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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Transition Period from              to

Commission File Number 001-33521

INFOLOGIX, INC.

(Exact name of registrant as specified in its charter)

(215) 604-0691

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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 Exchange Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of June 30, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $14,940,298 based on the closing price as reported on the NASDAQ Capital Market. (In determining the market value of the Common Stock held by any non-affiliates, shares of Common Stock of the Registrant beneficially owned by directors, officers and holders of more than 10% of the outstanding shares of Common Stock of the Registrant have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.)

The number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date,

DOCUMENTS INCORPORATED BY REFERENCE

None.

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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our current expectations, estimates, forecasts and projections about our company and our industry. These forward-looking statements reflect our current views about future events and can be identified by terms such as “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “should,” “project,” “plan” and similar expressions, although not all forward-looking statements contain such identifying words. You are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are not guarantees of future events and involve risks and uncertainties that are difficult to predict and are based upon assumptions that may prove to be incorrect. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to, for example:

·                  our ability to refinance, replace or restructure our current indebtedness and to comply with the financial covenants and other terms and conditions contained in the agreements governing our indebtedness or any replacement indebtedness;

·                  our ability to operate profitably and manage growth of our business;

·                  our ability to introduce new products and services and maintain products and service quality;

·                  our ability to implement our business plan in difficult economic conditions and to adapt to changes in economic, political, business or industry conditions;

·                  our ability to find additional financing necessary to support our operations and or strategic objectives while also maintaining our focus on operating and developing our business;

·                  our ability to successfully integrate acquisitions with our existing operations;

·                  our ability to retain, replace and hire experienced senior management;

·                  our relationships with our customers, key industry relationships and other third parties on which we rely;

·                  competition in the industries in which we compete;

·                  our ability to protect our intellectual property rights;

·                  restrictions on our operations contained in our loan and security agreement or agreement for any replacement indebtedness; and

·                  our ability to remediate and compensate for the material weakness identified in our internal controls over financial reporting.

We have disclosed additional important factors that could cause our actual outcomes and results to differ materially from the forward-looking statements under Item 1A “Risk Factors” in Part I of this report and elsewhere in this report. We do not undertake any obligation to update or revise any forward-looking statements to reflect new information, future events or otherwise, except as required by federal securities laws.

PART I

Item 1.  Business

Overview

InfoLogix, Inc. is a Delaware corporation that was organized under the laws of the State of Nevada on November 22, 2004 and subsequently merged with and into a corporation organized under the laws of the State of Delaware on November 22, 2006. On November 29, 2006, InfoLogix Systems Corporation (formed in 2001), a Delaware corporation, merged with and into a wholly-owned subsidiary of InfoLogix, Inc. As a result, InfoLogix, Inc. is a holding company for, and conducts substantially all of its operations through, its wholly-owned subsidiary InfoLogix Systems Corporation. References throughout this report to “we,” “us,” “our,” the “Company” and “InfoLogix” are references to InfoLogix, Inc. and its wholly-owned direct and indirect subsidiaries unless otherwise indicated. Many of the amounts and percentages presented in Part I have been rounded for convenience of presentation, and all dollar amounts, except per share amounts, are presented in thousands.

On November 20, 2009, we completed a restructuring transaction with our senior lender Hercules Technology Growth Capital, Inc. (Hercules) and its wholly-owned subsidiary Hercules Technology I, LLC (HTI), pursuant to which $5,000 of our outstanding debt to Hercules was converted into shares of our common stock and a warrant to purchase shares of our common stock, and the remaining outstanding debt with Hercules was otherwise restructured (a transaction that we refer to as the Hercules Restructuring). As a result of the Hercules Restructuring, we experienced a change in control and (i) HTI owns 2,691,790 shares or 72.3% of our outstanding common stock, as well as a warrant to acquire up to an additional 672,948 shares of our common stock, and (ii) Hercules may convert a portion of our remaining indebtedness to Hercules into an additional 2,691,790 shares of our common stock and has the option to convert certain term loan interest into an indeterminate number of shares of our common stock. In addition, on March 1, 2010, Hercules exercised a warrant initially

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received on June 19, 2009 by which it acquired 7,546 shares of our common stock. As a result of Amendment 2 to our Amended Loan Agreement (described below under “-Recent Developments”) on April 6, 2010, Hercules may convert the principal of Term Loan C into an additional 412,087 shares of our common stock and has the option to convert default rate interest into an indeterminate number of shares of our common stock.

Recent Developments

On January 5, 2010, we effected a one-for-twenty-five reverse stock split of our issued and outstanding shares of common stock, par value $0.00001 per share. Unless otherwise indicated, all share amounts discussed herein reflect the post-split number of shares of our common stock.

In connection with the Hercules Restructuring, on November 20, 2009, we and Hercules entered into an Amended and Restated Loan and Security Agreement (Amended Loan Agreement), whereby we and Hercules agreed to restructure our remaining debt not converted into shares of common stock and a warrant. The Amended Loan Agreement amended and restated our prior loan and security agreement with Hercules. On the same date and as a condition to the Hercules Restructuring, we also restructured our earn out obligation related to our 2008 acquisition of the assets of Delta Health Systems, Inc.

On February 19, 2010, we entered into Amendment No. 1 (Amendment 1) to the Amended Loan Agreement.  Under Amendment 1, we may request up to $3,000 for use in purchasing equipment (the Equipment Loan) subject to valid, verified purchase orders acceptable to Hercules from suppliers approved by Hercules in its sole discretion.

On March 25, 2010, Hercules advanced to us an additional $1,350, initially applied to the outstanding balance on our revolving line of credit facility under the Amended Loan Agreement. The advance increased our outstanding indebtedness on the revolving line of credit to $8,909, and was provided as an extension above our eligible borrowing base provided in the Amended Loan Agreement.

On April 6, 2010, we entered into Amendment No. 2 (Amendment 2) to the Amended Loan Agreement with Hercules. Pursuant to Amendment No. 2, Hercules funded a term loan in an original principal amount of $1,350 (“Term Loan C”). The proceeds of Term Loan C were used, in part, to repay outstanding overadvances under the revolving credit facility under the Loan Agreement. Interest on Term Loan C will accrue at a rate of 8% per annum and, at the discretion of Hercules, is payable either in cash or in kind by adding the accrued interest to the principal of Term Loan C. All principal outstanding on Term Loan C will be due and payable on April 1, 2013. Term Loan C may be converted into shares of our common stock at a price of $3.276 per share at any time at Hercules’ option. We may prepay Term Loan C without incurring a prepayment penalty charge. We also entered into a registration rights agreement with Hercules whereby we agreed to register the shares underlying Term Loan C. As of April 7, 2010 the outstanding balance on our revolving line of credit was $7,559.

On February 10, 2010, Hercules sent us a letter notifying us of an event of default because our borrowings under the revolving credit facility exceeded our borrowing base as of February 5, 2010 and charging us a default interest rate of an additional 3% to the applicable regular interest rate for the period starting February 5, 2010. Events of default are continuing and default rate interest will be payable monthly on the same date as regular interest unless Hercules chooses to demand payment of default interest on another date. Hercules may elect to have default rate interest paid in cash, in kind or in shares of our common stock.

Hercules has not chosen to accelerate our obligations under the Amended Loan Agreement, but has expressly not waived any events of default or any of its remedies under Amended Loan Agreement. We do not have adequate liquidity to repay all outstanding amounts under the credit facility and payment acceleration would have a material adverse effect on our liquidity, business, financial condition and results of operations.

General

InfoLogix provides end-to-end solutions for electronic medical record (EMR) and supply chain (SCM) implementation and mobilization, with experience in over 2,200 hospitals and businesses nationwide. We assist our healthcare and commercial customers by implementing and optimizing EMR and SCM systems, offer mobility to caregivers and workforces by making data accessible directly at the point of care or point of activity, and manage operations with services to improve clinical and financial performance and supply chain with services to drive greater efficiency.

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InfoLogix is a provider of enterprise mobility solutions for the healthcare and commercial industries. We provide these solutions to our customers by utilizing a combination of products and services, including consulting, business software applications, mobile managed services, mobile devices, and wireless infrastructure. Our solutions are designed to allow the real time usage of data throughout a customer’s enterprise in order to enhance workflow, improve customer service, increase revenue and reduce costs. We sell wireless communication and computing devices, including mobile workstations that connect to a customer’s wireless network so that information can be accessed from any location within the enterprise. We also implement customized and third-party software applications with a particular expertise in electronic medical records in the healthcare industry and SAP® back-end systems in commercial enterprises. In addition, we offer professional services that support and complement enterprise-wide software implementations and a customer’s wireless computing systems, including consulting, mobile managed services, training, engineering, technical support and network monitoring.

The sale of mobile workstations and other wireless devices has been and continues to represent a majority of our net revenues. We are continuing to transition our business to offer higher margin consulting, other professional services and software applications. With our focus on selling services and software, we believe that we can provide more comprehensive enterprise mobility solutions to our customers. These solutions involve:

·                  Consulting with our customers to identify opportunities to use mobile technology in their enterprise to improve operations and the quality of their customer service by more efficiently managing people and assets.

·                  Assessing our customer’s existing wireless infrastructure—the cables, routers and network adapters from which a wireless network is constructed—and developing improved network designs to ensure effective wireless connectivity and infrastructure systems integration.

·                  Developing and implementing custom and industry specific software applications including healthcare clinical electronic medical records and enterprise-wide systems by using existing proprietary and third-party software.

·                  Delivering and installing wireless infrastructure and user devices, including mobile workstations.

·                  Providing our customers with ongoing managed services that are designed to supplement their information technology department, such as training, maintenance and repair, network monitoring including both on-site and remote, software application upgrades, network security and workflow consulting.

We conduct substantially all of our operations through our wholly-owned subsidiary, InfoLogix Systems Corporation. We own our patents and patent applications through our wholly-owned subsidiaries OPT Acquisition, LLC, Embedded Technologies, LLC and InfoLogix—DDMS, Inc.

We have incurred significant net losses from 2006 through 2009, including a net loss of $22,388 for the year ended December 31, 2009, including approximately $9,520 of non recurring costs associated with the Hercules Restructuring. We have substantial liquidity requirements related to the repayment of a seller note that comes due on September 30, 2010 and our revolving line of credit, and to earn out payments for past acquisitions. We do not currently expect to generate sufficient cash flow from operations to fund those obligations. As a result, our independent registered public accounting firm has included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended December 31, 2009. In light of our losses and liquidity requirements, we have undertaken a series of actions to reduce costs and have explored potential sources of financing and other strategic initiatives. Even with the restructuring of our debt with Hercules on November 20, 2009, and subsequent additional borrowings from Hercules in February and April 2010 we continue to believe that we need to raise additional capital and to further restructure our debt obligations to meet our liquidity needs to more effectively pursue our strategic objectives. Our plans regarding these initiatives are discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Going Concern,” and include additional cost control measures and may include additional financing, one or more strategic transactions, and further restructuring our debt. Our continued operations are dependent on our ability to implement those plans successfully. If we fail to do so, we may not be able to continue as a going concern.

Despite our history of losses, the difficult economic climate and other challenges we face, we believe that our core business is positioned to capitalize on the development, proliferation and convergence of enterprise mobility solutions in the marketplace. We have focused our business on large, well-established customers that are leading their respective markets in the application and implementation of mobile solutions to improve their businesses. We believe that our knowledge and experience in combining industry leading proprietary and third-party software creates solutions that address our customers’ critical needs. Because we do not depend on any particular technology or network carrier, we believe that we can provide tailored solutions in a rapidly changing technological landscape. Also, as market conditions continue to evolve, we believe that our solutions are adaptable to customers in any industry and scalable to customers of varying size or technological sophistication.

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Business Organization

We manage our business primarily by market verticals, driven by our sales organization. We have two reportable operating segments consisting of our healthcare and commercial or enterprise businesses. The healthcare segment is principally composed of our activities in hospitals and other related healthcare facilities. The commercial segment focuses on all other vertical markets including pharmaceutical, manufacturing, wholesale and retail distribution and service industries. Further information regarding our reportable operating segments may be found in Part II, Item 7 of this Form 10-K under the subheading “Results of Operations” and in Part II, Item 8 of this Form 10-K in Notes to Consolidated Financial Statements at Note T, “Operating Segments”.

Services and Products

Our implementation and support organization provides solutions that include consulting, business software applications, mobile managed services, mobile workstations and devices, and wireless infrastructure. Our services and products are designed to help our customers enhance workflow, improve customer service, increase revenue and reduce costs. We believe our services and products address several functional applications including, for example, in enterprises in the following industries:

Healthcare

·                  Healthcare providers are under constant pressure to increase the deployment, productivity and utilization of their EMR systems, while maximizing the safety and efficacy of the care they provide while maintaining the integrity and privacy of information. The use of portable devices in combination with wireless technology allows access to information at the point of care or wherever else the information may be required. RFID technology combined with customized software applications enables real time tracking of patients, medical equipment and devices by the healthcare provider.

Commercial

·                  Distribution logistics relies on analyzing real time information as it relates to product quantities, product movement and location throughout the supply chain. Examples of distribution enterprise mobility solutions provided by us include wireless handheld computers used to scan products upon warehouse arrival and exit and wearable PCs used to permit warehouse operators to perform tasks, such as physical inventory counts, in a hands-free environment.

