain entities and the transition to the Company’s new
business model, effective March 12, 2008, the Company’s management approved an
additional restructuring program of its field and administrative operations. As
part of the restructuring program, the Company closed its remaining branch and
administrative office in Florida and eliminated approximately 20 positions. The
Company initially recorded $496,784 of restructuring charges for costs of
severance, related benefits and outplacement services related to the termination
of these employees and $1,603,638 of charges relating to the early termination
of office spaces leases for a total of $2,100,422. These expenses were present
valued and accrued on a one time basis and were scheduled to be paid out over a
three year period. During the year ended December 31, 2008, the Company paid out
$1,252,917 and recognized a reduction of the initial recorded restructuring
costs of $457,571 related to early termination settlements of office spaces
related to the 2008 restructuring reserve. During the year ended December 31,
2009, the Company paid out $44,721. The Company calculated the restructuring
costs as follows:
|
2007
Restructuring Reserve
|
Employee
Separation
Costs
|
Lease
Termination
Obligation
|
Total
|
|||||||||
|
Accrued
restructuring costs at inception
|
$ | 1,902,000 | $ | 950,000 | $ | 2,852,000 | ||||||
|
Payments
|
(548,253 | ) | (628,261 | ) | (1,176,514 | ) | ||||||
|
Reductions in costs previously
accrued
|
(650,884 | ) | — | (650,884 | ) | |||||||
|
Accrued
restructuring costs at December 31, 2007
|
702,863 | 321,739 | 1,024,602 | |||||||||
|
Payments
|
(505,869 | ) | (172,996 | ) | (678,865 | ) | ||||||
|
Reductions in costs previously
accrued
|
(196,994 | ) | (95,913 | ) | (292,907 | ) | ||||||
|
Accrued
restructuring costs at December 31,2008
|
— | 52,830 | 52,830 | |||||||||
|
Payments
|
— | (45,365 | ) | (45,365 | ) | |||||||
|
Total
accrued restructuring costs at December 31,2009
|
— | 7,465 | 7,465 | |||||||||
|
Less: current
portion
|
— | (7,465 | ) | (7,465 | ) | |||||||
|
Total
accrued restructuring costs – long-term
|
$ | — | $ | — | $ | — | ||||||
|
2008
Restructuring Reserve
|
Employee
Separation
Costs
|
Lease
Termination
Obligation
|
Total
|
|||||||||
|
Accrued
restructuring costs at inception
|
$ | 182,075 | $ | 1,603,638 | $ | 1,785,713 | ||||||
|
Accrued
restructuring costs at inception – related party
|
314,709 | — | 314,709 | |||||||||
|
Payments
|
(182,075 | ) | (1,012,842 | ) | (1,194,917 | ) | ||||||
|
Payments – related
party
|
(58,000 | ) | — | (58,000 | ) | |||||||
|
Reductions in costs previously
accrued
|
— | (457,571 | ) | (457,571 | ) | |||||||
|
Total
accrued restructuring costs at December 31,2008
|
— | 133,225 | 133,225 | |||||||||
|
Total
accrued restructuring costs at December 31,2008 – related
party
|
256,709 | — | 256,709 | |||||||||
|
Payments
|
— | (44,722 | ) | (44,722 | ) | |||||||
|
Total
accrued restructuring costs at December 31,2009
|
— | 88,503 | 88,503 | |||||||||
|
Total
accrued restructuring costs at December 31,2009 – related
party
|
256,709 | — | 256,709 | |||||||||
|
Less: current
portion
|
(256,709 | ) | (47,669 | ) | (304,378 | ) | ||||||
|
Total
accrued restructuring costs – long-term
|
$ | — | $ | 40,834 | $ | 40,834 | ||||||
96
NOTE
11 — DEBT OBLIGATIONS:
A summary
of all debt is as follows:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Term
loan with ComVest due December 31, 2010. Principal and interest payments
payable monthly bearing interest of 10% per annum (net of $0 and
$1,124,468 OID)
|
$ | — | $ | 6,529,542 | ||||
|
Revolving
Credit Facility with ComVest due December 31, 2010. Interest payments
payable monthly bearing interest of 7.250% per annum
|
— | 1,000,000 | ||||||
|
New
Revolver with ComVest due December 31, 2010. Interest payments deferred
until April 2010 bearing interest of 12% per annum
|
10,383,061 | — | ||||||
|
M&T
Loan Modification and Restructure Agreement dated June 20, 2008. Principal
payments on balance after reduction of payments connected with
accounts receivable assigned to M&T, begin January 1, 2011 in equal
amounts over 36 months plus interest at 5% per annum
|
4,718,756 | 4,994,379 | ||||||
|
Note
payable monthly to Blue Lake Rancheria with a final, balloon payment due
April 30, 2009. Interest of 10% per annum is payable
quarterly..
|
490,000 | 690,000 | ||||||
|
Subordinated
notes payable beginning March 31, 2010. The notes have an
interest rate of 12% per annum
|
550,000 | 550,000 | ||||||
|
Note
payable to ALS, LLC. This note has an interest rate of 5%
|
1,653,347 | 2,155,652 | ||||||
|
Note
payable to unrelated individuals for purchase of the common stock of
StaffBridge, Inc. due and payable beginning February 15,
2010. Interest is calculated at 8% per annum
|
177,518 | 336,690 | ||||||
| 17,972,682 | 16,256,263 | |||||||
|
Add
Original Issue Discount (OID)
|
— | 1,124,468 | ||||||
|
Total
principal payments of long term debt
|
17,972,682 | 17,380,731 | ||||||
|
Less:
Current
portion
|
13,100,585 | 5,950,209 | ||||||
| 4,872,097 | 11,430,522 | |||||||
|
Less
OID
|
— | (1,124,468 | ) | |||||
|
Long
term debt, net of current and OID
|
$ | 4,872,097 | $ | 10,306,054 | ||||
97
Principal
payments of long-term debt for each of the next five years and thereafter are as
follows:
|
Year ended December 31,
|
||||
|
2010
|
$ | 13,100,585 | ||
|
2011
|
1,072,917 | |||
|
2012
|
1,072,917 | |||
|
2013
|
1,072,916 | |||
|
2014
|
826,674 | |||
|
Thereafter
|
826,673 | |||
| $ | 17,972,682 | |||
Loan
Agreements with ComVest
Revolving
Credit and Term Loan Agreement
On June
20, 2008, the Company entered into a Revolving Credit and Term Loan Agreement
(the “Loan Agreement”) with ComVest Capital, LLC
(“ComVest”). Pursuant to the Loan Agreement, ComVest extended to the
Company: (i) a secured revolving credit facility for up to $3 million (the
“Revolver”) and (ii) a term loan (the “Term Loan” and, together with the
Revolver, the “Loans”) in the principal amount of $9 million, of which $1
million was treated as an original issue discount, and the Company received $8
million in respect of the Term Loan. Amortization related to the
original issue discount of $1,000,000 amounted to $217,343 and $311,831 for the
years ended December 31, 2009 and December 31, 2008,
respectively. In accordance with ASC 470-50-40, the August 14,
2009 debt modification was accounted for as a debt extinguishment. As
a result, the unamortized debt discount related to the warrant and original
issue discount in the amount of $769,334, the unamortized debt issue costs
attributable to the ComVest term note in the amount of $258,991 and the
modification fees paid to ComVest attributable to the retirement of the ComVest
term note in the amount of $147,000 were recorded as a loss on extinguishment of
debt.
The
amounts due under the Revolver bore interest at a rate per annum equal to the
greater of: (i) the prime rate of interest announced by Citibank, N.A. plus
2.25% or (ii) 7.25%. The Loans provided that the stated interest rates were
subject to increase by 500 basis points during the continuance of an event of
default under the Loan Agreement. Amounts due under the Loans were payable
monthly, beginning July 1, 2008.
The
outstanding principal amount of the Term Loan was payable as follows: $150,000
on July 1, 2008 and subsequent payments are to be in an amount equal to the
greater of (i) $200,000 less the amount of interest accrued during the preceding
month or (ii) the amount equal to (a) the lesser of $450,000 or certain license
fees, royalties, use fees and/or other such payments collected by the Company
during the preceding month less (“Royalties”) (b) the amount of interest accrued
during the preceding month (but not greater than the principal balance of the
Term Loan). The installments under (ii) above were payable monthly starting
August 1, 2008, including December 1, 2010. The final installment due and
payable on December 31, 2010 was to be in an amount equal to the entire
remaining principal balance, if any, of the Term Loan.
98
During
the quarter ended June 30, 2009, the Company was in default on principal
installment payments due for February, 2009 through June, 2009 under the Term
Loan in the aggregate amount of $701,822. In addition, the Company
was in default on principal installment payments due for July, 2009 under the
Term Loan in the aggregate amount of $439,357 and was in default on interest
payments due for July, 2009 in the amount of $61,295. The Company was also in
default on interest payments due for July, 2009 under the Revolver in the amount
of $18,098. The failure to make such payments constituted events of
default under the Loan Agreement. The Company was obligated to pay a
default interest rate of 500 basis points over the prevailing rate, which
difference between the default rate and the prevailing rate was not
paid. On May 19, 2009, ComVest executed a waiver letter (the Term
Loan Waiver”) related to the Loan Agreement for the periods of February through
April, 2009. Pursuant to the Term Loan Waiver, ComVest waived the
foregoing defaults, provided that ComVest reserved the right to collect at a
later time, but no later than the maturity date of the Term Loan under the Loan
Agreement, the increased interest ComVest was permitted to charge during the
continuance of such defaults. On August 14, 2009, ComVest executed a
waiver letter, which waived the Company’s defaults under the Loan Agreement
through August 14, 2009, provided the Company pays the difference between the
increased interest rate charged in connection with the defaults and the regular
interest rate no later than March 31, 2010.
On
January 29, 2009, in order to assist the Company in making the payments under
the XRoads Agreement, as defined in Note 16 – Management and Employment
Agreements, the Company and ComVest entered into Amendment No. 1 (“Amendment No.
1”) to the Term Loan. Pursuant to Amendment No. 1, the Term Loan
installments due and payable on each of February 1, 2009, March 1, 2009, April
1, 2009 and May 1, 2009, respectively, were reduced by an amount equal to the
positive difference (if any) of (i) the lesser of (a) $50,000 or (b) the amount
paid or payable to XRoads during the immediately preceding calendar month
pursuant to the XRoads Agreement, minus (ii) the amount (if any) by which the
aggregate Royalties collected during the immediately preceding calendar month
exceeded $450,000. After the effective date of termination of the
XRoads Agreement, no reduction in any subsequent Term Loan installments were to
be permitted. Amendment No. 1 also contained ComVest’s acknowledgment
and consent to the Company’s amendment of the payment terms and payment schedule
of the StaffBridge Note pursuant to the second Debt Extension Agreement
described below.
Royalty
payments received primarily from StaffChex and Select were segregated and solely
used for the repayment of the Term Loan. To the extent that royalty receipts
from these sources did not meet the minimum threshold of $200,000 per month, the
Company was to make up the difference from its operating cash. In the
event that royalty receipts from these sources exceeded $450,000 in a given
month, the Company could utilize the excess for operations or offset amounts
owed on the ComVest Revolver at its discretion. The outstanding
borrowings under the Loan Agreement were secured by all the assets of the
Company.
The
Company paid to ComVest non-refundable closing fees in the amount of $530,000,
charged to the Revolver, simultaneously with funding of the amounts payable to
the Company under the Loan Agreement. In addition, the Company was to
pay to ComVest a monthly collateral monitoring, availability and administrative
fee equal to 0.15% of the average daily principal amount outstanding under the
Revolver during the preceding calendar month, up to $4,500 per
month. Fees paid pursuant to the Revolver were $52,305 and $11,360
for the twelve months ended December 31, 2009 and December 31, 2008
respectively.
99
The
Company utilized the proceeds of the Loans to repay approximately $1,050,000
pursuant to the M&T Restructure Agreement, as defined below, owed to
M&T, a creditor of the Company and approximately $530,000 in closing costs
and expenses.
Amended
and Restated Revolving Credit Agreement
On August
14, 2009, the Company entered into the Amended and Restated Revolving Credit
Agreement with ComVest (the “Amended Loan Agreement”), which amended and
restated the Loan Agreement, dated June 20, 2008. Pursuant to the
Amended Loan Agreement, the maximum availability under the secured revolving
credit facility (the “Amended Revolver”) was increased from $3,000,000 to
$10,500,000 million (the “Amended Revolver Maximum”). The remaining
outstanding principal balances of $2,900,000 under the revolving credit note and
$7,100,000 under the term loan extended by ComVest pursuant to the Original Loan
Agreement were paid in full by an advance from the Amended Revolver, and the
term note was cancelled.
Effective
as of the first business day of each of the first twelve (12) calendar weeks in
each calendar quarter beginning with the calendar quarter ending March 31, 2010,
the Amended Revolver Maximum will be reduced by an amount equal to 1/12th of the
amount, calculated as of the last day of the immediately preceding calendar
quarter, equal to the sum of: (i) the amount (if any) by which the Amended
Revolver Maximum exceeds the amounts outstanding under the Amended Revolver,
plus (ii) all cash and cash equivalents of the Company and its subsidiaries
determined in accordance with accounting principles generally accepted in the
United States on a consolidated basis, minus (iii) all documented reasonable
costs and expenses incurred and paid in cash by the Company between August 14,
2009 and such quarter-end in connection with the registration of the resale of
shares underlying the Amended ComVest Warrant (as defined below). To
the extent the amounts outstanding under the Amended Revolver exceed the Amended
Revolver Maximum, the Company must make a payment to ComVest to reduce the
amount outstanding to an amount less than or equal to the Amended Revolver
Maximum. The Company may borrow under the Amended Revolver from time
to time, up to the then applicable Amended Revolver Maximum.
The
Company may request an increase in the Amended Revolver Maximum to an aggregate
amount not in excess of $11,250,000 minus: (i) any and all required reductions
as described above, and (ii) the outstanding principal amount of any
indebtedness incurred after August 14, 2009, up to a maximum principal amount
outstanding of $750,000 minus any increase in the Amended Revolver Maximum then
in effect. To request such an increase, the Company must introduce to
ComVest a participant reasonably satisfactory to ComVest to participate in the
advances under the Amended Revolver in a principal amount not less than the
requested increase in the Amended Revolver Maximum, on a pari passu basis with
ComVest.
The
amounts due under the Amended Revolver bear interest at a rate per annum equal
to 12%, subject to increase by 400 basis points during the continuance of any
event of default under the Amended Loan Agreement. Subject to certain
exceptions, the interest payments will be deferred as follows:
(i) interest
in respect of all periods through and including December 31, 2009 will accrue
but will not be due and payable in cash except as and when provided in paragraph
(iii) below;
(ii) 10%
of all interest accruing during the period from October 1, 2009 through and
including December 31, 2009 will be due and payable in cash monthly in arrears
on the first day of each calendar month commencing November 1, 2009 and
continuing through and including January 1, 2010, and the remaining 90% of such
accrued interest will be due and payable in accordance with the following
paragraph (iii);
(iii) all
accrued interest described in paragraph (i) above, and the deferred portion of
accrued interest described in paragraph (ii) above, will be due and payable (A)
as to 10% thereof, on April 1, 2010, (B) as to 15% thereof, on July 1, 2010, (C)
as to 35% thereof, on October 1, 2010, and (D) as to the remaining 40% thereof,
on December 31, 2010; and
100
(iv) accrued
interest in respect of all periods from and after January 1, 2010 will be due
and payable in cash monthly in arrears on the first day of each calendar month
commencing February 1, 2010 and upon the maturity of the Amended
Revolver.
The
Amended Revolver matures on December 31, 2010, subject to extension to December
31, 2011, in ComVest’s sole and absolute discretion, if the Company requests the
extension no earlier than September 30, 2010 and no later than October 31, 2010
and there are no continuing events of default on the originally scheduled
Amended Revolver maturity date (which defaults may be waived in ComVest’s sole
and absolute discretion).
In
addition, the Amended Loan Agreement provides that:
(i) ComVest
must pre-approve the hiring of all members of senior management of the Company
and all employment agreements or other contracts with respect to senior
management; and
(ii) the
Company will, on or prior to September 28, 2009, elect two (2) members of the
Board of Directors of the Company, each to be placed within separate classes of
the Board of Directors and each of which will be unaffiliated with and
independent of ComVest. This date was subsequently extended to
December 27, 2009.
The
Amended Loan Agreement also requires the Company to, subject to certain
exceptions, obtain ComVest’s written consent until all obligations under the
Amended Loan Agreement have been satisfied in full in connection with certain
transactions including, but not limited to, incurrence of additional
indebtedness or liens on the Company’s assets; sales of assets; making
investments in securities or extension of credit to third parties; purchase of
property or business combination transactions; declaration or payment of
dividends or redemption of the Company’s equity securities; payment of certain
compensation to the Company’s executive officers; changing the Company’s
business model or ceasing substantially all of its operations for a period
exceeding 10 days; sale of accounts receivable; amendment of the Company’s
organizational documents; certain transactions with the Company’s affiliates;
making certain capital expenditures, and incurring monthly operating expenses in
excess of specified dollar amounts. In addition, beginning with fiscal quarter
ending March 31, 2010, the Company must maintain certain fixed charge coverage
ratios set forth in the Amended Loan Agreement. At December 31, 2009,
the Company was in compliance with all applicable covenants set forth in the
Amended Loan Agreement.
The
Amended Loan Agreement lists various events of default including, but not
limited to: default in the payment of principal or interest under all
obligations of the Company under the Amended Loan Agreement or in the observance
or performance of any covenant set forth in the Amended Loan Agreement; default
of the Company or any of its subsidiaries under any indebtedness exceeding
$100,000 (excluding any amount due to Blue Lake and any litigation brought with
respect to amounts owed to Blue Lake, so long as such amounts are paid solely in
shares of the Company’s common stock); occurrence of certain bankruptcy or
insolvency events; and existence of any litigation, arbitration or other legal
proceedings, other than certain specified litigation, brought by any creditors
of the Company or any subsidiary in an aggregate claimed amount exceeding
$300,000.
In
connection with the execution of the Amended Loan Agreement, ComVest executed a
waiver of existing events of default under the original Loan Agreement (the
“Waiver”). The Waiver is effective provided that the Company pays to
ComVest on March 31, 2010 (or sooner if there is a further event of default)
approximately $166,000, constituting the difference between interest calculated
at the default rate and at the non-default rate under (i) the term note on the
outstanding principal balance of the term note for the period from March 1, 2009
through August 14, 2009, and (ii) the original revolving credit note on the
outstanding principal balance of the advances from time to time during the
default period stated in (i) above. The Company has not paid this
amount.
101
Upon
occurrence of an event of default, and at all times during the continuance of an
event of default, (i) at the option of ComVest (except with respect to
bankruptcy defaults for which acceleration shall be automatic) all obligations
of the Company under the Amended Loan Agreement become immediately due and
payable, both as to principal, interest and other charges, without any
requirement for demand or notice by ComVest, and bear interest at the default
rates of interest as described above; (ii) ComVest may file suit against the
Company and its subsidiaries under the Amended Loan Agreement and/or seek
specific performance thereunder; (iii) ComVest may exercise its rights under the
Collateral Agreement, as defined below, against the assets of the Company and
its subsidiaries; (iv) the Amended Revolver may be immediately terminated or
reduced, at ComVest’s option; and (v) upon ComVest’s request, the Company will
provide it with immediate, full and unobstructed access to and control of its
books, records, systems and other elements of its business and
management.
The
Company’s obligations under the Amended Loan Agreement and the Amended Revolver
are jointly and severally guaranteed by each of its direct and indirect
subsidiaries (the “Guarantors”) pursuant to the Guaranty Agreement, dated as of
June 20, 2008 (the “Guaranty Agreement”) and the Reaffirmation of Guaranty,
dated as of August 14, 2009 (the “Reaffirmation of Guaranty”), and are secured
by a security interest in all of the Company’s and its subsidiaries’ assets (the
“Collateral”) as set forth in the Collateral Agreement dated June 20, 2008 (the
“Collateral Agreement”). Pursuant to the Guaranty Agreement and the
Reaffirmation of Guaranty, in the event the Company’s obligations are declared
immediately due and payable, then the Guarantors shall, upon demand by ComVest,
pay all or such portion of the Company’s obligations under the Amended Loan
Agreement declared due and payable.
Upon the
occurrence of an event of default under the Amended Loan Agreement, as described
above, ComVest may enforce against the Guarantors their obligations set forth in
the Guaranty Agreement. Pursuant to the Collateral Agreement, upon an event of
default under the Amended Loan Agreement, ComVest may exercise any remedies
available to it under the Uniform Commercial Code, and other applicable law,
including applying all or any part of the Collateral or proceeds from its
disposition as payment in whole or in part of the Company’s obligations under
the Amended Loan Agreement.
In
connection with the Amended Loan Agreement, each of Messrs. Michael Traina, the
Company’s Chairman of the Board of Directors and Chief Executive Officer, and
John Phillips, the Company’s Chief Financial Officer, reaffirmed their
respective Validity Guaranties previously given to ComVest on June 20, 2008 (the
“Validity Guaranty”) by executing a Reaffirmation of Validity Guaranties, dated
August 14, 2009 (the “Reaffirmation of Validity Guaranties”). The Validity
Guaranty provides that each officer will not, intentionally or through conduct
constituting gross negligence, and the Company will not, through intentional
acts of either Mr. Traina or Mr. Phillips or through conduct constituting gross
negligence by each such officer, provide inaccurate or misleading information to
ComVest, conceal any information required to be delivered to ComVest or fail to
cause the Collateral to be delivered to ComVest when required or otherwise take
any action that constitutes fraud. In the event of a breach or violation of the
obligations of Messrs. Traina or Phillips under the Validity Guaranty, the
officer must indemnify and hold ComVest harmless from any loss or damage
resulting from such breach or violation.
The
Company is obligated to pay ComVest modification fees in the amount of $210,000,
charged to the Amended Revolver, payable $60,000 on January 1, 2010 and $50,000
on each of April 1, 2010, July 1, 2010 and October 1, 2010. The
Company has not paid ComVest such fees on January 1, 2010 or April 1,
2010. In addition, on the first business day of each calendar month
prior to the maturity date of the Amended Revolver and on the Amended Revolver
maturity date or the earlier termination of the Amended Revolver, the Company
must pay ComVest a monthly unused commitment fee equal to 0.25% of the amount by
which the Amended Revolver Maximum exceeds the average daily outstanding
principal amount of advances during the immediately preceding calendar month,
charged to the Amended Revolver.
102
On
February 9, 2010, the Company received a notice of default from ComVest in
connection with the Amended Loan Agreement. The Company defaulted on
its obligations under the Amended Loan Agreement as a result of: (i) its failure
to pay approximately $108,000 of accrued interest which was due and payable on
February 1, 2010; (ii) its failure to pay a $60,000 installment of a certain
modification fee which was due and payable on January 1, 2010; and (iii) the
entry of a judgment against the Company related to the lawsuit filed by AICCO,
Inc. and delivery of a judgment note in favor of AICCO, Inc. in the amount of
approximately $195,330. As a consequence of such defaults, ComVest
elected to invoke the default exercise provision under the Amended ComVest
Warrant (as defined below). As a result, the Company is obligated to
issue to ComVest 18,670,825 shares of common stock, and the Company received
approximately $18,671 from ComVest as the exercise price of the Amended ComVest
warrant. In connection with this transaction, effective February 16,
2010, ComVest owned 51% of the Company’s fully diluted common stock and
approximately 56.7% of outstanding shares of our common
stock. Pursuant to a letter dated February 10, 2010, ComVest waived
existing defaults under the Amended Loan Agreement (see Note 19 – Subsequent
Events).
ClearPoint
did not make scheduled payments of interest to ComVest under the amended ComVest
loan agreement on February 1, 2010, March 1, 2010 or April 1, 2010, in the
aggregate amount of $635,389, consisting of deferred interest payments and loan
modification fees that were due under the Amended Loan Agreement, as well as the
current monthly interest due from February 1, 2010 through April 1,
2010. In addition, the Company did not make certain required payments
due February 15 or March 15, 2010 in principal of $33,000 and interest of $4,302
totaling $37,302 under the StaffBridge Note, as defined
below. Additionally, the Company did not make certain required
payments to the Sub Noteholders (as defined below) on March 31, 2010 in
principal of $55,000 and interest of $5,500 totaling $60,500. Such
nonpayments would constitute events of default under the Amended Loan
Agreement.
Warrant
Issued to ComVest
In
connection with June 20, 2008 Revolving Credit and Term Loan Agreement with
ComVest, the Company issued a warrant to purchase 2,210,825 shares of common
stock at an exercise price of $0.01 per share, immediately exercisable during
the period commencing June 20, 2008 and ending on June 30, 2014. This warrant
was valued at $634,000 and treated as a discount to the long term portion of the
debt and was amortized over the life of the long term
debt. Amortization related to the warrant amounted to $137,792 and
$198,000 for the year ended December 31, 2009 and December 31, 2008,
respectively. As a result of the August 14, 2009 financing
transaction with ComVest described above and in accordance with ASC
470-50-40-17, the unamortized debt discount related to the warrant in the amount
of $298,507 was written off as part of the loss on extinguishment of
debt. In connection with the August 14, 2009 transaction with ComVest
described above, the Company issued to ComVest the Amended and Restated Warrant,
dated August 14, 2009 (the “Amended ComVest Warrant”), to purchase, in the
aggregate, 2,210,825 shares (the “ComVest Warrant Shares”) of the Company’s
common stock, $0.0001 par value per share (the “Common Stock”), for an exercise
price of $0.01 per share (the “ComVest Exercise Price”). Upon the
occurrence and during the continuation of an event of default (other than
certain specified events of default) under the Amended Loan Agreement, then upon
five (5) business days’ notice to the Company, the Amended ComVest Warrant is
exercisable for a number of shares of Common Stock that, when aggregated with
all ComVest Warrant Shares previously acquired upon exercise of the Amended
ComVest Warrant, constitutes 51% of the fully diluted Common Stock of the
Company at the time of exercise (a “Default Exercise”). The exercise
price of the Amended ComVest Warrant for a Default Exercise is $0.001 per share
of Common Stock. The exercise price of the Amended ComVest Warrant
may be paid to the Company in cash, check or, at ComVest’s option, by crediting
the exercise price to any obligation then owed to it under the Amended Loan
Agreement. The Amended ComVest Warrant is exercisable until August
31, 2014. The ComVest Exercise Price and the number of ComVest
Warrant Shares are subject to adjustment following certain events, including
distributions on the Common Stock; merger, consolidation or share exchange; and
certain issuances of Common Stock. The Amended ComVest Warrant may be
exercised via a “cashless exercise.”
