COMSovereign Holding Corp. - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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Form 10-K
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R
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended December 31, 2008
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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Commission
File No. 000-51430
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MACROSOLVE,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Oklahoma
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73-1518725
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
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1717
South Boulder Ave. Suite 700
Tulsa,
OK 74119
(Address
of principal executive offices, including zip code)
(918) 280-8693
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.001
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes £ No R
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 £ No R
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 R No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. R
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
| Large accelerated filer £ | Accelerated Filer £ |
| Non-accelerated Filer £ | Smaller reporting company R |
| (Do not check if a Small reporting company) |
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes £ No R
The
aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of the Registrant’s common stock as
reported on the OTC Bulletin Board on December 31, 2008 was
$37,899,436.41.
The
number of shares of the registrant’s Common Stock, $0.01 par value per share,
outstanding as of March 11, 2009 was 26,235,951.
Documents
Incorporated by Reference
None.
TABLE
OF CONTENTS
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PART
I
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Item
1. Business
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4
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Item
1A. Risk Factors
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8
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Item
1B. Unresolved Staff Comments
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16
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Item
2. Properties.
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16
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Item
3. Legal Proceedings.
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16
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Item
4. Submission of Matters to a Vote of Security
Holders.
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16
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PART
II
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Item
5. Market For Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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17
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Item
6. Selected Financial Data.
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18
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Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
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18
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Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
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24
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Item
8. Financial Statements and Supplementary Data.
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24
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Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
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24
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Item
9A. Controls and Procedures.
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24
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Item
9A(T). Controls and Procedures.
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24
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Item
9B. Other Information.
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25
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PART
III
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Item
10. Directors, Executive Officers, and Corporate
Governance.
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25
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Item
11. Executive Compensation.
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28
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Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
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31
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Item
13. Certain Relationships and Related Transactions, and Director
Independence.
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33
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Item
14. Principal Accountant Fees and Services.
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33
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PART
IV
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Item
15. Exhibits and Financial Statement Schedules.
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33
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SIGNATURES
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34
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2
Cautionary
Note Regarding Forward Looking Statements
This
Annual Report on Form 10-K (the “Annual Report”) contains ‘‘forward-looking
statements’’ that represent our beliefs, projections and predictions about
future events. All statements other than statements of historical fact are
‘‘forward-looking statements’’, including any projections of earnings, revenue
or other financial items, any statements of the plans, strategies and objectives
of management for future operations, any statements concerning proposed new
projects or other developments, any statements regarding future economic
conditions or performance, any statements of management’s beliefs, goals,
strategies, intentions and objectives, and any statements of assumptions
underlying any of the foregoing. Words such as ‘‘may’’, ‘‘will’’, ‘‘should’’,
‘‘could’’, ‘‘would’’, ‘‘predicts’’, ‘‘potential’’, ‘‘continue’’, ‘‘expects’’,
‘‘anticipates’’, ‘‘future’’, ‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘estimates’’
and similar expressions, as well as statements in the future tense, identify
forward-looking statements.
These
statements are necessarily subjective and involve known and unknown risks,
uncertainties and other important factors that could cause our actual results,
performance or achievements, or industry results, to differ materially from any
future results, performance or achievements described in or implied by such
statements. Actual results may differ materially from expected results described
in our forward-looking statements, including with respect to correct measurement
and identification of factors affecting our business or the extent of their
likely impact, the accuracy and completeness of the publicly available
information with respect to the factors upon which our business strategy is
based or the success of our business. Furthermore, industry forecasts are likely
to be inaccurate, especially over long periods of time and in relatively new and
rapidly developing industries such as mobile solutions for businesses. Factors
that may cause actual results, our performance or achievements, or industry
results, to differ materially from those contemplated by such forward-looking
statements include without limitation:
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competition
in the market for mobile computing products and
services;
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consolidation
in the wireless industry;
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long
sales cycles;
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failure
to maintain existing relationships or enter into new relationships with
OEM and business development organizations;
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our
ability to develop brand awareness and industry
reputation;
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our
ability to adapt to rapid evolution in technology and industry
standards;
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our
ability to attract and retain management and skilled
personnel;
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our
growth strategies;
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anticipated
trends in our business;
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our
future results of operations;
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our
lack of profitable operations in recent periods;
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our
ability to make or integrate acquisitions;
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our
liquidity and ability to finance our development
activities;
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our
ability to successfully and economically develop new
products;
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market
conditions in the mobile solutions for business
industry;
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the
timing, cost and procedure for acquisitions;
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the
impact of government regulation;
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estimates
regarding future net revenues from capitalized development costs and the
present value thereof;
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planned
capital expenditures (including the amount and nature
thereof);
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our
marketing strategies and efforts;
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emerging
viable and sustainable markets for wireless and mobile computing
services;
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significant
errors or security flaws in our products and services;
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insufficient
protection for our intellectual property;
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claims
of infringement on third party intellectual property;
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pricing
pressures in the mobile software and technology market;
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our
financial position, business strategy and other plans and objectives for
future operations;
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the
possibility that our acquisitions may involve unexpected
costs;
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system
failures, operational delays, interruption of service to
customers;
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economic
conditions in the U.S. and worldwide;
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access
to significant additional capital to implement growth plans;
and
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the
ability of our management team to execute its plans to meet its
goals.
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Forward-looking
statements should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of whether, or the times by
which, our performance or results may be achieved. Forward-looking statements
are based on information available at the time those statements are made and
management’s belief as of that time with respect to future events, and are
subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in or suggested by the
forward-looking statements. Important factors that could cause such differences
include, but are not limited to, those factors discussed under the headings
‘‘Risk factors’’, ‘‘Management’s discussion and analysis of financial condition
and results of operations’’, ‘‘Business’’ and elsewhere in this
report.
3
PART
I
Item
1. Business
Organization
MacroSolve,
Inc. is an Oklahoma corporation formed on January 17, 1997, under the laws of
the State of Oklahoma and does business as Anyware Mobile Solutions, a division
of MacroSolve. MacroSolve, Inc. filed a registration statement Form
S-1 with the Securities and Exchange Commission as a fully reporting OTC
Bulletin Board company and trading commenced on August 15, 2008.
History
We are a
technology and services company that develops mobile solutions for businesses. A
mobile solution is typically the combination of mobile handheld devices,
wireless connectivity, and software that streamlines business operations
resulting in improved efficiencies and cost savings. We are development and
marketing partners with the major mobile device manufacturers, wireless carriers
and many software providers.
Our
customers rely on us to define, design, develop and support the best
combinations of technologies in a market that is very dynamic. We assist
software and web-based application companies by modifying their software product
offerings so that they can be used by a mobile end-user who typically has a
Smartphone or a similar cellular device. Many of these customers rely on our
technology and marketing expertise. We also serve enterprises that find it
difficult to identify a mobile software product which addresses their specific
need to streamline operational processes, and do not have the competency in
house. Our technology and services capabilities generate a growing base of
contract and annuity based revenue. We have several mobile software products,
including ReFormXT™ , which helps to minimize mobile application development
effort and DigiTicket, a platform for issuing electronic citations by law
enforcement entities. ReForm XT was launched in December 2008 and DigiTicket is
in beta testing phase and neither has yet to contribute significant revenues to
MacroSolve. The company invested $150,550 and $194,560 in ReFormXT capitalized
development costs for the years ended December 31, 2008 and 2007 respectively
and $32,353 in DigiTicket capitalized development costs in 2008.
After
incorporating in 1997, the Company served business customers in the
manufacturing industry. Most of the professional services engagements
included systems integration and customization. Its largest customer
was Titan Tire and Wheel, the largest tractor tire and wheel manufacturer in the
U.S., which relied on the Company to streamline paper intensive business
processes with distributed applications on the manufacturing
floor. This discipline gave the company experience in mobile
computing with rugged handheld devices in an era where bar-coding inventory and
using handheld scanners for data entry was in its infancy.
Handspring,
Inc. partnered with the Company in 1998 on a project with BAE (British
Aerospace). The paperwork process between ground crews and pilots
were driving operational inefficiencies. The Company defined, designed and
developed a mobile data platform, utilizing Handspring Visor handheld
devices.
In 2001,
the Company was approached by a major supplier of food products to
McDonalds. Quality assurance processes surrounding food quality was
problematic and a web-based data collection and tracking tool was being utilized
throughout the McDonalds supplier community. A mobile solution was
needed in order to collect data more efficiently in the field at 20,000
restaurant locations. The earliest forms of mobile phones and PDAs with wireless
data connections were forecast to be entering the market. New
operating systems and other technological disruptions were quickly approaching.
With this opportunity and considerable depth of experience in mobile data
solutions, the company sought out its first private equity investors, new
management, and began to build a device, operating system and network agnostic
mobile data collection platform which it named ReForm™.
A major
national campaign for the sale of ReForm was launched with Palm, Inc. in
February 2003. Shortly thereafter, Palm, Inc. determined to divide
into two companies and the sales campaign was cancelled, which resulted in
substantial financial losses to the Corporation. The Corporation
thereafter developed relationships with other mobile computer manufacturers and
wireless carriers.
A second
sales campaign was launched with Sprint Corporation (“Sprint”) on September 1,
2004 under a Joint Marketing Agreement between the Corporation and Sprint, which
was entered into in August 2004. This campaign focused on
Enabling. This second sales campaign was placed on hold by Sprint on
or about October 1, 2004 due to a reorganization of Sprint
Corporation.
The
Sprint sales campaign was expanded to include other Sprint offices and launched
again in February of 2005 and was to terminate at year end 2005. The
four city joint campaign was restructured in the third quarter of 2005 and
renewed in January 2006. The acquisition of Nextel by Sprint caused
the campaign to be cancelled in the third quarter of 2006.
4
The
Corporation entered into a development and support agreement with Navigation
Solutions, a wholly owned subsidiary of Hertz Corporation, in
2005. Under this agreement, the Corporation provides ongoing
development and support work associated with the Never Lost GPS Navigation and
Sirius satellite radio systems, which are offered on Hertz rental
cars.
Working
jointly with ESPRE Solutions, Inc. (EPRT.PK), a provider of video
software, the Corporation entered into an agreement on behalf of a major
wireless carrier in 2005 to develop a video collaboration application that
allows mobile devices, PCs and set top boxes to visually communicate across the
carrier’s network. Subject to the carrier’s allocating additional funding,
the project is expected to be complete in 2009 and will result in the
Corporation having a mobile video platform which it believes will allow it to
compete in the mobile video industry. This development agreement is
covered by a confidentiality agreement to which interested parties must agree
prior to receiving further information.
In 2006
and 2007, the Company focused efforts on expanding and broadening industry
relationships which could augment development and marketing advantages for its
services business. To this end, the company is in a wide range of
agreements and relationships with Verizon, AT&T, Sprint, Palm, RIM,
Intermec, Psion Teklogix, Symbol/Motorola, OpSource, WBS, ScanSource and other
North American mobile industry leaders.
Currently
the Company has ongoing projects across the United States and Canada and
operates three websites including ‘www.goanyware.com’, ‘www.macrosolve.com’ and
the industry thought-leader blog ‘www.mobilebizbuzz.com.
Our
Products and Services
Our
mobile solutions services business currently represents the primary source of
revenue for the Company. Working with our mobile partners, our
professional services team provides solution management, product development,
project management, quality assurance and support services to address the needs
of a client base seeking to use mobility to improve their process efficiencies
and modify software applications so that they can be used in a mobile
environment.
Our
primary software product is ReFormXT™, a mobile data collection
platform. ReFormXT™ simplifies the process of converting paper forms
to a digital form that can be utilized on most Smartphones available in the
United States. A web-based interface allows a non-technical user to
create and dispatch forms to users and easily manage data input from the
field. The components of the platform are also utilized as mobile
application development tools, thus saving time and money for customers needing
more customized solutions. Early versions of ReFormXT™ are being
upgraded in order to satisfy shifting market demands. The upgrade
became available in final form in December 2008. ReFormXT™ has
contributed less than five percent of annual revenues since initial
inception.
Intellectual
Property
The
Corporation reviews each of its intellectual properties and makes a
determination as to the best means to protect such property, by trademark, by
copyright, by patent, by trade secret, or otherwise. The Corporation believes
that it has taken appropriate steps to protect its intellectual properties,
depending on its evaluation of the factors unique to each such property, but
cannot guarantee that this is the case. United States and foreign patents
applications regarding ReFormXT™ were applied for in 2003 and the applications
are pending before the United States Patent and Trademark Office at the date of
this document. The Corporation views the office actions of the United
States Patent and Trademark Office as being positive but there is no guarantee
that a patent will be issued.
The
corporation has intellectual property that relates to extending applications to
multiple handsets operating on multiple wireless networks which it handles as a
trade secret and which it considers to be valuable.
Recent
Product and/or Market Developments:
Additional
software products are in various stages of development. A mobile electronic
citation product called DigiTicket is entering beta testing in 1Q2009.
DigiTicket is expected to contribute less than 5% to the 2009 annual
revenues
5
United
States Industry Overview
According
to new research from Compass Intelligence.com, businesses in the US will spend
roughly $11.6 billion on mobile applications by 2012. For 2009, US businesses
are expected to spend an estimated $4.9 billion on mobile applications. These
applications include mobile and wireless-based custom-coded and packaged
applications, including productivity, contact management, GPS/Navigation, Email,
security, file sharing, collaboration and others.. Compass Intelligence further
predicts this market is poised for double-digit annual growth over the next 5
years, driven by the growth in remote and telecommuting employees, the movement
in "Open Mobile Devices", and the explosion of new and emerging free and
fee-based mobile applications available for download. The highly mobile
Healthcare industry is expected to spend an estimated $1.1 billion on mobile
applications by 2012, although the Government and Services industries are
expected to be the top spenders on mobile applications. Roughly $6.3 billion
will be spent on mobile applications by the Small and Mid-sized business market
by 2012.
Market
Opportunity
MacroSolve
has been marketing mobile solutions in cooperation with the leading mobile
technology vendors nationwide for over five years while assisting applications
companies with mobile offering for four years. In our research and
experience, we are seeing the advancement of mobile technology as an operational
tool in businesses. Many businesses have adopted mobile devices with
mobile email and are more active in exploring the utilization of the technology
to streamline business processes with mobile data and video
solutions. This market is growing as new Smartphone and rugged
devices are reaching the market, giving end users and enterprises more computing
power and flexibility beyond a cell phone or laptop. Large
enterprises have the technical and financial resources to purchase substantial
mobile application platforms. These customers are well served by the
leading wireless carriers, mobile hardware manufacturers and application
developers. Over 6 million medium and small businesses are currently
underserved by the industry leaders. At the same time, PC and
web-based application companies are seeking to modify their solutions with
mobile offerings. Entering the mobile application market complicates
established business models, marketing channels and challenges technical
resources with the dynamics of developing to a much wider variety of devices,
operating systems, connectivity and users. Finally, wireless carriers and mobile
hardware companies are looking for more niche applications and are opening their
platforms in order to increase the value of their products and
services. All of these developments create demand for MacroSolve to
bring business customers and technology suppliers together.
Strategy
Operating
Strategies
The
services business is divided into two parts which address business process
efficiencies and software product enhancements through the adoption of mobile
solutions. Each is supported by a dedicated sales function, and share
in a pool of resources which provides solution management, product development,
project management, QA and support. Each unit also leverages hardware
sales, ReFormXTTM
integration, hosting, licensing and other passive revenue
functions.
Given the
increasing demand, longer term projects, options for more passive revenue and
niche positioning within the software product enhancements business, technical
resources are being augmented in the talent pool along with more specialized
mobile industry marketing resources. In order to manage growth,
communications, project management, billing, and other processes are currently
being streamlined with new automation platforms.
Growth
Strategies
With a
proven operational model in place, the growth strategies are centered on
marketing.
Our
Community Website Growth Strategy is centered on the aggregation of news,
information, blogs and forums that are available in the mobile industry which is
focused on solutions for businesses. This web site will serve as a
social network for businesses with modest or no I.T. staff and it will serve as
a platform to promote our customers’ products and related Anyware
offerings
Our
Geographical Growth Strategy will expand the Company’s presence in the
Midwestern U.S. and where customer demand is beginning to
centralize. With offices in Tulsa, OK and Dallas, TX, near term plans
include expansion into Oklahoma City, OK and Kansas City,
Missouri.
6
Our
Partner Growth Strategy involves more substantial joint marketing activities
with industry leaders. Wireless carriers and mobile hardware
manufacturers are primarily involved in the development of leads for the
software product services business and for support of the Community Website
Strategy. Continued awareness and the formalization of business
development processes are currently underway.
Employees
As of the
date of this 10-K, the Company has twenty-one (21) full-time
employees.
