COMSovereign Holding Corp. - Annual Report: 2010 (Form 10-K)

R	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2010
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Oklahoma	73-1518725
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

 

 

 

 

 

 

 

 

 

 

 

 
 

 
 

 

 
 

PART I
Item 1.  Business	2
Item 1A.  Risk Factors	5
Item 1B.  Unresolved Staff Comments	11
Item 2.  Properties.	11
Item 3.  Legal Proceedings.	12
Item 4.  [REMOVED AND RESERVED].	12
PART II
Item 5.  Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	13
Item 6.  Selected Financial Data.	13
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.	14
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.	18
Item 8.  Financial Statements and Supplementary Data.	18
Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	18
Item 9A(T).  Controls and Procedures.	18
Item 9B.  Other Information.	18
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.	19
Item 11. Executive Compensation.	21
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	24
Item 13.  Certain Relationships and Related Transactions, and Director Independence.	25
Item 14.  Principal Accountant Fees and Services.	26
PART IV
Item 15. Exhibits and Financial Statement Schedules.	27
SIGNATURES	28

	•	competition in the market for mobile computing products and services;
	•	our ability to develop brand awareness and industry reputation;
	•	our ability to adapt to rapid evolution in technology and industry standards;
	•	our ability to attract and retain management and skilled personnel;
	•	our growth and marketing strategies;
	•	anticipated trends in our business;
	•	our future results of operations;
	•	our lack of profitable operations in recent periods;
	•	our liquidity and ability to finance our development activities;
	•	our ability to successfully and economically develop new products;
	•	market conditions in the mobile solutions for business industry;
	•	the impact of government regulation;
	•	estimates regarding future net revenues from capitalized development costs and the present value thereof;
	•	emerging viable and sustainable markets for wireless and mobile computing services;
	•	significant errors or security flaws in our products and services;
	•	insufficient protection for our intellectual property;
	•	Our ability to enforce our intellectual property;
	•	claims of infringement on third party intellectual property;
	•	pricing pressures in the mobile software and technology market
	•	our financial position, business strategy and other plans and objectives for future operations;
	•	economic conditions in the U.S. and worldwide;
	•	access to significant additional capital to implement growth plans; and
	•	the ability of our management team to execute its plans to meet its goals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	•	distribute our products to purchasers of mobile devices and market our products and services cooperatively;
	•	increase the use of our services; and
	•	build brand awareness through product marketing.

 

 

 

 

	•	our technology or products may become obsolete upon the introduction of alternative technologies;
	•	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
	•	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.

 

 

 

	•	growth in sales of handheld devices, smart phones and other mobile computing devices;
	•	emergence of a viable and sustainable market for wireless and mobile computing services;
	•	our product and services differentiation and quality;
	•	the development of technologies that facilitate interactive communication between organizations;
	•	our distribution and pricing strategies as compared with those of our competitors;
	•	the growth in access to, and market acceptance of, new interactive technologies;
	•	the effectiveness of our marketing strategy and efforts;
	•	our industry reputation; and
	•	general industry and economic conditions such as slowdowns in the computer or software markets or the economy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	•	our results of operations and the performance of our competitors;
	•	the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission;
	•	changes in earnings estimates or recommendations by research analysts who follow, or may follow, us or other companies in our industry;
	•	changes in general economic conditions;
	•	changes in market prices for oil and gas;
	•	actions of our historical equity investors, including sales of common stock by our directors and executive officers;
	•	actions by institutional investors trading in our stock;
	•	disruption of our operations;
	•	any major change in our management team;
	•	other developments affecting us, our industry or our competitors; and
	•	U.S. and international economic, legal and regulatory factors unrelated to our performance.

 

 

 

 

 

 

	•	that a broker or dealer approve a person’s account for transactions in penny stocks; and
	•	the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

	•	obtain financial information and investment experience objectives of the person; and
	•	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.