103
If at any
time the Common Stock is not registered under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), or the Company has ceased or suspended
the filing of periodic reports under the Exchange Act, ComVest has the right to
require the Company to redeem and purchase from ComVest, for a cash purchase
price of $2.0 million, 50% of the Amended ComVest Warrant, or the equivalent of
50% of the ComVest Warrant Shares that may be, or have been, issued upon
exercise of the Amended ComVest Warrant: (i) if the Company or any of its
stockholders enters into a binding agreement with respect to any sale (as
defined in the Amended Loan Agreement); (ii) upon and after the occurrence and
during the continuance of an event of default under the Amended Loan Agreement;
or (iii) any other event or circumstance that causes, effects, or requires any
payment in full under the Amended Loan Agreement.
If there
is a proposed sale of a majority of the outstanding shares of Common Stock of
the Company, on an as-converted basis, ComVest has the right, exercisable upon
written notice to the selling stockholder(s) provided not less than ten (10)
days prior to the proposed date for consummation of the sale, to elect to
participate in the transaction and sell to the proposed purchaser(s) a portion
of the ComVest Warrant Shares equal, on a percentage basis, to the percentage of
the selling stockholder(s)’ Common Stock included in the proposed
transaction.
As a
result of the new contingent put feature included in the Amended ComVest
Warrant, the Company determined that the warrant no longer met equity
classification treatment. As a result, the Company estimated the fair
value of the warrant as of August 14, 2009 using the Black Scholes option
pricing model, which was determined to be $88,431, and recorded a
reclassification adjustment to reduce additional paid-in capital by $88,431 and
increase the warrant liability by $88,431. As of December 31, 2009,
the estimated fair value of the warrant liability was determined to be
$185,452. The Company also used the default number of shares to be
issued upon warrant exercise and the default exercise price in valuing the
warrant as of December 31, 2009 as management had determined that the Company
would be in default of the Amended Loan Agreement with ComVest in the first
quarter of fiscal 2010 because it would not be able to make its required
principal and interest payments under the Amended Loan Agreement. For
the year ended December 31, 2009, the Company recorded a $97,021 mark to market
loss on derivative instruments related to this warrant in the Consolidated
Statement of Operations.
As discussed above, on February 9, 2010,
ComVest invoked the Default Exercise provision of the Amended ComVest
Warrant.
104
Loan
Modification and Restructure Agreement with M&T
On
February 23, 2007, pursuant to a Credit Agreement (the “M&T Credit
Agreement”), the Company entered into credit facilities with M&T consisting
of a $20 million revolving credit facility (“M&T Revolver”) expiring in
February 2010 and a $3 million term loan (“M&T Term Loan”) expiring in
February 2012. In July 2007, the Company amended the M&T Credit
Agreement to increase the M&T Term Loan to $5 million in the First Amendment
to the M&T Credit Agreement. These credit facilities carried an interest
rate of LIBOR plus between 1.50% and 2.25%, depending on the Company’s ratio of
debt to earnings before interest, tax, depreciation and amortization. The
available amount to be borrowed from the M&T Revolver was limited based upon
ratios of accounts receivable and unbilled revenue. The M&T Revolver and
M&T Term Loan contained certain financial covenants including leverage
ratios and a fixed charge coverage ratio. On March 21, 2008, ClearPoint entered
into the Second Amendment to M&T Credit Agreement, dated as of March 21,
2008, among ClearPoint and M&T. Pursuant to the Second Amendment, the
M&T Credit Agreement was amended, among other matters, as follows: (i) the
aggregate amount of the revolving credit commitments was gradually reduced from
$20 million to $15 million at March 21, 2008 and $4 million at June 30, 2008;
(ii) the applicable margin, which is a component of the interest rate
calculations, was increased to (a) 3.5% and 1.25% for any revolving credit loan
that is a “Eurodollar Loan” and a “Base Rate Loan”, respectively (as defined in
the M&T Credit Agreement), and (b) 4.5% and 2.25% for any M&T Term Loan
that is a Eurodollar Loan and a Base Rate Loan, respectively; (iii) the
applicable commitment fee percentage, which is included in the calculations of
commitment fees payable by the Company on the amount of the unused revolving
credit commitments, was increased to 0.25%; and (iv) the covenants related to
the ratios of total debt or senior debt, as applicable, to modified EBITDA were
amended to lower the ratios as of September 30, 2008.
On April
14, 2008, the Company entered into a Waiver (the “M&T Waiver”) to the
M&T Credit Agreement. Pursuant to the M&T Waiver, the required lenders
under the M&T Credit Agreement waived compliance with certain financial
covenants set forth in the M&T Credit Agreement for the period ended
December 31, 2007. In connection with the M&T Waiver, the Company paid a
$100,000 fee to M&T. The Company was not in compliance with the financial
and reporting covenants at March 31, 2008. The Company did not receive a waiver
for such non-compliance from M&T. On May 9, 2008, the Company received a
letter from M&T indicating, among other matters, that the principal amount
of revolving credit loans outstanding under the M&T Credit Agreement shall
be limited to a maximum amount of $7.3 million for the period ended May 16,
2008.
On May
21, 2008, the Company received a notice of default from M&T in connection
with the M&T Credit Agreement. The Company defaulted on its obligations
under the M&T Credit Agreement as a result of its failure to comply with
financial covenants contained in the M&T Credit Agreement, including
obligations to maintain certain leverage and fixed charge coverage ratios. As a
consequence of the default, M&T exercised its right to declare all
outstanding obligations under the credit facilities to be immediately due and
payable and demanded the immediate payment of approximately $12.8 million,
consisting of approximately (i) $7.4 million under the M&T Revolver; (ii)
$3.9 million under the M&T Term Loan; and (iii) $1.5 million under a letter
of credit. Also pursuant to the notice of default, M&T exercised its right
to terminate the M&T Revolver and the M&T Term Loan and to terminate its
obligation to make any additional loans or issue additional letters of credit to
the Company.
In
connection with the Loan Agreement with ComVest described above, the Company and
M&T entered into a Loan Modification and Restructure Agreement dated June
20, 2008 (the “M&T Restructure Agreement”) pursuant to which the parties
agreed to: (i) consolidate the M&T revolving credit loan of $7,065,809 and
the M&T term loan of $3,866,667 (the “M&T Obligations”), (ii) reduce the
carrying amount of the consolidated obligations from $10,932,476 to $8,600,000,
net of cash payments made during the negotiations, (iii) subordinate the M&T
Obligations to the Company’s obligations to ComVest (the “ComVest Obligations”)
and (iv) permit the Company to repay the M&T Obligations on a deferred term
basis. The M&T Restructure Agreement provides that on the earlier of the
first day of the calendar month following the Company’s full satisfaction of the
ComVest Obligations or January 1, 2011 (the “Obligations Amortization Date”),
the Company shall repay a total of $3 million in principal amount (the “M&T
Deferred Obligations”) to M&T in 36 equal monthly payments plus interest on
the outstanding balance of such amount at a rate of 5% per annum, subject to
increase to 12% per annum upon occurrence of certain agreement termination
events and spring back events, as set forth in the agreement. In the event of a
sale of substantially all of the Company’s or any subsidiary’s assets, a capital
infusion or an infusion of subordinated indebtedness, the Company must prepay
the M&T Deferred Obligations by an amount equal to 25% of such proceeds as
are payable to ComVest under such circumstances.
105
The
Company issued to M&T warrants to purchase, in the aggregate, 1,500,000
shares of its common stock, of which warrants to purchase 1,200,000 shares have
an exercise price of $0.01 and warrants to purchase 300,000 shares have an
exercise price of $1.00. In accordance with ASC 480 “Distinguishing Liabilities
from Equity, the fair value of all of the warrants has been classified as a
liability since M&T has the right to put the warrants back to the Company in
exchange for a cash settlement of $1.00 per share. The Company valued the
warrants at $1,247,246 using the Black-Scholes valuation model and the value was
offset against the gain on restructuring of debt. At December 31,
2009 and 2008, the Company’s consolidated balance sheet included a warrant
liability of $1,202,941 and $1,213,433, respectively, related to the fair value
of warrants issued to M&T in connection with the M&T Restructure
Agreement.
The
Company accounted for the M&T Restructure Agreement pursuant to ASC Topic
470-60, “Troubled Debt Restructurings by Debtors” , which required the Company
to reduce the carrying amount of the old debt (M&T Obligations of
$10,932,476) by the minimum cash value of the put option of the warrants issued
($1,200,000) and the warrant liability of $47,246, and determine whether the
carrying value of the remaining debt exceeded the future cash payments of the
new debt (M&T Loan Modification of $8,600,000 and future interest payment of
$218,750). ASC Topic 470-60 also requires that the new debt be
recorded as the total of future cash payments. The excess of
the carrying amount of the remaining debt over the future cash payments of the
new debt was $866,480, which was reduced by the unamortized deferred financed
cost and current refinancing cost of $179,683. As a result of the application of
ASC Topic 470-60, the Company recorded a gain of $686,797 ($0.05 per share),
which is reflected in the consolidated statement of operations for the year
ended December 31, 2008.
M&T
had issued (i) a certain certificate of deposit to the Company in the amount of
$1.5 million (the “COD”) and (ii) a certain standby letter of credit for the
account of the Company in favor of Ace Risk Management (the “Ace Letter of
Credit”). M&T liquidated the COD and applied $600,000 of the COD to the
M&T Obligations. To the extent M&T is required to make payments under
the Ace Letter of Credit in excess of $900,000 at any time, such excess shall be
added to the M&T Deferred Obligations. Excesses of such amount paid will be
remitted to the Company and/or applied to the M&T Deferred Obligations in
accordance with the M&T Restructure Agreement.
106
Pursuant
to the M&T Restructure Agreement, the Company must comply with various
covenants while the M&T Deferred Obligations are outstanding and provided
that (i) no bankruptcy or insolvency event has taken place and (ii) the Company
and/or its subsidiaries have not terminated operation of their business without
the prior written consent of M&T (each being a “Spring Back Event”). Such
covenants include, but are not limited to: delivery to M&T of financial and
other information delivered to ComVest; restrictions on the aggregate
compensation which may be paid to the Chief Executive Officer and Chief
Financial Officer of the Company; limitations on dividends and distributions of
cash or property to equity security holders of the Company and/or redemptions or
purchases of capital stock or equity securities of other entities; restrictions
on collateralizing subordinated indebtedness. At December 31, 2009, the Company
with all applicable covenants set forth in the M&T Restructure
Agreement.
The
M&T Restructure Agreement provides that the Company may continue to pay
regularly scheduled payments (but not prepayments or accelerated payments) on
(i) existing subordinated indebtedness, except to the extent prohibited by the
ComVest transaction documents and (ii) the Blue Lake Note as defined below. For
each $50,000 paid on account of the Blue Lake Note, Michael D. Traina, the
Company’s Chairman of the board of directors and Chief Executive Officer, and
Christopher Ferguson, a stockholder and the former director, President and
Secretary of the Company, shall, on a several basis, be liable as sureties for
the M&T Deferred Obligations, each in the amount of $10,000, subject to an
aggregate amount of each surety’s liability of $150,000.
On March
17, 2010, the Company received a letter from M&T (the “M&T Letter”) in
connection with the M&T Restructure Agreement. The M&T Letter
states that it serves as a notice of existence of events of default under the
M&T Restructure Agreement, including the Company’s failure to comply with
its covenant to collect the M&T Accounts, the Company’s failure to deliver
certain financial information to M&T and the existence of events of default
under the Amended Loan Agreement with ComVest. In addition, M&T
requested an explanation of the Company’s efforts to collect the M&T
Accounts, evidence that remittances from the Accounts were applied in accordance
with the Restructure Agreement and copies of all information furnished to
ComVest pursuant to the Amended Loan Agreement. The M&T Letter
further provides that all of its rights, benefits and security against the
Company in connection with such alleged defaults, including the right to
accelerate the M&T Deferred Obligations, are reserved (See Note 19 –
Subsequent Events).
An event
of default under the Restructure Agreement would trigger a cross-default
provision pursuant to the Loan Agreement with ComVest, unless such default is
waived in writing by ComVest. If the cross-default provision is
triggered, ComVest may, among other things, declare all outstanding obligations
under the Loan Agreement to be immediately due and
payable.
The
M&T Restructure Agreement does not terminate or extinguish any of the liens
or security interests granted to M&T pursuant to the M&T Credit
Agreement and related documents.
Note
Payable to Blue Lake Rancheria
On March
1, 2005, CPR issued a Promissory Note (“Blue Lake Note”) to Blue Lake Rancheria,
a fully recognized Indian tribe (“Blue Lake”), for $1,290,000 in principal
amount guaranteed by Messrs. Traina and Ferguson. The Blue Lake Note matured on
March 31, 2008. Effective March 31, 2008, CPR amended and restated the Blue Lake
Note and extended its maturity date under the Agreement, dated as of March 31,
2008, by and between CPR and Blue Lake (the “Blue Lake Agreement”). Pursuant to
the Blue Lake Agreement, on April 14, 2008, CPR and Blue Lake entered into an
Amended and Restated Promissory Note (“Amended Blue Lake Note”) with a principal
amount of $1,290,000, which is due and payable as follows: (i) $200,000 was paid
on April 8, 2008; (ii) $50,000 is payable on the first business day of each
calendar month for 12 consecutive months (totaling $600,000 in the aggregate),
the first payment to occur on May 1, 2008, and the last to occur on April 1,
2009; and (iii) on April 30, 2009, CPR is obligated to pay to Blue Lake the
balance of the principal amount, equal to $490,000, plus accrued interest. The
interest rate in the Amended Blue Lake Note was increased from 6% to 10% per
annum. ClearPoint agreed to issue 900,000 shares (“Escrow Shares”) of
ClearPoint’s common stock in the name of Blue Lake to be held in escrow,
pursuant to an escrow agreement, as security for the payment of the principal
amount and interest under the Amended Blue Lake Note.
107
CPR did
not make the required payments of: (i) $50,000 in January, 2009 and (ii)
$490,000, plus accrued interest, of which $45,033 was accrued as of December 31,
2009, in April, 2009 under the Amended Blue Lake Note. On May 1,
2009, the Company received a notice from Blue Lake indicating CPR’s failure to
pay such amounts and demanding that the Company immediately pay a total of
approximately $572,744. Pursuant to the terms of the Amended Blue
Lake Note, CPR’s failure to make the foregoing payments when due constitutes an
event of default if not cured within five business days of receipt of written
notice from Blue Lake. The Company did not cure such default on or
prior to May 8, 2009. On May 7, 2009, Blue Lake requested
disbursement of the Escrow Shares and, pursuant to the Escrow Agreement; the
escrow agent was obligated to deliver the Escrow Shares to Blue Lake 10 calendar
days after receipt of the request for disbursement.
An event
of default under the Amended Blue Lake Note triggers a cross-default provision
pursuant to the Loan Agreement with ComVest. In addition, a default
under the Loan Agreement would trigger a cross-default provision pursuant to the
M&T Restructure Agreement unless the default under the Loan Agreement is
waived in writing by ComVest. On May 13, 2009, ComVest executed a
waiver letter (the “Blue Lake Waiver”) to the Loan
Agreement. Pursuant to the Blue Lake Waiver, effective May 1, 2009,
ComVest waived the cross-default provision which was triggered by CPR’s failure
to make the payments due under the Amended Blue Lake Note and all remedies
available to ComVest as a result of the failure to make such payments provided
that such payments due under the Amended Blue Lake Note are paid solely in
Escrow Shares. On August 14, 2009, ComVest executed a waiver letter,
which waived all of the Company’s defaults under the Blue Lake Note through
August 14, 2009.
On July
14, 2009, Blue Lake filed a Complaint in the Superior Court of Humboldt County,
California seeking payment of the $490,000, plus accrued interest and fees (see
Note 18 – Litigation).
Deferred
Financing Costs
Amortization
of deferred financing costs related to M& T for the years ended December 31,
2009 and 2008 was $0 and $157,696 respectively. The balance of the deferred
financing costs related to the M&T financing of $78,614 was offset against
the gain on the restructuring of debt. Amortization of deferred
financing costs related to ComVest for the years ended December 31, 2009 and
2008 was $232,395 and $111,759, respectively. The balance of the deferred
financing costs related to the ComVest financing of $258,991 was included in the
loss on extinguishment of debt for the year ended December 31,
2009.
On March
1, 2005, CPR issued Amended and Restated Notes (collectively, the “Sub Notes”)
to each of Matthew Kingfield, B&N Associates, LLC, Alyson P. Drew and Fergco
Bros. LLC (collectively, the “Sub Noteholders”) for $50,000, $100,000, $100,000
and $300,000, respectively. Ms. Drew is the spouse of ClearPoint’s director
Parker Drew. Fergco Bros. LLC (“Fergco”) is twenty-five percent (25%) owned by
Mr. Ferguson, a stockholder of the Company.
Effective
March 31, 2008, the Company amended and restated the Sub Notes and extended
their maturity dates under the amended sub notes, dated March 31, 2008 and
issued by CPR to each Sub Noteholder (collectively, the “Amended Sub
Notes”). All sums outstanding from time to time under each Amended
Sub Note bear the same interest of 12% per annum as under the Sub Note. CPR’s
failure to make any payment of principal or interest under the Amended Sub Note
when such payment is due constitutes an event of default, if such default
remains uncured for 5 business days after written notice of such failure is
given to CPR by the Sub Noteholder. Upon an event of default and at
the election of the Sub Noteholder, the Sub Note, both as to principal and
accrued but unpaid interest, will become immediately due and
payable.
108
On June
20, 2008, CPR exercised its right to extend the maturity date of the Amended Sub
Notes to March 31, 2010 and, in connection with such extension, issued a notice
dated June 25, 2008 (the “Sub Noteholder Notices”) to each Sub Noteholder.
The Sub Noteholder Notices notified the Sub Noteholders that ClearPoint
extended the maturity date of the Sub Notes in connection with its transaction
with ComVest, as described above. In connection with the Sub Noteholder Notices,
the Sub Noteholders received Additional Sub Note Warrants to purchase 82,500 Sub
Note Warrant Shares at an exercise price of $1.55 per share. The Additional Sub
Note Warrant is immediately exercisable during the period commencing on June 20,
2008 and ending on March 31, 2011. The Company valued the warrants at
$7,619 using the Black-Scholes valuation model and they were expensed under
selling, general and administrative expenses. The exercise price and
the number of Sub Note Warrant Shares are subject to adjustment in certain
events, including a stock split and reverse stock split.
CPR did
not make the required quarterly interest payments for July 2009 under the
Amended Sub Notes for the year ended December 31, 2009, in the aggregate amount
of $27,500. Pursuant to the terms of the Amended Sub Notes, CPR’s
failure to make the foregoing payments when due constitutes an event of default
if not cured within five business days of receipt of written notice from a Sub
Noteholder. An event of default under the Amended Sub Notes triggers a
cross-default provision pursuant to the Loan Agreement with
ComVest. In addition, a default under the Loan Agreement would
trigger a cross-default provision pursuant to the M&T Restructure Agreement
unless the default under the Loan Agreement is waived in writing by
ComVest. On August 14, 2009, ComVest executed a waiver letter, which
waived all of the Company’s defaults under the Amended Sub Notes through August
14, 2009.
In
connection with the Loan Agreement with ComVest described above, ComVest entered
into a Subordination Agreement dated June 20, 2008 (the “Noteholder
Subordination Agreement”) with each of the Sub Noteholders and CPR. Pursuant to
the Noteholder Subordination Agreement, the Sub Noteholders agreed to
subordinate the Company’s obligations to them under the Amended Sub Notes to the
ComVest Obligations. So long as no event of default under the ComVest Loan
Agreement has occurred, the Company may continue to make scheduled payments of
principal and accrued interest when due in accordance with the Sub Notes, as
amended. In the case of an event of default under the Loan Agreement with
ComVest, the Company may not pay and the Sub Noteholders may not seek payment on
the Sub Notes, as amended, until the ComVest Obligations have been satisfied in
full. The Noteholder Subordination Agreement also sets forth priorities among
the parties with respect to distributions of the Company’s assets made for the
benefit of the Company’s creditors.
109
On
September 11, 14 and 15, 2009, CPR amended and restated the Sub Notes by issuing
third amended and restated promissory notes dated September 8, 2009 (the “Third
Amended Sub Notes”) to Fergco, Alyson Drew, B&N Associates, LLC and Matthew
Kingfield, respectively, for $550,000 in aggregate principal
amount. As of the dates of issuance of the Third Amended Sub Notes,
ClearPoint was in default in the aggregate amount of $25,000 in past due
interest under the Sub Notes. Pursuant to the Third Amended Sub
Notes, principal amounts shall be due and payable in monthly installments equal
to 10% of the principal amount of the Third Amended Sub Notes beginning March
31, 2010. The Third Amended Sub Notes continue to bear interest at
the rate of 12% per annum. Interest due for the period of May 1, 2009
through August 31, 2009 and additional interest accruing for the period of
September 1, 2009 through February 28, 2010 shall be deferred and paid in
monthly installments beginning March 31, 2010. Interest payments for
the period beginning March 1, 2010 and future periods will be paid monthly, one
month in arrears, beginning April 30, 2010. CPR has the right to
prepay all or any portion of the Third Amended Sub Notes from time to time
without premium or penalty. Any prepayment shall be applied first to
accrued but unpaid interest and then applied to reduce the principal amount
owed. The Third Amended Sub Notes provide that CPR’s failure to make
any payment of principal or interest due shall constitute an event of default if
uncured for five days after written notice has been given by the Sub Noteholders
to CPR. Upon the occurrence of an event of default and at any time
thereafter, all amounts outstanding under the Third Amended Sub Notes shall
become immediately due and payable.
The
Company did not make certain required payments to the sub noteholders on March
31, 2010 in principal of $55,000 and interest of $5,500 totaling
$60,500.
Bridge
Notes
On June
12, 2008, the Company issued notes (the “Original Bridge Notes”) to each of
Messrs. Traina, Drew and TerraNova Partners, L.P. (“TerraNova Partners” and,
together with Messrs. Traina and Drew, the “Bridge Lenders”) in the principal
amounts of $104,449, $50,000 and $100,000, respectively. Mr. Drew is a member of
the Company’s board of directors and TerraNova Partners, a stockholder of the
Company, is 100% beneficially owned by Mr. Kololian, the Company’s former lead
director. Mr. Kololian also controls 100% of the voting interest and 55% of the
non-voting equity interest in the general partner of TerraNova Partners. During
the course of negotiations with ComVest, Mr. Traina agreed to loan an additional
$5,000 to the Company. On June 26, 2008, the Company issued amended and restated
Original Bridge Notes (the “Amended Bridge Notes”) to each Bridge Lender. The
Amended Bridge Notes contain identical terms and provide that (i) the principal
amount of the Amended Bridge Notes will bear interest at a rate of 8% per annum,
payable quarterly and (ii) the Company shall have the right to repay the Amended
Bridge Notes in shares of Common Stock at a price equal to the closing price of
the Common Stock on June 26, 2008. The Amended Bridge Notes do not contain the
provision stating that the principal balance will bear interest only upon demand
for payment by the Bridge Lender, as provided in the Original Bridge
Note.
On August
12, 2008, the Company’s board of directors approved the payment of the Amended
Bridge Note issued to TerraNova Partners in 204,082 shares of common stock,
based on a valuation at the June 26, 2008 closing price in accordance with the
terms of the Amended Bridge Note. On March 6, 2009, these shares were
issued to TerraNova Partners.
110
Promissory
Notes
CPR
issued promissory notes (the “Promissory Notes”), dated February 22, 2008, in
the aggregate principal amount of $800,000, to each of Messrs. Traina and
Ferguson, in consideration for loans of $800,000 made to CPR.
The terms
of the Promissory Notes were identical. The principal amount of each Promissory
Note was $400,000, and each bore interest at the rate of 6% per annum, which was
to be paid quarterly, and each were due on February 22, 2009. The Promissory
Notes were subordinate and junior in right of payment to the prior payment of
any and all amounts due to M&T pursuant to the M&T Credit Agreement, as
amended. On February 28, 2008, ClearPoint Workforce, LLC (“CPW”), a wholly owned
subsidiary of CPR, advanced $800,000, on behalf of Optos, to the provider of
Optos’ outsourced employee leasing program. The advanced funds were utilized for
Optos’ payroll. In consideration of making the advance on its behalf, Optos
assumed the Promissory Notes, and the underlying payment obligations, issued by
CPR on February 22, 2008.
Note
Payable to ALS, LLC
In
connection with the transaction with ComVest described above, on June 20, 2008,
the Company entered into a Letter Agreement dated June 20, 2008 (the “ALS
Agreement”) with ALS, LLC and its subsidiaries whereby the parties agreed, among
other things: (i) to execute the ALS Subordination Letter dated June 20, 2008,
as defined below; (ii) to amend the ALS Note to provide for an outstanding
principal amount of $2,155,562 (remaining principal balance of $2,022,900 plus
accrued interest of $132,662) bearing interest at a rate of 5% per annum (a
reduction from 7%) payable in 24 equal monthly installments, commencing January
2014, payable as permitted pursuant to the ALS Subordination Letter; (iii) that
the Company would issue 350,000 shares of common stock to ALS (the “ALS Shares”)
in accordance with the ALS Acquisition; (iv) that ALS may defend and indemnify
the Company in connection with the TSIL Litigation, as defined in Note 18 –
Litigation, and (v) that the parties will take all appropriate actions to
dismiss their claims against each other in connection with the TSIL
Litigation.
The
transaction was not classified as a restructuring of debt. The Company valued
the ALS Shares at their fair market value as of the date of issuance of $101,500
and recorded that amount as an expense during the year ended December 31,
2008.