Dividends
We have
not declared any cash dividends on our common stock since our inception and do
not anticipate paying such dividends in the foreseeable future. We plan to
retain any future earnings for use in our business. Any decisions as to future
payments of dividends will depend on our earnings and financial position and
such other facts, as the Board of Directors deems relevant.
Subsequent
Events
On
December 30, 2008, MacroSolve, Inc. (the “Company”) closed a private
placement (the "Private
Placement") of the sale of units (each a "Unit") for gross proceeds of
$1,397,271. The Private Placement was non-brokered and consisted of the sale of
931,514 Units priced at a price of $1.50 per Unit. Each Unit consists of one
share of restricted common stock and one common stock purchase warrant (each a
"Warrant"). Each
Warrant is exercisable at $2.25 per share until December 30, 2011.
Between
January 9 and March 11, 2009 MacroSolve has sold an additional 133,332 common
shares for $200,000 through a private offering with the same terms and
conditions as the December 30, 2008 Private Placement. The net proceeds of both
offerings were used as working capital and for general corporate
purposes.
The Units
were issued to U.S. persons in reliance on Rule 506 of Regulation D and Section
4(2) of the Securities Act of 1933, as amended. The Private Placement has not
been registered under the Securities Act or under any state securities laws and
may not be offered or sold without registration with the United States
Securities and Exchange Commission or an applicable exemption from the
registration requirements. The per share price of the Units was arbitrarily
determined by the Company’s Board of Directors based upon analysis of certain
factors including, but not limited to, the listing of the Company's shares on
the OTCBB, industry status, investment climate, perceived investment risks, the
Company's assets and net estimated worth. The Investors executed subscription
agreements and acknowledged that the securities to be issued have not been
registered under the Securities Act of 1933, that they understood the economic
risk of an investment in the securities, and that they had the opportunity to
ask questions of and receive answers from the Company's management concerning
any and all matters related to acquisition of the securities. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom
were accredited investors, business associates or executive officers,
and transfer was restricted by us in accordance with the requirements of the
Securities Act of 1933. The gross proceeds from the Private Placement will be
used to fuel growth initiatives designed to create additional high-margin
recurring revenue streams for the company.
A total
of $120,000 in warrants representing 282,360 shares of registered common stock
were exercised by an existing shareholder between February 18 and March 10,
2009.
The
Company has issued 216,598 shares of restricted common stock between February 1
and March 11, 2009 to three companies in exchange for services.
Customers
For the
calendar year ended December 31, 2008, MacroSolve was dependent upon several
customers who each constituted ten percent or greater of the overall revenues.
These customers include Navigation Solutions of Plano, Texas, Great White Energy
Services of Oklahoma City, Oklahoma and Sprint-Nextel of Overland Park,
Kansas.
7
Access
to Company Reports
The
public may read and copy any materials MacroSolve files with the Commission at
the SEC’s Public Reference Room at 100 F Street, NE, Washington DC 20549, on
official business days during the hours of 10:00 am to 3:00 pm. The public may
call the SEC at 1-800-SEC-0330 to obtain additional information on the operation
of the Public Reference Room. The Commission maintains an Internet site that
contains reports and other information regarding issuers that file
electronically with the Commission (www.sec.gov).
Item
1A. Risk
Factors
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Information Regarding Forward Looking Statements.” The risks
and uncertainties described below are not the only ones facing the Company.
Additional risks and uncertainties not presently known to the Company or that
the Company currently believes are immaterial may also impair the Company’s
business operations. If any of the following risks actually occur, the Company’s
business, financial condition or results of operations could be materially
adversely affected, the value of the Company’s Common Stock could decline, and
you may lose all or part of your investment.
Risks
Relating to Our Business and Industry
We
face intense competition in the market for mobile computing products and
services, which could reduce our market share and revenue.
Our
market contains few substantial barriers to entry. We believe we will face
additional competition from existing competitors and new market entrants in the
future. We are subject to current and potential competition with
respect to our business process professional services from Accenture, IBM Global
Services, Google, Apple and Microsoft, among others. In addition, we
are subject to current and potential competition with respect to our
software product professional services from Flowfinity, iAnywhere, Formotus,
Pendragon, and Mobile Frame, among others.
In
addition to the direct competition noted above, we face indirect competition
from existing and potential customers that may provide internally developed
solutions for each of our products or services. As a result, we must educate
prospective customers as to the advantage of our products compared to internally
developed solutions.
Many of
our competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater brand
recognition and more established relationships in the industry than we do. Our
larger competitors may be able to provide customers with additional benefits in
connection with their products, services, and costs, including reduced
communications costs. As a result, these companies may be able to price their
products and services more competitively than we can and respond more quickly to
new or emerging technologies and changes in customer requirements. If we are
unable to compete successfully against our current or future competitors, we may
lose market share, and our business and prospects would suffer.
Consolidation
in the wireless industry may strengthen our competitors’ position in our market.
Consolidation of our competitors has occurred, and we expect it to continue to
occur in the foreseeable future. Acquisitions may further strengthen our
competitors’ financial, technical and marketing resources.
Most
sales with mobile carriers and enterprises have a long sales cycle process,
which increases the cost of completing sales and renders completion of sales
less predictable.
The sales
cycle process with mobile carriers could be long, making it difficult to predict
the quarter in which we may recognize revenue from a sale, if at all. The
general length of the sales cycle increases our costs and may cause services and
license revenues and other operating results to vary significantly from period
to period. Our products or services often are part of significant strategic
decisions by our customers regarding their information systems. Accordingly, the
decision to license our products or use our services typically requires
significant pre-purchase evaluation. We spend substantial time providing
information to prospective customers regarding the use and benefits of our
products and services. During this evaluation period, we may expend significant
funds in sales and marketing efforts. If anticipated sales from a specific
customer for a particular quarter are not realized in that quarter, our
operating results may be adversely affected.
8
If
we fail to maintain our existing relationships or enter into new relationships
with OEM and business development organizations, or if products offered by our
OEM partners fail to achieve or maintain market acceptance, our brand awareness,
the sales of our products and use of our services would suffer.
Our
revenue from technology licensing depends, in large part, on our ability to
develop and maintain relationships with OEMs and business development
organizations that help distribute our products and promote our services. We
depend on these relationships to:
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distribute
our products to purchasers of mobile devices;
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increase
the use of our services;
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build
brand awareness through product marketing; and
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market
our products and services cooperatively.
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If the
products that these equipment manufacturers or business development
organizations sell or if any of these companies cease to use our product and
service offerings in significant volumes, our product sales would decline and
our business would suffer. For example, if growth in the number of devices sold
by our OEM partners is delayed or did not occur, our business would
suffer.
Our
agreements with OEMs, distributors, and resellers generally are nonexclusive and
may be terminated on short notice by either party without cause. Furthermore,
our OEMs, distributors and resellers are not within our control, are not
obligated to purchase products or services from us, and may represent other
lines including competing products. A reduction in sales effort or
discontinuance of sales of our products by our OEMs, distributors, and resellers
could lead to reduced sales and could materially adversely affect our operating
results.
Our
market changes rapidly due to evolution in technology and industry standards. If
we do not adapt to meet the sophisticated needs of our customers, our business
and prospects will suffer.
The
market for our products and services is characterized by rapidly changing
technology, evolving industry standards and frequent new product and service
introductions. For example, the traditional personal digital assistant market is
declining and may continue to do so. Our future success will depend to a
substantial degree on our ability to offer products and services that adapt to
these changing markets, incorporate leading technology, address the increasingly
sophisticated and varied needs of our current and prospective customers and
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis. Our rapidly evolving market makes it more
likely that:
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our
technology or products may become obsolete upon the introduction of
alternative technologies;
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we
may not have sufficient resources to develop or acquire new technologies
or to introduce new products or services capable of competing with future
technologies or service offerings of other companies;
and
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we
may not have sufficient resources to develop or acquire new technologies
or to introduce new products or services capable of competing with future
technologies or service offerings of other
companies.
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9
To the
extent we determine that new technologies are required to remain competitive,
the development, acquisition and implementation of these technologies is likely
to continue to require significant capital investment by us. Moreover, we cannot
be certain that we can develop, market and deliver new products and technology
on a timely basis. Sufficient capital may not be available for this purpose in
the future, and even if it is available, investments in new technologies may not
result in commercially viable technological processes and there may not be
commercial applications for such technologies. If we do not develop, acquire and
introduce new products and services and achieve market acceptance in a timely
manner, our business and prospects will suffer.
Our
business and prospects depend, to a significant degree, on demand for wireless
and other mobile computing devices.
The use
of wireless and other mobile computing devices for retrieving, sharing and
transferring information among businesses, consumers, suppliers and partners has
begun to develop only in recent years. Our success will depend in large part on
continued growth in the use of wireless and other mobile computing devices,
including handheld computers, smart phones, pagers and other mobile devices. In
addition, our markets face critical unresolved issues concerning the commercial
use of wireless and other mobile computing devices, including security,
reliability, cost, ease of access and use, quality of service, regulatory
initiatives and necessary increases in bandwidth availability. Demand for, and
market acceptance of, wireless and other mobile computing devices which require
our products and services are subject to a high level of uncertainty and are
dependent on a number of factors, including:
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growth
in sales of handheld devices, smart phones and other mobile computing
devices and growth in wireless network capabilities to match end-user
demand and requirements;
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emergence
of a viable and sustainable market for wireless and mobile computing
services;
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our
product and services differentiation and quality;
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the
development of technologies that facilitate interactive communication
between organizations;
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our
distribution and pricing strategies as compared with those of our
competitors;
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the
growth in access to, and market acceptance of, new interactive
technologies;
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the
effectiveness of our marketing strategy and efforts;
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our
industry reputation; and
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general
industry and economic conditions such as slowdowns in the computer or
software markets or the economy in
general.
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If the market for
wireless and other mobile computing devices as a commercial or business medium
develops more slowly than expected, our business, results of operations and
financial condition will be seriously harmed.
Even if
the wireless and mobile computing services market does develop, our products and
services may not achieve widespread market acceptance. If our target customers
do not adopt, purchase and successfully deploy our other current and planned
products and services, our revenue will not grow significantly and our business,
results of operations and financial condition will be seriously
harmed.
10
We
might experience significant errors or security flaws in our products and
services.
Despite
testing prior to their release, software products may contain errors or security
flaws, particularly when first introduced or when new versions are released.
Errors in our software products could affect the ability of our products to work
with other hardware or software products, could delay the development or release
of new products or new versions of products and could adversely affect market
acceptance of our products. If we experience errors or delays in releasing new
products or new versions of products, we could lose revenues. Our customers rely
on our products and services for critical parts of their businesses and they may
have a greater sensitivity to product errors and security vulnerabilities than
customers for software products generally. Software product errors and security
flaws in our products or services could expose us to product liability,
performance and/or warranty claims as well as harm our reputation, which could
impact our future sales of products and services. The detection and correction
of any security flaws can be time consuming and costly.
Insufficient
protection for our intellectual property rights may have a material adverse
affect on our results of operations or our ability to compete.
We
attempt to protect our intellectual property rights in the United States and in
selected foreign countries through a combination of reliance on intellectual
property laws (including copyright, patent, trademark and trade secret laws) and
registrations of selected patent, trademark and copyright rights in selected
jurisdictions, as well as licensing and other agreements preventing the
unauthorized disclosure and use of our intellectual property. We cannot assure
you that these protections will be adequate to prevent third parties from
copying or reverse engineering our products, from engaging in other unauthorized
use of our technology, or from independently developing and marketing products
or services that are substantially equivalent to or superior to our own.
Moreover, third parties may be able to successfully challenge, oppose,
invalidate or circumvent our patents, trademarks, copyrights and trade secret
rights. We may elect or be unable to obtain or maintain certain protections for
certain of our intellectual property in certain jurisdictions, and our
intellectual property rights may not receive the same degree of protection in
foreign countries as they would in the United States because of the differences
in foreign laws concerning intellectual property rights. Lack of protection of
certain intellectual property rights for any reason could have a material
adverse effect on our business, results of operations and financial condition.
Moreover, monitoring and protecting our intellectual property rights is
difficult and costly. From time to time, we may be required to initiate
litigation or other action to enforce our intellectual property rights or to
establish their validity. Such action could result in substantial cost and
diversion of resources and management attention and we cannot assure you that
any such action will be successful.
If
third parties claim that we are in violation of their intellectual property
rights, it could have a negative impact on our results of operations or ability
to compete.
Patent
litigation involving software and telecom companies has increased significantly
in recent years as the number of software and telecom patents has increased and
as the number of patent holding companies has increased. We face the risk of
claims that products or services that we provide have infringed the intellectual
property rights of third parties. We are not engaged in any
litigation of any kind whatsoever at this time.
Pricing
pressure in the mobile software and technology market could adversely affect our
operating results.
Competition
and industry consolidation in the mobile messaging market have resulted in
pricing pressure, which we expect to continue in the future. This pricing
pressure could cause large reductions in the selling price of our services. For
example, consolidation in the wireless services industry could give our
customers increased transaction volume leverage in pricing negotiations. Our
competitors or our customers’ in-house solutions may also provide services at a
lower cost, significantly increasing pricing pressures on us. While historically
pricing pressure has been largely offset by volume increases and the
introduction of new services, in the future we may not be able to offset the
effects of any price reductions.
11
If
we fail to maintain or expand our relationships with strategic partners and
indirect distribution channels our revenues could decline.
Our
development, marketing and distribution strategies depend in part on our ability
to form strategic relationships with other technology companies. If these
companies change their business focus, enter into strategic alliances with other
companies or are acquired by our competitors or others, support for our products
and services could be reduced or eliminated, which could have a material adverse
effect on our business and financial condition.
Industry
consolidation and other competitive pressures could affect prices or demand for
our products and services, and our business may be adversely
affected.
The IT
industry and the market for our products and services is becoming increasingly
competitive due to a variety of factors. There is also a growing trend toward
consolidation in the software industry. Continued consolidation within the
software industry could create opportunities for larger software companies, such
as IBM, Microsoft and Oracle, to increase their market share through the
acquisition of companies that dominate certain lucrative market niches or that
have loyal installed customer bases. Continued consolidation activity could pose
a significant competitive disadvantage to us.
The
significant purchasing and market power of larger companies may also subject us
to increased pricing pressures. Many of our competitors have greater financial,
technical, sales and marketing resources, and a larger installed customer base
than us. In addition, our competitors’ advertising and marketing efforts could
overshadow our own and/or adversely influence customer perception of our
products and services, and harm our business and prospects as a result. To
remain competitive, we must develop and promote new products and solutions,
enhance existing products and retain competitive pricing policies, all in a
timely manner. Our failure to compete successfully with new or existing
competitors in these and other areas could have a material adverse impact on our
ability to generate new revenues or sustain existing revenue
levels.
The
ability to rapidly develop and bring to market advanced products and services
that are successful is crucial to maintaining our competitive
position.
Widespread
use of the Internet and fast-growing market demand for mobile and wireless
solutions may significantly alter the manner in which business is conducted in
the future. In light of these developments, our ability to timely meet the
demand for new or enhanced products and services to support wireless and mobile
business operations at competitive prices could significantly impact our ability
to generate future revenues. If the market for unwired solutions does
not continue to develop as we anticipate, if our solutions and services do not
successfully compete in the relevant markets, or our new products are not widely
adopted and successful, our competitive position and our operating results could
be adversely affected. While acquisition of certain competitors
could enhance our position, we have no discussions in that regard at this
time.
System
failures, delays and other problems could harm our reputation and business,
cause us to lose customers and expose us to customer liability.
The
success of our products, specifically ReForm™, is highly dependent on its
ability to provide reliable services to customers. These operations could be
interrupted by any damage to or failure of our or our customers, or suppliers,
computer software, hardware or networks, and our connections and outsourced
service arrangements with third parties.
12
Anyware’s
systems and operations are also vulnerable to damage or interruption from power
loss, transmission cable cuts and other telecommunications failures, natural
disasters, interruption of service due to potential facility migrations,
computer viruses or software defects, physical or electronic break-ins,
sabotage, intentional acts of vandalism and similar events and errors by our
employees or third-party service providers.
Because
many of our services play a mission-critical role for our customers, any damage
to or failure of the infrastructure we rely on, including that of our customers
and vendors, could disrupt the operation of our network and the provision of our
services, result in the loss of current and potential customers and expose us to
potential customer liability.
Economic
conditions in the U.S. and worldwide could adversely affect our
revenues.
Our
revenues and operating results depend on the overall demand for our products and
services. If the U.S. and worldwide economies continue to weaken, either alone
or in tandem with other factors beyond our control (including war, political
unrest, shifts in market demand for our products, actions by competitors, etc.),
we may not be able to maintain or expand our recent revenue growth.