·                  Manufacturing logistics relies on accessing current information as it relates to materials and parts inventory pipelines to enable just-in-time manufacturing processes. An example of a manufacturing enterprise mobility solutions are wireless devices used to capture information on the warehouse floor and integrate that information into databases of the manufacturer, which facilitates improved financial management, inventory control and tracking of customer orders.

·                  Transportation and field services logistics rely on effectively planning, scheduling and managing goods according to pre-determined delivery expectations. Examples of transportation and field services enterprise mobility solutions include vehicle- mounted systems used to capture and transmit real time information on driver performance, routes taken and hours worked and handheld computers to allow a customer’s employees to receive pick-up and delivery schedules at the beginning and throughout a work shift.

·                  Retail applications rely on accessing information at the point of sale and ensuring automatic replenishment of inventories. In addition, retailers need to accurately produce and capture shelf labels for in-store marketing. Examples of retail enterprise mobility solutions include wireless point of sale devices used by customers to securely complete financial transactions at a single location by a credit or debit card and bar-code scanning devices used to enable employees to quickly and efficiently perform physical inventories.

Our service and product offerings can be sold to a customer separately or together, in each case in a manner tailored to that particular customer. We offer the following services and products: (i) consulting and professional services, (ii) products and software, and (iii) mobile managed services, as described below.

Consulting and Professional Services

Our sales and implementation process takes a consultative approach, rather than the taking and filling of product orders. We work closely with our customers to assess their operations and identify the stress points in their organization where work processes and information management can be improved through the implementation of one of our own or one of our partner’s solutions. Our professionals are experienced in providing strategic planning and guidance in the areas of

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information technology systems engineering, clinical systems, financial systems, operational systems and software development.

We have established capabilities as a national management and clinical systems consulting company for the healthcare industry, including a trusted reputation as a software and services partner within the SAP® supply chain execution and mobility business(1). Through the recent formation of our SAP® Global Services Group, we aim to bring increased efficiency to SAP® customers in multiple industries, including pharmaceutical, retail, consumer packaged goods, logistics, wholesale distribution, and utilities.

Our professional services and solutions expertise in the healthcare market includes:

·                  EMR system implementation and support;

·                  computerized physician order entry;

·                  healthcare information system selection;

·                  strategic cost management;

·                  supply chain execution design and implementation;

·                  information technology strategic planning;

·                  return on investment analysis;

·                  e-charting; and

·                  workflow design.

Our professional services and solutions expertise in commercial markets includes designing and implementing solutions using SAP® supply chain execution and mobility applications, developing customized software applications, and also designing, developing, and improving wireless networks.

We can provide the following professional services through the project development and deployment process of a complete mobile system implementation or on a discrete individual basis based on the needs of our customers:

·                  Enterprise Assessment and Planning.  We work with our clients to understand their current and future needs for enterprise class mobile computing. By employing a consultative approach to this marketplace, we aim to assist our clients to increase workforce efficiencies through the deployment of either vertical specific “Best in Class” mobility applications or by helping them to implement and deploy customer specific solutions. We assist our clients with all aspects of assessment and planning, from application and device or network selection and procurement through application and technology systems implementation and post-implementation support.

·                  SAP® Supply Chain Execution Services. Our SAP® Global Services Group concentrates on helping our clients to maximize the value of their SAP® investment by implementing SAP’s leading edge supply chain execution components. We have developed world class knowledge and have renowned expertise in helping SAP® clients deploy the following applications:

·                  SAP® Warehouse Management;

·                  SAP® Extended Warehouse Management;

·                  SAP® Transportation Management;

·                  SAP® Console and ITS;

·                  SAP® Mobile Netweaver; and

·                  SAP® Auto ID Infrastructure.

·                  Training/e-Learning.  We offer e-Learning solutions through an extensive library of interactive and dynamic courses. Our e-Learning solutions range from training programs that ready a customer’s employees to use their

(1)   SAP® is the trademark or registered trademark of SAP AG in Germany and in several other countries.

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software applications efficiently to courses that educate employees on regulatory and compliance issues. Our training modules customize course materials by capturing a customer’s application screens on their hardware and mapping the training to the customer’s workflow. Unlike traditional classroom training, our e-Learning solutions enable standardized and customized training solutions to be efficiently delivered to large numbers of employees of a customer both on their schedules and directly at the point of access, typically by use of our mobile point of activity or mobile point of care workstations. Training methods include interactive tutorials, on-line knowledge assessments, wide area classroom methods and instruction services. Delivery options include media such as video, CD-ROM, video conferencing, web delivery, audio-desktop conferences, paper-based materials, and stand-up instruction. Whether used for an organization-wide implementation of a new technology or a department-wide procedural review, we believe that our e-Learning solutions address numerous challenges faced by our customers, including:

·                  complex logistics of training a large number of people effectively on a strict timetable;

·                  minimizing training time spent by staff, which results in more time available for patient and customer interaction;

·                  developing, supporting and retaining a knowledgeable and skilled staff;

·                  providing trainees with diverse levels of education, styles of learning and familiarity with technology;

·                  delivering a consistent, unified training message, communicating standard procedures and policies; and

·                  educating employees hired after training events.

Training modules developed and implemented to date include HIPAA privacy and security training, clinical application training templates (Epic electronic medical records systems, MEDITECH computerized physician order entry and electronic medical record systems, Siemens AG Medication Administration Checker training, McKesson Corporation’s Horizon Expert Documentation clinical documentation training and Medical Information Technology, Inc.’s nursing training) and an assessment and certification module, designed to test, certify, provide feedback, and report on clinical courseware retention. We have several other e-Learning software modules currently under development.

Products and Software

Mobile and Wall-mount Workstations, Tablet Devices and Power Management Systems

In early 2010, we launched our ST7 integrated healthcare mobility solution product suite which includes mobile and wall-mounted workstations, and mobile clinical assistant (MCA) hand-held devices. The ST7 product line is designed specifically to advance EMR implementations and mobilize clinicians at the point of care. Our new ST7 Mobile Workstations are designed to provide hospitals with an end-to-end strategy for EMR implementation and mobilization. The ST7 MCA is a purpose-built mobile computing device based on a platform developed by Intel® to help improve patient care and clinical workflows. Its ruggedized form, completely sanitizable surface and hot-swappable batteries allows the device to be carried on long shifts through a busy medical environment. The ST7 Wall Mount was designed by clinicians to specifically enhance workflow at the point of care. The ST7 Wall Mount creates a secure and convenient area to record patient data and access technology for electronic bedside medication verification.

Our mobile point of care workstations can be customized for hospital medication administration. This automated point of care medication administration system, which operates in conjunction with a hospital pharmacy’s information technology systems, is designed to reduce medication errors and associated complications. Nurses scan the bar-coded medication to confirm the correct dose of medication and the patient’s bar-coded wristband to ensure that the correct patient is receiving the appropriate dose of medication at the right time. We have been selling mobile workstations since 2002, and currently have sold over 66,000 units deployed across the healthcare market. Our point of care product line represented approximately 30% of our total net revenue in 2009.

Our power management systems include our newly launched ST7 LiFe Battery, which was developed through more than a year of research and development provided by our supplier. We believe the ST7 LiFe Battery has redefined the traditional battery design that powers most mobile computer carts in the healthcare industry. As a result of this technological breakthrough, we introduced an innovative lithium iron phosphate power system, which significantly increases the performance of mobile computer workstations that doctors and nurses rely upon to deliver high-quality patient care.

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Drawing upon in-depth customer research and clinician feedback, with our business partner, we identified the top features clinicians desired in order to enhance the performance of their mobile computer workstations, including improved battery life, reliability and charge time. Our new ST7 LiFe Battery not only delivers these key features, but also provides a battery system that fully recharges in significantly less time than other power solutions currently in place at hospitals. This dramatic improvement in battery life is made possible as a result of a proven, state-of-the art technology similar to that used in hybrid automobiles.

An additional benefit of the ST7 LiFe Battery is a reduction in downtime of mobile computer workstations, a critical consideration for busy clinicians who struggle to spend as much quality time with patients as possible. The advanced battery technology also provides superior cell protection, eliminating the high temperature safety risks associated with Lithium Ion, Sealed Lead Acid (SLA) and Nickel Metal Hydride batteries.

Our mobility solutions also include bar-code data collection devices, form-factor PCs, secure wireless networks, handheld devices, tablet PCs, mobile wireless bar-code and label printers, vehicle-mounted computers, wearable computers, wireless connectivity and interconnectivity devices, and proprietary power solutions.

Software

We have dedicated significant resources and capital to developing, acquiring and partnering with leading software firms to deliver a full range of software applications. These software applications are designed to facilitate and integrate tracking and delivery solutions for our customers. We continue to focus on developing our mobility solutions to include robust software applications that have changed our business model to include recurring revenue from software licensing and support service. Our proprietary software applications include the following:

·                  HealthTrax Wireless Tracking Software.  HealthTrax Wireless Tracking software is designed to help hospitals identify the location of hospital assets and patients. The HealthTrax solution includes RFID tags that are compatible with all hospital wireless network infrastructures and provide real time asset and patient monitoring information designed to increase productivity and patient safety. Some of our specific solutions include:

·                  Patient location tracking.  Patient location tracking software is designed to enable hospitals to accurately track the location of patients to improve patient care and reduce medical errors. This software can also be used to collect data regarding hospital operations such as the length of patient stays in a hospital’s waiting room.

·                  Equipment position tracking.  Equipment position tracking software allows hospital personnel to locate equipment and track its current status (in use or available), which supports effective clinical workflow by helping to ensure that the right people and equipment are in the right place at the right time.

·                  Procedure tracking.  Procedure tracking software is designed to enable a hospital to track and archive a patient’s medical stay while alerting hospital personnel to potentially dangerous situations.

·                  Patient security.  HealthTrax software can enable a hospital to increase its security by allowing personnel to track and manage the identity of infants and other patients.

·                  MRS-Web. We provide strategic cost management and productivity consulting services to hospitals across North America. Through the use of our proprietary On-Demand Executive Information System (MRS-Web) we license our software which provides all levels of hospital management with an on-demand tool for continuous monitoring of cost management performance metrics, including specific operational targets.

·                  Mobile Device Controller (MDC).  Our mobile product solution suite is tailored specifically for users of SAP® software and is also adaptable to other back-end systems. This series allows us to provide our clients with access to business critical applications from mobile workstations.

·                  Rapid development software.  Our Windows-based development environment includes routines, collection of development tools and built-in mobile data interchange tools for rapidly creating and testing mobile applications for mobile devices. Our design of these applications allows us to create robust business applications.

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Through the use of these software applications, our mobile field sales application manages our customer’s mobile sales force from headquarters to the field. We allow the customer to track activity by purchase order, customer name, salesperson, product or date in real time. Our mobile point of delivery solution allows our customer to manage everything involved in delivering goods and services to their customers.

·                  Customer Care Portal (CCP).  Our Customer Care Portal is an asset tracking and management solution that provides visibility into the lifecycle of our customer’s mobility solution using the Internet and a browser. Based on the Microsoft SharePoint portal server platform, the CCP seamlessly integrates into our help desk and delivers our customers with access to information technology asset information, support tickets, relevant documentation, and a custom-specific knowledge base.

We believe that the CCP provides a secure, easy to use method of accessing real-time service information such as technical support calls, repair history and maintenance, all maintained by our professional services staff. Asset management allows customers to sort and find equipment by item number, item type, serial number, location, and status. With one click, the icon next to each asset opens up to enable review of the equipment properties. The CCP can find where a device is installed, when it was installed and with what configuration parameters. Additionally, the system can track the complete history of every device, including repairs and installation history, and is at the core of our mobile managed services delivery model.

Mobile Managed Services

We believe that the key differences between the functional capabilities of personal computers (PC) and mobile devices are steadily eroding. Increasingly, mobile PCs (notebook and tablet PCs) and mobile devices (smart phones and PDAs) are used as complementary tools to access the same business application in similar ways. As the trend toward device consolidation continues, we believe that the market for mobile service providers remains highly-fragmented with no one provider capturing more than a 10% market share worldwide. We further believe that IBM Global services is a market leader for managed and professional network services (which includes their mobility offering), as is EDS. However, the overall mobility market is served by a wide variety of technology providers, consulting organizations and mobility specialists. The types of mobility solutions these companies offer vary greatly, ranging from general, managed network services offerings to highly-specialized, mobility offerings tailored to specific vertical markets and business process applications.

Our mobile managed services are designed to provide our customers with external asset management and system monitoring and support that enable their mobile technology to operate without interruption and at peak performance levels. We offer mobile managed services to our customers through a dedicated in-house support staff that can monitor and maintain as much of a customer’s information technology systems as the customer desires. We take a proactive approach to identifying and solving problems within a customer’s wireless network systems, which we believe is an attractive alternative to the typical reactive approach to information technology support.

In general, we provide mobile managed services through an ongoing contracted arrangement that is budgeted and invoiced periodically as opposed to our professional services, which are typically one-time engagements that run through product deployment. Examples of our managed services include:

·                  Network Operations Center.  Our network operations center provides remote systems monitoring and technical assistance on information technology related issues. The network operations center offers proactive network monitoring and management and remote support to our customers.

·                  Asset Management.  Our asset management system helps our customers manage their wireless inventory. We maintain a database of all of the customer’s installed equipment, including hardware and software configurations, monitor contract and licensing compliance and consolidate all cost information into a single database for a complete view of a customer’s wireless assets. We also offer a replacement program for wireless devices that reduces the downtime of wireless assets. We offer extended warranty and service programs on our mobile workstations and batteries.