Pursuant
to a Subordination Letter sent by ALS to ComVest, M&T and the Company dated
June 20, 2008 (the “ALS Subordination Letter”), ALS agreed that the Company may
not make and ALS may not receive payments on the ALS Note, provided however,
that (i) upon payment in full of all obligations under the Term Loan owing to
ComVest and so long as the Company is permitted to make such payments, the
Company shall make monthly interest payments on the outstanding principal
balance of the ALS Note and (ii) upon payment in full of the M&T
Obligations, the Company shall make 24 equal monthly installments on the ALS
Note, as amended pursuant to the ALS Agreement described above. The
subordination letter restricts payments until 2014. For the year
ended December 31, 2009 and 2008, the Company recorded $70,350 and $58,098,
respectively, in interest expense associated with the ALS Note. As of
December 31, 2009, the Company had $261,200 of accrued interest payable recorded
on its consolidated balance sheet associated with the ALS Note. The Company
presented the ALS Note on the balance sheet net of other assets of $300,000 in
expenses related to the TSIL Litigation as per the letter agreement dated June
20, 2008 and an advance payment of $330,000 on the ALS Note, which nets out to
$1,653,347 (see Note 18 – Litigation).
111
Note
Payable to StaffBridge
On
December 31, 2007, the note payable to former shareholders of StaffBridge, Inc.
for purchase of the common stock of StaffBridge, Inc. (“StaffBridge Note”) dated
August 14, 2006 was amended from an original maturity date of December 31, 2007
to a new maturity date of June 30, 2008. In addition, the amount of the
StaffBridge Note was increased to $486,690 for accrued interest and the interest
rate was increased to eight percent from six percent per annum payable in
monthly installments starting January 15, 2008. The Company incurred an
origination fee in the amount of $19,467, which equaled four percent of the
principal amount in the form of 9,496 shares of common stock of the Company.
This fee was charged to interest expense.
In
addition, in connection with the financing transaction with ComVest, on June 30,
2008, the former shareholders of StaffBridge, Inc. (the “StaffBridge
Shareholders”), executed a Debt Extension Agreement (the “Debt Extension
Agreement”) and entered into a Subordination Agreement (the “StaffBridge
Subordination Agreement”) with ComVest and CPR.
Pursuant
to the Debt Extension Agreement, the StaffBridge Shareholders agreed that, in
connection with the receipt from the Company of $150,000 payable for work
performed by TSP 2, Inc., an entity controlled by certain StaffBridge
Shareholders and a contractor for the Company (“TSP”), the StaffBridge Note was
amended, effective June 30, 2008, to extend the maturity date to December 31,
2008 and to reduce the outstanding principal amount to $336,690.
Effective
December 31, 2008, the StaffBridge Note was further amended pursuant to a second
Debt Extension Agreement dated December 31, 2008 to provide for the following
payment schedule of the outstanding amount due under the StaffBridge Note:
$100,000 was paid on January 12, 2009 and the remaining balance shall be paid in
four equal quarterly payments of $59,172, beginning on March 31, 2009, which was
made, and ending on December 31, 2009. Amendment No. 1 to the ComVest
Loan Agreement contains ComVest’s acknowledgment and consent to the Company’s
amendment of the payment terms and payment schedule of the StaffBridge Note
pursuant to the second Debt Extension Agreement.
The
Company did not make the required quarterly payment to StaffBridge for the
quarter ended June 30, 2009 of $59,172 and was also in arrears on interest
payments due in the amount of $2,366. An event of default under the
StaffBridge Note triggers a cross-default provision pursuant to the Loan
Agreement with ComVest. In addition, a default under the Loan
Agreement would trigger a cross-default provision pursuant to the M&T
Restructure Agreement unless the default under the Loan Agreement is waived in
writing by ComVest. On August 14, 2009, ComVest executed a waiver
letter which waived all of the Company’s defaults under the StaffBridge Note
through August 14, 2009.
On
September 15, 2009, the StaffBridge Note was amended pursuant a Debt Extension
Agreement Amendment dated September 3, 2009 (the “Extension
Agreement”). Pursuant to the Extension Agreement, the outstanding
balance under the StaffBridge Note shall be paid in monthly installments
beginning February 15, 2010. Each monthly installment payment under
the StaffBridge Note will be in the total amount of $17,106, consisting of (i)
$16,138 with respect to the outstanding principal balance and (ii) $968 relating
to accrued and unpaid interest as of August 31, 2009 and interest for the period
of September 1, 2009 through January 31, 2010. The StaffBridge Note
continues to bear interest at the rate of 8% per annum.
The
Company did not make certain required payments due February 15, 2010 or March
15, 2010 in principal of $33,000 and interest of $4,302 totaling $37,302 under
the StaffBridge note, as amended.
Pursuant
to the StaffBridge Subordination Agreement, the StaffBridge Shareholders agreed
to subordinate the Company’s obligations to them under the StaffBridge Note to
the ComVest Obligations. So long as no event of default under the Loan Agreement
with ComVest has occurred, the Company may continue to make scheduled payments
of principal and accrued interest when due in accordance with the StaffBridge
Note. In the case of an event of default under the Loan Agreement,
the Company may not pay and the StaffBridge Shareholders may not seek payment on
the StaffBridge Note until the ComVest Obligations have been satisfied in full.
The Subordination Agreement also sets forth priorities among the parties with
respect to distributions of the Company’s assets made for the benefit of the
Company’s creditors.
112
NOTE
12 — STOCK-BASED COMPENSATION:
On
February 12, 2007, the Company adopted the 2006 Long-Term Incentive Plan (the
“Plan”) which was approved by stockholders. Under the Plan, the
Company grants stock options to key employees, directors and consultants of the
Company. All grants prior to March 31, 2007 are 100%
vested. Options granted to two employees on September 11, 2007 are
100% vested. Options granted on September 11, 2007 to all other
employees of the Company are one-third vested as of September 11, 2007, an
additional one-third vested as of September 17, 2008 with the remaining
one-third vested as of September 11, 2009. With respect to the
options granted August 20, 2008, the vesting period is one-third on August 20,
2009, an additional one-third on August 20, 2010 with the remaining one-third on
August 20, 2011. Options expire between 3 and 10 years from the date
of grant or earlier at the determination of the board of directors.
Accounting
for Employee Awards
The Plan
is accounted for in accordance with the recognition and measurement provisions
under ASC Topic 718, “Compensation – Stock Compensation,” which established the
accounting for stock-based compensation awards exchanged for employee services
and requires companies to expense the estimated fair value of these awards over
the requisite employee service period. The Company measures and
recognizes the cost of stock-based awards granted to employees and directors
based on the grant-date fair value of the award and recognizes expense over the
vesting period. The Company estimates the grant date fair value of
each award using a Black-Scholes option-pricing model.
The
Company’s results of operations for the years ended December 31, 2009 and 2008
include share based employee compensation expense totaling $40,223 and $42,356,
respectively. Such amounts have been included in the Statements of
Operations in selling, general and administrative expense. No income
tax benefit has been recognized in the Statements of Operations for share-based
compensation arrangements as the Company has provided for a 100% valuation
allowance on its deferred tax assets.
Accounting
for Non-Employee Awards
Stock
compensation expenses related to non-employee options were $19,406 and $6,487
for the years ended December 31, 2009 and 2008, respectively. Such
amounts have been included in the Statements of Operations in selling, general
and administrative expense.
Total
stock-based compensation all of which relates to stock options, was $59,629 and
$48,843 for the years ended December 31, 2009 and 2008,
respectively.
113
The
assumptions made in calculating the fair values of options issued in
2008 were as follows:
|
Year Ended
December 31, 2008
|
||||
|
Volatility
|
133 | % | ||
|
Expected
term in years
|
6
years
|
|||
|
Risk-free
interest rate
|
3.17 | % | ||
|
Expected
dividend yield
|
0 | % | ||
The
following information relates to the stock option activity under the Plan for
the years ended December 31, 2009 and 2008:
|
2009
|
2008
|
|||||||||||||||
|
Shares subject
to Options
|
Weighted
Average Option
Prices
|
Shares subject
to Options
|
Weighted
Average Option
Prices
|
|||||||||||||
|
Outstanding
at January 1
|
1,002,008 | $ | 1.01 | 766,000 | $ | 5.68 | ||||||||||
|
Granted
|
— | — | 605,000 | 1.13 | ||||||||||||
|
Exercised
|
— | — | — | — | ||||||||||||
|
Cancelled
|
(73,908 | ) | 3.40 | (368,992 | ) | 1.33 | ||||||||||
|
Outstanding
at December 31
|
928,100 | 2.87 | 1,002,008 | 1.01 | ||||||||||||
|
Exercisable
at December 31
|
593,766 | 4.31 | 513,230 | 0.92 | ||||||||||||
|
Weighted
Average Remaining Contractual Terms (Years)
|
||||||||||||||||
|
Outstanding
|
4.94 | 5.81 | ||||||||||||||
|
Exercisable
|
2.85 | 4.81 | ||||||||||||||
|
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual
Life
|
||||||||||
|
Granted
March, 2007
|
645,000 | $ | 6.10 |
0.24
years
|
||||||||
|
Granted
September, 2007
|
171,000 | $ | 4.10 |
7.70
years
|
||||||||
|
Granted
August, 2008
|
605,000 | $ | 0.30 |
8.67
years
|
||||||||
|
Exercised
|
— | — | — | |||||||||
|
Cancelled
|
(492,900 | ) | — | — | ||||||||
|
Outstanding
at December 31, 2009
|
928,100 | $ | 2.87 |
5.17
years
|
||||||||
The
aggregate intrinsic value for the options in the table above was zero at
December 31, 2009 based on the closing common share price of $0.01 as at
December 31, 2009. The aggregate intrinsic value represents the difference
between the Company’s closing stock price December 31, 2009 and the exercise
price, multiplied by the number of in-the-money options that would have been
received by the option holders had all option holders exercised their options on
December 31, 2009. This amount changes based on the fair market value of the
Company’s common stock.
As of
December 31, 2009 and December 31, 2008, there was $71,433 and $129,324
respectively of unrecognized compensation cost related to all unvested stock
options.
114
The
following information relates to warrant activity for the years ended December
31, 2009 and 2008:
|
2009
|
2008
|
|||||||||||||||
|
Number of
Warrants
|
Weighted
Average
Exercise Price
|
Number of
Warrants
|
Weighted
Average
Exercise Price
|
|||||||||||||
|
Balance,
January 1
|
14,915,825 | $ | 3.80 | 11,040,000 | $ | 5.00 | ||||||||||
|
Issued
during the period
|
175,000 | 0.19 | 3,875,825 | 0.08 | ||||||||||||
|
Exercised
during the period
|
— | — | — | |||||||||||||
|
Cancelled
during the period
|
(11,040,000 | ) | 5.00 | — | — | |||||||||||
|
Balance,
December 31
|
4,050,825 | 0.15 | 14,915,825 | 3.80 | ||||||||||||
As at
December 31, 2009, the range of exercise prices of the outstanding warrants was
as follows:
|
Range of exercise
prices
|
Number of warrants
|
Average remaining
contractual life
|
Weighed average
exercise price
|
|||||||||||
| $ | 0.01 - 1.55 | 4,050,825 | 3.5 | $ | 0.15 | |||||||||
Warrants
issued in 2009 were valued using the Black-Scholes model, using the weighted
average key assumptions of volatility of 255% - 309%, a risk-free interest rate
of 1%, a term equivalent to the life of the warrant and reinvestment of all
dividends in the Company of zero percent.
NOTE
13— FAIR VALUE MEASUREMENTS:
The
Company follows the provisions of ASC Topic 820, “Fair Value Measurements and
Disclosures,” which clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the
inputs used in measuring fair value.
The fair
value hierarchy has three levels based on the reliability of the inputs used to
determine fair value as follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The
Company has warrants classified as liabilities which are measured at fair value
on a recurring basis. These warrants are measured at fair value using the
Black-Scholes valuation model. In selecting the appropriate fair value technique
the Company considers the nature of the instrument, the market risks that it
embodies, and the expected means of settlement.
115
The
following tables present the Company’s liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value
hierarchy.
116
|
Fair Value Measurements Reporting Date
|
||||||||||||||||
|
Description
|
December 31,
2008
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Warrant
Liability
|
$ | 1,213,433 | $ | — | $ | — | $ | 1,213,433 | ||||||||
2008
|
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
|
||||
|
Beginning
Balance
|
$ | — | ||
|
Total
(gains) or losses (realized/unrealized)
|
||||
|
Included
in earnings
|
(33,813 | ) | ||
|
Included
in other comprehensive income
|
— | |||
|
Purchases,
issuances and settlements
|
1,247,246 | |||
|
Transfer
in and/or out of Level 3
|
— | |||
|
Ending
Balance
|
$ | 1,213,433 | ||
|
Fair Value Measurements Reporting Date
|
||||||||||||||||
|
Description
|
December 31,
2009
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Warrant
Liability
|
$ | 1,388,393 | $ | — | $ | — | $ | 1,388,393 | ||||||||
2009
|
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
|
||||
|
Beginning
Balance
|
$ | 1,213,433 | ||
|
Total
(gains) or losses (realized/unrealized)
|
||||
|
Included
in earnings
|
86,529 | |||
|
Included
in other comprehensive income
|
— | |||
|
Purchases,
issuances and settlements
|
88,431 | |||
|
Transfer
in and/or out of Level 3
|
— | |||
|
Ending
Balance
|
$ | 1,388,393 | ||
Fair Value of Financial Instruments
not measured at fair value on a recurring basis: The carrying amount of
cash, accounts receivable, debt, and accounts payable are considered
representative of their respective fair values because of the short-term nature
of these financial instruments. Long-term debt approximates fair value due to
the interest rates on the promissory notes approximating current
rates.
117
NOTE
14 — COMMITMENTS AND CONTINGENCIES:
Leases:
The
Company leases office space under an operating lease that expires in
May, 2010. Future minimum rental payments required under operating leases due in
fiscal 2010 amount to $53,340. The above lease commitments do not include future
minimum rental payments that have been accrued for in restructuring costs (see
Note 10 – Accrued Restructuring Costs). Rent expense for 2009 and
2008 was $164,344 and $190,383, respectively.
Employee
Benefit Plan:
In 1991,
Quantum Resources Corporation (“Quantum”) established a savings and profit
sharing (IRC Section 401(k)) plan (“Plan”). The Company acquired all of the
outstanding stock of Quantum on July 29, 2005 and, as a result, assumed the
Plan. As of January 1, 2006, the Plan was amended to include
additional employees of Quantum and to meet IRS safe harbor provisions.
Employees are eligible to participate upon their date of hire. Participants may
elect to defer a percentage of their compensation subject to the Internal
Revenue Service limit on elective deferrals. The Plan also allows for a
discretionary Company match of elective deferrals that will vest on a three-year
cliff vesting schedule. There was no Company match for the years ended
December 31, 2009 and 2008.
Retirement
Benefit Liability:
Upon its
acquisition of Quantum, the Company assumed a stock purchase agreement dated
December 30, 1986 with a former owner. The agreement called for the payment
of retirement benefits in equal monthly payments, adjusted for the cost of
living increases equal to the Consumer Price Index. The former owner is entitled
to these benefits until his death.
The
Company recorded an estimated liability of $220,066 based upon the expected
remaining life of the former owner, and made payments of $132,447 and
$33,057 in the years ended December 31, 2009 and 2008,
respectively. Estimated future payments to the former owner are as
follows:
|
Year Ending December 31,
|
||||
|
2010
|
$ | 84,420 | ||
|
2011
|
84,420 | |||
|
2012
|
84,420 | |||
|
2013
|
84,420 | |||
|
Total
minimum payments
|
337,680 | |||
|
Present
value (at 12.25% discount rate) net minimum retirement
payments
|
$ | 220,066 | ||
|
Less,
current portion
|
(84,420 | ) | ||
| $ | 135,646 | |||
118
NOTE
15 — INCOME TAXES:
Deferred
tax assets and liabilities are determined based on temporary differences between
income and expenses reported for financial reporting and tax reporting. The
Company is required to record a valuation allowance to reduce its net deferred
tax assets to the amount that it believes is more likely than not to be
realized. In assessing the need for a valuation allowance, the Company
historically had considered all positive and negative evidence, including
scheduled reversals of deferred tax liabilities, prudent and feasible tax
planning strategies and recent financial performance. The Company determined
that the negative evidence, including historic and current losses, as well as
uncertainties related to the ability to utilize Federal and state net loss
carry-forwards, outweighed any objectively verifiable positive factors, and as
such, concluded that a full valuation allowance against the deferred tax assets
was necessary. In the first quarter of fiscal 2008, the deferred tax asset
balance was offset by $5,007,180 valuation allowance. In addition, the Company
established a 100% valuation allowance against the income tax benefit resulting
from operations during the year ended December 31, 2008 and December
31, 2009. The establishment of the deferred tax asset allowance does
not preclude the Company from reversing a portion or all of the allowance in
future periods if the Company believes the positive evidence is sufficient
enough to utilize at least a portion of the deferred tax assets, nor does it
limit the ability to utilize losses for tax purposes, subject to loss
carry-forward limitations and periods permitted by tax law.
The
Company filed all applicable federal and state income tax returns to enable it
to receive the minimum amount required under the M&T Restructure Agreement
and believes that these funds will be received prior to December 31, 2008. To
the extent they are received, these funds will be remitted directly to M&T
in satisfaction of that portion of the Company’s obligation. During the year
ended December 31, 2008, the Company received and remitted approximately
$1,058,000 in federal and state tax refunds to M&T. During the
year ended December 31, 2009, the Company received and remitted approximately
$58,889 in state tax refunds and no federal tax refunds to M&T.
An
analysis of the Company’s net deferred tax assets is as follows:
|
December 31
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax (liabilities) assets:
|
||||||||
|
Current:
|
||||||||
|
Allowance
for doubtful accounts
|
$ | 2,048,576 | $ | 2,898,090 | ||||
|
Accrued
termination fee
|
195,000 | 195,000 | ||||||
|
Warrant
Liabilities
|
445,685 | — | ||||||
|
Stock
options
|
541,473 | 410,600 | ||||||
| 3,230,734 | 3,503,690 | |||||||
|
Valuation
allowance
|
(3,230,734 | ) | (3,503,690 | ) | ||||
|
Current
|
— | — | ||||||
|
Non-current:
|
||||||||
|
Book
to tax depreciation difference
|
(14,348 | ) | (11,319 | ) | ||||
|
Financing
cost, principally due to difference in amortization
|
7,634,231 | 8,174,032 | ||||||
|
Accrued
restructuring costs
|
121,619 | 172,678 | ||||||
|
Accrued
retirement benefits
|
85,826 | 131,840 | ||||||
|
Charitable
contribution carryover
|
9,514 | 9,514 | ||||||
|
Net
operating loss carryforward
|
6,864,965 | 5,420,069 | ||||||
| 14,701,807 | 13,896,814 | |||||||
|
Valuation
allowance
|
(14,701,807 | ) | (13,896,814 | ) | ||||
|
Deferred
income tax asset, net
|
$ | — | $ | — | ||||
The net
deferred tax asset was presented in the Company’s consolidated balance sheets as
follows:
|
December 31
|
||||||||
|
2009
|
2008
|
|||||||
|
Current
deferred tax asset
|
$ | 3,230,734 | $ | 3,503,690 | ||||
|
Non-current
deferred tax asset
|
14,701,807 | 13,896,814 | ||||||
|
Deferred
Tax Asset before valuation allowance
|
17,932,541 | 17,400,504 | ||||||
|
Valuation
allowance
|
(17,932,541 | ) | (17,400,504 | ) | ||||
|
Deferred
Tax Asset
|
$ | — | $ | — | ||||
119
Current
federal and state income taxes payable of $0 and $208,000 are included in other
current liabilities as of December 31, 2009 and 2008, respectively. The
Company has net operating loss carryforwards for federal purposes of $13,024,838
and $0 for state purposes which expire in various years through
2028. The timing and manner, in which the Company will utilize the
net operating loss carryforwards in any year, or in total, may be limited by
Section 382 of the Internal Revenue Service Code. Such limitations
may have an impact on the ultimate realization and timing of these net operating
loss carryforwards. The components of the income tax expense
(benefit) are summarized as follows:
|
December 31
|
||||||||
|
2009
|
2008
|
|||||||
|
Current:
|
||||||||
|
Federal
income tax (benefit)
|
$ | (1,556,396 | ) | $ | (3,532,501 | ) | ||
|
State
tax (benefit)
|
(175,017 | ) | 208,000 | |||||
|
Total
current tax expense (benefit)
|
(1,731,413 | ) | (3,324,501 | ) | ||||
|
Deferred:
|
||||||||
|
Federal
tax (benefit)
|
(463,487 | ) | (7,465,923 | ) | ||||
|
State
tax (benefit)
|
(68,160 | ) | (1,588,888 | ) | ||||
|
Total
deferred tax (benefit)
|
(531,647 | ) | (9,054,811 | ) | ||||
|
Valuation
allowance
|
2,263,060 | 17,400,504 | ||||||
|
Total
income tax expense (benefit)
|
$ | — | $ | 5,021,192 | ||||
|
December 31
|
||||||||
|
2009
|
2008
|
|||||||
|
Statutory
federal income tax
|
$ | (1,046,000 | ) | $ | (11,480,000 | ) | ||
|
State
income tax
|
(101,000 | ) | (1,114,000 | ) | ||||
|
Non-deductible
intangible asset amortization and other permanent
differences
|
23,000 | 25,000 | ||||||
|
Other
|
— | 189,688 | ||||||
|
Other
– valuation allowance
|
1,124,000 | 17,400,504 | ||||||
| $ | — | $ | 5,021,192 | |||||
120
On
February 12, 2007, the Company entered into an employment agreement with Mr.
Traina, Chief Executive Officer (“CEO”) of the Company, whereby the Company
agreed to pay the CEO $25,000 per month, plus benefits, with the term of the
agreement being 3 years.
On
February 28, 2008, Mr. Ferguson resigned from the Company in connection with the
Optos Licensing Agreement. In connection with Mr. Ferguson’s resignation as the
Company’s and CPR’s director, President and Secretary, the Company and Mr.
Ferguson entered into the Separation of Employment Agreement and General Release
(the “Ferguson Separation Agreement”). In consideration for Mr. Ferguson’s
agreement to be legally bound by the terms of the Ferguson Separation Agreement
and his release of his claims, if any, under the Ferguson Separation Agreement,
Mr. Ferguson is entitled to be reimbursed for any health insurance payments for
Mr. Ferguson for a period equal to 52 weeks. For the years ended December
31, 2009 and December 31, 2008, Mr. Ferguson was reimbursed approximately $9,000
and $12,000, respectively, for health insurance payments. Pursuant to
the Ferguson Separation Agreement, except for the parties’ continuing
obligations under the Employment Agreement between the Company and Mr. Ferguson,
dated as of February 12, 2007, such employment agreement is of no further force
and effect. Pursuant to the Ferguson Separation Agreement, Mr. Ferguson agreed
not to stand for election as a director of the Company, and, for as long as Mr.
Ferguson beneficially owns at least 5% of the Company’s outstanding shares of
common stock, Mr. Ferguson will be entitled to be an observer at each meeting of
the Company’s board of directors. Under the Ferguson Separation Agreement, the
Company entered into a consulting agreement (the “Ferguson Consulting
Agreement”) with Mr. Ferguson pursuant to which he will be paid $25,000 per
month for twelve (12) months. In return, Mr. Ferguson shall assist the Company
with any matters relating to the performance of his former duties and will work
with the Company to effectively transition his responsibilities. As of December
31, 2008, the Company paid Mr. Ferguson $57,692 pursuant to the Ferguson
Consulting Agreement and recorded a related party liability of $256,709 as of
December 31, 2008 pursuant to the Ferguson Consulting Agreement. For the
year ended December 31, 2009 the Company made no payments to Mr.
Ferguson. As a result, a related party liability in the amount of
$256,709 remained as of December 31, 2009.
On June
20, 2008, Kurt Braun, the Company’s former Chief Financial Officer, resigned
effective June 20, 2008. In connection with Mr. Braun’s resignation as the
Company’s Chief Financial Officer, the Company and Mr. Braun entered into a
Separation of Employment Agreement and General Release (the “Braun Separation
Agreement”).
In
consideration of Mr. Braun’s agreement to be legally bound by the terms of the
Braun Separation Agreement, his release of his claims, if any, under the Braun
Separation Agreement, and his agreement to provide the transitional services to
the Company, the Company agreed to, among other things: (i) pay Mr. Braun
$75,000, minus all payroll deductions required by law or authorized by Mr.
Braun, to be paid as salary continuation over 26 weeks beginning within a
reasonable time after the seven day revocation period following execution of the
Braun Separation Agreement; (ii) continue to pay all existing insurance premiums
for Mr. Braun and his immediate family through the 26 week period, and
thereafter permit Mr. Braun, at his own expense, to continue to receive such
coverage in accordance with COBRA regulations; (iii) pay Mr. Braun the balance
of any accrued but unused vacation or paid time off hours, minus all payroll
deductions required by law or authorized by Mr. Braun; and (iv) amend Mr.
Braun’s Nonqualified Stock Option Agreement, dated March 30, 2007, to permit Mr.
Braun to exercise 90,000 of the 140,000 stock options granted until March 30,
2010. The balance of the Braun Stock Options expired on June 20, 2008 in
accordance with the Company’s 2006 Plan. As of December 31, 2008, the Company
paid Mr. Braun approximately $75,000 pursuant to the Braun Separation Agreement
in full and final settlement of all monies due.
121
On June
20, 2008, John Phillips and the Company entered into an Employment Agreement
(the “Phillips Employment Agreement”). Pursuant to the Phillips Employment
Agreement, Mr. Phillips’ current base salary is $175,000 per year, which may be
increased in accordance with the Company’s normal compensation review practices.
On November 7, 2008, the Company’s board of directors increased Mr. Phillips’
base salary to $195,000 effective November 10, 2008. Mr. Phillips is also
entitled to participate in any benefit plan of the Company currently available
to executive officers to the extent he is eligible under the provisions thereof,
and the Company will pay health, dental and life insurance premiums for Mr.
Phillips and members of his immediate family. Mr. Phillips is entitled to
receive short and long-term disability insurance, and is entitled to three weeks
of paid time off per year. Mr. Phillips may be entitled to discretionary bonuses
as determined by the Company’s CEO, the board of the directors and the
Compensation Committee. On August 20, 2008, Mr. Phillips was granted stock
options to purchase 50,000 shares of the Company’s common stock. The options
vest in three equal annual installments beginning August 20, 2009 and expire
August 20, 2018. The exercise price of the options is $0.30 per
share.
NOTE
17 — RELATED PARTY TRANSACTIONS
Notes
Issued to Related Parties
Alyson
Drew and Fergco
On
March 1, 2005, the Company issued a 12% Amended and Restated Subordinated
Note in the original principal amount of $100,000 due 2008 to Alyson Drew (the
“Drew Note”), the spouse of the Company’s director Parker Drew.