We will need
significant additional capital, which we may be unable to
obtain.
Our
capital requirements in connection with our ecommerce development activities and
transition to commercial operations have been and will continue to be
significant. We will require additional funds to develop direct Internet sales
of products and services. There can be no assurance that financing
will be available in amounts or on terms acceptable to us, if at
all. There is no assurance additional funds will be available from
any source; or, if available, such funds may not be on terms acceptable to the
Company. In either of the aforementioned situations, the Company may
not be able to fully implement its growth plans. Moreover, we will not receive
any proceeds from the sale of stock by our selling stockholders, and thus the
initial registration of our common stock will not affect our ability to meet
capital requirements.
We depend on key
employees in a competitive market for skilled personnel.
The
success of our business will continue to depend upon certain key technical and
senior management personnel many of whom would be extremely difficult to
replace. Competition for such personnel is intense, and we cannot be certain
that we will be able to retain our existing key managerial, technical, or sales
and marketing personnel. The loss of these officers and other or key employees
in the future might adversely affect our business and impede the achievement of
our business objectives. We believe our ability to achieve increased revenue and
to develop successful new products and product enhancements will depend in part
upon our ability to attract and retain highly skilled sales and marketing and
qualified product development personnel. In addition, competition for employees
in our industry and geographic location could be intense. We may not be able to
continue to attract and retain skilled and experienced personnel on acceptable
terms. Our ability to hire and retain such personnel will depend in part upon
our ability to raise capital or achieve increased revenue levels to fund the
costs associated with such personnel. Failure to attract and retain key
personnel may adversely affect our business.
We
may have to spend substantial funds on sales and marketing in the
future.
To
increase awareness for our new and existing products, technology and services,
we may have to spend significantly more on sales and marketing in the future. We
also plan to continue to leverage our relationships with industry leaders and to
expand and diversify our sales and marketing initiatives to increase our sales
to mobile carriers and enterprises. If our marketing strategy is unsuccessful,
we may not be able to recover these expenses or even generate any revenue. We
will be required to develop a marketing and sales campaign that will effectively
demonstrate the advantages of our products, technology and services. We may also
elect to enter into agreements or relationships with third parties regarding the
promotion or marketing of our products, technology and services. We cannot be
certain that we will be able to establish adequate sales and marketing
capabilities, that we will be able to enter into marketing agreements or
relationships with third parties on financially acceptable terms, or that any
third parties with whom we enter into such arrangements will be successful in
marketing and promoting the products, technology and services offered by
us.
13
Shareholders will have limited or no
input on any investment or management decisions.
The
Company will be managed by the Officers and by the Board. Very few matters will
be submitted to Shareholder vote. Therefore, as a minority shareholder, you will
have no or limited say in the management of the Company. Accordingly, no
prospective investor should purchase any Shares unless it is willing to entrust
all aspects of our business and operations to the current Officers and Board of
the Company.
Risks
Relating to our Common Stock and its Market Value
There
is a limited market for our common stock which may make it more difficult for
you to dispose of your stock.
Our
common stock has been quoted on the OTC Bulletin Board under the symbol “MCVE”
since August 15, 2008. There is a limited trading market for our common stock.
Furthermore, the trading in our common stock maybe highly volatile, as for
example, approximately all trading days from August 15, 2008 through December
31, 2008 saw trading in our stock of less than 1,000 shares per day. During that
same period, the smallest number of shares trade in one day was zero and the
largest number of shares traded in one day was 500. Accordingly, there can be no
assurance as to the liquidity of any markets that may develop for our common
stock, the ability of holders of our common stock to sell our common stock, or
the prices at which holders may be able to sell our common stock.
The
price of our Common Stock may be volatile.
The
trading price of our common stock may be highly volatile and could be subject to
fluctuations in response to a number of factors beyond our control. Some of
these factors are:
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our
results of operations and the performance of our
competitors;
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the
public’s reaction to our press releases, our other public announcements
and our filings with the Securities and Exchange
Commission;
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changes
in earnings estimates or recommendations by research analysts who follow,
or may follow, us or other companies in our industry;
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changes
in general economic conditions;
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actions
of our historical equity investors, including sales of common stock by our
directors and executive officers;
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actions
by institutional investors trading in our stock;
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disruption
of our operations;
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any
major change in our management team;
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other
developments affecting us, our industry or our competitors;
and
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U.S.
and international economic, legal and regulatory factors unrelated to our
performance.
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In recent
years the stock market has experienced significant price and volume
fluctuations. These fluctuations may be unrelated to the operating performance
of particular companies. These broad market fluctuations may cause declines in
the market price of our common stock. The price of our common stock could
fluctuate based upon factors that have little or nothing to do with our company
or our performance, and those fluctuations could materially reduce our common
stock price.
Our
common stock is subject to the “penny stock” rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
14
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
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that
a broker or dealer approve a person’s account for transactions in penny
stocks; and
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the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The
requirements of being a public company, including compliance with the reporting
requirements of the exchange act and the requirements of the Sarbanes Oxley act,
strains our resources, increases our costs and may distract management, and we
may be unable to comply with these requirements in a timely or cost-effective
manner.
As a
public company, we need to comply with laws, regulations and requirements,
including certain corporate governance provisions of the Sarbanes-Oxley Act of
2002 and related regulations of the SEC. Complying with these statutes,
regulations and requirements occupies a significant amount of the time of our
board of directors and management. We are or may be required to:
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institute
a comprehensive compliance function;
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establish
internal policies, such as those relating to disclosure controls and
procedures and insider trading;
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design,
establish, evaluate and maintain a system of internal controls over
financial reporting in compliance with the requirements of Section 404 of
the Sarbanes-Oxley Act and the related rules and regulations of the SEC
and the Public Company Accounting Oversight Board;
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prepare
and distribute periodic reports in compliance with our obligations under
the federal securities laws;
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involve
and retain outside counsel and accountants in the above activities;
and
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establish
an investor relations function.
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15
In
addition, rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002 will require annual assessment of our internal control over
financial reporting, and attestation of the assessment by our independent
registered public accountants. The requirement of an annual assessment of our
internal control over financial reporting and the attestation of the assessment
by our independent registered public accountants, as the rules now stand, will
first apply to our annual report for fiscal year ending December 31, 2009. In
the future, our ability to continue to comply with our financial reporting
requirements and other rules that apply to reporting companies could be
impaired, and we may be subject to sanctions or investigation by regulatory
authorities. In addition, failure to comply with Section 404 or a report of a
material weakness may cause investors to lose confidence in us and may have a
material adverse effect on our stock price.
We
do not expect to pay dividends in the future. Any return on investment may be
limited to the value of our stock.
We do not
anticipate paying cash dividends on our stock in the foreseeable future. The
payment of dividends on our stock will depend on our earnings, financial
condition and other business and economic factors affecting us at such time as
the board of directors may consider relevant. If we do not pay dividends, our
stock may be less valuable because a return on your investment will only occur
if our stock price appreciates.
We
may need additional capital that could dilute the ownership interest of
investors.
We
require substantial working capital to fund our business. If we raise additional
funds through the issuance of equity, equity-related or convertible debt
securities, these securities may have rights, preferences or privileges senior
to those of the rights of holders of our common stock and they may experience
additional dilution. We cannot predict whether additional financing will be
available to us on favorable terms when required, or at all. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant negative cash flow from operations in the future. The
issuance of additional common stock by our management may have the effect of
further diluting the proportionate equity interest and voting power of holders
of our common stock, including investors in this offering.
We
may be unsuccessful in coming to terms with institutional investors to raise
additional equity funds.
The
purpose of registering our stock for public sale was part of a plan to raise
capital from institutional investors in a PIPE transaction. Due to the unusual
economic climate in the United States in the third and fourth quarters of 2008
through the present time, we have not finalized terms with an institutional
investor. As of March 11, 2009, the company has deferred $375,000 in equity
issuance costs. These costs will be netted against equity raised or expensed if
the plan is not successful.
Item
1B. Unresolved Staff
Comments
None
Item
2. Properties
Item
3. Legal
Proceedings.
None.
Item
4. Submission of
Matters to a Vote of Security Holders.
None.
16
PART II
Item
5. Market For
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market
Information
Our
common stock has been quoted on the OTC Bulletin Board under the symbol MCVE
since August 15, 2008.
The
following sets forth the range of the closing bid prices for our common stock
for the quarters in the period starting September 30, 2008 through December 31,
2008. Such prices represent inter-dealer quotations, do not represent actual
transactions, and do not include retail mark-ups, markdowns or commissions. Such
prices were determined from information provided by a majority of the market
makers for the Company’s common stock.
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High
Close
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Low
Close
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2008
Calendar Year
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September
30, 2008
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2.75
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2.00
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December
31, 2008
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2.15
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2.01
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The
shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9 of
the Securities Exchange Act of 1934, as amended (the Exchange Act”), commonly
referred to as the “penny stock” rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15(g)-9(d)(1)
incorporates the definition of penny stock as that used in Rule 3a51-1 of the
Exchange Act.
The
Commission generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; issued by a registered
investment company; excluded from the definition on the basis of price (at least
$5.00 per share) or the registrant’s net tangible assets; or exempted from the
definition by the Commission. Trading in the shares is subject to additional
sales practice requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors, generally persons
with assets in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse.
For
transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser’s written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the company’s common stock and may affect the
ability of stockholders to sell their shares.
Holders
As of
December 31, 2008, the approximate number of stockholders of record of the
Common Stock of the Company was 85.
17
Dividends
We have
not declared any common stock dividends to date. We have no present intention of
paying any cash dividends on our common stock in the foreseeable future, as we
intend to use earnings, if any, to generate growth. The payment by us of
dividends, if any, in the future, rests within the discretion of our Board of
Directors and will depend, among other things, upon our earnings, our capital
requirements and our financial condition, as well as other relevant factors.
There are no material restrictions in our certificate of incorporation or bylaws
that restrict us from declaring dividends.
Item
6. Selected
Financial Data.
The
following tab summarizes our financial data for the periods presented. We
prepared this information using our financial statements for each of the periods
presented. The following selected financial data should be read in conjunction
with our financial statements and related notes and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”. The historical
results are not necessarily indicative of results to be expected for future
periods.
|
Statements
of Operations Data:
|
Years
Ended Dec 31,
|
|||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(In
Thousands)
|
||||||||||||
|
Revenue
|
$
|
2,698
|
$
|
2,323
|
$
|
1,398
|
||||||
|
Cost
of Sales
|
1,532
|
1,155
|
675
|
|||||||||
|
Gross
Profit
|
1,166
|
1,168
|
723
|
|||||||||
|
Operating
Expenses:
|
||||||||||||
|
Solution
Services
|
505
|
425
|
277
|
|||||||||
|
Selling,
General and administrative
|
1,567
|
1,398
|
1,352
|
|||||||||
|
Loss
from operations
|
(906)
|
(655)
|
(906)
|
|||||||||
|
Other
income (expense), net
|
(144)
|
(14)
|
(62)
|
|||||||||
|
Net
Loss
|
(1,050)
|
(669)
|
(968)
|
|||||||||
|
Basic
and diluted loss per share
|
(0.05)
|
(0.05)
|
(0.08)
|
|||||||||
|
Shares
used in calculation of loss per share: Basic and diluted
|
25,603,461
|
16,842,520
|
14,472,220
|
|||||||||
| Balance Sheet Data: | ||||||||||||
|
(In
Thousands)
|
||||||||||||
|
Cash
and Cash Equivalents
|
101
|
26
|
715
|
|||||||||
|
Working
(deficit) Capital
|
(143)
|
(207)
|
659
|
|||||||||
|
Total
Assets
|
1,555
|
1,366
|
1,239
|
|||||||||
|
Long-Term
Obligations
|
200
|
234
|
261
|
|||||||||
|
Total
shareholders’ (deficit) equity
|
793
|
60
|
716
|
|||||||||
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Introduction
The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with our historical
financial statements and the notes to those statements that appear elsewhere in
this report. Certain statements in the discussion contain
forward-looking statements based upon current expectations that involve risks
and uncertainties, such as plans, objectives, expectations and
intentions. Actual results and the timing of events could differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including those set forth under “Item
1A. Risk Factors.” and elsewhere in this report.
18
Business Overview
For this
information please see Part 1, Item 1 “Description of Business.”
Results
of Operations
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007 (all references
are to fiscal years).
Total Net Sales: Total Net
Sales increased $375,000 or 16% to $2.7 million in 2008 from $2.3 million for
2007. Sources of revenues were derived from our services business, hardware
sales and software licensing. Services revenues represented the majority of the
annual increase growing $.5 million in 2008 from $2.1 million to $2.6 million as
the Company expanded its contracts and related work with several of its major
clients and established several new business relationships. Hardware sales to
third parties and in support of our services activities decreased $98,000 in
2008 to $60,000 from $158,000 in 2007. Software licensing sales increased
$11,000 in 2008 to $39,000 from $28,000 in 2007. The Company’s ReFormXT™
product became commercially available in December 2008 and did not contribute
significantly to the Company’s sales.
Cost of Sales and Gross
Profit: Cost of Sales for 2008 of $1.5 million increased $.3
million in support of the higher level of revenues, or 32% from $1.2 million in
2007. The majority of this increase was represented by the staffing costs of
delivery of the services revenue. The resultant Gross Profit for 2008 of $1.2
million was unchanged from the Gross Profit for 2007 of $1.2
million.
Operating, Selling, General and
Administrative Expenses: Operating, selling, general and administrative
expenses increased by $.2 million, or 12% in 2008 to $2.0 million from $1.8
million in 2007. This increase reflects both increases in costs associated with
aforementioned staff additions and marketing and advertising expenses as well as
lower depreciation and amortization expenses.
Loss from Operations: Loss
from operations for 2008 of $.9 million was up $.2 million or 38% from the loss
from operations in 2007 of $.7 million as a result of the costs associated with
being a public company offset by reductions in operating, selling, general and
administrative expenses.
Other Income and Expense:
Total other expenses of $143,000 in 2008 was $129,000 greater than the total of
$14,000 in 2007. This increase is primarily due to interest on the
Investor Bridge Loans from March through December which accrued and was
converted along with the loan principal to common stock at the end of 2008.
Additionally, stock-based compensation expense, within other expenses, was
$79,000 for the year ended December 31, 2008 as compared to $25,000 for the year
ended December 31, 2007, an increase of $54,000. This is primarily due to the
distribution of stock to employees who benefited from the MacroSolve
Employee Stock Trust when the Company became publicly registered in August 2008.
The expenses related to these stock awards which were previously deferred to
future accounting periods were recognized upon distribution. All stock
compensation was calculated at fair market value and other required inputs at
the date of the grant in accordance with SFAS 123(R).
Net Loss: Net Loss of $1.0
million in 2008 was $.3 million or 57% greater than the net loss in 2007 of $.7
million as a result of the increased interest expense and stock based
compensation expense.
There
was no provision for income taxes for the fiscal years ended 2008 and 2007 due
to the net operating losses. Realization of the deferred tax asset is dependent
on generating sufficient future taxable income. A valuation allowance on the net
deferred tax asset has been provided due to the uncertainty of future taxable
income.
19
Liquidity
and Capital Resources
Our
primary sources of cash in calendar year 2008 were from financing and equity
transactions. Proceeds from private placement equity fund raising were offset by
cash used in operating and investing activities for our products and services.
Operating cash flow fluctuations were substantially driven by a general decline
in the business environment in the latter part of 2008. Cash flows continue to
be used in operating activities and did not contribute to the funding of product
development or implementation of growth plans. See below for additional
discussion and analysis of cash flow.
|
Years
Ended Dec 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
flows (used in) operating activities
|
$
|
(960,818
|
) |
$
|
(711,117
|
)
|
||
|
Cash
flows (used in) investing activities
|
(344,151
|
) |
(248,616
|
)
|
||||
|
Cash
flows provided by financing activities
|
1,380,698
|
270,384
|
||||||
|
Net
increase (decrease) in cash and cash equivalents
|
$
|
75,729
|
$
|
(689,349
|
) | |||
Operating
Activities:
Net cash
outflow from operating activities during the year ended December 31, 2008 was
$1.0 million which was an increase in use of cash of $0.3 million from $0.7
million net cash outflow during the year ended December 31, 2007. This increase
was primarily due to operating expenses related to implementing the Company’s
growth plan, administrative costs related to public company expenses, investor
relations costs and other professional fees, and a decrease in receivables
offset by a decrease in unearned income associated with a large project that was
prebilled per the contract at the end of December, 2007.
Net Cash
outflow from operating activities during the year ended December 31, 2007 was
$0.7 million which was an increase in use of cash of $0.1 million from $0.6
million net cash outflow during the year ended December 31, 2006. The increase
was primarily due to an increase in receivables offset by an increase in
unearned income associated with a large project that was prebilled per the
contract at the end of December, 2007 and a loss on abandonment of capitalized
development costs in 2006.