·                  Customer Care Portal.  Through our Customer Care Portal, as described above, we are able to provide customers with access to the asset management database and also provide access to technical support information and configuration and installation resources.

·                  Help Desk.  Our help desk service provides support to resolve IT issues that our customers encounter.

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Our mobile managed services are generally offered through service level agreements that range from two to five years.

Sales and Marketing

We employ several methods to sell our services and products, including direct selling, an inside sales approach and channel partner programs. Our direct selling and inside sales approach aims to align the compensation paid to our sales representatives with our business strategy. Sales representatives are paid largely on a commission basis based on revenue for services and gross profits for products sold.

Our direct sales force is primarily geographically based to support a regional strategy focused on one-to-one selling. In addition, many of our sales representatives specialize in a particular industry or industries, which we believe makes them more effective in understanding the needs of our customers and ultimately generating more sales. Over the past year we replaced a majority of our field sales force, with a focus on hiring experienced solutions sales representatives. We currently employ 34 direct sales representatives located across the United States, including our inside sales staff. In general, new sales representatives take approximately six to nine months to generate leads, initiate contacts and become integrated into the purchasing cycle of our customers.

Our inside sales strategy focuses on telephonic and email communications. These sales representatives work from within our offices and are responsible for handling inbound sales orders and for following up with customers. To support this sales approach, we use a sales force automation system that integrates our inside and outside sales force, customer service representatives, marketing support staff and management through our email system.

We also sell and market our services and products through a network of key relationships, including channel partners. These relationships are synergistic—we refer business to our key relationships from our existing customers and, in exchange, we receive preferential pricing and referrals from these key relationships. Our business development and channel management staff develop relationships with our channel partners both at the management level and, we believe more importantly, at the field sales level. We provide incentives to our channel partners to actively pursue opportunities to market and sell our services and products with our support. In addition, we intend to continue to leverage our key relationships and channel partners by increasing the amount of business, in particular that portion of our business surrounding hardware and wireless device sales, done through these partners while directing our direct sales team to focus on selling our higher margin consulting and other professional services.

We market our services and products through a variety of other methods, including industry trade shows and professional conferences, public relations and targeted marketing campaigns, our corporate website, and search engine optimization and marketing.

Customers

We have delivered enterprise mobility solutions to over 2,200 customers in North America, including over 1,400 hospitals and 800 commercial enterprises since we began operations in 2001. As a percentage of total net revenue, our five largest customers accounted for, in the aggregate, approximately 38%, 38%, and 34% of our net revenues for the years ended December 31, 2009, 2008 and 2007, respectively. During 2009, 2008 and 2007, we had one, one, and two customers, respectively, that individually comprised 10% or more of revenue. Management does not believe that the loss of any single customer will have a material adverse effect on our business or results of operations.

We generated net revenues from customers located in the United States of $86,566, $100,216, and $75,474 in the years ended December 31, 2009, 2008 and 2007, respectively. We generated net revenues from customers located outside of the United States of $350, $500, and $3,300 in the years ended December 31, 2009, 2008, and 2007, respectively.

Past Strategic Acquisitions

Acquisition of Assets of Delta Health Systems, Inc.

In May 2008, we acquired substantially all of the assets of Delta Health Systems, Inc., or Delta. The assets acquired related to Delta’s business of providing strategic cost management consulting services and web-based management data collection and work-flow analytics to the healthcare industry. This acquisition has enabled us to combine our existing solutions with higher margin professional services. We believe the Delta acquisition has allowed us to reach further into our

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healthcare customer organizations to bring critical workflow and human resource utilization efficiencies that support our mobile solutions. During 2008 and 2009, we began to realize economies of scale through selling combined solutions to mutual clients of Delta.

The purchase price was $1,673, which consisted of $1,465 in cash and $208 in acquisition costs. We also entered into an earn-out agreement pursuant to which Delta was eligible to earn additional consideration in the subsequent two-year period (each year, an Earn-out Period) after the closing of the transaction. In connection with the Hercules Restructuring that closed on November 20, 2009, we restructured our earn-out obligations to Delta. In lieu of the $430 payment that Delta earned for the first Earn-out Period, Delta is participating in a commission plan under which it will receive a monthly commission of 11.5% of the collected revenue from Delta’s business that we generate during the applicable month. No changes were made to the payment Delta can earn for the Second Earn-out Period, which is up to $500 upon achievement of gross revenue targets described in the Earn-out Agreement. At the end of the two year period, if Delta has not already earned the $1,000 of additional consideration in respect of each of the two Earn-out Periods, Delta may earn an amount equal to the $1,000 of additional consideration less any amounts previously paid in respect of the two Earn-out Periods upon the achievement of certain cumulative financial milestones during the two-year earn-out period.

Acquisition of Assets of Aware Interweave, Inc.

In May 2008, we acquired substantially all of the assets of Aware Interweave, Inc., or Aware. The assets acquired related to Aware’s business of providing mobile software solutions to a variety of customers including federal government agencies, Fortune 1000 companies and healthcare and life science organizations. The acquisition was part of our strategic plan to add intellectual property and higher-margin services and application software licensing, while allowing us to provide our customers with access to new solutions. The acquisition of Aware has allowed us the opportunity to enable users of SAP® software and applications to significantly improve their visibility, response time, and revenues by providing access to business-critical applications without being tied to the office or desktop computer. Through our acquisition of Aware, we have gained a mobile product solution suite that it developed, the Co-Pilot series, which is tailored specifically for users of SAP® software, and also adaptable to other back-end systems.

The purchase price was $2,479, which consisted of 20,000 shares of our common stock, valued at $1,030, cash net of cash acquired of $1,318, and $131 of acquisition costs. The issuance of the shares of common stock was unregistered and the shares are initially subject to a two-year lockup.

Acquisition of Healthcare Informatics Associates, Inc.

On September 30, 2007, we acquired substantially all of the assets of Healthcare Informatics Associates, Inc., or HIA, including all of HIA’s cash and cash equivalents and certain bank accounts, accounts receivable, the rights to existing relationships with customers, vendors and partners. All of the employees of HIA were transitioned to us. The employees are a team of senior healthcare informatics consultants who are also certified healthcare practitioners, and include registered nurses, pharmacists, ancillary clinicians, physician assistants, revenue cycle personnel, administrative systems personnel, technical interface/report writing personnel, clinical transformation specialists, engineers specializing in return on investment, benefits realization, and work redesign and certified project managers. The acquisition of HIA has allowed us to expand the products and services we offer to hospitals and other healthcare providers. The consideration paid for the acquired assets was composed of cash, shares of our common stock, a convertible promissory note and additional contingent consideration under an earn out agreement, each as discussed in more detail below. We believe that the acquisition of HIA and its combination of IT and clinical experience has enabled us to expand the strategic value of our current and future customer relationships.

The cash purchase price payable at closing was $5,500 (subject to a post-closing working capital adjustment) of which $900 was placed into escrow to fund a portion of certain employee retention payments to be made to HIA’s employees over a three-year period after the closing. In addition, $1,557 from HIA’s cash account was deposited into an escrow account to be used to fund any working capital adjustment payable to the Company, all of which was subsequently released back to HIA in January 2008. We also deposited approximately $83 into escrow representing certain outstanding customer invoices due to HIA. We have collected the amounts due under those invoices so we released an equivalent amount to HIA from the escrow in January 2008.

In addition to the cash consideration described above, the purchase price for the assets of HIA included 30,219 unregistered shares of our common stock and a $3,500 convertible subordinated promissory note issued by our wholly-owned subsidiary, InfoLogix Systems Corporation. The note bears interest at a rate of 9% per annum, compounding annually until the principal amount is paid in full. The principal amount of the note and all accrued interest are payable in full on September 30, 2010. The outstanding unpaid principal amount of the note is convertible at the option of HIA into

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unregistered shares of our common stock at a conversion price of $137.50 per share. We may also require HIA to convert all or any portion of the outstanding unpaid principal of the note into our unregistered common stock at a conversion price of $137.50 per share if the closing bid price of our common stock for at least 45 consecutive trading days equals or exceeds $200.00 per share. Any accrued but unpaid interest on the note at the time of any conversion will be paid, at our option, either in cash or in additional shares of our common stock at a conversion price of $137.50 per share. HIA may also, at its option, declare the note payable in full upon the occurrence of a change of control (as defined in the note) of InfoLogix Systems. The note also contains customary events of default that would allow HIA to accelerate the amounts payable under the note, including any default on our senior debt. The note is subject to a subordination agreement with Hercules Technology Growth Capital, Inc., our senior lender. The note also grants HIA the right to require us to redeem a portion of the unpaid and outstanding principal of the note if we engage in an offering of our equity securities, the primary purpose of which is to raise capital.

In addition, we entered into an earn-out agreement pursuant to which HIA is eligible to earn additional consideration in respect of the two years after the closing of the acquisition. In August 2008, we entered into an amendment to the earn-out agreement that extended the first earn-out period from twelve months to fifteen months ending December 31, 2008, and amended certain financial calculations used to determine our earn-out liability. Based on satisfaction of certain financial milestones described in the earn-out agreement, we have recorded an adjustment of approximately $1,958 to the purchase price as an increase to goodwill, which reflects the amount that HIA earned under the earn-out for the first year following closing and is also the maximum amount HIA could have earned. We have not yet made any payment in connection with this earn-out obligation, and are currently in discussions with HIA regarding this payment. Please see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for further discussion regarding payment of the HIA earn-out.

Patents and Proprietary Technology

We file patent applications to protect technology, innovations and improvements that we consider important to the development of our business. Throughout our history, we have proactively invested in and acquired intellectual property assets. We continue to partner and invest to develop, capture and deliver unique, high-quality, differentiated and cost-effective mobile workforce technology solutions for our customers. We have 23 issued patents in the U.S. and 13 in other countries related to wearable computers and surrounding RFID technology that manages proper medication delivery and administration. We have 5 patent applications pending with the U.S. Patent and Trademark Office and 6 in other countries, likewise related to medication delivery and administration and aspects of wearable computing devices. Our patents and patent applications are owned through our wholly-owned subsidiaries OPT Acquisition, LLC, Embedded Technologies, LLC and InfoLogix—DDMS, Inc.

We have also developed other proprietary solutions, including form-factor PC technologies designed specifically for low power consumption, handheld and kiosk point-of-sale devices and several customized software applications. We seek to protect our proprietary information and technology through licensing agreements, third-party nondisclosure agreements and other contractual provisions, as well as through patent, trademark, copyright and trade secret laws in the U.S. and similar laws in other countries.

We also rely on trade secrets and proprietary know-how that we seek to protect, in part, through confidentiality agreements with our employees, consultants, customers, business partners, and other third parties. As a condition of employment, we require that all full-time and part-time employees enter into an invention assignment and non-disclosure agreement.

We intend to continue to maintain and where possible to broaden our intellectual property portfolio, which we consider critical to our future product development and an important source of potential value. In the past, we have acquired intellectual property through selective business acquisitions, and we might do so again in the future, as well as develop our own proprietary solutions. If we are unable to protect our patents and proprietary rights, our reputation and competitiveness in the marketplace could be materially damaged.

Litigation may be necessary in order to enforce any patents that we now hold or any patents that are issued to us or acquired by us in the future.

Competition

We operate in a fragmented marketplace, competing with a variety of participants in the wireless mobility market including companies that design systems, provide hardware and software applications, integrate software and hardware

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applications, provide consulting services and offer management and maintenance services. Our primary competition comes from regional and local firms that are similar to us in terms of revenue and numbers of employees.

We sell and support mobile point of care workstations with over 60,000 of our units currently in use in the U.S. healthcare market. In this business, we compete with a variety of companies, including furniture and fixture distributors and several nationally known mobile cart manufacturers and distributors. We believe that the larger competitors include Stinger Medical (in business for over ten years and the first company to provide mobile carts to the healthcare industry), Flo Healthcare (the holder of several patents on mobile computing and now owned by Emerson Storage Solutions), Ergotron, Rioux Vision (now owned by Omnicell), Rubbermaid, Lionville (also owned by Emerson Storage Solutions), Howard Computer, Artomick, EnovateIT and JACO.

In the healthcare market, we also compete with device manufacturers, service providers and software platform companies that offer unique, specialty use products. For example, Motion Computing, Research In Motion (BlackBerry), Palm and Dictaphone compete for market share in the sales of devices to physicians and other providers, Microsoft and Intel are positioning for wireless IP platform adoption, while companies like MedQuist and Scribe vie for customers of specialty use software applications and services. While we maintain our focus on enterprise mobility solutions, we will encounter these companies in the marketplace while competing for a portion of the work-flow and voice-over-IP solution sets.

We encounter the very large consulting firms such as IBM Global Services, CTG (Computer Task Group), Accenture, Deloitte Consulting, EDS, Computer Sciences Corporation/First Consulting Group, and Affiliated Computer Services in both our commercial and healthcare groups. Many of these national and international consulting firms focus on design and architecture of wireless networks, and work-flow or process improvement. We believe there are also many small, local and regional consulting firms offering services similar to the larger firms, as well as site-surveys, infrastructure support and information technology outsourcing. Each of these participants will continue to compete with us for our core services around enterprise mobility solutions and mobile managed services.