On
March 1, 2005, the Company issued a 12% Amended and Restated Note in the
original principal amount of $300,000 due March 31, 2008 (the “Fergco
Note”) to Fergco, a New Jersey limited liability company of which Mr. Ferguson
owns a 25% ownership interest and his brothers own the remaining 75%
interest.
On
March 31, 2008, the Company amended the Drew Note and the Fergco Note by
issuing Second Amended and Restated Notes in the original principal amounts of
$100,000 and $300,000 to Alyson Drew and Fergco, respectively. The amended notes
extended the maturity date from March 31, 2008 until March 31, 2009.
In consideration of agreeing to amend the Drew Note and the Fergco Note, the
Company agreed to issue a warrant to each of Alyson Drew and Fergco giving them
the right to purchase 15,000 shares and 45,000 shares of common stock,
respectively, at an exercise price per share equal to $1.55. The warrants were
exercisable during the period commencing on March 31, 2008 and ending on
March 31, 2010. On June 20, 2008, the Company exercised its
right to extend the maturity date of the Drew Note and the Fergco Note to
March 31, 2010. In connection with such extension, each of Alyson Drew and
Fergco received an additional warrant to purchase 15,000 shares and 45,000
shares of common stock, respectively, at an exercise price of $1.55 per share.
The additional warrants are immediately exercisable during the period commending
on June 20, 2008 and ending on March 31, 2011. The Company
amended and restated the Drew Note and the Fergco Note by issuing third amended
and restated promissory notes dated September 8, 2009 to Fergco and
Alyson Drew, respectively, for $400,000 in aggregate principal
amount. Pursuant to the amended and restated notes, principal
amounts shall be due and payable in monthly installments equal to 10% of the
principal amount beginning March 31, 2010 and the notes continue to bear
interest at the rate of 12% per annum. Interest due for the period of
May 1, 2009 through August 31, 2009 and additional interest accruing for the
period of September 1, 2009 through February 28, 2010 shall be deferred and paid
in monthly installments beginning March 31, 2010. Interest payments
for the period beginning March 1, 2010 and future periods will be paid monthly,
one month in arrears, beginning April 30, 2010. The Company did not
make certain required payments under the Drew Note and the Fergco Note on March
31, 2010 in principal of $40,000 and interest of $4,000 totaling
$44,000.
122
In
connection with the financing transaction with ComVest, ComVest entered into the
Subordination Agreement dated June 20, 2008 with Alyson Drew, Fergco,
certain other noteholders, and CPR. Pursuant to the Noteholder Subordination
Agreement, Alyson Drew and Fergco agreed to subordinate to ComVest the Company’s
obligations to them under the Drew Note and the Fergco Note.
The
proceeds of these notes were used to fund acquisitions. Pursuant to the terms of
these notes, ClearPoint has made interest only payments until the repayment of
the notes, as applicable. During the fiscal year ended December 31,
2008, the Company made interest payments of $15,000 and $45,000 to Alyson Drew
and Fergco pursuant to the Drew Note and Fergco Note,
respectively. During the fiscal year ended December 31, 2009, the
Company made interest payments of $4,000 and $12,000 to Alyson Drew and Fergco
pursuant to the Drew Note and Fergco Note, respectively.
Michael
Traina and Christopher Ferguson
CPR
issued promissory notes, dated February 22, 2008, in the aggregate principal
amount of $800,000, to each of Michael Traina and Christopher Ferguson in
consideration for loans of $800,000 made to CPR. The terms of the promissory
notes issued to Messrs. Traina and Ferguson are identical. The principal amount
of each promissory note is $400,000, it bears interest at the rate of 6% per
annum, which will be paid quarterly, and it is due on February 22, 2009. On
February 28, 2008, CPW, a wholly owned subsidiary of CPR, advanced $800,000, on
behalf of Optos, to the provider of its outsourced employee leasing program. The
advanced funds were utilized for Optos’ payroll. In consideration of making the
advance on its behalf, Optos assumed the foregoing promissory notes, and the
underlying payment obligations.
Bridge
Notes
On June
6, 2008, the Company issued the Original Bridge Notes, to each of Michael
Traina, Parker Drew and TerraNova Partners in the principal amounts of $104,449,
$50,000 and $100,000, respectively. During the course of negotiations
with ComVest, Mr. Traina agreed to loan an additional $5,000 to the
Company. TerraNova Partners, the Company’s stockholder, is 100% owned
by Mr. Kololian, the Company’s former lead director and stockholder. Mr.
Kololian also controls 100% of the voting interest in the general partner and
55% of the non-voting equity interest in the general partner of TerraNova
Partners. The Original Bridge Notes contained identical terms and were unsecured
and payable on demand. No interest accrued on the unpaid principal
balance of the Original Bridge Notes until demand. After demand, the
Original Bridge Notes bore interest at an annual rate of 5%. On June
26, 2008, the Company issued the Amended Bridge Notes. The Amended Bridge Notes
contain identical terms and provide that (i) the principal amount of the Amended
Bridge Notes will bear interest at a rate of 8% per annum, payable quarterly and
(ii) the Company will have the right to repay the Amended Bridge Notes in shares
of common stock at a price equal to the closing price of common stock on June
26, 2008. The Amended Bridge Notes do not contain the provision stating that the
principal balance will bear interest only upon demand, as provided in the
Original Bridge Note. Mr. Drew’s amended bridge note was repaid in full and Mr.
Traina was repaid $5,000 during the quarter ended June 30, 2008. The balance of
Mr. Traina’s loan was repaid in July 2008. On August 12, 2008, the Company’s
board of directors approved the payment of the Amended Bridge Note issued to
TerraNova Partners in 204,082 shares of common stock in accordance with the
terms of the Amended Bridge Note. On March 6, 2009, these shares were issued to
TerraNova Partners.
123
Agreements
with Related Parties
Separation
Agreement and Consulting Agreement with Christopher Ferguson
On
February 28, 2008, Mr. Ferguson resigned effective February 28, 2008. In
connection with Mr. Ferguson’s resignation, the Company entered into the
Ferguson Separation Agreement. In consideration for Mr. Ferguson’s agreement to
be legally bound by the terms of the separation agreement and his release of his
claims, if any, under the separation agreement, Mr. Ferguson is entitled to be
reimbursed for any health insurance payments for Mr. Ferguson for a period equal
to 52 weeks. For the years ended December 31, 2009 and December 31, 2008
Mr. Ferguson was reimbursed $9,000 and $12,000, respectively, for health
insurance payments. Pursuant to the Ferguson Separation Agreement, on
April 18, 2008, CPR entered into the Ferguson Consulting Agreement with Mr.
Ferguson pursuant to which he will be paid $25,000 per month for twelve (12)
months. As of December 31, 2008, the Company paid Mr. Ferguson
$57,692 pursuant to the Ferguson Consulting Agreement and recorded a liability
of $256,709 as of December 31, 2008 pursuant to the Ferguson Consulting
Agreement. No payments were made to Mr. Ferguson for the year ended
December 31, 2009.
Separation
Agreement with Kurt Braun
On July
20, 2008, Kurt Braun, the Company’s former Chief Financial Officer, resigned
effective June 20, 2008. In connection with Mr. Braun’s resignation, the Company
entered into the Braun Separation Agreement. In consideration of Mr. Braun’s
agreement to be legally bound by the terms of the separation agreement, the
Company agreed to, among other things: (i) pay Mr. Braun $75,000, minus all
payroll deductions required by law or authorized by Mr. Braun, to be paid as
salary continuation over 26 weeks beginning within a reasonable time after the
seven day revocation period following execution of the Braun Separation
Agreement; (ii) continue to pay all existing insurance premiums for Mr. Braun
and his immediate family through the 26 week period, and thereafter permit Mr.
Braun, at his own expense, to continue to receive such coverage in accordance
with COBRA regulations; and (iii) pay Mr. Braun the balance of any accrued but
unused vacation or PTO hours, minus all payroll deductions required by law or
authorized by Mr. Braun. During the fiscal year ended December 31, 2008, the
Company paid approximately $75,000 to Mr. Braun pursuant to the foregoing
agreement in full and final settlement of all monies due.
Agreements
with TerraNova Management
Terra
Nova Management Corporation (“TNMC”), an affiliate of Mr. Kololian, was retained
to provide certain advisory services to the Company, effective upon the closing
of the merger with Terra Nova, pursuant to the Advisory Services Agreement
between TNMC and the Company, dated February 12, 2007 (the “Advisory Services
Agreement”). Mr. Kololian controls 100% of the voting interest and
55% of the non-voting equity interest of TNMC. Pursuant to the
Advisory Services Agreement, TNMC provided services to the Company including:
advice and assistance to the Company in its analysis and consideration of
various financial and strategic alternatives, as well as assisting with
transition services. During the fiscal year ended December 31, 2007, TNMC
received a fixed advisory fee of $175,000 (prorated for a partial year) for such
services. Pursuant to the terms of the Advisory Services Agreement,
it was terminated effective February 11, 2008, however TNMC continued to provide
substantially similar services under substantially similar terms to the Company
on a monthly basis.
124
On June
26, 2008, the Company entered into a new Advisory Services Agreement (the “New
Advisory Services Agreement”) with TNMC. Pursuant to the New Advisory Services
Agreement, the Company agreed to provide compensation to TNMC for its services
since the expiration of the former Advisory Services Agreement and to engage
TNMC to provide future advisory services. The New Advisory Services Agreement is
effective as of June 26, 2008, continues for a one year term and is
automatically renewed for successive one-year terms unless terminated by either
party by written notice not less than 30 days prior the expiration of the
then-current term. The Company will compensate TNMC for services
rendered since expiration of the former Advisory Services Agreement and for
advisory services similar to those performed under the former Advisory Services
Agreement. Monthly fees payable to TNMC under the New Advisory Services
Agreement are capped at $50,000 per month. Fees payable to TNMC may be paid 100%
in shares of common stock, at the Company’s option. Beginning in the month of
June, 2008, 75% of the fees payable to TNMC may also be paid in shares of common
stock and, with the agreement of TNMC, the remaining 25% may also be paid in
shares of common stock. Shares of common stock made as payments under the New
Advisory Services Agreement will be priced at the month-end closing price for
each month of services rendered. During the fiscal year ended December 31, 2008,
the Company incurred approximately $292,665 in fees owing to TNMC for such
services.
The
Company’s board of directors approved payment of $266,000 for the services
performed by TNMC pursuant to the New Advisory Services Agreement in the form of
an aggregate of 479,470 shares of common stock for the months of February
through August, 2008 as follows: on August 12, 2008, the board of directors
approved payment for the months of February, March, April, May and June, 2008 in
417,008 shares of common stock and on November 7, 2008, the board of directors
approved payment for the months of July and August, 2008 in 62,462 shares of
common stock.
Additionally,
the Company recorded approximately $1,573 and $99,202 for reimbursement of
expenses incurred by TNMC in connection with the former Advisory Services
Agreement and the New Advisory Services Agreement for the fiscal years ended
December 31, 2009 and 2008, respectively. ClearPoint incurred
approximately $15,000 for reimbursement of expenses incurred by TNMC in
connection with the Advisory Services provided for the twelve months ended
December 31, 2009.
Agreements
with ALS, LLC
On
February 23, 2007, the Company acquired certain assets and liabilities of ALS.
The purchase price of $24.4 million consisted of cash of $19 million, the ALS
Note, shares of common stock with a value of $2.5 million (439,367 shares) and
the assumption of approximately $400,000 of current liabilities. ALS’s
stockholders may also receive up to two additional $1 million payments in shares
of common stock based on the Company’s financial and integration performance
metrics in calendar years 2007 and 2008. No such payments have been made to
date.
125
Pursuant
to a Subordination Letter sent by ALS to ComVest, M&T and the Company dated
June 20, 2008 (the “ALS Subordination Letter”), ALS agreed that the Company may
not make and ALS may not receive payments on the ALS Note, provided however,
that (i) upon payment in full of all obligations under the Term Loan owing to
ComVest and so long as the Company is permitted to make such payments, the
Company shall make monthly interest payments on the outstanding principal
balance of the ALS Note and (ii) upon payment in full of the M&T
Obligations, the Company shall make 24 equal monthly installments on the ALS
Note, as amended pursuant to the ALS Agreement described above. For
the year ended December 31, 2009 and 2008, the Company recorded $70,350 and
$58,098, respectively, in interest expense associated with the ALS
Note. As of December 31, 2009, the Company had $261,200 of accrued
interest payable recorded on its consolidated balance sheet associated with the
ALS Note. The Company presented the ALS Note on the balance sheet net of other
assets of $300,000 in expenses related to the TSIL Litigation as per the letter
agreement dated June 20, 2008 and an advance payment of $330,000 on the ALS
Note, which nets out to $1,653,347 (see Note 18 – Litigation). The
discovery in the litigation has concluded. Both TSIL and ClearPoint
filed motions for summary judgment and, on March 26, 2010, the court granted
ClearPoint’s motion for summary judgment in its favor.
Transactions
with Dennis Cook, The Cameron Company, LLC and WES Health
System
Dennis
Cook, a member of the Company’s board of directors, served as an advisor to the
board of directors since 2007. In such capacity, Mr. Cook provided ad hoc
recommendations regarding general business strategy to the board of directors
upon request. In connection with such services, the Company paid Mr. Cook
approximately $12,000 and $4,000 during the years ended December 31, 2007
and 2008, respectively. During the fiscal year ended December 31, 2008, the
Company leased office space from WES Health System (“WES”) for which it
paid a total of $1,875. In addition, on March 29, 2007, Mr. Cook was
granted options to purchase 20,000 shares of common stock at an exercise price
of $6.10. The options vested immediately. Mr. Cook serves as the
President and Chief Executive Officer of WES and as President and Chief
Executive Officer of The Cameron Company, LLC. The Cameron Company,
LLC was issued 30,258 shares of common stock in connection with the merger of
Terra Nova in 2007. During the fiscal years ended December 31, 2009
and 2008, the Company provided certain temporary employees and payroll services
to WES for approximately $0, and $1,156,000, respectively.
Transactions
with KOR, TZG and Optos
On August 30, 2007, the Company entered
into an agreement (the “KOR Agreement”) with KOR, a Florida limited liability
company controlled by Kevin O’Donnell, a former officer of the Company, pursuant
to which the Company granted to KOR an exclusive right and license (i) to set up
and operate, in parts of northern California and Florida, a franchise of the
Company’s system and procedures for the operation of light industrial and
clerical temporary staffing services and (ii) to use in connection with the
operation certain of the Company’s proprietary intellectual property. The KOR
Agreement replaced the agreement between the Company and KOR entered on July 9,
2007. In consideration for the grant and license, KOR was required to pay to the
Company , on a weekly basis, a royalty equal to 4.5% of all gross revenues
earned by KOR from its operations. KOR also agreed to pay the Company, on a
weekly basis, a royalty equal to 50% of the net income from KOR’s operations.
Through this relationship KOR operated and managed up to twelve of the Company’s
former branches. The KOR Agreement was terminated on March 5, 2008 as described
in the TZG and KOR agreements described in
Note 4 — Business and
Asset Acquisitions and
Dispositions and Licensing
Agreements.
On February 28, 2008, CPR and its
subsidiary, CPW, entered into the Optos Licensing Agreement with Optos, of which
Christopher Ferguson is the sole member. Pursuant to the Optos Licensing
Agreement, the Company (i) granted to Optos a non-exclusive license to use the
ClearPoint Property and the Program, both as defined in the Optos Licensing
Agreement, which include certain intellectual property of CPR, and (ii) licensed
and subcontracted to Optos the client list previously serviced by TZG, pursuant
to the TZG Agreement, dated August 13, 2007 and all contracts and contract
rights for the clients included on such list. In consideration of the
licensing of the Program, which is part of the ClearPoint Property, CPR was
entitled to receive a fee equal to 5.2% of total cash receipts of Optos related
to temporary staffing services. With CPR’s consent, Optos granted, as additional
security under certain of its credit agreements, conditional assignment of
Optos’ interest in the Optos Licensing Agreement to its lender under such credit
agreements. The foregoing agreement with TZG was terminated on February 28, 2008
in connection with the Optos Licensing Agreement as described in the TZG and KOR agreements described in
Note 4 — Business and
Asset Acquisitions and
Dispositions and Licensing
Agreements.
126
On April
8, 2008, the Optos Licensing Agreement was terminated. In consideration for
terminating the Optos Licensing Agreement, CPR and Optos have agreed that there
will be a net termination fee for any reasonable net costs or profit incurred,
if any, when winding up the operations associated with termination. This fee is
estimated to be $500,000 and has been recorded as an expense for the year ended
December 2008. The payment of the net termination fee will be in the form of
cash and shares of common stock of the Company. As of December 31,
2009, the following balances concerning the Optos Licensing Agreement have been
recorded:
|
Accounts
receivable – related party
|
$ | 336,670 | ||
|
Accrued
termination fee
|
(500,000 | ) | ||
|
Vendor
managed services payable and other liabilities
|
(201,799 | ) | ||
|
Net
(due) Optos
|
$ | (365,129 | ) |
NOTE
18 — LITIGATION:
On
September 21, 2007, TSIL, which claimed to be a captive reinsurance company
offering workers’ compensation insurance to its shareholders through an
insurance program, initiated the TSIL litigation in the U.S. District Court in
Florida against ALS, Advantage Services Group, LLC, certain officers and
shareholders of ALS and Advantage Services Group, LLC, as well as certain other
third party companies, collectively referred to as the ALS defendants, alleging
that it was owed at least $2,161,172 in unpaid insurance assessments, as well as
other requested damages, from the ALS defendants. Kevin O’Donnell, a
former officer of the ALS companies and a named defendant in the TSIL
litigation, controls KOR Capital, LLC, referred to as KOR, a former franchisee
of ClearPoint.
ClearPoint
was also named as a defendant because it acquired certain assets from ALS and
its wholly owned subsidiaries, including Advantage Services Group II, LLC,
referred to as ASG II, in February 2007, for which it paid a portion of the
purchase price at closing to the ALS defendants, through ALS. It was
alleged that this transfer rendered ASG II, one of the named insureds on the
TSIL policy, insolvent and unable to pay the insurance assessments and damages
owed to TSIL. TSIL requested in its complaint that its damages be
satisfied from the assets transferred to ClearPoint. Agreements
related to the acquisition of certain assets and liabilities of ALS in February
2007 contain provisions under which ClearPoint may seek indemnification from ALS
in connection with the foregoing.
The court
in the TSIL litigation entered an order dated February 22, 2008, referred to as
the TSIL order, requiring ClearPoint not to make any payments to ALS pursuant to
the purchase agreement without first seeking leave of court. On or
about June 20, 2008, in connection with ALS’ agreement to subordinate the ALS
note to certain lenders of ClearPoint, the ALS parties and ClearPoint agreed,
among other things, as follows:
|
|
·
|
That
the ALS parties acknowledge their obligation to indemnify ClearPoint in
connection with the TSIL litigation, subject to certain sections of the
purchase agreement governing ClearPoint’s acquisition the assets and
liabilities of ALS, referred to as the ALS purchase
agreement;
|
|
|
·
|
That
the ALS parties shall be responsible for ClearPoint’s attorney’s fees
incurred in the TSIL litigation from June 20, 2008, not to exceed
$300,000;
|
127
|
|
·
|
That
the ALS parties and ClearPoint shall take all appropriate actions to
dismiss all of their respective claims against one another in the TSIL
litigation, and that following such dismissal, ClearPoint shall cooperate
as reasonably requested by the ALS parties in connection with the TSIL
litigation including consenting in connection with a request to lift the
TSIL order, or otherwise permit payment to the ALS parties in accordance
with the terms of the ALS purchase agreement and ALS note;
and
|
|
|
·
|
In
addition, ClearPoint agreed not to assert its right to set off from the
ALS note any other amounts in connection with the TSIL litigation until
such time (if at all) as a final judgment is entered against ClearPoint in
the TSIL litigation, or the amount of TSIL’s claims against ClearPoint are
liquidated by settlement or
otherwise.
|
Both TSIL
and ClearPoint filed motions for summary judgment and, on March 26, 2010, the
court granted ClearPoint’s motion for summary judgment in its
favor.
Select
Staffing
On
September 1, 2009, Select filed a complaint in the Superior Court of California
(Santa Barbara County) against ClearPoint alleging that ClearPoint failed to pay
Select pursuant to the Select subcontract since August 2009 and that ClearPoint
failed to perform certain obligations under the Select
subcontract. On December 30, 2009, that complaint was dismissed with
prejudice by mutual agreement of the parties.
For
additional information regarding the Select license agreement and the Select
subcontract, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources—Transactions Related
to Transition from Temporary Staffing Business Model to iLabor Network
Model.”
XL
Specialty Insurance Company
On
November 10, 2008, XL Specialty Insurance Company, referred to as XL, filed a
complaint in the Supreme Court of the State of New York (New York County), and,
on December 9, 2008, XL filed an amended complaint, referred to as the XL
complaint, alleging that, among other things, XL issued workers’ compensation
insurance policies to ClearPoint Advantage, LLC, a wholly owned subsidiary of
CPR and referred to as CP Advantage, during 2007 and CP Advantage failed to make
certain payments with regard to claims made against CP Advantage under the
policies and maintain collateral required by the insurance policy
documents. XL seeks to recover from ClearPoint, as a guarantor of CP
Advantage’s obligations under the insurance policies, $745,548, in the
aggregate, in connection with certain claims against and pursuant to the
collateral obligations of, CP Advantage. XL, in addition to damages,
seeks pre-judgment interest, attorneys’ fees, costs and expenses and such other
relief deemed proper by the court. CPR filed its answer in this
matter on February 17, 2009 and contends that a third party is liable for the
payments under the insurance policies pursuant to an agreement governing the
sale of HRO. XL filed a motion for summary judgment on March
31, 2010.
AICCO,
Inc.
On
November 18, 2008, AICCO, Inc., referred to as AICCO, filed a complaint the
Court of Common Pleas of Bucks County, Pennsylvania against ClearPoint, referred
to as the AICCO litigation, alleging that AICCO agreed to finance premiums of
certain insurance policies procured by ClearPoint pursuant to a certain premium
finance agreement among AICCO and ClearPoint. AICCO claimed that
ClearPoint breached the terms of such agreement by failing to make certain
installment payments and sought damages of approximately $167,000, together with
interest and attorney’s fees and costs. ClearPoint joined two
additional defendants on January 23, 2009. ClearPoint contended that
the joined defendants were liable for the installment payments pursuant to an
agreement governing the sale of HRO. ClearPoint alleged breach of
contract against the joined defendants and sought contribution and
indemnification from such parties in this matter.
128
On June
2, 2009, AICCO filed a motion for summary judgment against ClearPoint and on
July 2, 2009, ClearPoint filed its opposition to such motion, and filed a
cross-motion for summary judgment against the additional
defendants. On July 29, 2009, the additional defendants filed their
opposition to ClearPoint’s cross-motion, and filed a motion for summary judgment
against ClearPoint. On July 31, 2009, AICCO replied to ClearPoint’s
opposition to AICCO’s motion for summary judgment. On August 27,
2009, ClearPoint filed its opposition to the additional defendants’ motion for
summary judgment.
On
December 23, 2009, ClearPoint and AICCO entered into a Settlement Agreement and
Release, referred to as the AICCO settlement. Pursuant to the AICCO
settlement, ClearPoint agreed to pay AICCO an aggregate amount of $190,000 in
full and final settlement of all claims relating to the AICCO
litigation. ClearPoint agreed to pay such amount as follows: (i) four
monthly installment payments of $15,000, the first of which was paid on December
29, 2009, and will continue on the 15th day of each month thereafter, including
March 15, 2010, followed by (ii) 12 monthly installment payments of $10,833,
commencing on April 15, 2010. As of April 15, 2010, ClearPoint is
current on all payments to AICCO.
In the
event ClearPoint fails to make any payment due under the AICCO settlement, after
AICCO provides ClearPoint with prior written notice and five days’ opportunity
to cure, judgment may be entered against ClearPoint in the amount of
approximately $195,330, together with an interest rate of 6% per annum accruing
as of the date the missed payment was due, plus costs and attorney’s fees
associated with the entry and execution of such judgment, less any amounts paid
under the AICCO Settlement. Accordingly, on December 23, 2009,
ClearPoint executed a Judgment Note in favor of AICCO providing for such
judgment payment.
Michael
W. O’Donnell
In May
2009, Michael W. O’Donnell filed a claim in the Circuit Court of the Ninth
Judicial Circuit in and for Orange County, Florida seeking an unspecified amount
of unpaid wages and reasonable attorney’s fees related to the termination of his
employment with ClearPoint. On August 21, 2008, Mr. O’Donnell was
notified that his employment was being terminated for cause, as defined in the
Employment Agreement dated February 23, 2007 and the Amended Letter Agreement
dated June 17, 2008 between ClearPoint and the ALS parties, which include Mr.
O’Donnell. ClearPoint has answered Mr. O’Donnell’s claims and
disputed his allegations. Furthermore, on August 7, 2009, ClearPoint
also filed a counter-claim against Mr. O’Donnell for breach of contract arising
out of his failure to honor the terms of the Employment Agreement and the
Amended Letter Agreement.
In
addition, in December 2009, Mr. O’Donnell filed a Demand for Indemnification
pursuant to the Asset Sale and Purchase Agreement dated February 23, 2007, as
amended. Mr. O’Donnell demanded that ClearPoint indemnify him for
potential losses arising out of the lawsuit filed by GE Capital described
below. This litigation is currently in the discovery
phase.
National
Union Fire Insurance
On May
11, 2009, National Union Fire Insurance made a Demand for Arbitration on
ClearPoint asserting a claim for approximately $4,158,000 for amounts owed for
premiums, adjustments, expenses and fees associated with a Workers Compensation
Policy previously held by ClearPoint and sold as part of the sale of MVI to
TradeShow. ClearPoint complied with the demand and named an
arbitrator for the proceeding. The date of the arbitration has not
yet been scheduled.