Investing
Activities:
Net cash
used in investing activities during the year ended December 31, 2008 was $0.3
million, which was an increase of $0.1 million from $0.2 million net cash used
in investing activities during the year ended December 31, 2007. The increase is
primarily due to increased investment in capitalized software development
costs.
Net cash
used in investing activities during the year ended December 31, 2007 was $0.2
million, which was comparable to the $0.2 million net cash used in investing
activities during the year ended December 31, 2006.
Financing
Activities;
Net cash
provided by financing activities increased by $1.1 million during the year ended
December 31, 2008 to $1.4 million as compared to $0.3 million during the year
ended December 31, 2007 due to proceeds from convertible loans from qualified
investors which were converted to common stock in 2008. The loans were converted
under a December 30, 2008 private placement offering which is offering 3,333,333
shares of common stock at a price of $1.50 per one share of common stock,
$0.01 par value, and one warrant to purchase an identical number of shares at a
purchase price of $2.25. The warrants have a three year life. The net proceeds
of the offering will be used to accelerate the Company’s growth plan and for
general corporate purposes of the Company.
Net cash
provided by financing activities decreased by $1.1 million during the year ended
December 31, 2007 to $0.3 million as compared to $1.4 million during the year
ended December 31, 2006. The Company did not undertake any equity fundraising in
2007 after raising $1.5 million in 2006 from the sale of common and
preferred stock which was converted to common stock in 2008.
20
Historically,
we have financed our cash needs by private placements of our securities. We have
registered the privately issued securities for resale. We intend to finance
future cash needs primarily through equity offerings but may fund those needs
through debt. There is no assurance that we will be able to obtain financing on
terms consistent with our past financings or satisfactory to use.
As of
December 31, 2008, our common stock is the only class of stock outstanding and
we have $0.4 million in long-term debt that consists of an advancing term loan
with a financial institution for financing equipment and a note from the State
of Oklahoma Technology Business Finance Program.
Contractual
Obligations
None.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of our financial statements requires us to make estimates
and assumptions that affect our reported results of operations and the amount of
reported assets and liabilities. Some accounting policies involve judgments and
uncertainties to such an extent that there is reasonable likelihood that
materially different amounts could have been reported under different
conditions, or if different assumptions had been used. Actual results may differ
from the estimates and assumptions used in the preparation of our financial
statements. Described below are the most significant policies we apply in
preparing our financial statements, some of which are subject to alternative
treatments under accounting principles generally accepted in the United States
of America. We also describe the most significant estimates and assumptions we
make in applying these policies. We discussed the development, selection and
disclosure of each of these with our audit committee. See Results of Operations
above and Item 8. Financial Statements and Supplementary Data for a
discussion of additional accounting policies and estimates made by
management.
Nature
of Operations:
The
accompanying financial statements include the accounts and
transactions of MacroSolve Inc. a division of the Company operates
“doing business as” Anyware Mobile Solutions™.
Cash Equivalents:
Cash
equivalents are represented by operating accounts or money market accounts
maintained with insured financial institutions.
21
Accounts Receivable and Credit
Policies:
Trade
accounts receivable consist of amounts due from the sale of solution services,
software and hardware. Accounts receivable are uncollateralized
customer obligations due under normal trade terms requiring payment within 30
days of receipt of the invoice. The Company provides an allowance for
doubtful accounts equal to the estimated uncollectible amounts based on
historical collection experience and a review of the current status of trade
accounts receivable. At the years ended December 31, 2008 and 2007,
the Company deems all amounts recorded as collectible and thus has not provided
an allowance for uncollectible amounts.
Property and
Equipment:
Property
and equipment are recorded at cost. Depreciation is computed using
straight-line methods applied to individual property items based on estimated
useful lives.
Revenue
Recognition:
Revenue
generated from the provision of services is recognized at the time the service
is provided. Sales of hardware are recognized upon delivery to the
customer. Revenue from the licensing of software is recognized
ratably over the license period.
Software Development
Costs:
The
Company accounts for software development costs in accordance with Statement of
Financial Accounting Standards No. 86, “Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed”. Costs incurred
prior to the establishment of technological feasibility are expensed as incurred
as research and development costs. Costs incurred after establishing
technological feasibility and before the product is released for sale to
customers are capitalized. These costs are amortized over three years
and are reviewed for impairment at each period end.
Use of Estimates:
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
these estimates.
Long-Lived
Assets:
The
Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-lived assets. This Statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future undiscounted net
cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. No impairment charges were incurred
during the periods ended December 31, 2008 and 2007.
Stock-Based
Compensation:
The
Company accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment, which
is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS
123(R) requires companies to measure the cost of employee services received in
exchange for an award of equity instruments, including stock options, based on
the grant-date fair value of the award and to recognize it as compensation
expense over the period the employee is required to provide service in exchange
for the award, usually the vesting period.
22
Income Taxes:
The
Company accounts for income taxes utilizing Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (SFAS No. 109). SFAS No. 109
requires the measurement of deferred tax assets for deductible temporary
differences and operating loss carryforwards, and of deferred tax liabilities
for taxable temporary differences. Measurement of current and deferred tax
liabilities and assets is based on provisions of enacted tax law. The effects of
future changes in tax laws or rates are not included in the measurement. The
Company recognizes the amount of taxes payable or refundable for the current
year and recognizes deferred tax liabilities and assets for the expected future
tax consequences of events and transactions that have been recognized in the
Company’s financial statements or tax returns. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The Company currently has substantial net operating loss
carryforwards and has recorded a 100% valuation allowance against net deferred
tax assets due to uncertainty of their ultimate realization.
Recently
Issued Accounting Pronouncements:
In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109,” (“FIN 48”). FIN 48
provides guidance on the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosures, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company adopted this new standard
effective January 1, 2007. The Company has evaluated the effect of this
pronouncement and determined that the adoption of this interpretation did not
have a material effect on the Company’s financial statements.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when quantifying Misstatements in Current Year Financial
Statements,” (“SAB 108”). SAB 108 requires companies to evaluate the materiality
of identified unadjusted errors on each financial statement and related
financial statement disclosure using both the rollover approach and the iron
curtain approach. The rollover approach quantifies misstatements based on the
amount of the error in the current year financial statements whereas the iron
curtain approach quantifies misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the current year,
irrespective of the misstatement’s year(s) origin. Financial statements would
require adjustment when either approach results in quantifying a misstatement
that is material. Correcting prior year financial statements for immediate
errors would not require previously filed reports to be amended. SAB 108 is
effective for the first fiscal year ending after November 15, 2006. The Company
adopted this new standard effective January 1, 2007. The Company has evaluated
the effect of this pronouncement and determined that the adoption of this
interpretation did not have a material effect on the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations, which
replaces SFAS No. 141. SFAS No. 141R retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting. It
also changes the recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for us beginning July 1, 2009 and
will apply prospectively to business combinations completed on or after that
date. We do not expect the adoption of SFAS No. 141R to have a material effect
on our financial statements.
23
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. The Company
adopted this new standard effective January 1, 2008. The Company has evaluated
the effect of this pronouncement and determined that the adoption of this
interpretation did not have a material effect on the Company’s financial
statements.
Item
7A. Quantitative and
Qualitative Disclosures About Market Risk.
Not
applicable.
Item
8. Financial
Statements and Supplementary Data.
Our
financial statements, together with the independent registered public accounting
firm's report of HoganTaylor LLP, begin on page F-1, immediately after the
signature page.
Item
9. Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure.
Hogan
& Slovacek, P.C., the firm that has served as the independent registered
public accounting firm for MacroSolve Inc., announced that it was combining with
the firm of Tullius Taylor Sartain & Sartain LLP, on January 7,
2009. As a result, Hogan & Slovacek resigned as the Company’s
accounting firm effective January 7, 2009 and our audit committee approved, on
January 14, 2009, the engagement of the successor firm, which is named
HoganTaylor LLP (“HoganTaylor”). The respective employees, partners
and shareholders of the merged firms have become employees and partners of
HoganTaylor which will continue the practices of each of the merged
firms. Hogan & Slovacek will remain in existence solely for the
purpose of winding up its affairs but will not engage in any public accounting
practice.
While
HoganTaylor is technically a new firm, because it is a successor firm to our
prior accountants, we do not consider this a substantive change of accounting
firms. Also, as this is a newly created firm, there have been no
pre-engagement consultations or contacts with HoganTaylor.
Item
9A. Controls and
Procedures.
Not
Applicable.
Item 9A(T). Controls and
Procedures.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of 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 Securities
Exchange Act of 1934, as amended (“Exchange Act”), as of December 31, 2008.
Disclosure controls and procedures are those controls and procedures designed to
provide reasonable assurance that the information required to be disclosed in
our Exchange Act filings is (1) recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission’s rules
and forms, and (2) accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31, 2008, our disclosure controls and procedures
were effective.
24
Management’s
Annual Report on Internal Control Over Financial Reporting
Management,
including our Chief Executive Officer and Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f).
However, the company has not been required to file either an annual
report pursuant to section 13(a) or 15 (d) of the Exchange Act for the prior
fiscal year or an annual report with the Commission for the prior fiscal
year.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements should they occur. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the
degree of compliance with the control procedure may deteriorate.
This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report.
Changes
in Internal Control Over Financial Reporting
This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting or an attestation report of the
company’s registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.
Item 9B. Other
Information.
None.
Item 10. Directors, Executive Officers,
and Corporate Governance
The
following table sets forth the names and ages of the members of our Board of
Directors and our executive officers and the positions held by each, as of March
31, 2009. The board of directors elects our executive officers annually. A
majority vote of the directors who are in office is required to fill vacancies.
Each director is elected for the term of one year, and until his or her
successor is elected and qualified, or until his or her earlier resignation or
removal. All members of the Board of Directors listed below were
elected at the Annual Meeting of the Shareholders on May 22, 2008.
|
Name
|
Age
|
Position
|
||
|
James
C. McGill
|
65
|
Chairman
of the Board of Directors
|
||
|
Clint
Parr
|
44
|
Chief
Executive Officer, President, and Director
|
||
|
David
L. Humphrey
|
53
|
Director
|
||
|
John
Clerico
|
67
|
Director
and Chairman of the Audit Committee
|
||
|
Dr.
Dale A. Schoenefeld
|
63
|
Director
|
||
|
Howard
Janzen
|
55
|
Director
and Chairman of the Compensation Committee
|
||
|
Kendall
Carpenter
|
53
|
Vice
President Finance and Administration, Chief Financial Officer, Secretary
and Treasurer
|
||
|
Eric
Fultz
|
40
|
Vice
President, Operations
|
||
|
Michael
Ishmael
|
47
|
Vice
President of Sales
|
||
|
Chris
Kingham
|
42
|
Vice
President of Marketing
|
25
Executive Biographies:
James
C. McGill, Chairman of the Board of Directors
Jim
McGill is an investor with background in a wide variety of organizations, public
and private, for profit, and not for profit. Prior to joining the
Company, Mr. McGill ran McGill Resources, Inc., a business consulting and
investment firm with offices in Tulsa, Oklahoma and Sydney,
Australia. From 1970 to 1986, Mr. McGill was Chairman and Chief
Executive Officer of McGill Environmental Systems, Inc., a company that he
founded. McGill Environmental Systems, Inc. was sold in 1986 to The
IT Group and Mr. McGill served on the board of directors of The IT Group until
2003. Mr. McGill currently serves on the Board of ADDvantage
Technologies Group, Inc., several private boards, and the Board of Trustees of
the University of Tulsa. Mr. McGill has been a member of the Board of
Directors of MacroSolve, Inc. since 1999.
Clint
Parr, President, Chief Executive Officer and Director
Clint
Parr joined MacroSolve in 2002 as Vice President of Sales and
Marketing. The Board of Directors promoted him to President and Chief
Operating Officer in 2003 and to Chief Executive Officer in 2007. He
graduated from Baylor University in 1986 with a bachelor's degree in
Entrepreneurship, and obtained an executive MBA in 2000 from The University of
Tulsa. He brings a wealth of marketing experience from numerous companies,
including the Williams Companies. Parr is a graduate of Leadership Oklahoma, is
Chairman of the Tulsa County Election Board and Founder of Tulsa Business
2.0.
David
L. Humphrey, Director
David
Humphrey currently serves as the Chief Operating Officer of Oklahoma Equity
Partners, a venture capital fund. Oklahoma Equity Partners focuses
exclusively on Oklahoma venture opportunities and utilizes a network of venture
capital firms as lead investors. Mr. Humphrey is responsible for all
investment operations of Oklahoma Equity Partners. Prior to joining
Oklahoma Equity Partners, Mr. Humphrey served from 1997 to 2004 as a principal
of Davis, Tuttle Venture Partners. From 1995 to 1997, Mr. Humphrey was a
senior business development coordinator at Texaco Natural Gas Liquids.
During his two-year stay with Texaco, he led ten major acquisition and expansion
projects. Prior to joining Texaco in 1996, Mr. Humphrey spent thirteen
years with Koch Industries, Inc. serving in a variety of business development
initiatives. Mr. Humphrey earned his Bachelor of Science in Chemical
Engineering from the University of Wisconsin and his Master of Business
Administration from Texas A&M University. Mr. Humphrey joined the
board of directors of MacroSolve, Inc. in 2004.
John
Clerico, Director and Chairman of the Audit Committee
John
Clerico is chairman and a registered financial adviser at ChartMark Investments,
Inc., an independent investment advisory firm that manages equity funds for
individuals and small pension funds. Mr. Clerico co-founded ChartMark in 2000,
where his current focus is on day-to-day portfolio management and strategic
direction of the firm. Prior to founding ChartMark, Mr. Clerico served in
numerous senior management capacities including Executive Vice President, Chief
Financial Officer and Director of Praxair, Inc., a Fortune 200 company. In
addition to his financial responsibilities, Mr. Clerico managed Praxair’s
business operations in Europe and South America. Prior experience includes CFO
of Union Carbide Corporation, Conoco, Inc. and Phillips Petroleum Co. Mr.
Clerico was named as one of four "Leading Corporate Treasurers" by Corporate
Finance Magazine in 1995 and "CFO of the Year" by CFO Magazine in 1997 and
Business Week in 1998. Mr. Clerico joined the board of directors of MacroSolve,
Inc., in 2006.
Dr.
Dale A. Schoenefeld, Director
Dr.
Schoenefeld currently serves as Vice President for Information Services and CIO
at the University of Tulsa including academic computing, administrative
computing, networking services, computer system administration, and university
libraries. Dr. Schoenefeld represents the University of Tulsa at
OneNet, Oklahoma’s telecommunications and information network for education and
government, and is a member of an Oklahoma statewide committee chaired by the
Secretary of Science and Technology. Prior to becoming Vice President
for Information Services, Dr. Schoenefeld served as Professor of Computer
Science and Mathematics and Director of the Computer Resource Center at the
University of Tulsa. He received his B.A.E. at Wayne State College
and his M.S. and Ph.D. at the University of Iowa. His research
expertise is in the area of combinatorial optimization and involves optimization
techniques to the design and operation of telecommunication networks, often
using evolutionary techniques. Dr. Schoenefeld joined the Board of
Directors of MacroSolve, Inc. in 2004.
26
Howard
Janzen, Director and Chairman of the Compensation Committee
Howard
Janzen is currently president and CEO of One Communications, a leading
integrated communications provider. Until September 2005, he was
president of Sprint Business Solutions. In this role, he led the
business unit responsible for the $12 billion revenue Sprint worldwide business
customer base, ranging from small business to Sprint’s largest domestic and
international accounts. His responsibilities included integration of
Sprint’s wireless, wireline and local voice and data services. He
previously was president of the Sprint Global Markets Group, responsible for the
long distance business for both consumer and business customers.
Before
joining Sprint in May 2003, Mr. Janzen served as chairman, president and chief
executive officer for Williams Communications, where he led the company in
completing its $7 billion next-generation fiber network.
Mr.
Janzen joined Williams in 1979 and served in a number of leadership roles in
Williams’ energy and natural gas pipeline businesses. In January
1995, he was named president of the communications business unit of
The Williams Companies, Inc. In April 1997, he became president
and chief executive officer of Williams Communications Group, which became an
independent company in 2001.
Kendall
W. Carpenter, CPA/CMA, Vice President, Finance and Administration, Chief
Financial Officer, Secretary and Treasurer
Kendall
Carpenter joined the corporation in 2006 as Controller. She was promoted to Vice
President and Chief Financial Officer in 2008. Ms. Carpenter’s previous
experience includes Division Controller with Allied Waste Industries (AW) and
over 10 years experience as top financial officer of an enterprise software
company with an international customer base. Ms. Carpenter graduated with a
Bachelor of Science degree in Accounting from Oklahoma State University and is
both a Certified Public Accountant and a Certified Management
Accountant.
