10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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(Mark one)
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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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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number
001-33169
Wireless Ronin Technologies,
Inc.
(Exact name of registrant as
specified in its charter)
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Minnesota
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41-1967918
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5929 Baker Road, Suite 475, Minnetonka MN 55345
(Address of principal executive
offices) ( Zip Code)
(952) 564-3500
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Exchange Act:
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Common Stock ($0.01 par value)
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Nasdaq Global Market
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(Title of class)
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(Name of each exchange on which
registered)
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Securities registered pursuant to Section 12(g) of the
Exchange Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Exchange Act 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 þ No o
Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes
þ No
The aggregate market value of the common equity held by
non-affiliates of the issuer as of June 30, 2008, was
approximately $62,642,870, based upon the last sale price of one
share on such date.
As of March 9, 2009, the issuer had outstanding
14,849,860 shares of common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information required by Part III of this document
is incorporated by reference to specified portions of the
registrants definitive proxy statement for the annual
meeting of shareholders to be held June 11, 2009.
PART I
Overview
Wireless Ronin Technologies, Inc. is a Minnesota corporation
incorporated on March 23, 2000. Originally we sought to
apply our proprietary wireless technology in the information
device space and focused on an industrial strength
personal digital assistant. Beginning in the fall of 2002, we
shifted our focus to digital signage solutions and designed and
developed
RoninCast®
software, which we first released in the spring of 2003.
We now provide dynamic digital signage solutions targeting
specific retail and service markets. Through a suite of software
applications marketed as
RoninCast®,
we provide an enterprise-level or hosted content delivery system
that manages, schedules and delivers digital content over
wireless or wired networks. Additionally,
RoninCast®
softwares flexibility allows us to develop custom
solutions for specific customer applications.
In August 2007, we acquired privately held McGill Digital
Solutions, Inc. (now known as Wireless Ronin Technologies
(Canada), Inc. (WRT Canada)). Based in Windsor,
Ontario Canada, WRT Canada provides custom interactive software
solutions, content engineering / creative services,
and is home to our automotive business development team. Through
e-learning
and
e-marketing
WRT Canada develops the competencies and knowledge of the people
who most influence product sales sales associates
and their customers.
Business
Strategy
Our objective is to be the premier provider of dynamic digital
signage systems to customers in our targeted retail and service
markets. To achieve this objective, we intend to pursue the
following strategies:
Focus on Vertical Markets. Our direct sales
force focuses primarily on the following vertical market
segments: automotive, quick serve restaurant (QSR)
and retail. Within retail, we focus both on
retailers, such as department stores and big box,
and consumer good manufacturers, such as brands
being carried within a retail environment. To attract and
influence customers, all three of these vertical markets
continue to seek new mediums that provide greater flexibility
and visual impact in displaying content. We focus on markets in
which we believe our solution offers the greatest advantages in
functionality, implementation and deployment over traditional
media advertising.
Leverage Strategic Relationships. We seek to
develop and leverage relationships with market participants,
such as hardware manufacturers, to integrate complementary
technologies with our solutions. We believe that such strategic
relationships will enable access to emerging new technologies
and standards and increase our market presence.
Market and Brand Our Products and Services
Effectively. Our key marketing objective is to
establish
RoninCast®
dynamic digital signage as an industry standard. Our marketing
initiatives convey the distinguishing and proprietary features
of our products, including wireless networking, centralized
content management and custom software solutions.
Our strategy has included establishing a strong presence at
national trade shows, such as NRF (National Retail Federation),
Globalshop, Digital Signage Expo, InfoComm and Digital Signage
Expo - EAST. NRF is the retail industrys largest trade
show. Globalshop is a U.S. trade show focused on the
in-store shopping experience. Digital Signage Expo, a trade show
dedicated solely to digital signage products, attracts attendees
from a variety of markets, including retail, financial,
hospitality and public spaces. InfoComm is a trade show for the
professional audio/video and information communications
industry. Digital Signage Expo EAST is an East coast
show launched in 2008 dedicated to digital signage and
interactive technology. We also participate in the International
Retail Design Conference (IRDC). IRDC is the premier educational
and networking event for the store design and merchandising
community, drawing speakers and attendees from throughout the
U.S. and abroad.
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Outsource Non-Specialized Operating
Functions. We outsource certain non-specialized
support functions such as system installation, fixturing,
integration and technical field support. In addition, we
purchase from manufacturers such items as stands, mounts, custom
enclosures, monitors and computer hardware. We believe that our
experience in managing complex outsourcing relationships
improves the efficiency of our digital signage solutions and
allows us to focus on developing software solutions.
Create Custom Solutions. Although
RoninCast®
is an enterprise solution designed for an array of standard
applications, we also develop custom systems that meet the
specific business needs of our customers. As digital signage
technology continues to evolve, we believe that creating custom
solutions for our customers is one of the primary
differentiators of our value proposition.
Create Content Solutions. We continue to
expand our strategic planning, creative design and content
engineering abilities. Our creative team develops creative
strategies for both internal and external initiatives. We
continue to produce award-winning work both for our clients and
for our own use. In 2008, much of our marketing and sales
material was created in-house.
Develop New Products. Developing new products
and technologies is critical to our success. Increased
acceptance of digital signage will require technological
advancements to integrate it with other systems such as
inventory control, point-of sale and database applications. In
addition, digital media content is becoming richer and we expect
customers will continue to demand more advanced requirements for
their digital signage networks. We intend to listen to our
customers, analyze the competitive landscape and continually
improve our products.
In February 2008, we launched our first industry-specific
digital signage solution for one of our focused vertical
markets. As an example of new products, RoninCast for
Automotive is built on the
RoninCast®
software platform and WRT Canadas years of experience
working within the automotive industry. The RoninCast for
Automotive system offers an interactive solution that
impacts every area of the dealership, including dealership
showrooms, finance and insurance, and service and parts.
In December 2008, we were once again recognized for vertical
product excellence when VMSD Magazine named
RoninCast®
Digital Menu Boards to the List of Best New Products of 2008.
Industry
Background
Digital Signage. Digital signage is a visually
dynamic, targeted, flexible and affordable way for direct
marketing advertisers to reach consumers. At one point in time,
place-based advertisers settled for the shotgun
blast marketing approach of sending out a general message
to a large group of people, in hopes that it would resonate with
as many members of that group as possible. But that was a
hit-or-miss
approach. Advertisers prefer to send customized messages
tailored to the specific needs, wants and desires of individual
consumers in essence, reaching individuals directly
as opposed to reaching the masses indirectly.
So what is digital signage? The simplest example is a flat-panel
screen, often evident in retail stores, quick serve restaurants,
casinos, banks/financial institutions, and hospitality
environments that digitally features a mix of promotions,
advertisements and entertainment.
Growth of Digital Signage. We believe there
are four primary drivers to the growth of digital signage:
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Changes in the advertising landscape. Media
expenditures since the 1950s have gone primarily to television,
followed by newspapers, magazines and commercial radio. But this
50-year
trend has now realized its apex, with generational declines in
consumption among Gen X and Gen Y. A February 12, 2007
article in Media Week states that where we used to have only Web
portals and sites, we now have VOIP telephony, digital signage
and mobile media. The descending triangle of
traditional media is being displaced by the ascending
triangle of Internet-enabled media, composed of web-based
media,
e-mail,
mobile media and digital-signage media. The Internet is now
blending with
out-of-home
networked media to form this rapidly integrated media cluster,
which is displacing the descending media triangle of television,
print, and commercial radio.
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Growing awareness that digital signage is more
effective. Research presented at the 2005 Digital
Signage Business conference shows that digital signage receives
up to 10 times the eye contact of static signage and, depending
upon the market, may significantly increase sales for new
products that are digitally advertised. A study by Arbitron,
Inc. found that 29% of the consumers who have seen video in a
store say they bought a product they were not planning on buying
after seeing the product featured on the in-store video display.
We believe that our dynamic digital signage solutions provide a
valuable alternative to advertisers currently using static
signage.
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Decreasing hardware costs associated with digital
signage. The high cost of monitors has been an
obstacle of digital signage implementation for a number of
years. The price of digital display panels has been falling due
to increases in component supplies and manufacturing capacity.
As a result, we believe that hardware costs are likely to
continue to decrease, resulting in continued growth in this
market.
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Compliance and effectiveness issues with traditional
point-of-purchase
signage. Our review of the current market
indicates that most retailers go through a tedious process to
produce traditional static
point-of-purchase
and in-store signage. They create artwork, send such artwork to
a printing company, go through a proof and approval process and
then ship the artwork to each store. According to an article
appearing in The Retail Bulletin (February 19, 2006), it is
estimated that less than 50% of all static in-store signage
programs are completely implemented once they are delivered to
stores. We believe our signage solution can enable prompt and
effective implementation of retailer signage programs, thus
significantly improving compliance and effectiveness. We believe
calorie information compliance rules, as seen in New York and
other states requiring restaurants with at least 15 locations in
a chain to prominently display calorie information in-store,
represent an additional opportunity within the digital signage
industry.
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The
RoninCast®
Solution
RoninCast®
solutions offer a digital alternative to static signage that
provides our customers with a dynamic visual marketing system
designed to enhance the way they advertise, market, deliver and
update their messages to targeted audiences. Our technology can
be combined with interactive touch screens to create new
platforms for assisting with product selection and conveying
marketing messages. For example, we designed the Ford
SYNCtm
interactive touch screen kiosk for auto shoppers at Ford
dealerships.
RoninCast®
software enables us to deliver a turn-key solution that includes
project planning, innovative design services, network
deployment, software training, equipment, hardware
configuration, content development, implementation, maintenance,
24/7 help desk support and a full-service network operations
center.
Our software manages, schedules, and delivers dynamic digital
content over wired or wireless networks. Our solution integrates
proprietary software components and delivers content over
proprietary communication protocols.
RoninCast®
is an enterprise or hosted software solution which addresses
changes in advertising dynamics and other traditional methods of
delivering content. We believe our product provides benefits
over traditional static signage and assists our customers in
meeting their objectives for a successful marketing campaign.
In 2007, we established a full service network operations
center, manned 24/7, in Minnetonka, Minnesota, supported by a
redundant center in Des Moines, Iowa. Our operators send
schedules and content, gather data from the field, flag and
elevate field issues and handle customer calls. The servers in
both locations communicate in real-time with the devices
deployed at our customer locations.
Features
and benefits of the
RoninCast®
system include:
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Centrally
Controlled. RoninCast®
software empowers the end-user to distribute content from one
central location. As a result, real-time marketing decisions can
be managed in-house, ensuring retailers communication with
customers is executed system-wide at the right time and the
right place. Our
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content management software recognizes the receipt of new
content, displays the content, and reports back to the central
location(s) that the media player is working properly.
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Wireless
Delivery. RoninCast®
software can distribute content within an installation
wirelessly.
RoninCast®
software is compatible with current wireless networking
technology and does not require additional capacity within an
existing network.
RoninCast®
software uses Wireless Local Area Network (WLAN) or wireless
data connections to establish connectivity. By installing or
using an existing onsite WLAN, the
RoninCast®
digital signage solution can be incorporated throughout the
venue without any environmental network cabling. We also offer
our cellular communications solution for off-site signage where
WLAN is not in use or practical.
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Ease and Speed of Message Delivery. Changing
market developments or events can be quickly incorporated into
our system. The end-user may create entire content distributions
on a daily, weekly or monthly basis. Furthermore, the system
allows the end-user to interject quick daily updates to feature
new or overstocked items and then automatically return to the
previous content schedule.
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Data Collection. Through interactive touch
screen technology,
RoninCast®
software can capture user data and information. This information
can provide feedback to both the customer and the marketer. The
ability to track customer interaction and data mine user
profiles, in a non-obtrusive manner, can provide our customers
feedback that would otherwise be difficult to gather.
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Integrated
Applications. RoninCast®
software can integrate digital signage with other applications
and databases.
RoninCast®
software is able to use a database feed to change the content or
marketing message, making it possible for our customers to
deliver targeted messages. Data feeds can be available either
internally within a business or externally through the Internet.
For example, our customers can specify variable criteria or
conditions which
RoninCast®
software will analyze, delivering marketing content relevant to
the changing environment. This data can come from a myriad of
sources, such as
point-of-sale
systems in a retail store or a slot-machine manager in a casino.
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Scalability/Mobility. The
RoninCast®
system provides the ability to easily move signage or
scale-up
to incorporate additional digital signage. Displays can be moved
to or from any location under a wireless network. Customers are
able to accommodate adds/moves/changes within their environment
without rewiring network connections. And when the customer
wants to add additional digital signage, only electrical power
needs to be supplied at the new location.
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Compliance/Consistency. RoninCast®
software addresses compliance and consistency issues associated
with print media and alternative forms of visual marketing.
Compliance measures the frequency of having the marketing
message synchronized primarily with product availability and
price. Compliance issues cause inconsistencies in pricing,
product image and availability, and store policies.
RoninCast®
software addresses compliance by allowing message updates and
flexible control of a single location or multiple locations
network-wide.
RoninCast®
software allows our customers to display messages, pricing,
images and other information on websites that are identical to
those displayed at retail locations.
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Network Control. Each remote media player is
uniquely identified and distinguished from other units as well
as between multiple locations.
RoninCast®
software gives the end-user the ability to view the media
players status to determine if the player is functioning
properly and whether the correct content is playing. A list of
all units on the system is displayed, allowing the end-user to
view single units or clusters of units. The system also allows
the end-user to receive information regarding the health of the
network before issues occur. In addition, display monitors can
be turned on or off remotely.
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Industry
Recognition
In February 2008, Wireless Ronin was awarded three Apex Awards
for various projects during the Digital Signage Expo (DSE)
& Interactive Technology Expo (ITE): Environment Design
Integration for KFC/YUM! Brands Menu Boards, Hospitality for
Carnival Corporation and Interactive Innovation for Ford Motor
Company. DSE / ITE is a leading industry show
dedicated to digital signage and interactive technology.
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In March 2008, our company won POPAIs Silver Digital
Signage Award for Hospitality/Entertainment Network
Digital Menu Boards for work done for KFC/YUM! Brands and for
Government / Education / Corporation
Network InfoPoint for work done for
Thomson Reuters. This awards contest through Point of Purchase
Advertising International (POPAI) recognizes the most innovative
and effective marketing at-retail displays and programs that
improve sales and make products memorable and enticing to
consumers.
In September 2008, during the Digital Signage Expo
EAST, Wireless Ronin took home Content Awards for creative
design and execution of in-store solutions for Gabberts Fine
Furnishings and Interior Design and for the digital signage
content found at the Las Vegas Convention Center.
In addition, VMSD Magazine (Visual Merchandising + Store
Display) recognized RoninCast Digital Menu boards
KFC/YUM! Brands as one of the Best New Products of
2008.
Our
Markets
We generate revenue through system sales, license fees and
separate service fees for consulting, hosting, training, content
development and implementation services, and for ongoing
customer support and maintenance. We currently market and sell
our software and service solutions through our direct sales
force and value added resellers.
We market to companies that deploy
point-of-purchase
advertising or visual display systems and whose business model
incorporates marketing, advertising, or delivery of messages.
Typical applications are retail and service business locations
that depend on traditional static
point-of-purchase
advertising. We believe that any retail businesses promoting a
brand or advertisers seeking to reach consumers at public venues
are also potential customers. We believe that the primary market
segments for digital signage include:
Automotive. RoninCast for Automotive delivers
relevant content to all areas of a dealership and to special
events like auto shows. It includes pre-built automotive design
templates and content along with our Automotive Content
Management System and Dealer Ad Planner tools. Interactive touch
screens deliver detailed product information that informs and
educates customers and employees alike.
QSR (Quick Serve Restaurants). The use of menu
boards and promotional boards both in-store and in the
drive-through allow QSRs to address the unique challenges of the
industry, allowing for immediate compliance, the ability to
quickly update pricing, and highlight new items.
Retail. Digital signage allows retailers to
set promotions to fit various demographics of customers and
their respective shopping patterns and cycles, and to offer
services that more effectively compete with online retailers.
Digital signage also effectively addresses retailers
challenge of
point-of-purchase
compliance.
Select
Customers
Historically, our business has been dependent upon a few
customers. Our goal is to broaden and diversify our customer
base. Our client base has grown organically and through our
acquisition from 99 clients at the end of 2007 to 200 clients at
the end of 2008. Detail on key customers is as follows:
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Chrysler (BBDO Detroit/Windsor) WRT Canada
has been managing a data-driven touch screen kiosk program for
Chrysler for over eight years with over 2,400 dealers installed.
In 2007, Chrysler partnered with our company to create the next
evolution of the Chrysler Vehicle Information Centre as a
RoninCast®
interactive digital signage solution. A pilot project was
launched mid-year 2007. Key national markets across Canada were
selected for the test. Care was given to choose a range of
dealerships representative of Chrysler Canada. Results were
analyzed and focus group conference calls collected dealer
feedback, comments and suggestions. The outcome was the
development of a national rollout plan that has not yet been
implemented and may be delayed due to current market conditions.
Chrysler has also utilized the
RoninCast®-driven
Vehicle Information Center at major auto shows in the
U.S. and Canada. Sales to Chrysler, through BBDO
Detroit/Windsor, represented 31.8% and 18.3% of total sales for
the years ended December 31, 2008 and 2007, respectively.
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KFC In December 2007, Wireless Ronin entered
into an information technology products and services master
terms and conditions agreement with Yum Restaurant Services
Group, Inc. (Yum). That agreement established
standard terms and conditions pursuant to which we may provide
goods and services to Yums commonly owned affiliates such
as Taco Bell Corp., Pizza Hut, Inc., KFC U.S. Properties,
Inc., Long John Silvers, Inc., and A&W Restaurants, Inc. To
date, we have currently deployed digital menu boards in over 80
KFC locations throughout the United States. The Louisville and
Oklahoma City metro regions are currently 100% digital. KFC
continues to measure sales lift and menu board effectiveness as
its digital footprint grows. Sales to KFC represented 17.9% in
2008. Our relationship with KFC began in 2007 and sales to KFC
represented less than one percent of total sales in 2007.
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ARAMARK We have worked with ARAMARK since
April of 2008. ARAMARK provides managed food service for
thousands of locations in 10 verticals worldwide. We have been
engaged by the Higher Education division to support menu boards
and touch order screens on university campuses. We are currently
expanding our services into elementary and secondary schools.
ARAMARK has a corporate services group, Innovative Dining
Solutions, which acts as a service bureau for many tasks for the
various vertical markets. Innovative Dining Solutions has
engaged our company in the healthcare industry. We currently
provide all aspects of the related digital signage needs,
including hosting and content, though as ARAMARK expands it may
take a larger role in content creation as well as potentially
hosting its own solution. Sales to ARAMARK represented 3.2% of
our total sales in 2008.
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Thomson Reuters In June 2007, we entered into
a master services agreement with Reuters Limited to manage and
maintain Reuters InfoPoint network at digital signage
locations in and outside the United States. We supply a
complete solution to Thomson Reuters including hardware,
software and hosting. The InfoPoint network is a lifestyle,
news, information and pictures-based digital signage display
network designed for the
out-of-home
market. The network is designed for public spaces, lobbies,
waiting areas and walkways. Our
RoninCast®
digital signage software is supplied to Reuters through our
reseller partner, Richardson Electronics. Reuters is the
worlds largest international multimedia news agency,
providing investing news, world news, business news, technology
news, headline news and small business news via the internet,
video, mobile and interactive television platforms. We provide
system support to Reuters network on a
24-hour per
day, 7-day
per week and 365 days per year basis. Sales to Thomson
Reuters represented 2.5% of total sales in 2008. Our
relationship with Thomson Reuters began in 2007 and sales in
2007 represented less than one percent of total sales.
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Product
Description
RoninCast®
is a dynamic digital signage network solution that combines
scalable, secure, enterprise-compliant, proprietary software
with off the shelf or customer owned hardware. This integrated
solution creates a network capable of controlling management,
scheduling and delivering content from a single location to an
enterprise-level system.
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Master Controller (MC) The MC is divided into
two discrete operational components: the Master Controller
Server (MCS) and the Master Controller Client (MCC). The MCS
provides centralized control over the entire signage network and
is controlled by operators through the MCC graphical user
interface. Content, schedules and commands are submitted by
users through the MCC to be distributed by the MCS to the
End-Point Controllers. Additionally, through the MCS, network
and content reports, and field data are viewed by operators
utilizing the MCC.
End-Point Controller (EPC) The EPC receives
content, schedules and commands from the centralized MCS. It
then passes along the information to the End-Point Viewers in
its local environment. The EPC then sends content, executes
schedules and forwards commands that have been delivered.
Additionally, the EPC monitors the health of the local network
and sends status reports to the MCS.
End-Point Viewer (EPV) The EPV software
displays the content that has been distributed to it from the
EPC or the Site Controller. It keeps track of the name of the
content that is currently playing, and when and how many times
it has played. This information is delivered back to the MCS
through the EPC.
Site Controller (SC) The SC provides
localized control and operation of an installation. It is able
to deliver, broadcast, or distribute schedules and content. The
level of control over these operations can be set at specific
levels to allow local management access to some or all aspects
of the network. The SC also allows information to be reviewed
regarding the status of their local
RoninCast®
network. It is also used as an installation and diagnostic tool.
Network Builder (NB) The NB allows operators
to set up virtual networks of signage that create groups for
specific content distribution. EPVs can be grouped by location,
type, audience, or whatever method the user chooses.
Schedule Builder (SB) The SB provides
users the ability to create schedules for extended content
distribution. Schedules can be created a day, a week, a month or
a year at a time. These schedules are executed by the EPCs at
the local level.
Zone Builder (ZB) The ZB allows screen space
to be divided into discreet sections (zones) that can each play
separate content. This allows reuse of media created from other
sources, regardless of the pixel-size of the destination screen.
Additionally, each zone can be individually scheduled and
managed.
RoninCast®
Wall (RCW) The RCW provides the ability to synch
multiple screens together to create complex effects and
compositions such as an image moving from one screen to the next
screen, or all screens playing new content at one time.
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Database Client (DBC) The DBC allows for
automation of control of the
RoninCast®
network. Information can be retrieved from a database and sent
to the EPVs automatically. This software is best suited for
implementation where information changes on a regular basis,
such as meeting room calendars or arrival and departure times,
or data feeds from the Internet (for example, stock prices or
sports scores).
Event Log Viewer (EVL) The EVL allows the
user to easily analyze logs collected from the field in an
organized manner. Filtering and sorting of data in any aspect
further simplifies the analysis.
Software Development Kit (SDK) The SDK is
provided so that customers can create their own custom
applications that can interface with the
RoninCast®
network. This provides the ultimate in flexibility for our
customers who wish to create their own
look-and-feel.
Key
Components
Key components of our solution include:
User-Friendly
Network Control
When managing the
RoninCast®
network, the ability to easily and intuitively control the
network is critical to the success of the system and the success
of the customer. Customer input has been, and continues to be,
invaluable in the design of the
RoninCast®
Graphical User Interface. Everything from simple design
decisions, such as menu layout, to advanced network
communication, such as seeing the content play on a remote
screen, is designed to be user-friendly and intuitive.
Diverse
Media and Authoring Choices
With the myriad of media design tools available today, it is
vital that
RoninCast®
software stay current with the tools and technologies available.
RoninCast®
software started with Macromedia Flash, and while Flash remains
a large percentage of content created and deployed, we have
continued to innovate and expand the content options available.
Today we offer video (MPEG1, MPEG2, MPEG4, WMV, AVI, QT, MOV),
Macromedia Flash (SWF), still images (JPEG, BMP), and audio
(MP3, WAV). Additionally, raw data feeds (from internal or
Internet sources) can be processed and displayed as tickers that
can be integrated into any screen layout. As media technologies
continue to emerge and advance, we plan to expand the media
choices for
RoninCast®
solutions.
Intelligent
Content Distribution
The size and complexity of the content being sent to digital
displays are growing. In order for
RoninCast®
software to maintain network friendliness across wired and
wireless connections, it is important that as few bytes as
possible are sent. There are several ways that we enable this.
The system utilizes a locally installed librarian that takes
advantage of unused space on the hard-drive to track and manage
content. Only files that are needed at the EPVs are transferred,
saving on network bandwidth.
RoninCast®
software supports content transfer technologies other than
one-to-one
connections. One such technology is multicast satellite
distribution. This is widely used in corporations such as
big-box retailers that distribute large quantities of data to
many locations.
Often it is not the content itself that needs to be changed, but
the information within the content that needs to be changed. If
information updates are needed, instead of creating and sending
a new content file,
RoninCast®
software can facilitate the information swap. Through Macromedia
Flash and the
RoninCast®
Database Client, changing content information (instead of the
content itself), can be facilitated through mechanisms such as
Active Server Pages (ASP, PHP). This reduces updates from
mega-bytes to the few bytes required to display a new piece of
data (such as a price).
10
Distributed
Management
In order for
RoninCast®
solutions to be scalable to large organizations, it is necessary
that each individual installation not burden the MC with
everyday tasks that are required to manage a complex network. To
this end, the MC offloads much of its work and monitoring to the
EPCs. On the local network, the EPCs execute schedules, monitor
EPVs, distribute content, and collect data. The only task that
is required of the MC is to monitor and communicate with the
EPCs. In this way, expansion of the
RoninCast®
network by adding an installation does not burden the MC by the
number of screens added, but only by the single installation.
Enterprise-Level Compatibility
RoninCast®
software is designed to easily integrate into large enterprises
and become part of the suite of tools that are used every day.
The
RoninCast®
Server applications (MCS and EPC) run under Windows (2K, XP and
2K+ Server), and Linux server technology. In order to
accommodate our customers network administrators, our
software supports the ability to use ASP and PHP to create
controlled, closed-loop interfaces for the
RoninCast®
system.
Flexible
Network Design
One of the strengths of the
RoninCast®
network is the ease and flexibility of implementation and
expansion.
RoninCast®
software is designed to intelligently and successfully manage
myriad connection options simultaneously, both internally to an
installation and externally to the Internet.
RoninCast®
solutions can be networked using Wired LAN
and/or
Wireless LAN technology. With Wireless LAN, time and costs
associated with installing or extending a hardwired network are
eliminated. Wireless LAN offers customers freedom of
installations and reconfigurations without the high costs of
cabling. Additionally, a new installation can be connected to
the Internet through
dial-up/DSL
telephone modems, wireless data communications or
high-throughput enterprise data-pipes.
In order to communicate with the MCS, a new installation can be
connected to the Internet through
dial-up/DSL
telephone modems, digital mobile communication (such as CDMA or
GPRS), or high-throughput enterprise data-pipes.
Security
Essential to the design of
RoninCast®
software is the security of the network and hence the security
of our customers. In order to provide the most secure
installation possible, we address security at every level of the
system:
RoninCast®
communication, operating system hardening, network security and
user interaction.
RoninCast®
software utilizes an unpublished proprietary communication
protocol to communicate with members of the system. All
information that is sent to or from a network member is
encrypted with an industry standard 256-bit encryption scheme
that is rated for government communication. This includes
content for display as well as commands to the system, such as
those for maintenance and data retrieval. Additionally, all
commands are verified by challenge-response where the receiver
of communication challenges the sender to prove that in fact it
was sent from that sender, and not a potential intruder.
In order for computers to be approved for use on the
RoninCast®
network, their operating systems (whether Windows or Linux) go
through a rigorous hardening process. This hardening removes or
disables extraneous programs that are not required for the core
operation of
RoninCast®
applications. The result is a significantly more stable and
secure base for the system as a whole.
Wireless and wired LAN each pose different levels of security
exposure. Wireless LAN has the most exposure to potential
intruders. However, both can be accessed. In order to create a
secure network, we utilize high-level industry-standard wireless
LAN equipment and configure it with the highest level of
security. When necessary, we work with our customers, analyze
their network security and recommend back-end computer security
hardware and software that will help make both their network and
the
RoninCast®
network as secure as possible.
11
RoninCast also uses a username/password mechanism with four
levels of control so that access and functionality can be
granted to a variety of users without having to give complete
control to everyone. The four levels are separated into root
(the highest level of control with complete access to the
system), administrators (access that allows management of
RoninCasts hardware and software), operators (access that
allows the management of the media playing), and auditors
(access that is simply a looking glass that allows
the viewing of device status, media playing, etc.).
Additionally, in order to facilitate efficient management of
access to the system, RoninCast resolves usernames and passwords
with the same servers that already manage a customers
infrastructure.
Network
Operations Center
We offer a full service network operations center
(NOC), manned 24/7, in Minnetonka, Minnesota,
supported by a redundant center in Des Moines, Iowa. The
computers in both locations communicate in real-time with the
devices deployed at our customer locations.
Our NOC operators send schedules and content, gather data from
the field, flag and elevate field issues and handle customer
calls. RoninCasts dynamic nature allows our customers to
purchase subscriptions at the level of service they desire. Some
customers may want us to manage all aspects of their RoninCast
network, whereas other customers may want us to monitor for
field issues, but manage the schedules and content themselves.
In addition to normal RoninCast management, customers can
subscribe to dynamic data from the Internet, such as weather or
stock quotes. This data is received by our servers and
distributed to the desired End-Point Viewers in the field.
Multiple language feeds can be supported with only the needed
information arriving at each location. Due to the scalability of
RoninCast, each Master Controller Server in the NOC can manage
one or many customers.
Our
Suppliers
Our principal suppliers include the following:
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NEC Display Solutions, Electrograph and Synexx for monitors;
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Bell Micro, NowMicro and NEC for computers;
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Chief Manufacturing, Inc. for fixtures; and
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United Service Source and ASD for installation services.
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We have no long-term agreements with any of our suppliers.
Agreements
with NewSight
On August 10, 2007, we announced that our largest customer
during 2007, NewSight Corporation (NewSight), had
re-prioritized various elements of its planned digital signage
system implementations, including a delay in the rollout of
network installations into large, upscale malls, and the launch,
installation and operation of digital signage networks in
physicians offices. In connection with NewSights
re-prioritization, we agreed to provide digital signage to
retrofit 102 stores of an existing network and newly configure
approximately 79 stores of a grocery store chain in the Midwest,
Meijer, Inc. (Meijer), under a digital signage
agreement.
In consideration of our undertaking to complete the Meijer
Network (as defined below), we agreed to take a promissory note
and security interest in certain equipment, while we understood
NewSight was in the process of raising capital. Effective
October 8, 2007, NewSight issued us a Secured Promissory
Note (the Note) for goods provided and services
rendered, in an original principal amount of $1,760,177. In
connection with the issuance of the Note, we also entered into a
Security Agreement, dated October 12, 2007, with NewSight
pursuant to which we acquired a security interest in certain
collateral of NewSight, consisting of all existing and
after-acquired video screens and monitors and other equipment
for digital signage then or
12
thereafter provided by us to NewSight, including all such
equipment located in the Fashion Square Mall in Saginaw,
Michigan and the Asheville Mall in Asheville, North Carolina,
and any grocery store premises operated by Meijer and its
affiliates (the Meijer Network) and all related
hardware, software and parts used in connection with such
equipment or the Meijer Network and all proceeds from such
personal property, but not including any intellectual property
of NewSight (the Collateral). Pursuant to the Note,
this debt obligation would mature on the first to occur of
(1) successful completion of NewSights financing
efforts, or (2) December 31, 2007.