We compete with handheld mobile computer products companies in our supply-chain solutions business, including Symbol/Motorola, Intermec, LXE and other makers of tablet computers such as Dell, Hewlett-Packard, Sony and Fujitsu. Symbol/Motorola is a global leader in mobile data management systems and services with innovative customer solutions based on wireless local area networking for voice and data, application-specific mobile computing and bar-code data capture.

We also compete with a smaller group of companies that are more solutions oriented, but operate in the sectors in which we operate, including healthcare, transportation, manufacturing, distribution and retail. These companies include DecisionPoint, Inc., Stratix Corporation, Enterprise Mobile, SOTI, Inc. Wavelink Corporation, Ennovative, Inc., ID Systems, and OAT Systems (a recognized RFID framework owned by Checkpoint Systems, Inc.). This group of companies competes for business that delivers RFID software and solutions. Solution sets include data and content management, materials management, e-commerce, e-Learning, custom application and web interface development, and infrastructure management.

In addition to the foregoing, there are hundreds of firms that operate in a variety of vertical-specific or technology-centric groupings. Due to the increasing level of market activity related to these two general areas, an increasing number of companies are claiming capabilities.

When evaluating our competitive landscape, we consider:

·                  The large number of RFID and mobile wireless hardware solution providers. Many firms attempt to differentiate their services by promoting “solution” integration capabilities. The larger enterprises understand the value added elements of software integration (either proprietary or third-party integration) as well as service capabilities to integrate and manage.

·                  A growing number of private companies are establishing meaningful market presence by leveraging software integration and solution management capabilities.

·                  Cross industry penetration seems to be a constant theme for many companies; however, we believe industry specialization is viewed by customers as an important differentiator.

Product Development

To ensure our ability to identify and develop new technologies and applications for our mobile workforce solution platforms, InfoLogix starts with a structured approach to product development. We conduct intensive research to identify

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opportunities or needs that are not currently met, we establish a framework for a solution that we expect will fill those needs and use this framework to design the system. Once a system reaches the prototype stage, it is carefully reviewed for adherence to requirements, and then thoroughly tested for quality assurance. We believe this structured approach is comprehensive and flexible and allows us to produce high quality and customer-focused solutions while effectively using our resources to drive future growth for our business.

Solution Delivery and Manufacturing

We partner with advanced technology providers, and we aim to add value through customization and service to deliver a comprehensive solution to our customer base. We undertake a diligent partner review, product/service testing, and contract administration processes to validate the quality of both the vendor and its offering, and when satisfied, we enter into long-term engagements to ensure continued delivery of product according to our strict quality standards. We engage third parties to produce our mobile point of care and point of activity workstations, form factor and tablet computers, and wireless kiosk products. We also have a long-term contract for the design and manufacturing of our mobility products and power management systems for which we co-own certain elements of the technology. Most of the manufactured products are shipped directly from the manufacturing facility to our customer site. Our employees provide on-site customized assembly and installation, upon request of our customers.

Employees

As of March 31, 2010, we had 168 full-time employees of which 34 were in sales and marketing, 97 were in professional consulting services and e-Learning, 12 were in software engineering, quality assurance, and field services, 15 were in operations and customer support, and 10 were in finance, executive and administrative capacities. We are not subject to any collective bargaining agreements, and we believe that our relationship with our employees is good.

In addition to full-time employees, we utilize the services of various independent contractors, primarily for certain product development and foreign sales, marketing and administrative activity.

Our principal executive offices are located at 101 East County Line Road, Suite 210, Hatboro, Pennsylvania 19040. Our telephone number is (215) 604-0691. Our website address is www.infologix.com.

Item 1A.  Risk Factors

An investment in our common stock involves a number of risks. Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this report and other reports we have filed with the Securities and Exchange Commission. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these risks are realized, our business, financial condition or results of operations could be harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

Risks Relating to Our Ability to Continue as a Going Concern

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern. We may need additional liquidity and capital resources to achieve our goals.

As discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Going Concern,” we have incurred significant losses from 2006 through 2009, including a net loss of $22,388 for the year ended December 31, 2009. As of December 31, 2009, we had cash and cash equivalents of $1,018, total liabilities of $36,069 and an accumulated stockholders’ deficit of $2,544. We have substantial near-term liquidity requirements related to the repayment of a seller note that comes due on September 30, 2010 and our revolving line of credit under our Amended Loan Agreement with Hercules, and to earn out payment obligations from past acquisitions. We do not currently expect to generate sufficient cash flow from operations to fund those obligations. Based on our history of losses and substantial near-term liquidity requirements, our independent registered public accounting firm included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended December 31, 2009. The presence of this explanatory paragraph may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors and employees and could make it more challenging for us to raise additional financing or refinance our existing indebtedness.

In light of our losses and liquidity requirements, we have undertaken a series of actions to reduce costs and have explored potential sources of financing and other strategic initiatives. Even with the restructuring of our debt with Hercules

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on November 20, 2009 and subsequent additional borrowings from Hercules in February and April 2010, we continue to believe that we need to raise additional capital and to further restructure our debt obligations to meet our liquidity needs and to more effectively pursue our strategic objectives. Future initiatives include additional cost control measures and may include additional financing and further restructuring of our debt.  Our continued operations are dependent on our ability to implement these plans successfully. If we are unable to do so, we may be unable to continue as a going concern.

Risks Relating to our Indebtedness

We will need additional financing to fund our operations and finance our growth; we may be unable to obtain financing on terms acceptable to us.

We will be required to raise additional capital through either equity or debt financing to fund our operations, including any operating losses, and to implement our current or future strategies, including strategic acquisitions. Factors that could increase our need to seek additional financing include decreased demand and market acceptance for our products and services, the inability to successfully develop new products and services, competitive pressures resulting in lower pricing, new products and services offered by our competitors, and acquisition opportunities. In addition, if our obligations under existing indebtedness are accelerated or when our existing credit facilities expire, we would likely need to obtain replacement debt financing. The capital and credit markets in the United States continue to experience extreme volatility and disruptions, and the current turmoil affecting the financial markets and the banking system, as well as the possibility that financial institutions may consolidate or go out of business, have resulted in a tightening in the credit markets and a low level of liquidity in many financial markets. These developments have made financing terms materially less attractive and, in some cases, made financing unavailable. As a result, we may be unable to obtain any financing, including both new and replacement financing, that we might require to operate our business. In particular, in this environment, it will be extremely difficult to obtain additional debt financing or to refinance or replace our existing indebtedness.

There can be no assurance that additional or replacement debt financing will be available to us on commercially reasonable terms or at all. If we incur additional debt, our interest expense would increase. If we raise capital through the sale of equity securities, the percentage ownership of our existing stockholders would be diluted. Any new equity securities may have rights, preferences or privileges senior to those of our common stock, including liquidation preferences, dividend rights, board representation, and blocking rights for certain transactions and other matters. If we are unable to obtain additional or replacement financing when we need it, our ability to fund our operations and meet our plans for expansion would be materially adversely affected.

We are currently in default under the terms of our Amended Loan Agreement and there can be no assurance that we can cure the default.

Our Amended Loan Agreement provides us with a $12,000 line of credit, three term loans with an aggregate principal amount of $11,850, and an equipment loan with availability of up to $3,000. The term loans include a $5,500, 48-month amortizing loan, a $5,000 convertible note due on November 1, 2014, and a $1,350 convertible note due on April 1, 2013. The Amended Loan Agreement contains restrictions and covenants and requires us to maintain specified financial ratios and tests. For example, the Amended Loan Agreement restricts our ability, among other things, to incur additional indebtedness, to acquire other companies or the assets of other companies and to pay dividends without the lender’s consent. If we fail to meet or satisfy any of the restrictions, covenants, financial ratios or financial tests, we would be in default under the Amended Loan Agreement. The loans are secured by all of our assets. We are also required by our lender to maintain a minimum cash balance of $1,000. An event of default under the loan agreement would give the lender the right to declare all amounts outstanding under the credit facility due and payable and enforce its rights to foreclose on the collateral securing the loans.

As of February 5, 2010, there was an event of default existing under the Amended Loan Agreement because our advances under the revolving line of credit portion of our credit facility exceeded our available borrowing base. On February 10, 2010, Hercules sent us a letter serving as a notice of event of default and reservation of rights. As a result of this violation and other financial covenant defaults that are continuing, Hercules is charging us default rate interest on all of our outstanding obligations under the Amended Loan Agreement, which rate is equal to the regular interest rate plus 3%. Hercules has the option to require payment of default rate interest in cash, in kind or in shares of common stock. Hercules has not accelerated our obligations under the Amended Loan Agreement, but has expressly not waived any events of default or any of its remedies under the Amended Loan Agreement. We do not have adequate liquidity to repay all outstanding amounts under the credit facility and payment acceleration would have a material adverse effect on our liquidity, business, financial condition and results of operations.

The covenants in our credit facility may restrict our operations, which could inhibit our ability to execute our growth strategy and have a negative effect on our results of operations.

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Even without payment acceleration, the restrictions contained in the loan agreement could inhibit our ability to obtain financing and engage in other business activities that are important to our business and growth strategies, which could inhibit our ability to operate our business and increase our revenues and profitability.

Our indebtedness could adversely impact our financial condition.

On December 31, 2009, as a result of our Amended Loan Agreement, we had approximately $22,640 of total indebtedness outstanding, including short-term debt and approximately $7,559 under our credit facility. We may increase the amount of our indebtedness in the future, which could have an important impact on our stockholders. An increase in our indebtedness could:

·                  cause us to violate certain provisions contained in our Amended Loan Agreement;

·                  make us more vulnerable to economic downturns and limit our flexibility to plan for or react to changes in business and economic conditions;

·                  limit our ability to withstand competitive pressures through increases in our cost of capital; and

·                  harm our ability to obtain additional debt or equity financing in the future.

If any of the foregoing were to occur, our ability to execute our business and growth strategies would be impaired and our results of operations could be harmed.

Risks Related to our Controlled Company /Status

Interests of our controlling stockholder may conflict with the interest of our other stockholders.

Our majority stockholder, HTI, a wholly owned subsidiary of our senior lender Hercules, owns approximately 40% of our outstanding common stock on a fully diluted basis and shares having approximately 72% of our total voting power. HTI may have interests that differ from our other stockholders’ interests, and it may vote in a way adverse to these interests.  Additionally, as more fully discussed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments,” HTI has and will continue to have control over the outcome of certain matters requiring stockholder approval, including the power to, among other things, elect members of our board of directors, amend our certificate of incorporation or by-laws and approve extraordinary transactions, including mergers, acquisitions or dispositions of all or substantially all of our assets.

HTI may also prevent or cause a change of control, delay a change of control, or cause a change of control to occur at a time when it is not favored by other stockholders. This could deprive other stockholders of an opportunity to receive a premium for their common stock as part of a sale of our Company and may adversely affect the market price of our common stock. HTI’s ability to employ anti-takeover measures is strengthened due to the security ownership of its parent, Hercules, which owns securities convertible into approximately 37% of our outstanding common stock on a fully diluted basis.  See also the risk factor “Provisions in our organizational documents and under Delaware law, as well as governance rights and security ownership of HTI and Hercules, may delay or prevent attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us.”

In addition, HTI and its affiliates may engage in business with companies that may compete with us or with our subsidiaries. HTI is not obligated to advise us of any investment or business opportunities of which they are aware, and they are not prohibited or restricted from competing with us or with our subsidiaries.

Our controlling stockholder has the contractual right to nominate three members of our Board of Directors.

Under the terms of a debt conversion agreement between us and HTI, HTI has the contractual right to nominate three of the seven voting members of our Board of Directors. Our Board of Directors appoints the members of our senior management. As a result, HTI has significant influence over the appointment of the members of our senior management and may be able to prevent any changes in senior management that other stockholders, or that other members of our Board of Directors, may deem advisable.  Due to the significant influence of HTI on our Board of Directors, HTI has the power to influence all decisions of the Board of Directors, including whether to approve extraordinary transactions, mergers, acquisitions or dispositions of all or substantially all of our assets.

Our stockholders do not have the same protections available to other stockholders of NASDAQ-listed companies because we are currently a “controlled company” within the meaning of NASDAQ Listing Rules.

Our majority stockholder, HTI, currently controls a majority of our outstanding common stock.  As a result, we are a “controlled company” within the meaning of the rules governing companies with stock quoted on The NASDAQ Capital Market.  As a controlled company, we qualify for, and may and intend to rely upon, exemptions from several corporate governance requirements, including requirements that:

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·                  a majority of the board of directors consist of independent directors;

·                  compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee comprised solely of independent directors; and

·                  director nominees be selected or recommended to the board of directors by a majority of its independent directors or by a nominating committee that is composed entirely of independent directors.

Additionally, HTI has the right to have its nominees represented on our Compensation and Nominating and Corporate Governance Committees. Accordingly, our stockholders will not be afforded the same protections as stockholders of other NASDAQ-listed companies for so long as HTI owns a majority of our outstanding common stock.

Risks Relating to our Business and Industry

We have incurred losses in the past and our ability to operate profitably in the future is uncertain.

For the years ended December 31, 2009 and 2008, we generated net revenues of $86,916 and $100,700, respectively and incurred net losses of $22,388 and $13,184, respectively. We have incurred net losses in each of the last four full fiscal years, and we may incur additional losses in the future. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If our business and revenues grow more slowly than we anticipate, our operating expenses exceed our expectations, we are unable to sell our products and services at acceptable prices relative to our costs, or we fail to develop and introduce on a timely basis new products and services from which we can derive additional revenues, our financial results will suffer.