129
Blue
Lake Rancheria
On July
14, 2009, Blue Lake Rancheria, referred to as Blue Lake, filed against
ClearPoint a Complaint in the Superior Court of Humboldt County, California
seeking payment of $490,000 under the Blue Lake note, plus accrued interest and
attorneys’ fees. The lawsuit also names Michael D. Traina,
ClearPoint’s Chairman of the board of directors and Chief Executive Officer, and
Christopher Ferguson, ClearPoint’s stockholder, as
defendants. Messrs. Traina and Ferguson formerly served as guarantors
of the payment of the Blue Lake note. ClearPoint filed a motion to
dismiss the Complaint on September 14, 2009, contending that the Complaint
failed to state a claim for relief and is improperly vague. On
October 5, 2009, Blue Lake filed an Amended Complaint, which ClearPoint has
answered. The case has proceeded to discovery. ClearPoint
asserts, among other things, that the release of the shares from escrow
satisfies the obligation due to Blue Lake, and that Messrs. Traina and Ferguson
are no longer guarantors of the payment of the Blue Lake note.
Allegiant
Professional Business Services Inc.
On
February 8, 2010, ClearPoint was served with a Summons and Complaint that
Allegiant Professional Business Services, Inc., referred to as Allegiant, filed
in the Superior Court of California, County of San Diego, Central Division on
December 21, 2009. The complaint alleged breach of contract and fraud
and sought approximately $91,483 in damages. On February 22, 2010,
Allegiant agreed to dismiss the complaint without prejudice. Because
the state court docket did not timely reflect the dismissal, ClearPoint filed a
Notice of Removal to federal court on March 2, 2010. On March 15,
2010, the Court signed a stipulated order to dismiss without prejudice and
closed the matter.
Jennifer
Garcia
On August
11, 2009, Jennifer Garcia filed a complaint against ClearPoint in the Superior
Court of San Francisco, California. The Complaint alleges that Ms.
Garcia was personally injured by a temporary employee of ClearPoint while they
were working at a client site in August, 2006. ClearPoint’s insurance
policy provided coverage on a claims-made and reported basis subject to a
retroactive date of June 29, 2006 and therefore, has denied coverage to Ms.
Garcia. Plaintiff is alleging approximately $50,000 in
damages. ClearPoint is currently in discussions with Ms.
Garcia.
GE
Capital Information Technology Solutions, Inc.
On
November 10, 2009, GE Capital Information Technology Solutions, Inc., referred
to as GE Capital, filed a complaint against ClearPoint in the Circuit Court of
the Ninth Judicial Circuit in Orange County, Florida. On or about
January 6, 2006, ALS entered into an Image Management Plus Agreement with GE
Capital. The Complaint alleges that ALS breached the terms of the
contract by failing to make the payments after February, 2008. GE
Capital accelerated the balance due pursuant to the terms of the
contract. GE Capital demands judgment against ClearPoint and ALS for
damages, interest, attorney fees and other costs of approximately
$15,000. ClearPoint is currently reviewing the
complaint.
The
Company has accrued for some, but not all, of these matters. An adverse decision
in a matter for which the Company has no reserve may result in a material
adverse effect on its liquidity, capital resources and results of operations. In
addition, to the extent that the Company’s management has been required to
participate in or otherwise devote substantial amounts of time to the defense of
these matters, such activities would result in the diversion of management
resources from business operations and the implementation of the Company’s
business strategy, which may negatively impact the Company’s financial position
and results of operations.
The
principal risks that the Company insures against are general liability,
automobile liability, property damage, alternative staffing errors and
omissions, fiduciary liability and fidelity losses. If a potential loss arising
from these lawsuits, claims and actions is probable, reasonably estimable, and
is not an insured risk, the Company records the estimated liability based on
circumstances and assumptions existing at the time. Whereas management believes
the recorded liabilities are adequate, there are inherent limitations in the
estimation process whereby future actual losses may exceed projected losses,
which could materially adversely affect the financial condition of the
Company.
130
The
Company continually reviews its open legal matters and accrues for loss
contingencies when the loss is deemed probable and can be reasonably
estimated. As of December 31, 2009 and 2008, the Company has accrued
for legal matters which have met the loss contingency recognition criteria.
These amounts are included in accrued expenses and other current liabilities on
the consolidated balance sheet.
Generally,
the Company is engaged in various other litigation matters from time to time in
the normal course of business. Management does not believe that the ultimate
outcome of such matters, including the matters above, either individually or in
the aggregate, will have a material adverse impact on the financial condition or
results of operations of the Company.
ComVest
Change of Control
On
February 9, 2010, as a consequence of certain defaults under the Amended Loan
Agreement with ComVest, ComVest exercised the default exercise provision under
the Amended ComVest Warrant. As a result, ComVest now beneficially
owns a majority of the Company’s common stock (see Note 11 – Debt
Obligations). In connection with this transaction, directors Brendan
Calder, Dennis Cook, Parker Drew, Harry Glasspiegel, Vahan Kololian and Michael
Perrucci resigned from ClearPoint’s board of directors. Gary E.
Jaggard, Chief Executive Officer of ComVest Capital Advisors, LLC, an affiliate
of ComVest Group Holdings, LLC and the Managing Director of ComVest, was
appointed by ClearPoint’s board of directors to serve as a
director. The board of directors also agreed to appoint Robert
O’Sullivan, Vice Chairman of ComVest Group Holdings, LLC, as a
director. The date upon which Mr. O’Sullivan will become a director
has not been determined yet. Michael D. Traina remains a
director.
M&T
Letter
On March
17, 2010, the Company received a letter from M&T stating that it serves as a
notice of existence of events of default under the M&T Restructure
Agreement. The letter further provides that all of its rights,
benefits and security against the Company in connection with such alleged
defaults, including the right to accelerate the M&T Deferred Obligations,
are reserved (see Note 11 – Debt Obligations).
Amendment
No. 3 to StaffChex iLabor Agreement
Effective
January 11, 2010, CPR and StaffChex entered into Amendment No. 3 to the
StaffChex iLabor Agreement pursuant to which the parties adjusted the payment
terms under the agreement (see Note 4 — Business and Asset Acquisitions and
Dispositions and Licensing Agreements).
Deregistration
of Common Stock
On March
31, 2010, ClearPoint filed a Form 15 with the Securities and Exchange Commission
to deregister ClearPoint’s common stock and suspend ClearPoint’s obligation to
file periodic reports under the Exchange Act, except that ClearPoint has filed
this Annual Report on Form 10-K for the fiscal year ended December 31,
2009. The deregistration itself is expected to be effective within 90
days of the filing of the Form 15. ClearPoint’s common stock is now
quoted on the Pink Sheets, a centralized electronic quotation service for
over-the-counter securities.
131
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not
applicable.
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this report, our management, under the supervision
and with the participation of the principal executive officer and principal
financial officer, evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on this evaluation, our principal executive officer and
principal financial officer have concluded that the disclosure controls and
procedures were effective as of the end of the period covered by this report to
provide reasonable assurance that information required to be disclosed in
reports that we file or submit under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms and (ii) accumulated and communicated to our
management, including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial
reporting is a process 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. A company’s internal control over financial reporting
includes those policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit the preparation
of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, 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 because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control – Integrated
Framework (COSO). Based its assessment, management has concluded
that, as of December 31, 2009, our internal control over financial reporting was
effective based on those criteria.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting during the
fourth quarter of fiscal 2009, other than changes described under “Management’s
Report on Internal Control Over Financial Reporting” above that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
132
This
Annual Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management’s report in this Annual Report on Form
10-K.
Item
9B. Other Information.
Not
applicable.
133
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance.
Directors
and Executive Officers
The
following table sets forth certain information regarding our directors and
executive officers as of April 12, 2010:
|
Name
|
Age
|
Position
|
Class
|
Director Since
|
Term
as
Director
Expires
|
|||||
|
Michael
D. Traina(1)
|
39
|
Chairman
of the Board and Chief Executive Officer
|
A
|
2007
|
2008
|
|||||
|
John
G. Phillips
|
50
|
Chief
Financial Officer, Secretary and Treasurer
|
—
|
—
|
—
|
|||||
|
Gary
Jaggard(2)
|
56
|
Lead
Director
|
B
|
2010
|
—
|
|||||
|
Robert
O’Sullivan(3)
|
|
39
|
|
Director
Nominee
|
|
—
|
|
—
|
|
—
|
|
(1)
|
Mr.
Traina’s term expired in 2008. No stockholder meeting was held in
2008 or 2009 to reelect directors with expiring terms or elect new
directors. Until the next stockholder meeting is held and his successor is
elected and qualified, Mr. Traina will continue serving as a
director.
|
|
(2)
|
Mr.
Jaggard was appointed to the board of directors effective February 16,
2010. The term of a Class B director expired in
2009. No stockholder meeting was held in 2009. Until
the next stockholders meeting is held and his successor is duly elected
and qualified, Mr. Jaggard will continue serving as a
director.
|
|
(3)
|
Our
board of directors agreed to appoint Mr. O’Sullivan, Vice Chairman of
ComVest Group Holdings, LLC, to serve as our Class C
director. The date upon which Mr. O’Sullivan will become a
director has not been determined
yet.
|
In
connection with the change of control transaction pursuant to the exercise of
the amended ComVest warrant, each of the following members of our board of
directors resigned effective February 16, 2010: Brendan Calder,
Dennis Cook, Parker Drew, Harry Glasspiegel, Vahan Kololian and Michael
Perrucci. We reduced the size of the board to three
directors.
The
following information about the business experience of our directors and
executive officers is based, in part, upon information supplied by such persons.
Unless otherwise indicated, each individual has had the same principal
occupation for more than five years.
Michael D. Traina has served
as our Chairman of the board of directors and the Chief Executive Officer since
February 2007 and as the Chairman of the board of directors and the Chief
Executive Officer of CPR since its founding in October 2001. Previously, from
January 1999 to October 2000, Mr. Traina was Chief Executive Officer for
Correctional Healthcare Solutions, Inc., a portfolio company of the Lomax
Companies involved in the privatization of health care in correctional
facilities. From 1997 to May 2001, Mr. Traina was President and Chief
Executive Officer of Foster America, Inc., a portfolio company of the Lomax
Companies that provided privately managed foster care services. Mr. Traina
was the Director of New Business Development for The Lomax Companies from 1996
to October 2000, where he was responsible for evaluating venture capital
investment opportunities, raising capital for transactions, and advising the
Lomax portfolio companies in the areas of marketing and finance. Prior to
joining the Lomax team, Mr. Traina ran VICEN, Inc., a privately held direct
marketing firm, from 1995 to 1996 and worked for Salomon Brothers as a corporate
bond trader from 1994 to 1995. Mr. Traina holds a B.A. from Brown
University and an M.B.A. from the Darden School at the University of Virginia.
Mr. Traina’s experience as our Chief Executive Officer and the Chief
Executive Officer of CPR provides the board of directors with insights into our
operations, challenges and opportunities. Mr. Traina also brings to
the board of directors valuable financial, operational and strategic
expertise.
134
John G. Phillips has served
as our Chief Financial Officer since May 2008. From July 2007 to May 2008, Mr.
Phillips was the Chief Financial Officer of MSL Sports & Entertainment, LLC,
a sports media company. From December 2004 through December 2006, Mr. Phillips
was the Chief Financial Officer of Zoologic, Inc., a software company, and was
the Chief Financial Officer of Direct Data Corporation, a hardware and software
company, from January 2002 through August 2004. From October 2000 until December
2001, Mr. Phillips served as the Chief Financial Officer of eSchoolMall
Corporation, a company with a similar business model to our Company, that
developed and supplied e-procurement proprietary software specifically targeted
toward the K-12 education market. Mr. Phillips holds a B.S. in Accounting
from Saint Joseph’s University.
Gary E. Jaggard has served as
our lead director since February 2010. Mr. Jaggard has served as the
Chief Executive Officer of ComVest Capital Advisors, LLC, an affiliate of
ComVest Group Holdings, LLC and the managing director of ComVest since March
2007 with his responsibilities primarily focused on the portfolio management,
underwriting and administration of ComVest. Prior to ComVest, Mr.
Jaggard served as President of Presidential Financial Corp of Florida engaged in
senior secured lending to small businesses throughout Florida from 2004 until
2007. Mr. Jaggard serves as a director on boards of directors of
certain affiliated portfolio companies. Mr. Jaggard holds an M.B.A.
from Nova Southeastern University and a B.B.A. from Florida Atlantic
University. Prior to Presidential, Mr. Jaggard has held senior
executives with Merrill Lynch and GE Capital since 1998. Mr. Jaggard
is CEO of ComVest Capital Advisers, LLC. Mr. Jaggard’s experience in
senior management with significant responsibility in the areas of business
strategy development and strategic partnerships provides valuable insight to the
board of directors.
Robert O’Sullivan has been our director
nominee since February 2010. The date upon which Mr. O’Sullivan will
become a director has not been determined yet. He has served as Vice
Chairman of ComVest Group Holdings, LLC since
2007. Mr. O’Sullivan is currently the Vice-Chairman of the
ComVest Group, a Managing Partner of ComVest Capital II and member of the
investment committee of both ComVest Capital I and ComVest Capital II. His other
responsibilities include the oversight of all marketing activities for the
ComVest Group funds and board memberships of affiliated portfolio
companies. Since 2005, Mr. O’Sullivan has been CEO and President of
the ComVest Group’s associated merchant and investment bank, Commonwealth
Associates, L.P., in which he also holds an interest. Since joining
the ComVest Group in 1992, and becoming a partner in 1999, he has been actively
associated with the financing of over 100 small to medium size
businesses. Mr. O’Sullivan graduated with a bachelor’s degree
with honors from London University, attending King’s College and the London
School of Economics. He also maintains series 7, 24, and 63 insurance
licenses. Mr. O’Sullivan is trustee of the O’Sullivan Family
Foundation and a Patron in the Canadian Chapter of the Patrons of the Arts for
the Vatican Museum. Mr. O’Sullivan’s investment banking experience
brings to the board financial expertise and deep understanding of risk
assessment matters.
Independence
of Directors
We are
not a “listed issuer” within the meaning of the SEC rules and regulations. We
use the definition of independence of The NASDAQ Stock Market, referred to as
“NASDAQ,” to determine whether our directors are independent. After review
of all relevant transactions or relationships between each director, or any of
his family members, and our company, senior management and independent auditors,
our board has determined that none of our directors are independent directors
within the meaning of the applicable NASDAQ listing standards.
135
Audit
Committee of the Board of Directors
Messrs.
Calder, Glasspiegel and Perrucci were members of our audit committee until their
resignations effective February 16, 2010. Mr. Calder was chairman of the audit
committee until his resignation and qualified as an “audit committee financial
expert” as such term is defined in the SEC regulations. The members
of our audit committee, and its chairman, have yet to be determined
following the change in control transaction described above and, accordingly,
our entire board of directors is acting as our audit committee. The
purpose of the audit committee is to assist our board of directors in monitoring
(i) the integrity of our annual, quarterly and other financial statements, (ii)
the independent auditor’s qualifications and independence, (iii) the performance
of our internal audit function and independent auditor, and (iv) our compliance
with legal and regulatory requirements. The audit committee also reviews and
approves all related-party transactions. The audit committee also prepares
the report required by the SEC rules to be included in our annual proxy
statement.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and executive officers, and persons who own more than ten percent of a
registered class of our equity securities (collectively referred to as the
“reporting persons”), to file with the SEC initial reports of ownership and
reports of changes in ownership of common stock and our other equity securities.
Reporting persons are required by SEC regulations to furnish us with copies of
all Section 16(a) reports they file.
To our
knowledge, based solely on a review of the copies of such reports furnished to
us and written representations that no other reports were required, during the
fiscal year ended December 31, 2009, all Section 16(a) filing requirements
applicable to the reporting persons were complied with.
Code
of Ethics
We
adopted a code of ethics which applies to our directors, officers and employees
as well as those of our subsidiaries. A copy of our Code of Ethics may be
obtained free of charge by submitting a request in writing to ClearPoint
Business Resources, Inc., 1600 Manor Drive, Suite 110, Chalfont, Pennsylvania,
18914.
136
Item
11. Executive Compensation.
Summary
Compensation Table
The
following table sets forth the compensation awarded to, earned by or paid to our
Chief Executive Officer and our other most highly compensated executive
officers, referred to as named executive officers, for all services rendered in
all capacities to us and our subsidiaries during 2007, 2008 and 2009:
|
Name and Principal Position
|
Year
|
Salary ($)
|
Option
Awards ($) (1)
|
All Other
Compensation
($) (2)
|
Total ($)
|
|||||||||||||
|
Michael
D. Traina
|
2009
|
305,769 | — | 33,565 | 339,334 | |||||||||||||
|
Chief
Executive Officer
(principal
executive officer)
|
2008
|
300,000 | 30,000 | 28,079 | 358,079 | |||||||||||||
|
John
G. Phillips
|
2009
|
198,750 | — | 11,279 | 210,029 | |||||||||||||
|
Chief
Financial Officer,
Treasurer
and Secretary(3)
|
2008
|
101,923 | 15,000 | 6,010 | 122,933 | |||||||||||||
|
Brian
Delle Donne
Former
Chief Operating Officer
|
2009
|
325,168 |
(4)
|
— | — | 325,168 | ||||||||||||
(1) Represents
the aggregate grant date fair value of option awards, as applicable, computed in
accordance with Financial Accounting Standards Board Accounting Standards
Codification Topic 718, referred to as “ASC Topic 718,” based on assumptions set
forth in Note 12 to the consolidated financial statements for the fiscal year
ended December 31, 2009 and disregarding the estimate of forfeitures related to
service-based vesting conditions.
(2) In
fiscal years 2008 and 2009, respectively, we paid the following amounts for Mr.
Traina: $8,622 and $6,775 (auto allowance); $12,020 and $9,253 (health insurance
premiums); and $0 and $1,940 (disability insurance premiums). In the fiscal
years ended December 31, 2008 and 2009, respectively, we also paid for certain
personal travel and entertainment expenses of Mr. Traina of $7,437 and
$15,597.
In
fiscal years 2008 and 2009, we paid the following amounts for Mr. Phillips:
$6,010 and $9,361 (health insurance premiums); and $0 and $1,918
(disability insurance premiums).
(3) Mr.
Phillips began serving as our Chief Financial Officer and Treasurer on May 28,
2008 and was appointed Secretary on November 17, 2008.
(4) Mr.
Delle Donne was appointed to serve as our Interim Chief Operating Officer in
connection with the XRoads Agreement on January 13, 2009. The
compensation information disclosed in this table and in this Annual Report on
Form 10-K represents compensation paid or awarded to XRoads as consideration for
Mr. Delle Donne’s services and does not represent Mr. Delle Donne’s individual
compensation. Information regarding XRoads payments to Mr. Delle
Donne for his services as our Interim Chief Operating Officer in 2009 is not
available. The XRoads agreement and Brian Delle Donne’s services as
our Interim Chief Operating Officer were terminated effective August 7,
2009. See “—Agreement with XRoads.”
137
Outstanding
Equity Awards at Fiscal Year-End for 2009
The
following table includes certain information with respect to the unexercised
options awarded to our named executive officers under the 2006
plan.
|
Option Awards
|
|||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option Exercise
Price ($)
|
Option Expiration
Date
|
|||||||||
| 30,000 |
(1)
|
— | 6.10 |
3/29/2010
|
|||||||||
|
Michael
D. Traina
|
33,333 | 66,667 |
(2)
|
0.30 |
8/20/2018
|
||||||||
|
John
G. Phillips
|
16,667 | 33,333 |
(2)
|
0.30 |
8/20/2018
|
||||||||
|
Brian
Delle Donne
|
— | — | — |
—
|
|||||||||
|
|
(1)
|
All
options were immediately exercisable upon grant on March 29,
2007.
|
|
|
(2)
|
The
options vest in three equal annual installments beginning August 20,
2009.
|
Agreements
with Executive Officers
Michael D.
Traina. In connection with the merger, Michael Traina entered
into an employment agreement with us on February 12, 2007. Pursuant to the
employment agreement, Michael Traina serves as our Chief Executive
Officer.
The
employment agreement is for a three-year term, subject to earlier termination in
certain circumstances, and is automatically extended for one year unless the
executive or we elect to terminate the automatic extension upon written notice
to the other of at least six months. The employment agreement provides for an
initial annual base salary of $300,000, which is periodically reviewed by our
board of directors. The executive is entitled to a bonus as determined by our
board of directors and our compensation committee. The agreement also provides
that the executive is entitled to participate in any benefit plan of ClearPoint
available to executive officers. In addition, we reimburse the executive for
ordinary, necessary and reasonable expenses incurred in the course of our
business including: cellular phone expenses; lease of an automobile (up to
$1,000 per month) and all related expenses; and supplemental health, life or
disability related expenses. We also provide the executive with health insurance
that covers the executive and his immediate family, term life insurance and
long-term disability insurance.
In the
event of termination of employment upon the death of an executive, the
executive’s heirs, personal representatives or estate are entitled to any unpaid
portion of salary and benefits up to the date of termination and any approved
but unpaid bonus for the fiscal year in which termination occurs. In the event
the executive becomes disabled, the executive is entitled to receive all
compensation and benefits due to him reduced dollar-for-dollar by amounts
received under a disability insurance policy or plan provided by us. If the
executive becomes fully disabled, as defined in the employment agreement, we
have the right to terminate the executive’s employment by a vote of at least 60%
of our board of directors, excluding the executive. In such event, the executive
is entitled to any earned but unpaid portion of salary and benefits up to the
date of termination and any approved but unpaid bonus for the then current
fiscal year.
138
We may
terminate the executive’s employment with or without cause, as defined in the
employment agreement, upon a vote of at least 60% of our board of directors,
excluding the executive. In the event of termination by us for cause, the
executive is entitled to any earned but unpaid portion of salary and benefits up
to the date of termination. In addition, the executive may terminate his
employment for good reason, which is defined generally as a change in office
location resulting in increased commute by 60 miles or more; an assignment of
duties or limitation of power not contemplated by the employment agreement; any
removal or failure to re-elect the executive; or a reduction in compensation or
fringe benefits. In the event of the termination of the executive’s employment
by us without cause or by the executive for good reason, the executive is
entitled to receive: (i) the executive’s then current base salary for the
greater of the period of time remaining under the term of the agreement or two
years and (ii) any approved but unpaid bonus, if any, with respect to the then
current fiscal year.
The
employment agreement also contains a general non-competition and
non-solicitation covenant which applies to the executive during the employment
term and for two years after the date of termination of the executive’s
employment agreement. The provision prohibits the executive from competing with,
soliciting employees from or interfering with our business relationships. The
non-competition provision also prohibits the executive from engaging in any
business competing with us.
John G. Phillips.
On June 20, 2008, we entered into an employment agreement with
Mr. Phillips pursuant to which he became our Chief Financial Officer.
Pursuant to the employment agreement, Mr. Phillips’ current base salary is
$175,000 per year, which may be increased in accordance with our normal
compensation review practices. On November 7, 2008, the Company’s board of
directors increased Mr. Phillips’ base salary to $195,000 effective
November 10, 2008. Mr. Phillips is also entitled to participate in any
benefit plan currently available to our executive officers to the extent he is
eligible under the provisions thereof, and is entitled to receive health, dental
and life insurance for himself and his immediate family. Mr. Phillips is
entitled to receive short- and long-term disability insurance, and is entitled
to three weeks of paid time off per year. Mr. Phillips may be entitled to
discretionary bonuses as determined by our Chief Executive Officer or the board
of directors.
Under his
employment agreement, Mr. Phillips’ employment may be terminated as
follows:
(i) Upon
Mr. Phillips’ death, provided that Mr. Phillips’ heirs, personal
representatives or estate will be entitled to any unpaid portion of his salary,
any approved but unpaid bonus payments, and continued benefits for a period of
three months;
(ii)
By us upon Mr. Phillips’ illness, physical or
mental disability or other incapacity which renders him unable to perform the
duties required of his position or under the employment agreement for a period
of 30 consecutive calendar days or 90 calendar days within any 12 month period,
provided that Mr. Phillips will be entitled to any unpaid portion of his
salary and any approved but unpaid bonus payments;
(iii) By
us for cause, provided that Mr. Phillips will be entitled to all earned but
unpaid salary. “Cause” is defined in the employment agreement as: (a) breach of
the employment agreement or the non-disclosure and assignment of inventions
agreement between Mr. Phillips and us, dated June 20, 2008; (b) conviction of a
felony or any crime involving fraud, theft, moral turpitude, larceny or
embezzlement; (c) an act of dishonesty, fraud, larceny, embezzlement or theft,
whether by commission or omission, in connection with Mr. Phillips’ duties or in
the course of Mr. Phillips’ employment with us; (d) unethical or unprofessional
acts that are harmful to us or materially and adversely affect Mr. Phillips’
responsibilities to us; (e) controlled substance abuse, alcoholism or drug
addiction which interferes with Mr. Phillips’ responsibilities to us or reflects
negatively on our integrity or reputation; (f) gross insubordination; or (g)
failure to perform duties and responsibilities which has remained uncured for 10
days after written notice of such failure was provided to Mr.
Phillips;
139
(iv) By
us without cause, provided that:
(a) if
such termination occurs on or prior to the first anniversary of May 28, 2008,
Mr. Phillips will be entitled to any earned but unpaid portion of his salary,
one month of salary continuation, and one month of continuation of benefits
and
(b) if
such termination occurs after the first anniversary of May 28, 2008, Mr.
Phillips will be entitled to any earned but unpaid portion of his salary, six
months of salary continuation, any approved but unpaid bonus, and six months of
continuation of benefits. As a condition precedent to receipt of any severance
payments upon termination without cause, Mr. Phillips is required to execute a
separation and general release agreement with us.
(v) By
Mr. Phillips upon his resignation, provided that Mr. Phillips will be entitled
only to any earned but unpaid salary upon such resignation, and Mr. Phillips
must provide us 60 days written notice before resigning, which notice may be
waived by us. During the 60 day notice period, we will continue to provide Mr.
Phillips his salary and existing benefits.
The
employment agreement also contains noncompetition and nonsolicitation covenants
pursuant to which Mr. Phillips may not take away any person or entity that
has within the past year been a customer, prospective customer, agent or vendor
of our company, or interfere with our relationship with any customer,
prospective customer, agent or vendor of our company. Mr. Phillips is
further restricted from soliciting the employment of any employee, consultant or
independent contractor of our company, and may not participate in the ownership,
management or control of any business related to temporary staffing and
workforce management.