We extended the term of the Note to allow NewSight more time to
complete its financing efforts, on January 7, 2008,
April 4, 2008 and June 5, 2008. In connection with the
first of such extensions, we agreed to credit NewSight customer
deposits aggregating $277,488 against the amount of the Note. In
connection with the second extension, we agreed to terminate
several other agreements we had with NewSight: the physician
office agreement to develop the NewSight on Health
physicians network; the agreement for development of the Pyramid
Mall network; and the
3-D software
development agreement.
The Note, as amended, matured on August 15, 2008.
NewSights aggregate indebtedness to us, including the
Note, accrued interest, and all accrued warehousing fees and
expenses and network operating and maintenance expenses, totaled
$2,761,608, net of deferred revenue of $1,029,796, at such date
(the Aggregate Indebtedness). Given NewSights
inability to obtain financing that would have allowed it to
repay this obligation and given the termination of
NewSights business relationship with Meijer regarding the
Meijer Network, we entered into negotiations with NewSight and
its principal creditor, Prentice Capital Management, L.P.
(Prentice), to obtain ownership of the Collateral
(other than the Released Collateral (as defined below)) (the
Surrendered Collateral) in recognition of our rights
as a secured creditor. The Released Collateral
represented Collateral presently installed at the stores
operated by CBL Associated at the Fashion Square Mall and the
Asheville Mall.
On August 21, 2008, we entered into a Turnover and
Surrender Agreement with NewSight (the Turnover and
Surrender Agreement) under which NewSight surrendered,
transferred and turned over to us, and we accepted, the
Surrendered Collateral in full satisfaction of the Aggregate
Indebtedness. We agreed that, except for the obligations under
the Turnover and Surrender Agreement, NewSight has no further
obligations to us. The Surrendered Collateral was turned over
and surrendered to us on an as is and where
is basis. Under the Turnover and Surrender Agreement,
NewSight granted us an irrevocable license and consent to enter
into any properties licensed to or leased by NewSight for the
purpose of taking possession and control of such collateral.
NewSight further agreed to indemnify and hold us and our
subsidiary, and all of our shareholders, agents, officers and
directors harmless against any and all claims, losses and
expenses (including attorneys fees) related to any claims
against us as a result of a breach of any covenant,
representation or warranty by NewSight in the Turnover and
Surrender Agreement, and claims by any creditor, shareholder or
trustee of NewSight relating to the transfer and surrender under
the Turnover and Surrender Agreement. We and NewSight also
agreed to a mutual release of all claims except obligations
arising under the Turnover and Surrender Agreement.
In addition, we entered into a Consent Agreement with Prentice
on August 21, 2008 (the Consent Agreement)
pursuant to which Prentice consented to the terms and conditions
of the Turnover and Surrender Agreement. The Consent Agreement
also provided for the allocation of any future proceeds received
or paid to us in connection with the Surrendered Collateral or
the Meijer Network. In general, such funds would be applied in
the following manner: (1) first to payment of our expenses
in connection with the turnover and surrender, (2) second
to payment of our expenses in connection with replacing,
modifying or enhancing the Surrendered Collateral,
(3) third to our company in payment of the Aggregate
Indebtedness, (4) fourth the next $100,000 of proceeds
would be allocated 70% to our company and 30% to Prentice, and
(5) fifth all remaining proceeds would be allocated 50% to
our company and 50% to Prentice. These allocations also applied
in the event of the sale or contribution by our company of the
Surrendered Collateral or the Meijer Network. However, such
allocations did not apply to amounts paid or payable to our
company in payment or reimbursement of our monthly costs to
operate or service the Meijer Network. The rights and interests
granted by our company to Prentice under the Consent Agreement
were to expire on the third anniversary of the Consent
Agreement. We and Prentice also generally agreed to a mutual
release of all claims.
13
On August 21, 2008, we also entered into an Interim
Operating Agreement with ABC National Television Sales, Inc.
(ABC) and Met/Hodder, Inc. (MH) pursuant
to which the parties continued to operate the Meijer Network
through October 31, 2008 (the Interim Operating
Agreement). We entered into the Interim Operating
Agreement to continue to run the Meijer Network for an interim
period necessary to establish a more permanent arrangement with
respect to the Meijer Network ownership and placement in Meijer
stores. We received $51,000, paid out of advertising revenues on
the Meijer Network, under this agreement in 2008.
Meijer then sent a request for proposal to several national
network providers, including Wireless Ronin Technologies, to
build out the remaining network of 82 stores and continue to
support the existing network of 102 stores in which we owned the
network hardware. We expected Meijer to choose one of these
network providers in the fourth quarter of 2008, with which to
move forward. As of September 30, 2008, we had reclassified
the NewSight account receivable balance of $2,429,884, deferred
revenue of $1,029,796, deferred costs of $585,538, and the
accrued finders fees of $48,464 to Network equipment held
for sale totaling $1,937,162. This asset appeared as a separate
line on our balance sheet as a current asset at
September 30, 2008.
Subsequent to December 31, 2008, Meijer abandoned plans to
maintain the network. As a result, we moved approximately
$171,000 of equipment from the in-box collateral base into
inventory and recorded an impairment loss in the fourth quarter
of 2008 on the remaining $1,766,072 of network equipment held
for sale.
Agreement
with Marshall Special Assets Group, Inc.
On February 13, 2007, we terminated the strategic
partnership agreement with The Marshall Special Assets Group,
Inc. (Marshall) which we had entered into in May
2004. Pursuant to the terms of a mutual termination, release and
agreement, we paid Marshall $653,995 and we agreed to pay a fee
in connection with sales of our software and hardware to
customers, distributors and resellers for use exclusively in the
ultimate operations of or for use in a lottery (End
Users). Under such agreement, we will pay Marshall
(i) 30% of the net invoice price for the sale of our
software to End Users, and (ii) 2% of the net invoice price
for the sale of hardware to End Users, in each case collected by
us on or before February 12, 2012, with a minimum annual
payment of $50,000 for three years. Marshall will pay 50% of the
costs and expenses incurred by us in relation to any test
installations involving sales or prospective sales to End Users.
In 2008 and 2007, we recorded $50,000 of expense pursuant to the
minimum payment for 2008 and 2007 required under the agreement.
Ongoing
Development
Ongoing product development is essential to our ability to stay
competitive in the marketplace as a solution provider. We
believe that the functionality and capabilities of our product
offerings are competitive advantages and that we must continue
to invest in them to maintain our competitive position. The
digital signage market is subject to rapid technological change
including new communication technologies, new computer hardware
and display technologies, as well as the expansion of media
display options. Client requirements are also evolving rapidly.
To remain successful, we must continually adapt to these and
other changes. We incurred research and development expenses of
$2,541,267 in 2008, $1,197,911 in 2007 and $875,821 in 2006.
Services
Our services are integral to our ability to provide customers
with successful digital signage solutions. We offer a wide range
of services from consulting, project planning, design, content
development, training, hosting and implementation services, to
ongoing customer support and maintenance. Generally, we charge
our customers for services on a
fee-for-service
basis.
Wireless Ronin also offers existing and prospective clients with
robust and turnkey content creation capabilities. Our graphic
shops in Windsor, Ontario, Canada and Minnetonka, Minnesota are
staffed with competent and experienced artists who excel at
converting existing assets into appealing digital assets.
14
Consulting: We work with clients to determine
the ultimate hardware and software solution tailored to the
specific requirements for their environment.
Creative: With design experience and an
outstanding record of customer satisfaction, our creative team
helps make our clients marketing and advertising
initiatives a reality.
Content Engineering: Our content engineering
group is tasked with the architecture, production and
development of advanced interactive content as well as all
e-learning
content creation producing relevant, valuable, and measureable
results that engage and motivate customers and consumers alike.
Content Deployment: Our content deployment
group offers robust content creation and deployment capabilities
for non-interactive applications which includes planning,
re-purposing of existing content and the development of visual
communications.
Project Management: Our project management
team has experience with large-scale implementations and
installations keeping the goals of timeliness,
effectiveness and customer satisfaction in mind.
Fixturing: Whether our clients have their own
partners or need our assistance, we work with clients to
incorporate the
RoninCast®
technology into their environments.
Installation: We have the experience to roll
out large scale projects and single location installations
without unexpected delays or expenses.
Training: We provide training with every
purchase of
RoninCast®
software.
Hosting: For clients requiring assistance with
operating their networks, we offer the service of a Network
Operations Center for any network hosting needs.
Maintenance and Support: Our support staff is
available 24/7 for assistance with any issue. Standard
maintenance, including software upgrades, is included under the
annual maintenance agreement.
Intellectual
Property
As of March 9, 2009, we had received one design patent and
three U.S. patent applications and one Canadian patent
application remained pending relating to various aspects of our
RoninCast®
delivery system. For the two U.S. patent applications, we
filed utility applications to follow on to previously filed
provisional applications. Highly technical patents can take up
to six years to issue and we cannot assure you that any patents
will be issued, or if issued, that the same will provide
significant protection to us.
We currently have U.S. federal trademark registrations for
WIRELESS
RONIN®
and RONIN
CAST®,
and for RONINCAST and
Design®.
RONIN
CAST®
and RONIN CAST and
Design®
have been registered in the European Union. RONIN CAST and
Design®
is registered in Canada. We have several trademarks pending
action by various patent and trademark offices as described
below:
RONINCAST®
and Design (Color Logo) is pending registration in Canada and
registered in the European Union and the U.S.
The WR (Circle Design) is pending registration in
Canada and has been allowed in the U.S.
COMMUNICATING AT
LIFESPEEDtm
is pending in Canada and registered in the U.S. and the
European Union.
Federal trademark registrations continue indefinitely so long as
the trademarks are in use and periodic renewals and other
required filings are made. We review our trademarks and
registration requirements with the help of trademark legal
counsel and may, from time to time, abandon registered
trademarks or file new applications for trademarks if then
current registrations no longer accurately reflect our use of
those trademarks.
In February 2006, we received a letter from MediaTile Company
USA, advising us that it filed a patent application in June 2005
relating solely and narrowly to the use of cellular delivery
technology for digital signage. The letter contains no
allegation of an infringement of MediaTiles patent
application. MediaTiles
15
patent application has not been examined by the U.S. Patent
Office. Therefore, we have no basis for believing our systems or
products would infringe any pending rights of MediaTile. We
asked MediaTile in a responsive letter to keep us apprised of
their patent application progress in the Patent Office. As of
March 9, 2009, MediaTile has not provided the responsive
letter requested nor has MediaTile contacted us regarding its
patent application.
Competition
We compete with EnQii and Stratacache as digital signage
providers. Within our primary verticals of automotive, quick
serve restaurant and retail, our competitors include Broadsign,
Scala, Omnivex, Hughes, Texas Digital, c-nario,
Harris-Infocaster, Planar/Coolsign and Cisco Systems.
Touch-screen competitors include Netkey and Nanonation. During
2008 both EnQii and Stratacache raised capital and, although we
have no access to detailed information regarding our
competitors respective operations, some or all of these
entities may have significantly greater financial, technical and
marketing resources than we do and may be able to respond more
rapidly than we can to new or emerging technologies or changes
in customer requirements. We believe that our direct sales
force, our full service network operations center, our complete
digital signage solutions and our brand awareness are the
primary factors affecting our competitive position. We also
compete with standard advertising media, including print,
television and billboards.
Territories
Our company sells products and services primarily throughout
North America. In the year ended December 31, 2008, we
derived 85% of net sales in the U.S. and 15% of net sales in
Canada, based on location of end customer. For more information,
see Note 10 (Segment Information and Major
Customers).
Regulation
We are subject to regulation by various federal and state
governmental agencies. Such regulation includes radio frequency
emission regulatory activities of the U.S. Federal
Communications Commission, the consumer protection laws of the
U.S. Federal Trade Commission, product safety regulatory
activities of the U.S. Consumer Product Safety Commission,
and environmental regulation in areas in which we conduct
business. Some of the hardware components which we supply to
customers may contain hazardous or regulated substances, such as
lead. A number of U.S. states have adopted or are
considering takeback bills which address the
disposal of electronic waste, including CRT style and flat panel
monitors and computers. Electronic waste legislation is
developing. Some of the bills passed or under consideration may
impose on us, or on our customers or suppliers, requirements for
disposal of systems we sell and the payment of additional fees
to pay costs of disposal and recycling. As of the date of this
report, we have not determined that such legislation or proposed
legislation will have a material adverse impact on our business.
Employees
We often refer to our employees as associates. As of
March 9, 2009, we had a full-time workforce of 94, of which
77 were employees (associates), 13 were contractors engaged
through agencies and four were independent contractors engaged
directly by us. Fifty members of our workforce operate out of
our headquarters located in Minnetonka, Minnesota. The others
operate out of our office located in Windsor, Ontario, Canada.
Our workforce is engaged in programming, networking, designing,
training, sales/marketing and administration areas.
16
Executive
Officers of the Registrant
The following table provides information with respect to our
executive officers as of March 9, 2009. Each executive
officer has been appointed to serve until his or her successor
is duly appointed by the Board of Directors or his or her
earlier removal or resignation from office. There are no
familial relationships between any director or executive officer.
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Name
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Age
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Position with Company
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James C. Granger
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62
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President, Chief Executive Officer and Director
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Darin P. McAreavey
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40
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Vice President and Chief Financial Officer
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Scott W. Koller
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47
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Executive Vice President and Chief Operating Officer
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James C. Granger has served as our President, Chief
Executive Officer and Director since December 2008. Prior to
joining Wireless Ronin, Mr. Granger served as President of
Toptech Systems, Inc., a provider of software, hardware and data
services. Prior to Toptech, Mr. Granger was President and
Chief Executive Officer and a Director of Norstan Inc., a
communications solutions and services company, from November
2000 to February 2004. Mr. Granger served as Chairman,
President and Chief Executive Officer of Digital Biometrics,
Inc., now part of L-1 Identity Solutions Inc., a provider of
identification information systems that employ biometric
technology, from January 1997 to November 2000. He was President
of Access Platform Systems Division at ADC Telecommunications,
Inc., a provider of broadband communications network
infrastructure products and related services from 1995 to 1997.
Mr. Granger served as Vice President of Consumer Markets
Operations, and before that, as Vice President of Marketing, at
Sprint/United Telephone from 1989 to 1995.
Darin P. McAreavey has served as Vice President and Chief
Financial Officer since March 2009. Mr. McAreavey worked
for Xiotech Corporation from September 2007 to March 2009 as its
Chief Financial Officer. From February 2007 to September 2007,
Mr. McAreavey worked for Global Capacity Group as its Chief
Financial Officer. Mr. McAreavey was the Chief Financial
Officer, Executive Vice President and Treasurer for Stellent,
Inc. from May 2006 to February 2007 and that companys
Corporate Controller from September 2004 to May 2006.
Mr. McAreavey worked at Computer Network Technology from
August 1995 to September 2004 where he held several management
level finance positions including Director of Finance. From
November 1993 to August 1995, Mr. McAreavey was a
Supervising Senior for KPMG LLP. Mr. McAreavey began his
professional career as a Senior Accountant at Eide
Helmeke & Co. from July 1991 to November 1993.
Scott W. Koller has served as Executive Vice President
and Chief Operating Officer since March 2009. Mr. Koller
previously served as Executive Vice President of Sales and
Project Management since October of 2008. Mr. Koller was
Executive Vice President of Sales and Marketing from February
2007 until October 2008. From November 2004 through January
2007, Mr. Koller served as our Senior Vice President of
Sales and Marketing. From December 2003 to November 2004,
Mr. Koller served as Vice President of Sales and Marketing
for Rollouts Inc. From August 1998 to November 2003,
Mr. Koller served in various roles with Walchem
Corporation, including the last three years as Vice President of
Sales and Marketing. Mr. Koller served in the
U.S. Naval Nuclear Power Program from 1985 to 1992.
Wireless Ronin Technologies, Inc., or persons acting on our
behalf, or outside reviewers retained by us making statements on
our behalf, or underwriters of our securities, from time to
time, may make, in writing or orally, forward-looking
statements as defined under the Private Securities
Litigation Reform Act of 1995. This Cautionary Statement, when
used in conjunction with an identified forward-looking
statement, is for the purpose of qualifying for the safe
harbor provisions of the Litigation Reform Act and is
intended to be a readily available written document that
contains factors which could cause results to differ materially
from such forward-looking statements. These factors are in
addition to any other cautionary statements, written or oral,
which may be made, or referred to, in connection with any such
forward-looking statement.
17
The following matters, among others, may have a material
adverse effect on our business, financial condition, liquidity,
results of operations or prospects, financial or otherwise, or
on the trading price of our common stock. Reference to this
Cautionary Statement in the context of a forward-looking
statement or statements shall be deemed to be a statement that
any one or more of the following factors may cause actual
results to differ materially from those in such forward-looking
statement or statements.
Risks
Related to Our Business
Our
operations and business are subject to the risks of an early
stage company with limited revenue and a history of operating
losses. We have incurred losses since inception, and we have had
only nominal revenue. We may not ever become or remain
profitable.
Since inception, we have had limited revenue from the sale of
our products and services, and we have incurred net losses. We
incurred net losses of $20,692,361 and $10,086,385 for the years
ended December 31, 2008 and 2007, respectively. As of
December 31, 2008, we had an accumulated deficit of
$64,212,458.
We have not been profitable in any year of our operating history
and anticipate incurring additional losses into the foreseeable
future. We do not know whether or when we will become
profitable. Even if we are able to achieve profitability in
future periods, we may not be able to sustain or increase our
profitability in successive periods. We may require additional
financing in the future to support our operations. For further
information, please review the risk factor Adequate funds
for our operations may not be available, requiring us to curtail
our activities significantly below.
We have formulated our business plans and strategies based on
certain assumptions regarding the acceptance of our business
model and the marketing of our products and services. However,
our assessments regarding market size, market share, market
acceptance of our products and services and a variety of other
factors may prove incorrect. Our future success will depend upon
many factors, including factors which may be beyond our control
or which cannot be predicted at this time.
Our
success depends on our
RoninCast®
system achieving and maintaining widespread acceptance in our
targeted markets. If our products contain errors or defects, our
business reputation may be harmed.
Our success will depend to a large extent on broad market
acceptance of
RoninCast®
software and our other products and services among our
prospective customers. Our prospective customers may still not
use our solutions for a number of other reasons, including
preference for static signage, unfamiliarity with our
technology, preference for competing technologies or perceived
lack of reliability. We believe that the acceptance of
RoninCast®
software and our other products and services by our prospective
customers will depend on the following factors:
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our ability to demonstrate
RoninCast®
softwares economic and other benefits;
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our customers becoming comfortable with using
RoninCast®
software; and
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the reliability of the software and hardware comprising
RoninCast®
and our other products.
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Our software is complex and must meet stringent user
requirements. Our products could contain errors or defects,
especially when first introduced or when new models or versions
are released, which could cause our customers to reject our
products, result in increased service costs and warranty
expenses and harm our reputation. We must develop our products
quickly to keep pace with the rapidly changing digital signage
and communications market. In the future, we may experience
delays in releasing new products as problems are corrected. In
addition, some undetected errors or defects may only become
apparent as new functions are added to our products. Delays,
costs and damage to our reputation due to product defects could
harm our business.
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World-wide
efforts to cut capital spending, general economic uncertainty,
and a weakening global economy could have a material adverse
effect on us.
Disruptions in the economy and constraints in the credit markets
have caused companies to reduce or delay capital investment.
Some of our prospective customers may cancel or delay spending
on the development or roll-out of capital and technology
projects with us due to the economic downturn. Furthermore, the
downturn has adversely affected certain industries in
particular, including the automotive and restaurant industries,
in which we have major customers. We could also experience lower
than anticipated order levels from current customers,
cancellations of existing but unfulfilled orders, and extended
payment or delivery terms. The economic crisis could also
materially impact us through insolvency of our suppliers or
current customers. While we have down-sized our operations to
reflect the decrease in demand, we may not be successful in
mirroring current demand.
We may
experience fluctuations in our quarterly operating
results.
We may experience variability in our total sales on a quarterly
basis as a result of many factors, including the condition of
the electronic communication and digital signage industry in
general, shifts in demand for software and hardware products,
technological changes and industry announcements of new products
and upgrades, absence of long-term commitments from customers,
timing and variable lead-times of customer orders, delays in or
cancellations of customer orders, variations in component costs
and/or
adverse changes in the supply of components, variations in
operating expenses, changes in our pricing policies or those of
our competitors, the ability of our customers to pay for
products and services, effectiveness in managing our operations
and changes in economic conditions in general. We may not
consider it prudent to adjust our spending levels on the same
timeframe; therefore, if total sales decline for a given
quarter, our operating results may be materially adversely
affected. As a result of the potential fluctuations in our
quarterly operating results, we believe that
period-to-period
comparisons of our financial results should not be relied upon
as an indication of future performance. Further, it is possible
that in future quarters our operating results will be below the
expectations of public market analysts and investors. In such
event, the price of our common stock would likely be materially
adversely affected.
Due to
our dependence on a limited number of customers, we are subject
to a concentration of credit risk.
Chrysler (BBDO Detroit / Windsor) accounted for 44.5%
of our total accounts receivable as of December 31, 2008.
In the case of insolvency by one of our significant customers,
an account receivable with respect to that customer might not be
collectible, might not be fully collectible, or might be
collectible over longer than normal terms, each of which could
adversely affect our financial position. In one case in the
past, we converted a customers account receivable into a
secured note receivable then into the underlying collateral,
which we ultimately wrote off. In the future, if we convert
other accounts receivable into notes receivable or obtain the
collateral underlying notes receivable, we may not be able to
fully recover the amount due, which could adversely affect our
financial position. Furthermore, the value of the collateral
which serves to secure any such obligation is likely to
deteriorate over time due to obsolescence caused by new product
introductions and due to wear and tear suffered by those
portions of the collateral installed and in use. There can be no
assurance that we will not suffer credit losses in the future.
The
integration and operation of McGill Digital Solutions may
disrupt our business and create additional expenses and we may
not achieve the anticipated benefits of the acquisition. In the
event we elect to expand our business through additional
acquisitions, we cannot assure that such future acquisitions, if
pursued and consummated, will be advantageous or
profitable.
Integration of an acquisition involves numerous risks, including
difficulties in converting information technology systems and
assimilating the operations and products or services of an
acquired business, the diversion of managements attention
from other business concerns, risks of entering markets in which
we have limited or no direct prior experience, assumption of
unknown liabilities, increased accounting and financial
reporting risk, the potential loss of key associates
and/or
customers, difficulties in completing strategic
19
initiatives already underway in the acquired or acquiring
companies, unfamiliarity with partners of the acquired company,
and difficulties in attracting additional key employees
necessary to manage acquired operations, each of which could
have a material adverse effect on our business, results of
operations and financial condition.
In August 2007, we acquired McGill Digital Solutions, Inc. (now
Wireless Ronin Technologies (Canada), Inc.), a Canadian company
based in Windsor, Ontario, Canada. We have significantly
decreased the workforce in the Windsor office. As part of this
downsizing, we have taken measures to consolidate reporting
relationships and business functions across both our
headquarters and Windsor offices. We have also taken steps to
integrate technologies developed by staff in our headquarters
with those developed in our Windsor office. Successfully joining
those technologies is complicated, time-consuming and may not
ultimately prove successful either technically or in terms of
providing a commercially successful product or set of products.
We cannot assure you that these changes to our workforce,
organizational structure or products will prove to be beneficial
or without unforeseen risks over either the short or long term
future. We cannot assure you that these risks or other
unforeseen factors will not offset the intended benefits of the
acquisition, in whole or in part.
In addition, we now have additional duties and liabilities
related to having offices and operations in Canada. These risks
and costs include the need to comply with local laws and
regulatory requirements, as well as changes in those laws and
requirements, such as regarding employment and severance issues,
tax issues, tariffs and duties, and protection of our
intellectual property rights.
Finally, we may determine to grow through future acquisitions of
technologies, products or businesses. We may complete future
acquisitions using cash, or through issuances of equity
securities which could be dilutive, or through the incurrence of
debt which could contain restrictive covenants. In addition,
acquisitions may result in significant amortization expenses
related to intangible assets. Such methods of financing could
adversely affect our earnings. We cannot assure you that we will
be successful in integrating any business acquired in the
future. In addition, we cannot assure you that we will pursue or
consummate future acquisitions or that any acquisitions, if
consummated, will be advantageous or profitable for our company.
Most
of our contracts are terminable by our customers with limited
notice and without penalty payments, and early terminations
could have a material effect on our business, operating results
and financial condition.
Most of our contracts are terminable by our customers following
limited notice and without early termination payments or
liquidated damages due from them. In addition, each stage of a
project often represents a separate contractual commitment, at
the end of which the customers may elect to delay or not to
proceed to the next stage of the project. We cannot assure you
that one or more of our customers will not terminate a material
contract or materially reduce the scope of a large project. The
delay, cancellation or significant reduction in the scope of a
large project or number of projects could have a material
adverse effect on our business, operating results and financial
condition.
Our
prospective customers often take a long time to evaluate our
products, with this lengthy and variable sales cycle making it
difficult to predict our operating results.
It is difficult for us to forecast the timing and recognition of
revenue from sales of our products because our prospective
customers often take significant time evaluating our products
before purchasing them. The period between initial customer
contact and a purchase by a customer may be more than one year.
During the evaluation period, prospective customers may decide
not to purchase or may scale down proposed orders of our
products for various reasons, including:
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reduced need to upgrade existing visual marketing systems;
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introduction of products by our competitors;
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lower prices offered by our competitors; and
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changes in budgets and purchasing priorities.
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Our prospective customers routinely require education regarding
the use and benefit of our products. This may also lead to
delays in receiving customers orders.
Adequate
funds for our operations may not be available, requiring us to
curtail our activities significantly.
Based on our current and anticipated expense levels and our
existing capital resources, we anticipate that our cash will be
adequate to fund our operations for at least the next twelve
months. Our future capital requirements, however, will depend on
many factors, including our ability to successfully market and
sell our products, develop new products and establish and
leverage our strategic partnerships and reseller relationships.
In order to meet our needs should we not become cash flow
positive or should we be unable to sustain positive cash flow,
we may be required to raise additional funding through public or
private financings, including equity financings. Any additional
equity financings may be dilutive to shareholders, and debt
financing, if available, may involve restrictive covenants.
Adequate funds for our operations, whether from financial
markets, collaborative or other arrangements, may not be
available when needed or on terms attractive to us, especially
in light of recent turmoil in the credit markets. If adequate
funds are not available, our plans to expand our business may be
adversely affected and we could be required to curtail our
activities significantly. We may need additional funding in the
future. Necessary funding may not be available on terms that are
favorable to the company, if at all.
Difficulty
in developing and maintaining relationships with third party
manufacturers, suppliers and service providers could adversely
affect our ability to deliver our products and meet our
customers demands.
We rely on third parties to manufacture and supply parts and
components for our products and provide order fulfillment,
installation, repair services and technical and customer
support. Our strategy to rely on third party manufacturers,
suppliers and service providers involves a number of significant
risks, including the loss of control over the manufacturing
process, the potential absence of adequate capacity, the
unavailability of certain parts and components used in our
products and reduced control over delivery schedules, quality
and costs. For example, we do not generally maintain a
significant inventory of parts or components, but rely on
suppliers to deliver necessary parts and components to third
party manufacturers, in a timely manner, based on our forecasts.
If delivery of our products and services to our customers is
interrupted, or if our products experience quality problems, our
ability to meet customer demands would be harmed, causing a loss
of revenue and harm to our reputation. Increased costs,
transition difficulties and lead times involved in developing
additional or new third party relationships could adversely
affect our ability to deliver our products and meet our
customers demands and harm our business.
Reductions
in hardware costs will likely decrease hardware pricing to our
customers and would reduce our per unit revenue.
Our product pricing includes a standard percentage markup over
our cost of product components, such as computers and display
monitors. As such, any decrease in our costs to acquire such
components from third parties will likely be reflected as a
decrease in our hardware pricing to our customers. Therefore,
reductions in such hardware costs could potentially reduce our
revenues.
Because our business model relies upon strategic partners and
resellers, we expect to face risks not faced by companies with
only internal sales forces.
We currently sell most of our products through an internal sales
force. We anticipate that strategic partners and resellers will
become a larger part of our sales strategy. We may not, however,
be successful in forming relationships with qualified partners
and resellers. If we fail to attract qualified partners and
resellers, we may not be able to expand our sales network, which
may have an adverse effect on our ability to generate revenue.
Our anticipated reliance on partners and resellers involves
several risks, including the following:
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we may not be able to adequately train our partners and
resellers to sell and service our products;
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they may emphasize competitors products or decline to
carry our products; and
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channel conflict may arise between other third parties
and/or our
internal sales staff.
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Our
industry is characterized by frequent technological change. If
we are unable to adapt our products and develop new products to
keep up with these rapid changes, we will not be able to obtain
or maintain market share.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, changes in customer
needs, heavy competition and frequent new product introductions.
If we fail to develop new products or modify or improve existing
products in response to these changes in technology, customer
demands or industry standards, our products could become less
competitive or obsolete.
We must respond to changing technology and industry standards in
a timely and cost-effective manner. We may not be successful in
using new technologies, developing new products or enhancing
existing products in a timely and cost effective manner. Our
pursuit of necessary technology may require substantial time and
expense. We may need to license new technologies to respond to
technological change. These licenses may not be available to us
on commercially reasonable terms or at all. We may not succeed
in adapting our products to new technologies as they emerge.
Furthermore, even if we successfully adapt our products, these
new technologies or enhancements may not achieve market
acceptance.
We
recently replaced many members of our management and effected a
substantial reduction in our associate headcount, and our
failure to successfully adapt to these changes and/or a failure
by our new management team to successfully manage our operations
may adversely affect our business.
In 2008 we replaced a large portion of our management team,
including our Chief Executive Officer, Chief Financial Officer,
Executive Vice President of Engineering and Product Development,
Executive Vice President and Chief Technical Officer and
Executive Vice President of Content Engineering. We only
recently hired a permanent Chief Financial Officer and a Vice
President of Product Development. These transitions could create
uncertainty and confusion among our employees, customers and
shareholders. In addition, the transitions may adversely affect
or delay customer purchase decisions or decisions about the
strategic direction of our business and raise concerns among our
employees, customers and shareholders, all of which could affect
our business, operating results and financial position. Our
future success depends on the ability of our senior management
team, including a Chief Executive Officer who has been with the
company only since December 2008 and a Chief Financial Officer
who has been with the Company only since March 2009, to work
together to successfully implement our strategies and manage our
operations.
Furthermore, we made two substantial reductions in corporate
headcount, which we refer to as RIFs, in the fourth quarter of
2008. The RIFs could create uncertainty and confusion among our
current employees, customers and suppliers. In addition, the
RIFs might not result in the cost savings or efficiencies we
anticipate. The RIFs will require our remaining employees to
fulfill new roles that they had not been filling in the past,
and such staff reductions can cause increased attrition among
remaining employees. If we cannot operate our business in an
effective manner, it may adversely affect our business,
operating results and financial position.
Our
future success depends on key personnel and our ability to
attract and retain additional personnel.
Our key personnel include:
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James C. Granger, President, Chief Executive Officer and
Director;
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Darin P. McAreavey, Vice President and Chief Financial
Officer; and
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Scott W. Koller, Executive Vice President and Chief Operating
Officer.
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If we fail to retain our key personnel or to attract, retain and
motivate other qualified employees, our ability to maintain and
develop our business may be adversely affected. Our future
success depends significantly on the continued service of our
key technical, sales and senior management personnel and their
ability to execute our growth strategy. The loss of the services
of our key employees could harm our business.