	•	sets forth the basis on which the broker or dealer made the suitability determination; and
	•	that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

 

 

 

 

 

	•	institute a comprehensive compliance function;
	•	establish internal policies, such as those relating to disclosure controls and procedures and insider trading;
	•	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;
	•	prepare and distribute periodic reports in compliance with our obligations under the federal securities laws;
	•	involve and retain outside counsel and accountants in the above activities; and
	•	establish an investor relations function.

 
 

 
 

 

 

 

 

The Company has retained intellectual property counsel for the purpose of monetizing intellectual assets and enforcing its rights in those assets.  Any resulting litigation, however, will be subject to inherent uncertainties and the favorable outcome of any litigation is inestimable.

 

 

 

 

 
 

Equity Compensation Plan Information
Plan category		Number of securities to be issued upon exercise of outstanding options (a)				Weighted-average exercise price of outstanding options (b)				Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			5,774,763			$	0.56				2,225,235
Equity compensation plans not approved by security holders			-				-				6,385,296
Total			5,774,763			$	0.56				8,610,531

 

 

 

 

		Years Ended Dec 31,
		2010				2009
Cash flows (used in) operating activities		$	(1,474,540	)		$	(1,363,764	)
Cash flows provided by (used in) investing activities			10,758				(731,978	)
Cash flows provided by financing activities			1,599,687				2,045,465
Net  increase (decrease) in cash and cash equivalents		$	135,905			$	(50,277	)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name		Age		Position
James C. McGill		67		Chairman of the Board of Directors
Clint Parr		46		Chief Executive Officer, President, and Director
David L. Humphrey		55		Director
John Clerico		69		Director and Chairman of the Audit Committee
Dr. Dale A. Schoenefeld		65		Director
Howard Janzen		57		Director and Chairman of the Compensation Committee
David R. Lawson		59		Director
Kendall Carpenter		54		Vice President Finance and Administration, Chief Financial Officer, Secretary and Treasurer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

For services in 2008, Mr. Parr received options to acquire 54,637 shares of common stock, 6,422 shares of common stock, and 7,987 shares of common stock at a price of $0.60, $2.50 and $2.01 respectively. Clint Parr received options to acquire 7,987 shares of common stock and 30,291 shares of common stock at a price of $2.01 and $.53 per share for services respectively. He also received options to acquire 44,800 shares of common stock at a price of $2.01 per share which vests annually over 3 years under the 2008 Management Bonus Plan. In 2009, Mr. Parr received a warrant to acquire 763,257 shares of common stock at a price of $.10 per share in an action approved by the Board on September 11, 2009. The warrant will expire on September 11, 2014 which is also the new expiration date of all outstanding company options, including Mr. Parr’s, in an action approved by the Board on September 11, 2009. In 2009, Mr. Parr received 1,261 shares of S8 registered stock valued at $.043 per share upon vesting of a 2008 stock bonus plan. For services in 2010, Mr. Parr received 4,131,864 shares of restricted stock and S8 registered stock valued at $.001 per share upon vesting of restricted stock awards. Mr. Parr received 387,360 shares of S8 registered stock in 2010 valued between $.001 and $.054 per share upon vesting of 2008 and 2009 stock bonus plans.

 
 

(2)

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. Jim McGill received options to acquire 14,677 shares of common stock and 63,208 shares of common stock at a price of $2.01 and $.53 per share for services respectively. He also received options to acquire 44,800 shares of common stock at a price of $2.01 per share which vests annually over 3 years under the 2008 Management Bonus Plan. In 2009, Mr. McGill received a warrant to acquire 1,733,792 shares of common stock at a price of $.10 per share in an action approved by the Board on September 11, 2009. The warrant will expire on September 11, 2014 which is also the new expiration date of all outstanding company options, including Mr. McGill’s, in an action approved by the Board on September 11, 2009. In 2009, Mr. McGill received 1,261 shares of S8 registered stock valued at $.043 per share upon vesting of a 2008 stock bonus plan. For services in 2010, Mr. McGill received 5,071,791 shares of restricted stock and S8 registered stock valued at $.001 per share upon vesting of restricted stock awards. Mr. McGill received 183,996 shares of S8 registered stock in 2010 valued between $.001 and $.054 per share upon vesting of 2008 and 2009 stock bonus plans.