Eric
Fultz, Vice President, Operations
Eric
Fultz joined the Corporation in 2003 as Director of Solution Services whereupon
he defined and implemented the current Anyware Solution Delivery Methodology.
This methodology focuses on increasing customer satisfaction through a
disciplined approach to project management and understanding underlying business
problems prior to recommending a technology solution. He was promoted to Vice
President of Operations in March of 2004. Prior to joining Anyware, Fultz served
as an IT Strategy Consultant and Project Manager with IBM Global Services, was
the founder and President of a nutritional supplement manufacturing company, and
served in the Strategic Marketing and eBusiness group at Williams Companies. Mr.
Fultz graduated from the University of Oklahoma with a Bachelor of Science in
Civil Engineering and later gained his MBA from Southern Methodist University
with an emphasis in MIS and business strategy.
Michael
Ishmael, Vice President, Business Development
Michael
Ishmael joined the Corporation in 2004 as Director of Sales and
Marketing. He was promoted to Vice President in 2005. He
is a graduate of Oklahoma State University with a degree in Computer
Science. Prior to joining the Corporation, Mr. Ishmael served as
Director of Strategic Sales for Esker Software and in various positions with IBM
Corporation for seventeen years.
Chris
Kingham, Vice President of Marketing
Chris
Kingham joined the Corporation as Director of Marketing in 2004, bringing 15
years of experience in planning, implementing and marketing high-tech and online
properties. Prior to his arrival at Anyware, Mr. Kingham spent over five years
at the Williams Companies in both marketing and IT roles for some of the their
most critical systems and projects. Prior to Williams, Mr. Kingham spent five
years at PennWell Publishing developing the plan and process to take their
historically printed publications to the new online medium. Mr. Kingham
graduated with a Bachelor of Science in Marketing from Oklahoma State
University.
27
Item
11. Executive
Compensation.
The
following table sets forth the compensation (including cash bonuses) paid or
accrued by us to our Chief Executive Officer and our five most highly
compensated officers other than the Chief Executive Officer from January 1, 2006
to December 31, 2008.
|
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Option
Awards
(8)
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
|
All
other
Compensation
(9)
|
Total
|
||||||||||||
|
Clint
Parr,
Chief
Executive Officer,
President
and Director (1)
|
2008
2007
2006
|
$
$
$
|
111,115
105,075
97,500
|
0
|
69,046
107,800
94,180
|
0
|
0
|
$
$
$
|
23,161
8,946
8,946
|
$
|
354,743
|
|||||||||
|
James
C. McGill,
Chairman
of the Board of Directors (2)
|
2008
2007
2006
|
$
$
$
|
29,000
24,000
12,000
|
0
|
129,804
216,640
236,640
|
0
|
0
|
$
$
$
|
21,071
9,643
9,643
|
$
|
105,357
|
|||||||||
|
Kendall
Carpenter,
Vice
President Finance and Administration, Chief Financial Officer, Secretary
and
Treasurer
(3)
|
2008
2007
2006
|
$
$
$
|
81,535
81,375
61,354
|
0
|
23,946
14,400
26,600
|
0
|
0
|
$
$
$
|
2,597
605
0
|
$
|
227,466
|
|||||||||
|
Eric
Fultz,
Vice
President (4)
|
2008
2007
2006
|
$
$
$
|
107,343
105,075
97,500
|
0
|
26,744
28,220
40,820
|
0
|
0
|
$
$
$
|
4,632
1,789
1,789
|
$
|
318,128
|
|||||||||
|
Michael
Ishmael,
Vice
President (5)
|
2008
2007
2006
|
$
$
$
|
101,457
98,775
91,500
|
0
|
33,670
38,700
50,820
|
0
|
0
|
$
$
$
|
3,300
680
680
|
$
|
296,392
|
|||||||||
|
Chris
Kingham,
Vice
President (6)
|
2008
2007
2006
|
$
$
$
|
91,692
77,355
70,950
|
0
|
46,160
37,740
31,780
|
0
|
0
|
$
$
$
|
3,853
539
136
|
$
|
244,525
|
|||||||||
|
James
W. Dutton,
Senior
Vice President and
Chief
Financial Officer (7)
|
2008
2007
2006
|
$
$
$
|
51,163
90,300
84,500
|
0
|
48,814
3,640
5,153
|
0
|
0
|
$
$
$
|
7,292
2,368
1,360
|
$
|
236,983
|
|||||||||
The
number of Option Awards referenced in this Executive Compensation table reflect
the 19 share common stock dividend effective April 14, 2008.
28
|
(2)
|
Jim
McGill received an option to acquire 145,340 shares of common stock at a
price of $0.34 per share for 2002 services, options to acquire 235,280
shares of common stock at a price of $0.42 per share for 2003 services,
options to acquire 337,360 shares of common stock at a price of $0.42 per
share for 2004 services, options to acquire 324,720 shares of common stock
at a price of $0.42 per share for 2005 services, options to acquire
236,640 shares of common stock at a price of $0.60 per share for 2006
services and options to acquire 216,640 shares of common stock at a price
of $0.60 per share for 2007 services. For services in 2008, Mr. McGill
received options to acquire 103,327 shares of common stock, 11,800 shares
of common stock and 14,677 shares of common stock at a price of $0.60,
$2.50 and $2.01 respectively.
|
|
(3)
|
Kendall
Carpenter received an option to acquire 10,000 shares of common stock at a
price of $0.60 per share upon her employment in March 2006. In 2006, Ms.
Carpenter was granted options to acquire 16,600 shares of common stock at
$0.60 per share for services. In 2007, Ms. Carpenter was granted options
to acquire 14,400 shares of common stock at a price of $0.60 per share for
services. For services in 2008, Ms. Carpenter received options to acquire
15,070 shares of common stock, 3,956 shares of common stock and 4,920
shares of common stock at a price of $0.60, $2.50 and $2.01
respectively.
|
|
(4)
|
Eric
Fultz received an option to acquire 30,000 shares of common stock at a
price of $0.42 per share upon his employment in June 2003. Mr.
Fultz received an option to acquire 30,000 shares of common stock at a
price of $0.42 per share for outstanding performance in March 2004, and
received options to acquire 69,260 shares of common stock at a price of
$0.42 per share for 2004 services. In 2005, Mr. Fultz received
options to acquire 62,380 shares of common stock at a price of $0.42 per
share for services. In 2006, Mr. Fultz received options to acquire 40,800
shares of common stock at a price of $0.60 per share for
services. In 2007, Mr. Fultz received options to acquire
28,220 shares of common stock at a price of $0.60 per share for services.
For services in 2008, Mr. Fultz received options to acquire 21,310 shares
of common stock, 2,422 shares of common stock and 3,012 shares of common
stock at a price of $0.60, $2.50 and $2.01
respectively.
|
|
(5)
|
Mike
Ishmael was granted an option to acquire 20,000 shares of common stock at
a price of $0.42 per share upon his employment in September
2004. In 2004, Mr. Ishmael was granted options to acquire 8,820
shares of common stock at a price of $0.42 per share for
services. In 2005, Mr. Ishmael received options to acquire
60,600 shares of common stock at a price of $0.42 per share for services.
In 2006, Mr. Ishmael received options to acquire 50,820 shares of common
stock at a price of $0.60 per share for services. In 2007, Mr.
Ishmael received options to acquire 38,700 shares of common stock at a
price of $0.60 per share for services. For services in 2008, Mr. Ishmael
received options to acquire 26,750 shares of common stock, 3,084 shares of
common stock and 3,836 shares of common stock at a price of $0.60, $2.50
and $2.01 respectively.
|
|
(6)
|
Chris
Kingham received an option to acquire 20,000 shares of common stock at a
price of $0.42 per share upon his employment in July 2004. Mr.
Kingham received options to acquire 8,240 shares of common stock at a
price of $0.42 per share for 2004 services. Mr. Kingham received options
to acquire 32,955 shares of common stock at a price of $0.42 per share for
2005 services. Mr. Kingham received options to acquire 31,780 shares of
common stock at a price of $0.60 per share for 2006
services. Mr. Kingham received options to acquire 37,725 shares
of common stock at a price of $0.60 per share for 2007 services. For
services in 2008, Mr. Kingham received options to acquire 36,570 shares of
common stock, 4,274 shares of common stock and 5,316 shares of common
stock at a price of $0.60, $2.50 and $2.01
respectively.
|
29
|
(7)
|
Jim
Dutton received an option to acquire 100,352 shares of common stock at a
price of $0.42 per share for services in 2005. For services in 2006, Mr.
Dutton received options to acquire 103,060 shares of common stock at a
price of $0.60 per share. For services in 2007, Mr. Dutton
received options to acquire 72,800 shares of common stock at a price of
$0.60 per share. For services in 2008, Mr. Dutton received options to
acquire 48,814 shares of common stock at a price of $0.60. Upon his
retirement in May, 2008, Mr. Dutton’s options were allowed to remain valid
until their natural expiration date upon approval of the Board of
Directors.
|
|
(8)
|
Company
management have determined that the options granted have no cash
value and as such are calculated as zero dollars ($0.00) toward each
executive’s compensation.
|
|
(9)
|
The
MacroSolve Employee Stock Trust has allocated shares to Grantees which
have been recorded on the Company financial statements as stock based
compensation. The shares included in the MacroSolve Employee Stock Trust
were not registered with the initial registration statement. The granted
shares were distributed to the grantees on August 15, 2008. At that time,
the Company recognized the remaining value of the deferred stock based
compensation.
|
DIRECTOR
COMPENSATION
|
Name
and Principal Position
|
Year
|
Salary
|
Stock
Awards
($)
(1)
|
Option
Awards
(2)
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)
|
All
other
Compensation
|
Total
|
|||||||||||
|
Clint
Parr,
Chief
Executive Officer,
President
and Director
|
2008
2007
2006
|
$
|
0
|
0
|
0
|
0
|
0
|
|
$0
|
||||||||||
|
James
C. McGill,
Chairman
of the Board of Directors
|
2008
2007
2006
|
$
|
0
|
0
|
0
|
0
|
0
|
$0
|
|||||||||||
|
Howard
Janzen, Director
|
2008
2007
2006
|
$
$
$
|
6,000
0
0
|
40,000
40,000
40,000
|
0
|
0
|
$0
0
0
|
$6,000
|
|||||||||||
|
David
L. Humphrey, Director
|
2008
2007
2006
|
$
$
$
|
6,000
0
0
|
40,000
40,000
40,000
|
0
|
0
|
$0
0
0
|
$6,000
|
|||||||||||
|
John
Clerico, Director
|
2008
2007
|
$
$
|
6,000
0
|
40,000
80,000
|
0
|
0
|
$0
0
|
$6,000
|
|||||||||||
|
Dr.
Dale A. Schoenefeld, Director
|
2008
2007
2006
|
$
$
$
|
6,000
0
0
|
40,000
40,000
40,000
|
0
|
0
|
$0
0
0
|
$6,000
|
|||||||||||
| (1) |
By
resolution of the Board of Directors at its May 22, 2008, meeting, all
options granted to its Directors were vested in full on the day that the
stock was first publically traded, which was August 15, 2008, and that
future compensation to the directors would be paid quarterly in restricted
stock, the quantity for each to be determined by the dividing $3,000 by
the arithmetic average trading price of the last five trading days of the
quarter. Each director received 1,200 shares of restricted common stock
for third quarter 2008 services and 1,492 shares of restricted common
stock for fourth quarter 2008 service.
|
|
(2)
|
Under
a plan adopted in 2003, the independent members of the Board of Directors
of the Company receive options to acquire 2,000 shares of common stock for
each year of service, with a maximum of 10,000 shares. The
price is set at the price of the most recent sale as of the date of the
grant. Options to acquire 2,000 shares of common stock are
issued at the time that a director joins the Board of Directors, and the
2,000 options are granted each year thereafter. All options
vest 20% per year and have an exercise period of five (5) years from the
date of issuance. The members of the Board of Directors do not
currently receive cash compensation for their
services. Effective with the 19 share
common stock dividend effected on April 14, 2008, the options to
acquire 2,000 shares annually increased to 40,000 shares annually with a
maximum of 200,000 share options. Additionally, Company
management have determined that the options granted have no cash
value and as such are calculated as zero dollars ($0.00) toward each
director’s compensation.
|
30
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
following table sets forth the number of and percent of the Company's common
stock beneficially owned by:
|
·
|
all
directors and nominees, naming them,
|
|
·
|
our
executive officers,
|
|
·
|
our
directors and executive officers as a group, without naming them,
and
|
|
·
|
persons
or groups known by us to own beneficially 5% or more of our Common Stock
or our Preferred Stock having voting
rights:
|
The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our capital stock outstanding
on March 11, 2009 and all shares of our common stock issuable to that person in
the event of the exercise of outstanding options and other derivative securities
owned by that person which are exercisable within 60 days of March 11, 2009.
Except as otherwise indicated, the persons listed below have sole voting and
investment power with respect to all shares of our capital stock owned by
them.
|
Name
and address of owner
|
Title
of Class
|
Capacity
with Company
|
Number
of Shares
Beneficially
Owned
(1)
|
Percentage
of
Class
(2)
|
|||||||
|
Clint
H. Parr (3)
|
Common
Stock
|
Chief
Executive Officer, President and Director
|
1,688,166
|
6.43%
|
|||||||
|
James
C. McGill (4)
|
Common
Stock
|
Chairman
and Director
|
5,413,802
|
20.64%
|
|||||||
|
Howard
E. Janzen (5)
|
Common
Stock
|
Director
|
240,994
|
*
|
|||||||
|
Kendall
Carpenter (6)
|
Common
Stock
|
Chief
Financial Officer
|
153,886
|
*
|
|||||||
|
David
L. Humphrey (7)
|
Common
Stock
|
Director
|
202,692
|
*
|
|||||||
|
John
C. Clerico (8)
|
Common
Stock
|
Director
|
2,755,438
|
10.5%
|
|||||||
|
Dr.
Dale A. Schoenefeld (9)
|
Common
Stock
|
Director
|
237,654
|
*
|
|||||||
|
J.