22
We may be unable to retain our employees or to attract,
assimilate and retain other highly qualified employees who could
migrate to other employers who offer competitive or superior
compensation packages.
Our
ability to execute our business strategy depends on our ability
to protect our intellectual property, and if any third parties
make unauthorized use of our intellectual property, or if our
intellectual property rights are successfully challenged, our
competitive position and business could suffer.
Our success and ability to compete depends substantially on our
proprietary technologies. We regard our copyrights, service
marks, trademarks, trade secrets and similar intellectual
property as critical to our success, and we rely on trademark
and copyright law, trade secret protection and confidentiality
agreements with our employees, customers and others to protect
our proprietary rights. Despite our precautions, unauthorized
third parties might copy certain portions of our software or
reverse engineer and use information that we regard as
proprietary. In addition, confidentiality agreements with
employees and others may not adequately protect against
disclosure of our proprietary information.
As of March 9, 2009, we had one U.S. patent, and three
U.S. and one Canadian patent applications pending relating
to various aspects of our
RoninCast®
system. We cannot provide assurance that any additional patents
will be granted. Even if they are granted, our patents may be
successfully challenged by others or invalidated. In addition,
any patents that may be granted to us may not provide us a
significant competitive advantage. Although we have been granted
patents and trademarks, they could be challenged in the future.
If future trademark registrations are not approved because third
parties own these trademarks, our use of these trademarks would
be restricted unless we enter into arrangements with the third
party owners, which might not be possible on commercially
reasonable terms or at all. If we fail to protect or enforce our
intellectual property rights successfully, our competitive
position could suffer. We may be required to spend significant
resources to monitor and police our intellectual property
rights. We may not be able to detect infringement and may lose
competitive position in the market. In addition, competitors may
design around our technology or develop competing technologies.
Intellectual property rights may also be unavailable or limited
in some foreign countries, which could make it easier for
competitors to capture market share.
Our
industry is characterized by frequent intellectual property
litigation, and we could face claims of infringement by others
in our industry. Such claims are costly and add uncertainty to
our business strategy.
The digital media and communications industry is characterized
by uncertain and conflicting intellectual property claims and
frequent intellectual property litigation, especially regarding
patent rights. We could be subject to claims of infringement of
third party intellectual property rights, which could result in
significant expense and could ultimately result in the loss of
our intellectual property rights. From time to time, third
parties may assert patent, copyright, trademark or other
intellectual property rights to technologies that are important
to our business. In addition, because patent applications in the
United States are not publicly disclosed until the patent is
issued, applications may have been filed which relate to our
industry of which we are not aware. We may in the future receive
notices of claims that our products infringe or may infringe
intellectual property rights of third parties. Any litigation to
determine the validity of these claims, including claims arising
through our contractual indemnification of our business
partners, regardless of their merit or resolution, would likely
be costly and time consuming and divert the efforts and
attention of our management and technical personnel. If any such
litigation resulted in an adverse ruling, we could be required
to:
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pay substantial damages;
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cease the manufacture, use or sale of infringing products;
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discontinue the use of certain technology; or
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obtain a license under the intellectual property rights of the
third party claiming infringement, which license may not be
available on reasonable terms or at all.
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MediaTile Company USA has informed us that it filed a patent
application in 2004 related to the use of cellular technology
for delivery of digital content. We currently use cellular
technology to deliver digital
23
content on a limited basis. While MediaTile has not alleged that
our products infringe its rights, it may so allege in the
future. We have not received any communications from MediaTile
subsequent to its initial contact with us in February 2006,
though we cannot assure you that MediaTile will not take up the
matter again and seek to either bar us from using an allegedly
infringing technology or seek a royalty for our use of such an
allegedly infringing technology.
Our
business may be adversely affected by malicious applications
that interfere with, or exploit security flaws in, our products
and services.
Our business may be adversely affected by malicious applications
that make changes to our customers computer systems and
interfere with the operation and use of our products. These
applications may attempt to interfere with our ability to
communicate with our customers devices. The interference
may occur without disclosure to or consent from our customers,
resulting in a negative experience that our customers may
associate with our products. These applications may be difficult
or impossible to uninstall or disable, may reinstall themselves
and may circumvent other applications efforts to block or
remove them. In addition, we offer a number of products and
services that our customers download to their computers or that
they rely on to store information and transmit information over
the Internet. These products and services are subject to attack
by viruses, worms and other malicious software programs, which
could jeopardize the security of information stored in a
customers computer or in our computer systems and
networks. The ability to reach customers and provide them with a
superior product experience is critical to our success. If our
efforts to combat these malicious applications fail, or if our
products and services have actual or perceived vulnerabilities,
there may be claims based on such failure or our reputation may
be harmed, which would damage our business and financial
condition.
We
could have liability arising out of our previous sales of
unregistered securities.
Prior to our initial public offering, we financed our
development and operations with proceeds from the sale to
accredited investors of debt and equity securities. These
securities were not registered under federal or state securities
laws because we believed such sales were exempt under
Section 4(2) of the Securities Act of 1933, as amended, and
under Regulation D under the Securities Act. In addition,
we issued stock purchase warrants to independent contractors and
associates as compensation or as incentives for future
performance in reliance upon the exemption provided by
Rule 701 promulgated under Section 3(b) of the
Securities Act. We have received no claim that such sales were
in violation of securities registration requirements under such
laws, but should a claim be made, we would have the burden of
demonstrating that sales were exempt from such registration
requirements. In addition, it is possible that a purchaser of
our securities could claim that disclosures to them in
connection with such sales were inadequate, creating potential
liability under the anti-fraud provisions of federal and state
securities or other laws. If successful, claims under such laws
could require us to pay damages, perform rescission offers,
and/or pay
interest on amounts invested and attorneys fees and costs.
Depending upon the magnitude of a judgment against us in any
such actions, our financial condition and prospects could be
materially and adversely affected.
We
compete with other companies that have more resources, which
puts us at a competitive disadvantage.
The market for digital signage software is highly competitive
and we expect competition to increase in the future. Some of our
competitors or potential competitors have significantly greater
financial, technical and marketing resources than our company.
These competitors may be able to respond more rapidly than we
can to new or emerging technologies or changes in customer
requirements. They may also devote greater resources to the
development, promotion and sale of their products than our
company.
We expect competitors to continue to improve the performance of
their current products and to introduce new products, services
and technologies. Successful new product introductions or
enhancements by our competitors could reduce sales and the
market acceptance of our products, cause intense price
competition or make our products obsolete. To be competitive, we
must continue to invest significant resources in research and
development, sales and marketing and customer support. If we do
not have sufficient resources to make these investments or are
unable to make the technological advances necessary to be
competitive, our
24
competitive position will suffer. Increased competition could
result in price reductions, fewer customer orders, reduced
margins and loss of market share. Our failure to compete
successfully against current or future competitors could
adversely affect our business.
Our
results of operations may depend upon selling our products to
customers requiring large-scale rollouts and large-scale
monitoring and maintenance, which we have not previously
conducted.
Our results of operations may depend upon selling our products
to those companies, and within those industries, that have many
sites that could benefit from digital signage systems. Digital
signage systems installation projects deploying hundreds or even
thousands of systems present significant technical and
logistical challenges that we have not yet demonstrated our
ability to overcome. Digital signage technology employs
sophisticated hardware and software that constantly evolves.
Sites into which digital signage systems may be installed vary
widely, including such factors as interference with wireless
networks, ambient light, extremes of temperature and other
factors that may make each individual location virtually unique.
Managing the process of installing hundreds or thousands of
dynamic, complicated digital signage systems into unique
environments may present difficulties that we have not yet faced
on projects performed to date with smaller numbers of digital
signage systems. If our customers opt to engage us to provide
system monitoring and maintenance services through our network
operations center (NOC) on one or more large-scale
implementations, we may not successfully or profitably monitor
and maintain the hardware, software and content in a manner
satisfactory to our customers or in compliance with our
contractual obligations. The efficiency and effectiveness of NOC
monitoring and maintenance are directly affected by our software
and that softwares ability to monitor our customers
systems. For large-scale implementations, we may need to further
develop our software to facilitate efficient and effective
system monitoring and maintenance. We cannot assure you that we
will succeed in developing our software, digital signage
systems, project management and infrastructure to successfully
implement, monitor, manage and maintain large-scale
implementation projects or ongoing operations. Our failure to do
so could harm our business and financial condition.
We may
be subject to sales and other taxes, which could have adverse
effects on our business.
In accordance with current federal, state and local tax laws,
and the constitutional limitations thereon, we currently collect
sales, use or other similar taxes in state and local
jurisdictions where we have a physical presence that we
understand to be sufficient to require us to collect and remit
such taxes. One or more state or local jurisdictions may seek to
impose sales tax collection obligations on us and other
out-of-state
companies which engage in commerce with persons in that state.
Several U.S. states have taken various initiatives to
prompt more sellers to collect local and state sales taxes.
Furthermore, tax law and the interpretation of constitutional
limitations thereon are subject to change. In addition, new or
expanded business operations in states where we do not currently
have a physical presence sufficient to obligate us to collect
and remit taxes could subject shipments of goods into or
provision of services in such states to sales tax under current
or future laws. If our company grows, increased sales of our
products and services to locations in various states and
municipalities may obligate us to collect and remit sales tax
and to pay state income and other taxes based upon increased
presence in those jurisdictions. We will endeavor to collect,
remit and pay those state and local taxes that we owe according
to applicable law. State and local tax laws are, however,
subject to change, highly complex and diverse from jurisdiction
to jurisdiction. If one or more state or local jurisdictions
successfully asserts that we must collect sales or other taxes
beyond our current practices or that we owe unpaid sales or
other taxes and penalties, it could adversely affect our
business and financial condition.
We have received tax notices from local jurisdictions in
Michigan seeking payment of property taxes for digital signage
systems originally owned by NewSight Corporation in Meijer, Inc.
stores but later subject to our collateral interest when we
converted the NewSight account receivable to a secured
promissory note. Subsequent to our contractual agreement with
NewSight to take ownership of hardware composing the digital
signage networks to satisfy NewSights debt, local
jurisdictions in Michigan asserted that we owed property taxes
on such systems. We have transferred ownership of these systems
to Meijer, Inc. and its affiliates for a nominal sum. We made
this transfer in light of the facts that the network was not
useful to us and that the costs of removing the hardware would
be far greater than any amount we could recover from selling
that
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hardware. As a result, we believe that we owe nothing to the
local taxing authorities but this is a determination that could
be subject to dispute. We do not believe that any amount that we
expend to resolve the matter will be material but we cannot
assure you of the outcome with certainty.
Our
results of operations could be adversely affected by changes in
foreign currency exchange rates, particularly fluctuations in
the exchange rate between the U.S. dollar and the Canadian
dollar.
Since a portion of our operations and revenue occur outside the
United States and in currencies other than the U.S. dollar,
our results could be adversely affected by changes in foreign
currency exchange rates. Additionally, given our ownership of
Wireless Ronin Technologies (Canada), Inc., changes in the
exchange rate between the U.S. dollar and the Canadian
dollar can significantly affect company balances and our results
of operations. Although we periodically use forward contracts to
manage our exposure associated with forecasted international
revenue transactions denominated in U.S. dollars, our
business, results of operations and financial condition could be
adversely affected by changes in foreign currency exchange rates.
Risks
Related to Our Securities
We are
subject to financial reporting and other requirements for which
our accounting, other management systems and resources may not
be adequately prepared.
As a public company, we incur significant legal, accounting and
other expenses that we did not incur as a private company,
including costs associated with public company reporting
requirements and corporate governance requirements, including
requirements under the Sarbanes-Oxley Act of 2002, as well as
rules implemented by the SEC and NASDAQ.
In the event we identify significant deficiencies or material
weaknesses in our internal control over financial reporting that
we cannot remediate in a timely manner, or if we are unable to
receive a positive attestation from our independent registered
public accounting firm with respect to our internal control over
financial reporting, investors and others may lose confidence in
the reliability of our financial statements, and the trading
price of our common stock and ability to obtain any necessary
equity or debt financing could suffer. In addition, if our
independent registered public accounting firm is unable to rely
on our internal control over financial reporting in connection
with its audit of our financial statements, and if it is unable
to devise alternative procedures in order to satisfy itself as
to the material accuracy of our financial statements and related
disclosures, it is possible that we would be unable to file our
annual report with the SEC, which could also adversely affect
the trading price of our common stock and our ability to secure
any necessary additional financing, and could result in the
delisting of our common stock from NASDAQ and the ineligibility
of our common stock for quotation on the OTC
Bulletin Board. In that event, the liquidity of our common
stock would be severely limited and the market price of our
common stock would likely decline significantly.
In addition, the foregoing regulatory requirements could make it
more difficult or more costly for us to obtain certain types of
insurance, including directors and officers
liability insurance, and we may be forced to accept reduced
policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. The impact of these
events could also make it more difficult for us to attract and
retain qualified persons to serve on our Board of Directors, on
Board committees or as executive officers.
If we
fail to comply with the NASDAQ requirements for continued
listing, our common stock could be delisted from NASDAQ, which
could hinder our investors ability to trade our common
stock in the secondary market.
Generally, our common stock must sustain a minimum bid price of
at least $1.00 per share and we must satisfy the other
requirements for continued listing on NASDAQ. If our common
stock is delisted from NASDAQ, trading in our common stock would
likely thereafter be conducted in the
over-the-counter
markets in the so-called pink sheets or the OTC
Bulletin Board. In such event, the liquidity of our common
stock would likely be impaired, not only in the number of shares
which could be bought and sold, but also through delays in the
timing of the transactions, and there would likely be a
reduction in the coverage of our company
26
by securities analysts and the news media, thereby resulting in
lower prices for our common stock than might otherwise prevail.
In light of the economic downturns broad effects on the
stock prices of its listed companies, NASDAQ suspended its $1.00
minimum bid price rule in October 2008. This rule suspension is
currently scheduled to expire April 19, 2009. Our stock
price fell below $1.00 during the fourth quarter of 2008 and
traded below $1.00 during the first quarter of 2009, during the
rule suspension period. If our stock price is similarly low
after NASDAQ lifts the suspension of this rule, we could be
subject to delisting from NASDAQ. In addition, we could also be
subject to delisting from NASDAQ if we fail to maintain
compliance with the other requirements for continued listing
which are still in full force.
The
market price of our stock may be subject to wide
fluctuations.
The price of our common stock may fluctuate, depending on many
factors, some of which are beyond our control and may not be
related to our operating performance. These fluctuations could
cause our investors to lose part or all of their investment in
our shares of common stock. Factors that could cause
fluctuations include, but are not limited to, the following:
|
|
|
|
|
price and volume fluctuations in the overall stock market from
time to time;
|
|
|
|
significant volatility in the market price and trading volume of
companies in our industry;
|
|
|
|
actual or anticipated changes in our earnings or fluctuations in
our operating results or in the expectations of financial market
analysts;
|
|
|
|
investor perceptions of our industry, in general, and our
company, in particular;
|
|
|
|
the operating and stock performance of comparable companies;
|
|
|
|
general economic conditions and trends;
|
|
|
|
major catastrophic events;
|
|
|
|
loss of external funding sources;
|
|
|
|
sales of large blocks of our stock or sales by insiders; or
|
|
|
|
departures of key personnel.
|
Our
articles of incorporation, bylaws and Minnesota law may
discourage takeovers and business combinations that our
shareholders might consider in their best
interests.
Anti-takeover provisions of our articles of incorporation,
bylaws and Minnesota law could diminish the opportunity for
shareholders to participate in acquisition proposals at a price
above the then current market price of our common stock. For
example, while we have no present plans to issue any preferred
stock, our Board of Directors, without further shareholder
approval, may issue up to 16,666,666 shares of undesignated
preferred stock and fix the powers, preferences, rights and
limitations of such class or series, which could adversely
affect the voting power of our common stock. In addition, our
bylaws provide for an advance notice procedure for nomination of
candidates to our Board of Directors that could have the effect
of delaying, deterring or preventing a change in control.
Further, as a Minnesota corporation, we are subject to
provisions of the Minnesota Business Corporation Act, or MBCA,
regarding control share acquisitions and
business combinations. We may, in the future,
consider adopting additional anti-takeover measures. The
authority of our Board of Directors to issue undesignated
preferred stock and the anti-takeover provisions of the MBCA, as
well as any future anti-takeover measures adopted by us, may, in
certain circumstances, delay, deter or prevent takeover attempts
and other changes in control of our company not approved by our
Board of Directors.
We do
not anticipate paying cash dividends on our shares of common
stock in the foreseeable future.
We have never declared or paid any cash dividends on our shares
of common stock. We intend to retain any future earnings to fund
the operation and expansion of our business and, therefore, we
do not anticipate
27
paying cash dividends on our shares of common stock in the
foreseeable future. As a result, capital appreciation, if any,
of our common stock will be the sole source of gain for
investors in our common stock for the foreseeable future.
A
substantial number of shares are eligible for future sale by our
current investors and the sale of those shares could adversely
affect our stock price.
We have registered for resale 2,315,722 shares of our
outstanding common stock and 1,802,523 shares underlying
warrants under the registration statement that was originally
declared effective by the SEC on February 8, 2007. If these
shares, or additional shares that may be eligible for resale
into the market, are sold, or if it is perceived that they will
be sold, in the public market, the trading price of our common
stock could be adversely affected.
|
|
ITEM 1B
|
UNRESOLVED
STAFF COMMENTS
|
None.
We conduct our U.S. operations from a leased facility
located at 5929 Baker Road in Minnetonka, Minnesota. We lease
approximately 19,089 square feet of office and warehouse
space under a lease that extends through January 31, 2013.
In addition, we lease office space of approximately
14,930 square feet to support our Canadian operations at a
facility located at 4510 Rhodes Drive, Suite 800, Windsor,
Ontario, Canada under a lease that extends through June 30,
2009. We also lease our former headquarters facility of
approximately 8,610 square feet at 14700 Martin Drive, Eden
Prairie, Minnesota. This lease was originally scheduled to
expire on November 30, 2009. On March 6, 2009, we
signed a lease termination agreement on the Martin Drive
facility, subject to the sale of the property, which is
scheduled to take place on March 19, 2009.
We believe the facilities used in our operations are suitable
for their respective uses and are adequate to meet our current
needs.
We were not party to any material legal proceedings as of
March 9, 2009.
|
|
ITEM 4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
PART II
|
|
ITEM 5
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our common stock has traded on the NASDAQ Global Market since
September 21, 2007, and was previously traded on the NASDAQ
Capital Market since November 27, 2006, under the symbol
RNIN. The following table sets forth, for the
periods indicated, the high and low closing prices for our
common stock as
28
reported by that market. Such quotations reflect inter-dealer
prices, without retail
mark-up,
mark-down or commission, and may not represent actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
4.56
|
|
|
$
|
2.90
|
|
Second Quarter
|
|
$
|
7.33
|
|
|
$
|
3.97
|
|
Third Quarter
|
|
$
|
5.57
|
|
|
$
|
2.12
|
|
Fourth Quarter
|
|
$
|
2.43
|
|
|
$
|
0.42
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.89
|
|
|
$
|
5.59
|
|
Second Quarter
|
|
$
|
10.12
|
|
|
$
|
6.42
|
|
Third Quarter
|
|
$
|
9.57
|
|
|
$
|
6.24
|
|
Fourth Quarter
|
|
$
|
6.50
|
|
|
$
|
2.65
|
|
Holders
As of March 9, 2009, we had 99 holders of record of our
common stock.
Dividend
Policy
We have never declared or paid cash dividends on our common
stock. We currently intend to retain future earnings, if any, to
operate and expand our business, and we do not anticipate paying
cash dividends on our common stock in the foreseeable future.
Any payment of cash dividends in the future will be at the
discretion of our Board of Directors and will depend upon our
results of operations, earnings, capital requirements,
contractual restrictions and other factors deemed relevant by
our Board of Directors.
Securities
Authorized for Issuance Under Equity Compensation
Plans
See Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters in Item 12
for information regarding securities authorized for issuance
under our equity compensation plans.
29
Stock
Performance Graph
The performance graph compares our cumulative shareholder return
with the Nasdaq Composite Index and issuers with similar market
capitalizations, as denoted by the Russell 2000 Index (because
we are unable to reasonably identify a peer group). The table
below compares the cumulative total return assuming $100 was
invested as of November 27, 2006 (the date of our initial
public offering), in our common stock, the Nasdaq Composite
Index and the Russell 2000 Index. The graph assumes the
reinvestment of all dividends. The indexes are weighted based on
market capitalization at the time of each reported data point.
COMPARISON
OF CUMULATIVE TOTAL RETURN
AMONG WIRELESS RONIN TECHNOLOGIES, INC.,
NASDAQ COMPOSITE INDEX AND THE RUSSELL 2000 INDEX
ASSUMES $100
INVESTED ON NOV. 27, 2006
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 2008
Sales of
Unregistered Securities During the Fourth Quarter of Fiscal Year
2008
On October 15, 2008, an accredited investor who held a
five-year warrant for the purchase of 1,666 shares of
common stock at $0.09 per share exercised such warrant. We
obtained gross proceeds of $150 in connection with this warrant
exercise.
On December 23, 2008, an accredited investor who held a
five-year warrant for the purchase of 13,888 shares of
common stock at $0.09 per share exercised such warrant. We
obtained gross proceeds of $1,250 in connection with this
warrant exercise.
The proceeds of each of the foregoing exercises were applied to
working capital for general corporate purposes.
The foregoing issuances were made in reliance upon the exemption
provided in Section 4(2) of the Securities Act. The
certificates representing such securities contain restrictive
legends preventing sale, transfer or other disposition, unless
registered under the Securities Act. The recipients of such
securities received, or had access to, material information
concerning our company, including, but not limited to, our
periodic reports and current reports, as filed with the SEC. No
discount or commission was paid in connection with the issuance
of shares upon the exercise of such warrants.
30
|
|
ITEM 6
|
SELECTED
FINANCIAL DATA
|
The information set forth below is not necessarily indicative of
results of future operations, and should be read in conjunction
with Item 7, Managements Discussion and
Analysis Financial Condition and Results of
Operations and the consolidated financial statements and
related notes thereto included in Item 8 of this
Form 10-K
to fully understand factors that may affect the comparability of
the information presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
16,156,966
|
|
|
$
|
34,923,296
|
|
|
$
|
16,999,503
|
|
|
$
|
768,187
|
|
|
$
|
364,924
|
|
Total assets
|
|
|
18,559,699
|
|
|
|
40,368,707
|
|
|
|
17,545,927
|
|
|
|
1,313,171
|
|
|
|
701,598
|
|
Current liabilities
|
|
|
2,386,931
|
|
|
|
4,609,568
|
|
|
|
1,652,687
|
|
|
|
7,250,478
|
|
|
|
3,999,622
|
|
Non-current liabilities
|
|
|
|
|
|
|
70,960
|
|
|
|
155,456
|
|
|
|
1,668,161
|
|
|
|
1,397,563
|
|
Total liabilities
|
|
|
2,386,931
|
|
|
|
4,680,528
|
|
|
|
1,808,143
|
|
|
|
8,918,639
|
|
|
|
5,397,185
|
|
Shareholders equity (deficit)
|
|
$
|
16,172,768
|
|
|
$
|
35,688,179
|
|
|
$
|
15,737,784
|
|
|
$
|
(7,605,468
|
)
|
|
$
|
(4,695,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
7,381,402
|
|
|
$
|
5,984,913
|
|
|
$
|
3,145,389
|
|
|
$
|
710,216
|
|
|
$
|
1,073,990
|
|
Cost of sales
|
|
|
6,589,289
|
|
|
|
3,892,367
|
|
|
|
1,545,267
|
|
|
|
939,906
|
|
|
|
1,029,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
792,113
|
|
|
|
2,092,546
|
|
|
|
1,600,122
|
|
|
|
(229,690
|
)
|
|
|
44,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative and other
|
|
|
19,563,314
|
|
|
|
12,209,657
|
|
|
|
5,042,635
|
|
|
|
2,889,230
|
|
|
|
2,168,457
|
|
Research and development expenses
|
|
|
2,541,267
|
|
|
|
1,197,911
|
|
|
|
875,821
|
|
|
|
881,515
|
|
|
|
687,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,104,581
|
|
|
|
13,407,568
|
|
|
|
5,918,456
|
|
|
|
3,770,745
|
|
|
|
2,855,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,312,468
|
)
|
|
|
(11,315,022
|
)
|
|
|
(4,318,334
|
)
|
|
|
(4,000,435
|
)
|
|
|
(2,810,937
|
)
|
Other income (expense)
|
|
|
620,107
|
|
|
|
1,228,637
|
|
|
|
(10,469,403
|
)
|
|
|
(789,490
|
)
|
|
|
(528,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,692,361
|
)
|
|
$
|
(10,086,385
|
)
|
|
$
|
(14,787,737
|
)
|
|
$
|
(4,789,925
|
)
|
|
$
|
(3,339,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(1.41
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(9.71
|
)
|
|
$
|
(7.18
|
)
|
|
$
|
(6.87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
14,664,144
|
|
|
|
12,314,178
|
|
|
|
1,522,836
|
|
|
|
666,712
|
|
|
|
486,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 7
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
Forward-Looking
Statements
The following discussion contains various forward-looking
statements within the meaning of Section 21E of the
Exchange Act. Although we believe that, in making any such
statement, our expectations are based on reasonable assumptions,
any such statement may be influenced by factors that could cause
actual outcomes and results to be materially different from
those projected. When used in the following discussion, the
words anticipates, believes,
expects, intends, plans,
estimates and similar expressions, as they relate to
us or our management, are intended to identify such
forward-looking statements. These forward-looking statements are
subject to numerous risks and uncertainties that could cause
actual results to differ materially from those anticipated.
Factors that could cause actual results to differ materially
from those anticipated, certain of which are beyond our control,
are set forth herein under the caption Risk
Factors.
31
Our actual results, performance or achievements could differ
materially from those expressed in, or implied by,
forward-looking statements. Accordingly, we cannot be certain
that any of the events anticipated by forward-looking statements
will occur or, if any of them do occur, what impact they will
have on us. We caution you to keep in mind the cautions and
risks described in this document and to refrain from attributing
undue certainty to any forward-looking statements, which speak
only as of the date of the document in which they appear. We do
not undertake to update any forward-looking statement.
Overview
Wireless Ronin Technologies, Inc. is a Minnesota corporation
that has designed and developed application-specific visual
marketing solutions. We provide dynamic digital signage
solutions targeting specific retail and service markets through
a suite of software applications collectively called
RoninCast®.
RoninCast®
is an enterprise-level content delivery system that manages,
schedules and delivers digital content over wireless or wired
networks. Our solutions, digital alternatives to static signage,
provide our customers with a dynamic visual marketing system
designed to enhance the way they advertise, market and deliver
their messages to targeted audiences. Our technology can be
combined with interactive touch screens to create new platforms
for conveying marketing messages.
Our
Sources of Revenue
We generate revenues through system sales, license fees and
separate service fees, including consulting, content development
and implementation services, as well as ongoing customer support
and maintenance, including product upgrades. We currently market
and sell our software and service solutions through our direct
sales force and value added resellers.
Our
Expenses
Our expenses are primarily comprised of three categories: sales
and marketing, research and development and general and
administrative. Sales and marketing expenses include salaries
and benefits for our sales associates and commissions paid on
sales. This category also includes amounts spent on the hardware
and software we use to prospect new customers, including those
expenses incurred in trade shows and product demonstrations. Our
research and development expenses represent the salaries and
benefits of those individuals who develop and maintain our
software products including
RoninCast®
and other software applications we design and sell to our
customers. Our general and administrative expenses consist of
corporate overhead, including administrative salaries, real
property lease payments, salaries and benefits for our corporate
officers and other expenses such as legal and accounting fees.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S., or GAAP,
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. In recording transactions and balances
resulting from business operations, we use estimates based on
the best information available. We use estimates for such items
as depreciable lives, volatility factors in determining fair
value of option grants, tax provisions, provisions for
uncollectible receivables and deferred revenue. We revise the
recorded estimates when better information is available, facts
change or we can determine actual amounts. These revisions can
affect operating results. We have identified below the following
accounting policies that we consider to be critical.
Revenue
Recognition
We recognize revenue primarily from these sources:
|
|
|
|
|
Software and software license sales
|
32
|
|
|
|
|
System hardware sales
|
|
|
|
Professional service revenue
|
|
|
|
Software development services
|
|
|
|
Software design and development services
|
|
|
|
Implementation services
|
|
|
|
Maintenance and support contracts
|
We apply the provisions of Statement of Position
(SOP)
97-2,
Software Revenue Recognition, as amended by
SOP 98-9
Modification of
SOP 97-2,
Software Revenue Recognition, With Respect to Certain
Transactions to all transactions involving the sale of
software licenses. In the event of a multiple element
arrangement, we evaluate if each element represents a separate
unit of accounting taking into account all factors following the
guidelines set forth in Emerging Issues Task Force Issue
No. 00-21
(EITF 00-21)
Revenue Arrangements with Multiple Deliverables.
We recognize revenue when (i) persuasive evidence of an
arrangement exists; (ii) delivery has occurred, which is
when product title transfers to the customer, or services have
been rendered; (iii) customer payment is deemed fixed or
determinable and free of contingencies and significant
uncertainties; and (iv) collection is probable. We assess
collectability based on a number of factors, including the
customers past payment history and its current
creditworthiness. If it is determined that collection of a fee
is not reasonably assured, we defer the revenue and recognize it
at the time collection becomes reasonably assured, which is
generally upon receipt of cash payment. If an acceptance period
is required, revenue is recognized upon the earlier of customer
acceptance or the expiration of the acceptance period.
Multiple-Element Arrangements We enter into
arrangements with customers that include a combination of
software products, system hardware, maintenance and support, or
installation and training services. We allocate the total
arrangement fee among the various elements of the arrangement
based on the relative fair value of each of the undelivered
elements determined by vendor-specific objective evidence
(VSOE). In software arrangements for which we do not have VSOE
of fair value for all elements, revenue is deferred until the
earlier of when VSOE is determined for the undelivered elements
(residual method) or when all elements for which we do not have
VSOE of fair value have been delivered.
We have determined VSOE of fair value for each of our products
and services. The fair value of maintenance and support services
is based upon the renewal rate for continued service
arrangements. The fair value of installation and training
services is established based upon pricing for the services. The
fair value of software and licenses is based on the normal
pricing and discounting for the product when sold separately.
The fair value of hardware is based on a stand-alone market
price.
Each element of our multiple element arrangement qualifies for
separate accounting with the exception of undelivered
maintenance and service fees. We defer revenue under the
residual method for undelivered maintenance and support fees
included in the price of software and amortize fees ratably over
the appropriate period. We defer fees based upon the
customers renewal rate for these services.
Software
and software license sales
We recognize revenue when a fixed fee order has been received
and delivery has occurred to the customer. We assess whether the
fee is fixed or determinable and free of contingencies based
upon signed agreements received from the customer confirming
terms of the transaction. Software is delivered to customers
electronically or on a CD-ROM, and license files are delivered
electronically.
System
hardware sales
We recognize revenue on system hardware sales generally upon
shipment of the product to the customer. Shipping charges billed
to customers are included in sales and the related shipping
costs are included in cost of sales.