Agreement
with XRoads
On
January 13, 2009, we entered into the XRoads agreement with
XRoads. Pursuant to the XRoads agreement, among other matters, XRoads
agreed to provide the services of Brian Delle Donne to serve as our Interim
Chief Operating Officer. In such capacity, Mr. Delle Donne had direct
responsibility over our day to day operations and reported to Michael D. Traina,
our Chief Executive Officer. The term of the XRoads agreement
commenced on January 13, 2009 and continued until May 13,
2009. Effective May 14, 2009, the XRoads agreement was amended
pursuant to the XRoads amendment, and the term of the XRoads agreement was
extended to run from May 14, 2009 through August 13, 2009.
We paid
XRoads $50,000 per month for each of the first four months of Mr. Delle Donne’s
services. In addition, we issued XRoads a warrant to purchase up to
100,000 shares of common stock at the exercise price of $0.12 per share,
exercisable through December 31, 2010 in connection with the expiration of the
XRoads agreement on May 13, 2009. In connection with the XRoads
extension, we issued an additional warrant to purchase up to 75,000 shares of
common stock the exercise price of $0.29 per share, exercisable through April
30, 2011.
The
XRoads agreement provided that either we or XRoads could terminate the XRoads
agreement at any time with at least 30 days prior written notice. On
July 6, 2009, we sent such 30-day termination notice to XRoads. The
XRoads agreement and Brian Delle Donne’s services as our Interim Chief Operating
Officer were terminated effective August 7, 2009.
On
November 18, 2009, we entered into a Settlement Agreement and Mutual Release,
referred to as the XRoads settlement agreement, with XRoads relating to the
payment of amounts due under the XRoads agreement. Pursuant to the
XRoads settlement agreement, we agreed to pay XRoads, in full and complete
satisfaction and settlement of all obligations under the XRoads agreement, the
sum of $40,000, which was paid to XRoads in six weekly installments beginning
December 4, 2009 and ending January 8, 2010. In consideration for the
payment of such amounts, we and XRoads agreed to release each other from all
claims related to the XRoads agreement prior to the date XRoads receives all of
such payments.
140
2006
Long-Term Incentive Plan
Background
The 2006
plan reserves 2,750,000 shares of common stock for issuance in accordance with
its terms. The purpose of the 2006 plan is to enable us to offer our employees,
officers, directors and consultants whose past, present and/or potential
contributions to ClearPoint have been, are or will be important to our success,
an opportunity to acquire a proprietary interest in us. The various types of
incentive awards that may be provided under the 2006 plan will enable us to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of our business.
Administration
The 2006
plan may be administered by our board or our compensation committee, or any
other committee designated by our board for this purpose. Subject to the
provisions of the 2006 plan, the board or committee determines, among other
things, the persons to whom from time to time awards may be granted, the
specific type of awards to be granted, the number of shares subject to each
award, share prices, any restrictions or limitations on the, and any vesting,
exchange, deferral, surrender, cancellation, acceleration, termination, exercise
or forfeiture provisions related to the awards.
Stock
Subject to the 2006 plan
At no
time shall the aggregate number of shares of common stock subject to awards
granted and outstanding under the 2006 plan exceed 10% of the number of shares
of common stock then outstanding; and provided further, that no reduction in the
number of shares of common stock outstanding shall cause a reduction in the
number of shares of common stock subject to awards then granted and outstanding
under the 2006 plan. Shares of stock subject to other awards that are forfeited
or terminated will be available for future award grants under the 2006 plan. If
a holder pays the exercise price of a stock option by surrendering any
previously owned shares of common stock or arranges to have the appropriate
number of shares otherwise issuable upon exercise withheld to cover the
withholding tax liability associated with the stock option exercise, then in our
board’s or our committee’s discretion, the number of shares available under the
2006 plan may be increased by the lesser of the number of such surrendered
shares and shares used to pay taxes and the number of shares purchased under the
stock option.
Under the
2006 plan, on a change in the number of shares of common stock as a result of a
dividend on shares of common stock payable in shares of common stock, common
stock split or reverse split or other extraordinary or unusual event that
results in a change in the shares of common stock as a whole, our board or
committee may determine whether the change requires equitably adjusting the
terms of the award or the aggregate number of shares reserved for issuance under
the 2006 plan.
Types
of Awards:
Options. The 2006 plan
provides both for “incentive” stock options as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, referred to as the Code, and for
options not qualifying as incentive options, both of which may be granted with
any other stock-based award under the 2006 plan. Our board or committee
determines the exercise price per share of common stock purchasable under an
incentive or non-qualified stock option, which may not be less than 100% of the
fair market value on the day of the grant or, if greater, the par value of a
share of common stock. However, the exercise price of an incentive stock option
granted to a person possessing more than 10% of the total combined voting power
of all classes of our stock may not be less than 110% of the fair market value
on the date of grant. The number of shares covered by incentive stock options
that may be exercised by any participant during any calendar year cannot have an
aggregate fair market value in excess of $100,000, measured at the date of
grant.
141
An
incentive stock option may only be granted within a ten-year period from the
date of the consummation of merger and may only be exercised within ten years
from the date of the grant, or within five years in the case of an incentive
stock option granted to a person who, at the time of the grant, owns common
stock possessing more than 10% of the total combined voting power of all classes
of our stock. Subject to any limitations or conditions the board or committee
may impose, stock options may be exercised, in whole or in part, at any time
during the term of the stock option by giving written notice of exercise to us
specifying the number of shares of common stock to be purchased. The notice must
be accompanied by payment in full of the purchase price, either in cash or, if
provided in the agreement, in our securities or in combination of the
two.
Generally,
stock options granted under the 2006 plan may not be transferred other than by
will or by the laws of descent and distribution and all stock options are
exercisable during the holder’s lifetime, or in the event of legal incapacity or
incompetency, the holder’s guardian or legal representative. However, a holder,
with the approval of the board or committee, may transfer a non-qualified stock
option by gift to a family member of the holder, by domestic relations order to
a family member of the holder or by transfer to an entity in which more than
fifty percent of the voting interests are owned by family members of the holder
or the holder, in exchange for an interest in that entity.
Generally,
if the holder is an employee, no stock options granted under the 2006 plan may
be exercised by the holder unless he or she is employed by us or a subsidiary of
ours at the time of the exercise and has been so employed continuously from the
time the stock options were granted. However, in the event the holder’s
employment is terminated due to disability, the holder may still exercise his or
her vested stock options for a period of 12 months or such other greater or
lesser period as the board or committee may determine, from the date of
termination or until the expiration of the stated term of the stock option,
whichever period is shorter. Similarly, should a holder die while employed by us
or a subsidiary, his or her legal representative or legatee under his or her
will may exercise the decedent holder’s vested stock options for a period of 12
months from the date of his or her death, or such other greater or lesser period
as the board or committee may determine or until the expiration of the stated
term of the stock option, whichever period is shorter. If the holder’s
employment is terminated due to normal retirement, the holder may still exercise
his or her vested stock options for a period of one year from the date of
termination or until the expiration of the stated term of the stock option,
whichever period is shorter. If the holder’s employment is terminated for any
reason other than death, disability or normal retirement, the stock option will
automatically terminate, except that if the holder’s employment is terminated by
us without cause, then the portion of any stock option that has vested on the
date of termination may be exercised for the lesser of three months after
termination of employment, or such other greater or lesser period as the board
or committee may determine but not beyond the balance of the stock option’s
term.
Stock Reload Options. Under
the 2006 plan, we may grant stock reload options to a holder who tenders shares
of common stock to pay the exercise price of a stock option or arranges to have
a portion of the shares otherwise issuable upon exercise withheld to pay the
applicable withholding taxes. A stock reload option permits a holder who
exercises a stock option by delivering stock owned by the holder for a minimum
of six months to receive a new stock option at the current market price for the
same number of shares delivered to exercise the option. The board or committee
determines the terms, conditions, restrictions and limitations of the stock
reload options. The exercise price of stock reload options shall be the fair
market value as of the date of exercise of the underlying option. Unless
otherwise determined, a stock reload option may be exercised commencing one year
after it is granted and expires on the expiration date of the underlying
option.
142
Stock Appreciation Rights.
Under the 2006 plan, we may grant stock appreciation rights to
participants who have been, or are being, granted stock options under the 2006
plan as a means of allowing the participants to exercise their stock options
without the need to pay the exercise price in cash. In conjunction with
non-qualified stock options, stock appreciation rights may be granted either at
or after the time of the grant of the non-qualified stock options. In
conjunction with incentive stock options, stock appreciation rights may be
granted only at the time of the grant of the incentive stock options. A stock
appreciation right entitles the holder to receive a number of shares of common
stock having a fair market value equal to the excess fair market value of one
share of common stock over the exercise price of the related stock option,
multiplied by the number of shares subject to the stock appreciation rights. The
granting of a stock appreciation right will not affect the number of shares of
common stock available for awards under the 2006 plan. The number of shares
available for awards under the 2006 plan will, however, be reduced by the number
of shares of common stock acquirable upon exercise of the stock option to which
the stock appreciation right relates.
Restricted Stock. Under the
2006 plan, we may award shares of restricted stock either alone or in addition
to other awards granted under the 2006 plan. The board or committee determines
the persons to whom grants of restricted stock are made, the number of shares to
be awarded, the price if any to be paid for the restricted stock by the person
receiving the stock from us, the time or times within which awards of restricted
stock may be subject to forfeiture, the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the restricted stock
awards.
Restricted
stock awarded under the 2006 plan may not be sold, exchanged, assigned,
transferred, pledged, encumbered or otherwise disposed of, other than to us,
during the applicable restriction period. In order to enforce these
restrictions, the 2006 plan requires that all shares of restricted stock awarded
to the holder remain in our physical custody until the restrictions have
terminated and all vesting requirements with respect to the restricted stock
have been fulfilled. Other than regular cash dividends and other cash equivalent
distributions as we may designate, pay or distribute, we will retain custody of
all distributions made or declared with respect to the restricted stock during
the restriction period. A breach of any restriction regarding the restricted
stock will cause a forfeiture of the restricted stock and any retained
distributions. Except for the foregoing restrictions, the holder will, even
during the restriction period, have all of the rights of a stockholder,
including the right to receive and retain all regular cash dividends and other
cash equivalent distributions as we may designate, pay or distribute on the
restricted stock and the right to vote the shares.
Deferred Stock. Under the
2006 plan, we may award shares of deferred stock either alone or in addition to
other awards granted under the 2006 plan. The board or committee determines the
eligible persons to whom, and the time or times at which, deferred stock will be
awarded, the number of shares of deferred stock to be awarded to any person, the
duration of the period during which, and the conditions under which, receipt of
the stock will be deferred, and all the other terms and conditions of deferred
stock awards.
Deferred
stock awards granted under the 2006 plan may not be sold, exchanged, assigned,
transferred, pledged, encumbered or otherwise disposed of other than to us
during the applicable deferral period. The holder shall not have any rights of a
stockholder until the expiration of the applicable deferral period and the
issuance and delivery of the certificates representing the common stock. The
holder may request to defer the receipt of a deferred stock award for an
additional specified period or until a specified event. This request must
generally be made at least one year prior to the expiration of the deferral
period for the deferred stock award.
143
Other Stock-Based Awards.
Under the 2006 plan, we may grant other stock-based awards, subject to
limitations under applicable law, that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, shares
of common stock, as deemed consistent with the purposes of the 2006 plan. These
other stock-based awards may be in the form of purchase rights, shares of common
stock awarded that are not subject to any restrictions or conditions,
convertible or exchangeable debentures or other rights convertible into shares
of common stock and awards valued by reference to the value of securities of, or
the performance of, one of our subsidiaries. These other stock-based awards may
be awarded either alone, in addition to, or in tandem with any other awards
under the 2006 plan or any of our other plans.
Accelerated Vesting and
Exercisability. Unless otherwise provided in the grant of an award, if
any “person,” as defined in Sections 13(d) and 14(d) of the Exchange Act is or
becomes the “beneficial owner,” as referred in Rule 13d-3 under the Exchange
Act, directly or indirectly, of our securities representing 50% or more of the
combined voting power of our then outstanding voting securities in one or more
transactions, and our board of directors does not authorize or approve the
acquisition, then the vesting periods with respect to options and awards granted
and outstanding under the 2006 plan will be accelerated and will immediately
vest, and each participant of an option and award will have the immediate right
to purchase and receive all shares of common stock subject to the option and
award in accordance with the terms set forth in the 2006 plan and in the
corresponding award agreements.
Unless
otherwise provided in the grant of an award, the compensation committee may, in
the event of an acquisition of substantially all of our assets or at least 50%
of the combined voting power of our then outstanding securities in one or more
transactions, including by way of merger or reorganization, which has been
approved by our board of directors, accelerate the vesting of any and all stock
options and other awards granted and outstanding under the 2006 plan. No
acceleration may occur with respect to any award if such acceleration would
cause the 2006 plan or any award to fail to comply with Code Section
409A.
Repurchases. Unless otherwise
provided in the grant of an award, the compensation committee may, in the event
of an acquisition of substantially all of our assets or at least 50% of the
combined voting power of our then outstanding securities in one or more
transactions, including by way of merger or reorganization, which has been
approved by our board of directors, require a holder of any award granted under
the 2006 plan to relinquish the award to us upon payment by us to the holder of
cash in an amount equal to the fair market value of the award.
Award Limitation. No
participant may be granted awards for more than 500,000 shares in any calendar
year.
Competition;
Solicitation of Customers and Employees; Disclosure of Confidential
Information.
If a
holder’s employment with us or a subsidiary of ours is terminated for any reason
whatsoever, and within 12 months after the date of termination, the holder
either:
|
|
·
|
accepts
employment with any competitor of, or otherwise engages in competition
with, us,
|
|
|
·
|
solicits
any of our customers or employees to do business with or render services
to the holder or any business with which the holder becomes affiliated or
to which the holder renders services,
or
|
|
|
·
|
uses
or discloses to anyone outside our company any of our confidential
information or material in violation of our policies or any agreement
between us and the holder,
|
our board
or the committee may require the holder to return to us the economic value of
any award that was realized or obtained by the holder at any time during the
period beginning on the date that is 12 months prior to the date the holder’s
employment with us is terminated.
144
Term
and Amendments.
Unless
terminated by the board, the 2006 plan shall continue to remain effective until
no further awards may be granted and all awards granted under the 2006 plan are
no longer outstanding. Notwithstanding the foregoing, grants of incentive stock
options may be made only until ten years from the date of the consummation of
the merger. Our board may at any time, and from time to time, amend the 2006
plan, provided that no amendment will be made that would impair the rights of a
holder under any agreement entered into pursuant to the 2006 plan without the
holder’s consent.
Director
Compensation
Following
the consummation of the merger of CPR with TerraNova Acquisition Corporation on
February 12, 2007, referred to as the “merger,” each of our directors has been
compensated $15,000 per year, payable quarterly. This practice was
discontinued effective January 1, 2009. In the year ended December
31, 2009, we did not pay any cash compensation and did not grant any equity
awards to our directors. In the year ended December 31, 2008, we granted
an option to each of Messrs. Glasspiegel and Perrucci to purchase 35,000 shares
of our common stock; and to each of Messrs. Calder, Drew and Kololian to
purchase 45,000 shares of our common stock. All of such options vest
in three equal annual installments beginning August 20, 2009 with an expiration
date of August 20, 2018 and have an exercise price of $0.30 per
share. In the year ended December 31, 2007, we granted an option to
Mr. Cook to purchase 20,000 shares of our common stock; and to each of Messrs.
Calder, Drew, Glasspiegel, Perrucci and Kololian to purchase 30,000 shares of
our common stock, immediately exercisable, at an exercise price of $6.10 per
share. These options expire on March 29, 2010. As of December 31,
2009, each of Messrs. Glasspiegel and Perrucci held options to purchase 65,000
shares of our common stock; each of Messrs. Calder, Drew and Kololian held
options to purchase 75,000 shares of our common stock; and Mr. Cook held an
option to purchase 20,000 shares of our common stock.
See Part
III, Item 13 “Certain Relationships and Related Transactions, and Director
Independence” for a description of our transactions involving TNMC, as defined
below, an affiliate of Mr. Kololian, WES Health System and The Cameron Company,
LLC, affiliates of Mr. Cook, as well as for a description of notes and warrants
issued to Mr. Drew’s spouse, which descriptions are incorporated herein by
reference.
For
information regarding the compensation of Mr. Traina, our Chief Executive
Officer, see the “Summary Compensation Table” above.
145
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the beneficial ownership of our
common stock as of April 12, 2010 by:
|
|
·
|
each
of our named executive officers and
directors;
|
|
|
·
|
Mr.
O’Sullivan, as ComVest’s nominee to serve on our board of
directors;
|
|
|
·
|
all
our executive officers and directors as a group;
and
|
|
|
·
|
each
person known by us to be the beneficial owner of more than 5% of our
outstanding shares of common stock.
|
The
information about the beneficial owners contained in the table below is based on
information supplied by such persons or SEC filings. Beneficial ownership of
shares of common stock is determined in accordance with the rules of the SEC and
includes voting or investment power with respect to common stock. For the
purposes of computing a person’s beneficial ownership, shares of common stock
issuable upon the exercise of securities exercisable within 60 days of April 12,
2010 are deemed outstanding for the purposes of computing the share ownership
and percentage ownership of the person holding such securities, but are not
deemed outstanding for the purposes of computing the percentage ownership of any
other person.
Except as
otherwise indicated, to our knowledge, the beneficial owners of common stock
listed below have sole investment and voting power with respect to such
shares.
As of
April 12, 2010, 32,922,789 shares of our common stock were
outstanding.
|
Name and Address of Beneficial Owner (1)
|
Amount and Nature of
Beneficial Ownership
|
Percent of Class
|
||||||
|
Michael
Traina
|
3,293,906 |
(2)
|
10.0 | % | ||||
|
John
G. Phillips
|
16,667 |
(3)
|
* | |||||
|
Gary
E. Jaggard
|
— |
(4)
|
— | |||||
|
Robert
O’Sullivan, director nominee
|
— |
(5)
|
— | |||||
|
Brian
Delle Donne
|
— | — | ||||||
|
All
current directors and executive officers as a group (3
persons)
|
3,310,573 |
(6)
|
10.0 | % | ||||
|
ComVest
Capital, LLC
ComVest
Capital Management LLC
Michael
S. Falk
Robert
L. Priddy
|
18,670,825 |
(7)
|
56.7 | % | ||||
|
Christopher
Ferguson
|
2,361,313 |
(8)
|
7.2 | % | ||||
|
Vahan
Kololian
TerraNova
Partners L.P.
|
2,317,566 |
(9)
|
7.0 | % | ||||
|
*
|
Denotes
less than 1%.
|
|
(1)
|
Unless
otherwise noted, the business address of each of the following beneficial
owners is c/o ClearPoint Business Resources, Inc., 1600 Manor Drive, Suite
110, Chalfont, PA 18914.
|
|
(2)
|
Represents:
(i) 3,260,573 shares of common stock held by Mr. Traina and (ii) 33,333
shares of common stock issuable upon exercise of an
option.
|
|
(3)
|
Represents
16,667 shares of common stock issuable upon exercise of an
option.
|
146
|
(4)
|
No
securities beneficially owned.
|
|
(5)
|
No
securities beneficially owned.
|
|
(6)
|
Represents:
(i) 3,260,573 shares of common stock and (ii) 50,000 shares of common
stock issuable upon exercise of
options.
|
|
(7)
|
Based
on a Schedule 13D filed with the SEC on March 2, 2010 for ComVest, ComVest
Capital Management LLC, referred to as ComVest Management, Michael S. Falk
and Robert L. Priddy. The Schedule 13D indicates that (i) ComVest
and ComVest Management have sole voting and dispositive power over the
shares of common stock; (ii) Messrs. Falk and Priddy have shared voting
and dispositive power over the shares of common stock; (iii) ComVest
Management is the managing member of ComVest and may be deemed to be the
indirect beneficial owner of the shares of common stock that ComVest
beneficially owns; (iv) Messrs. Falk and Priddy are the co-managing
members of ComVest Management and, accordingly, each of Messrs. Falk and
Priddy may be deemed to be the indirect beneficial owner of the shares of
common stock that ComVest Management may be deemed to beneficially own;
and (v) each of Messrs. Falk and Priddy, as a co-managing member of
ComVest Management, shares with the other the power to direct the voting
and disposition of the shares of common stock that ComVest Management may
be deemed to beneficially own. The address of the principal business
office of the reporting persons is ComVest Capital, LLC, City Place Tower,
525 Okeechobee Boulevard, Suit 1050, West Palm Beach, Florida
33401.
|
|
(8)
|
Represents
2,361,313 shares of common stock held by Optos, an entity controlled by
Mr. Ferguson. Excludes securities held by Fergco Bros. LLC, of which Mr.
Ferguson holds a 25% ownership interest, because Mr. Ferguson does not
have voting or investment power over such securities. Mr. Ferguson’s
business address is 1866 Leithsville Road, Hellertown, NJ
18055.
|
|
(9)
|
Represents:
(i) 2,282,566 shares of common stock held by TerraNova Partners and 20,000
shares of common stock held by The Kololian Foundation (Mr. Kololian
beneficially owns 100% of the limited partnership interest of TerraNova
Partners; he also controls 100% of the voting interest in the general
partner and 55% of the non-voting equity interest in the general partner
of TerraNova Partners. Mr. Kololian is President and Director of The
Kololian Foundation.) and (ii) 15,000 shares of common stock issuable upon
exercise of an option.
|
For
information regarding the litigation involving Mr. Traina and Blue Lake, see
Part I, Item 3 “Legal Proceedings—Blue Lake” which is incorporated herein by
reference.
147
Equity
Compensation Plan Information
The
following table sets forth information regarding the 2006 Plan as of December
31, 2009.
|
Plan category
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
928,100 | $ | 2.86 | 1,821,900 | ||||||||
|
Equity
compensation plans not approved by security holders
|
0 | — | 0 | |||||||||
|
Total
|
928,100 | $ | 2.86 | 1,821,900 | ||||||||
148
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Transactions
with ComVest
We
entered into an amended loan agreement with ComVest, pursuant to which ComVest
extended a secured revolving credit facility to us with an initial maximum
availability of $10.5 million.
In
connection with the amended loan agreement, we issued the ComVest warrant to
purchase 2,210,825 shares of our common stock. On February 9, 2010,
we received the default notice from ComVest related to our defaults on certain
of our obligations under the amended loan agreement. Pursuant to a
letter dated February 10, 2010, ComVest waived existing defaults under the
amended loan agreement. As a consequence of such defaults, ComVest invoked the
default exercise provision under the ComVest warrant, pursuant to which we are
obligated to issue to ComVest 18,670,825 shares of common stock, and we received
approximately $18,671 from ComVest as the exercise price of the ComVest
warrant.
During
the fiscal year ended December 31, 2008, we paid ComVest, our majority
stockholder and an entity with which Mr. Jaggard, our director, and Mr.
O’Sullivan, our director nominee, are affiliated, an aggregate of approximately
$1,345,990 and $384,190 in principal and interest, respectively, pursuant to the
term loan, $530,000 and $10,068 in principal and interest, respectively,
pursuant to the revolving loan, and $11,360 in fees under the original loan
agreement. During the fiscal year ended December 31, 2009, we paid
ComVest an aggregate of approximately $535,961 and $427,136 in principal and
interest, respectively, pursuant to the term loan, $0 and $85,711 in principal
and interest, respectively, pursuant to the revolving loan, and $38,868 in fees
under the original loan agreement. During the fiscal year ended
December 31, 2009, we paid ComVest approximately $0 and $21,362 in principal and
interest, respectively, and $363 in fees pursuant to the amended loan
agreement. During the period of January 1, 2010 through April 12,
2010, we paid ComVest approximately $0 and $32,000 in principal and interest,
respectively, and $22,569 in fees pursuant to the amended loan
agreement. Amounts outstanding under the original loan agreement bore
interest at a rate of 7% and amounts outstanding under the amended loan
agreement bore interest at a rate of 12% during such periods. As of
December 31, 2008, $7,654,010 was outstanding on the term loan and $1,000,000
was outstanding on the revolving loan under the original loan
agreement. As of December 31, 2009, $10,383,061 was outstanding under
the amended loan agreement, in addition to interest and fees of
$857,941. As of April 12, 2010, $10,310,608 was outstanding under the
amended loan agreement in addition to approximately $1,281,127 in accrued
interest and modification fees. The largest amount outstanding under
either loan agreement since January 1, 2008 was approximately $10,495,952,
excluding accrued interest and modification fees.
Notes
Issued to Related Parties
Alyson
Drew and Fergco
On March
1, 2005, we issued a 12% Amended and Restated Subordinated Note in the original
principal amount of $100,000 due 2008 to Alyson Drew, the spouse of our former
director Parker Drew, referred to as the “Drew note.”
On March
1, 2005, we issued a 12% Amended and Restated Note in the original principal
amount of $300,000 due March 31, 2008 to Fergco, a New Jersey limited liability
company of which Christopher Ferguson, our more than 5% stockholder, owns a 25%
ownership interest and his brothers own the remaining 75% interest, referred to
as the “Fergco note.”
149
On March
31, 2008, we amended the Drew note and the Fergco note by extending the maturity
date from March 31, 2008 until March 31, 2009. In consideration of agreeing to
amend the Drew note and the Fergco note, we issued a warrant to each of Alyson
Drew and Fergco giving them the right to purchase 15,000 shares and 45,000
shares of our common stock, respectively, at an exercise price per share equal
to $1.55. The warrants are immediately exercisable during the period commencing
on March 31, 2008 and ending on March 31, 2010. On June 20, 2008, we exercised
our right to extend the maturity date of the Drew note and the Fergco note to
March 31, 2010. In connection with such extension, each of Alyson Drew and
Fergco received an additional warrant to purchase 15,000 shares and 45,000
shares of our common stock, respectively, at an exercise price of $1.55 per
share. The additional warrants are immediately exercisable during the period
commending on June 20, 2008 and ending on March 31, 2011. In September 2009, CPR
amended and restated the Drew note and the Fergco note, pursuant to which
payments on the notes shall be deferred and paid in monthly installments
beginning March 31, 2010.