David Payne (10)
|
Common
Stock
|
Shareholder
|
1,936,460
|
7.38%
|
|||||||
|
Philip
B. Smith Revocable Trust (11)
|
Common
Stock
|
Shareholder
|
1,950,000
|
7.43%
|
|||||||
|
Paula
Marshall(12)
|
Common
Stock
|
Shareholder
|
3,181,720
|
12.13%
|
|||||||
|
Eric
Fultz (13)
|
Common
Stock
|
Vice
President
|
487,404
|
1.86%
|
|||||||
|
Michael
Ishmael (14)
|
Common
Stock
|
Vice
President
|
608,610
|
*
|
|||||||
|
Chris
Kingham (15)
|
Common
Stock
|
Vice
President
|
272,860
|
1.06%
|
|||||||
|
Officers
and Directors as a Group
|
Common
Stock
|
11,761,506
|
34.06%
|
||||||||
* Less
than 1% ownership
31
|
(1)
|
This
column represents the total number of votes each named stockholder is
entitled to vote upon matters presented to the shareholders for a
vote.
|
|
(2)
|
Applicable
percentage ownership is based on shares of Common Stock outstanding as of
March 11, 2009, together with securities exercisable or convertible into
shares of Common Stock within 60 days of March 11, 2009 for each
stockholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of Common
Stock that are currently exercisable or exercisable within 60 days
of March 11, 2009 are deemed to be beneficially owned by the person
holding such securities for the purpose of computing the percentage of
ownership of such person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other
person.
|
|
(3)
|
Represents
options exercisable within 60 days.
|
|
(4)
|
Represents
(i) 2,809,569 shares of common stock owned; (ii)b 978,449 shares of common
stock that may be acquired within 60 days through the exercise of
outstanding warrants; and (iii) 1,625,784 shares that may be acquired
within 60 days through the exercise of outstanding
options.
|
|
(5)
|
Represents
(i) 111,592 shares of common stock owned; (ii) 9,402 shares of common
stock that may be acquired within 60 days through the exercise of
outstanding warrants; and (iii) 120,000 shares of common stock that may be
acquired within 60 days through the exercise of outstanding
options.
|
|
(6)
|
Represents
(i) 83,520 shares of common stock owned; (ii) 9,420 shares of common stock
that may be acquired through the exercise of outstanding warrants; and
(ii) 60,946 shares of common stock that may be acquired within 60 days
through the exercise of outstanding options.
|
|
(7)
|
Represents
options exercisable within 60 days.
|
|
(8)
|
Represents
(i) 2,152,395 shares of common stock owned; (ii) 483,043 shares of common
stock, that may be acquired through the exercise of outstanding warrants;
and (iii) 120,000 shares of common stock that may be acquired within 60
days through the exercise of outstanding options.
|
|
(9)
|
Represents
(i) 28,252 shares of common stock owned; (ii) 9,402 shares of common
stock that may be acquired within 60 days through the exercise
of outstanding warrants; and (iii) 200,000 shares of common stock that may
be acquired within 60 days through the exercise of outstanding
options.
|
|
(10)
|
Represents
shares of common stock owned.
|
|
(11)
|
Represents
shares of common stock owned.
|
|
(12)
|
Represents
(i) 83,340 shares of common stock that may be acquired within 60 days
through the exercise of outstanding warrants; (ii)160,000 shares of common
stock that may be acquired within 60 days through the exercise of
outstanding options; (ii) 1,952,760 shares of common stock owned by Bama
Companies which is controlled by Ms. Marshall; (iii) 750,320 shares of
common stock that may be acquired by Bama Companies within 60 days through
exercise of outstanding warrants; and (iv) 235,300 shares of common stock
that may be acquired by Bama Venture Capital within 60 days through
exercise of outstanding warrants.
|
|
(13)
|
Represents
(i) 200,000 shares of common stock owned and (ii) 287,404 shares of common
stock that may be acquired within 60 days through the exercise of
outstanding options.
|
|
(14)
|
Represents
(i) 100,000 shares of common stock owned and (ii) 208,610 shares of common
stock that may be acquired within 60 days through the exercise of
outstanding options.
|
|
(15)
|
Represents
(i) 100,000 shares of common stock owned and (ii) 172,860 shares of common
stock that may be acquired within 60 days through the exercise of
outstanding options.
|
32
James
McGill, the Company’s Chairman of the Board of Directors and John Clerico, a
director of the Company, had previously agreed to loan the Company capital funds
of up to $250,000 each. Under the terms of those loan agreements both
McGill and Clerico were eligible to participate in the Private Placement
described in detail in the section entitled Subsequent Events. As of
December 30, 2008, both Mr. McGill and Mr. Clerico had each advanced $200,000 to
the Company, making total principal outstanding on the loans $400,000 and total
accrued interest of $2,507.54. Both Mr. McGill and Mr. Clerico elected to
exchange their promissory notes for Units in this Offering for a total of
268,338 Units.
Director
Independence
The Board
of Directors has determined that Messrs. Clerico, Humphrey, Janzen and
Schoenefeld are each independent directors as of December 31,
2008.
Hogan
& Slovacek P.C. had served as MacroSolve’s independent auditors for the
years ended December 31, 2008 and 2007, however as explained above in the
Section entitled: Item 9, Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure, they have merged with another firm and the
successor firm, HoganTaylor LLP, now serves as the independent
auditors for MacroSolve.
For
the year ended December 31, 2008, the fees for audit services totaled
approximately $55,250 which included approximately $48,500 associated with the
annual audit and reviews of the Company’s quarterly reports on Form 10-Q and
approximately $6,750 associated with the Company’s statutory and regulatory
filings. For the year ended December 31, 2007, the fees for audit
services totaled approximately $30,620 which included the annual audited
financial statements.
PART
IV
|
The
following documents are filed as a part of this report or incorporated
herein by reference:
|
|
(1)
|
Our
Financial Statements are listed on page F-1 of this Annual
Report.
|
|
|
|
(2)
|
Financial
Statement Schedules: None.
|
|
(3)
|
Exhibits:
|
|
Exhibit
Number
|
Description
|
|
|
3.1
|
Articles
of Incorporation of MacroSolve Inc.(1)
|
|
|
3.2
|
By-laws
of MacroSolve Inc.(1)
|
|
|
5.1
|
Legality
Opinion of Sichenzia Ross Friedman Ference LLP*
|
|
|
10.1
|
Form
of Subscription and Investor Representation Agreement
(1)
|
|
|
10.2
|
Form
of Warrant to Purchase Common Stock (1)
|
|
|
10.3
|
Form
of Convertible Note Subscription Agreement (1)
|
|
|
10.4
|
Form
of Convertible Note (1)
|
|
|
10.5
|
Form
of Director Non-Statutory Stock Option Agreement (1)
|
|
|
10.6
|
Form
of Non-Statutory Stock Option Agreement (1)
|
|
|
10.7
|
Form
of Warrant to Purchase Common Stock issued in connection with Series A
Preferred Stock (1)
|
|
|
10.8
|
Form
of Warrant to Purchase Common Stock issued in connection with Series B
Preferred Stock (1)
|
|
|
99.1
|
Auditor
resignation letter dated January 7, 2009 from Hogan & Slovacek
(2)
|
*Filed
Herewith
|
(1)
|
Incorporated
by Reference to the Company’s Form S-1 filed with the SEC on April 18,
2008.
|
|
(2)
|
Incorporated
by Reference to the Company’s Form 8-K filed with the SEC on January 20,
2009.
|
33
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
MACROSOLVE,
INC.
|
|||
|
Date: April
3, 2009
|
By:
|
/s/ Clint
Parr
|
|
|
Clint
Parr
|
|||
|
President
and Chief Executive Officer
|
|||
|
MACROSOLVE,
INC.
|
|||
|
Date: April
3, 2009
|
By:
|
/s/
Kendall
Carpenter
|
|
|
Kendall
Carpenter
|
|||
|
VP
Finance and Administration and Chief Financial Officer
|
|||
POWER
OF ATTORNEY
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
|
Signature
|
|
Title
|
Date
|
|
|
/s/
Clint H.
Parr
|
|
Chief
Executive Officer
|
April
3, 2009
|
|
|
Clint
H. Parr
|
|
(Principal
Executive Officer)
|
||
|
/s/
Kendall W.
Carpenter
|
|
Chief
Financial Officer
|
April
3, 2009
|
|
|
Kendall
W. Carpenter
|
|
(Principal
Accounting Officer)
|
||
|
/s/
James C.
McGill
|
|
Chairman
of the Board of Directors
|
April
3, 2009
|
|
|
James
C. McGill
|
|
|||
|
/s/
Michael
Ishmael
|
|
Vice-President
|
April
3, 2009
|
|
|
Michael
Ishmael
|
|
|||
|
/s/
Chris
Kingham
|
|
Vice-President
|
April
3, 2009
|
|
|
Chris
Kingham
|
|
|||
|
/s/
Eric
Fultz
|
Vice-President
|
April
3, 2009
|
||
|
Eric
Fultz
|
||||
|
/s/
Howard
Janzen
|
|
Director
|
April
3, 2009
|
|
|
Howard
Janzen
|
|
|||
|
/s/
David L.
Humphrey
|
|
Director
|
April
3, 2009
|
|
| David L. Humphrey | ||||
34
MACROSOLVE,
INC.
Financial
Statements Together With
Report
of Independent Registered Public Accounting Firm
For
the Years Ended December 31, 2008 and 2007
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
MacroSolve,
Inc.
Tulsa,
Oklahoma
We have
audited the accompanying balance sheets of MacroSolve, Inc. (the Company) as of
December 31, 2008 and 2007, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits. Hogan & Slovacek, P.C.
audited the financial statements of the Company as of and for the year ended
September 30, 2007 and merged with Tullius Taylor Sartain & Sartain LLP
to form HoganTaylor LLP effective January 7, 2009.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of MacroSolve, Inc. as of
December 31, 2008 and 2007, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred recurring losses from operations
that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
HOGANTAYLOR LLP
March 30,
2009
F-2
|
MACROSOLVE,
INC.
|
||||||||
|
BALANCE
SHEETS
|
||||||||
|
As
of December 31,
|
2008
|
2007
|
||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
|
$ | 101,397 | $ | 25,668 | ||||
|
Accounts
receivable - trade
|
134,199 | 812,908 | ||||||
|
Prepaid
expenses and other
|
47,365 | 27,044 | ||||||
|
Total
current assets
|
282,961 | 865,620 | ||||||
|
PROPERTY AND EQUIPMENT,
at cost:
|
274,392 | 277,303 | ||||||
|
Less
- accumulated depreciation and amortization
|
(152,060 | ) | (222,878 | ) | ||||
|
Net
property and equipment
|
122,332 | 54,425 | ||||||
|
OTHER
ASSETS:
|
||||||||
|
Note
receivable
|
135,577 | - | ||||||
|
Software
development costs, net of accumulated amortization
|
||||||||
|
of
$8,031 and $594,565 as of December 31, 2008 and 2007,
respectively
|
675,778 | 427,694 | ||||||
|
Deferred
offering costs
|
320,347 | - | ||||||
|
Other
assets
|
18,243 | 18,243 | ||||||
|
Total
other assets
|
1,149,945 | 445,937 | ||||||
|
TOTAL
ASSETS
|
$ | 1,555,238 | $ | 1,365,982 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Current
maturities of long-term debt
|
$ | 162,638 | $ | 107,500 | ||||
|
Revolving
line of credit
|
188,000 | 205,000 | ||||||
|
Accounts
payable - trade and accrued liabilities
|
150,900 | 110,189 | ||||||
|
Unearned
income
|
60,683 | 649,848 | ||||||
|
Total
current liabilities
|
562,221 | 1,072,537 | ||||||
|
LONG-TERM
DEBT, less current maturities
|
199,841 | 233,514 | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
STOCKHOLDERS'
EQUITY:
|
||||||||
|
Common
stock, $.01 par value; authorized 100,000,000 shares;
|
||||||||
|
issued
and outstanding 25,603,461 and 22,538,900 shares, at
|
||||||||
|
December
31, 2008 and 2007, respectively
|
256,035 | 225,389 | ||||||
|
Convertible
preferred stock, Series A, $.01 par value; authorized
|
||||||||
|
10,000,000
shares; issued and outstanding 20,000 shares at
|
||||||||
|
December
31, 2007, liquidation preference $2,000,000
|
||||||||
|
at
December 31, 2007, converted to common stock in 2008
|
- | - | ||||||
|
Convertible
preferred stock, Series B, $.01 par value; authorized
|
||||||||
|
5,000
shares; issued and outstanding 5,000 shares at
|
||||||||
|
December
31, 2007, liquidation preference $500,000
|
||||||||
|
at
December 31, 2007, converted to common stock in 2008
|
- | - | ||||||
|
Additional
paid-in capital
|
6,903,609 | 5,151,136 | ||||||
|
Accumulated
deficit
|
(6,366,468 | ) | (5,316,594 | ) | ||||
|
Total
stockholders' equity
|
793,176 | 59,931 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 1,555,238 | $ | 1,365,982 | ||||
The
accompanying notes are an integral part of these statements.
F-3
|
MACROSOLVE,
INC.
|
||||||||
|
STATEMENTS
OF OPERATIONS
|
||||||||
|
For
the Years Ended December 31,
|
2008
|
2007
|
||||||
|
SALES:
|
||||||||
|
Solution
services
|
$ | 2,599,015 | $ | 2,136,189 | ||||
|
Hardware
sales
|
60,440 | 158,403 | ||||||
|
Software
licensing
|
39,014 | 28,480 | ||||||
|
Net
sales
|
2,698,469 | 2,323,072 | ||||||
|
COST
OF SALES:
|
||||||||
|
Solution
services
|
1,482,792 | 1,031,430 | ||||||
|
Hardware
sales
|
48,086 | 124,197 | ||||||
|
Software
licensing
|
1,195 | - | ||||||
|
Total
cost of sales
|
1,532,073 | 1,155,627 | ||||||
|
Gross
profit
|
1,166,396 | 1,167,445 | ||||||
|
OPERATING
EXPENSES:
|
||||||||
|
Solution
services
|
505,892 | 425,149 | ||||||
|
Selling,
general and administrative
|
1,574,927 | 1,397,456 | ||||||
|
Total
operating expenses
|
2,080,819 | 1,822,605 | ||||||
|
Loss
from operations
|
(914,423 | ) | (655,160 | ) | ||||
|
OTHER
INCOME (EXPENSE):
|
||||||||
|
Interest
income
|
9,909 | 25,753 | ||||||
|
Interest
expense
|
(65,208 | ) | (37,600 | ) | ||||
|
Other
|
(80,152 | ) | (2,149 | ) | ||||
|
Total
other expense
|
(135,451 | ) | (13,996 | ) | ||||
|
LOSS
BEFORE INCOME TAXES
|
(1,049,874 | ) | (669,156 | ) | ||||
|
INCOME
TAXES
|
- | - | ||||||
|
NET
LOSS
|
$ | (1,049,874 | ) | $ | (669,156 | ) | ||
|
LOSS
ALLOCABLE TO COMMON STOCKHOLDERS:
|
||||||||
|
Net
loss
|
$ | (1,049,874 | ) | $ | (669,156 | ) | ||
|
Preferred
stock dividend
|
- | (200,033 | ) | |||||
|
Loss
allocable to common stockholders
|
$ | (1,049,874 | ) | $ | (869,189 | ) | ||
|
Basic
and diluted loss per share
|
$ | (0.05 | ) | $ | (0.05 | ) | ||
The
accompanying notes are an integral part of these statements.
F-4
|
MACROSOLVE,
INC.
|
||||||||||||||||||||||||
|
STATEMENTS
OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||
|
For
the Years Ended December 31, 2008 and 2007
|
||||||||||||||||||||||||
|
Series
A
|
Series
B
|
Additional
|
||||||||||||||||||||||
|
Common
|
Preferred
|
Preferred
|
Paid-in
|
Accumulated
|
||||||||||||||||||||
|
Stock
|
Stock
|
Stock
|
Capital
|
Deficit
|
Total
|
|||||||||||||||||||
|
BALANCE, at December 31,
2006
|
$ | 8,343 | $ | 200 | $ | 50 | $ | 5,155,204 | $ | (4,447,405 | ) | $ | 716,392 | |||||||||||
|
Net
loss
|
- | - | - | - | (669,156 | ) | (669,156 | ) | ||||||||||||||||
|
Dividends
on preferred stock
|
157 | - | - | 188,543 | (200,033 | ) | (11,333 | ) | ||||||||||||||||
|
Prior
year common stock issuance expense
|
- | - | - | (1,280 | ) | - | (1,280 | ) | ||||||||||||||||
|
Compensation
expense related to stock
awards
|
- | - | - | 25,308 | - | 25,308 | ||||||||||||||||||
|
BALANCE, at December 31,
2007
|
$ | 8,500 | $ | 200 | $ | 50 | $ | 5,367,775 | $ | (5,316,594 | ) | $ | 59,931 | |||||||||||
|
Net
loss
|
(1,049,874 | ) | (1,049,874 | ) | ||||||||||||||||||||
|
Exercise
of options and warrants
|
4,289 | - | - | 192,686 | - | 196,975 | ||||||||||||||||||
|
Common
stock issued for services
|
16,934 | - | - | 93,335 | - | 110,269 | ||||||||||||||||||
|
Notes
payable converted to common stock
|
9,315 | - | - | 1,387,957 | - | 1,397,272 | ||||||||||||||||||
|
Preferred
Stock converted to common stock
|
55,391 | (200 | ) | (50 | ) | (55,141 | ) | - | - | |||||||||||||||
|
19:1
Stock dividend
|
161,498 | - | - | (161,498 | ) | - | - | |||||||||||||||||
|
Compensation
expense related to stock awards
|
108 | - | - | 78,495 | - | 78,603 | ||||||||||||||||||
|
BALANCE, at December 31,
2008
|
$ | 256,035 | $ | - | $ | - | $ | 6,903,609 | $ | (6,366,468 | ) | $ | 793,176 | |||||||||||
The
accompanying notes are an integral part of these statements.