(3)

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. Kendall Carpenter received options to acquire 4,920 shares of common stock and 18,660 shares of common stock at a price of $2.01 and $.53 per share for services respectively. She also received options to acquire 33,600 shares of common stock at a price of $2.01 per share which vests annually over 3 years under the 2008 Management Bonus Plan. In 2009, Ms. Carpenter received a warrant to acquire 117,206 shares of common stock at a price of $.10 per share in an action approved by the Board on September 11, 2009. The warrant will expire on September 11, 2014 which is also the new expiration date of all outstanding company options, including Ms. Carpenter’s, in an action approved by the Board on September 11, 2009. In 2009, Ms. Carpenter received 1,527 shares of S8 registered stock valued at $.043 per share upon vesting of a 2008 stock bonus plan. For services in 2010, Ms. Carpenter received 2,608,626 shares of restricted and S8 registered stock valued at $.001 per share upon vesting of restricted stock awards. Ms. Carpenter received 345,330 shares of S8 registered stock in 2010 valued between $.001 and $.054 per share upon vesting of 2008 and 2009 stock bonus plans.

 
 

(4)	Company management have determined that the options and warrants granted have no cash value and as such are calculated as zero dollars ($0.00) toward each executive’s compensation.

(5)

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 and December 31, 2009. The Company recognized the remaining value of the deferred stock based compensation in 2008.

 

(1)

Each director received 6,122 shares of restricted common stock and 12,500 shares of restricted common stock for the first and second quarters of 2009, respectively. By resolution of the Board of Directors at its May 21, 2009 meeting, the quarterly director compensation was increased to $4,000. Each director received 93,023 shares of restricted common stock and 100,000 shares of restricted common stock for the third and fourth quarters of 2009 respectively.  In an action approved by the Board on September 11, 2009, each director received a warrant to acquire shares of common stock equal to the number of their outstanding options at a price of $.10 per share. The warrants will expire on September 11, 2014 which is also the new expiration date of all outstanding company options, including each director’s, in an action approved by the Board on September 11, 2009. Directors Janzen and Clerico each received a warrant to acquire 160,000 shares. Directors Humphrey and Schoenefeld each received a warrant to acquire 240,000 shares. Directors Janzen, Humphrey, Clerico and Schoenefeld each received 80,000 shares of S8 registered common stock for first quarter 2010 service, 106,667 shares of S8 registered common stock for second quarter 2010 service, 80,000 shares of S8 registered stock and 80,000 shares of restricted common stock for third quarter 2010. All directors, including Mr. Lawson who joined the Board in November 2010, earned 17,582 shares of S8 registered stock which will be issued in January, 2011.   The members of the Board of Directors do not currently receive cash compensation for their services.   Company management have determined that the options and warrants granted have no cash value and as such are calculated as zero dollars ($0.00) toward each director’s compensation.

(2)

Director David Humphrey agreed to provide financial advisory and business development services to the Company valued at $8,750 per month in exchange for 58,333 nonqualified options with an agreed value of $0.20 and a strike price of $.05 with a five year exercise period. The Company issued options to Mr. Humphrey for services in July, August and September of 2010.

 

 

 

 

 
 

·	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:

 