Achieving profitability may be affected by the continued downturn in economic, business or industry conditions.

In weak economic, business or industry conditions, customers or potential customers could reduce or delay their technology investments. Reduced or delayed technology investments could decrease our sales and profitability.  In such an environment, our customers may experience financial difficulty, cease operations or fail to budget or reduce budgets for the purchase of our products and professional services. This may lead to longer sales cycles, delays in purchase decisions, payment and collection, and may also result in downward price pressures, causing our sales and profitability to decline. In addition, general economic uncertainty and general declines in capital spending in the information technology sector make it likely that the purchasing requirements of our customers and the markets we serve will decline. There are many other factors that could affect our revenues and profitability, including:

·                  the introduction and market acceptance of new technologies, products and services;

·                  new competitors and new forms of competition;

·                  adverse changes in the credit quality of our customers and suppliers;

·                  changes in the pricing policies of, or the introduction of, new products and services by us or our competitors;

·                  changes in the terms on which we do business with our customers, suppliers or key relationships;

·                  the availability, pricing, quality, and delivery time of products from our suppliers; and

·                  variations in costs for products and services and the mix of products and services sold.

In particular, we serve the healthcare and commercial industries, which continue to experience significant challenges, primarily due to macroeconomic conditions that have resulted in a decreased demand for their products and services.  Some of our customers are facing constraints on their information technology budgets and are seeking more flexibility in the timing of their purchases from us. As a result of the continuing macroeconomic downturn, some of our customers may face financial challenges going forward. It is unclear when the general economic climate will improve and when our customers may benefit from improved conditions. These factors could adversely affect our business, profitability and financial condition and diminish our ability to achieve our strategic objectives.

Achieving profitability and managing our growth are necessary to achieve our strategic objectives.

The industries in which we operate are highly competitive. To meet our growth objectives, we believe that we need to continue to add and increasingly emphasize higher-value, proprietary solutions, including mobile managed services, software applications and consulting services. There can be no assurance that we will effectively deploy our initiatives or be successful in obtaining customer acceptance of our current and anticipated higher margin products and services or developing new products and services with higher margins, and if we do not, we would not meet our strategic objectives.

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In addition, the implementation of our strategic initiatives to reduce costs and achieve profitability may have the unintended effect of placing a significant burden on our management and our operational and financial resources. If we fail to successfully implement these initiatives, or encounter unexpected difficulties in that process, our business and results of operations could be adversely affected.

Also, to manage any future growth of our business, we will need to hire, integrate and retain highly skilled and motivated employees. We will also need to continue to improve our financial and management controls, reporting and operational systems and procedures. If we do not effectively manage our growth and cost structure, we may not be able to meet our strategic objectives.

We may engage in acquisitions that could disrupt our business, could be difficult to integrate with our existing operations, cause dilution to our stockholders and harm our business, operating results and financial condition, and we may be unable to find suitable acquisition candidates consistent with our strategic objectives.

In the past, as part of our acquisition strategy, we acquired the businesses and certain assets of DDMS Holdings, LLC, AMTSystems, Inc., Healthcare Informatics Associates, Inc., Delta Health Systems, Inc. and Aware Interweave, Inc. during 2007 and 2008. Though we did not complete any business acquisitions in 2009 and acquisitions are not a primary focus of our current strategy, past and potential future acquisitions of other companies or businesses may present us with growth opportunities, but also involve numerous risks, including:

·                  problems combining the acquired operations, technologies or products;

·                  unanticipated costs;

·                  diversion of management’s time and attention from our core business;

·                  adverse effects on existing business relationships with customers and suppliers;

·                  risks associated with entering markets in which we have no or limited prior experience;

·                  potential loss of key employees, particularly those of the acquired business; and

·                  continuing obligations to fund earn-out payments or to repay acquisition financing.

There can be no assurance that we will be able to manage the integration of acquired businesses effectively or be able to retain and motivate key personnel from these businesses. Any difficulties we encounter in the integration process could divert management from day-to-day responsibilities, increase our expenses and have a material adverse effect on our business, financial condition and results of operations.

For future acquisitions, we may not be able to find suitable acquisition candidates, we may not be able to complete acquisitions on favorable terms, if at all, and we may not be able to finance acquisitions on favorable terms, if at all. Though we have no current plans for acquisitions, if we do complete acquisitions, we may not maintain or may weaken our competitive position or may not achieve our goals, or may be viewed negatively by customers, financial commentators or investors. Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses and adversely impact our business, operating results and financial condition.  Future acquisitions may reduce our cash available for operations, debt service and other uses and could result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt.

We depend on our existing senior management team and on recruiting and retaining additional senior managers in order to be successful, and the loss of or failure to recruit key executives could materially and adversely affect our business.

Our current and future performance depends, in significant part, upon retaining our existing senior management team, whose knowledge, leadership and technical abilities would be difficult to replace and recruiting and retaining qualified senior managers. Our success also depends in part upon the ability of our executives to work effectively together and with the rest of our employees to continue to develop our technologies and services and to manage the operation and potential growth of our business. We also must continue to develop and retain a strong core group of senior executives in order to realize our goal of growing our business and achieving profitability. We may be unsuccessful in our efforts. The unplanned loss of the services of one or more of our executives could have an adverse effect on our business and profitability.

We are dependent on our allied customers and key industry relationships.

We maintain important relationships with hardware and software technology leaders. We regard these relationships as more than traditional customer/supplier relationships and believe they represent an important lead referral source and sales channel for us.

There can be no assurance that we or our key relationships can continue to be successful in maintaining relationships with customers or that we or our allied customers could find adequate replacements if needed. The loss of any of these allied

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customers or key relationships could result in the temporary or permanent cessation of a group of products or solutions and result in the loss of a portion of our existing and anticipated customer base and related revenue.

We depend on third-party suppliers and manufacturers to manufacture our products. If these third parties experience any delay, disruption or quality control problems in their operations, or cease manufacturing our products, we could lose market share and revenues, and our reputation may be harmed.

A substantial portion of our products are manufactured, assembled, tested and packaged by third parties. We rely on several suppliers and manufacturers to procure components and various products that we sell and, in some cases, subcontract engineering work. Some of our products are manufactured by a single manufacturer and, if we were to lose the services of this manufacturer, finding a suitable replacement could prove particularly difficult. In most cases, we do not have long-term contracts with these third parties. If our suppliers and manufacturers encounter financial or other business difficulties, if their strategic objectives change, or if they perceive us to no longer be an attractive customer, they may cease to manufacture our products and our business could be harmed.

The loss of the services of any of our primary manufacturers or a material change in the terms on which we do business with them could cause a significant disruption in operations and delays in product shipments, which could adversely impact our cash flow. Qualifying a new manufacturer and commencing volume production is expensive and time consuming.

Our reliance on third-party suppliers and manufacturers also exposes us to the following risks over which we have limited control:

·                  inability to procure key required components for our finished products to meet our customers’ demands;

·                  unexpected increases in manufacturing and repair costs;

·                  unexpected reductions in payment terms;

·                  interruptions in shipments if one of our manufacturers is unable to complete production;

·                  inability to control the quality of finished products;

·                  inability to control delivery schedules;

·                  inability to obtain favorable pricing;

·                  unpredictability of manufacturing yields; and

·                  potential lack of adequate capacity to manufacture all or a part of the products we require.

If we are unable to provide our third-party suppliers and manufacturers with an accurate and timely forecast of our component and material requirements, we may experience delays in the manufacturing of our products and the costs of our products may increase.

We provide our third-party suppliers and manufacturers with forecasts of our demand that they use to determine their material and component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms and demand and supply for a component at a given time. Some of our components require substantial lead times. If our forecasts are less than our actual requirements, or are not delivered in a timely manner, our manufacturers may not be able to manufacture enough products to meet our needs.  If our forecasts are too high, our suppliers and manufacturers may be unable to use all of the components they have purchased on our behalf.  Therefore, the cost per unit of producing products for us may be higher and those costs may be passed through to us, which could reduce our margins or raise our product prices relative to our competitors. Moreover, if they are unable to use certain components, we may be required to reimburse them for any losses they incur.

Our industry is highly competitive, and competitive pressures from existing and new companies may have a material adverse effect on our business, revenues, growth rates, market share, and profitability.

Our industry is highly competitive and influenced by many factors, including the following:

·                  advances in technology;

·                  introduction of new products and services;

·                  evolving industry standards;

·                  product improvements;

·                  rapidly changing customer needs;

·                  intellectual property invention and protection;

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·                  marketing and distribution capabilities;

·                  competition from highly capitalized companies;

·                  competition from companies with stronger brand recognition and greater financial resources;

·                  entrance of new competitors;

·                  customer budget pressure on information technology spending; and

·                  price competition.

If we do not keep pace with product and technology advances, our products and services could be rendered obsolete, which would have a material adverse effect on our competitive position, revenues and prospects for growth.  There is also likely to be continued pricing pressure resulting from the economic downturn or as competitors attempt to maintain or increase market share.

The products manufactured and marketed by us and our competitors are becoming more complex. As the technological and functional capabilities of our products increase, these products may begin to compete with products being offered by companies that have substantially greater financial, technical, marketing and manufacturing resources than we do.  We may not be able to compete successfully against these competitors, and competitive pressures may result in a material adverse effect on our business, revenues, growth rates, market share and profitability.

We also compete with certain of our key relationships from time to time. If we are unable to maintain our relationships with them, we may be forced to compete directly with them for customers that we previously had served through our relationships. We may also lose our key relationships as customers. Our key relationships generally have substantially greater financial, technical, marketing and manufacturing resources than we do and may be able to directly offer their customers solutions similar to those we offer.

If we fail to continue to introduce new products and services that achieve sufficient market acceptance on a timely basis, we will not be able to compete effectively and we will be unable to increase or maintain revenues and profitability.

Our future success depends on our ability to develop and introduce new products, services and technology enhancements that achieve sufficient market acceptance. If we are unable to develop and introduce new products and services that respond to emerging technological trends and customers’ critical needs, our profitability and market share will suffer.  The process of developing new technology and related services is complex and uncertain, and if we fail to accurately predict customers’ changing needs or emerging technological trends, our business could be harmed. We must commit resources to developing new products before knowing whether our investments will result in products the market will accept. We may also have difficulty obtaining the capital resources necessary to develop and introduce new products. We may encounter delays in manufacturing, producing and deploying new or improved products or offering new or improved services. Our new products and services may not be commercially successful. If we expend a significant amount of resources and our efforts do not lead to the successful introduction of new or improved products or services, there could be a material adverse effect on our business, profitability, financial condition and market share.

Demand for existing products may decrease following the announcement of new or improved products. Further, since products under development are often announced before introduction, these announcements may cause customers to delay purchases of our products, even if newly introduced, until new or improved versions of those products are available. If customer orders decrease or are delayed during a product transition, we may experience a decline in revenue. Our profitability might decrease if customers, who may otherwise choose to purchase existing products, instead choose to purchase lower priced models of new products. Delays or deficiencies in the development, manufacturing, and delivery of, or demand for, our new or improved products would adversely affect our business and profitability.

If we are unsuccessful in expanding our professional services, we may fail to achieve our objectives.

We have been expanding our professional services and enhancing our technical knowledge to broaden our service offerings and to transition our business to focus on higher margin software applications, consulting and other professional services and away from the sale of hardware and related warranties. To do so, we have been increasing our in-house talent pool and introducing new products for support and professional services, including through acquisitions of businesses that we believe complement our existing services. We look to leverage new employees that are skilled in our business to reduce our dependence on outside assistance. Our initiatives will include reducing dependence on outside service providers, determining specific methodologies and processes for meeting customer needs, conducting in-house training sessions, and leveraging business partnerships to increase professional services opportunities. These initiatives have required, and will continue to require, significant investment by us, including expenses relating to the recruiting and training of these new employees.  There is no assurance that we will have adequate resources to continue to implement these initiatives or that they will improve the sales and profitability of our professional services.

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Any failure in our ability to offer high-quality support and other services could have a material adverse effect on our sales and results of operations.

Once our products are integrated within our customers’ hardware and software systems, our customers may depend on our support organization to manage those systems and resolve any issues that may arise. A high level of support is critical for the successful marketing and sale of our solutions. If we do not effectively assist our customers in deploying our products, succeed in helping our customers quickly resolve post-deployment issues, and provide effective ongoing support, our ability to sell our solutions to existing customers could be adversely affected, and our reputation with potential customers could be harmed. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. Our failure to maintain high-quality support and services, or to adequately assist our key relationships in providing high-quality support and services, could result in customers choosing to use our competitors’ products and services instead of ours.

We rely on information technology and could be adversely affected if we are unable to maintain and upgrade our technology to remain competitive.

We have invested in sophisticated technologies and information systems to allow us to provide customized solutions to our customers’ needs.  We anticipate that it will be necessary to select, invest in and upgrade our technology and systems to maintain our competitiveness.  In the event of substantial improvements in technologies and equipment, we may be required to invest in new systems and equipment and to hire and retain qualified persons to implement and maintain them.  There can be no guarantee that we will be able to maintain and upgrade the technology and systems necessary for our business to remain competitive, and any disruption to or infiltration of our information technology systems could significantly harm our business and profitability.