33
Professional
service revenue
Included in services and other revenues are revenues derived
from implementation, maintenance and support contracts, content
development and training. The majority of consulting and
implementation services and accompanying agreements qualify for
separate accounting. Implementation and content development
services are bid either on a fixed-fee basis or on a
time-and-materials
basis. For
time-and-materials
contracts, we recognize revenue as services are performed. For a
fixed-fee contract, we recognize revenue upon completion of
specific contractual milestones or by using the
percentage-of-completion
method.
Software
development services
Software development revenue is recognized monthly as services
are performed per fixed fee contractual agreements.
Software
design and development services
Revenue from contracts for technology integration consulting
services where we design/redesign, build and implement new or
enhanced systems applications and related processes for clients
are recognized on the
percentage-of-completion
method in accordance with American Institute of Certified Public
Accountants Statement of Position
81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1).
Percentage-of-completion
accounting involves calculating the percentage of services
provided during the reporting period compared to the total
estimated services to be provided over the duration of the
contract. Estimated revenues for applying the
percentage-of-completion
method include estimated incentives for which achievement of
defined goals is deemed probable. This method is followed where
reasonably dependable estimates of revenues and costs can be
made. Estimates of total contract revenue and costs are
continuously monitored during the term of the contract, and
recorded revenue and costs are subject to revision as the
contract progresses. Such revisions may result in increases or
decreases to revenue and income and are reflected in the
financial statements in the periods in which they are first
identified. If estimates indicate that a contract loss will
occur, a loss provision is recorded in the period in which the
loss first becomes probable and reasonably estimable. Contract
losses are determined to be the amount by which the estimated
direct and indirect costs of the contract exceed the estimated
total revenue that will be generated by the contract and are
included in cost of sales and classified in accrued expenses in
the balance sheet.
Revenue recognized in excess of billings is recorded as unbilled
services. Billings in excess of revenue recognized are recorded
as deferred revenue until revenue recognition criteria are met.
Implementation
services
Implementation services revenue is recognized when installation
is completed.
Maintenance
and support contracts
Maintenance and support consists of software updates and
support. Software updates provide customers with rights to
unspecified software product upgrades and maintenance releases
and patches released during the term of the support period.
Support includes access to technical support personnel for
software and hardware issues.
Maintenance and support revenue is recognized ratably over the
term of the maintenance contract, which is typically one to
three years. Maintenance and support is renewable by the
customer. Rates for maintenance and support, including
subsequent renewal rates, are typically established based upon a
specified percentage of net license fees as set forth in the
arrangement.
Basic
and Diluted Loss per Common Share
Basic and diluted loss per common share for all periods
presented is computed using the weighted average number of
common shares outstanding. Basic weighted average shares
outstanding include only outstanding common shares. Diluted net
loss per common share is computed by dividing net loss by the
34
weighted average common and potential dilutive common shares
outstanding computed in accordance with the treasury stock
method. Shares reserved for outstanding stock warrants and
options totaling 3,611,273, 3,543,283 and 3,072,637 for 2008,
2007 and 2006, respectively, were excluded from the computation
of loss per share as their effect was antidilutive.
Deferred
Income Taxes
Deferred income taxes are recognized in the financial statements
for the tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial
reporting amounts based on enacted tax laws and statutory tax
rates. Temporary differences arise from net operating losses,
reserves for uncollectible accounts receivables and inventory,
differences in depreciation methods, and accrued expenses.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Accounting
for Stock-Based Compensation
In the first quarter of 2006, we adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004),
Share-Based Payment, (SFAS 123R),
which revises SFAS 123, Accounting for Stock-Based
Compensation (SFAS 123) and supersedes
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25).
Stock-based compensation expense recognized during the period is
based on the value of the portion of share-based awards that are
ultimately expected to vest during the period. The fair value of
each stock option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The fair value of
restricted stock is determined based on the number of shares
granted and the closing price of our common stock on the date of
grant. Compensation expense for all share-based payment awards
is recognized using the straight-line amortization method over
the vesting period. We adopted SFAS 123R effective
January 1, 2006, prospectively for new equity awards issued
subsequent to January 1, 2006. Stock-based compensation
expense of $1,312,955, $1,167,171 and $787,214 was charged to
operating expenses during 2008, 2007 and 2006, respectively. No
tax benefit has been recorded due to the full valuation
allowance on deferred tax assets that we have recorded.
In March 2005 the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 107
(SAB 107), which provides supplemental
implementation guidance for SFAS 123R. In December 2007,
the SEC issued Staff Accounting Bulletin No. 110
(SAB 110) which expresses the view of the staff
regarding the use of a simplified method in
developing an estimate of expected term for stock options. Since
we have little historical data to rely upon, we have applied the
provisions of SAB 107 and SAB 110 in our application
of SFAS 123R.
We account for equity instruments issued for services and goods
to non-employees under SFAS 123R, Share-Based
Payment
EITF 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services and
EITF 00-18,
Accounting Recognition for Certain Transactions Involving
Equity Instruments Granted to Other Than Employees.
Generally, the equity instruments issued for services and goods
are shares of our common stock or warrants to purchase shares of
our common stock. These shares or warrants generally are
fully-vested, nonforfeitable and exercisable at the date of
grant and require no future performance commitment by the
recipient. We expense the fair market value of these securities
over the period in which the related services are received.
See Note 9 in the Consolidated Financial Statements in this
Form 10-K
for further information regarding the impact of our adoption of
SFAS 123R and the assumptions we use to calculate the fair
value of share-based compensation.
35
Results
of Operations
Our results of operations for the years ended 2008, 2007 and
2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
$
|
7,381,402
|
|
|
$
|
5,984,913
|
|
|
$
|
3,145,389
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
6,589,289
|
|
|
|
3,892,367
|
|
|
|
1,545,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
792,113
|
|
|
|
2,092,546
|
|
|
|
1,600,122
|
|
Sales and marketing expenses
|
|
|
3,998,744
|
|
|
|
2,805,522
|
|
|
|
1,462,667
|
|
Research and development expenses
|
|
|
2,541,267
|
|
|
|
1,197,911
|
|
|
|
875,821
|
|
General and administrative expenses
|
|
|
11,257,801
|
|
|
|
8,048,583
|
|
|
|
2,383,941
|
|
Depreciation and amortization expense
|
|
|
1,225,827
|
|
|
|
651,557
|
|
|
|
1,196,027
|
|
Impairment of network equipment held for sale
|
|
|
1,766,072
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
1,264,870
|
|
|
|
|
|
|
|
|
|
Termination of partnership agreement
|
|
|
50,000
|
|
|
|
703,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,104,581
|
|
|
|
13,407,568
|
|
|
|
5,918,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,312,468
|
)
|
|
|
(11,315,022
|
)
|
|
|
(4,318,334
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(22,484
|
)
|
|
|
(40,247
|
)
|
|
|
(10,124,216
|
)
|
Loss on debt modification
|
|
|
|
|
|
|
|
|
|
|
(367,153
|
)
|
Interest income
|
|
|
647,066
|
|
|
|
1,277,456
|
|
|
|
21,915
|
|
Other
|
|
|
(4,475
|
)
|
|
|
(8,572
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
620,107
|
|
|
|
1,228,637
|
|
|
|
(10,469,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,692,361
|
)
|
|
$
|
(10,086,385
|
)
|
|
$
|
(14,787,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Our results of operations as a percentage of sales for the years
ended 2008, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
89.3
|
%
|
|
|
65.0
|
%
|
|
|
49.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
10.7
|
%
|
|
|
35.0
|
%
|
|
|
50.9
|
%
|
Sales and marketing expenses
|
|
|
54.2
|
%
|
|
|
46.9
|
%
|
|
|
46.5
|
%
|
Research and development expenses
|
|
|
34.4
|
%
|
|
|
20.0
|
%
|
|
|
27.8
|
%
|
General and administrative expenses
|
|
|
152.5
|
%
|
|
|
134.5
|
%
|
|
|
75.8
|
%
|
Depreciation and amortization expense
|
|
|
16.6
|
%
|
|
|
10.9
|
%
|
|
|
38.0
|
%
|
Impairment of network equipment held for sale
|
|
|
23.9
|
%
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
17.1
|
%
|
|
|
|
|
|
|
|
|
Termination of partnership agreement
|
|
|
0.7
|
%
|
|
|
11.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
299.4
|
%
|
|
|
224.1
|
%
|
|
|
188.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(288.7
|
)%
|
|
|
(189.1
|
)%
|
|
|
(137.2
|
)%
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(0.3
|
)%
|
|
|
(0.7
|
)%
|
|
|
(321.9
|
)%
|
Loss on debt modification
|
|
|
|
|
|
|
|
|
|
|
(11.7
|
)%
|
Interest income
|
|
|
8.8
|
%
|
|
|
21.3
|
%
|
|
|
0.7
|
%
|
Other
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
8.4
|
%
|
|
|
20.5
|
%
|
|
|
(332.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(280.3
|
)%
|
|
|
(168.6
|
)%
|
|
|
(470.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
compared to 2007
Sales
Our sales increased 23% to $7.4 million in 2008 from
$6.0 million in 2007. The increase in sales in 2008 was the
result of new customer relationships, the expansion of existing
customer relationships and a full year of sales from our
Canadian operations, offset by the loss of a large customer from
2007. Our acquisition of McGill Digital Solutions, Inc. in
August of 2007 generated approximately 41% and 23% of our total
sales in 2008 and 2007, respectively.
Cost
of Sales
Cost of sales increased 69% to $6.6 million in 2008 from
$3.9 million in 2007. Cost of sales included inventory
write-down amounts of $64,688 and $73,018 in 2008 and 2007,
respectively. The cost of sales increase was primarily
attributable to a higher cost of hardware sales, higher costs to
deliver content sales, installation costs related to one
significant customer, an increased investment in our network
operations center and a full year of costs from our Canadian
operations.
Operating
Expenses
Sales and Marketing Expenses. Our sales and
marketing expenses consist primarily of personnel costs and
related expenses, advertising, promotional and product marketing
expenses. Sales and marketing expense increased 43% to
$4.0 million in 2008 from $2.8 million in 2007. The
increase in 2008 was due primarily to increased personnel and
related expenses to support our growth initiatives as well as
stock-based compensation
37
expense related to stock options. We believe that sales and
marketing expenses will decrease in 2009 compared to 2008, as we
continue to control expenses in the current economic environment.
Research and Development Expenses. Our
research and development expenses consist primarily of personnel
costs and related expenses associated with developing and
enhancing our
RoninCast®
system. Research and development expense increased 112% to
$2.5 million in 2008, from $1.2 million in 2007. The
increase in 2008 was due primarily to increased personnel and
related expenses to support our growth initiatives and added
features and functionality to our
RoninCast®
software to support our vertical market strategy, as well as
severance expense (described in detail below) incurred to align
expenses with current client projects. We believe that research
and development expenses will decrease in 2009 compared to 2008,
as we continue to control expenses in the current economic
environment.
General and Administrative Expenses. Our
general and administrative expenses consist primarily of the
cost of executive, accounting, and administrative personnel and
related expenses, insurance expense, professional fees for
legal, tax and audit and compliance expenses. General and
administrative expense increased 40% to $11.3 million in
2008, from $8.0 million in 2007. The increase in 2008 was
due primarily to increased personnel and related expenses to
support our growth initiatives, stock-based compensation expense
related to employee and director stock options and severance
expense incurred to align expenses with sales levels. We believe
that general and administrative expenses will decrease in 2009
compared to 2008, as we continue to control expenses in the
current economic environment.
In 2008, our Chief Executive Officer and Chief Financial Officer
resigned from our company. We recorded a total of $733,000 of
severance expense related to these separations.
On November and December 2008, we announced workforce reductions
of 35 and 27 people, respectively, including both employees
and contractors at both our U.S. and Canadian operations.
Coupled with three other U.S. employee resignations prior
to the December reduction in force, these actions resulted in an
approximate 40 percent total headcount reduction during the
fourth quarter of 2008. These two workforce reductions were
intended to align our expense base with the current level of
sales and projects, and improve the overall efficiency of the
organization. The combined severance charge from the two
workforce reductions totaled approximately $274,000. Of such
charge, $94,000 related to general and administrative expense,
and $180,000 was related to research and development expense. We
anticipate that quarterly operating expenses will decline by
approximately $2.0 million commencing in the first quarter
of 2009, due to these workforce reductions and other lower
non-labor
related expenses.
Depreciation and amortization expense. Our
depreciation and amortization expense consists primarily of
depreciation of computer equipment and office furniture and the
amortization of purchased software, leasehold improvements made
to our leased facilities and amortization of our
acquisition-related intangible assets recorded from our
acquisition of McGill Digital Solutions in August 2007.
Depreciation and amortization expense increased 88% to
$1.2 million in 2008, from $0.7 million in 2007. The
increase in 2008 was due primarily to purchases of
$1.1 million of capital equipment in 2008. We believe that
depreciation and amortization expense will decrease in 2009
compared to 2008, as we continue to control capital expenditures
in the current economic environment and as a result of the full
impairment of intangible assets during 2008.
Impairment of Network Equipment Held for
Sale. In the third quarter of 2008, we
re-classified a net receivable balance of $1.9 million to
network equipment held for sale when NewSight Corporation
defaulted on its note payable obligation and we took ownership
of collateral including in-box inventory and an installed
digital signage network in 102 Meijer stores. At the time of
re-classification, Meijer was seeking a new network owner and we
intended to sell the network to the new owner. Subsequent to
December 31, 2008, Meijer abandoned plans to maintain the
network. As a result, we moved approximately $171,000 of
equipment from the in-box collateral base into inventory and
recorded an impairment loss in the fourth quarter of 2008 on the
remaining $1.8 million of network equipment held for sale.
Impairment of Intangible Assets. In the fourth
quarter of 2008, we recorded an impairment charge for the assets
related to the 2007 acquisition of McGill Digital Solutions. We
reviewed the carrying value of all long-lived assets, including
intangible assets with finite lives, for impairment in
accordance with Statement of
38
Financial Accounting Standards No. 144 (FAS 144).
Under FAS 144, impairment losses are recorded whenever
events or changes in circumstances indicate the carrying value
of an asset may not be recoverable. We tested the intangible
assets acquired in the 2007 acquisition for impairment in the
fourth quarter of 2008 and determined that the underlying
assumptions and economic conditions surrounding the initial
valuation of these assets had significantly changed and an
impairment loss was recorded for the total $1.3 million of
net book value of these intangible assets.
Termination of Partnership Agreement. On
February 13, 2007, we terminated the strategic partnership
agreement with The Marshall Special Assets Group, Inc.
(Marshall) which we had entered into in May 2004.
Pursuant to the terms of a mutual termination, release and
agreement, we paid Marshall $653,995 and we agreed to pay a fee
in connection with sales of our software and hardware to
customers, distributors and resellers for use exclusively in the
ultimate operations of or for use in a lottery (End
Users). Under such agreement, we will pay Marshall
(i) 30% of the net invoice price for the sale of our
software to End Users, and (ii) 2% of the net invoice price
for the sale of hardware to End Users, in each case collected by
us on or before February 12, 2012, with a minimum annual
payment of $50,000 for three years. Marshall will pay 50% of the
costs and expenses incurred by us in relation to any test
installations involving sales or prospective sales to End Users.
In 2008 and 2007, we recorded $50,000 of expense pursuant to the
minimum payment for 2008 and 2007 required under the agreement.
Interest
Expense
In 2008 and 2007, interest expense of $22,484 and $40,247,
respectively, was attributable to capital lease obligations.
2007
compared to 2006
Sales
Our sales increased 90% to $6.0 million in 2007 from
$3.1 million in 2006. The increase in sales in 2007 was the
result of new customer relationships and the expansion of
existing customer relationships. Our acquisition of McGill
Digital Solutions, Inc. in August of 2007 generated
approximately 23% of our total sales in 2007. Our sales in 2006
included over $700,000 of license fees deferred in previous
years from two strategic relationships that have since been
terminated.
Cost
of Sales
Cost of sales increased 152% to $3.9 million in 2007 from
$1.5 million in 2006. Cost of sales included inventory
write-down amounts of $73,018 and $37,410 in 2007 and 2006,
respectively. The cost of sales increase was primarily
attributable to increased system hardware and services sales.
Operating
Expenses
Sales and Marketing Expenses. Our sales and
marketing expenses consist primarily of personnel costs and
related expenses, advertising, promotional and product marketing
expenses. Sales and marketing expense increased to
$2.8 million in 2007 from $1.5 million in 2006. The
increase in 2007 was due primarily to increased personnel and
related expenses to support our growth initiatives as well as
stock-based compensation expense related to employee stock
options.
Research and Development Expenses. Our
research and development expenses consist primarily of personnel
costs and related expenses associated with developing and
enhancing our
RoninCast®
system. Research and development expense increased to
$1.2 million in 2007 from $0.9 million in 2006. The
increase in 2007 over 2006 was due primarily to increased
personnel and related expenses to support our growth initiatives
as well as stock-based compensation expense related to employee
stock options.
General and Administrative Expenses. Our
general and administrative expenses consist primarily of the
cost of executive, accounting, and administrative personnel and
related expenses, insurance expense, professional fees for
legal, tax and audit and compliance expenses. General and
administrative expense increased to
39
$8.0 million in 2007 from $2.4 million in 2006. The
increase in 2007 over 2006 was due primarily to increased
personnel and related expenses to support our growth initiatives
as well as stock-based compensation expense related to employee
and director warrants and stock options.
Depreciation and amortization expense. Our
depreciation and amortization expense consists primarily of
depreciation of computer equipment and office furniture and the
amortization of purchased software, leasehold improvements made
to our leased facilities and amortization of our
acquisition-related intangible assets recorded from our
acquisition of McGill Digital Solutions in August 2007.
Depreciation and amortization expense decreased to
$0.7 million in 2007 from $1.2 million in 2006. The
$1.2 million in 2006 included $0.9 million of
financing cost amortization. Net of financing cost amortization,
depreciation and amortization increased $0.4 million in
2007 due primarily to the $1.5 million of capital equipment
purchases in 2007.
Termination of Partnership Agreement. On
February 13, 2007, we terminated the strategic partnership
agreement with The Marshall Special Assets Group, Inc.
(Marshall) which we had entered into in May 2004.
Pursuant to the terms of a mutual termination, release and
agreement, we paid Marshall $653,995 and we agreed to pay a fee
in connection with sales of our software and hardware to
customers, distributors and resellers for use exclusively in the
ultimate operations of or for use in a lottery (End
Users). Under such agreement, we will pay Marshall
(i) 30% of the net invoice price for the sale of our
software to End Users, and (ii) 2% of the net invoice price
for the sale of hardware to End Users, in each case collected by
us on or before February 12, 2012, with a minimum annual
payment of $50,000 for three years. Marshall will pay 50% of the
costs and expenses incurred by us in relation to any test
installations involving sales or prospective sales to End Users.
In 2007, we recorded $50,000 of expense pursuant to the minimum
payment for 2007 required under the agreement.
Interest
Expense
In 2007, interest expense of $22,484 was attributable to capital
lease obligations. In 2006, we incurred interest expense of
$10.1 million due to higher debt levels in 2006 versus
2007. The debt instruments outstanding during 2006 included a
coupon cost and non-cash accounting expense for debt discounts
and beneficial conversion. Cash payments for interest were
$2.2 million for 2006, and the remaining interest expense
was primarily attributable to warrant valuation and beneficial
conversion.
Liquidity
and Capital Resources
As of December 31, 2008, we had $13,594,642 of cash, cash
equivalents and marketable securities, and working capital of
$13,770,035. As of December 31, 2008, we did not have any
significant debt, with the exception of capital leases. We plan
to use our available cash to fund operations, which includes the
continued development of our products and attraction of
customers. Based on our current expense levels, we anticipate
that our cash will be adequate to fund our operations through
2009.
Operating
Activities
We do not currently generate positive cash flow from operating
activities. Our investments in infrastructure have outweighed
sales generated to-date. As of December 31, 2008, we had an
accumulated deficit of $64,212,458. The cash flow used in
operating activities was $14,910,215, $9,651,181 and $4,959,741
for the years ended December 31, 2008, 2007 and 2006,
respectively. In 2008, net cash used by operating activities was
attributable to our net loss and increases in accounts
receivable and prepaid expenses and decreases in accounts
payable and deferred revenue, partially offset by decreases in
inventory and corporate income taxes receivable and increases in
accrued liabilities. In 2007, net cash used by operating
activities was attributable to our net loss and increases in
accounts receivable, inventories and other current assets,
partially offset by increases in deferred revenue, accounts
payable and accrued liabilities. In 2006, net cash used by
operating activities was attributable to our net loss and
increases in accounts receivable and other current assets and a
decrease in deferred revenue, partially offset by increases in
accounts payable and accrued liabilities.
40
Investing
Activities
Net cash provided by investing activities was $5,304,480 for the
year ended December 31, 2008. Net cash used in investing
activities was $11,823,943 and $7,487,705 for the years ended
December 31, 2007 and 2006, respectively. In 2008, net cash
provided by investing activities was the result of net sales of
marketable securities of $6,355,898 offset by purchases of
property and equipment of $1,051,418. In 2007, net cash used in
investing activities was the result of net purchases of
marketable securities of $7,474,821; cash paid for acquisitions,
net of cash received, of $2,877,201; and purchases of property
and equipment of $1,471,921. In 2006, net cash used in investing
activities was the result of purchases of marketable securities
of $7,176,779 and purchases of property and equipment of
$310,926.
On August 16, 2007, we acquired McGill Digital Solutions,
Inc. (now WRT Canada), based in Windsor, Ontario, Canada. We
acquired the shares of McGill from the sellers for cash
consideration of $3,190,563, subject to potential adjustments,
and 50,000 shares of our common stock. We incurred $178,217
in direct costs related to the acquisition. In addition, we
agreed to pay earn-out consideration to the sellers of up to
$1,000,000 (CAD) and 50,000 shares of our common stock if
specified earn-out criteria were met in 2007 and 2008. The 2007
and 2008 earn-out criteria were not met and no earn-out was paid
for either year.
Financing
Activities
We have financed our operations primarily from sales of common
stock and the issuance of notes payable to vendors, shareholders
and investors. For the years ended December 31, 2008, 2007
and 2006, we generated a net $497,865, $27,692,266 and
$20,586,247 from financing activities, respectively.
In 2008, we received $225,360 from the sale of
143,573 shares of common stock to our associates through
our 2007 Associate Stock Purchase Plan. We received $372,300
from the exercise of outstanding warrants. We used $99,795 in
the payment of capital leases.
In June 2007, we sold 4,290,000 shares and a selling
shareholder sold 1,000,000 shares of our common stock at
$7.00 per share pursuant to a registration statement on
Form SB-2,
which was declared effective by the SEC on June 13, 2007.
We obtained approximately $27.1 million in net proceeds as
a result of this follow-on offering. We also received $1,160,720
from the exercise of outstanding warrants and stock options in
2007. In April 2007, we invested $50,000 in a bank certificate
of deposit that was required for our banks credit card
program. This cash is classified as restricted cash on our
balance sheet. We also deposited $400,000 cash in a bank as
collateral for a letter of credit issued to support the
landlords upfront investments totaling $492,000 in
connection with a new lease for office space. The collateral is
reduced over time as the letter of credit is reduced. The term
of the letter of credit is 31 months.
On November 30, 2006, we sold 5,175,000 shares of our
common stock at $4.00 per share in our initial public offering
pursuant to a registration statement on
Form SB-2,
which was declared effective by the SEC on November 27,
2006. We obtained approximately $18.0 million in net
proceeds as a result of this offering. As a result of the
closing of this offering, we also issued the following
unregistered securities on November 30, 2006:
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We sold to the underwriter of our initial public offering for
$50 a warrant to purchase 450,000 shares of our common
stock exercisable at $4.80 per share. The warrant expires on the
fourth anniversary of issuance. The warrant contains customary
anti-dilution provisions and certain demand and participatory
registration rights.
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Pursuant to the terms of convertible debenture agreements which
we entered into with the Spirit Lake Tribe, a federally
recognized Native American tribe, our indebtedness to the Spirit
Lake Tribe incurred in 2005 aggregating $3,000,000 automatically
converted into 1,302,004 shares of common stock.
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Pursuant to various note conversion agreements with 21 holders
of convertible notes or debentures, an aggregate of $2,029,973
principal amount of notes was automatically converted into
634,362 shares of our common stock. In addition, we issued
40,728 common shares in lieu of the payment of accrued interest
in the amount of $130,344 due certain holders of such notes and
debentures.
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41
On December 30, 2006, we issued 1,798,611 shares of
common stock to holders of 12% convertible bridge notes upon the
conversion of $5,413,429 principal amount and $342,126 in
accrued interest on such notes. The remaining 12% convertible
bridge notes not converted in a principal amount of $335,602,
with accrued interest of $70,483, were repaid in cash. We were
obligated to repay the notes within 30 days of the closing
of our initial public offering, which took place on
November 30, 2006.
Disruptions in the economy and constraints in the credit markets
have caused companies to reduce or delay capital investment.
Some of our prospective customers may cancel or delay spending
on the development or roll-out of capital and technology
projects with us due to the economic downturn. Furthermore, the
downturn has adversely affected certain industries in
particular, including the automotive and restaurant industries,
in which we have major customers. We could also experience lower
than anticipated order levels from current customers,
cancellations of existing but unfulfilled orders, and extended
payment or delivery terms. The economic crisis could also
materially impact us through insolvency of our suppliers or
current customers. While we have down-sized our operations to
reflect the decrease in demand, we may not be successful in
mirroring current demand.
Chrysler (BBDO Detroit / Windsor) accounted for 44.5%
of our total accounts receivable as of December 31, 2008.
In the case of insolvency by one of our significant customers,
an account receivable with respect to that customer might not be
collectible, might not be fully collectible, or might be
collectible over longer than normal terms, each of which could
adversely affect our financial position. In one case in the
past, we converted a customers account receivable into a
secured note receivable then into the underlying collateral,
which we ultimately wrote off. In the future, if we convert
other accounts receivable into notes receivable or obtain the
collateral underlying notes receivable, we may not be able to
fully recover the amount due, which could adversely affect our
financial position. Furthermore, the value of the collateral
which serves to secure any such obligation is likely to
deteriorate over time due to obsolescence caused by new product
introductions and due to wear and tear suffered by those
portions of the collateral installed and in use. There can be no
assurance that we will not suffer credit losses in the future.
Based on our current and anticipated expense levels and our
existing capital resources, we anticipate that our cash will be
adequate to fund our operations for at least the next twelve
months. Our future capital requirements, however, will depend on
many factors, including our ability to successfully market and
sell our products, develop new products and establish and
leverage our strategic partnerships and reseller relationships.
In order to meet our needs should we not become cash flow
positive or should we be unable to sustain positive cash flow,
we may be required to raise additional funding through public or
private financings, including equity financings. Any additional
equity financings may be dilutive to shareholders, and debt
financing, if available, may involve restrictive covenants.
Adequate funds for our operations, whether from financial
markets, collaborative or other arrangements, may not be
available when needed or on terms attractive to us, especially
in light of recent turmoil in the credit markets. If adequate
funds are not available, our plans to expand our business may be
adversely affected and we could be required to curtail our
activities significantly. We may need additional funding in the
future. Necessary funding may not be available on terms that are
favorable to the company, if at all.
Off
Balance Sheet Arrangements
None.
Contractual
Obligations
Although we have no material commitments for capital
expenditures, we anticipate continued capital expenditures
consistent with our anticipated growth in operations,
infrastructure and personnel. We expect that our operating
expenses will decrease in 2009 as we continue to control
expenses in the current economic environment.
42
Operating
and Capital Leases
At December 31, 2008, our principal commitments consisted
of long-term obligations under operating leases. We conduct our
U.S. operations from a leased facility located at
5929 Baker Road in Minnetonka, Minnesota. We lease
approximately 19,089 square feet of office and warehouse
space under a lease that extends through January 31, 2013.
In addition, we lease office space of approximately
14,930 square feet to support our Canadian operations at a
facility located at 4510 Rhodes Drive, Suite 800, Windsor,
Ontario, Canada under a lease that extends through June 30,
2009. We also lease our former headquarters facility of
approximately 8,610 square feet at 14700 Martin Drive, Eden
Prairie, Minnesota. We do not occupy this building and do not
anticipate sub-leasing this facility through the expiration of
our lease on November 30, 2009. As of December 31,
2008, we have recognized a liability for anticipated remaining
net costs on this lease obligation. The remaining liability at
December 31, 2008 was $141,700. On March 6, 2009, we
signed a lease termination agreement on the Martin Drive
facility, subject to the sale of the property, which is
scheduled to take place on March 19, 2009. Assuming the
property sells as planned, during the first quarter of 2009 we
will reverse approximately six months of rent expense we
previously accrued for this property.
The following table summarizes our obligations under contractual
agreements as of December 31, 2008 and the time frame
within which payments on such obligations are due.
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Payment Due by Period
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Less
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More
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Than
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Than
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Contractual Obligations
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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Capital Lease Obligations (including interest)
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$
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76,270
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$
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76,270
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$
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$
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$
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Operating Lease Obligations
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941,256
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332,634
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400,752
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207,870
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Total
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$
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1,017,526
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$
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408,904
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$
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400,752
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$
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207,870
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$
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Based on our working capital position at December 31, 2008,
we believe we have sufficient working capital to meet our
current obligations.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157), which defines fair
value, establishes a framework for measuring fair value in
accordance with U.S. generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS 157 applies under other existing
accounting pronouncements that require or permit fair value
measurements, as the FASB previously concluded in those
accounting pronouncement that fair value is the relevant
measurement attribute. Accordingly, SFAS 157 does not
require any new fair value measurements. Effective
January 1, 2008, we adopted SFAS 157 as it relates to
financial assets and liabilities recognized at fair value on a
recurring basis and it has had no material impact on our
financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value of Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159) which permits
entities to elect to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value. This election is
irrevocable. SFAS 159 was effective in the first quarter of
fiscal 2008. We have not elected to apply the fair value option
to any of our financial instruments and, therefore, there has
been no material impact on our financial statements.
During December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS 141 (Revised 2007)). While this statement
retains the fundamental requirement of SFAS 141 that the
acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business combinations,
SFAS 141 (Revised 2007) now establishes the principles
and requirements for how an acquirer in a business combination:
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interests in the acquiree; recognizes and
measures the goodwill
43
acquired in the business combination or the gain from a bargain
purchase; and determines what information should be disclosed in
the financial statements to enable the users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS 141 (Revised 2007) is
effective for fiscal years beginning on or after
December 15, 2008. We do not believe the adoption of
SFAS 141 (Revised 2007) will have a material impact on
our financial statements.
During December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). This statement establishes
accounting and reporting standards for noncontrolling interests
in subsidiaries and for the deconsolidation of subsidiaries and
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.
This statement also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent
owners and the interests of the noncontrolling owners of a
subsidiary. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. We do not believe
the adoption of SFAS 160 will have a material impact on our
financial statements.
In February 2008, the FASB issued FASB Staff Position
(FSP)
No. 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2),
which delays the effective date of SFAS 157 until
January 1, 2009 for all non-financial assets and
non-financial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis. These non-financial items include assets and
liabilities such as reporting units measured at fair value in a
goodwill impairment test and non-financial assets acquired and
liabilities assumed in a business combination. We do not expect
that the adoption of the remainder of SFAS 157 will have a
material impact on our financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FAS 133
(SFAS 161). This statement changes the
disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments
and related hedged items affect an entitys financial
position, financial performance, and cash flows. SFAS 161
is effective for fiscal years beginning on or after
November 15, 2008. We do not believe the adoption of
SFAS 161 will have a material impact on our financial
statements.