The
proceeds of these notes issued to Alyson Drew and Fergco were used to fund
acquisitions. Pursuant to the terms of these notes, we made interest only
payments until the repayment of the notes, as applicable. During 2008, we made
interest payments of $15,000, and $45,000 to Alyson Drew and Fergco,
respectively. During 2009, we made interest payments to Alyson Drew
and Fergco in the amounts of $12,000 and $4,000, respectively. As of
December 31, 2009 and April 12, 2010, $100,000 and $300,000 in principal amount
were outstanding under the notes issued to Alyson Drew and Fergco,
respectively. As of December 31, 2009, $8,000 and $24,000 in interest
were outstanding under the notes issued to Alyson Drew and Fergco,
respectively. No payments have been made to Alyson Drew or Fergco in
2010. As of April 12, 2010, $11,500 and $34,500 in interest were
outstanding under the notes issued to Alyson Drew and Fergco,
respectively.
Michael
Traina and Christopher Ferguson
CPR
issued promissory notes, dated February 22, 2008, in the aggregate principal
amount of $800,000, to each of Michael D. Traina, our Chairman and Chief
Executive Officer, and Christopher Ferguson in consideration for loans of
$800,000 made to CPR. The terms of the promissory notes issued to Messrs. Traina
and Ferguson were identical. The principal amount of each promissory note was
$400,000, it bore interest at the rate of 6% per annum, which was to be paid
quarterly, and it was due on February 22, 2009. On February 28, 2008, ClearPoint
Workforce, LLC, referred to as “CPW,” a wholly owned subsidiary of CPR, advanced
$800,000, on behalf of Optos Capital, LLC, referred to as “Optos,” to the
provider of its outsourced employee leasing program. The advanced funds were
utilized for Optos’ payroll. In consideration of making the advance on its
behalf, Optos assumed the foregoing promissory notes, and the underlying payment
obligations.
Bridge
Notes
On June
6, 2008, we issued notes referred to as the “original bridge notes,” to each of
Michael D. Traina, Parker Drew, our former director, and TerraNova Partners, an
affiliate of our former director Mr. Kololian, in the principal amount of
$104,449, $50,000 and $100,000, respectively. During the course of negotiations
with ComVest, Mr. Traina agreed to loan an additional $5,000 to us. TerraNova
Partners, our stockholder, is 100% owned by Mr. Kololian. Mr. Kololian also
controls 100% of the voting interest in the general partner and 55% of the
non-voting equity interest in the general partner of TerraNova Partners. The
original bridge notes contained identical terms and were unsecured and payable
on demand. No interest accrued on the unpaid principal balance of the original
bridge notes until demand. After demand, the original bridge notes bore interest
at an annual rate of 5%. On June 26, 2008, we issued amended and restated notes,
the “amended bridge notes,” to each holder of the original bridge notes. The
amended bridge notes contained identical terms and provided that (i) the
principal amount of the amended bridge notes bore interest at a rate of 8% per
annum, payable quarterly and (ii) we had the right to repay the amended bridge
notes in shares of our common stock at a price equal to the closing price of our
common stock on June 26, 2008. The amended bridge notes did not contain the
provision stating that the principal balance will bear interest only upon
demand, as provided in the original bridge note. Mr. Drew’s amended bridge note
was repaid in full and Mr. Traina was repaid $5,000 during the quarter ended
June 30, 2008. The balance of Mr. Traina’s loan was repaid in July 2008. On
August 12, 2008, our board of directors approved the payment of the amended
bridge note issued to TerraNova Partners in 204,082 shares of common stock in
accordance with the terms of the amended bridge note. On March 6,
2009, such shares were issued to TerraNova Partners.
150
Agreements
with Related Parties
Separation
Agreement and Consulting Agreement with Christopher Ferguson
On
February 28, 2008, Christopher Ferguson, our former director, President and
Secretary resigned effective February 28, 2008. In connection with Mr.
Ferguson’s resignation, we entered into a Separation of Employment Agreement and
General Release with Mr. Ferguson referred to as the “Ferguson separation
agreement.” In consideration for Mr. Ferguson’s agreement to be legally bound by
the terms of the Ferguson separation agreement and his release of his claims, if
any, under the Ferguson separation agreement, Mr. Ferguson is entitled to be
reimbursed for any health insurance payments for a period equal to 52 weeks. For
the years ended December 31, 2009 and December 31, 2008, Mr. Ferguson was
reimbursed $9,000 and $12,000, respectively, for health insurance
payments. Pursuant to the Ferguson separation agreement, on April 18,
2008, CPR entered into a consulting agreement with Mr. Ferguson pursuant to
which he is entitled to be paid $25,000 per month for twelve (12) months. In the
fiscal year ended December 31, 2008, we accrued $256,709 related to consulting
fees and benefits pursuant to Mr. Ferguson’s consulting agreement. As
of April 12, 2010, no payments were made to Mr. Ferguson pursuant to the
consulting agreement.
Separation
Agreement with Kurt Braun
On July
20, 2008, Kurt Braun, our former Chief Financial Officer, resigned effective
June 20, 2008. In connection with Mr. Braun’s resignation, we entered into a
Separation of Employment Agreement and General Release with Mr. Braun, referred
to as the “Braun separation agreement.” In consideration of Mr. Braun’s
agreement to be legally bound by the terms of the Braun separation agreement,
his release of his claims, if any under the Braun separation agreement, and his
agreement to provide the transitional services to us, we agreed to, among other
things: (i) pay Mr. Braun $75,000, minus all payroll deductions required by law
or authorized by Mr. Braun, to be paid as salary continuation over 26 weeks;
(ii) continue to pay all existing insurance premiums for Mr. Braun and his
immediate family through the 26 week period, and thereafter permit Mr. Braun, at
his own expense, to continue to receive such coverage in accordance with COBRA
regulations; (iii) pay Mr. Braun the balance of any accrued but unused vacation
or PTO hours, minus all payroll deductions required by law or authorized by Mr.
Braun; and (iv) amend Mr. Braun’s Nonqualified Stock Option Agreement, dated
March 30, 2007, to permit Mr. Braun to exercise the option to purchase 90,000 of
the 140,000 shares underlying the option until March 30, 2010. The
balance of the shares underlying the option expired on June 20, 2008 in
accordance with our 2006 plan. During 2008, we paid Mr. Braun
approximately $75,000 as severance under the Braun separation
agreement. In 2009 and 2010, we were not obligated to make any
payments to Mr. Braun pursuant to the foregoing agreement.
Agreements
with TerraNova Management
TerraNova
Management Corp., referred to as “TNMC,” an affiliate of Mr. Kololian and the
manager of TerraNova Partners, was retained to provide certain advisory services
to us, effective upon the closing of the merger, pursuant to the initial TNMC
agreement between TNMC and us, dated February 12, 2007. Mr. Kololian
controls 100% of the voting interest and 55% of the non-voting equity interest
of TNMC. Pursuant to the initial TNMC agreement, TNMC provided
services to us including: advice and assistance to us in our analysis and
consideration of various financial and strategic alternatives, as well as
assisting with transition services. During the year ended December
31, 2007, TNMC received a fixed advisory fee of $175,000 (prorated for a partial
year) for such services. Pursuant to the terms of the initial TNMC
agreement, it was terminated effective February 11, 2008, however TNMC continued
to provide substantially similar services under substantially similar terms to
us on a monthly basis. No payments were accrued or paid to TNMC for
January, 2008.
151
On June
26, 2008, we entered into the TNMC advisory services agreement with
TNMC. Pursuant to the TNMC advisory services agreement, we agreed to
provide compensation to TNMC for its services since the expiration of the
initial TNMC agreement and to engage TNMC to provide future advisory
services. The TNMC advisory services agreement was effective as of
June 26, 2008, continues for a one year term and is automatically renewed for
successive one-year terms unless terminated by either party by written notice
not less than 30 days prior the expiration of the then current
term. The TNMC advisory services agreement was automatically renewed
on June 26, 2009 pursuant to its terms. We will compensate TNMC for
services rendered since expiration of the initial TNMC agreement and for
advisory services similar to those performed under the initial TNMC
agreement. Monthly fees payable to TNMC under the TNMC advisory
services agreement are capped at $50,000 per month. Fees payable to
TNMC may be paid 100% in shares of our common stock, at our
option. Beginning in the month of June, 2008, 75% of the fees payable
to TNMC may also be paid in shares of our common stock and, with the agreement
of TNMC, the remaining 25% may also be paid in shares of common
stock. Shares of our common stock made as payments under the TNMC
advisory services agreement will be priced at the month-end closing price for
each month of services rendered. During the fiscal years ended
December 31, 2008 and 2009, we incurred approximately $292,665 and $0,
respectively in fees owing to TNMC for such services. No fees were
incurred during 2010 as of April 12, 2010.
Our board
of directors approved payment of $266,000 for the services performed by TNMC
pursuant to the TNMC advisory services agreement in the form of an aggregate of
479,470 shares of common stock for the months of February through August, 2008
as follows: on August 12, 2008, the board of directors approved payment for the
months of February, March, April, May and June, 2008 in 417,008 shares of common
stock and on November 7, 2008, the board of directors approved payment for the
months of July and August, 2008 in 62,462 shares of common stock. We
paid the remaining $26,665 incurred by us for the services provided by TNMC in
2008 in cash.
Additionally,
we recorded approximately $99,202 and $17,422 for reimbursement of expenses
incurred by TNMC in connection with the advisory services agreement during the
years ended December 31, 2008 and 2009, respectively. No
reimbursement of expenses were incurred during 2010 as of April 12,
2010.
Agreements
with ALS
On
February 23, 2007, we acquired certain assets and liabilities of ALS. The
purchase price of $24.4 million consisted of cash of $19 million, a promissory
note in the amount of $2,500, referred to as the “ALS note,” shares of our
common stock with a value of $2.5 million (439,367 shares) and the assumption of
approximately $400,000 of current liabilities. ALS’s stockholders may also
receive up to two additional $1 million payments in shares of our common stock
based on our financial and integration performance metrics in calendar years
2007 and 2008. No such payments have been made to date.
In
connection with the financing transaction with ComVest, on June 20, 2008, we
entered into a Letter Agreement with ALS and its subsidiaries whereby the
parties agreed, among other things, to: (i) amend the ALS note to provide for an
outstanding principal amount of $2,156,000 bearing interest at a rate of 5% per
annum payable in 24 equal monthly installments, payable as permitted pursuant to
the subordination letter and (ii) issue 350,000 shares of our common stock to
ALS. In addition, the parties agreed that ALS may defend and indemnify us in
connection with certain litigation involving the parties.
152
Pursuant
to a subordination letter sent by ALS to ComVest, Manufacturers and Traders
Trust Company, referred to as “M&T,” and us dated June 20, 2008, ALS agreed
that we may not make and ALS may not receive payments on the ALS note, provided
however, that (i) upon payment in full of all obligations owing to ComVest and
so long as we are permitted to make such payments, we will make monthly interest
payments on the outstanding principal balance of the ALS note and (ii) upon
payment in full of our obligations owing to M&T, we will make 24 equal
monthly installments on the ALS note, as amended pursuant to our agreement with
ALS described above. As of December 31, 2009 and April 12, 2010,
approximately $2,155,652 in principal amount was outstanding under the ALS
note. During the year ended December 31, 2008 and 2009, no interest
payments were made to ALS pursuant to the ALS note. We have accrued
$128,448 in interest payable to ALS pursuant to the ALS note since the ALS note
was amended on June 20, 2008. No payments were made to ALS in 2010 as of April
12, 2010.
Transactions
with Dennis Cook and WES Health System
Dennis
Cook, a member of our board of directors, served as an advisor to the board of
directors since 2007. In such capacity, Mr. Cook provided ad hoc
recommendations regarding general business strategy to our board of directors
upon request. In connection with such services, we paid Mr. Cook
approximately $4,000 and $0 during the fiscal years ended December 31, 2008 and
2009, respectively. Mr. Cook serves as the President and Chief
Executive Officer of WES Health System, referred to as “WES.” During
the fiscal years ended December 31, 2008 and 2009, we leased office space from
WES for which we paid a total of $1,875 and $0, respectively. During the years
ended December 31, 2008 and 2009, we provided certain temporary employees and
payroll services to WES for approximately $1,156,000 and $0,
respectively. In addition, on March 29, 2007, Mr. Cook was granted an
option to purchase 20,000 shares of our common stock at an exercise price of
$6.10. The option vested immediately.
Agreement
with XRoads Solutions
On
January 13, 2009, we entered into the XRoads agreement with
XRoads. Pursuant to the XRoads agreement, among other matters, XRoads
agreed to provide the services of Brian Delle Donne to serve as our Interim
Chief Operating Officer. In such capacity, Mr. Delle Donne had direct
responsibility over our day to day operations and reported to Michael D. Traina,
our Chief Executive Officer. The term of the XRoads agreement
commenced on January 13, 2009 and continued until May 13,
2009. Effective May 14, 2009, the XRoads agreement was amended
pursuant to the XRoads amendment, and the term of the XRoads agreement was
extended to run from May 14, 2009 through August 13, 2009.
We paid
XRoads $50,000 per month for each of the first four months of Mr. Delle Donne’s
services. In addition, we issued XRoads a warrant to purchase up to
100,000 shares of common stock at the exercise price of $0.12 per share,
exercisable through December 31, 2010 in connection with the expiration of the
XRoads agreement on May 13, 2009. In connection with the XRoads
extension, we issued an additional warrant to purchase up to 75,000 shares of
common stock the exercise price of $0.29 per share, exercisable through April
30, 2011.
The
XRoads agreement provided that either we or XRoads could terminate the XRoads
agreement at any time with at least 30 days prior written notice. On
July 6, 2009, we sent such 30-day termination notice to XRoads. The
XRoads agreement and Brian Delle Donne’s services as our Interim Chief Operating
Officer were terminated effective August 7, 2009. During 2009,
pursuant to the XRoads agreement, we paid XRoads a total of $314,168 and the
$10,000 retainer for reimbursement of expenses. Any amounts not paid
when due pursuant to the XRoads agreement bear interest at an annual rate of 12%
or the maximum rate allowed by law, whichever is less. As of December
31, 2009 and April 12, 2010, we paid an aggregate of $40,000 pursuant to the
XRoads settlement, consisting of $40,000 in fees related to services provided by
XRoads, $0 in accrued interest and $0 in reimbursement of expense.
153
On
November 18, 2009, we entered into a Settlement Agreement and Mutual Release,
referred to as the “XRoads settlement agreement,” with XRoads relating to the
payment of amounts due under the XRoads agreement. Pursuant to the XRoads
settlement agreement, we agreed to pay XRoads, in full and complete satisfaction
and settlement of all obligations under the XRoads agreement, the sum of
$40,000, which was paid to XRoads in six weekly installments beginning
December 4, 2009 and ending January 8, 2010. In consideration for the
payment of such amounts, we and XRoads agreed to release each other from all
claims related to the XRoads agreement prior to the date XRoads receives all of
such payments. In the event we default in our payment obligations
pursuant to the settlement agreement, XRoads shall be entitled to recover all
damages underlying any claim under the XRoads agreement and recover its
attorneys’ fees incurred in the enforcement of the settlement
agreement.
Independence
of Directors
See Part
III, Item 10 “Directors, Executive Officers and Corporate
Governance—Independence of Directors,” which is incorporated herein by
reference.
Item
14. Principal Accounting Fees and Services.
Principal
Accounting Fees
The
following table presents fees for professional audit and other services rendered
by Asher & Company, LTD., Parente Randolph, LLC and Lazar Levine
& Felix LLP for fiscal 2009 and 2008, respectively:
|
2009
|
2008
|
|||||||
|
Audit
Fees
|
$ | 104,000 | $ | 405,755 | ||||
|
Audit-Related
Fees
|
— | — | ||||||
|
Tax
Fees
|
51,600 | 45,000 | ||||||
|
All
Other Fees
|
— | — | ||||||
|
Total
|
$ | 155,600 | $ | 450,755 | ||||
Audit fees. Audit
fees include fees for the audit of our consolidated financials statements for
the years ended December 31, 2009 and 2008, reviews of our quarterly financial
statements for each of the quarters in the years ended December 31, 2009 and
2008 and in 2008, fees in connection with the filing of registration statements
and consultation on accounting standards and transactions
Tax fees. Tax
fees consist of tax compliance, preparation, filing and consultation
services.
All other fees.
No other fees were incurred.
Audit
Committee Pre-Approval
Prior to
the merger with Terra Nova, ClearPoint had no designated audit committee; the
board of directors, however, pre-approved all audit services and permitted
non-audit services provided by the independent auditors, and the compensation,
fees and terms for such services. Since its formation, the audit committee has
determined not to adopt any blanket pre-approval policy but instead to require
that the audit committee pre-approve the compensation and terms of service for
audit services provided by the independent auditors and any changes in terms and
compensation resulting from changes in audit scope, company structure or other
matters. The audit committee has also determined to require pre-approval by the
audit committee or its chairman of the compensation and terms of service for any
permitted non-audit services provided by the independent auditors. Any proposed
non-audit services exceeding any pre-approval fee levels require further
pre-approval by the audit committee or its chairman. The chief financial officer
reports regularly to the audit committee on the services performed and fees
charged by the independent auditors for audit and permitted non-audit services
during the prior quarter.
154
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
The
following documents are filed as a part of this Annual Report on Form
10-K:
(a)(1)
Financial Statements
The
consolidated financial statements of the Registrant are set forth in Item 8 of
Part II of this Annual Report on Form 10-K.
Consolidated
Balance Sheets as of December 31, 2009 and 2008.
Consolidated
Statements of Operations for the Years Ended December 31, 2009 and
2008.
Consolidated
Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31,
2009 and 2008.
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009 and
2008.
(a)(2)
Financial Statement Schedule
(a)(3)
Listing of Exhibits
The
Exhibits are listed in the Exhibit Index beginning on page E-1, which is
incorporated herein by reference.
155
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated:
April 15, 2010
|
CLEARPOINT
BUSINESS RESOURCES, INC.
|
|||
|
By:
|
/s/
Michael D. Traina
|
||
|
Name:
|
Michael
D. Traina
|
||
|
Title:
|
Chief
Executive Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on April 15, 2010.
|
Signature
|
Title
|
|
|
/s/
Michael D. Traina
|
Chief
Executive Officer and Chairman of the
|
|
|
Michael
D. Traina
|
Board
of Directors
(principal
executive officer)
|
|
|
/s/
John G. Phillips
|
Chief
Financial Officer and Treasurer
|
|
|
John
G. Phillips
|
(principal
financial and accounting officer)
|
|
|
/s/
Gary E. Jaggard
|
Lead
Director
|
|
|
Gary
E. Jaggard
|
S-1
EXHIBIT
INDEX
|
Exhibit No.
|
Description
|
|
|
2.1
|
Agreement
and Plan of Merger dated August 9, 2006, by and among Terra Nova
Acquisition Corporation, CPBR Acquisition, Inc., ClearPoint Business
Resources, Inc. and the stockholders of ClearPoint Business Resources,
Inc. (incorporated by reference from Annex A to the Definitive Proxy
Statement filed January 22, 2007).
|
|
|
2.2.1
|
Asset
Sale and Purchase Agreement dated as of February 23, 2007, by and among
ALS, LLC, Advantage Services Group II, LLC, ALSC, LLC, ALSC II, LLC, ALSC
III, LLC, ALSC IV, LLC, ASG, LLC, Joseph Raymond, Michael J. O’Donnell,
Kevin O’Donnell, Michael W. O’Donnell and ClearPoint Business Resources,
Inc. (incorporated by reference from Exhibit 2.1 to Form 8-K filed
February 28, 2007).
|
|
|
2.2.2
|
Agreement
to Reform Asset Purchase Agreement effective as of February 23, 2007 by
and among ALS, LLC, Advantage Services Group II, LLC, ALSC, LLC, ALSC II,
LLC, ALSC III, LLC, ALSC IV, LLC, ASG, LLC, Joseph Raymond, Michael J.
O’Donnell, Kevin O’Donnell, Michael W. O’Donnell and ClearPoint Business
Resources, Inc. (incorporated by reference from Exhibit 2.1 to Form 10-Q
filed November 14, 2008).
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation (incorporated by reference from
Annex B of the Definitive Proxy Statement filed January 22,
2007).
|
|
|
3.2
|
Amended
and Restated Bylaws (incorporated by reference from Exhibit 3.2 to Form
8-K filed January 7, 2008).
|
|
|
4.1
|
Specimen
Common Stock Certificate (incorporated by reference from Exhibit 4.2 to
Form 8-K filed February 12, 2007).
|
|
|
4.2.1
|
Form
of Warrant Agreement (incorporated by reference from Exhibit 4.5 to the
Registration Statement on Form S-1 (File No. 333-122439) filed January 31,
2005).
|
|
|
4.2.2
|
Warrant
Clarification Agreement between Continental Stock Transfer and Trust
Company and Terra Nova Acquisition Corporation (incorporated by reference
from Exhibit 4.1 to Form 8-K filed on September 12,
2006).
|
|
|
4.2.3
|
Specimen
Warrant Certificate (incorporated by reference from Exhibit 4.3 to Form
8-K filed February 12, 2007).
|
|
|
4.3.1
|
Form
of Unit Purchase Option (incorporated by reference from Exhibit 4.4 to
Amendment No. 2 to the Registration Statement on Form S-1 (File No.
333-122439) filed April 4, 2005).
|
|
|
4.3.2
|
Amendment
to Unit Purchase Options between Terra Nova Acquisition Corporation and
the holders thereof (incorporated by reference from Exhibit 4.2 to Form
8-K filed on September 12, 2006).
|
|
|
4.3.3
|
Specimen
Unit Certificate (incorporated by reference from Exhibit 4.1 to Form 8-K
filed February 12, 2007).
|
|
|
4.4
|
Form
of Registration Rights Agreement among Terra Nova Acquisition Corporation
and the undersigned parties listed under the signature page (incorporated
by reference from Exhibit 10.17 to the Registration Statement on Form S-1
(File No. 333-122439) filed January 31, 2005).
|
|
|
4.5
|
ClearPoint
Business Resources, Inc. 9% Subordinated Note Due 2008, dated March 1,
2005, in the original principal amount of $250,000 to Optos Capital, LLC,
a Pennsylvania limited liability company that is wholly-owned by
Christopher B. Ferguson (incorporated by reference from Exhibit 10.12 to
Form 8-K filed February 12, 2007).
|
|
|
4.6
|
Form
of ClearPoint Business Resources, Inc. 12% Subordinated Note Due 2008,
dated March 1, 2005 (incorporated by reference from Exhibit 10.11 to Form
8-K filed February 12, 2007).
|
|
|
4.7.1
|
6%
Note due 2007 issued to shareholders of StaffBridge, Inc. dated August 14,
2006 (incorporated by reference from Exhibit 4.1 to Form 8-K filed January
7, 2008).
|
|
|
4.7.2
|
Amendment
to Note payable to the shareholders of StaffBridge, Inc. dated December
31, 2007 (incorporated by reference from Exhibit 4.1 to Form 8-K filed
January 7, 2008).
|
|
|
4.8
|
Form of 7%
Subordinated Promissory Note due 2008 issued to ALS, LLC. (incorporated by
reference from Exhib)t 4.9 to Form 10-Q filed May 21,
2007).
|
|
|
4.9
|
Registration
Rights Agreement dated as of February 23, 2007 by and between ClearPoint
Business Resource3, Inc. and ALS, LLC (incorporated by reference from
Exhibit 4.1 to Form 8-K filed February 28, 2007).
|
|
|
4.10.1
|
6%
Subordinated Note due 2008 issued to Blue Lake Rancheria (incorporated by
reference from Exhibit 10.1 to Form 8-K/A filed May 14,
2007).
|
|
|
4.10.2
|
10%
Amended and Restated Promissory Note issued to Blue Lake Rancheria, dated
April 14, 2008 (incorporated by reference from Exhibit 10.19 to Form 10-Q
filed May 20, 2008).
|
E-1
|
4.11.1
|
12%
Second Amended and Restated Promissory Note due 2009 issued to Alyson P.