If we are unable to protect our intellectual property rights or if third parties assert we are in violation of their intellectual property rights, we could be prevented from selling our products, the time and attention of management could be diverted from operating our business and our ability to attract new customers and retain current customers could be hampered, any of which could have a material adverse effect on our business, financial condition and results of operations.

We file patent applications to protect technology, innovations and improvements that we consider important to the development of our business. Throughout our history, we have invested in and acquired intellectual property assets. We continue to partner and invest to develop, capture and deliver unique, high-quality, differentiated and cost-effective mobile workforce technology solutions for our customers. We have 23 issued patents in the U.S. and 13 in other countries related to wearable computers and surrounding RFID technology that manages proper medication delivery and administration. We have 5 patent applications pending with the U.S. Patent and Trademark Office and 6 in other countries, likewise related to medication delivery and administration and aspects of wearable computing devices.

We have also developed other proprietary solutions, including form-factor PC technologies designed specifically for low power consumption, handheld and kiosk point of sale devices and several customized software applications. We seek to protect our proprietary information and technology through licensing agreements, third-party nondisclosure agreements and other contractual provisions, as well as through patent, trademark, copyright and trade secret laws in the U.S. and similar laws in other countries. There can be no assurance that these protections will be available in all cases or will be adequate to prevent our competitors from copying, reverse engineering or otherwise obtaining and using our technology, proprietary rights or products.

Our competitors may independently develop technologies that are substantially equivalent or superior to our technology or design around our proprietary rights. In each case, our ability to compete and to receive licensing revenues could be significantly impaired. To prevent substantial unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement and/or misappropriation of our proprietary rights against third parties. Any such action could result in significant costs and diversion of our resources and management’s attention, and we may be unsuccessful in any such action. In addition, third parties may seek to challenge, invalidate or circumvent our patents, trademarks, copyrights and trade secrets, or applications for any of the foregoing. Furthermore, the laws of certain countries in which our products are or may be licensed do not protect our proprietary rights to the same extent as the laws of the U.S.

Third parties may assert claims of infringement of intellectual property rights against us or against our partners for which we may be liable under certain indemnification arrangements. The failure to obtain a license on commercially reasonable terms or the entry of an injunction that impairs our ability to market certain products or services could have a material adverse effect on our business, reputation, profitability or financial condition. Any litigation regarding patent and other intellectual property rights could have a material adverse effect on our business and our ability to compete.

We may also be subject to claims from customers for indemnification. Any resulting litigation, regardless of its resolution, could result in substantial costs and diversion of resources. If it were determined that our products infringe upon the intellectual property rights of others, we would need to obtain licenses from these parties or reengineer our products in

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order to avoid infringement. We might not be able to obtain the necessary licenses on acceptable terms or at all, or to reengineer our products successfully. Moreover, if we are sued for infringement and lose the suit, we could be required to pay substantial damages or be enjoined from licensing or using the infringing products or technology, or both. Any of these events could cause us to incur significant costs and prevent us from selling our products and could have material adverse effect on our business and our ability to compete.

We rely upon third parties for technology that is critical to our products, and if we are unable to continue to use this technology and future technology our ability to offer competitive products could be harmed and our costs of production could increase.

We obtain non-exclusive software license rights to technologies from third parties that are incorporated into and necessary for the operation and functionality of certain of our products. Because the intellectual property for which we have obtained licenses is available from third parties, barriers to entry for our competitors may be lower than if we owned exclusive rights to these technologies. On the other hand, if a competitor enters into an exclusive arrangement with any of our third-party technology providers, our ability to develop and sell products containing that technology could be severely limited. Our success depends in part on our continued ability to have access to these technologies on commercially reasonable terms. If we do not continue to hold or obtain licenses to use necessary technologies, we may be forced to acquire or develop alternative technology that may be of lower quality or performance standards. This could limit and delay our ability to offer competitive products and increase our costs of production. As a result, our profitability and market share could be harmed.

Our products are complex and may contain undetected and unexpected defects, errors or failures.

Substantial product defects could result in product recalls, repairs or an increased amount of product returns, loss of market acceptance and damage to our reputation, which in turn could increase our costs, cause us to lose sales and have a material adverse effect on our profitability. Product defects might also result in claims against us by our customers or others. In addition, the occurrence of any defects or errors in these products could result in cancellation of orders, difficulty in collecting accounts receivable, increased service and warranty costs in excess of our estimates, diversion of resources, and increased insurance costs and other losses to our business or to end-users.

Incompatibilities, defects or bugs in our products may not be detected until our customers begin to install the products or later.  We may need to modify the design of our new or improved products if they have incompatibilities, defects or bugs, which could result in significant expenditures, delays in product purchases or canceled orders.

Because we often sell our products on a purchase order basis, we are subject to uncertainties and variability in demand from our customers.

We sell our mobile workstations and other devices on a purchase order basis rather than pursuant to long-term contracts or contracts with minimum purchase requirements. Consequently, the level and timing of our sales are subject to variations in demand from our customers. Orders can be cancelled, reduced or delayed due to customer budget cycles, the introduction or anticipated introduction of new products or technologies or general economic conditions. Generally, sales are sequentially down in the first quarter from the fourth quarter, higher in the second quarter, flat or slightly higher or lower in the third quarter, and strongest in the fourth quarter.  If we are unable to anticipate and respond to the demands of our customers, our business, financial position and operating results may be adversely affected.

Our products are subject to certain government regulations and noncompliance with, or a change in, those regulations could have a material adverse effect on our business, financial condition, and results of operations.

Our products are subject to regulation by federal, state and local agencies in the U.S. and agencies in certain foreign countries where our products are manufactured or sold. There can be no assurance that we will be able to maintain compliance with these regulations, particularly if they were to change. Regulatory changes may require us to make modifications to certain of our products so that we can continue to manufacture and market our products, which could result in unanticipated costs and delays.  Our failure to comply with these regulations, or delays resulting from modifications could have a material adverse effect on our business, financial condition and results of operations.

Armed hostilities, terrorism, natural disasters, or public health issues could harm our business.

Armed hostilities, terrorism, natural disasters, or public health issues, whether in the U.S. or abroad, could cause damage or disruption to us, our suppliers or customers, or could create political or economic instability, any of which could harm our business.  Any such events could, among other things, cause further instability in financial markets and could directly, or indirectly through reduced demand, negatively affect our facilities and operations or those of our customers or suppliers.  If our customers experience any disruptions in the solutions that we provide to them as a result of any such events, we may not be successful in alleviating the disruptions, particularly if many customers are affected by any of these events.

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Risks Relating to our Common Stock

Our stock may be subject to delisting from The NASDAQ Capital Market if the closing bid price for our common stock is not maintained at $1.00 per share or higher.

Our common stock is listed on The NASDAQ Capital Market, which imposes, among other requirements, a minimum bid requirement. The price of our common stock must trade at or above $1.00 to comply with the minimum bid requirement for continued listing. On September 16, 2009, we received a deficiency letter from the NASDAQ Stock Market stating that we no longer met the minimum $1.00 per share requirement. We had a grace period of 180 calendar days, or until March 15, 2010, to regain compliance, which would occur if the bid price of our stock closed at $1.00 per share or more for a minimum of 10 consecutive business days. On January 5, 2010, we amended our certificate of incorporation to effect a one-for-twenty-five reverse stock split of our issued and outstanding shares of common stock in an attempt to increase the trading price of our common stock and to regain compliance with the minimum bid price rule and avoid delisting of our stock. The reverse stock split was reflected on The NASDAQ Capital Market at the opening of trading on January 6, 2010. Since that date, the closing price of our common stock has ranged from a low of $1.67 to a high of $8.55. As such, on January 21, 2010, we received a notice from NASDAQ that we have regained compliance with the minimum bid price requirement and the matter is now closed. There is no guarantee that the market price of our common stock will continue to trade above $1.00 or that we will continue to comply with the minimum bid requirement. If we fail to maintain compliance with the continued listing standards, a delisting could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease and could also adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees.

Our stock may be delisted from The NASDAQ Capital Market if we do not maintain certain levels of stockholders’ equity, market value of listed securities, or net income from continuing operations.

Our common stock is listed on The NASDAQ Capital Market, which imposes, among other requirements, a requirement that a listed company maintain either a minimum of $2,500 in stockholders’ equity, a minimum of $35,000 of market value of listed securities, or a net income from continuing operations of at least $500 in the most recently completed fiscal year or in two of the three most recently completed fiscal years. On August 19, 2009, we received a letter from NASDAQ, notifying us that we were not in compliance with these requirements. On October 30, 2009, we received notice that NASDAQ granted our request for an extension to regain compliance with these requirements. We had until November 20, 2009 to regain such compliance. On November 25, 2009, we received notice from NASDAQ that we have regained compliance with the $2,500 stockholders’ equity requirement for continued listing on The NASDAQ Capital Market. NASDAQ, however, will continue to monitor our ongoing compliance with the stockholders’ equity requirement and, because our stockholders’ deficiency of $2,544 at December 31, 2009 does not evidence compliance with that requirement, we may be subject to delisting.  Any such delisting could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease and could also adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees.

The market price of our common stock may continue to be highly volatile and continue to be subject to wide fluctuations.

The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:

·                  announcements of new products or services by our competitors;

·                  quarterly variations in our revenues and operating expenses;

·                  our announcements of technological innovations or new products or professional services;

·                  sales of common stock by our directors and executive officers or HTI or Hercules; and

·                  continuing uncertainty and adverse developments in the overall stock market.

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If a substantial number of our shares of common stock become available for sale and are sold in a short period of time, the market price of our shares of common stock could decline.

We have filed a registration statement on Form S-3 with the SEC and it is anticipated that prior to the effective date of this registration statement, we will have approximately 1,030,354 million shares of common stock that were available to be publicly traded. The registration statement on Form S-3 that we have filed covers the resale by the selling stockholder of up to 3,364,738 shares of our common stock. Although our common stock is listed on The NASDAQ Capital Market, it does not generally have a high average trading volume. For example, since we became listed on NASDAQ in September 2007, our average daily trading volume has been approximately 16,682.  Our low trading volume may cause the price of our common stock to be volatile. The last reported sale price of our common stock on NASDAQ on April 13, 2010 was $5.34.

If HTI sells substantial amounts of our shares of common stock, the market price of our shares of common stock could decrease significantly. The perception in the public market that HTI might sell our shares of common stock could also depress our market price. The number of shares of common stock that will be available to be publicly traded after the effective date of the registration statement on Form S-3 will increase by approximately 327%. Furthermore, we are obligated to file a registration statement on Form S-3 with the SEC prior to May 31, 2010.

There may be a limited public market for our securities.

Although we are listed on The NASDAQ Capital Market, there can be no assurance that the trading of our common stock will be sustained. If our common stock fails to qualify for continued listing on The NASDAQ Capital Market or for listing on another registered stock exchange, trading, if any, in our common stock would be conducted on the Over-the-Counter Bulletin Board or in what are commonly referred to as “pink sheets.” As a result, our stockholders may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our common stock, and our common stock would become substantially less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or other purposes. An active public market for shares of our common stock may not develop, or if one should develop, it may not be sustained. Therefore, our stockholders may not be able to find purchasers for their shares of our common stock.

We do not expect to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Any payment of future dividends will be at the discretion of our Board of Directors after taking into account various factors, including, but not limited to, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Our Amended Loan Agreement with Hercules currently restricts our ability to pay dividends on our common stock. Accordingly, our stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to make a positive return on their investment.

Due to a material weakness in our internal controls over financial reporting were determined not to be effective for the fiscal year ended December 31, 2009.  Our disclosure controls and procedures and internal control over financial reporting may not be effective in future periods as a result of existing or newly identified material weaknesses in internal controls.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud.  If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud, our reputation and operating results could be harmed.  Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control.  Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.  Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.  In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be adversely impacted, we could fail to meet our reporting obligations, and our business and stock price could be adversely affected.

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and have concluded that, subject to the inherent limitations identified in Item 9A(T) of Part II of this Form 10-K, as of April 15, 2010, our disclosure controls and procedures were not effective due to our independent public accountants’ identification of the existence of a material weakness in our internal control over financial reporting as described below.

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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.  A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect financial statement misstatements on a timely basis.  A deficiency in design exists when a control necessary to meet the control objective is missing, or when an existing control is not properly designed so that even in the control operates as designed, the control objective would not be met.  A deficient in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively.

In connection with the audit on our consolidated financial statements as of and for the year ended December 31, 2009, our independent public accountants, in accordance with the standards of the Public Company Accounting Oversight Board, identified deficiencies in internal control related to our accounting for the Hercules Restructuring.  Specifically, we failed to properly apply the Debt Topic of the FASB Accounting Standards Codification and failed to timely make certain material adjustments required in connection with the Hercules Restructuring, including recording a $5,800 loss on debt extinguishment and a $4,400 increase in additional paid-in capital.  For further discussion of our internal control over financial reporting and our disclosure controls, see Item 9A(T). “—Controls and Procedures” in Part II of this Form 10-K.

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies.  We cannot be certain that our remediation efforts will ensure that our management designs, implements and maintains adequate controls over our financial processes and reporting in the future or will be sufficient to address and eliminate the material weakness identified.  Our inability to remedy the identified material weakness or any additional deficiencies or material weaknesses that may be identified in the future could, among other things, could have a material adverse effect on our business, results of operations and financial condition, as well as impair our ability to meet our quarterly, annual and other reporting requirements under the Securities Exchange Act of 1934 in a timely manner, and require us to incur additional costs or to divert management resources.