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3),
which amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under FASB Statement
No. 142, Goodwill and Other Intangible Assets.
This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets
in business combinations and asset acquisitions.
FAS 142-3
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008.
Early adoption is prohibited. We will assess the impact of
FSP 142-3
if and when future acquisitions occur.
In September 2008, the FASB issued FSP
No. 133-1
and FASB Interpretation
No. 45-4
(FSP
SFAS 133-1
and
FIN 45-4),
Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective
Date of FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, to require
additional disclosure about the current status of the
payment/performance risk of a guarantee. The provisions of the
FSP that amend SFAS 133 and FIN 45 and effective for
reporting periods ending after November 15, 2008. FSP
SFAS 133-1
and
FIN 45-4
also clarifies the effective date in SFAS 161. Disclosures
required by SFAS 161 are effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption of FSP
SFAS 133-1
and
FIN 45-4
is not expected to have a material impact on our financial
statements.
In October 2008, the FASB issued
FSP 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active
(FSP 157-3).
FSP 157-3
clarifies the application of SFAS 157 in a market that is
not active and addresses application issues such as the use of
internal assumptions when relevant
44
observable data does not exist, the use of observable market
information when the market is not active and the use of market
quotes when assessing the relevance of observable and
unobservable data.
FSP 157-3
is effective for all periods presented in accordance with
SFAS 157. The guidance in
FSP 157-3
is effective immediately and did not have a material impact on
our financial statements.
In December 2008, the FASB issued FSP
No. 140-4
and
FIN 46R-8
(FSP 140-4
and
FIN 46R-8),
Disclosures by Public Entities (Enterprises) about
Transfers of Financial Assets and Interests in Variable Interest
Entities.
FSP 140-4
and
FIN 46R-8
require additional disclosures about transfers of financial
assets and involvement with variable interest entities
(VIEs). The requirements apply to transferors,
sponsors, servicers, primary beneficiaries and holders of
significant variable interests in a variable interest entity or
qualifying special purpose entity. Disclosures required by
FSP 140-4
and
FIN 46R-8
are effective for our company in the first quarter of fiscal
2009. Because we have no VIEs, the adoption is not
expected to have a material impact our financial statements.
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ITEM 7A
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash and cash
equivalents, marketable securities, and accounts receivables. We
maintain our accounts for cash and cash equivalents and
marketable securities principally at one major bank. We invest
our available cash in United States government securities and
money market funds. We have not experienced any significant
losses on our deposits of our cash, cash equivalents, or
marketable securities.
We currently have outstanding approximately $71,000 of capital
lease obligations at fixed interest rates. We do not believe our
operations are currently subject to significant market risks for
interest rates or other relevant market price risks of a
material nature.
Foreign exchange rate fluctuations may adversely impact our
consolidated financial position as well as our consolidated
results of operations. Foreign exchange rate fluctuations may
adversely impact our financial position as the assets and
liabilities of our Canadian operations are translated into
U.S. dollars in preparing our consolidated balance sheet.
These gains or losses are recognized as an adjustment to
shareholders equity through accumulated other
comprehensive income.
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ITEM 8
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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See Index to Consolidated Financial Statements on
Page F-1.
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ITEM 9
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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None.
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ITEM 9A
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CONTROLS
AND PROCEDURES
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Evaluation
of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that
is designed to ensure that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosures.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of our disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e)).
Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer concluded that, as of December 31,
2008, our disclosure controls and procedures were effective.
45
Managements
Annual Report On Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting, as defined in Exchange Act
Rule 13a-15(f),
is a process designed by, or under the supervision of, our
principal executive and principal financial officers and
effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of our assets;
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Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and
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Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use of disposition of our
assets that could have a material effect on the financial
statements.
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Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. All
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2008.
In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on this assessment, management believes that as
of December 31, 2008, our internal control over financial
reporting is effective based on those criteria.
Virchow, Krause & Company, LLP, an independent
registered public accounting firm, has issued an attestation
report on our internal control over financial reporting as of
December 31, 2008.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred during the quarter ended
December 31, 2008, that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Report of
Independent Registered Public Accounting Firm
Virchow, Krause & Company, LLP, an independent
registered public accounting firm, has issued an attestation
report on our internal control over financial reporting as of
December 31, 2008. The attestation report of Virchow,
Krause & Company, LLP, on our internal control over
financial reporting as of December 31, 2008 is included on
page F-2
of this
Form 10-K
and is incorporated by reference herein.
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ITEM 9B
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OTHER
INFORMATION
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None.
46
PART III
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ITEM 10
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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We incorporate by reference the information contained under the
captions Proposal 1 Election of
Directors, Our Board of Directors and
Committees and Section 16(a) Beneficial
Ownership Reporting Compliance in our definitive proxy
statement for the annual meeting of shareholders to be held
June 11, 2009.
Pursuant to General Instruction G(3) to the Annual Report
on
Form 10-K
and Instruction 3 to Item 401(b) of
Regulation S-K,
information regarding our executive officers is provided in
Part I of this Annual Report on
Form 10-K
under separate caption.
We have adopted a Code of Business Conduct and Ethics that is
applicable to all of our employees, officers (including our
principal executive officer, principal financial officer,
principal accounting officer or controller, and persons
performing similar functions) and directors. Our Code of
Business Conduct and Ethics satisfies the requirements of
Item 406(b) of
Regulation S-K
and applicable NASDAQ Marketplace Rules. Our Code of Business
Conduct and Ethics is posted on our internet website at
www.wirelessronin.com and is available, free of charge, upon
written request to our Chief Financial Officer at 5929 Baker
Road, Suite 475, Minnetonka, MN 55345. We intend to
disclose any amendment to or waiver from a provision of our Code
of Business Conduct and Ethics that requires disclosure on our
website at www.wirelessronin.com.
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ITEM 11
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EXECUTIVE
COMPENSATION
|
We incorporate by reference the information contained under the
captions Our Board of Directors and Committees
Compensation Committee Interlocks and Insider
Participation, Our Board of Directors and
Committees Compensation Committee Report,
Non-Employee Director Compensation and
Executive Compensation in our definitive proxy
statement for the annual meeting of shareholders to be held
June 11, 2009.
|
|
ITEM 12
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
We incorporate by reference the information contained under the
caption Security Ownership of Certain Beneficial Owners
and Management and Equity Compensation Plan
Information in our definitive proxy statement for the
annual meeting of shareholders to be held June 11, 2009.
|
|
ITEM 13
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
We incorporate by reference the information contained under the
captions Our Board of Directors and Committees and
Certain Relationships and Related Transactions in
our definitive proxy statement for the annual meeting of
shareholders to be held June 11, 2009.
|
|
ITEM 14
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
We incorporate by reference the information contained under the
caption Proposal 3: Ratification of Appointment of
Independent Registered Public Accounting Firm in our
definitive proxy statement for the annual meeting of
shareholders to be held June 11, 2009.
47
PART IV
|
|
ITEM 15
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) See Index to Consolidated Financial
Statements on
page F-1
and Exhibit Index on
page E-1.
(b) See Exhibit Index on
page E-1.
(c) Not applicable.
48
SIGNATURES
In accordance with 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, in the City of Minnetonka, State of Minnesota, on
March 13, 2009.
Wireless Ronin Technologies, Inc.
James C. Granger
President and Chief Executive Officer
(Principal Executive Officer)
POWERS OF
ATTORNEY
KNOW ALL BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints James C. Granger and
Darin P. McAreavey as his or her true and lawful
attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any or all amendments
to this report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the SEC,
granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant, and
in the capacities and on the date indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ James
C. Granger
James
C. Granger
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Darin
P. McAreavey
Darin
P. McAreavey
|
|
Vice President and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Gregory
T. Barnum
Gregory
T. Barnum
|
|
Chairman of the Board of Directors
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Stephen
F. Birke
Stephen
F. Birke
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Thomas
J. Moudry
Thomas
J. Moudry
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Geoffrey
J. Obeney
Geoffrey
J. Obeney
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ William
F. Schnell
William
F. Schnell
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Brett
A. Shockley
Brett
A. Shockley
|
|
Director
|
|
March 13, 2009
|
49
Report of
Independent Registered Public Accounting Firm
To the Shareholders, Audit Committee and Board of Directors
Wireless Ronin Technologies, Inc.
Minnetonka, MN
We have audited the accompanying consolidated balance sheets of
Wireless Ronin Technologies, Inc. as of December 31, 2008
and 2007, and the related consolidated statements of operations,
shareholders equity (deficit) and cash flows for the years
ended December 31, 2008, 2007 and 2006. We also have
audited Wireless Ronin Technologies, Inc.s internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Wireless Ronin
Technologies, Inc.s management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting included in Item 9A Controls and
Procedures. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the
companys internal control over financial reporting based
on our audits.
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 audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement and whether
effective internal control over financial reporting was
maintained in all material respects. Our audits of the
consolidated financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall consolidated financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Wireless Ronin Technologies, Inc. as of
December 31, 2008 and 2007 and the results of its
operations and cash flows for the years ended December 31,
2008, 2007 and 2006, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, Wireless
Ronin Technologies, Inc. maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
/s/ Virchow,
Krause & Company, LLP
Minneapolis, MN
March 13, 2009
F-2
WIRELESS
RONIN TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,293,681
|
|
|
$
|
14,542,280
|
|
Marketable securities - available for sale
|
|
|
8,300,961
|
|
|
|
14,657,635
|
|
Accounts receivable, net of allowance of $91,758 and $84,685
|
|
|
1,822,627
|
|
|
|
4,135,402
|
|
Income tax receivable
|
|
|
12,275
|
|
|
|
231,328
|
|
Inventories
|
|
|
461,568
|
|
|
|
539,140
|
|
Prepaid expenses and other current assets
|
|
|
265,854
|
|
|
|
817,511
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
16,156,966
|
|
|
|
34,923,296
|
|
Property and equipment, net
|
|
|
1,917,832
|
|
|
|
1,780,390
|
|
Intangible assets, net
|
|
|
|
|
|
|
3,174,804
|
|
Restricted cash
|
|
|
450,000
|
|
|
|
450,000
|
|
Other assets
|
|
|
34,901
|
|
|
|
40,217
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
18,559,699
|
|
|
$
|
40,368,707
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Current maturities of long-term obligations
|
|
$
|
70,960
|
|
|
$
|
100,023
|
|
Accounts payable
|
|
|
1,068,091
|
|
|
|
1,387,327
|
|
Deferred revenue
|
|
|
180,621
|
|
|
|
1,252,485
|
|
Accrued purchase price consideration
|
|
|
|
|
|
|
999,974
|
|
Accrued liabilities
|
|
|
1,067,260
|
|
|
|
869,759
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,386,932
|
|
|
|
4,609,568
|
|
Capital lease obligations, less current maturities
|
|
|
|
|
|
|
70,960
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,386,932
|
|
|
|
4,680,528
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Capital stock, $0.01 par value, 66,666,666 shares
authorized
|
|
|
|
|
|
|
|
|
Preferred stock, 16,666,666 shares authorized, no shares
issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, 50,000,000 shares authorized; 14,849,860 and
14,537,705 shares issued and outstanding
|
|
|
148,499
|
|
|
|
145,377
|
|
Additional paid-in capital
|
|
|
80,649,804
|
|
|
|
78,742,311
|
|
Accumulated deficit
|
|
|
(64,212,459
|
)
|
|
|
(43,520,098
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(413,077
|
)
|
|
|
320,589
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
16,172,767
|
|
|
|
35,688,179
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
18,559,699
|
|
|
$
|
40,368,707
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-3
WIRELESS
RONIN TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
$
|
2,478,936
|
|
|
$
|
3,298,078
|
|
|
$
|
1,852,678
|
|
Software
|
|
|
876,529
|
|
|
|
597,923
|
|
|
|
1,107,913
|
|
Services and other
|
|
|
4,025,937
|
|
|
|
2,088,912
|
|
|
|
184,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
7,381,402
|
|
|
|
5,984,913
|
|
|
|
3,145,389
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
|
|
2,192,837
|
|
|
|
2,286,695
|
|
|
|
1,429,585
|
|
Software
|
|
|
247,075
|
|
|
|
1,007
|
|
|
|
|
|
Services and other
|
|
|
4,084,689
|
|
|
|
1,531,647
|
|
|
|
78,272
|
|
Inventory lower of cost or market
|
|
|
64,688
|
|
|
|
73,018
|
|
|
|
37,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales (exclusive of depreciation and amortization
shown separately below)
|
|
|
6,589,289
|
|
|
|
3,892,367
|
|
|
|
1,545,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
792,113
|
|
|
|
2,092,546
|
|
|
|
1,600,122
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
3,998,744
|
|
|
|
2,805,522
|
|
|
|
1,462,667
|
|
Research and development expenses
|
|
|
2,541,267
|
|
|
|
1,197,911
|
|
|
|
875,821
|
|
General and administrative expenses
|
|
|
11,257,801
|
|
|
|
8,048,583
|
|
|
|
2,383,941
|
|
Depreciation and amortization expense
|
|
|
1,225,827
|
|
|
|
651,557
|
|
|
|
1,196,027
|
|
Impairment of network equipment held for sale
|
|
|
1,766,072
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
1,264,870
|
|
|
|
|
|
|
|
|
|
Termination of partnership agreement
|
|
|
50,000
|
|
|
|
703,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,104,581
|
|
|
|
13,407,568
|
|
|
|
5,918,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21,312,468
|
)
|
|
|
(11,315,022
|
)
|
|
|
(4,318,334
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(22,484
|
)
|
|
|
(40,247
|
)
|
|
|
(10,124,216
|
)
|
Loss on debt modification
|
|
|
|
|
|
|
|
|
|
|
(367,153
|
)
|
Interest income
|
|
|
647,066
|
|
|
|
1,277,456
|
|
|
|
21,915
|
|
Other
|
|
|
(4,475
|
)
|
|
|
(8,572
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
620,107
|
|
|
|
1,228,637
|
|
|
|
(10,469,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,692,361
|
)
|
|
$
|
(10,086,385
|
)
|
|
$
|
(14,787,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(1.41
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(9.71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
14,664,144
|
|
|
|
12,314,178
|
|
|
|
1,522,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-4
WIRELESS
RONIN TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (loss)
|
|
|
Equity (Deficit)
|
|
|
Balances at December 31, 2005
|
|
|
784,037
|
|
|
$
|
7,840
|
|
|
$
|
11,032,668
|
|
|
$
|
(18,645,976
|
)
|
|
$
|
|
|
|
$
|
(7,605,468
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,787,737
|
)
|
|
|
|
|
|
|
(14,787,737
|
)
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,732
|
|
|
|
16,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,771,005
|
)
|
Stock issued to related parties for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense at $9.00 per share
|
|
|
24,999
|
|
|
|
250
|
|
|
|
224,750
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
Stock issued for short-term notes payable
|
|
|
45,332
|
|
|
|
453
|
|
|
|
202,192
|
|
|
|
|
|
|
|
|
|
|
|
202,645
|
|
Stock issued for short-term notes payable
|
|
|
20,000
|
|
|
|
200
|
|
|
|
58,662
|
|
|
|
|
|
|
|
|
|
|
|
58,862
|
|
Warrants issued to related parties for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term notes payable
|
|
|
|
|
|
|
|
|
|
|
268,872
|
|
|
|
|
|
|
|
|
|
|
|
268,872
|
|
Deferred issuance costs
|
|
|
|
|
|
|
|
|
|
|
39,499
|
|
|
|
|
|
|
|
|
|
|
|
39,499
|
|
Warrants issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
18,697
|
|
|
|
|
|
|
|
|
|
|
|
18,697
|
|
Bridge notes
|
|
|
|
|
|
|
|
|
|
|
1,893,500
|
|
|
|
|
|
|
|
|
|
|
|
1,893,500
|
|
Compensation expense
|
|
|
|
|
|
|
|
|
|
|
405,151
|
|
|
|
|
|
|
|
|
|
|
|
405,151
|
|
Directors
|
|
|
|
|
|
|
|
|
|
|
300,937
|
|
|
|
|
|
|
|
|
|
|
|
300,937
|
|
Beneficial conversion of short-term notes payable
|
|
|
|
|
|
|
|
|
|
|
5,700,290
|
|
|
|
|
|
|
|
|
|
|
|
5,700,290
|
|
Repricing of warrants
|
|
|
|
|
|
|
|
|
|
|
81,126
|
|
|
|
|
|
|
|
|
|
|
|
81,126
|
|
Proceeds from initial public offering of common stock, less
offering costs
|
|
|
5,175,000
|
|
|
|
51,750
|
|
|
|
17,951,804
|
|
|
|
|
|
|
|
|
|
|
|
18,003,554
|
|
Conversion of long-term obligations into common stock
|
|
|
3,628,056
|
|
|
|
36,281
|
|
|
|
10,407,123
|
|
|
|
|
|
|
|
|
|
|
|
10,443,404
|
|
Conversion of accrued interest into common stock
|
|
|
147,642
|
|
|
|
1,476
|
|
|
|
470,994
|
|
|
|
|
|
|
|
|
|
|
|
472,470
|
|
Exercise of warrants
|
|
|
555
|
|
|
|
6
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
9,825,621
|
|
|
$
|
98,256
|
|
|
$
|
49,056,509
|
|
|
$
|
(33,433,713
|
)
|
|
$
|
16,732
|
|
|
$
|
15,737,784
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,086,385
|
)
|
|
|
|
|
|
|
(10,086,385
|
)
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,695
|
)
|
|
|
(10,695
|
)
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,552
|
|
|
|
314,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,782,528
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,167,171
|
|
|
|
|
|
|
|
|
|
|
|
1,167,171
|
|
Exercise of options and warrants
|
|
|
372,084
|
|
|
|
3,721
|
|
|
|
1,156,999
|
|
|
|
|
|
|
|
|
|
|
|
1,160,720
|
|
Common stock issued for acquisition
|
|
|
50,000
|
|
|
|
500
|
|
|
|
311,500
|
|
|
|
|
|
|
|
|
|
|
|
312,000
|
|
Proceeds from the sale of common stock, less offering costs
|
|
|
4,290,000
|
|
|
|
42,900
|
|
|
|
27,050,132
|
|
|
|
|
|
|
|
|
|
|
|
27,093,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
14,537,705
|
|
|
$
|
145,377
|
|
|
$
|
78,742,311
|
|
|
$
|
(43,520,098
|
)
|
|
$
|
320,589
|
|
|
$
|
35,688,179
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,692,361
|
)
|
|
|
|
|
|
|
(20,692,361
|
)
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(777
|
)
|
|
|
(777
|
)
|
Foreign currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(732,889
|
)
|
|
|
(732,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,426,027
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,312,955
|
|
|
|
|
|
|
|
|
|
|
|
1,312,955
|
|
Restricted stock issued under equity incentive plan
|
|
|
6,000
|
|
|
|
60
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options and warrants
|
|
|
162,582
|
|
|
|
1,626
|
|
|
|
370,674
|
|
|
|
|
|
|
|
|
|
|
|
372,300
|
|
Common stock issued under associate stock purchase plan
|
|
|
143,573
|
|
|
|
1,436
|
|
|
|
223,924
|
|
|
|
|
|
|
|
|
|
|
|
225,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
14,849,860
|
|
|
$
|
148,499
|
|
|
$
|
80,649,804
|
|
|
$
|
(64,212,459
|
)
|
|
$
|
(413,077
|
)
|
|
$
|
16,172,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-5
WIRELESS
RONIN TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,692,361
|
)
|
|
$
|
(10,086,385
|
)
|
|
$
|
(14,787,737
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
702,300
|
|
|
|
436,552
|
|
|
|
1,196,027
|
|
Amortization of acquisition-related intangibles
|
|
|
523,527
|
|
|
|
215,005
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
1,264,870
|
|
|
|
|
|
|
|
|
|
Impairment of network equipment held for sale
|
|
|
1,766,072
|
|
|
|
|
|
|
|
|
|
Loss on disposal of property and equipment
|
|
|
72,605
|
|
|
|
36,782
|
|
|
|
|
|
Allowance for doubtful receivables
|
|
|
7,345
|
|
|
|
61,000
|
|
|
|
21,000
|
|
Inventory lower of cost or market
|
|
|
|
|
|
|
|
|
|
|
37,410
|
|
Debt discount amortization
|
|
|
|
|
|
|
|
|
|
|
3,569,509
|
|
Debt discount amortization related party
|
|
|
|
|
|
|
|
|
|
|
606,912
|
|
Common stock issued for interest expense related
party
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
Issuance of warrants for short-term borrowings
related parties
|
|
|
|
|
|
|
|
|
|
|
39,499
|
|
Stock-based compensation expense
|
|
|
1,312,955
|
|
|
|
1,167,171
|
|
|
|
787,214
|
|
Beneficial conversion of notes payable
|
|
|
|
|
|
|
|
|
|
|
4,107,241
|
|
Change in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(172,780
|
)
|
|
|
(2,464,002
|
)
|
|
|
(933,350
|
)
|
Corporate income taxes
|
|
|
188,682
|
|
|
|
49,924
|
|
|
|
|
|
Inventories
|
|
|
182,338
|
|
|
|
(283,289
|
)
|
|
|
95,595
|
|
Prepaid expenses and other current assets
|
|
|
(62,558
|
)
|
|
|
(598,797
|
)
|
|
|
(122,307
|
)
|
Other assets
|
|
|
1,350
|
|
|
|
2,500
|
|
|
|
(4,995
|
)
|
Accounts payable
|
|
|
(272,111
|
)
|
|
|
410,927
|
|
|
|
697,280
|
|
Deferred revenue
|
|
|
(6,255
|
)
|
|
|
1,065,010
|
|
|
|
(884,555
|
)
|
Accrued liabilities
|
|
|
273,806
|
|
|
|
336,421
|
|
|
|
390,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(14,910,215
|
)
|
|
|
(9,651,181
|
)
|
|
|
(4,959,741
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash received
|
|
|
|
|
|
|
(2,877,201
|
)
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,051,418
|
)
|
|
|
(1,471,921
|
)
|
|
|
(310,926
|
)
|
Purchases of marketable securities
|
|
|
(28,662,495
|
)
|
|
|
(28,301,446
|
)
|
|
|
(7,176,779
|
)
|
Sales of marketable securities
|
|
|
35,018,393
|
|
|
|
20,826,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
|
5,304,480
|
|
|
|
(11,823,943
|
)
|
|
|
(7,487,705
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on bank lines of credit and short-term note payable
|
|
|
|
|
|
|
|
|
|
|
(350,000
|
)
|
Payment for deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(864,509
|
)
|
Proceeds from short-term notes payable related
parties
|
|
|
|
|
|
|
|
|
|
|
4,825,000
|
|
Payments on short-term notes payable related parties
|
|
|
|
|
|
|
|
|
|
|
(335,601
|
)
|
Proceeds from long-term notes payable
|
|
|
|
|
|
|
|
|
|
|
194,242
|
|
Payments on long-term notes payable and capital leases
|
|
|
(99,795
|
)
|
|
|
(111,486
|
)
|
|
|
(872,939
|
)
|
Payments on long-term notes payable related parties
|
|
|
|
|
|
|
|
|
|
|
(13,750
|
)
|
Restricted cash
|
|
|
|
|
|
|
(450,000
|
)
|
|
|
|
|
Proceeds from issuance of common stock and equity units
|
|
|
|
|
|
|
27,093,032
|
|
|
|
18,003,554
|
|
Proceeds from exercise of warrants and stock options
|
|
|
372,300
|
|
|
|
1,160,720
|
|
|
|
250
|
|
Proceeds from sale of common stock under associate stock
purchase plan
|
|
|
225,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activites
|
|
|
497,865
|
|
|
|
27,692,266
|
|
|
|
20,586,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(140,729
|
)
|
|
|
51,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(9,248,599
|
)
|
|
|
6,268,892
|
|
|
|
8,138,801
|
|
Cash and Cash Equivalents, beginning of period
|
|
|
14,542,280
|
|
|
|
8,273,388
|
|
|
|
134,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, end of period
|
|
$
|
5,293,681
|
|
|
$
|
14,542,280
|
|
|
$
|
8,273,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-6
WIRELESS
RONIN TECHNOLOGIES, INC.
|
|
NOTE 1:
|
NATURE OF
OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Nature
of Business and Operations
Overview
Wireless Ronin Technologies, Inc. (the Company) is a Minnesota
corporation that provides dynamic digital signage solutions
targeting specific retail and service markets. The Company has
designed and developed
RoninCast®,
a proprietary content delivery system that manages, schedules
and delivers digital content over a wireless or wired network.
The solutions, the digital alternative to static signage,
provide business customers with a dynamic and interactive visual
marketing system designed to enhance the way they advertise,
market and deliver their messages to targeted audiences.
The Companys wholly-owned subsidiary, Wireless Ronin
Technologies (Canada), Inc., an Ontario, Canada provincial
corporation located in Windsor, Ontario, develops
e-learning,
e-performance
support and
e-marketing
solutions for business customers.
E-learning
solutions are software-based instructional systems developed
specifically for customers, primarily in sales force training
applications.
E-performance
support systems are interactive systems produced to increase
product literacy of customer sales staff.
E-marketing
products are developed to increase customer knowledge of and
interaction with customer products.
The Company and its subsidiary sell products and services
primarily throughout North America.
Summary
of Significant Accounting Policies
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying financial
statements follows:
|
|
1.
|
Principles
of Consolidation
|
The consolidated financial statements include the accounts of
Wireless Ronin Technologies, Inc. and its wholly owned
subsidiary. All intercompany balances and transactions have been
eliminated in consolidation.
Foreign denominated monetary assets and liabilities are
translated at the rate of exchange prevailing at the balance
sheet date. Revenue and expenses are translated at the average
exchange rates prevailing during the reporting period. The
Companys Canadian subsidiarys functional currency is
the Canadian dollar. Translation adjustments result from
translating its financial statements into the reporting
currency, the U.S. dollar. The translation adjustment has
not been included in determining net income, but has been
reported separately and is accumulated in a separate component
of equity. The Canadian subsidiary has foreign currency
transactions denominated in a currency other than the Canadian
dollar. These transactions include receivables and payables that
are fixed in terms of the amount of foreign currency that will
be received or paid on a future date. A change in exchange rates
between the functional currency and the currency in which the
transaction is denominated increases or decreases the expected
amount of functional currency cash flows upon settlement of the
transaction. That increase or decrease in expected functional
currency cash flows is a foreign currency transaction gain or
loss that has been included in determining the net income of the
period. In 2008, a foreign currency transaction gain of $214,010
was recorded in Sales, Services and other. In 2007, a foreign
currency transaction loss of $97,688 was recorded in Sales,
Services and other. No foreign currency gain or loss was
recorded in 2006.
The Company recognizes revenue primarily from these
sources:
|
|
|
|
|
Software and software license sales
|
|
|
|
System hardware sales
|
F-7
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
Professional service revenue
|
|
|
|
Software development services
|
|
|
|
Software design and development services
|
|
|
|
Implementation services
|
|
|
|
Maintenance and support contracts
|
The Company applies the provisions of Statement of Position
(SOP)
97-2,
Software Revenue Recognition, as amended by
SOP 98-9
Modification of
SOP 97-2,
Software Revenue Recognition, With Respect to Certain
Transactions to all transactions involving the sale of
software licenses. In the event of a multiple element
arrangement, the Company evaluates if each element represents a
separate unit of accounting taking into account all factors
following the guidelines set forth in Emerging Issues Task Force
Issue
No. 00-21
(EITF 00-21)
Revenue Arrangements with Multiple Deliverables.
The Company recognizes revenue when (i) persuasive evidence
of an arrangement exists; (ii) delivery has occurred, which
is when product title transfers to the customer, or services
have been rendered; (iii) customer payment is deemed fixed
or determinable and free of contingencies and significant
uncertainties; and (iv) collection is probable. The Company
assesses collectability based on a number of factors, including
the customers past payment history and its current
creditworthiness. If it is determined that collection of a fee
is not reasonably assured, the Company defers the revenue and
recognizes it at the time collection becomes reasonably assured,
which is generally upon receipt of cash payment. If an
acceptance period is required, revenue is recognized upon the
earlier of customer acceptance or the expiration of the
acceptance period.
Multiple-Element Arrangements The Company enters
into arrangements with customers that include a combination of
software products, system hardware, maintenance and support, or
installation and training services. The Company allocates the
total arrangement fee among the various elements of the
arrangement based on the relative fair value of each of the
undelivered elements determined by vendor-specific objective
evidence (VSOE). In software arrangements for which the Company
does not have VSOE of fair value for all elements, revenue is
deferred until the earlier of when VSOE is determined for the
undelivered elements (residual method) or when all elements for
which the Company does not have VSOE of fair value have been
delivered.
The Company has determined VSOE of fair value for each of its
products and services. The fair value of maintenance and support
services is based upon the renewal rate for continued service
arrangements. The fair value of installation and training
services is established based upon pricing for the services. The
fair value of software and licenses is based on the normal
pricing and discounting for the product when sold separately.
The fair value of hardware is based on a stand-alone market
price.
Each element of the Companys multiple element arrangements
qualifies for separate accounting with the exception of
undelivered maintenance and service fees. The Company defers
revenue under the residual method for undelivered maintenance
and support fees included in the price of software and amortizes
fees ratably over the appropriate period. The Company defers
fees based upon the customers renewal rate for these
services.
Software
and software license sales
The Company recognizes revenue when a fixed fee order has been
received and delivery has occurred to the customer. The Company
assesses whether the fee is fixed or determinable and free of
contingencies based upon signed agreements received from the
customer confirming terms of the transaction. Software is
delivered to customers electronically or on a CD-ROM, and
license files are delivered electronically.
F-8
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
System
hardware sales
The Company recognizes revenue on system hardware sales
generally upon shipment of the product or customer acceptance
depending upon contractual arrangements with the customer.
Shipping charges billed to customers are included in sales and
the related shipping costs are included in cost of sales.
Professional
service revenue
Included in services and other revenues is revenue derived from
implementation, maintenance and support contracts, content
development, software development and training. The majority of
consulting and implementation services and accompanying
agreements qualify for separate accounting. Implementation and
content development services are bid either on a fixed-fee basis
or on a
time-and-materials
basis. For
time-and-materials
contracts, the Company recognizes revenue as services are
performed. For fixed-fee contracts, the Company recognizes
revenue upon completion of specific contractual milestones or by
using the percentage-of-completion method.
Software
development services
Software development revenue is recognized monthly as services
are performed per fixed fee contractual agreements.
Software
design and development services
Revenue from contracts for technology integration consulting
services where the Company designs/redesigns, builds and
implements new or enhanced systems applications and related
processes for clients are recognized on the
percentage-of-completion method in accordance with American
Institute of Certified Public Accountants Statement of Position
81-1,
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1).