(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)	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 February 28, 2011.  On February 28, 2011, there were 99,541,831 shares of our common stock outstanding.  To calculate a stockholder's percentage of beneficial ownership, we include in the numerator and denominator the common stock outstanding 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 February 28, 2011.  Common stock options  and derivative securities held by other stockholders are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership among our stockholders may differ. Unless we have indicated otherwise, each person named in the table below has sole voting power and investment power for the shares listed opposite such person's name.
(3)	Represents options (i) 3,956,992 shares of common stock owned; (ii) 763,257 shares of common stock that may be acquired within 60 days through the exercise of outstanding warrants; (iii) 763,257 shares of common stock that may be acquired within 60 days through the exercise of outstanding options; and (iv) 1,795,794 shares of common stock issued under restrictive stock grants with voting rights.
(4)	Represents options (i) 9,341,886 shares of common stock owned; (ii) 912,115 shares of common stock that may be acquired within 60 days through the exercise of outstanding warrants; (iii) 1,733,792 shares of common stock that may be acquired within 60 days through the exercise of outstanding options; (iv) 2,063,950 shares of common stock issued under restrictive stock grants with voting rights; and (v) convertible debentures which may be converted into 228,909 shares of common stock.
(5)	Represents (i) 1,054,677 shares of common stock owned; (ii) 458,721 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; and (iv) convertible debentures which may be converted in 114,454 shares of common stock.

(6)	Represents options (i) 2,051,119 shares of common stock owned; (ii) 126,626 shares of common stock that may be acquired within 60 days through the exercise of outstanding warrants; (iii) 117,206 shares of common stock that may be acquired within 60 days through the exercise of outstanding options; and (iv) 1,132,514 shares of common stock issued under restrictive stock grants with voting rights.
(7)	Represents (i) 578,586 shares of common stock owned; (ii) 240,000 shares of common stock that may be acquired within 60 days through the exercise of outstanding warrants; and (iii) 454,999 shares of common stock that may be acquired within 60 days through the exercise of outstanding options.
(8)	Represents options (i) 29,743,789 shares of common stock owned; (ii) 24,006,884 shares of common stock that may be acquired within 60 days through the exercise of outstanding warrants; (iii) 200,000 shares of common stock that may be acquired within 60 days through the exercise of outstanding options; and (iv) convertible debentures which may be converted into 286,478 shares of common stock.
(9)	Represents (i) 578,586 shares of common stock owned; (ii) 240,000 shares of common stock that may be acquired within 60 days through the exercise of outstanding warrants; and (iii) 280,000 shares of common stock that may be acquired within 60 days through the exercise of outstanding options.
(10)	Represents options (i) 217,742 shares of common stock owned; (ii) 99,833 shares of common stock that may be acquired within 60 days through the exercise of outstanding warrants; and (iii) convertible debentures which may be converted into 228,909 shares of common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

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)
3.3			Certificate of Amendment of Articles of Incorporation of MacroSolve, Inc. dated September 29, 2009 (2)
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)
10.9			Form of Securities Purchase Agreement (2)
23.1			Consent of Independent Registered Public Accounting Firm*
31.1			Certification of Periodic Financial Reports by Clint Parr in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002*
31.2			Certification of Periodic Financial Reports by Kendall Carpenter in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002*
32.1			Certification of Periodic Financial Reports by Clint Parr in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350*
32.2			Certification of Periodic Financial Reports by Kendall Carpenter in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350*

(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 October 6, 2009.

(3)	Incorporated by Reference to the Company’s Form 8-K filed with the SEC on July 24, 2009.

 
 

 
 

	MACROSOLVE, INC.
Date: March 11, 2011	By:	/s/ Clint Parr
		Clint Parr
		President and Chief Executive Officer

 
 

	MACROSOLVE, INC.
Date: March 11, 2011	By:	/s/ Kendall Carpenter
		Kendall Carpenter
		VP Finance and Administration and Chief Financial Officer

 
 

 
 

 
 

Signature		Title		Date
/s/ Clint H. Parr		Chief Executive Officer		March 11, 2011
Clint H. Parr		(Principal Executive Officer)
/s/ Kendall W. Carpenter		Chief Financial Officer		March 11, 2011
Kendall W. Carpenter		(Principal Accounting Officer)
/s/ James C. McGill		Chairman of the Board of Directors		March 11, 2011
James C. McGill

 

/s/ Howard Janzen		Director		March 11, 2011
Howard Janzen
/s/ David L. Humphrey		Director		March 11, 2011
David L. Humphrey