F-5
|
MACROSOLVE,
INC.
|
||||||||
|
STATEMENTS
OF CASH FLOWS
|
||||||||
|
For
the Years Ended December 31,
|
2008
|
2007
|
||||||
|
OPERATING
ACTIVITIES:
|
||||||||
|
Net
loss
|
$ | (1,049,874 | ) | $ | (669,156 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
|
Depreciation
and amortization
|
28,160 | 66,819 | ||||||
|
Stock
based compensation
|
78,603 | 25,308 | ||||||
|
Common
stock issued for services
|
8,000 | - | ||||||
|
Changes
in current assets and liabilities:
|
||||||||
|
(Increase)
decrease in accounts receivable - trade
|
678,709 | (635,793 | ) | |||||
|
(Increase)
decrease in prepaid expenses and other
|
(20,321 | ) | 1,026 | |||||
|
(Decrease)
increase in accounts payable - trade and accrued
liabilities
|
40,711 | (146,169 | ) | |||||
|
Increase
(decrease) in unearned income
|
(589,165 | ) | 646,848 | |||||
|
Net
cash used in operating activities
|
(825,177 | ) | (711,117 | ) | ||||
|
INVESTING
ACTIVITIES:
|
||||||||
|
Purchase
of equipment
|
(96,396 | ) | (52,355 | ) | ||||
|
Software
development costs
|
(256,115 | ) | (194,561 | ) | ||||
|
Increase
in note receivable
|
(135,577 | ) | - | |||||
|
Patent
applications
|
- | (1,700 | ) | |||||
|
Proceeds
from sale of equipment
|
8,360 | - | ||||||
|
Net
cash used in investing activities
|
(479,728 | ) | (248,616 | ) | ||||
|
FINANCING
ACTIVITIES:
|
||||||||
|
Proceeds
from issuance of common stock
|
196,975 | - | ||||||
|
Deferred
offering costs
|
(218,035 | ) | (1,280 | ) | ||||
|
Proceeds
from notes payable
|
200,000 | 650,000 | ||||||
|
Repayments
of notes payable
|
(217,000 | ) | (395,000 | ) | ||||
|
Proceeds
from long-term debt
|
83,922 | 30,000 | ||||||
|
Repayments
of long-term debt
|
(62,500 | ) | (2,003 | ) | ||||
|
Proceeds
from notes payable converted to equity
|
1,397,272 | - | ||||||
|
Dividend
on preferred stock
|
- | (11,333 | ) | |||||
|
Net
cash provided by financing activities
|
1,380,634 | 270,384 | ||||||
|
NET
(DECREASE) INCREASE IN CASH
|
75,729 | (689,349 | ) | |||||
|
CASH,
beginning of year
|
25,668 | 715,017 | ||||||
|
CASH,
end of year
|
$ | 101,397 | $ | 25,668 | ||||
The
accompanying notes are an integral part of these statements.
F-6
|
MACROSOLVE,
INC.
|
|||||
|
NOTES
TO FINANCIAL STATEMENTS
|
|||||
| December 31, 2008 and 2007 | |||||
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of
Operations
MacroSolve,
Inc. (the Company) was formed in January 1997. The Company is engaged
in the design, delivery and integration of custom solutions for the application
of mobile technology in business processes.
Cash
Equivalents
Cash
equivalents are represented by operating accounts or money market accounts
maintained with insured financial institutions.
Accounts Receivable and
Credit Policies
Accounts
receivable - trade consist of amounts due from the sale of professional
services, software and hardware. Accounts receivable are
uncollateralized customer obligations due under normal trade terms requiring
payment within 30 days of receipt of the invoice. The Company
provides an allowance for doubtful accounts equal to the estimated uncollectible
amounts. The Company’s estimate is based on historical collection experience and
a review of the current status of trade accounts receivable. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts will
change. At December 31, 2008 and 2007, the Company deems all amounts
recorded as collectible and, thus has not provided an allowance for
uncollectible amounts.
Property and
Equipment
Property
and equipment is recorded at cost when acquired. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the related assets, which is 3-7 years for equipment, furniture and fixtures,
hardware and software. Leasehold improvements are being amortized
over a 7 year estimated useful life. Property and equipment consists
of the following at December 31, 2008 and 2007:
|
2008
|
2007
|
|||||||
|
Hardware
|
$ | 117,204 | $ | 154,022 | ||||
|
Software
|
- | 4,029 | ||||||
|
Furniture
and fixtures
|
111,907 | 83,599 | ||||||
|
Office
equipment
|
23,786 | 30,776 | ||||||
|
Leasehold
improvements
|
21,495 | 4,877 | ||||||
| 274,392 | 277,303 | |||||||
|
Less
- accumulated depreciation
|
152,060 | 222,878 | ||||||
| $ | 122,332 | $ | 54,425 | |||||
Expenditures
for maintenance and repairs are charged to expense as incurred, whereas
expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized.
Revenue
Recognition
Sales of
hardware are recognized upon delivery to the customer. Revenue from
the licensing of software is recognized ratably over the license
period.
Revenue
generated from the provision of services, including consulting and integration
services, cost of programming services, administrative services, and customer
support services is recognized at the time the service is provided.
F-7
Unearned
Income
Unearned
income represents amounts received in advance for services to be provided to
customers where the customer has not yet received the service.
Software Development
Costs
The
Company accounts for software development costs in accordance with Statement of
Financial Accounting Standards No. 86, “Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed”. Costs incurred
prior to the establishment of technological feasibility are expensed as incurred
as research and development costs. Costs incurred after establishing
technological feasibility and before the product is released for sale to
customers are capitalized. These costs are amortized over three years
and are reviewed for impairment at each period end. Amortization
expense approximated $8,031 and $37,800 in 2008 and 2007,
respectively.
Realization
of software development costs is dependent on the Company generating sufficient
future profitability. Although the Company expects to fully realize
the software development costs, that expectation could change in the near term
if estimates of future profitability are not achieved.
Advertising
The
Company expenses advertising costs as incurred. Such costs totaled
approximately $16,888 and $43,000 for 2008 and 2007, respectively.
Income
Taxes
The
Company accounts for income taxes utilizing Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (SFAS No.
109). SFAS No. 109 requires the measurement of deferred tax assets
for deductible temporary differences and operating loss carryforwards, and of
deferred tax liabilities for taxable temporary
differences. Measurement of current and deferred tax liabilities and
assets is based on provisions of enacted tax law. The effects of
future changes in tax laws or rates are not included in the
measurement. The Company recognizes the amount of taxes payable or
refundable for the current year and recognizes deferred tax liabilities and
assets for the expected future tax consequences of events and transactions that
have been recognized in the Company’s financial statements or tax
returns. The Company currently has substantial net operating loss
carryforwards. The Company has recorded a 100% valuation allowance against net
deferred tax assets due to uncertainty of their ultimate
realization. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109,” (“FIN 48”). FIN 48
provides guidance on the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosures, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company has adopted these standards
and there has been no effect on its financial statements.
Stock-Based
Compensation:
The
Company accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment, which
is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS
123(R) requires companies to measure the cost of employee services received in
exchange for an award of equity instruments, including stock options, based on
the grant-date fair value of the award and to recognize it as compensation
expense over the period the employee is required to provide service in exchange
for the award, usually the vesting period.
F-8
The
Company uses the Black-Sholes model for determining the value of the options.
One of the factors required to compute the options price is volatility of the
stock price. The Company’s own stock commenced public trading in August, 2008;
however due to initially thin trading activity, management determined that the
technology sector fund XLK and it’s standard deviation would continue to be used
to provide the volatility factor required to compute the option
value.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair
value of financial instruments
The carrying amount of
cash and cash equivalents approximates fair value due to the short-term maturity
of these instruments. The carrying amounts of accounts receivable and accounts
payable approximate fair value due to their short maturities. The carrying value
of the Company's line of credit approximates fair value since the interest rate
fluctuates periodically based on a floating interest rate. Management believes
that the carrying value of the Company's borrowings approximate fair value based
on credit terms currently available for similar debt.
Long-Lived
Assets:
The
Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-lived assets. This Statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future undiscounted net
cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. No impairment charges were incurred
during the periods ended December 31, 2008 and 2007.
Impact
of Recently Issued Accounting Standards
In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109,” (“FIN 48”). FIN 48
provides guidance on the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosures, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company adopted this new standard
effective January 1, 2007. The Company has evaluated the effect of this
pronouncement and determined that the adoption of this interpretation did not
have a material effect on the Company’s financial statements.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when quantifying Misstatements in Current Year Financial
Statements,” (“SAB 108”). SAB 108 requires companies to evaluate the materiality
of identified unadjusted errors on each financial statement and related
financial statement disclosure using both the rollover approach and the iron
curtain approach. The rollover approach quantifies misstatements based on the
amount of the error in the current year financial statements whereas the iron
curtain approach quantifies misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the current year,
irrespective of the misstatement’s year(s) origin. Financial statements would
require adjustment when either approach results in quantifying a misstatement
that is material. Correcting prior year financial statements for immediate
errors would not require previously filed reports to be amended. SAB 108 is
effective for the first fiscal year ending after November 15, 2006. The Company
adopted this new standard effective January 1, 2007. The Company has evaluated
the effect of this pronouncement and determined that the adoption of this
interpretation did not have a material effect on the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 141R, Business Combinations, which
replaces SFAS No. 141. SFAS No. 141R retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting. It
also changes the recognition of assets acquired and liabilities assumed arising
from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for us beginning July 1, 2009 and
will apply prospectively to business combinations completed on or after that
date. We do not expect the adoption of SFAS No. 141R to have a material effect
on our financial statements.
2. MANAGEMENT’S
PLAN
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern.
The
Company incurred a net loss of $1,049,874 in 2008 which increased the
accumulated deficit to $6,366,468 at December 31, 2008. This raises
substantial doubt about the Company’s ability to continue as a going
concern. Management believes that adequate funding will be available to
the Company to support its operations through the renewal of its line of credit
with a financial institution when it becomes due and through continuing
investments of equity by qualified investors or placement of debt with qualified
lenders. Subsequent to December 31, 2008, the Company raised an additional
$450,000 in equity through a Private Placement Memorandum with authority to
raise up to $5,000,000 and $120,000 in equity through warrant exercise. It is
the Company’s intention to raise additional amounts of equity in 2009 to support
its growth requirements.
F-9
3. NOTE
RECEIVABLE
|
Note
receivable at December 31, 2008 and December 31, 2007
Consist of the following:
|
2008
|
2007
|
||||||
|
Convertible
promissory note with a customer negotiated as part of a
strategic alliance. Under the Master Services Agreement, customer may
borrow up to $150,000 to finance development work with interest accrued
monthly at prime rate plus 5% (8.25% at December 31, 2008), due June 30,
2011. The note may be converted to common stock of the borrower prior to
the due date at Company’s discretion.
|
$ | 135,577 | $ | - | ||||
4. DEFERRED OFFERING
COSTS
The
Company has incurred cash and non-cash expenses totaling approximately $320,000
in connection with its registration of stock for public sale and efforts to
raise additional equity through December 31, 2008 as follows:
|
Legal
fees
|
$ | 135,000 | ||
|
Financial
advisory services and investor
relations
|
$ | 138,000 | ||
|
Accounting
fees
|
$ | 13,750 | ||
|
Travel
expenses
|
$ | 16,250 | ||
|
Other
|
$ | 17,000 | ||
| $ | 320,000 |
The
registration of the Company’s stock was primarily for the purpose of enabling
the Company to raise additional equity in an institutional PIPE transaction. The
majority of the registration expenses were for financial advisory services of
Concordia Financial Group, investor relations services of Corporate Profiles and
legal services to Sichenzia Ross Friedman Ference LLP and Conner & Winters
LLP, with the remainder consisting of other services and directly related travel
expenses. Subsequent to December 31, 2008, approximately $75,000 was spent on
additional financial advisory services and travel expenses related to raising
equity through the intended sale of newly issued shares to private investors.
Realization of this asset is dependent upon the successful closing of additional
equity investments by willing investors at terms acceptable to the Company. If
the Company is not successful, these costs will be expensed in the period they
are determined to be unrealizable.
5. NOTES
PAYABLE
|
Notes
payable at December 31, consist of the following:
|
2008
|
2007
|
||||||
|
Revolving
line of credit with a financial institution of up to $300,000 with
interest payable monthly at prime rate plus 2.0% (5.25% at December 31,
2008), due April 30, 2009, and secured by substantially all assets of the
Company. The line of credit may be withdrawn, at the lender’s option, if
the Company is found to be in default on the loan as that term is defined
in the borrowing arrangement.
|
$ | 188,000 | $ | 205,000 | ||||
F-10
|
2008
|
2007
|
|||||||
|
Advancing
term loan with a financial institution of up to $125,000 with interest
only payable monthly at prime rate plus 2.0% (7.5% at December 31, 2008),
until January 2009, with principal and interest due at prime rate plus
2.0% amortized ratably over 30 months, due August 31, 2011, and secured by
substantially all assets of the company.
|
$ | 125,000 | $ | 50,000 | ||||
|
Note from the State
of Oklahoma Technology Business Finance Program (OTCC loan) represented by
a $150,000 refundable award to be repaid at two times the amount of the
award. The balance includes accrued interest (imputed at
14.27%), through September 2007. The repayment terms were
modified in September, 2007 to require 24 equal monthly installments of
$12,500, consisting of principal only, beginning May,
2008.
|
$ | 237,500 | $ | 291,014 | ||||
Maturities
of long-term debt are: $162,638 in 2008, $179,696 in 2009, $18,645 in
2010, and $1,500 in 2011.
6. EMPLOYEE STOCK
PLANS
Stock
Options
The
Company adopted the MacroSolve, Inc. Compensation and Stock Option Plan
2008-2010 on December 16, 2008. The Plan includes use of stock options for
compensation of officers and directors. At the adoption date, 2,674,420 options
which have been approved by shareholders remain available for use by the
Compensation Committee of the Board of Directors. The application of these
options is anticipated as follows:
|
Incentive
Stock Options for Key Managers
|
1,300,000 | |||
|
Director
Stock Options
|
400,000 | |||
|
Other
Awards and Reserves
|
974,420 | |||
|
Total
|
2,674,420 |
Assuming
that all incentive stock options for key managers and all director options are
issued under this plan, the options held by officers and directors
will increase from 11.21% to 18.13%.
The Plan
also involves three separate incentive awards: (1) The Employee Bonus awards
involve annual (or quarterly) payments of cash or restricted stock for
attainment of goals. All employees will participate in the Employee Bonus
program; (2) The Management Incentive Stock Option Plan awards involve annual
issuance of stock options for attainment of goals. Only officers of the Company
will participate in these awards; and, (3) The Senior Executive Incentive Stock
Option Plan awards involve issuance of stock options for attainment of specific
goals associated with public financing of the Corporation and public trading of
its shares. Only the Chairman of the Board and the Chief Executive Officer will
participate in these awards.
At the
end of the third quarter 2008, employees earned 50,172 shares of restricted
stock under the Employee Bonus award plan. These shares will be issued on a
three year vesting schedule to employees who remain with the Company as of the
distribution dates in the following table. The Company valued these awards at
$2,509 based on the net asset valuation method and will recognize the cost
ratably over the three year vesting period.
| October 1, 2009 |
16,728
shares of restricted common stock
|
| October 1, 2010 |
16,726
shares of restricted common stock
|
| October 1, 2011 |
16,718
shares of restricted common stock
|
At the
end of the fourth quarter 2008, employees earned 91,700 shares of restricted
stock under the Employee Bonus award plan. These shares will be issued on a
three year vesting schedule to employees who remain with the Company as of the
distribution dates in the following table. The Company valued these awards at
$2,841 based on the net asset valuation method and will recognize the cost
ratably over the three year vesting period.
F-11
|
January
1, 2010
|
30,567
shares of restricted common stock
|
|
January
1, 2011
|
30,567
shares of restricted common stock
|
|
January
1, 2012
|
30,567
shares of restricted common stock
|
Management
achieved certain 2008 goals and earned 224,000 options on January 1, 2009 under
the Management Incentive Stock award plan. These options contain a strike price
of $2.21 which was 110% of the average trading price of the company stock for
the last five trading days of 2008. The options vest over four years with 56,000
options vesting annually from December 31, 2010-2013.
Previous
to going public, the company used the calculated value method to account for the
options it issued in 2008 and 2007. Under this method, a nonpublic entity that
is unable to estimate the expected volatility of the price of its underlying
share may measure awards based on a “calculated value,” which substitutes the
volatility of an appropriate index for the volatility of the entity’s own share
price. Although the Company became publicly traded in August, 2008,
the stock was so thinly traded that management determined it was still unable to
estimate the expected volatility of the stock price. In addition, management has
not been able to identify a similar publicly held entity that can be used as a
benchmark. Therefore, as a substitute for volatility, the Company used the
historical volatility of the Technology Select Sector (XLK) index which is
representative of the Company’s industry. The Company has used the historical
closing values of that index to estimate volatility for the valuation of options
in 2008 and 2007.
The
calculated value of each option award is estimated on the date of grant using
the Black-Scholes option-pricing model, which values options based on the
estimated fair value of the Company’s common stock at the grant date, the option
strike price, the expected life of the option, the estimated volatility of the
stock, the expected dividend payments, and the risk-free interest rate over the
expected life of the option. The Company uses historical data to
estimate option exercise and employee termination within the valuation model.