Percentage-of-completion accounting involves calculating the
percentage of services provided during the reporting period
compared to the total estimated services to be provided over the
duration of the contract. Estimated revenues for applying the
percentage-of-completion method include estimated incentives for
which achievement of defined goals is deemed probable. This
method is followed where reasonably dependable estimates of
revenues and costs can be made. Estimates of total contract
revenue and costs are continuously monitored during the term of
the contract, and recorded revenue and costs are subject to
revision as the contract progresses. Such revisions may result
in increases or decreases to revenue and income and are
reflected in the financial statements in the periods in which
they are first identified. If estimates indicate that a contract
loss will occur, a loss provision is recorded in the period in
which the loss first becomes probable and reasonably estimable.
Contract losses are determined to be the amount by which the
estimated direct and indirect costs of the contract exceed the
estimated total revenue that will be generated by the contract
and are included in cost of sales and classified in accrued
expenses in the balance sheet.
Revenue recognized in excess of billings is recorded as unbilled
services. Billings in excess of revenue recognized are recorded
as deferred revenue until revenue recognition criteria are met.
Uncompleted contracts at December 31, 2008 and 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost incurred on uncompleted contracts
|
|
$
|
195,724
|
|
|
$
|
155,246
|
|
Estimated earnings
|
|
|
884,180
|
|
|
|
616,174
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized
|
|
|
1,079,904
|
|
|
|
771,420
|
|
Less: billings to date
|
|
|
(1,130,351
|
)
|
|
|
(932,021
|
)
|
|
|
|
|
|
|
|
|
|
Amount included in deferred revenue
|
|
$
|
(50,447
|
)
|
|
$
|
(160,601
|
)
|
|
|
|
|
|
|
|
|
|
F-9
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
These amounts have been included in deferred revenue.
Implementation
services
Implementation services revenue is recognized when installation
is completed.
Maintenance
and support contracts
Maintenance and support consists of software updates and
support. Software updates provide customers with rights to
unspecified software product upgrades and maintenance releases
and patches released during the term of the support period.
Support includes access to technical support personnel for
software and hardware issues.
Maintenance and support revenue is recognized ratably over the
term of the maintenance contract, which is typically one to
three years. Maintenance and support is renewable by the
customer. Rates for maintenance and support, including
subsequent renewal rates, are typically established based upon a
specified percentage of net license fees as set forth in the
arrangement.
|
|
4.
|
Cash and
Cash Equivalents
|
Cash equivalents consist of certificates of deposit and all
other liquid investments with original maturities of three
months or less when purchased. The Company maintains its cash
balances in several financial institutions in Minnesota. These
balances are insured by the Federal Deposit Insurance
Corporation up to $250,000.
In conjunction with the lease agreement for office space entered
into in April 2007, the Company obtained a letter of credit to
support the landlords upfront investments totaling
$492,000. The letter of credit is collateralized by $400,000 of
cash held by the issuing bank. The collateral is reduced over
time as the letter of credit is reduced. The term of the
Companys letter of credit is 31 months. In connection
with the Companys banks credit card program, the
Company is required to maintain a cash balance of $50,000.
The Companys marketable securities consist of debt
securities that are classified as available-for-sale. These
securities are reported at their fair value with the unrealized
holding gains and losses, net of tax, reported as a net amount
as a separate component of shareholders equity until
realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific identification
method. Premiums and discounts are recognized in interest income
using the interest method over the period to maturity.
Accounts receivable are usually unsecured and stated at net
realizable value and bad debts are accounted for using the
allowance method. The Company performs credit evaluations of its
customers financial condition on an as-needed basis and
generally requires no collateral. Payment is generally due
90 days or less from the invoice date and accounts past due
more than 90 days are individually analyzed for
collectability. In addition, an allowance is provided for other
accounts when a significant pattern of uncollectability has
occurred based on historical experience and managements
evaluation of accounts receivable. If all collection efforts
have been exhausted, the account is written off against the
related allowance. The allowance for doubtful accounts was
$91,758 and $84,685 at December 31, 2008 and 2007,
respectively.
The income taxes receivable owed to the Canadian subsidiary,
Wireless Ronin Technologies (Canada), Inc., represents refunds
filed with the Canada Revenue Agency for the year ending
December 31, 2006. This
F-10
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
receivable is for the disallowance of the Ontario Interactive
Digital Media Tax Credit as this resulted in a revision to the
net loss of the subsidiary for tax purposes and the non-capital
loss carryback request for 2006.
The Company records inventories using the lower of cost or
market on a
first-in,
first-out (FIFO) method. Inventories consist principally of
finished goods, product components and software licenses.
Inventory reserves are established to reflect slow-moving or
obsolete products. There were no inventory reserves at
December 31, 2008 and 2007.
The Company has allocated a portion of the purchase price of
businesses acquired to intangible assets. Purchased intangible
assets include trade names, customer relationships and other
intangible assets acquired in business combinations. Intangible
assets are amortized over finite lives using methods that
approximate the benefit provided by utilization of the assets.
In the fourth quarter of 2008, the Company recorded an
impairment charge for the assets related to the 2007 acquisition
of McGill Digital Solutions. See Note 5 for further
information regarding the impact of the impairment of intangible
assets. No impairment has been recognized on recorded intangible
assets as of December 31, 2007.
|
|
11.
|
Impairment
of Long-Lived Assets
|
The Company reviews the carrying value of all long-lived assets,
including property and equipment as well as intangible assets
with definite lives, for impairment in accordance with Statement
of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). Under SFAS 144, impairment
losses are recorded whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable.
If the impairment tests indicate that the carrying value of the
asset is greater than the expected undiscounted cash flows to be
generated by such asset, an impairment loss would be recognized.
The impairment loss is determined by the amount by which the
carrying value of such asset exceeds its fair value. We
generally measure fair value by considering sale prices for
similar assets or by discounting estimated future cash flows
from such assets using an appropriate discount rate. Assets to
be disposed of are carried at the lower of their carrying value
or fair value less costs to sell. Considerable management
judgment is necessary to estimate the fair value of assets, and
accordingly, actual results could vary significantly from such
estimates. In the fourth quarter of 2008, the Company recorded
an impairment charge for the intangible assets related to the
2007 acquisition of McGill Digital Solutions. See Note 5
for further information regarding the impact of the impairment
of intangible assets. Except as discussed in Note 5, there
have been no impairment losses for long-lived assets, including
finite-lived intangible assets, recorded in 2008, 2007 or 2006.
|
|
12.
|
Depreciation
and Amortization
|
Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over the estimated
service lives, principally using straight-line methods. Leased
equipment is depreciated over the term of the capital lease.
Leasehold improvements are amortized over the shorter of the
life of the improvement or the lease term, using the
straight-line method. Deferred financing costs are amortized
using the straight-line method over the term of the associated
financing arrangement (which approximates the interest method.)
F-11
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The estimated useful lives used to compute depreciation and
amortization are as follows:
|
|
|
|
|
Equipment
|
|
|
3 5 years
|
|
Demonstration equipment
|
|
|
3 5 years
|
|
Furniture and fixtures
|
|
|
7 years
|
|
Purchased software
|
|
|
3 years
|
|
Leased equipment
|
|
|
3 years
|
|
Leasehold improvements
|
|
|
Shorter of 5 years or term of lease
|
|
Depreciation expense was $702,300, $436,552 and $188,346 for the
years ended December 31, 2008, 2007 and 2006, respectively.
Amortization expense related to the deferred financing costs was
$0 for the years ended December 31, 2008 and 2007 and
$69,505 for the year ended December 31, 2006, which was
recorded as a component of interest expense.
Advertising costs are charged to operations when incurred.
Advertising costs were $285,828, $595,084 and $352,849 for the
years ended December 31, 2008, 2007 and 2006, respectively.
Comprehensive loss includes revenues, expenses, gains and losses
that are excluded from net loss. Items of comprehensive loss are
unrealized gains and losses on short term investments and
foreign currency translation adjustments which are added to net
income or loss to compute comprehensive income or loss. In 2008,
comprehensive loss included $732,889 recorded for unrealized
foreign currency translation loss on the translation of the
financial statements of the Companys foreign subsidiary
from its functional currency to the U.S. dollar, and $777
for unrealized investment losses. In 2007, comprehensive loss
included $314,552 recorded for unrealized foreign currency
translation gains on the translation of the financial statements
of the Companys foreign subsidiary from its functional
currency to the U.S. dollar, and $10,695 for unrealized
investment losses. In 2006, comprehensive loss included $16,732
of unrealized investment gains.
|
|
15.
|
Research
and Development and Software Development Costs
|
Research and development expenses consist primarily of
development personnel and non-employee contractor costs related
to the development of new products and services, enhancement of
existing products and services, quality assurance and testing.
Statement of Financial Accounting Standards (SFAS) No. 86
Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed requires certain software
development costs to be capitalized upon the establishment of
technological feasibility. The establishment of technological
feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with
respect to certain external factors such as anticipated future
revenue, estimated economic life, and changes in software and
hardware technologies. Software development costs incurred
beyond the establishment of technological feasibility have not
been significant. No software development costs were capitalized
during the years ended December 31, 2008 and 2007. Software
development costs have been recorded as research and development
expense. The Company incurred research and development expenses
of $2,541,267 in 2008, $1,197,911 in 2007 and $875,821 in 2006.
|
|
16.
|
Basic and
Diluted Loss per Common Share
|
Basic and diluted loss per common share for all periods
presented is computed using the weighted average number of
common shares outstanding. Basic weighted average shares
outstanding include only outstanding common shares. Diluted net
loss per common share is computed by dividing net loss by the
weighted average common and potential dilutive common shares
outstanding computed in accordance with the treasury stock
method. Shares reserved for outstanding stock warrants and
options totaling 3,611,273,
F-12
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
3,543,283 and 3,072,637 for 2008, 2007 and 2006, respectively,
were excluded from the computation of loss per share as their
effect was antidilutive.
|
|
17.
|
Deferred
Income Taxes
|
Deferred income taxes are recognized in the financial statements
for the tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial
reporting amounts based on enacted tax laws and statutory tax
rates. Temporary differences arise from net operating losses,
reserves for uncollectible accounts receivables and inventory,
differences in depreciation methods, and accrued expenses.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
|
|
18.
|
Accounting
for Stock-Based Compensation
|
In the first quarter of 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment, (SFAS 123R),
which revises SFAS 123, Accounting for Stock-Based
Compensation (SFAS 123) and supersedes
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25).
Stock-based compensation expense recognized during the period is
based on the value of the portion of share-based awards that are
ultimately expected to vest during the period. The fair value of
each stock option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The fair value of
restricted stock is determined based on the number of shares
granted and the closing price of the Companys common stock
on the date of grant. Compensation expense for all share-based
payment awards is recognized using the straight-line
amortization method over the vesting period. The Company adopted
SFAS 123R effective January 1, 2006, prospectively for
new equity awards issued subsequent to January 1, 2006.
Stock-based compensation expense of $1,312,955, $1,167,171 and
$787,214 was charged to expense during 2008, 2007 and 2006,
respectively. No tax benefit has been recorded due to the full
valuation allowance on deferred tax assets that the Company has
recorded.
In March 2005 the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 107 (SAB 107), which
provides supplemental implementation guidance for
SFAS 123R. In December 2007, the SEC issued Staff
Accounting Bulletin No. 110 (SAB 110)
which expresses the view of the staff regarding the use of a
simplified method in developing an estimate of
expected term for stock options. Since the Company has little
historical data to rely upon, it has applied the provisions of
SAB 107 and SAB 110 in its application of
SFAS 123R.
The Company accounts for equity instruments issued for services
and goods to non-employees under SFAS 123R,
Share-Based Payment
EITF 96-18,
Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services and
EITF 00-18,
Accounting Recognition for Certain Transactions Involving
Equity Instruments Granted to Other Than Employees.
Generally, the equity instruments issued for services and goods
are shares of the Companys common stock or warrants to
purchase shares of the Companys common stock. These shares
or warrants generally are fully-vested, nonforfeitable and
exercisable at the date of grant and require no future
performance commitment by the recipient. The Company expenses
the fair market value of these securities over the period in
which the related services are received.
See Note 9 for further information regarding the impact of
the Companys adoption of SFAS 123R and the
assumptions used to calculate the fair value of share-based
compensation.
|
|
19.
|
Fair
Value of Financial Instruments
|
SFAS No. 107 Disclosures about Fair Value of
Financial Instruments (SFAS 107) requires
disclosure of the estimated fair value of an entitys
financial instruments. Such disclosures, which pertain to the
Companys financial instruments, do not purport to
represent the aggregate net fair value of the Company. The
F-13
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
carrying value of cash and cash equivalents, marketable
securities, accounts receivable and accounts payable
approximated fair value because of the short maturity of those
instruments.
|
|
20.
|
Financial
Instruments
|
The Company periodically uses forward contracts to manage its
exposure associated with forecasted international revenue
transactions denominated in the United States dollar. These
contracts are not designated as hedges and, accordingly, the
changes in fair value are reported in income as a component of
sales. At December 31, 2008 and 2007, there were no
outstanding forward contracts.
|
|
21.
|
Registration
Rights Agreements
|
The Company adopted FSP
EITF 00-19-2,
as of January 1, 2007, Accounting for Registration
Payment Arrangements (FSP), which addresses an
issuers accounting for registration payment arrangements.
This FSP specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate
agreement or included as a provision of a financial instrument
or other agreement, should be separately recognized and measured
in accordance with FASB Statement No. 5, Accounting
for Contingencies. This FSP further clarifies that a
financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other
applicable generally accepted accounting principles (GAAP)
without regard to the contingent obligation to transfer
consideration pursuant to the registration payment arrangement.
The adoption of this FSP did not have an impact on the Company.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates of the
Company are the allowance for doubtful accounts, recognition of
revenue under fixed price contracts, deferred tax assets,
deferred revenue, depreciable lives and methods of property and
equipment, valuation of warrants and other stock-based
compensation and valuation of recorded intangible assets. Actual
results could differ from those estimates.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements (SFAS 157), which defines fair
value, establishes a framework for measuring fair value in
accordance with U.S. generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS 157 applies under other existing
accounting pronouncements that require or permit fair value
measurements, as the FASB previously concluded in those
accounting pronouncement that fair value is the relevant
measurement attribute. Accordingly, SFAS 157 does not
require any new fair value measurements. Effective
January 1, 2008, the Company adopted SFAS 157 as it
relates to financial assets and liabilities recognized at fair
value on a recurring basis and it has had no material impact on
its financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value of Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159) which permits
entities to elect to measure many financial instruments and
certain other items at fair value that are not currently
required to be measured at fair value. This election is
irrevocable. SFAS 159 was effective in the first quarter of
fiscal 2008. The Company has not elected to apply the fair value
option to any of its financial instruments and, therefore, there
has been no material impact on its financial statements.
During December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations
(SFAS 141 (Revised 2007)). While this statement
retains the fundamental requirement of SFAS 141 that the
F-14
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business combinations,
SFAS 141 (Revised 2007) now establishes the principles
and requirements for how an acquirer in a business combination:
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interests in the acquiree; recognizes and
measures the goodwill acquired in the business combination or
the gain from a bargain purchase; and determines what
information should be disclosed in the financial statements to
enable the users of the financial statements to evaluate the
nature and financial effects of the business combination.
SFAS 141 (Revised 2007) is effective for fiscal years
beginning on or after December 15, 2008. The Company does
not believe the adoption of SFAS 141 (Revised
2007) will have a material impact on its financial
statements.
During December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). This statement establishes
accounting and reporting standards for noncontrolling interests
in subsidiaries and for the deconsolidation of subsidiaries and
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.
This statement also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent
owners and the interests of the noncontrolling owners of a
subsidiary. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company does
not believe the adoption of SFAS 160 will have a material
impact on its financial statements.
In February 2008, the FASB issued FASB Staff Position
(FSP)
No. 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2),
which delays the effective date of SFAS 157 until
January 1, 2009 for all non-financial assets and
non-financial liabilities, except for items that are recognized
or disclosed at fair value in the financial statements on a
recurring basis. These non-financial items include assets and
liabilities such as reporting units measured at fair value in a
goodwill impairment test and non-financial assets acquired and
liabilities assumed in a business combination. The Company does
not expect that the adoption of the remainder of SFAS 157
will have a material impact on its financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FAS 133
(SFAS 161). This statement changes the
disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments
and related hedged items affect an entitys financial
position, financial performance, and cash flows. SFAS 161
is effective for fiscal years beginning on or after
November 15, 2008. The Company does not believe the
adoption of SFAS 161 will have a material impact on its
financial statements.
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible
Assets
(FSP 142-3),
which amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under FASB Statement
No. 142, Goodwill and Other Intangible Assets.
This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets
in business combinations and asset acquisitions.
FAS 142-3
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008.
Early adoption is prohibited. The Company will assess the impact
of
FSP 142-3
if and when future acquisitions occur.
In September 2008, the FASB issued FSP
No. 133-1
and FASB Interpretation
No. 45-4
(FSP
SFAS 133-1
and
FIN 45-4),
Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective
Date of FASB Interpretation No. 45
(FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, to require
additional disclosure about the current status of the
payment/performance risk of a guarantee. The provisions of the
FSP that amend SFAS 133 and FIN 45 and effective for
reporting periods ending after November 15, 2008. FSP
SFAS 133-1
and
FIN 45-4
F-15
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
also clarifies the effective date in SFAS 161. Disclosures
required by SFAS 161 are effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption of FSP
SFAS 133-1
and
FIN 45-4
is not expected to have a material impact on the Companys
financial statements.
In October 2008, the FASB issued
FSP 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active
(FSP 157-3).
FSP 157-3
clarifies the application of SFAS 157 in a market that is
not active and addresses application issues such as the use of
internal assumptions when relevant observable data does not
exist, the use of observable market information when the market
is not active and the use of market quotes when assessing the
relevance of observable and unobservable data.
FSP 157-3
is effective for all periods presented in accordance with
SFAS 157. The guidance in
FSP 157-3
is effective immediately and did not have a material impact on
the Companys financial statements.
In December 2008, the FASB issued FSP
No. 140-4
and
FIN 46R-8
(FSP 140-4
and
FIN 46R-8),
Disclosures by Public Entities (Enterprises) about
Transfers of Financial Assets and Interests in Variable Interest
Entities.
FSP 140-4
and
FIN 46R-8
require additional disclosures about transfers of financial
assets and involvement with variable interest entities
(VIEs). The requirements apply to transferors,
sponsors, servicers, primary beneficiaries and holders of
significant variable interests in a variable interest entity or
qualifying special purpose entity. Disclosures required by
FSP 140-4
and
FIN 46R-8
are effective for the Company in the first quarter of fiscal
2009. Because the Company has no VIEs, the adoption is not
expected to have a material impact the Companys financial
statements.
|
|
NOTE 2:
|
OTHER
FINANCIAL STATEMENT INFORMATION
|
The following tables provide details of selected financial
statement items:
ALLOWANCE
FOR DOUBTFUL RECEIVABLES
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
84,685
|
|
|
$
|
23,500
|
|
Provision for doubtful receivables
|
|
|
28,610
|
|
|
|
77,982
|
|
Write-offs
|
|
|
(21,537
|
)
|
|
|
(16,797
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
91,758
|
|
|
$
|
84,685
|
|
|
|
|
|
|
|
|
|
|
INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Finished goods
|
|
$
|
355,183
|
|
|
$
|
318,451
|
|
Work-in-process
|
|
|
106,385
|
|
|
|
220,689
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
461,568
|
|
|
$
|
539,140
|
|
|
|
|
|
|
|
|
|
|
The Company has recorded adjustments to reduce inventory values
to the lower of cost or market for certain finished goods,
product components and supplies. The Company recorded expense of
$64,688, $73,018 and $37,410 during the years ended
December 31, 2008, 2007 and 2006, respectively, related to
this adjustment to cost of sales.
F-16
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
PREPAID
EXPENSES AND OTHER CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred project costs
|
|
$
|
|
|
|
$
|
476,679
|
|
Prepaid expenses
|
|
|
265,854
|
|
|
|
340,832
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets
|
|
$
|
265,854
|
|
|
$
|
817,511
|
|
|
|
|
|
|
|
|
|
|
Deferred project costs represent incurred costs to be recognized
as cost of sales once all revenue recognition criteria have been
met.
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Leased equipment
|
|
$
|
380,908
|
|
|
$
|
380,908
|
|
Equipment
|
|
|
1,314,711
|
|
|
|
923,549
|
|
Leasehold improvements
|
|
|
332,483
|
|
|
|
313,021
|
|
Demonstration equipment
|
|
|
150,890
|
|
|
|
127,556
|
|
Purchased software
|
|
|
531,998
|
|
|
|
226,003
|
|
Furniture and fixtures
|
|
|
614,281
|
|
|
|
581,355
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
$
|
3,325,271
|
|
|
$
|
2,552,392
|
|
Less: accumulated depreciation and amortization
|
|
|
(1,407,439
|
)
|
|
|
(772,002
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
1,917,832
|
|
|
$
|
1,780,390
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
Other assets consist of long-term deposits on operating leases.
ACCRUED
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Compensation
|
|
$
|
719,613
|
|
|
$
|
590,737
|
|
Accrued remaining lease obligations
|
|
|
141,700
|
|
|
|
170,793
|
|
Accrued rent
|
|
|
84,427
|
|
|
|
79,131
|
|
Sales tax and other
|
|
|
121,520
|
|
|
|
29,098
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
1,067,260
|
|
|
$
|
869,759
|
|
|
|
|
|
|
|
|
|
|
See Note 7 for additional information on accrued remaining
lease obligations.
DEFERRED
REVENUE
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred customer billings
|
|
$
|
|
|
|
$
|
950,066
|
|
Deferred software maintenance
|
|
|
45,958
|
|
|
|
90,197
|
|
Customer deposits and deferred project revenue
|
|
|
134,663
|
|
|
|
212,222
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenue
|
|
$
|
180,621
|
|
|
$
|
1,252,485
|
|
|
|
|
|
|
|
|
|
|
F-17
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
22,484
|
|
|
$
|
40,247
|
|
|
$
|
1,505,429
|
|
Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral received for note receivable
|
|
|
1,937,162
|
|
|
|
|
|
|
|
|
|
Stock issued in acquisition of McGill Digital Solutions
|
|
|
|
|
|
|
312,000
|
|
|
|
|
|
Common stock issued for notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
202,645
|
|
Non-related parties
|
|
|
|
|
|
|
|
|
|
|
58,863
|
|
Warrants issued for notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
268,872
|
|
Non-related parties
|
|
|
|
|
|
|
|
|
|
|
1,912,197
|
|
Long-term note payable converted into common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
3,683,550
|
|
Non-related parties
|
|
|
|
|
|
|
|
|
|
|
1,346,423
|
|
Short-term note payable converted into common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
4,582,333
|
|
Non-related parties
|
|
|
|
|
|
|
|
|
|
|
831,097
|
|
Beneficial conversion of short-term notes payable
|
|
|
|
|
|
|
|
|
|
|
1,593,049
|
|
Conversion of accounts payable into long-term notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
Conversion of accrued interest into long-term notes payable
|
|
|
|
|
|
|
|
|
|
|
76,531
|
|
Conversion of accrued interest into common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
325,350
|
|
Non-related parties
|
|
|
|
|
|
|
|
|
|
|
147,121
|
|
Non-cash purchase of fixed assets through capital lease
|
|
|
|
|
|
|
|
|
|
|
5,910
|
|
|
|
NOTE 3:
|
TERMINATION
OF PARTNERSHIP AGREEMENT
|
On February 13, 2007, the Company terminated the strategic
partnership agreement with The Marshall Special Assets Group,
Inc. (Marshall) which it had entered into in May
2004. Pursuant to the terms of a mutual termination, release and
agreement, the Company paid Marshall $653,995 and agreed to pay
a fee in connection with sales of its software and hardware to
customers, distributors and resellers for use exclusively in the
ultimate operations of or for use in a lottery (End
Users). Under such agreement, the Company will pay
Marshall (i) 30% of the net invoice price for the sale of
our software to End Users, and (ii) 2% of the net invoice
price for the sale of hardware to End Users, in each case
collected by us on or before February 12, 2012, with a
minimum annual payment of $50,000 for three years. Marshall will
pay 50% of the costs and expenses incurred by us in relation to
any test installations involving sales or prospective sales to
End Users. In 2008 and 2007, the Company recorded $50,000 of
expense pursuant to the minimum payment for 2008 and 2007
required under the agreement.
|
|
NOTE 4:
|
MARKETABLE
SECURITIES AND FAIR VALUE MEASUREMENTS
|
Marketable securities consist of marketable debt securities.
These securities are being accounted for in accordance with
Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments
F-18
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
in Debt and Equity Securities. Accordingly, the unrealized
gains (losses) associated with these securities are reported in
the equity section as a component of accumulated other
comprehensive income (loss).
Realized gains or losses on marketable securities are recorded
in the statement of operations within the Other income
(expenses), other category. The cost of the securities for
determining gain or loss is measured by specific identification.
Realized gains and losses on sales of investments were
immaterial in 2008, 2007 and 2006. Interest income of $647,066,
$1,277,456 and $21,915 was recorded in 2008, 2007 and 2006,
respectively.
As of December 31, 2008 and 2007, cash equivalents and
available-for-sale marketable securities consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
|
Money market funds
|
|
$
|
4,344,157
|
|
|
$
|
54
|
|
|
$
|
|
|
|
$
|
4,344,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total included in cash and cash equivalents
|
|
|
4,344,157
|
|
|
|
54
|
|
|
|
|
|
|
|
4,344,211
|
|
Government and agency securities maturing 2009
|
|
|
8,295,630
|
|
|
|
6,668
|
|
|
|
(1,337
|
)
|
|
|
8,300,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total included in marketable securities
|
|
|
8,295,630
|
|
|
|
6,668
|
|
|
|
(1,337
|
)
|
|
|
8,300,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
12,639,787
|
|
|
$
|
6,722
|
|
|
$
|
(1,337
|
)
|
|
$
|
12,645,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
|
Money market funds
|
|
$
|
14,045,738
|
|
|
$
|
43
|
|
|
$
|
(15
|
)
|
|
$
|
14,045,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total included in cash and cash equivalents
|
|
|
14,045,738
|
|
|
|
43
|
|
|
|
(15
|
)
|
|
|
14,045,766
|
|
Government and agency securities maturing 2008
|
|
|
14,651,501
|
|
|
|
7,797
|
|
|
|
(1,663
|
)
|
|
|
14,657,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total included in marketable securities
|
|
|
14,651,501
|
|
|
|
7,797
|
|
|
|
(1,663
|
)
|
|
|
14,657,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
28,697,239
|
|
|
$
|
7,840
|
|
|
$
|
(1,678
|
)
|
|
$
|
28,703,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company measures certain financial assets, including cash
equivalents and
available-for-sale
marketable securities at fair value on a recurring basis. In
accordance with SFAS No. 157, fair value is a
market-based measurement that should be determined based on the
assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions,
SFAS No. 157 establishes a three-level hierarchy which
prioritizes the inputs used in measuring fair value. The three
hierarchy levels are defined as follows:
Level 1 Valuations based on unadjusted quoted
prices in active markets for identical assets. The fair value of
available-for-sale
securities included in the Level 1 category is based on
quoted prices that are readily and regularly available in an
active market. The Level 1 category at December 31,
2008 includes money market funds of $4.3 million, which are
included in cash and cash equivalents in the consolidated
balance sheet, and government agency securities of
$8.3 million, which are included in marketable
securities available for sale in the consolidated
balance sheet.
Level 2 Valuations based on observable inputs
(other than Level 1 prices), such as quoted prices for
similar assets at the measurement date; quoted prices in markets
that are not active; or other inputs that are
F-19
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
observable, either directly or indirectly. At December 31,
2008, the Company had no Level 2 financial assets on its
consolidated balance sheet.
Level 3 Valuations based on inputs that are
unobservable and involve management judgment and the reporting
entitys own assumptions about market participants and
pricing. At December 31, 2008, the Company had no
Level 3 financial assets on its consolidated balance sheet.
The hierarchy level assigned to each security in the
Companys cash equivalents and marketable
securities available for sale portfolio is based on
its assessment of the transparency and reliability of the inputs
used in the valuation of such instruments at the measurement
date. The Company did not have any financial liabilities that
were covered by SFAS No. 157 as of December 31,
2008.
|
|
NOTE 5:
|
ACQUISITIONS
AND INTANGIBLE ASSETS
|
On August 16, 2007, the Company closed the transaction
contemplated by the Stock Purchase Agreement by and between the
Company, and Robert Whent, Alan Buterbaugh and Marlene
Buterbaugh (the Sellers). Pursuant to such closing,
the Company purchased all of the Sellers stock in holding
companies that owned McGill Digital Solutions, Inc.
(McGill), based in Windsor, Ontario, Canada. The
holding companies acquired from the Sellers and McGill were
amalgamated into one wholly-owned subsidiary of the Company. The
results of operations of McGill (now renamed Wireless Ronin
Technologies (Canada), Inc., (WRT Canada)) have been
included in the Companys consolidated financial statements
since August 16, 2007. The Company acquired McGill for its
custom interactive software solutions used primarily for
e-learning
and digital signage applications. Most of WRT Canadas
revenue is derived from products and solutions provided to the
automotive industry.
The Company acquired the shares from the Sellers for cash
consideration of $3,190,563, subject to potential adjustments,
and 50,000 shares of the Companys common stock. The
Company also incurred $178,217 in direct costs related to the
acquisition. In addition, the Company agreed to pay earn-out
consideration to the Sellers of up to $1,000,000 (CAD) and
50,000 shares of the Companys common stock if
specified earn-out criteria are met. The earn-out criteria for
2007 was at least $4,100,000 (CAD) gross sales and a gross
margin equal to or greater than 50%. If the 2007 earn-out
criteria had been met, 25% of the earn-out consideration would
have been paid. The 2007 earn-out criteria were not met and no
2007 earn-out was paid. The earn-out criteria for 2008 consisted
of gross sales of at least $6,900,000 (CAD) and a gross margin
equal to or greater than 50%. The Company accrued the 2008
earn-out consideration as part of its valuation analysis which
was completed in the fourth quarter of 2007. The 2008 earn-out
criteria were not met and no 2008 earn-out was paid. The accrued
2008 earn-out was reversed at December 31, 2008.
The initial purchase price of the acquisition consisted of the
following:
|
|
|
|
|
|
|
August 16,
|
|
|
|
2007
|
|
|
Cash payment to sellers
|
|
$
|
3,190,563
|
|
Transaction costs
|
|
|
178,217
|
|
Accrued purchase price consideration
|
|
|
999,974
|
|
Stock issuance
|
|
|
312,000
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
4,680,754
|
|
|
|
|
|
|
F-20
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The Company originally allocated the initial cost of the
acquisition as follows:
|
|
|
|
|
|
|
August 16,
|
|
|
|
2007
|
|
|
Current assets
|
|
$
|
1,392,391
|
|
Intangible assets
|
|
|
3,221,652
|
|
Property and equipment
|
|
|
236,878
|
|
|
|
|
|
|
Total assets acquired
|
|
|
4,850,921
|
|
|
|
|
|
|
Current liabilities
|
|
|
151,075
|
|
Long-term liabilities
|
|
|
19,092
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
170,167
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
4,680,754
|
|
|
|
|
|
|
Pro
Forma Operating Results (Unaudited)
The following unaudited pro forma information presents a summary
of consolidated results of operations of the Company as if the
acquisition of McGill had occurred at January 1, 2007. The
historical consolidated financial information has been adjusted
to include a decrease in interest income related to the amount
paid as the purchase price to the former shareholders of McGill.