Provisions in our organizational documents and under Delaware law, as well as governance rights and security ownership of HTI and Hercules, may delay or prevent attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us.

Certain provisions of our certificate of incorporation and by-laws may strengthen our Board of Directors’ position in the event of a hostile takeover attempt. These provisions have the effect of providing stockholders may only remove a director by a majority vote of all shares outstanding and entitled to vote at a special meeting called for that purpose, that stockholders may only call a special meeting by the request, in writing, of stockholders owning individually or together 10%

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or more of our entire capital stock outstanding and entitled to vote, and that we may issue preferred stock with such rights, preferences, privileges and limitations as our Board of Directors may establish.

In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns or within the last three years has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.  Accordingly, Section 203 may discourage, delay or prevent a change in control of our company.

Furthermore, HTI’s rights to representation on our Board of Directors, the controlling ownership interest currently held by HTI and the ability of HTI and its parent corporation, Hercules, to further increase their holdings of our common stock could be a significant deterrent to any other person interested in acquiring a controlling interest in us. See the risk factor titled “Our controlling stockholder has the contractual right to nominate three members of our Board of Directors.”

Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2.  Properties

Our headquarters are located in Hatboro, Pennsylvania in approximately 40,000 square feet of leased space. This facility accommodates our executive office, customer support, warehouse, development and shipping operations. On October 8, 2004, we entered into a lease agreement to rent approximately 25,000 square feet. The initial annual base rent under the lease was approximately $167 and increased 2% annually effective on the annual anniversary of the lease commencement date. The initial term of the lease agreement is 85 months, with an option to extend the lease term for up to one additional period of five years. On May 1, 2007, we entered into a sub-lease agreement to rent approximately 15,000 square feet of additional space. The initial annual base rent under the sub-lease was approximately $178, and increased 4% annually effective on the annual anniversary of the sub-lease commencement date. The sub-lease agreement expired on December 29, 2009. We are also responsible for payments of common area operating expenses for the premises under the lease and sub-lease agreement.

On February 17, 2010, we entered into an amendment to the lease agreement with the landlord to rent approximately 40,000 square feet of leased space, which encompasses all of the leased space previous occupied under the original and sub-lease space described above. The annual base rent under the amended lease agreement is approximately $529, with abatement of rental payments for March 1, 2010 through June 30, 2010, and is increased 2.5% annually effective on the annual anniversary of the lease commencement date each year, except the rental rate is reduced to an annualized rental of $13 from July 1, 2011 and October 31, 2011. The term of the amended lease agreement expires January 31, 2017.

The amended lease agreement requires the landlord, at its sole cost and expense, to construct certain improvements within the lease premises beginning on February 1, 2012 and expiring as of May 31, 2012, as agreed upon between the Company and the landlord. However, the landlord may condition the performance of its work (in the form of a cash security deposit or letter of credit) in an amount deemed reasonably sufficient to landlord if our then-current financial statements do not meet or exceed the following two conditions: (i) current ratio of 1.3; and (ii) minimum working capital of $4,000.

Item 3.  Legal Proceedings

We are not a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, management believes would have a material adverse effect on our business, financial condition or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

Our 2009 annual meeting of stockholders was held on December 30, 2009 (the 2009 Meeting). At the 2009 Meeting, the following matters were submitted to a vote of stockholders: (1) approval of an amendment to our Certificate of Incorporation to effect a reverse stock split of our issued and outstanding common stock by a ratio of one-for-twenty-five (the Charter Amendment); (2) election of seven directors; (3) ratification of the selection of McGladrey & Pullen LLP as our independent registered public accounting firm for 2009; and (4) approval of an amendment to our 2006 Equity Compensation Plan to (a) increase the maximum aggregate number of shares of common stock that may be issued under the plan to, after giving effect to the reverse stock split pursuant to the Charter Amendment, 1,840,000 shares of our common stock and (b) permit the Compensation Committee of our Board of Directors, with the concurrence of the affected grantee, to reprice options and/or cancel any award under the plan (collectively, the “Plan Amendment”). The Charter Amendment and the Plan

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Amendment were approved, our seven nominees for director were elected, and the selection of McGladrey & Pullen was ratified. The results of the voting were as follows:

PART II

Item 5.  Market for the Company’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Market Information

Our common stock is listed on the NASDAQ Capital Market under the symbol “IFLG.” On January 5, 2010, we completed a reverse stock split of our issued and outstanding common stock by a ratio of one-for-twenty-five. The table below sets forth the high and low closing sale prices of our common stock during 2009 and 2008, adjusted for the reverse stock split:

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Holders of Common Stock

As of April 6, 2010, we had approximately 279 holders of record of common stock and 3,729,647 shares of common stock outstanding.

Dividends

We have not paid cash dividends and do not anticipate paying cash dividends in the foreseeable future. The declaration and payment of dividends is restricted in accordance with covenants related to our Amended Loan Agreement with Hercules which matures in November 2014. The restriction on dividends will remain during the term of the Amended Loan Agreement. We expect to utilize any future earnings to finance our operations. The actual amount of any dividends that may be paid in the future will be subject to the discretion of our Board of Directors and will depend on our operations, financial and business requirements and other factors.

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Item 6.  Selected Financial Data

The following table presents selected financial data for the last five years of the operation of our business. This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7. The selected financial data for fiscal years 2005 through 2009, with the exception of proforma data, has been derived from our financial statements which have been audited by an independent registered public accounting firm.

The earnings per share and weighted average number of shares outstanding reflect a twenty-five-for-one reverse stock split of our issued and outstanding shares of common stock, par value $0.00001 per share that was effected on January 5, 2010. All dollar amounts are presented in thousands except per share data.

(1)                                  Unaudited proforma tax provision for the year 2006 as if the Company was a taxable entity for the year ended December 31, 2006.

(2)                                  Unaudited proforma earnings per share calculation for the year 2006. See Note A of the Notes to the Consolidated Financial Statements in Item 8 for information concerning the calculation of net income or loss per common share.

(3)                                  Unaudited proforma amounts paid to stockholders with respect to taxes payable due to the Company filing its federal and state income tax returns as a Sub-Chapter S Corporation. Prior to our November 29, 2006 merger with New Age Translation any income tax liability from operations was payable directly by stockholders.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations is intended to assist you in understanding our financial condition and results of operations. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included in Item 8 of this report. On January 5, 2010, we effected a one-for-twenty-five reverse stock split of our issued and outstanding shares of common stock, par value $0.00001 per share.  Unless otherwise indicated, all share amounts discussed herein reflect the post-split number of shares of our common stock.

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Many of the amounts and percentages presented in this discussion and analysis have been rounded for convenience of presentation, and all dollar amounts, except per share data, are presented in thousands.

Overview

We provide enterprise mobility solutions for the healthcare and commercial industries with experience in over 2,200 hospitals and businesses nationwide. We provide end-to-end solutions for electronic medical record and supply chain implementation to our customers by utilizing a combination of products and services, including consulting, business software applications, mobile managed services, mobile devices, and wireless infrastructure. Our solutions are designed to allow the real time usage of data throughout a customer’s enterprise in order to enhance workflow, improve customer service, increase revenue and reduce costs. We sell wireless communication and computing devices, including mobile workstations that connect to a customer’s wireless network so that information can be accessed from any location within the enterprise. We also implement customized and third-party software applications with a particular expertise in electronic medical records in the healthcare industry and SAP® back-end systems in commercial enterprises. In addition, we offer professional services that support and complement enterprise-wide software implementations and a customer’s wireless computing systems, including consulting, mobile managed services, training, engineering, technical support and network monitoring.

We manage our business primarily by market verticals, driven by our sales organization. We have two reportable operating segments consisting of our healthcare and commercial or enterprise businesses. The healthcare segment is principally composed of our activities in hospitals and other related healthcare facilities. The commercial segment focuses on all other vertical markets including pharmaceutical, manufacturing, wholesale and retail distribution and service industries.

Historically, the sale of mobile workstations and other wireless devices has represented a majority of our net revenues. More recently, we have been transitioning our business to provide more consulting, professional services and software applications. With our focus on selling services and software, we believe that we can offer more comprehensive enterprise mobility solutions that provide greater value to our customers and generate higher and more recurring revenue for our business.

We conduct substantially all of our operations through our wholly-owned subsidiary, InfoLogix Systems Corporation. We own certain patents and patent applications through our wholly-owned subsidiaries OPT Acquisition LLC, Embedded Technologies, LLC and InfoLogix-DDMS, Inc. We consolidate OPT Acquisition LLC, Embedded Technologies, LLC, InfoLogix-DDMS, Inc. and InfoLogix Systems Corporation for financial reporting purposes.

We serve the healthcare and commercial industries, which are experiencing significant challenges, primarily due to weak macroeconomic conditions that have resulted in a decreased demand for their products and services. As a result, some of our customers may face financial challenges in 2010. Some of our customers are facing constraints on their information technology budgets and are seeking more flexibility in the type of mobility solutions they implement and the timing of their purchases from us. It is unclear when the general economic climate will improve and when our customers may benefit from improved conditions.

Going Concern

The current weak macroeconomic conditions have had a major impact on the industries we serve. During 2009, we experienced reduced sales and compressed margins, particularly related to the sales of mobile workstations and related infrastructure in the healthcare markets that we serve. We believe this slowdown is primarily the result of adverse economic conditions affecting the healthcare industry, including constrained budgets promulgated by difficult access to capital in community and other not-for-profit hospitals. We have responded to the challenging times by undertaking a series of cost reduction initiatives, including the elimination of executive bonuses, reduction of employee salaries and reduction in the number of employees. Economic conditions did not improve in the first quarter of 2010 and we expect 2010 to be an extremely challenging year.

Our financial statements for the year ended December 31, 2009 have been prepared on a going concern basis, which contemplates continuing operations, securing additional debt or equity financing, selling certain assets, and realizing assets and liabilities in the ordinary course of business. We have incurred significant net losses each year from 2007 through 2009, including a net loss of $22,388 for the year ended December 31, 2009. Our losses are attributable to the difficult economic conditions under which we operate, challenges related to our transition over the last several years from being primarily a seller of infrastructure and hardware to becoming a provider of comprehensive enterprise mobility solutions, and the write-off of certain cash and non-cash expenses related to the Hercules Restructuring (as described under “Recent Developments” below) and to non-realizable assets. During this transition period, we have hired experienced management

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and staff to execute our business plans and have made strategic acquisitions, and we have also managed our liquidity in spite of carrying approximately $22,000 of senior debt at high interest rates and other associated costs.

As a result of our capital and debt structure and recurring losses, we have substantial liquidity requirements related to the repayment of a seller note that comes due on September 30, 2010 and our revolving line of credit under our Amended Loan Agreement with Hercules and to earn out payments for past acquisitions. We do not currently expect to generate sufficient cash flow from operations to fund those obligations. As a result, our independent registered public accounting firm has included an explanatory paragraph which raises substantial doubt as to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended December 31, 2009.

We have undertaken a series of actions to reduce costs and are pursuing various initiatives to continue as a going concern and provide for our future success. Our plan to improve our liquidity contemplates additional cost control measures and may include additional financing and further restructuring of our debt. Our ability to implement these plans successfully is dependent on many circumstances outside of our direct control, including general economic conditions and the financial strength of our customers. Any additional financing we are able to secure will likely be subject to a number of conditions and involve additional costs. Given the current negative conditions in the economy generally and the credit markets in particular, there is uncertainty as to whether we will be able to generate sufficient liquidity to repay our outstanding debt, to make our earn out payments and to meet working capital needs. If we are unable to improve our liquidity position, we may not be able to continue as a going concern.

Recent Developments

On November 20, 2009, we and our subsidiaries completed a restructuring transaction with Hercules Technology Growth Capital, Inc. (Hercules) and Hercules Technology I, LLC, a wholly-owned subsidiary of Hercules (HTI), pursuant to which $5,000 of our outstanding debt was converted into shares of our common stock and a warrant to purchase shares of our common stock, and the remaining outstanding debt with Hercules was otherwise restructured (the Hercules Restructuring). The Hercules Restructuring also provided us with up to $5,000 in additional availability under a revolving credit facility with Hercules. In connection with the Hercules Restructuring, on November 20, 2009, we entered into a Debt Conversion Agreement with HTI, pursuant to which HTI exchanged $5,000 in existing indebtedness for (i) 2,691,790 shares of our common stock, and (ii) a warrant to purchase 672,948 shares of our common stock (the Debt Conversion Agreement).  Under the terms of the Debt Conversion Agreement, HTI has certain corporate governance and other rights with respect to our Company.

In connection with the Hercules Restructuring, on November 20, 2009, we and Hercules entered into an Amended and Restated Loan and Security Agreement (Amended Loan Agreement), whereby we and Hercules agreed to restructure our remaining debt not converted into shares of common stock and a warrant. The Amended Loan Agreement amended and restated our prior loan and security agreement with Hercules. On the same date and as a condition to the Hercules Restructuring, we also restructured our earn-out obligation related to our 2008 acquisition of the assets of Delta Health Systems, Inc.

On February 19, 2010, we entered into Amendment No. 1 (Amendment 1) to the Amended Loan Agreement with Hercules. Under Amendment 1, we may request up to $3,000 for use in purchasing equipment (the Equipment Loan) subject to valid, verified purchase orders acceptable to Hercules from suppliers approved by Hercules in its sole discretion.