Drew, dated March 31, 2008 (incorporated by reference from Exhibit 10.11
to Form 10-Q filed May 20, 2008).
|
|
|
4.11.2
|
Warrant
issued to Alyson P. Drew, dated March 31, 2008 (incorporated by reference
from Exhibit 4.1 to Form 10-Q filed May 20, 2008).
|
|
|
4.11.3
|
Form
of Warrant issued to Alyson P. Drew dated June 20, 2008 (incorporated by
reference from Exhibit 4.7 to Form 8-K/A filed July 7,
2008).
|
|
|
4.12.1
|
12%
Second Amended and Restated Promissory Note due 2009 issued to B&N
Associates, LLC, dated March 31, 2008 (incorporated by reference from
Exhibit 10.12 to Form 10-Q filed May 20, 2008).
|
|
|
4.12.2
|
Warrant
issued to B&N Associates, LLC, dated March 31, 2008 (incorporated by
reference from Exhibit 4.2 to Form 10-Q filed May 20,
2008).
|
|
|
4.12.3
|
Form
of Warrant issued to B&N Associates, LLC dated June 20, 2008
(incorporated by reference from Exhibit 4.8 to Form 8-K/A filed July 7,
2008).
|
|
|
4.13.1
|
12%
Second Amended and Restated Promissory Note due 2009 issued to Fergco Bros
Partnership, dated March 31, 2008 (incorporated by reference from Exhibit
10.13 to Form 10-Q filed May 20, 2008).
|
|
|
4.13.2
|
Warrant
issued to Fergco Bros Partnership, dated March 31, 2008 (incorporated by
reference from Exhibit 4.3 to Form 10-Q filed May 20,
2008).
|
|
|
4.13.3
|
Form
of Warrant issued to Fergco Bros Partnership dated June 20, 2008
(incorporated by reference from Exhibit 4.9 to Form 8-K/A filed July 7,
2008).
|
|
|
4.14.1
|
12%
Second Amended and Restated Promissory Note due 2009 issued to Matthew
Kingfield, dated March 31, 2008 (incorporated by reference from Exhibit
10.14 to Form 10-Q filed May 20, 2008).
|
|
|
4.14.2
|
Warrant
issued to Matthew Kingfield, dated March 31, 2008 (incorporated by
reference from Exhibit 4.4 to Form 10-Q filed May 20,
2008).
|
|
|
4.14.3
|
Form
of Warrant issued to Matthew Kingfield dated June 20, 2008 (incorporated
by reference from Exhibit 4.10 to Form 8-K/A filed July 7,
2008).
|
|
|
4.15
|
Form
of Third Amended and Restated Promissory Note dated September 8, 2009
issued to each of Alyson P. Drew, B&N Associates, LLC, Fergco Bros,
LLC and Matthew Kingfield (incorporated by reference from Exhibit 4.1 to
Form 8-K filed September 17, 2009).
|
|
|
4.16.1
|
Form
of Demand Promissory Note issued to Michael Traina dated June 6, 2008
(incorporated by reference from Exhibit 4.1 to Form 8-K/A filed July 7,
2008).
|
|
|
4.16.2
|
Form
of 8% Amended and Restated Demand Promissory Note issued to Michael Traina
dated June 26, 2008 (incorporated by reference from Exhibit 4.13 to Form
8-K/A filed July 7, 2008).
|
|
|
4.17.1
|
Form
of Demand Promissory Note issued to Parker Drew dated June 6, 2008
(incorporated by reference from Exhibit 4.2 to Form 8-K/A filed July 7,
2008).
|
|
|
4.17.2
|
Form
of 8% Amended and Restated Demand Promissory Note issued to Parker Drew
dated June 26, 2008 (incorporated by reference from Exhibit 4.14 to Form
8-K/A filed July 7, 2008).
|
|
|
4.18.1
|
Form
of Demand Promissory Note issued to TerraNova Partners, L.P. dated June 6,
2008 (incorporated by reference from Exhibit 4.3 to Form 8-K/A filed July
7, 2008).
|
|
|
4.18.2
|
Form
of 8% Amended and Restated Demand Promissory Note issued to Terra Nova
Partners, L.P. dated June 26, 2008 (incorporated by reference from Exhibit
4.15 to Form 8-K/A filed July 7, 2008).
|
|
|
4.19.1
|
Form
of Warrant issued to ComVest Capital, LLC dated June 20, 2008
(incorporated by reference from Exhibit 4.4 to Form 8-K/A filed July 7,
2008).
|
|
|
4.19.2
|
Form
of Amended and Restated Warrant issued to ComVest Capital, LLC, dated
August 14, 2009 (incorporated by reference from Exhibit 4.2 to Form 8-K
filed August 20, 2009).
|
|
|
4.20.1
|
Form
of Warrant issued to Manufacturers and Traders Trust Company to purchase
1,200,000 shares of common stock dated June 20, 2008 (incorporated by
reference from Exhibit 4.5 to Form 8-K/A filed July 7,
2008).
|
|
|
4.20.2
|
Form
of Warrant issued to Manufacturers and Traders Trust Company to purchase
300,000 shares of common stock dated June 20, 2008 (incorporated by
reference from Exhibit 4.6 to Form 8-K/A filed July 7,
2008).
|
|
|
4.21
|
Registration
Rights Agreement by ClearPoint Business Resources for the benefit of
ComVest and M&T dated June 20, 2008 (incorporated by reference from
Exhibit 4.16 to Form 8-K/A filed July 7,
2008).
|
E-2
|
4.22.1
|
Form
of Warrant issued to XRoads Solutions Group, LLC dated May 13, 2009
(incorporated by reference from Exhibit 4.1 to Form 10-Q filed May 20,
2009).
|
|
|
4.22.2
|
Form
of Warrant issued to XRoads Solutions Group, LLC dated May 14, 2009
(incorporated by reference from Exhibit 4.2 to Form 10-Q filed August 19,
2009).
|
|
|
10.1
|
New
Staff, Inc. Asset Sale and Purchase Agreement with Allied Contract
Services, LLC dated June 18, 2004 (incorporated by reference from Exhibit
10.13 to Form 8-K filed February 12, 2007).
|
|
|
10.2
|
Quantum
Resources Corporation Stock Purchase Agreement with Mercer Staffing, Inc.
and Aramark Services, Inc. dated July 29, 2005 (incorporated by reference
from Exhibit 10.10 to Form 8-K filed February 12,
2007).
|
|
|
10.3
|
Form
of Voting Agreement (incorporated by reference from Annex D of the
Definitive Proxy Statement filed January 22, 2007).
|
|
|
10.4
|
Form
of Escrow Agreement (incorporated by reference from Annex E of the
Definitive Proxy Statement filed January 22, 2007).
|
|
|
10.5
|
Purchase
Agreement, effective as of December 31, 2007, by and among ClearPoint
Business Resources, Inc., Mercer Ventures, Inc. and TradeShow Products
Inc. (incorporated by reference from Exhibit 10.2 to Form 8-K filed
January 7, 2008).
|
|
|
10.6
|
Purchase
Agreement by and among ClearPoint Resources, Inc., ClearPoint HRO, LLC and
AMS Outsourcing, Inc., effective as of February 7, 2008 (incorporated by
reference from Exhibit 10.1 to Form 8-K filed February 13,
2008).
|
|
|
10.7.1
|
Asset
Purchase Agreement by and between ClearPoint Resources, Inc. and
StaffChex, Inc., dated as of February 28, 2008 (incorporated by reference
from Exhibit 10.1 to Form 8-K filed March 5, 2008).
|
|
|
10.7.2
|
iLabor
Network Supplier Agreement among ClearPoint Resources, Inc., StaffChex,
Inc. and StaffChex Servicing, LLC dated February 28, 2008 (incorporated by
reference from Exhibit 10.2 to Form 8-K filed March 20,
2009).
|
|
|
10.7.3
|
Amendment
No. 1 to iLabor Network Supplier Agreement among ClearPoint Resources,
Inc., StaffChex, Inc. and StaffChex Servicing, LLC dated March 16, 2009
(incorporated by reference from Exhibit 10.1 to Form 8-K filed March 20,
2009).
|
|
|
10.7.4
|
Assignment
and Assumption Agreement, Option and Bill of Sale dated November 18, 2009
by and between ClearPoint Resources, Inc. and StaffChex, Inc.
(incorporated by reference from Exhibit 10.1 to Form 8-K filed November
24, 2009).
|
|
|
10.7.5
|
Amendment
No. 2 to the iLabor Network Supplier Agreement dated November 18, 2009
between ClearPoint Resources, Inc., StaffChex, Inc. and StaffChex
Servicing, Inc. (incorporated by reference from Exhibit 10.2 to Form 8-K
filed November 24, 2009).
|
|
|
10.7.6
|
Amendment
No. 3 to the iLabor Network Supplier Agreement dated January 11, 2010
between ClearPoint Resources, Inc., StaffChex, Inc. and StaffChex
Servicing, Inc.
|
|
|
10.8*
|
Form
of Michael D. Traina Employment Agreement (incorporated by reference from
Annex H of the Definitive Proxy Statement filed January 22,
2007).
|
|
|
10.9.1*
|
Form
of Christopher Ferguson Employment Agreement (incorporated by reference
from Annex I of the Definitive Proxy Statement filed January 22,
2007).
|
|
|
10.9.2*
|
Separation
of Employment Agreement and General Release between Christopher Ferguson
and ClearPoint Business Resources, Inc., dated February 28, 2008
(incorporated by reference from Exhibit 10.8 to Form 10-Q filed May 20,
2008).
|
|
|
10.9.3
|
Consulting
Agreement by and between ClearPoint Resources, Inc. and Chris Ferguson,
dated April 18, 2008 (incorporated by reference from Exhibit 10.22 to Form
10-Q filed May 20, 2008).
|
|
|
10.10.1*
|
Kurt
Braun Employment Agreement dated April 4, 2005 (incorporated by reference
from Exhibit 10.8 to Form 8-K filed February 12, 2007).
|
|
|
10.10.2*
|
Separation
of Employment Agreement and General Release among ClearPoint Business
Resources, Inc. and Kurt Braun dated June 20, 2008 (incorporated by
reference from Exhibit 10.13 to Form 8-K/A filed July 7,
2008).
|
|
|
10.11*
|
Todd
Warner Employment Agreement dated February 16, 2005 (incorporated by
reference from Exhibit 10.9 to Form 8-K filed February 12,
2007).
|
|
|
10.12*
|
Employment
Agreement among ClearPoint Business Resources, Inc. and John G. Phillips
dated June 20, 2008 (incorporated by reference from Exhibit 10.12 to Form
8-K/A filed July 7, 2008).
|
E-3
|
10.13*
|
Director
Compensation (incorporated by reference from Exhibit 10.8 to Form 10-Q
filed May 21, 2007).
|
|
|
10.14.1*
|
2006
Long-Term Incentive Plan (incorporated by reference from Annex C of the
Definitive Proxy Statement filed January 22, 2007).
|
|
|
10.14.2*
|
Form
of Non-qualified Stock Option Agreement under ClearPoint Business
Resources, Inc. 2006 Long-Term Incentive Plan (incorporated by reference
from Exhibit 10.1 to the Registration Statement on Form S-8 (File No.
333-144209) filed on June 29, 2007).
|
|
|
10.15.1
|
Credit
Agreement dated as of February 23, 2007 among ClearPoint Business
Resources, Inc., the several banks and other financial institutions from
time to time parties thereto and Manufacturers and Traders Trust Company
(incorporated by reference from Exhibit 10.1 to Form 8-K filed February
28, 2007).
|
|
|
10.15.2
|
First
Amendment to Credit Agreement dated July 13, 2007, by and between
ClearPoint Business Resources, Inc. and Manufacturers and Traders Trust
Company (incorporated by reference from Exhibit 10.3 to Form 10-Q filed
November 13, 2007).
|
|
|
10.15.3
|
Joinder
and Assumption Agreement, dated as of December 31, 2007 among Emgate
Solutions Group, LLC, ClearPoint WorkForce, LLC, ASG, LLC, ClearPoint HRO,
LLC, ClearPoint HR, LLC, ASG, LLC, and Mercer Ventures, Inc., in favor of
Manufacturers and Traders Trust Company, as Administrative Agent for the
lenders and financial institutions from time to time parties to a certain
Credit Agreement (incorporated by reference from Exhibit 10.1 to Form 8-K
filed January 7, 2008).
|
|
|
10.15.4
|
Second
Amendment to Credit Agreement among ClearPoint Business Resources, Inc.,
several banks and other financial institutions parties to the Credit
Agreement and Manufacturers and Traders Trust Company, dated as of March
21, 2008 (incorporated by reference from Exhibit 10.1 to Form 8-K filed
March 28, 2008).
|
|
|
10.15.5
|
Amended
and Restated Term Note, dated July 13, 2007, payable to Manufacturers and
Traders Trust Company in the original principal amount of $5,000,000
(incorporated by reference from Exhibit 4.1 to Form 10-Q filed November
13, 2007).
|
|
|
10.15.6
|
Waiver
among ClearPoint Business Resources, Inc., the several banks and other
financial institutions parties to the Credit Agreement dated as of
February 23, 2007 (collectively, the “Lenders”) and Manufacturers and
Traders Trust Company, as Administrative Agent for the Lenders, dated
April 14, 2008 (incorporated by reference from Exhibit 10.21 to Form 10-Q
filed May 20, 2008).
|
|
|
10.15.7
|
Loan
Modification and Restructure Agreement among ClearPoint Business
Resources, Inc., its subsidiaries listed on the signature page thereto,
and Manufacturers and Traders Trust Company dated June 20, 2008
(incorporated by reference from Exhibit 10.8 to Form 8-K/A filed July 7,
2008).
|
|
|
10.15.8
|
Subordination
and Intercreditor Agreement by and between ComVest Capital, LLC and
Manufacturers and Traders Trust Company dated June 20, 2008 (incorporated
by reference from Exhibit 10.7 to Form 8-K/A filed July 7,
2008).
|
|
|
10.16.1
|
Waiver
and Consent by and among ClearPoint Business Resources, Inc. and
Manufacturers and Traders Trust Company dated November 12, 2008
(incorporated by reference from Exhibit 10.4 to Form 10-Q filed November
14, 2008).
|
|
|
10.16.2
|
Waiver
and Consent by and among ClearPoint Business Resources, Inc. and
Manufacturers and Traders Trust Company dated December 19, 2008
(incorporated by reference from Exhibit 10.2 to Form 8-K/A filed December
22, 2008).
|
|
|
10.17
|
6%
Promissory Note due 2009 issued to Chris Ferguson, dated February 22, 2008
(incorporated by reference from Exhibit 10.2 to Form 10-Q filed May 20,
2008).
|
|
|
10.18
|
6%
Promissory Note due 2009 issued to Michael Traina, dated February 22, 2008
(incorporated by reference from Exhibit 10.3 to Form 10-Q filed May 20,
2008).
|
|
|
10.19
|
Notice
of Extension of Maturity Date of 12% Amended and Restated Note issued to
Alyson P. Drew, dated June 25, 2008 (incorporated by reference from
Exhibit 10.14 to Form 8-K/A filed July 7, 2008).
|
|
|
10.20
|
Notice
of Extension of Maturity Date of 12% Amended and Restated Note issued to
Fergco Bros Partnership, dated June 25, 2008 (incorporated by reference
from Exhibit 10.15 to Form 8-K/A filed July 7, 2008).
|
|
|
10.21
|
Notice
of Extension of Maturity Date of 12% Amended and Restated Note issued to
B&N Associates, LLC, dated June 25, 2008 (incorporated by reference
from Exhibit 10.16 to Form 8-K/A filed July 7, 2008).
|
|
|
10.22
|
Notice
of Extension of Maturity Date of 12% Amended and Restated Note issued to
Matthew Kingfield, dated June 25, 2008 (incorporated by reference from
Exhibit 10.17 to Form 8-K/A filed July 7,
2008).
|
E-4
|
10.23
|
Subordination
Agreement by and among ComVest Capital, LLC; B&N Associates, LLC;
Alyson P. Drew; Fergco Bros Partnership; Matthew Kingfield; and ClearPoint
Business Resources, Inc. dated June 20, 2008 (incorporated by reference
from Exhibit 10.6 to Form 8-K/A filed July 7, 2008).
|
|
|
10.24.1
|
Revolving
Credit and Term Loan Agreement by and between ComVest Capital, LLC and
ClearPoint Business Resources, Inc. dated as of June 20, 2008
(incorporated by reference from Exhibit 10.1 to Form 8-K/A filed July 7,
2008).
|
|
|
10.24.2
|
Form
of Term Note issued to ComVest Capital, LLC dated June 20, 2008
(incorporated by reference from Exhibit 4.12 to Form 8-K/A filed July 7,
2008).
|
|
|
10.24.3
|
Amendment
No. 1 dated January 29, 2009 to Term Note dated June 20, 2008 issued by
ClearPoint Business Resources, Inc. to ComVest Capital, LLC (incorporated
by reference from Exhibit 10.3 to Form 8-K filed February 4,
2009).
|
|
|
10.24.4
|
Form
of Revolving Credit Note issued to ComVest Capital, LLC dated June 20,
2008 (incorporated by reference from Exhibit 4.11 to Form 8-K/A filed July
7, 2008).
|
|
|
10.24.5
|
Form
of Amended and Restated Revolving Credit Note issued to ComVest Capital,
LLC, dated August 14, 2009 (incorporated by reference from Exhibit 4.1 to
Form 8-K filed August 20, 2009).
|
|
|
10.24.6
|
Amended
and Restated Revolving Credit Agreement by and between ComVest Capital,
LLC and ClearPoint Business Resources, Inc., dated as of August 14, 2009
(incorporated by reference from Exhibit 10.1 to Form 8-K filed August 20,
2009).
|
|
|
10.24.7
|
Letter
Amendment to the Amended and Restated Revolving Credit Agreement by and
between ComVest Capital, LLC and ClearPoint Business Resources, Inc. dated
October 1, 2009 (incorporated by reference from Exhibit 10.1 to Form 8-K
filed October 8, 2009).
|
|
|
10.25
|
Collateral
Agreement by and among ClearPoint Business Resources, Inc., those
subsidiaries set forth on the signature page and ComVest Capital, LLC
dated June 20, 2008 (incorporated by reference from Exhibit 10.3 to Form
8-K/A filed July 7, 2008).
|
|
|
10.26.1
|
Guaranty
Agreement in favor of ComVest Capital, LLC made by each of the entities
set forth on the signature page, dated June 20, 2008 (incorporated by
reference from Exhibit 10.2 to Form 8-K/A filed July 7,
2008).
|
|
|
10.26.2
|
Reaffirmation
of Guaranty made by each of the entities set forth therein, dated as of
August 14, 2009 (incorporated by reference from Exhibit 10.4 to Form 8-K
filed August 20, 2009).
|
|
|
10.27.1
|
Validity
Guaranty by and among ComVest Capital, LLC, ClearPoint Business Resources,
Inc. and Michael D. Traina dated June 20, 2008 (incorporated by reference
from Exhibit 10.4 to Form 8-K/A filed July 7, 2008).
|
|
|
10.27.2
|
Validity
Guaranty by and among ComVest Capital, LLC, ClearPoint Business Resources,
Inc. and John Phillips dated June 20, 2008 (incorporated by reference from
Exhibit 10.5 to Form 8-K/A filed July 7, 2008).
|
|
|
10.27.3
|
Reaffirmation
of Validity Guaranties made by Michael D. Traina and John Phillips, dated
as of August 14, 2009 (incorporated by reference from Exhibit 10.3 to Form
8-K filed August 20, 2009).
|
|
|
10.28
|
Voting
Agreement and Irrevocable Proxy among Michael Traina, Christopher Ferguson
and Vahan Kololian dated June 20, 2008 (incorporated by reference from
Exhibit 10.9 to Form 8-K/A filed July 7, 2008).
|
|
|
10.29.1
|
Waiver
and Consent by and among ClearPoint Business Resources, Inc. and ComVest
Capital, LLC dated November 7, 2008. (incorporated by reference
from Exhibit 10.3 to Form 10-Q filed November 14,
2008).
|
|
|
10.29.2
|
Waiver
and Consent by and among ClearPoint Business Resources, Inc. and ComVest
Capital, LLC dated December 19, 2008 (incorporated by reference from
Exhibit 10.1 to Form 8-K/A filed December 22, 2008).
|
|
|
10.29.3
|
Waiver
Letter dated May 13, 2009 issued by ComVest Capital, LLC (incorporated by
reference from Exhibit 10.4 to Form 10-Q filed May 20,
2009).
|
|
|
10.29.4
|
Waiver
Letter dated May 19, 2009 issued by ComVest Capital, LLC (incorporated by
reference from Exhibit 10.5 to Form 10-Q filed May 20,
2009).
|
|
|
10.29.5
|
Waiver
Letter, dated August 14, 2009, of ComVest Capital, LLC (incorporated by
reference from Exhibit 10.2 to Form 8-K filed August 20,
2009).
|
|
|
10.29.6
|
Waiver
Letter, dated February 10, 2010, of ComVest Capital,
LLC.
|
|
|
10.30
|
Letter
Agreement among ClearPoint Business Resources, Inc., ALS, LLC and its
subsidiaries dated June 20, 2008 (incorporated by reference from Exhibit
10.10 to Form 8-K/A filed July 7,
2008).
|
E-5
|
10.31
|
Subordination
Agreement issued by ALS to ComVest Capital, LLC, ClearPoint Business
Resources, Inc. and Manufacturers and Traders Trust Company dated June 20,
2008 (incorporated by reference from Exhibit 10.11 to Form 8-K/A filed
July 7, 2008).
|
|
|
10.32.1
|
Form
of Debt Extension Agreement with the former shareholders of StaffBridge,
Inc. dated June 30, 2008 (incorporated by reference from Exhibit 10.26 to
Form 10-Q filed August 14, 2008).
|
|
|
10.32.2
|
Debt
Extension Agreement with the former shareholders of StaffBridge, Inc.
dated December 31, 2008 (incorporated by reference from Exhibit 10.1 to
Form 8-K filed February 4, 2009).
|
|
|
10.32.3
|
Debt
Extension Agreement Amendment with the former shareholders of StaffBridge,
Inc. dated September 3, 2009 (incorporated by reference from Exhibit 10.1
to Form 8-K filed September 17, 2009).
|
|
|
10.33
|
Form
of Subordination Agreement issued by the former shareholders of
StaffBridge, Inc. to ComVest Capital, LLC and ClearPoint Resources, Inc.
dated June 30, 2008 (incorporated by reference from Exhibit 10.27 to Form
10-Q filed August 14, 2008).
|
|
|
10.34
|
Office
Space Lease for New Britain Corporate Center by and between New Britain
Land Limited Partnership (as Landlord) and Mercer Staffing, Inc. (as
Tenant) dated April 14, 2005 (incorporated by reference from Exhibit 10.35
to the Registration Statement on Form S-1 (File No. 333-156450) filed
December 24, 2008).
|
|
|
10.35.1
|
Form
of Advisory Services Agreement with TerraNova Management Corp.
(incorporated by reference from Exhibit 10.7 to Form 8-K filed on August
15, 2006).
|
|
|
10.35.2
|
Advisory
Services Agreement by and between ClearPoint Business Resources, Inc. and
TerraNova Management Corp. dated June 26, 2008 (incorporated by reference
from Exhibit 10.18 to Form 8-K/A filed July 7, 2008).
|
|
|
10.36.1
|
Franchise
Agreement, dated August 13, 2007, by and between ClearPoint Business
Resources, Inc. and TZG Enterprises, LLC (incorporated by reference from
Exhibit 10.1 to Form 10-Q filed November 13, 2007).
|
|
|
10.36.2
|
Termination
Agreement by and between ClearPoint Business Resources, Inc. and TZG
Enterprises, LLC, dated February 28, 2008 (incorporated by reference from
Exhibit 10.3 to Form 8-K filed March 5, 2008).
|
|
|
10.37.1
|
Franchise
Agreement, dated August 30, 2007, by and between ClearPoint Business
Resources, Inc. and KOR Capital, LLC (incorporated by reference from
Exhibit 10.2 to Form 10-Q filed November 13, 2007).
|
|
|
10.37.2
|
Termination
Agreement by and between ClearPoint Business Resources, Inc. and KOR
Capital, LLC, dated March 5, 2008 (incorporated by reference from Exhibit
10.1 to Form 8-K filed March 11, 2008).
|
|
|
10.38.1
|
Licensing
Agreement by and between ClearPoint Resources, Inc., ClearPoint Workforce,
LLC and Optos Capital, LLC, dated February 28, 2008 (incorporated by
reference from Exhibit 10.2 to Form 8-K filed March 5,
2008).
|
|
|
10.38.2
|
Assignment
and Assumption Agreement and Bill of Sale by and between Optos Capital,
LLC and ClearPoint Resources, Inc., dated February 28, 2008 (incorporated
by reference from Exhibit 10.7 to Form 10-Q filed May 20,
2008).
|
|
|
10.38.3
|
Termination
Agreement by and between ClearPoint Resources, Inc. and Optos Capital,
LLC, dated April 8, 2008 (incorporated by reference from Exhibit 10.16 to
Form 10-Q filed May 20, 2008).
|
|
|
10.39.1
|
Agreement
by and between ClearPoint Resources, Inc. and Blue Lake Rancheria dated
March 31, 2008 (incorporated by reference from Exhibit 10.15 to Form 10-Q
filed May 20, 2008).
|
|
|
10.39.2
|
Escrow
Agreement by and among ClearPoint Business Resources, Inc., ClearPoint
Resources, Inc., Blue Lake Rancheria and Archer & Archer, P.C., dated
April 14, 2008 (incorporated by reference from Exhibit 10.20 to Form 10-Q
filed May 20, 2008).
|
|
|
10.40.1**
|
License
Agreement by and between Koosharem Corp. d/b/a Select Staffing and
ClearPoint Resources, Inc., dated April 8, 2008 (incorporated by reference
from Exhibit 10.17 to Form 10-Q filed May 20, 2008).
|
|
|
10.40.2
|
Temporary
Help Services Subcontract by and between ClearPoint Resources, Inc. and
Koosharem Corp., d/b/a Select Staffing, dated April 8, 2008 (incorporated
by reference from Exhibit 10.18 to Form 10-Q filed May 20,
2008).
|
|
|
10.40.3
|
Settlement
Agreement and Release dated August 22, 2008 by and between Koosharem Corp.
d/b/a Select Staffing; Real Time Staffing Services, Inc. d/b/a Select
Staffing; and ClearPoint Resources, Inc. (incorporated by
reference from Exhibit 10.1 to Form 10-Q filed November 14,
2008).
|
|
|
10.40.4
|
First
Amendment to Temporary Help Services Subcontract dated August 22, 2008 by
and between Koosharem Corp. d/b/a Select Staffing and ClearPoint
Resources, Inc. (incorporated by reference from Exhibit 10.2 to
Form 10-Q filed November 14,
2008).
|
E-6
|
10.41.1
|
Letter
Agreement dated January 13, 2009 among ClearPoint Business Resources, Inc.
and XRoads Solutions Group, LLC (incorporated by reference from Exhibit
10.2 to Form 8-K filed February 4, 2009).
|
|
|
10.41.2
|
Amendment
No. 1 dated May 18, 2009 to Letter Agreement among ClearPoint Business
Resources, Inc. and XRoads Solutions Group, LLC (incorporated by reference
from Exhibit 10.2 to Form 10-Q filed May 20, 2009).
|
|
|
10.41.3
|
Settlement
Agreement and Mutual Release dated as of November 18, 2009 by and between
ClearPoint Business Resources, Inc., ClearPoint Resources, Inc. and XRoads
Solutions Group, LLC (incorporated by reference from Exhibit 10.3 to Form
8-K filed November 24, 2009).
|
|
|
10.42
|
Settlement
Agreement & Release of Claims dated September 17, 2009 by and between
Alliance Global Services, LLC, as successor to Alliance Consulting Group
Associates, Inc., and ClearPoint Resources, Inc. (incorporated by
reference from Exhibit 10.1 to Form 8-K filed September 23,
2009).
|
|
|
10.43.1
|
Settlement
Agreement and Release dated December 23, 2009 by and between AICCO, Inc.
and ClearPoint Business Resources, Inc. (incorporated by reference from
Exhibit 10.1 to Form 8-K filed January 5, 2010).
|
|
|
10.43.2
|
Judgment
Note dated December 23, 2009 issued to AICCO, Inc. (incorporated by
reference from Exhibit 10.2 to Form 8-K filed January 5,
2010).
|
|
|
11.1
|
Statement
Regarding Computation of Per Share Earnings (incorporated by reference to
Note 3 to the Notes to the Consolidated Financial
Statements).
|
|
|
21.1
|
List
of Subsidiaries.
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under
the Securities Exchange Act of 1934, as amended.
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) promulgated under
the Securities Exchange Act of 1934, as amended.
|
|
|
32.1
|
Certification
of ClearPoint’s Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2
|
Certification
of ClearPoint’s Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
*
|
Management
contract or compensatory plan or arrangement.
|
|
|
**
|
Confidential
treatment granted for certain portions of this Exhibit, which portions are
omitted and filed separately with the
SEC.
|
E-7