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Sales
|
|
$
|
7,381,402
|
|
|
$
|
8,185,020
|
|
Loss from operations
|
|
|
(21,312,468
|
)
|
|
|
(11,442,674
|
)
|
Net loss
|
|
|
(20,692,361
|
)
|
|
|
(10,462,572
|
)
|
Basic and diluted loss per common share
|
|
$
|
(1.41
|
)
|
|
$
|
(0.85
|
)
|
The unaudited pro forma condensed consolidated financial
information is presented for informational purposes only. The
pro forma information is not necessarily indicative of what the
financial position or results of operations actually would have
been had the acquisition been completed on the dates indicated.
In addition, the unaudited pro forma condensed consolidated
financial information does not purport to project the future
financial position or operating results of the Company after
completion of the acquisition.
Impairment
of Intangible Assets
The Company recorded amortization of acquisition-related
intangibles expense of $523,527 and $219,330 for the years ended
December 31, 2008 and 2007, respectively.
In the fourth quarter of 2008, the Company recorded a charge for
the impairment of assets related to the 2007 acquisition of
McGill Digital Solutions. The Company reviews the carrying value
of all long-lived assets, including intangible assets with
finite lives, for impairment in accordance with Statement of
Financial Accounting Standards No. 144 (FAS 144).
Under FAS 144, impairment losses are recorded whenever
events or changes in circumstances indicate the carrying value
of an asset may not be recoverable. The Company tested the
intangible assets acquired in the 2007 acquisition for
impairment in the fourth quarter of 2008 and determined that the
underlying assumptions and economic conditions surrounding the
initial valuation of these assets had significantly changed and
an impairment loss was recorded for the total $1.3 million
of net book value of these intangible assets.
|
|
NOTE 6:
|
CAPITAL
LEASE OBLIGATIONS
|
The Company leases certain equipment under three capital lease
arrangements with imputed interest of 16% to 22% per year.
F-21
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Other information relating to the capital lease equipment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cost
|
|
$
|
380,908
|
|
|
$
|
380,908
|
|
Less: accumulated amortization
|
|
|
(327,667
|
)
|
|
|
(260,950
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,241
|
|
|
$
|
119,958
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for capital lease assets was $66,717,
$103,920 and $64,156 for the years ended December 31, 2008,
2007 and 2006, respectively, and is included in depreciation
expense.
Future lease payments under the capital leases total $76,270, of
which $70,960 represents principal.
|
|
NOTE 7:
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Leases
The Company leases approximately 19,089 square feet of
office and warehouse space under a lease that extends through
January 31, 2013. In addition, the Company leases office
space of approximately 14,930 square feet to support its
Canadian operations at a facility located at 4510 Rhodes Drive,
Suite 800, Windsor, Ontario under a lease that extends
through June 30, 2009.
The Company also leases equipment under a non-cancelable
operating lease that requires minimum monthly payments of $769
through October 2012.
Rent expense under the operating leases was $525,555, $434,356
and $90,101 for the years ended December 31, 2008, 2007 and
2006, respectively.
Future minimum lease payments for operating leases are as
follows:
|
|
|
|
|
Year Ending December 31,
|
|
Lease Obligations
|
|
|
2009
|
|
$
|
332,634
|
|
2010
|
|
|
204,730
|
|
2011
|
|
|
196,022
|
|
2012
|
|
|
192,472
|
|
2013
|
|
|
15,398
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total future minimum obligations
|
|
$
|
941,256
|
|
|
|
|
|
|
Remaining
Lease Obligation
On July 9, 2007, the Company moved from its former office
space at 14700 Martin Drive in Eden Prairie to its new office
space at 5929 Baker Road in Minnetonka. Due to the move
occurring during the third quarter of 2007, a liability for the
costs that will continue to be incurred under the prior lease
for its remaining term without economic benefit to the Company
was recognized and measured at the fair value on the cease use
date, July 9, 2007. The lease accrual was charged to rent
in general and administrative expenses. The remaining liability
at December 31, 2008 was $141,700. The prior lease
termination date is November 30, 2009. Since the prior
lease is an operating lease, the fair value of the liability is
based on the remaining lease rentals. Other costs included in
the fair value measurement are the amortization of the remaining
book values
F-22
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
of the leasehold improvements on the premises. The existing
rental obligations, additional costs incurred and expected
sublease receipts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Adjustments
|
|
|
December 31,
|
|
|
|
2008
|
|
|
to Estimates
|
|
|
2007
|
|
|
Costs to be incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing rental payments
|
|
$
|
72,158
|
|
|
$
|
76,629
|
|
|
$
|
148,787
|
|
Expected operating
|
|
$
|
25,080
|
|
|
$
|
38,285
|
|
|
$
|
63,365
|
|
Unamortized leasehold improvements
|
|
$
|
44,462
|
|
|
$
|
35,505
|
|
|
$
|
79,967
|
|
Listing agent fee
|
|
$
|
|
|
|
$
|
30,429
|
|
|
$
|
30,429
|
|
Sublease receipts
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected sublease rental income
|
|
$
|
|
|
|
$
|
74,394
|
|
|
$
|
74,394
|
|
Expected reimbursement of operating costs
|
|
$
|
|
|
|
$
|
63,365
|
|
|
$
|
63,365
|
|
As of December 31, 2008 and 2007, the Company had incurred
costs of $77,140 and $38,814, respectively, in rent for the
former office space since vacating the property. Also, the
former office space had not been subleased as of
December 31, 2008. The Company calculated the present value
based on a straight line allocation of the above costs and
receipts over the term of the prior lease and a credit-adjusted
risk-free rate of zero percent and 8 percent at
December 31, 2008 and 2007, respectively. The costs listed
above have been aggregated in the general and administrative
line of the consolidated statement of operations.
Litigation
The Company was not party to any material legal proceedings as
of December 31, 2008.
|
|
NOTE 8:
|
SHAREHOLDERS
EQUITY
|
Stock
Split
On April 14, 2006, at a Special Meeting of the Shareholders
of the Company, the shareholders approved a
one-for-six
reverse stock split of all outstanding common shares. On
August 28, 2006, the Companys Board of Directors
approved a
two-for-three
reverse stock split of all outstanding common shares. All shares
and per share information in the accompanying financial
statements are restated to reflect the effect of these stock
splits.
Initial
Public Offering
On November 30, 2006, the Company sold
5,175,000 shares of common stock at $4.00 per share in an
initial public offering pursuant to a registration statement on
Form SB-2,
which was declared effective by the SEC on November 27,
2006. The Company obtained approximately $18.0 million in
net proceeds as a result of this offering.
Follow-on
Offering
On June 19, 2007, the Company sold 4,290,000 shares
and a selling shareholder of the Company sold
1,000,000 shares of the Companys common stock at
$7.00 per share pursuant to a registration statement on
Form SB-2,
which was declared effective by the SEC on June 13, 2007.
The Company obtained approximately $27.1 million in net
proceeds as a result of this follow-on offering.
Warrants
The Company has issued common stock purchase warrants to certain
debt holders, contractors, and investors in connection with
various transactions. The Company values the warrants using the
Black-Scholes pricing model and they are recorded based on the
reason for issuance.
F-23
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Warrants issued to non-employees during the years ended
December 31, 2008, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
1,865,871
|
|
|
$
|
5.28
|
|
|
|
2,228,930
|
|
|
$
|
4.99
|
|
|
|
567,600
|
|
|
$
|
9.25
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666,386
|
|
|
|
3.78
|
|
Exercised
|
|
|
(130,036
|
)
|
|
|
3.29
|
|
|
|
(355,143
|
)
|
|
|
3.18
|
|
|
|
(556
|
)
|
|
|
0.45
|
|
Expired
|
|
|
(99,098
|
)
|
|
|
9.04
|
|
|
|
(7,916
|
)
|
|
|
17.21
|
|
|
|
(4,500
|
)
|
|
|
43.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,636,737
|
|
|
$
|
5.20
|
|
|
|
1,865,871
|
|
|
$
|
5.28
|
|
|
|
2,228,930
|
|
|
$
|
4.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450,000
|
)
|
|
|
4.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at end of year
|
|
|
1,636,737
|
|
|
$
|
5.20
|
|
|
|
1,865,871
|
|
|
$
|
5.28
|
|
|
|
1,778,930
|
|
|
$
|
5.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company issued a warrant to purchase 450,000 shares of
common stock to the underwriter of the Companys initial
public offering, Feltl and Company. The warrant, which is
included in the above table, became exercisable on
November 27, 2007.
As of December 31, 2008, 2007 and 2006, the weighted
average contractual life of the outstanding warrants was
2.13 years, 3.03 years and 4.08 years,
respectively.
The fair value of each warrant granted is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected life
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3 5 Years
|
|
Dividend yield
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0
|
%
|
Expected volatility
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
61.718
|
%
|
Risk-free interest rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5.0
|
%
|
In March 2006, the holders of convertible notes totaling
$2,029,973 agreed to convert their notes into shares of the
Companys common stock in connection with the initial
public offering of the Companys stock. The notes converted
at $3.20 per share.
In 2006, the Company issued 24,999 shares of common stock
to the holder of a $3,000,000 convertible debenture in payment
of interest due in the amount of $225,000.
|
|
NOTE 9:
|
STOCK-BASED
COMPENSATION AND BENEFIT PLANS
|
Warrants
The Company has issued common stock warrants to employees as
stock-based compensation. The Company values the warrants using
the Black-Scholes pricing model. The warrants vest immediately
and have exercise periods of five years.
F-24
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Warrants issued to employees during the years ended
December 31, 2008, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
Common
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
Stock
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
363,319
|
|
|
$
|
6.21
|
|
|
|
380,374
|
|
|
$
|
6.06
|
|
|
|
329,337
|
|
|
$
|
6.31
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,037
|
|
|
|
9.00
|
|
Exercised
|
|
|
(41,665
|
)
|
|
|
0.09
|
|
|
|
(15,944
|
)
|
|
|
1.62
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2
|
)
|
|
|
0.09
|
|
|
|
(1,111
|
)
|
|
|
22.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at end of year
|
|
|
321,652
|
|
|
$
|
7.00
|
|
|
|
363,319
|
|
|
$
|
6.21
|
|
|
|
380,374
|
|
|
$
|
6.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded $185,719 of compensation expense for
warrants granted to employees during the year ended
December 31, 2006.
Information with respect to employee common stock warrants
outstanding and exercisable at December 31, 2008 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding and Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Contractual
|
|
Exercise
|
|
|
Intrinsic
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life
|
|
Price
|
|
|
Value
|
|
|
$2.25 - $ 6.74
|
|
|
57,022
|
|
|
0.68 Years
|
|
$
|
2.25
|
|
|
$
|
|
|
$6.75 - $ 8.99
|
|
|
119,444
|
|
|
1.12 Years
|
|
|
6.75
|
|
|
|
|
|
$9.00 - $11.24
|
|
|
145,186
|
|
|
2.12 Years
|
|
|
9.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,652
|
|
|
1.49 Years
|
|
$
|
7.00
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2005, the Company issued warrants to employees to
purchase 51,667 shares of the Companys common stock
at an exercise price of $13.50 per share. Also during 2005, the
Company issued warrants to non-employees to purchase
51,667 shares of the Companys common stock at an
exercise price of $13.50 per share. The exercise price was
changed to $9.00 per share during March 2006. The Company
recognized $81,126 of expense during 2006 related to the
repricing of these warrants.
Stock
options
Amended
and Restated 2006 Equity Incentive Plan
On March 30, 2006, the Companys Board of Directors
adopted the 2006 Equity Incentive Plan (now known as the Amended
and Restated 2006 Equity Incentive Plan (the EIP))
which was approved by the Companys shareholders on
February 2, 2007. Participants in the EIP may include the
Companys employees, officers, directors, consultants, or
independent contractors. The EIP authorizes the grant of options
to purchase common stock intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of
1986, as amended (the Code), the grant of options
that do not qualify as incentive stock options, restricted
stock, restricted stock units, stock bonuses, cash bonuses,
stock appreciation rights, performance awards, dividend
equivalents, warrants and other equity based awards. The number
of shares of common stock originally reserved for issuance under
the EIP was 1,000,000 shares. On November 15, 2007,
the Companys shareholders approved an amendment to
increase the number of shares reserved for issuance to
1,750,000. The EIP expires on March 30, 2016. As of
December 31, 2008, there were 340,116 shares available
for future awards under the EIP.
F-25
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Incentive options may be granted only to the Companys
officers, employees or corporate affiliates. Non-statutory
options may be granted to employees, consultants, directors or
independent contractors who the committee determines shall
receive awards under the EIP. The Company will not grant
non-statutory options under the EIP with an exercise price of
less than 85% of the fair market value of the Companys
common stock on the date of grant.
2006
Non-Employee Director Stock Option Plan
On April 14, 2006, the Companys Board of Directors
adopted the 2006 Non-Employee Director Stock Option Plan (the
DSOP) which was approved by the Companys
shareholders on February 2, 2007. The DSOP provides for the
grant of options to members of the Companys Board of
Directors who are not employees of the Company or its
subsidiaries. Under the DSOP, non-employee directors as of
February 27, 2006 and each non-employee director thereafter
elected to the Board of Directors is automatically entitled to a
grant of an option for the purchase of 40,000 shares of
common stock, 10,000 of which vest and become exercisable on the
date of grant, and additional increments of 10,000 shares
become exercisable and vest upon each directors reelection
to the Board of Directors. The number of shares originally
reserved for awards under the DSOP was 510,000 shares.
Options are required to be granted at fair market value. As of
December 31, 2008, there were 260,000 shares available
for future awards under the 2006 Non-Employee Director Stock
Option Plan.
The Company values the options using the Black-Scholes pricing
model. The options vest over a four year period and have
exercise periods of five years. In April 2008, as part of a
former directors resignation from the Board of Directors,
a stock option for the purchase of 10,000 shares was
modified to extend the expiration date and immediately vest
resulting in $18,500 of non-cash stock-based compensation
expense. In September 2008, as part of a former employees
separation from the Company, a stock option for the purchase of
120,000 shares was modified to extend the expiration date
and immediately vest resulting in $94,000 of non-cash
stock-based compensation expense.
A summary of the changes in outstanding stock options under all
equity incentive plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Balance, December 31, 2005
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
553,333
|
|
|
|
4.00
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(90,000
|
)
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
463,333
|
|
|
$
|
4.00
|
|
Granted
|
|
|
905,660
|
|
|
|
4.99
|
|
Exercised
|
|
|
(1,000
|
)
|
|
|
6.02
|
|
Forfeited or expired
|
|
|
(53,900
|
)
|
|
|
4.79
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
1,314,093
|
|
|
$
|
4.65
|
|
Granted
|
|
|
993,000
|
|
|
|
1.70
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(654,209
|
)
|
|
|
4.63
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
1,652,884
|
|
|
$
|
2.89
|
|
|
|
|
|
|
|
|
|
|
F-26
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Information with respect to employee common stock options
outstanding and exercisable at December 31, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
Range of Exercise
|
|
Number
|
|
|
Remaining
|
|
Average
|
|
|
Intrinsic
|
|
|
Options
|
|
|
Average
|
|
|
Intrinsic
|
|
Prices Between
|
|
Outstanding
|
|
|
Contractual Life
|
|
Exercise Price
|
|
|
Value
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
Value
|
|
|
$0.67 - $2.79
|
|
|
780,000
|
|
|
4.9 Years
|
|
$
|
1.13
|
|
|
$
|
60,000
|
|
|
|
198,750
|
|
|
$
|
1.14
|
|
|
$
|
15,000
|
|
$2.80 - $3.99
|
|
|
243,000
|
|
|
2.1 Years
|
|
|
2.86
|
|
|
|
|
|
|
|
130,000
|
|
|
|
2.80
|
|
|
|
|
|
$4.00 - $5.64
|
|
|
299,999
|
|
|
2.2 Years
|
|
|
4.03
|
|
|
|
|
|
|
|
229,999
|
|
|
|
4.04
|
|
|
|
|
|
$5.65 - $6.42
|
|
|
259,010
|
|
|
2.8 Years
|
|
|
5.80
|
|
|
|
|
|
|
|
110,372
|
|
|
|
5.82
|
|
|
|
|
|
$6.43 - $7.38
|
|
|
70,875
|
|
|
3.7 Years
|
|
|
6.90
|
|
|
|
|
|
|
|
19,625
|
|
|
|
6.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,652,884
|
|
|
3.6 Years
|
|
$
|
2.89
|
|
|
$
|
60,000
|
|
|
|
688,746
|
|
|
$
|
3.34
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock units
The Company issued a restricted stock unit for 6,000 shares
of the Companys common stock to a certain employee as
stock-based compensation. The Company valued the restricted
stock unit at $6.25 per share, which was the price of the
Companys common stock on the date of issuance. The
restricted stock unit vested on January 1, 2008. The
Company recorded no expense for the restricted stock issuance
during the year ended December 31, 2006 because the award
was not approved by the shareholders of the Company until
February 2007. Expense was recorded for the award during the
year ended December 31, 2007.
Expense
Information under SFAS 123R
On January 1, 2006, the Company adopted SFAS 123R
which requires measurement and recognition of compensation
expense for all stock-based payments including warrants, stock
options and restricted stock grants based on estimated fair
values. A summary of compensation expense recognized for the
issuance of stock options and warrants for the years ended
December 31, 2008, 2007 and 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Stock-based compensation costs included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
19,653
|
|
|
$
|
|
|
|
$
|
|
|
Sales and marketing expenses
|
|
|
202,248
|
|
|
|
125,746
|
|
|
|
65,729
|
|
Research and development expenses
|
|
|
36,531
|
|
|
|
86,459
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,054,523
|
|
|
|
954,966
|
|
|
|
721,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expenses
|
|
$
|
1,312,955
|
|
|
$
|
1,167,171
|
|
|
$
|
787,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, there was approximately $1,252,495 of
total unrecognized compensation expense related to unvested
share-based awards. The expense will be recognized ratably over
the next 4 years and will be adjusted for any future
changes in estimated forfeitures.
Valuation
Information under SFAS 123R
For purposes of determining estimated fair value under
SFAS 123R, the Company computed the estimated fair values
of stock options using the Black-Scholes model. The weighted
average estimated fair value of stock options granted was $1.11,
$3.29 and $3.76 per share for 2008, 2007 and 2006, respectively.
These values were calculated using the following weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected life
|
|
|
3.31 Years
|
|
|
|
3.64 Years
|
|
|
|
5.00 Years
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
98.5
|
%
|
|
|
97.2
|
%
|
|
|
61.7
|
%
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
|
4.6
|
%
|
|
|
5.0
|
%
|
F-27
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
The risk-free interest rate assumption is based on observed
interest rates appropriate for the term of the Companys
stock options. The expected life of stock options represents the
weighted-average period the stock options are expected to remain
outstanding. The Company used historical closing stock price
volatility for a period equal to the period its common stock has
been trading publicly. The Company used a weighted average of
other publicly traded stock volatility for the remaining
expected term of the options granted. The dividend yield
assumption is based on the Companys history and
expectation of future dividend payouts.
Stock-based compensation expense is based on awards ultimately
expected to vest and reduced for estimated forfeitures.
SFAS 123R requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. The Company has
little historical experience on which to base an assumption and
has used a zero percent forfeiture rate assumption in years
2008, 2007 and 2006.
2007
Associate Stock Purchase Plan
In November 2007, the Companys shareholders approved the
2007 Associate Stock Purchase Plan under which
300,000 shares have been reserved for purchase by the
Companys associates. The purchase price of the shares
under the plan is the lesser of 85% of the fair market value on
the first or last day of the offering period. Offering periods
are every six months ending on June 30 and December 31.
Associates may designate up to ten percent of their compensation
for the purchase of shares under the plan. Total shares
purchased by associates under the plan were 143,573 in the year
ended December 31, 2008. There were 156,427 shares
reserved under the plan as of December 31, 2008.
Employee
Benefit Plan
In 2007, the Company established a defined contribution 401(k)
retirement plan for eligible associates. Associates may
contribute up to 15% of their pretax compensation to the plan.
There is currently no plan for an employer contribution match.
|
|
NOTE 10:
|
SEGMENT
INFORMATION AND MAJOR CUSTOMERS
|
The Company views its operations and manages its business as one
reportable segment, providing digital signage solutions to a
variety of companies, primarily in its targeted vertical
markets. Factors used to identify the Companys single
operating segment include the financial information available
for evaluation by the chief operating decision maker in making
decisions about how to allocate resources and assess
performance. The Company markets its products and services
through its headquarters in the United States and its
wholly-owned subsidiary operating in Canada.
Net sales per geographic region, based on location of end
customer, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
6,271,383
|
|
|
$
|
5,529,381
|
|
|
$
|
2,780,929
|
|
Canada
|
|
|
1,110,019
|
|
|
|
455,532
|
|
|
|
364,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
$
|
7,381,402
|
|
|
$
|
5,984,913
|
|
|
$
|
3,145,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Geographic segments of property and equipment and intangible
assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,398,430
|
|
|
$
|
1,425,351
|
|
Canada
|
|
|
519,402
|
|
|
|
355,039
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,917,832
|
|
|
$
|
1,780,390
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
|
|
|
$
|
|
|
Canada
|
|
|
|
|
|
|
3,174,804
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
3,174,804
|
|
|
|
|
|
|
|
|
|
|
A significant portion of the Companys revenues are derived
from a few major customers. Customers with greater than 10% of
total sales are represented on the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Customer
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Chrysler (BBDO Detroit/Windsor)
|
|
|
31.8
|
%
|
|
|
18.3
|
%
|
|
|
*
|
|
KFC
|
|
|
17.9
|
%
|
|
|
*
|
|
|
|
*
|
|
NewSight Corporation
|
|
|
*
|
|
|
|
42.5
|
%
|
|
|
*
|
|
Marshall Special Asset Group, Inc.
|
|
|
*
|
|
|
|
*
|
|
|
|
15.9
|
%
|
BigEye Productions
|
|
|
*
|
|
|
|
*
|
|
|
|
11.6
|
%
|
Sealy Corporation
|
|
|
*
|
|
|
|
*
|
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49.7
|
%
|
|
|
60.8
|
%
|
|
|
38.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Sales to these customers were less than 10% of total sales for
the period reported. |
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable. As of December 31, 2008, a significant portion
of the Companys accounts receivable was concentrated with
one customer. Customers with greater than 10% of total accounts
receivable are represented on the following table:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Customer
|
|
2008
|
|
|
2007
|
|
|
Chrysler (BBDO Detroit/Windsor)
|
|
|
44.5
|
%
|
|
|
15.6
|
%
|
NewSight Corporation
|
|
|
|
|
|
|
57.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
44.5
|
%
|
|
|
73.0
|
%
|
|
|
|
|
|
|
|
|
|
There is no current or deferred tax provision or benefit for the
years ended December 31, 2008, 2007 and 2006.
The Company has not provided for U.S. taxes on the loss of
$3,643,000 incurred by its Canadian wholly owned subsidiary from
August 16, 2007 to December 31, 2008. If any future
undistributed earnings of the Companys Canadian subsidiary
are remitted to the Company, income taxes, if any, after the
application of foreign tax credits will be provided at that time.
F-29
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Temporary differences between financial statement carrying
amounts and the tax basis of assets and liabilities and tax
credit and operating loss carryforwards that create deferred tax
assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Current asset/(liability):
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
37,000
|
|
|
$
|
30,000
|
|
Property and equipment
|
|
|
(87,000
|
)
|
|
|
(62,000
|
)
|
Accrued expenses
|
|
|
33,000
|
|
|
|
35,000
|
|
Severance
|
|
|
200,000
|
|
|
|
|
|
Non-qualified stock options
|
|
|
289,000
|
|
|
|
|
|
Non-current asset:
|
|
|
|
|
|
|
|
|
Net foreign carryforwards
|
|
|
1,384,000
|
|
|
|
240,000
|
|
Net operating loss carryforwards
|
|
|
17,821,000
|
|
|
|
11,996,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
19,677,000
|
|
|
|
12,239,000
|
|
Less: valuation allowance
|
|
|
(19,677,000
|
)
|
|
|
(12,239,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The valuation allowance has been
established due to the uncertainty of future taxable income,
which is necessary to realize the benefits of the deferred tax
assets. As of December 31, 2008, the Company had federal
net operating loss (NOL) carryforwards of approximately
$44,003,000, which will begin to expire in 2020. The Company
also has various state net operating loss carryforwards for
income tax purposes of $41,945,000, which will begin to expire
in 2020. The utilization of a portion of the Companys NOLs
and carryforwards is subject to annual limitations under
Internal Revenue Code Section 382. Subsequent equity
changes could further limit the utilization of these NOLs and
credit carryforwards. A 382 study has not been completed as of
December 31, 2008.
Realization of the NOL carryforwards and other deferred tax
temporary differences are contingent on future taxable earnings.
The deferred tax asset was reviewed for expected utilization
using a more likely than not approach by assessing
the available positive and negative evidence surrounding its
recoverability. Accordingly, a full valuation allowance has been
recorded against the Companys deferred tax asset.
In September 2005, the FASB approved EITF Issue
05-8. Income
Tax Consequences of Issuing Convertible Debt with a Beneficial
Conversion Feature
(EITF 05-8).
EITF 05-8
provides (i) that the recognition of a beneficial
conversion feature creates a difference between book basis and
tax basis of a convertible debt instrument (ii) that basis
difference is a temporary basis for which a deferred tax
liability should be recorded and (iii) the effect of
recognizing the deferred tax liability should be charged to
equity in accordance with SFAS No. 109.
EITF 05-5
was effective for financial statements for periods beginning
after December 15, 2005. The Company applied
EITF 05-8
to the 2006 issuance of convertible debt. The Company reduced
its net operating loss carryover and valuation allowance by
approximately $2.3 million for the non-deductibility of the
beneficial conversion feature recorded in 2006.
On January 1, 2007, the Company adopted the provisions of
the Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes, (FIN 48) an interpretation of FASB
Statement No. 109, Accounting for Income Taxes.
As a result of the implementation of FIN 48, the Company
recognized no material adjustment in the liability for
unrecognized income tax benefits and FIN 48 had no effect
on shareholders equity. The Company recognizes accrued
interest and penalties related to uncertain tax positions in
income tax expense. At December 31, 2008 and 2007, the
Company had no accruals
F-30
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
for the payment of tax related interest and there were no tax
interest or penalties recognized in the statement of operations.
The Companys federal and state tax returns are potentially
open to examinations for years
2005-2008.
The components of income tax expense (benefit) consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(5,179,000
|
)
|
|
$
|
(2,895,000
|
)
|
|
$
|
(3,096,000
|
)
|
State
|
|
|
(990,000
|
)
|
|
|
(468,000
|
)
|
|
|
(589,000
|
)
|
Foreign
|
|
|
(1,144,000
|
)
|
|
|
(240,000
|
)
|
|
|
|
|
Change in valuation allowance
|
|
|
7,313,000
|
|
|
|
3,603,000
|
|
|
|
3,685,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company will continue to assess and evaluate strategies that
will enable the deferred tax asset, or portion thereof, to be
utilized, and will reduce the valuation allowance appropriately
at such time when it is determined that the more likely
than not criteria is satisfied.
The Companys provision for income taxes differs from the
expected tax benefit amount computed by applying the statutory
federal income tax rate of 34.0% to loss before taxes as a
result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State taxes
|
|
|
(4.8
|
)
|
|
|
(4.6
|
)
|
|
|
(6.5
|
)
|
Foreign rate differential
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
1.0
|
|
|
|
3.6
|
|
|
|
|
|
Intangibles expense
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.1
|
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
Change in valuation allowance
|
|
|
35.3
|
|
|
|
35.7
|
|
|
|
40.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
NOTE 12:
|
SELECTED
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
The following table set forth a summary of the Companys
quarterly financial information for each of the four quarters
ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,933,514
|
|
|
$
|
1,596,223
|
|
|
$
|
1,949,532
|
|
|
$
|
1,902,133
|
|
Gross profit
|
|
|
398,718
|
|
|
|
61,882
|
|
|
|
102,275
|
|
|
|
229,238
|
|
Loss from operations
|
|
|
(4,462,143
|
)
|
|
|
(5,117,933
|
)
|
|
|
(4,751,813
|
)
|
|
|
(6,980,579
|
)
|
Net loss
|
|
|
(4,197,256
|
)
|
|
|
(4,959,436
|
)
|
|
|
(4,635,276
|
)
|
|
|
(6,900,393
|
)
|
Net loss per share basic and diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.47
|
)
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
196,436
|
|
|
$
|
3,054,863
|
|
|
$
|
1,123,933
|
|
|
$
|
1,609,681
|
|
Gross profit
|
|
|
93,173
|
|
|
|
1,181,839
|
|
|
|
414,168
|
|
|
|
403,366
|
|
Loss from operations
|
|
|
(3,191,491
|
)
|
|
|
(1,248,763
|
)
|
|
|
(2,831,425
|
)
|
|
|
(4,043,345
|
)
|
Net loss
|
|
|
(3,050,565
|
)
|
|
|
(979,711
|
)
|
|
|
(2,382,524
|
)
|
|
|
(3,673,588
|
)
|
Net loss per share basic and diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.25
|
)
|
|
|
NOTE 13:
|
INTEREST
EXPENSE AND FINANCING ACTIVITIES
|
Deferred
financing costs
In December 2003, the Company engaged an investment banking firm
to assist the Company in raising additional capital through the
potential future issuance of the Companys equity, debt or
convertible securities. The firm helped secure a $3,000,000
convertible debenture for the Company and received a fee of
$100,000 and 11,111 shares of the Companys common
stock, which were valued at $1.80 per share at the time of
issuance. These costs were being amortized over the five year
term of the convertible debenture as additional interest
expense. The unamortized costs were amortized to interest
expense during 2006 upon the conversion of the convertible
debenture into common stock.
During 2005, the Company issued a warrant for the purchase of
5,556 shares of the Companys common stock at $9.00
per share to a related party for the guarantee of a bank line of
credit. The fair value of the warrant granted was calculated at
$28,479 using the Black-Scholes model. These costs were
amortized over the one year term of the line of credit as
additional interest expense.
During 2005, the Company issued a warrant for the purchase of
6,945 shares of the Companys common stock at $9.00
per share to an employee for the guarantee of a bank line of
credit. The fair value of the warrant granted was calculated at
$25,782 using the Black-Scholes model. These costs were
amortized over the one year term of the line of credit as
additional interest expense.
In March 2006, the Company issued additional short-term debt
borrowings in connection with the Companys planned initial
public offering of its common stock. The Company incurred
$505,202 of professional fees, commissions and other expenses in
connection with the borrowings. The Company capitalized these
costs and was amortizing them over the one year period of the
notes as additional interest expense. The unamortized costs were
amortized to interest expense during 2006 upon the conversion of
the convertible debenture into common stock.
During July and through August 25, 2006, the Company issued
additional short-term debt borrowings in connection with the
Companys planned initial public offering of its common
stock. The Company incurred
F-32
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
$339,307 of professional fees, commissions and other expenses in
connection with the borrowings. The Company capitalized these
costs and was amortizing them over the term of the notes as
additional interest expense. The unamortized costs were
amortized to interest expense during 2006 upon the conversion of
the convertible debenture into common stock.
Bank
Lines of Credit and Notes Payable
Lines
of credit bank
During 2005, the Company entered into three unsecured revolving
line of credit financing agreements with a bank that provided
aggregate borrowings of up to $750,000. These lines were repaid
and expired during 2006. The lines were unsecured with unlimited
personal guarantees of three shareholders. Interest was payable
monthly at 1.5% over the banks base rate (effective annual
rate of 8.25% at December 31, 2005).
Short-term
note payable shareholder
During 2005, the Company entered into a short-term note payable
to a shareholder that provided for borrowings of $100,000. The
agreement required interest payments of 10% per year at
maturity. The note matured in February 2006. As consideration
for the note, the shareholder received a warrant to purchase
2,778 shares of the Companys common stock at $9.00
per share within five years of the note agreement date. The fair
value of the warrant granted was calculated at $12,465 using the
Black-Scholes model. The Company reduced the carrying value of
the notes by amortizing the fair value of warrants granted in
connection with the note payable over the original term of the
note as additional interest expense.
In January 2006, the Company extended the note payable plus
accrued interest and penalty of $7,500. The extended note
provided for monthly interest at 10% per year. As consideration
for extending the note, the Company issued the note holder the
right to convert amounts outstanding under the note into shares
of the Companys common stock at a conversion rate equal to
80% of the public offering price of the Companys common
stock. During November 2006, the note holder converted the note
into shares of the Companys common stock at $3.20 per
share. As a result, the Company recorded additional interest
expense of $38,816 for the inducement to convert the debt.
Convertible
bridge notes payable
In March 2006, the Company received $2,775,000 in proceeds from
the issuance of 12% convertible bridge notes and the issuance of
warrants to purchase 555,000 shares of common stock. The
notes matured 30 days following the closing of the initial
public offering of the Companys common stock. Interest was
payable at 12% per year at maturity of the notes. The notes and
interest were convertible and the warrants exercisable into
common stock of the Company at the option of the lenders at
$3.20 per share. The fair value of the warrants granted was
calculated at $923,428 using the Black-Scholes model. The
Company reduced the carrying value of the notes by amortizing
the fair value of warrants granted in connection with the note
payable over the original term of the notes as additional
interest expense. The unamortized costs were amortized to
interest expense upon the conversion of the notes into common
stock. The Company determined that there was a beneficial
conversion feature of $749,991 at the date of issuance which was
recorded as debt discount at the date of issuance and was
amortized into interest expense over the original term of the
notes. The unamortized costs were amortized to interest expense
upon the conversion of the notes into common stock. During
December 2006, note holders converted $2,556,998 of the notes
into shares of the Companys common stock at $3.20 per
share. As a result, the Company recorded an expense of
$1,101,581 for the inducement to convert the debt, which was
recorded as additional interest expense. During December 2006,
note holders converted $240,829 of the accrued interest into
shares of the Companys common stock at $3.20 per share. As
a result, the Company recorded an expense of $86,956 for the
inducement to convert the debt, which was recorded as additional
interest expense. The Company repaid the remaining $218,002 of
notes and $32,046 of accrued interest during December 2006.
F-33
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
During July and through August 25, 2006, the Company sold
an additional $2,974,031 principal amount of 12% convertible
bridge notes along with 20,000 shares of common stock and
warrants to purchase 594,806 shares of common stock. The
notes matured 30 days following the closing of the initial
public offering of the Companys common stock. Interest was
payable at 12% per year at maturity of the notes. The notes and
interest were convertible and the warrants exercisable into
common stock of the Company at the option of the lenders at
$3.20 per share. The fair value of the stock issued was
calculated at $58,862. The fair value of the warrants granted
was calculated at $970,072 using the Black-Scholes model. The
Company reduced the carrying value of the notes by amortizing
the fair value of warrants granted in connection with the note
payable over the original term of the notes as additional
interest expense. The unamortized costs were amortized to
interest expense upon the conversion of the notes into common
stock. The Company determined that there was a beneficial
conversion feature of $843,057 at the date of issuance which was
recorded as debt discount at the date of issuance and was
amortized into interest expense over the original term of the
notes. The unamortized costs were amortized to interest expense
upon the conversion of the notes into common stock. During
December 2006, note holders converted $2,856,431 of the notes
into shares of the Companys common stock at $3.20 per
share. As a result, the Company recorded an expense of
$1,102,039 for the inducement to convert the debt, which was
recorded as additional interest expense. During December 2006,
note holders converted $101,297 of the accrued interest into
shares of the Companys common stock at $3.20 per share. As
a result, the Company recorded an expense of $36,575 for the
inducement to convert the debt, which was recorded as additional
interest expense. The Company repaid the remaining $117,600 of
notes and $38,437 of accrued interest during December 2006.
Short-Term
Notes Payable Related Parties
Short-term
notes payable related parties
During 2005, the Company entered into two short-term notes
payable with different related parties. The agreements provided
for aggregate borrowings of up to $600,000. As of
December 31, 2005, $200,000 had been received on these
notes. The remaining $400,000 was received in January and
February 2006. These agreements matured in March 2006 and were
subsequently extended through July 2006. Interest was payable
monthly at a rate of 10% per year.
As consideration for entering into the agreements, the related
parties received a total of 33,332 shares of the
Companys common stock valued at $240,000 and warrants to
purchase 50,000 shares of the Companys common stock
at $6.30 per share within six years of the note agreement date.
The Company valued the common stock at $7.20 per share based on
the current offering price of the stock at the date of issuance.
The fair value of the warrants granted was calculated at
$216,349 using the Black-Scholes model. The Company allocated
the value of the warrants and common stock based on their
relative fair value as the debt proceeds were received.
The Company reduced the carrying value of the notes by
amortizing the fair value of common stock and warrants granted
in connection with the notes payable over the term of each
original note as additional interest expense. The remaining debt
discount to be amortized was $135,395 at December 31, 2005.
In March and June 2006, the Company extended these notes. They
provided for monthly interest at 10% per year and matured in
July 2006. As consideration for extending the notes, the Company
issued 45,332 shares of the Companys common stock
valued at $4.50 per share and six year warrants to purchase
50,000 shares of the Companys common stock at $6.30
per share. In accordance with
EITF 96-19,
the Company determined there was a significant modification to
the debt. As a result, the Company determined there was a loss
on these debt modifications aggregating $367,153 which has been
included in other income (expense) on the statement of
operations for the year ended December 31, 2006.
During July 2006, the related parties converted the notes and
the interest accrued to date into convertible bridge notes.
F-34
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Short-term
borrowings related parties
During 2006, the Company borrowed funds from two related parties
to fund short-term cash needs. The Company agreed to assign and
sell certain receivables to the related parties in exchange for
these short-term borrowings. The related parties may limit their
purchases to receivables arising from sales to any one customer
or a portion of the net amount of the receivable. The Company
granted a continuing security interest in all receivables
purchased under the agreement. This agreement expired on
May 23, 2007, but automatically renews from
year-to-year
unless terminated by the Company upon at least 60 days
prior written notice. Each related party has the right to
terminate the agreement at any time by giving the Company
60 days prior written notice. These transactions were
accounted for as sales and as a result the related receivables
have been excluded from the accompanying balance sheets. The
agreement underlying the sale of receivables contains provisions
that indicate the Company is not responsible for end-user
customer payment defaults on sold receivables. The borrowings
are due when those accounts receivables are paid and require
interest payments at twice the prime rate (16.5% per year at
December 31, 2006).
The Company issued the related parties warrants to purchase
39,492 shares of the Companys common stock at $9.00
per share within five years from the advance date. The fair
value of the warrants granted was calculated at $155,127 using
the Black-Scholes model. Since the advances were due upon
payment of accounts receivable, the Company expensed the value
of the warrants on the date of issuance.
There were no amounts due under these borrowings as of
December 31, 2008, 2007 and 2006. During the year ended
December 31, 2006, the Company borrowed and repaid $149,216
pursuant to this agreement. The net book value of the
receivables sold was equal to the proceeds the Company borrowed
and repaid. The Company terminated the agreement as of
December 31, 2006.
Long-Term
Notes Payable
Convertible
bridge notes payable
The Company has issued bridge notes to individuals and
corporations. The notes were unsecured and had original varying
repayment terms for principal and interest, with maturity dates
through March 2010. Interest accrued at interest rates ranging
from 8% to 16% per year. The notes were convertible at the
discretion of the note holder, into shares of common stock as
specified in each agreement, with a conversion rate of $9.00 per
share or the current offering price of the Companys common
stock, whichever is less.
As consideration for entering into the agreements, the note
holders also received shares of the Companys common stock
and warrants to purchase shares of the Companys common
stock. As of December 31, 2008, the note holders had
received a total of 103,659 shares of the Companys
common stock and warrants to purchase 208,209 shares of the
Companys common stock at $9.00 per share within terms
ranging from two to five years from the note agreement date. The
Company valued the common stock at $186,630 ($1.80 per share)
based on an internal valuation of the Companys common
stock during July 2004 in the absence of stock transactions. The
fair value of the warrants granted was calculated at $110,064
using the Black-Scholes model.
The Company reduced the carrying value of the notes by
amortizing the fair value of common stock and warrants granted
in connection with the notes payable over the term of each
original note as additional interest expense. As of
December 31, 2005, all of the convertible bridge notes
payable had been extended to five year maturities without
consideration. The remaining debt discount to be amortized was
$0 at December 31, 2005.
In March 2006, the holders of convertible bridge notes totaling
$1,238,923 agreed to convert their notes into shares of the
Companys common stock after the initial public offering of
the Companys stock at $3.20 per share. As a result, the
Company recorded an expense of $447,379 for the inducement to
convert the debt, which was recorded as additional interest
expense.
F-35
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
Note
payable to customer
In March 2006, the Company signed a note payable with the
counterparty in its restaurant industry license agreement for
repayment of $384,525 of fees the Company collected and had
recorded as deferred revenue. The note was unsecured and
required varying monthly payments, including interest at 10% per
year. The note was repaid in December 2006.
Long-Term
Notes Payable Related Parties
Convertible
debenture payable
During 2005, the Company entered into a five-year convertible
debenture payable with a related party for $3,000,000 that had
an original maturity date of December 31, 2009. The
debenture was unsecured and required quarterly interest payments
at 10% per year. Interest expense could be paid with cash or in
shares of the Companys common stock. The debenture holder
received the option of converting the note into 30% of the then
outstanding fully diluted shares of common stock. During 2006
and 2005, the Company issued 24,999 and 19,443 shares of
its common stock to pay $225,000 and $175,000 of interest
expense, respectively.
In March 2006, the holder of the $3,000,000 convertible
debenture agreed to convert its debenture into 30% of the
Companys common stock on a fully diluted basis, excluding
shares issuable upon conversion of convertible notes and
warrants issued in March, July and August 2006 and shares issued
or issuable as a result of securities sold in the initial public
offering, prior to the initial public offering of the
Companys common stock. As a result, the debenture holder
received 1,302,004 shares of the Companys common
stock and the Company recorded an expense of $1,000,000 for the
inducement to convert the debt, which was recorded as additional
interest expense.
Convertible
bridge notes payable
The Company has issued bridge notes to related parties. The
notes were unsecured, accrued interest at 10% per year and had
original varying maturity dates through December 2009. The notes
were convertible at the discretion of the note holder, into
shares of common stock as specified in each agreement, with a
conversion rate of $9.00 per share or the current offering price
of the Companys common stock, whichever was less.
As consideration for the loans, the lenders received shares of
the Companys common stock and warrants to purchase shares
of the Companys common stock. As of December 31,
2006, the note holders received a total of 36,106 shares of
the Companys common stock and warrants to purchase
82,895 shares of the Companys common stock at $9.00
per share within terms ranging from two to five years from the
note agreement date. The Company valued the common stock at
$65,000 ($1.80 per share) based on an internal valuation of the
Companys common stock during July 2004 in the absence of
stock transactions. The fair value of the warrant granted was
calculated at $30,374 using the Black-Scholes model.
The Company reduced the carrying value of the notes by
amortizing the fair value of common stock and warrants granted
in connection with the notes payable over the term of each
original note. As of December 31, 2004, all of the
convertible bridge notes payable had been extended to five year
maturities without consideration. The remaining debt discount to
be amortized was $0 at December 31, 2005.
In March 2006, the holders of convertible bridge notes totaling
$683,550 agreed to convert their notes into shares of the
Companys common stock after the initial public offering of
the Companys stock at $3.20 per share. As a result, the
Company recorded an expense of $246,832 for the inducement to
convert the debt, which was recorded as additional interest
expense.
Fair
Value of Warrants
See Note 8 for further information regarding the
assumptions used to calculate fair value of warrants issued in
2006.
F-36
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
NOTE 14:
|
IMPAIRMENT
OF NETWORK EQUIPMENT HELD FOR SALE
|
On August 10, 2007, the Company announced that its largest
customer during 2007, NewSight Corporation
(NewSight), had re-prioritized various elements of
its planned digital signage system implementations, including a
delay in the rollout of network installations into large,
upscale malls, and the launch, installation and operation of
digital signage networks in physicians offices. In
connection with NewSights re-prioritization, the Company
agreed to provide digital signage to retrofit 102 stores of an
existing network and newly configure approximately 79 stores of
a grocery store chain in the Midwest, Meijer, Inc.
(Meijer), under a digital signage agreement.
In consideration of this undertaking to complete the Meijer
Network (as defined below), the Company agreed to take a
promissory note and security interest in certain equipment,
while it understood NewSight was in the process of raising
capital. Effective October 8, 2007, NewSight issued the
Company a Secured Promissory Note (the Note) for
goods provided and services rendered, in an original principal
amount of $1,760,177. In connection with the issuance of the
Note, the Company also entered into a Security Agreement, dated
October 12, 2007, with NewSight pursuant to which the
Company acquired a security interest in certain collateral of
NewSight, consisting of all existing and after-acquired video
screens and monitors and other equipment for digital signage
then or thereafter provided by the Company to NewSight,
including all such equipment located in the Fashion Square Mall
in Saginaw, Michigan and the Asheville Mall in Asheville, North
Carolina, and any grocery store premises operated by Meijer and
its affiliates (the Meijer Network) and all related
hardware, software and parts used in connection with such
equipment or the Meijer Network and all proceeds from such
personal property, but not including any intellectual property
of NewSight (the Collateral). Pursuant to the Note,
this debt obligation would mature on the first to occur of
(1) successful completion of NewSights financing
efforts, or (2) December 31, 2007.
The Company extended the term of the Note to allow NewSight more
time to complete its financing efforts, on January 7, 2008,
April 4, 2008 and June 5, 2008. In connection with the
first of such extensions, the Company agreed to credit NewSight
customer deposits aggregating $277,488 against the amount of the
Note. In connection with the second extension, the Company
agreed to terminate several other agreements with NewSight: the
physician office agreement to develop the NewSight on
Health physicians network; the agreement for development
of the Pyramid Mall network; and the
3-D software
development agreement.
The Note, as amended, matured on August 15, 2008.
NewSights aggregate indebtedness to the Company, including
the Note, accrued interest, and all accrued warehousing fees and
expenses and network operating and maintenance expenses, totaled
$2,761,608, net of deferred revenue of $1,029,796, at such date
(the Aggregate Indebtedness). Given NewSights
inability to obtain financing that would have allowed it to
repay this obligation and given the termination of
NewSights business relationship with Meijer regarding the
Meijer Network, the Company entered into negotiations with
NewSight and its principal creditor, Prentice Capital
Management, L.P. (Prentice), to obtain ownership of
the Collateral (other than the Released Collateral (as defined
below)) (the Surrendered Collateral) in recognition
of its rights as a secured creditor. The Released
Collateral represented Collateral presently installed at
the stores operated by CBL Associated at the Fashion Square Mall
and the Asheville Mall.
On August 21, 2008, the Company entered into a Turnover and
Surrender Agreement with NewSight (the Turnover and
Surrender Agreement) under which NewSight surrendered,
transferred and turned over to the Company, and the Company
accepted, the Surrendered Collateral in full satisfaction of the
Aggregate Indebtedness. The Company agreed that, except for the
obligations under the Turnover and Surrender Agreement, NewSight
has no further obligations to it. The Surrendered Collateral was
turned over and surrendered to the Company on an as
is and where is basis. Under the Turnover and
Surrender Agreement, NewSight granted the Company an irrevocable
license and consent to enter into any properties licensed to or
leased by NewSight for the purpose of taking possession and
control of such collateral. NewSight further agreed to indemnify
and hold the Company and its subsidiary, and all of its
shareholders, agents, officers and directors harmless against
any and all claims, losses and expenses (including attorneys
fees) related to any
F-37
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
claims against them as a result of a breach of any covenant,
representation or warranty by NewSight in the Turnover and
Surrender Agreement, and claims by any creditor, shareholder or
trustee of NewSight relating to the transfer and surrender under
the Turnover and Surrender Agreement. The Company and NewSight
also agreed to a mutual release of all claims except obligations
arising under the Turnover and Surrender Agreement.
In addition, the Company entered into a Consent Agreement with
Prentice on August 21, 2008 (the Consent
Agreement) pursuant to which Prentice consented to the
terms and conditions of the Turnover and Surrender Agreement.
The Consent Agreement also provided for the allocation of any
future proceeds received or paid to the Company in connection
with the Surrendered Collateral or the Meijer Network. In
general, such funds would be applied in the following manner:
(1) first to payment of the Companys expenses in
connection with the turnover and surrender, (2) second to
payment of the Companys expenses in connection with
replacing, modifying or enhancing the Surrendered Collateral,
(3) third to the Company in payment of the Aggregate
Indebtedness, (4) fourth the next $100,000 of proceeds
would be allocated 70% to the Company and 30% to Prentice, and
(5) fifth all remaining proceeds would be allocated 50% to
the Company and 50% to Prentice. These allocations also applied
in the event of the sale or contribution by the Company of the
Surrendered Collateral or the Meijer Network. However, such
allocations did not apply to amounts paid or payable to the
Company in payment or reimbursement of its monthly costs to
operate or service the Meijer Network. The rights and interests
granted by the Company to Prentice under the Consent Agreement
were to expire on the third anniversary of the Consent
Agreement. The Company and Prentice also generally agreed to a
mutual release of all claims.
On August 21, 2008, the Company also entered into an
Interim Operating Agreement with ABC National Television Sales,
Inc. (ABC) and Met/Hodder, Inc. (MH)
pursuant to which the parties continued to operate the Meijer
Network through October 31, 2008 (the Interim
Operating Agreement). The Company entered into the Interim
Operating Agreement to continue to run the Meijer Network for an
interim period necessary to establish a more permanent
arrangement with respect to the Meijer Network ownership and
placement in Meijer stores. The Company received $51,000, paid
out of advertising revenues on the Meijer Network, under this
agreement in 2008.
Meijer then sent a request for proposal to several national
network providers, including the Company, to build out the
remaining network of 82 stores and continue to support the
existing network of 102 stores in which the Company owned the
network hardware. The Company had expected Meijer to choose one
of these network providers in the fourth quarter of 2008, with
which to move forward. As of September 30, 2008, the
Company had reclassified the NewSight account receivable balance
of $2,429,884, deferred revenue of $1,029,796, deferred costs of
$585,538, and the accrued finders fees of $48,464 to
Network equipment held for sale totaling $1,937,162. This asset
appeared as a separate line on the balance sheet as a current
asset at September 30, 2008.
Subsequent to December 31, 2008, Meijer abandoned plans to
maintain the network. As a result, the Company moved
approximately $171,000 of equipment from the in-box collateral
base into inventory and recorded an impairment loss in the
fourth quarter of 2008 on the remaining $1,766,072 of network
equipment held for sale.
|
|
NOTE 15:
|
SEVERANCE
EXPENSE
|
In June 2008, the Company announced that John Witham had
resigned from his positions as the Companys Executive Vice
President and Chief Financial Officer. The Board of Directors
approved an arrangement whereby in consideration for
Mr. Withams execution of a reasonable and customary
release, Mr. Witham would receive severance payments equal
to one and a half times his base salary, one and a half times
his prior year bonus, medical (COBRA) benefits for one year, and
payment for accrued, unused paid time off, as set forth in his
employment agreement for a termination without cause, as well as
an extension of
F-38
WIRELESS
RONIN TECHNOLOGIES, INC.
Notes to
Consolidated Financial
Statements (Continued)
the amount of time Mr. Witham has to exercise vested stock
options. In the second quarter of 2008, the Company recorded
total charges of $353,000 related to Mr. Withams
separation.
In September 2008, the Company announced that Jeffrey Mack had
resigned from his positions as the Companys Chairman of
the Board of Directors, President and Chief Executive Officer.
The Board of Directors approved an arrangement whereby in
consideration for Mr. Macks execution of a reasonable
and customary release, Mr. Mack would receive severance
payments equal to one years base salary, medical (COBRA)
benefits for one year, accelerated vesting of options for the
purchase of 120,000 shares at $2.80 per share, and a
90-day
extension of the post-termination exercisability of
(a) such options and (b) warrants for the purchase of
35,354 shares at $2.25 per share. In the third quarter of
2008, the Company recorded total charges of $286,000 for
severance expense, as well as $94,000 of non-cash stock-based
compensation, related to Mr. Macks separation.
In November and December 2008, the Company announced workforce
reductions of 35 and 27 people, respectively, including
employees and contractors at both its U.S. and Canadian
operations to better match its infrastructure and expenses with
sales levels and current client projects. Coupled with three
other U.S. employee resignations prior to the December
reduction in force, these actions resulted in an approximate
40 percent total headcount reduction during the fourth
quarter of 2008. The combined severance expense from the two
workforce reductions totaled $274,000.
The following table provides financial information on the
employee severance expense and remaining accrued balance at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
|
|
Accrual
|
|
|
June 30,
|
|
Net
|
|
|
|
December 31,
|
|
|
2008
|
|
Additions
|
|
Payments
|
|
2008
|
|
Employee severance expense
|
|
$
|
353,000
|
|
|
$
|
560,000
|
|
|
$
|
(331,000
|
)
|
|
$
|
582,000
|
|
F-39
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Articles of Incorporation of the Registrant, as amended
(incorporated by reference to our Pre-Effective Amendment No. 1
to our Form SB-2 filed on October 12, 2006 (File No.
333-136972)).
|
|
3
|
.2
|
|
Bylaws of the Registrant, as amended (incorporated by reference
to our Quarterly Report on Form 10-QSB filed on November 14,
2007 (File No. 001-33169)).
|
|
4
|
.1
|
|
See exhibits 3.1 and 3.2.
|
|
4
|
.2
|
|
Specimen common stock certificate of the Registrant
(incorporated by reference to Pre-Effective Amendment No. 1 to
our Form SB-2 filed on October 12, 2006 (File No. 333-136972)).
|
|
4
|
.3
|
|
Form of Current Warrant to Purchase Common Stock of the
Registrant (incorporated by reference to our Registration
Statement on Form SB-2 filed on August 29, 2006 (File No.
333-136972)).
|
|
4
|
.4
|
|
Form of Previous Warrant to Purchase Common Stock of the
Registrant (incorporated by reference to our Registration
Statement on Form SB-2 filed on August 29, 2006 (File No.
333-136972)).
|
|
10
|
.1
|
|
Wireless Ronin Technologies, Inc. Amended and Restated 2006
Equity Incentive Plan (incorporated by reference to our
Definitive Proxy Statement on Schedule 14A filed on October 2,
2007 (File No. 001-33169)).
|
|
10
|
.2
|
|
Wireless Ronin Technologies, Inc. 2006 Non-Employee Director
Stock Option Plan (incorporated by reference to our Definitive
Proxy Statement on Schedule 14A filed on December 26, 2006 (File
No. 001-33169)).
|
|
10
|
.3
|
|
Employment Agreement, dated as of April 1, 2006, between the
Registrant and Scott W. Koller (incorporated by reference to our
Registration Statement on Form SB-2 filed on August 29, 2006
(File No. 333-136972)).
|
|
10
|
.4
|
|
Amended and Restated Employment Agreement, dated as of December
13, 2006 between the Registrant and Brian S. Anderson
(incorporated by reference to our Current Report on Form 8-K/A
filed on December 15, 2006 (File No. 001-33169)).
|
|
10
|
.5
|
|
Form of Non-Qualified Stock Option Agreement Granted under the
Wireless Ronin Technologies, Inc. 2006 Equity Incentive Plan
(incorporated by reference to our Registration Statement on Form
SB-2 filed on August 29, 2006 (File No. 333-136972)).
|
|
10
|
.6
|
|
Form of Incentive Stock Option Agreement Granted under the 2006
Equity Incentive Plan (incorporated by reference to our
Registration Statement on Form SB-2 filed on August 29, 2006
(File No. 333-136972)).
|
|
10
|
.7
|
|
Form of Previous Option Agreement Granted under the Wireless
Technologies, Inc. 2006 Non-Employee Director Stock Option Plan
(incorporated by reference to Pre-Effective Amendment No. 2 to
our Form SB-2 filed on October 30, 2006 (File No. 333-136972)).
|
|
10
|
.8
|
|
Mutual Termination, Release and Agreement, dated February 13,
2007, between the Registrant and The Marshall Special Assets
Group, Inc. (incorporated by reference to our Current Report on
Form 8-K filed on February 16, 2007 (File No. 001-33169)).
|
|
10
|
.9
|
|
Lease Agreement by and between the Registrant and Utah State
Retirement Investment Fund, dated April 26, 2007 (incorporated
by reference to our Current Report on Form 8-K filed on April
30, 2007 (File No. 001-33169)).
|
|
10
|
.10
|
|
Underwriting Agreement by and between the Registrant,
ThinkEquity Partners, LLC and Feltl and Company, Inc., as
Representatives of the several underwriters dated June 13, 2007
(incorporated by reference to our Registration Statement on Form
SB-2 filed on June 14, 2007 (File No. 333-143725)).
|
|
10
|
.11
|
|
Stock Purchase Agreement by and between the Company, Robert
Whent, Alan Buterbaugh and Marlene Buterbaugh, dated August 1,
2007 (incorporated by reference to our Current Report on Form
8-K filed on August 3, 2007 (File No. 001-33169)).
|
|
10
|
.12
|
|
Wireless Ronin Technologies, Inc. 2007 Associate Stock Purchase
Plan (incorporated by reference to our Definitive Proxy
Statement on Schedule 14A filed on October 2, 2007 (File No.
001-33169)).
|
E-1
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.13
|
|
Digital Signage Agreement by and between the Registrant and
NewSight Corporation, effective October 12, 2007 (incorporated
by reference to our Current Report on Form 8-K filed on October
18, 2007 (File No. 001-33169)).
|
|
10
|
.14
|
|
Security Agreement by and between the Registrant and NewSight
Corporation, effective October 12, 2007 (incorporated by
reference to our Current Report on Form 8-K filed on October 18,
2007 (File No. 001-33169)).
|
|
10
|
.15
|
|
Subordination Agreement by and between the Registrant and
Prentice Capital Management, LP, effective October 12, 2007
(incorporated by reference to our Current Report on Form 8-K
filed on October 18, 2007 (File No. 001-33169)).
|
|
10
|
.16
|
|
Secured Promissory Note from NewSight Corporation, Maker, to the
Registrant, Payee, dated October 8, 2007 (incorporated by
reference to our Current Report on Form 8-K filed on October 18,
2007 (File No. 001-33169)).
|
|
10
|
.17
|
|
Letter Agreement by and between the Registrant and NewSight
Corporation, dated January 7, 2008 (incorporated by reference to
our Current Report on Form 8-K filed on January 9, 2008 (File
No. 001-33169)).
|
|
10
|
.18
|
|
Letter Agreement by and between Wireless Ronin Technologies,
Inc. and NewSight Corporation, dated April 4, 2008 (incorporated
by reference to our Quarterly Report on Form 10-Q filed on April
8, 2008 (File No. 001-33169)).
|
|
10
|
.19
|
|
Employment Agreement, dated as of August 16, 2007, between
Wireless Ronin Technologies (Canada), Inc. and Robert W. Whent
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on May 9, 2008 (File No. 001-33169)).
|
|
10
|
.20
|
|
Letter Agreement by and between Wireless Ronin Technologies,
Inc. and NewSight Corporation, dated June 4, 2008 (incorporated
by reference to our Current Report on Form 8-K filed on June 5,
2008 (File No. 001-33169)).
|
|
10
|
.21
|
|
Form of Amendment to Executive Employment Agreements, entered
into by the Registrant and each of our executive officers, dated
May 8, 2008 ((incorporated by reference to our Quarterly Report
on Form 10-Q filed on August 8, 2008 (File No. 001-33169)).
|
|
10
|
.22
|
|
Separation Agreement and General Release between the Registrant
and John A. Witham, dated July 1, 2008 (incorporated by
reference to our Quarterly Report on Form 10-Q filed on August
8, 2008 (File No. 001-33169)).
|
|
10
|
.23
|
|
Form of Current Non-Qualified Stock Option Agreement for
Non-Employee Directors under the Registrants Amended and
Restated 2006 Equity Incentive Plan (incorporated by reference
to our Quarterly Report on Form 10-Q filed on November 10, 2008)
(File No. 001-33169)).
|
|
10
|
.24
|
|
Form of Non-Qualified Stock Option Agreement for Stephen F.
Birke under the Registrants Amended and Restated 2006
Equity Incentive Plan (incorporated by reference to our
Quarterly Report on Form 10-Q filed on November 10, 2008) (File
No. 001-33169)).
|
|
10
|
.25
|
|
Separation Agreement and General Release between the Registrant
and Jeffrey C. Mack, dated September 23, 2008 (incorporated by
reference to our Quarterly Report on Form 10-Q filed on November
10, 2008) (File No. 001-33169)).
|
|
10
|
.26
|
|
Turnover and Surrender Agreement by and between the Registrant
and NewSight Corporation, dated August 21, 2008 (incorporated by
reference to our Quarterly Report on Form 10-Q filed on November
10, 2008) (File No. 001-33169)).
|
|
10
|
.27
|
|
Consent Agreement by and between the Registrant and Prentice,
dated August 21, 2008 (incorporated by reference to our
Quarterly Report on Form 10-Q filed on November 10, 2008) (File
No. 001-33169)).
|
|
10
|
.28
|
|
Interim Operating Agreement by and between the Registrant, ABC
National Television Sales, Inc. and Met/Hodder, Inc., dated
August 21, 2008 (incorporated by reference to our Quarterly
Report on Form 10-Q filed on November 10, 2008) (File No.
001-33169)).
|
|
10
|
.29
|
|
Executive Employment Agreement between James C. Granger and the
Registrant, dated December 17, 2008 (incorporated by reference
to our Current Report on Form 8-K filed December 23, 2008 (File
No. 001-33169))
|
E-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.30
|
|
Senior Management Bonus Plan (incorporated by reference to our
Current Report on Form 8-K filed December 23, 2008 (File No.
001-33169)).
|
|
10
|
.31
|
|
Form of Amendment to Executive Employment Agreements, entered
into by the Registrant and each of our executive officers, dated
December 31, 2008.
|
|
21
|
|
|
Subsidiaries of the Registrant.
|
|
23
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
24
|
|
|
Powers of Attorney (included on Signature Page).
|
|
31
|
.1
|
|
Chief Executive Officer Certification pursuant to Exchange Act
Rule 13a-14(a).
|
|
31
|
.2
|
|
Chief Financial Officer Certification pursuant to Exchange Act
Rule 13a-14(a).
|
|
32
|
.1
|
|
Chief Executive Officer Certification pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Chief Financial Officer Certification pursuant to 18 U.S.C.
Section 1350.
|
E-3