The expected term of options granted is based on the vesting period and
represents the period of time that options granted are expected to be
outstanding. The risk-free rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve in effect at the time of
grant. Due to the exercise price of the options being greater than
the estimated fair value of the underlying stock, calculation of the grant date
calculated value of the options using the Black-Scholes option-pricing model
resulted in options granted in 2008 and 2007 having no calculated
value. Therefore, there was no stock-based compensation expense
recognized or capitalized in 2008 or 2007 related to stock options
|
2008
|
2007
|
|||
| Expected volatility |
14.75%-20.0%
|
11.9%-12.9%
|
||
| Expected dividends |
-
|
-
|
||
| Expected term (in years) |
5-6
|
5-6
|
||
| Risk-free rate |
2.2
0%-4.01%
|
3.87%-5.07%
|
The Board
of Directors voted in December 2008 to empower Chairman James McGill at his
discretion to extend up to one additional year the expiration date of any
warrant or vested option held by a non-affiliate that is currently due to expire
in calendar year 2009. In June 2008, by mutual consent, the officers of the
corporation voluntarily agreed not to sell MacroSolve, Inc. stock prior to the
approval of Corporate Profile, Inc. or July 1, 2010, whichever occurs
first.
Stock Bonus
Plan
Certain
employees of the Company are participants in a stock bonus plan established in
2003 by the MacroSolve, Inc. Stock Bonus Trust Agreement (the Trust), and an
entity under common control. The Trust provides for previously issued
shares of Company common stock to be allocated and distributed as a deferred
contingent bonus to the participants upon the occurrence of a liquidating event,
as that term is defined in the trust document, or the termination of the trust
which will occur in June 2010. Stock allocated to the
participants remains in the Trust for the benefit of the Participant until such
event occurs. In the event of termination of employment of the
participants, any previously allocated stock reverts back to unallocated trust
property. On August 15, 2008, the Trustees determined that a
liquidating event occurred when the Company’s stock began trading on the Over
the Counter Bulletin Board. The allocated shares were issued to the
participating employees as restricted stock and the unamortized compensation
expense related to those shares was recorded as stock based compensation expense
in August 2008. The remaining 160,000 shares in the trust are not allocated to
any Participants as of December 31, 2008; however, 10,000 shares were allocated
in the first quarter of 2009.
F-12
Compensation
expense for stock awards is recognized ratably over the implicit vesting period
from date of grant to the termination of the trust. Compensation
expense for stock awards is based upon the estimated market value of the
Company’s common stock at the date of grant. The Company recognized
stock based compensation expense related to these awards of $78,603, and
$25,308, for the years ended December 31, 2008, and 2007,
respectively.
Incentive Stock
Options
Company
employees receive incentive stock options as a portion of their compensation
packages. Although the Compensation Committee has authorized management to pay
salary differential in restricted stock, management has continued its practice
of issuing incentive stock options until such time as there is a sufficient
trading volume in the stock to allow the employees to sell stock to cover tax
expenses. Incentive stock options are vested immediately upon grant. The Company
issued 473,694 incentive stock options to employees for salary differential
compensation during 2008 with strike prices ranging from $0.60 to $2.50. The
incentive options expire five years from the date of issuance and are forfeited
if employment ceases.
A summary
of activity under the Employee Stock Plans as of December 31, 2008 and changes
during the year then ended is presented below:
|
Stock
Options
|
Stock
Bonus
Plan
|
|
Restricted
Stock
|
|||||||||||||
|
Options
|
Weighted
Average
Exercise Price
|
Shares
|
Shares
|
|||||||||||||
|
Outstanding
– December 31, 2007
|
4,839,340 | $ | 0.50 | 2,809,000 | - | |||||||||||
|
Granted
|
702,693 | $ | 0.81 | 31,000 | 141,872 | |||||||||||
|
Exercised
|
( 83,962 | ) | $ | 0.60 | - | - | ||||||||||
|
Forfeited
or Expired
|
(194,800 | ) | $ | 0.46 | - | 1,019 | ||||||||||
|
Distributed
|
-2,840,000 | |||||||||||||||
|
Outstanding
– December 31, 2008
|
5,263,271 | $ | 0.54 | - | 140,853 | |||||||||||
|
Exercisable
– December 31, 2008
|
5,186,071 | $ | 0.54 | - | - | |||||||||||
The
weighted-average grant-date calculated value of options granted during the years
ended December 31, 2008 and 2007 was $-0-. Options outstanding
at December 31, 2008 had an aggregate intrinsic value of $4,632 and a
weighted-average remaining contractual term of 3.15 years. Options
that were exercisable at December 31, 2008 had an aggregate intrinsic value of
$-0- and a weighted-average remaining contractual term of 3.15
years. Restricted stock grant awards outstanding at December 31, 2008
had an aggregate intrinsic value of $-0- and a weighted-average remaining
vesting period of 2.9 years.
F-13
The
weighted-average grant-date calculated value of stock awards granted during the
years ended December 31, 2008 and 2007 was $0.06.
A summary
of the status of the Company’s nonvested options and restricted stock award
grants as of December 31, 2008, and changes during the year then ended, is
presented below:
|
2008
|
||||||||||||
|
Nonvested Shares
|
Options
|
Weighted
Average
Grant
Date
Calculated
Value
|
Restricted
Stock
|
|||||||||
|
Nonvested
- Beginning of Year
|
826,000 | $ | - | - | ||||||||
|
Granted
|
26,000 | $ | - | 141,872 | ||||||||
|
Vested
|
(730,800 | ) | $ | - | - | |||||||
|
Forfeited
|
(44,000 | ) | $ | - | 1,019 | |||||||
|
Nonvested
– End of Year
|
77,200 | $ | - | 140,853 | ||||||||
7. COMMON STOCK
WARRANTS
The
Company adopted a practice prior to 2008 that provided for the issuance of
warrants annually to any stockholder that provided credit directly to or
guaranteed the debt of the Company. There were 166,680 warrants
related to provision of credit or debt guarantees issued in 2007 and no warrants
issued in 2008. Since the Company did not utilize the credit facilities provided
by stockholders in 2007, the Company determined that the value of the service
provided in exchange for the warrants was negligible. As such, there was no
expense recorded in the accompanying financial statements related to these
warrants. The credit facilities provided by stockholders in 2008 did not include
warrants.
The
Company issued 931,514 warrants in 2008 to investors who participated in the
Private Placement Offering dated December 30, 2008. As discussed in footnote #6
above, the stock underlying these warrants is thinly traded; therefore,
management used the calculated value method to determine that there is no cost
to recognize in the issuance of these warrants.
The Board
of Directors passed a resolution extending the expiration date of certain
warrants issued to affiliates until July 2010 that might otherwise have expired
due to affiliates agreement to trade restrictions until that date. The Board
passed an additional resolution allowing the Chairman authority to extend 2009
expiring warrants for an additional year.
The
following table summarizes information about outstanding warrants at December
31, 2008:
|
Year
Issued
|
Number
Outstanding
|
Remaining
Contractual
Life in
Years
|
Number
Currently
Exercisable
|
Weighted
Average
Exercise
Price
|
||
|
2003
|
411,760
|
2
|
411,760
|
$0.43
|
||
|
2004
|
1,269,156
|
2
|
1,269,156
|
$0.43
|
||
|
2005
|
675,790
|
2
|
675,790
|
$0.50
|
||
|
2006
|
210,392
|
3
|
210,392
|
$0.49
|
||
|
2007
|
166,680
|
4
|
166,680
|
$0.60
|
||
|
2008
|
931,514
|
3
|
931,514
|
$2.25
|
||
F-14
8. STOCKHOLDERS’
EQUITY
On March
26, 2008, the Company filed a second amendment and restatement of its
Certificate of Incorporation with the Oklahoma Secretary of State, effectively
amending its authorized number of shares of stock to 100,000,000 of common stock
and 10,000,000 of preferred stock, each with a par value of $0.01.
The
Company declared a stock dividend of 19 shares for each share of common stock
owned on April 14, 2008 for shareholders of record on March 31, 2008.
Outstanding warrants and options to purchase MacroSolve shares have been
adjusted as to number of shares and price to reflect this stock
dividend.
Effective
February 26, 2008, all of the holders of Preferred Series A and Preferred Series
B stock elected to convert their shares to 4,705,780 and 833,340 shares of
common stock, respectively.
During
2008, the Company sold 428,882 shares of common stock for $196,975 to qualified
investors who exercised their rights to convert warrants and options at the
prices stated in their respective instruments. Also in the first quarter of
2008, the Company engaged the law firm of Sichenzia Ross Friedman Ferrence to
assist with the registration of its stock for public trading. A portion of their
fee was paid for with 563,500 shares of stock which the Company valued at
$34,091 based upon the total asset valuation method. At the same time, the
Company engaged the financial advisory services of Concordia Financial Group to
assist with financial consulting. A portion of their fee was paid for with
1,126,900 shares of stock which the Company valued at $68,177 based upon the
total asset valuation method.
The
Company entered into consulting services agreements to pay in restricted stock.
As of September 30, 2008, one consultant earned 3,000 shares of stock valued at
$8,000 based on the value of the services rendered. The Company engaged a
website creative design firm with an agreement to pay half in cash and half in
restricted stock at the end of the project, the quantity to be determined by the
average market trading price on January 31, 2009. As of December 31, 2008, the
firm had performed two-thirds of the engagement and by January 31, 2009, all
$22,500 in services to be paid had been performed, resulting in the issuance of
11,598 shares of restricted common stock in March 2009.
Independent
Directors of the Company became entitled to $12,000 annual compensation paid
quarterly in restricted stock in the third quarter of 2008 as outlined in the
MacroSolve, Inc. Compensation Plan approved at the September 16, 2008 Board
meeting. A total of 10,768 shares of restricted common stock
were issued to the four independent directors for their third and fourth quarter
2008 compensation. The Company recorded $7,199 as stock based compensation for
these shares computed as the average trading price on the last 5 days of the
quarter less a seventy percent discount factor due to marketability in
recognition of the one year Section 144 holding period for Affiliates. Upon
approval of the Board of Directors, all previously unvested director options
became vested on August 15, 2008, the first date of trading. A total of 688,000
director options vested during calendar year 2008.
On
December 30, 2008, MacroSolve, Inc. closed a private placement of the sale of
units (unregistered common stock) for gross proceeds of $1,397,271. The Private
Placement was non-brokered and consisted of the sale of 931,514 Units priced at
a price of $1.50 per Unit. Each Unit consists of one share of restricted common
stock and one common stock purchase warrant (each a "Warrant"). Each Warrant is
exercisable at $2.25 per share until December 30, 2011. At the February 19, 2009
Board of Directors meeting, a resolution was passed to amend the private
placement offering to offer a 180 day price protection term to the investors.
The price reset would be triggered by the weighted average closing price for the
last ten days of trading in the 180 day period with a floor of $0.45 per share.
The amendment has not been finalized as of the date of this report.
F-15
9. EARNINGS (LOSS) PER SHARE
The
Company has calculated the loss allocable to the common shareholders for 2008
and 2007 as follows:
|
Numerator:
|
2008
|
2007
|
||||||
|
Net
Loss
|
$ | (1,049,874 | ) | $ | (669,156 | ) | ||
|
Preferred
Stock Dividends
|
$ | 0 | $ | (200,033 | ) | |||
|
Numerator
for basic and diluted loss per share
|
$ | (1,049,874 | ) | $ | (869,189 | ) | ||
|
Denominator:
|
||||||||
|
Weighted-average
number of common shares outstanding
|
21,301,221 | 16,842,520 | ||||||
|
Basic
and diluted loss per share
|
$ | (0.05 | ) | $ | (0.05 | ) | ||
The
Company did not include shares of common stock issuable upon conversion of the
Preferred Series A and Preferred Series B Stock in the denominator, nor did it
include the common stock equivalents related to stock options or warrants, as
the effect would have been anti-dilutive in 2008 and 2007. The weighted average
number of common shares outstanding for 2007 has been restated to reflect the
19:1 stock dividend in 2008.
10. INCOME
TAXES
At
December 31, 2008 and 2007, the components of the Company’s net deferred taxes
are as follows:
|
2008
|
2007
|
|||||||
|
Deferred
tax assets:
|
|
|||||||
|
Net
operating loss carryforwards
|
$ | 2,604,000 | $ | 2,114,000 | ||||
|
Stock-based
compensation
|
79,000 | 37,000 | ||||||
|
Total
deferred tax assets
|
$ | 2,683,000 | 2,151,000 | |||||
|
Valuation
allowance
|
(2,383,000 | ) | (1,982,000 | ) | ||||
|
Net
deferred tax assets
|
300,000 | 169,000 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Property,
equipment and software development costs
|
300,000 | 169,000 | ||||||
|
|
||||||||
|
Total
deferred tax liabilities
|
300,000 | 169,000 | ||||||
|
Net
deferred tax asset
|
$ | - | $ | - | ||||
At
December 31, 2008 and 2007, the Company had approximately $6,794,000 and
$5,420,000, respectively, of net operating loss carryforwards, which begin
expiring in 2023. Realization of the deferred tax asset is dependent
on generating sufficient future taxable income. A valuation allowance
on the net deferred tax asset has been provided due to the uncertainty of future
taxable income.
11. 401(k)
PLAN
The
Company implemented a 401(k) Plan (“Plan”) on July 1, 2007 to provide retirement
and incidental benefits for its employees. Employees may contribute from 1% to
15% of their annual compensation to the Plan, limited to a maximum annual amount
as set periodically by the Internal Revenue Service. In addition, the Plan
provides for discretionary contributions as determined by the board of
directors. Such contributions to the Plan are allocated among eligible
participants in the proportion of their salaries to the total salaries of all
participants. No discretionary contributions were made in 2008 or
2007.
F-16
12. RELATED PARTY
TRANSACTIONS
In 2008,
two stockholders each provided a $250,000 line of credit to the Company for
operating capital. Interest accrued at the Prime rate plus 2%. As of December
30, 2008, each of these stockholders had advanced $200,000 against the lines.
These advances, including accrued interest, were converted to 268,338 shares of
common stock under the Private Placement offering. Subsequent to 2008, both
stockholders purchased 33,333 additional shares of common stock for $50,000
under the Private Placement offering in lieu of advancing $50,000 each to
complete the operating capital line of credit. Two stockholders made similar
$250,000 working capital lines of credit available to the Company in 2007;
however, these credit lines were not utilized by the Company and expired
December 31, 2007.
13. COMMITMENTS AND
CONTINGENCIES
At
December 31, 2008, the Company was obligated under an operating lease for
certain office space for approximately $12,000 per month. Commitments for this
lease, which expires on September 19, 2013, are as follows:
|
2009
|
$ | 142,000 | ||
|
2010
|
$ | 142,000 | ||
|
2011
|
$ | 147,000 | ||
|
2012
|
$ | 147,000 | ||
|
2013
|
$ | 105,000 | ||
| $ | 683,000 |
Rent
expense was $94,888 and $72,630 for 2008 and 2007,
respectively.
14. CONCENTRATIONS
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of trade receivables. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral related to its receivables. At December 31, 2008, accounts
receivable from three customers comprised approximately 83% of the Company’s
total accounts receivable - trade. Revenues from four customers approximated 69%
of total revenues for 2008. At December 31, 2007, accounts receivable from two
customers comprised approximately 86% of the Company’s total accounts receivable
– trade. Revenues from two customers approximated 81% of total revenues for
2007.
15. SUBSEQUENT
EVENTS
Subsequent
to December 31, 2008, the Company raised an additional $450,000 and issued
300,000 shares of restricted common stock to qualified private investors in the
Private Placement offering. Between February 18 and March 10, 2009, another
investor exercised 282,260 warrants for $120,000. In January 2009, an employee
exercised 200 options for $120. The Company issued 216,598 shares of restricted
common stock between February 1 and March 11, 2009 to three companies in
exchange for services value at $29,500.
At the
December 16, 2008 Board of Directors meeting, approval was given to expand the
services of Corporate Profiles related to financing activities. In addition to
$25,000 cash, the Board approved the issuance of 1,000,000 shares of restricted
common stock, with 500,000 shares approved for distribution in February 2009 and
the remaining 500,000 approved for distribution in July 2009 unless the
agreement was terminated early. The 500,000 shares were valued at $30,000 based
upon the total asset valuation method.
F-17
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid
during the years ended December 31 for:
|
2008
|
2007
|
|||||||
|
Interest
|
$ | 8,420 | $ | 7,600 | ||||
|
Income
taxes
|
$ | - | $ | - | ||||
Noncash
investing and financing activities are as follows for the years ended December
31:
|
2008
|
2007
|
|||||||
|
Stock based
compensation
|
$ | 78,603 | $ | 25,308 | ||||
|
Dividends invested
in common stock
|
$ | - | $ | 188,700 | ||||
|
Stock issued for Services
|
$ | 110,269 | $ | - | ||||
|
Notes payable
converted to common stock
|
$ | 1,397,272 | $ | - | ||||
F-18