On March 25, 2010, Hercules advanced to us an additional $1,350, initially applied to the outstanding balance on our revolving line of credit facility. The advance increased our outstanding indebtedness on the revolving line of credit to $8,909, and was provided as an extension above our eligible borrowing base as provided in the Amended Loan Agreement. On April 6, 2010, we entered into Amendment No.2 to the Amended Loan Agreement, under which we issued Hercules a $1,350 convertible note agreement and used the proceeds of this loan to pay down the revolving line of credit by the same amount. As of April 7, 2010, the outstanding balance on our revolving line of credit was $7,559.

As a result of the Hercules Restructuring, Hercules has the right and will continue to have the right to nominate three directors to our Board of Directors until (i) we repay our term loans to Hercules and (ii) we maintain a consolidated total leverage ratio of 1.5 to 1 for a rolling twelve months ending on each of four consecutive quarters, in which case, one of HTI’s appointed directors would not stand for re-election at the next annual meeting. None of HTI’s appointed directors would stand for re-election at the next annual meeting of our stockholders following (i) our payment in full of all obligations under our Amended Loan Agreement and (ii) HTI owning less than 10% of our issued and outstanding common stock.  In certain circumstances, HTI has the right to nominate a fourth director, and HTI also has the right to have at least one of its director representatives sit on the Nominating and Governance Committee and the Compensation Committee of the Board of

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Directors.

On February 10, 2010, Hercules sent us a letter notifying us of an event of default because our borrowings under the revolving credit facility exceeded our borrowing base as of February 5, 2010 and charging us a default interest rate of an additional 3% to the applicable regular interest rate for the period starting February 5, 2010. Events of default are continuing and default rate interest will be payable monthly on the same date as regular interest unless Hercules chooses to demand payment of default interest on another date. Hercules may elect to have default rate interest paid in cash, in kind or in shares of our common stock.

Hercules has not chosen to accelerate our obligations under the Amended Loan Agreement, but has expressly not waived any events of default or any of its remedies under Amended Loan Agreement. We do not have adequate liquidity to repay all outstanding amounts under the credit facility and payment acceleration would have a material adverse effect on our liquidity, business, financial condition and results of operations.

On April 6, 2010, our Board of Directors elected Melvin L. Keating to the Board of Directors. Mr. Keating, an independent director, has been appointed to the Audit Committee and now serves as its chairman.

Past Acquisitions

We continue to transition our business model from being principally a reseller of third party and proprietary hardware to being a fully integrated software and service solutions business. Acquiring businesses that allow us to improve and expand our software, consulting and other professional services offerings had been a central element of our strategic plan. Although we may complete strategic acquisitions in the future, we anticipate the focus of our business in the near term will be on our internal operations and organic growth.

In May 2008, we acquired substantially all of the assets of Delta Health Systems, Inc., or Delta. The assets acquired related to Delta’s business of providing strategic cost management consulting services and web-based management data collection and work-flow analytics to the healthcare industry. This acquisition has enabled us to combine our existing solutions with higher margin professional services. We believe the Delta acquisition has allowed us to reach further into our healthcare customer organization’s to bring critical workflow and human resource utilization efficiencies that support our mobile solutions. During 2008 and 2009, we began to realize economies of scale through selling combined solutions to mutual clients of Delta.

In May 2008, we acquired substantially all of the assets of Aware Interweave, Inc., or Aware. The assets acquired related to Aware’s business of providing mobile software solutions to a variety of customers including federal government agencies, fortune 1000 companies and healthcare and life science organizations. The acquisition was part of our strategic plan to add intellectual property and higher-margin services and application software licensing, while allowing us to provide our customers with access to new solutions. The acquisition of Aware has allowed us the opportunity to enable users of SAP® software and applications to significantly improve their visibility, response time, and revenues by providing access to business-critical applications without being tied to the office or desktop computer. Through our acquisition of Aware, we have gained a mobile product solution suite that it developed, the Mobile Device Controller series, which is tailored specifically for users of SAP® software, and also adaptable to other back-end systems.

In September 2007, we acquired certain assets and assumed certain liabilities of Healthcare Informatics Associates, Inc., or HIA. The acquired assets included the rights to existing relationships with customers, vendors and partners. All of the employees of HIA were transitioned to us. The employees are a team of senior healthcare informatics consultants who are also certified healthcare practitioners, and include registered nurses, pharmacists, ancillary clinicians, physician assistants, revenue cycle personnel, administrative systems personnel, technical interface/report writing personnel, clinical transformation specialists, engineers specializing in return on investment, benefits realization, and work redesign and certified project managers. The acquisition of HIA has allowed us to expand the products and services we offer to hospitals and other healthcare providers.

For more information with respect to these transactions, see Notes N and O to our audited consolidated financial statements included in Item 8 of this report.

Characteristics of our net revenues and expenses

We generate our net revenues through the resale of wireless and mobile hardware and systems, including mobile workstations, handheld and wearable computers, peripherals, and related products under which the revenue is recognized.

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Sales revenue on product is recognized when both the title and risk of loss transfer to the customer, generally upon shipment. We also generate revenues from consulting and professional services on either a fixed fee or time and expense basis. Net revenues from our consulting and professional services are recognized on a time and expense basis at the time the service is delivered and the expenses are incurred. Net revenues from the sale of our proprietary learning technologies and any professional consulting or engineering services provided on a fixed-fee basis are recognized according to a proportionate method of accounting and is recognized ratably over the contract period based upon actual project hours as compared to budgeted project hours.

We also generate net revenues from the sale of extended warranties on wireless and mobile hardware and systems, including mobile workstations, computers, peripherals, and related products. We sell original equipment manufacturers’ component warranties and warranty programs sponsored by other third-parties and recognize the revenue on a net basis upon execution of the warranty agreement. As we have been transitioning our business away from the sale of hardware and related warranties, we are not selling new extended warranty programs except for those serviced by third-parties and we have taken steps to confirm with our customers that third-parties are the obligors under their warranties. We record the sales of extended warranties as net revenue immediately upon completion of the sale transaction.

Payments received in advance of services performed are recorded as deferred revenue. Certain contract payment terms may result in customer billing occurring at a pace slower than revenue recognition. The resulting revenue recognized in excess of amounts billed and project cost is included in unbilled revenue on our consolidated balance sheet.

Cost of revenues consists of all expenses that are directly attributable to the costs associated with the purchase, for resale, of wireless and mobile hardware and systems, including computers, peripherals, and related products. Fluctuations in our gross margin may occur due to changes in our ability to obtain discounts on product sales or our ability to negotiate higher margins on sales contracts with large customers. Cost of sales also consists of the direct costs associated with those employees or sub-contractors that perform our professional consulting services on behalf of our customers.

Selling expenses primarily consist of the salaries, benefits, travel and other costs of our regional and national account sales representatives, sales management and business development expenses. General and administrative expenses primarily consist of the costs attributable to the support of our operations, such as: costs related to information systems, salaries, expenses and office space costs for executive management, inside sales and customer support, warehousing, technical support, financial accounting, purchasing, administrative and human resources personnel, insurance, recruiting fees, legal, accounting and other professional services.

Critical Accounting Estimates and Policies

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of net revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and estimation.

Accounts receivable

We grant credit, generally without collateral, to our customers, which are primarily in the healthcare and commercial markets. Consequently, we are subject to potential customer credit risk related to changes in economic conditions within those markets. However, we believe that our billing and collection policies are adequate to minimize the potential credit risk.

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt including historical experience and current economic and market conditions. Account balances deemed to be

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uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the first in, first out method.

We periodically review our inventories and make provisions as necessary for estimated obsolete and slow-moving goods. We mark down inventory in an amount equal to the difference between cost of inventory and the estimated market value based on assumptions about future demands, selling prices and market conditions. The creation of such provisions results in a write-down of inventory to net realizable value and a charge to cost of revenues.

Impairment of long-lived assets

We assess the potential impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An asset’s value is impaired if management’s estimate of the aggregate future cash flows, undiscounted and without interest charges, to be generated by the asset are less than the carrying value of the asset. When estimating future cash flows, we consider factors such as expected future operating income and historical trends, as well as the effects of demand and competition. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the asset over the estimated fair value of the asset. Such estimates require the use of judgment and numerous subjective assumptions, which, if actual experience varies, could result in material differences in the requirements for impairment charges.

Intangible assets

The costs of successful registrations for patents are amortized over the estimated useful lives of the assets, which is generally sixteen years, using the straight-line method. The costs of unsuccessful registrations are charged to expense. Acquired technology is recorded at its estimated fair value at the date of acquisition and amortized over the estimated useful lives of the assets, which averages four years, using the straight-line method. Developed technology is also amortized using the straight-line method, generally over five years. License fees are amortized over the license period using the straight-line method. Customer lists are amortized over a period of six to ten years.

Revenue recognition

Net revenues are generated through product sales, warranty and maintenance agreements, professional consulting, programming and engineering services, long-term support services, and educational learning programs. Net revenues from product sales are recognized when both the title and risk of loss transfer to the customer, generally upon shipment. We generate net revenues from the sale of extended warranties on wireless and mobile hardware and systems, including mobile workstations, computers, peripherals, and related products. Revenue from the sale of component extended warranties is recognized as net revenue upon execution of the warranty agreement. We do not bear associated warranty risk because it is contracted with a third parties, the primary obligors, to fully assume all risks and obligations.

We also generate revenue from consulting and other professional services on either a fee-for service or fixed fee basis. Revenue from consulting and other professional services that is contracted as fee-for-service is recognized in the period in which the services are performed. Direct costs for travel and accommodations are reimbursable in accordance with the contract terms and are recognized as net revenue in the period the related expense is incurred. Revenue from the sale of proprietary learning technologies and those consulting and other professional services provided on a fixed-fee basis is recognized according to a proportionate method of revenue recognition and is recognized ratably over the contract period based upon actual project hours completed compared to total budgeted project hours.

We record amounts billed to our customers for shipping and handling fees as revenue. All amounts billed in a sale transaction related to shipping and handling represent revenues earned for the goods provided and requires such amounts are classified as revenue. Shipping and handling costs are recorded in general and administrative expenses in the consolidated statement of operations.

Income taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are determined based on the differences between the financial reporting bases and the tax bases of existing assets and liabilities, and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

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We have developed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result, we determined that there were no material liabilities for tax benefits at December 31, 2009 or 2008. Any future interest accrued relating to unrecognized tax benefits will be included in interest expense. In the event that we must accrue for any penalties, they will be included as an operating expense.

While we believe that our tax positions are fully supportable, there may certain positions that could be challenged and we may not prevail. In these instances, we look to establish reserves. If we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50% likely of being realized upon settlement. We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information. We regularly monitors our tax positions, tax assets and tax liabilities. We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit or derecognize a previously recorded tax benefit when (i) there is a completion of a tax audit, (ii) there is a change in applicable tax law including a tax case or legislative guidance, or (iii) there is an expiration of the statute of limitations. Significant judgment is required in accounting for tax reserves.

Stock-based compensation

We measure all employee stock-based compensation awards using a fair value method and record such expense in our Consolidated Financial Statements. Such expense is amortized on a straight line basis over the requisite service period of the award.

We estimate the grant date fair value of stock options using the Black-Scholes option-pricing model which requires the input of highly subjective assumptions. These assumptions include estimating the expected term of the award and the estimated volatility of our stock price over the expected term. Changes in these assumptions and in the estimated forfeitures of stock option awards can materially affect the amount of stock-based compensation recognized in our consolidated statements of operations.

Results of Operations

Results of operations expressed as a percentage of net revenues were as follows:

Net revenues

Net revenues by operating segment for the years ended December 31, 2009 and 2008 were as follows:

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Net revenues for 2009 of $86,916 decreased $13,800 or 13.7% as compared to 2008. The decrease in net revenues was the result of recording revenues and cost of revenues associated with extended warranties on a net basis for 2009 as compared to recording revenues and cost of revenues on a gross basis for 2008 resulting from changes in the mix of warranties we sold in 2009 and notifying our customers that third parties are the primary obligors under their warranties as well as lower than expected sales as a result of our customers choosing to defer projects during the current economic downturn. We have noticed that starting with the fourth quarter, and continuing into early 2010 customers have begun pursuing projects that had been earlier deferred. The reimbursable expense revenue included in our professional services revenue totaled $2,623 and $2,412 for the years ended December 31, 2009 and 2008.

Cost of revenues

Cost of revenues by operating segment for the years ended December 31, 2009 and 2008 were as follows:

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Cost of revenues in 2009 totaled $67,273, a decrease of $6,903 or 9.3% in 2009 as compared to $74,176 for 2008. The decrease in our cost of revenues was the result of recording revenues and cost of revenues associated with extended warranties on a net basis for 2009 as compared to recording revenues and cost of revenues on a gross basis for 2008 resulting from changes in the mix of warranties we sold in 2009 as well as notifying our customers that third parties are the primary obligors under their warranties. The reimbursable expenses included in our professional services cost of revenue totaled $2,623 and $2,412 for the years ended December 31, 2009 and 2008, respectively.

Gross profit

Gross profit by operating segment for the years ended December 31, 2009 and 2008 was as follows:

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Gross profit percentage by operating segment for the years ended December 31, 2009 and 2008 was as follows: