Enveric Biosciences, Inc. - Annual Report: 2009 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 period ended: December 31, 2009
OR
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o
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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: 000-26460
| SPATIALIZER AUDIO LABORATORIES, INC. |
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(Exact name of registrant as specified in its charter)
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Delaware
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95-4484725
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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410 Park Avenue--15th Floor New York, New York 10022
(Address of principal corporate offices)
Telephone Number: (212) 231-8359
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 definition of “large accelerated filer,” “accelerated filed” 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 o
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Non-accelerated filer o
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Smaller reporting company þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). þYes No o
The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second quarter (June 30, 2009) was approximately $12,000.
As of March 30, 2010, there were 6,500,000 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE; None
TABLE OF CONTENTS
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| PART I | |||||
| Item 1. | Business | 3 | |||
| Item 1A. | Risk Factors | 5 | |||
| Item 1B. | Staff comments | ||||
| Item 2. | Properties | 6 | |||
| Item 3. | Legal Proceedings | 6 | |||
| Item 4. | Submission of Matters to a Vote of Security Holders | 6 | |||
| PART II | |||||
| Item 5. | Market for Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 7 | |||
| Item 6. | Selected Financial Data | 8 | |||
| Item 7. | Management s Discussion and Analysis of Financial Condition and Results of Operations | 8 | |||
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 11 | |||
| Item 8. | Financial Statements and Supplementary Data | 11 | |||
| Item 9. | Change in and Disagreements with Accountants on Accounting and Financial Disclosure | 20 | |||
| Item 9A(T). | Controls and Procedures | 21 | |||
| Item 9B. | Other Information | 22 | |||
| PART III | |||||
| Item 10. | Director, Executive Officers and Corporate Governance | 22 | |||
| Item 11. | Executive Compensation | 23 | |||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 24 | |||
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 25 | |||
| Item 14. | Principal Accountant Fees and Services | 25 | |||
| PART IV | |||||
| Item 15. | Exhibits and Financial Statement Schedules | 26 | |||
| SIGNATURES | 28 | ||||
| EX-23.1 (CONSENT OF RAMIREZ INTERNATIONAL) | |||||
| EX-31.1 (CEO CERTIFICATION) | |||||
| EX-31.2 (CFO CERTIFICATION) | |||||
| EX-32.1 (CEO CERTIFICATION) | |||||
| EX-32.2 (CFO CERTIFICATION) | |||||
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting management’s current expectations. Examples of such forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals or that any potential transactions herein described will be realized or consummated. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of our company. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The important factors discussed under Item 1A, Risk Factors, among other factors, could cause actual results to differ materially from those indicated by forward-looking statements made herein and represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. We assume no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.
PART I
Item 1. Business Overview
Spatializer Audio Laboratories, Inc. (“Spatializer” or the “Company”) was a developer, licensor and marketer of next generation technologies for the consumer electronics, personal computing, entertainment and cellular telephone markets. Our corporate office is located at 410 Park Avenue – 15th Floor, New York, New York 10022. The Company’s wholly-owned subsidiary, Desper Products, Inc. (“DPI” or “Desper Products”), was in the business of developing proprietary advanced audio signal processing technologies and products for consumer electronics, entertainment and multimedia computing. All Company revenues were generated from this subsidiary. Desper Products was the owner of all technology which was acquired by DTS, Inc. on July 2, 2007. Desper Products was dissolved on December 5, 2008.
Copies of this Annual Report, including our financial statements, and our quarterly reports on Form 10-Q as well as other corporate information, including press releases, of interest to our stockholders are available by writing us at 410 Park Avenue -- 15 th Floor, New York, New York 10022.
Background of the Sale of Assets and Dissolution
On December 19, 2005, at a regularly scheduled meeting, Spatializer’s board of directors discussed its’ current financial outlook. Management indicated to the board of directors that two customers, the revenues from which accounted for approximately 70% of Spatializer’s income during 2005, would not be sustainable in 2006. This called into question the ability of the Company to operate as a going concern . The Company’s financial statements have been prepared assuming that it would continue as a going concern.
As previously reported, on September 18, 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly-owned subsidiary thereof pursuant to which the Company and DPI agreed to sell substantially all of their intellectual property assets. A special stockholders meeting was called for January 24, 2007 to approve sale of assets and to authorize the dissolution of the Company. Proxies were mailed on or about December 1, 2006. The Board adjourned the meeting without a final vote in for reasons it believed to be in the best interest of the stockholders. The meeting was reconvened on February 21, 2007. The vote required to approve the asset sale and dissolution was a majority of the shares outstanding on the record date. The dissolution proposal was contingent upon approval of the asset sale. A total of 1,533,452 shares voted on the asset sale proposal, of which 1,440,708 shares were voted in favor, 82,318 shares voted against and 10,424 votes abstained. Although the votes cast on the proposal to sell the assets was overwhelmingly in favor thereof, the requisite vote was not obtained. As a result, the proposal regarding dissolution was not presented to a vote of stockholders.
On April 25, 2007, pursuant to a Common Stock Purchase Agreement dated April 25, 2007, the Company sold to a group of investors, in a private transaction, an aggregate of 1,623,661 shares for an aggregate purchase price of $422,152, of which $259,786 was placed into escrow and was released ten days after the closing of the sale of assets to DTS.
The Company re-solicited a vote on the sale of assets to DTS in the second quarter of 2007. The Asset Purchase Agreement and the transactions contemplated therein were approved by the stockholders of the Company at a special meeting on June 15, 2007. The Asset Purchase Agreement was consummated with DTS on July 2, 2007. Upon the conclusion of a nine month indemnification period, the Company distributed $0.21/share, substantially all of its remaining cash assets, to its stockholders, after satisfying its liabilities and leaving an approximate $100,000 cash residual. The Company has no plans to dissolve.
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The company effectuated a 1 for 10 reverse split during the fiscal year 2008, resulting in 6,500,000 outstanding shares vs. 65,000,000 at the end of fiscal 2007.
Our financial statements contain information relating to our revenues, loss and total assets for the fiscal year ended December 31, 2009.
Licensing Activities
We ceased all licensing activities in 2007 and all material license agreements were sold to DTS, Inc. on July 2, 2007.
As of July 2, 2007, the date of the asset sale, our technology had been incorporated in products offered by more than 105 separate OEM Licensees and customers on various economic and business terms. Some of these OEM Licenses required a license issuance fee and/or a separate per unit royalty, while others were licensed under the Logo Usage Agreement (“LUA”) or were authorized customers under bundled royalty licenses.
In 2007, two major customers, Sharp and Samsung, presented in no particular order of importance, each accounted for 10% or more of our total royalty revenues. One OEM accounted for 83% and one accounted for 12% of our royalty revenues during 2007. All other OEMs accounted for less than 5% of royalty revenues individually.
Customers, Revenues and Expenses
We generated revenues in our audio business from royalties pursuant to our OEM and other licenses, and from non-recurring engineering fees to port our technologies to specific licensees’ applications. Our royalty revenues, which totaled $750,000 in 2007, were derived entirely from Foundry and OEM license fees and royalties.
Historically, we sought to maximize return on our intellectual property base by concentrating our efforts in higher margin licensing and software products and eliminating our hardware product operations. Licensing operations have been managed internally by our personnel and through use of an international sales representative force.
In 2007, revenues increased as compared with the prior year due to a one time extension of an existing license agreement in which the initial authorized usage had been exhausted and replenishment was necessary. With the sale of assets described above, revenues declined to $0.
Competition
We competed with a number of entities that produce various audio enhancement processes, technologies and products, some utilizing traditional two-speaker playback, others utilizing multiple speakers, and others restricted to headphone listening. These include the consumer versions of multiple speakers, matrix and discrete digital technologies developed for theatrical motion picture exhibition (like Dolby Digital ® , Dolby ProLogic ® , and DTS ® ), as well as other technologies designed to create an enhanced stereo image from two or more speakers.
Our principal competitors in the field of virtual audio were SRS Labs, Inc. and Dolby Laboratories, Inc. In addition, some DSP foundries and OEMs have proprietary virtual audio technologies that they regularly offer to OEMs at no cost. These companies had substantially greater resources than us to devote to further technologies and new product developments.
We were unable to compete in this market, even though we offered a single source, complete suite of patented and proprietary 3D Stereo, interactive positional, virtual surround sound, headphone and speaker virtualization technologies. We lacked sufficient financial resources to compete, our customers were too strong, we were closely dependent on third party licensee marketing plans which generally presented a longer or uncertain revenue stream than our cash resources could support and found the market less receptive to our value proposition than we had expected. This resulted in an inhospitable market for our products and we could not compete.
Research and Development
Our research and development expenditures in 2008, 2007 and 2006 were approximately 0%, 0% and 23% of total operating expenses, respectively. These expenses consisted of salaries and related costs of employees and consultants engaged in ongoing research, design and development activities and costs for engineering materials and supplies.
From May 2006 onward, we had no employees in our R&D group, based on our board of directors’ decision to offer our assets for sale. We discontinued our technology development in December 2005 and support efforts in May 2006 when the sole engineer resigned. As a result, there were no such expenditures in 2007 or 2008.
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Intellectual Property and Proprietary Information
We relied on a variety of intellectual property protections for our products and services, including patent, copyright, trademark and trade secret laws, and contractual obligations. All of our intellectual property was sold to DTS, Inc. on July 2, 2007.
Employees
We began 2009 with no full time employees and two part time employee and ended 2009 with no full time employees and three part time employees.
Item 1A. Risk Factors
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting management’s current expectations. Examples of such forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals or any transactions described herein will be realized. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of our company. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption “Factors That May Affect Future Results” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, herein, among others, would cause actual results to differ materially from those indicated by forward-looking statements made herein and represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. We assume no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.
Our business environment was very competitive, which impacted us in various ways, namely to cease operations and sell the assets of the Company and those of Desper Products, Inc. As a result of the consummation of that asset sale, the following risk factors became more relevant:
The Company Has No Means to Generate Revenue
We have no source of revenue. After the contractual nine month indemnification period relating to the sale of assets on July 2, 2007, we distributed the remaining cash assets of the company, other than an approximate $100,000 cash residual, in April 2008. This cash balance has been further diminished during the remainder of 2008 and 2009 by general and administrative expenses.
A New Management Group, Involved in the April 25, 2007 Stock Offering, Took Control of the Company After the Cash Distribution; No Funding Source or Business Model Has Been Revealed. Existing Stockholders have been Diluted
Upon distribution of the cash assets, each of Messrs. Mandell and Civelli resigned from the Board of Directors and the new investor group involved in the April 25, 2007 stock offering took control of the management of the Company. The new investors in the Company have not yet brought forth their own plan in the future regarding the direction of the Company. Should management believe it is in the Company’s and stockholders’ best interests to raise additional financing to pursue new business opportunities, new financing is likely to dilute existing stockholders.
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The Market For Our Stock Is Not Liquid And The Stock Price Is Subject To Volatility
Our stock is quoted on the OTC Bulletin Board, where low trading volume and high volatility is often experienced. While a few firms make a market in our stock, the historically low trading volume and relatively few market makers of our stock makes it more likely that a severe fluctuation in volume, either up or down, will significantly impact the stock price. There can be no assurance that these market makers will continue to quote our stock and a reduction in such market makers would negatively impact trading liquidity. Further, with our constrained resources and increased cost and time associated with implementation of Sarbanes-Oxley, it may not be possible for us to remain listed on the OTC Bulletin Board in the future as a fully reporting company. Lastly, the uncertainty of the future of the Company may limit the liquidity of our stock. This and the existing limited market and volume in the trading of our stock, may result in our stockholders having difficulty selling our common stock. The trading price of our Common Stock has been, and will likely continue to be, subject to wide fluctuations in response to possible claims arising from our asset sale, the uncertainty of the future of the Company, general market fluctuations and other events and factors, some of which may be beyond our control.
Item 2. Properties
We have no leased facilities as of December 31, 2009.
Item 3. Legal Proceedings
From time to time we were involved in various disputes and litigation matters arising in the normal course of business. As of the date of this Form 10-K Annual Report, we are not involved in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Common Stock was listed and commenced trading on the NASDAQ SmallCap market on August 21, 1995 under the symbol “SPAZ”. In January 1999, the Common Stock was delisted by the NASDAQ SmallCap Market due to our inability to maintain listing requirements. Our Common Stock immediately commenced trading on the OTC Bulletin Board under the same symbol. The following table sets forth the high and low bid price of our Common Stock as reported on the OTC Bulletin Board for fiscal years 2008 and 2009. The quotations listed below reflect interim dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions Since November 21, 2008 the new stock symbol is SPZR.
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Period:
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High (U.S. $)
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Low (U.S. $)
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2008
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First Quarter
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$
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0.58
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$
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0.14
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Second Quarter
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$
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0.58
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$
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0.18
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Third Quarter
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0.24
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0.15
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Fourth Quarter
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$
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0.18
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0.05
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2009
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First Quarter
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$
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0.32
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$
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0.04
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Second Quarter
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$
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0.06
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$
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0.0025
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Third Quarter
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0.11
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$
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0.0027
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Fourth Quarter
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0.07
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0.01
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On March 29, 2010, the closing price reported by the OTC Bulletin Board was U.S. $0.01 per share. Stockholders are urged to obtain current market prices for our Common Stock. Corporate Stock Transfer is our transfer agent and registrar. The Company had a 1 for 10 reverse split of its stock on November 21, 2008, which split is reflected in the above table. Likewise, share and per share data disclosed in the remainder of this report have been restated to reflect the results of this split, unless otherwise noted.
To our knowledge, because most shares are held in street name, there were approximately 200 holders of record of the stock of the Company as of March 18, 2010. Our transfer agent has indicated that beneficial ownership is believed to be in excess of 2,000 stockholders.
Other than the $0.21 cash distribution in April 2008, we have not paid any cash dividends on our Common Stock and have no present intention of paying any dividends. Our current policy is to retain earnings, if any, for operations in connection with selling the Company as a shell corporation, maintain our status as a reporting company and/or merge the Company successfully into a new operating business. Our future dividend policy will be determined from time to time by the Board of Directors.
The Company did not repurchase any equity securities during the fourth quarter of the fiscal year ended December 31, 2009.
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Item 6. Selected Financial Data
Not Applicable
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Overview
There was no revenue for the year ended December 31, 2009 compared to $0 for the year ended December 31, 2008 As we sold all of our operating assets in 2007, we have no means to generate new revenues.
Net loss was $59,000 for the year ended December 31, 2009 compared to net loss was $144,000 for the year ended December 31, 2008.
At December 31, 2009, we had $2,000 in cash and cash equivalents, as compared to $67,000 at December 31, 2008. We had working capital of ($10,000) at December 31, 2009 as compared with working capital of $48,000 at December 31, 2008.
Our current policy is to retain earnings, if any, for operations in connection with selling the Company as a shell corporation, maintain our status as a reporting company and/or merge the Company successfully into a new operating business.
Approach to MD&A
The purpose of MD&A is to provide our shareholders and other interested parties with information necessary to gain an understanding of our financial condition, changes in financial condition and results of operations. As such, we seek to satisfy three principal objectives:
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to provide a narrative explanation of a company’s financial statements “in plain English” that enables the average investor to see the company through the eyes of management;
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to enhance the overall financial disclosure and provide the context within which financial information should be analyzed; and
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to provide information about the quality of, and potential variability of, a company’s earnings and cash flow, so that investors can ascertain the likelihood and relationship of past performance being indicative of future performance.
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We believe the best way to achieve this is to give the reader:
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An understanding of our operating environment and its risks
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An outline of critical accounting policies
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A review of our corporate governance structure
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A review of the key components of the financial statements and our cash position and capital resources
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A review of the important trends in the financial statements and our cash flow
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Disclosure on our internal controls and procedures
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Operating Environment
We have had no source of revenue since the beginning of third quarter 2007. Based on current and projected operating levels, we do not believe that we can maintain our liquidity position at a consistent level, on a short-term or long-term basis, without a new business model and outside funding.
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Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations are based upon our consolidated statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Our unaudited and audited financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s current circumstances, including the sale of all its revenue generating assets and significant operating losses, raise substantial doubt about the likelihood that the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Key Components of the Financial Statements and Important Trends
The Company’s financial statements, including the Consolidated Balance Sheets, the Consolidated Statements of Operations, the Consolidated Statements of Cash Flows and the Consolidated Statements of Stockholders’ Equity, should be read in conjunction with the Notes thereto included elsewhere in this report. MD&A explains the key components of each of these financial statements, key trends and reasons for reporting period-to-period fluctuations.
The Consolidated Balance Sheet provides a snapshot view of our financial condition at the end of our latest fiscal year. A balance sheet helps management and our stockholders understand the financial strength and capabilities of our business. Balance sheets can help identify and analyze trends, particularly in the area of receivables and payables. A review of cash balances compared to the prior years and in relation to ongoing profit or loss can show the ability of the Company to withstand business variations. The difference between Current Assets and Current Liabilities is referred to as Working Capital and measures how much in liquid assets a company has available to build its business. Receivables that are substantially higher than revenue for the quarter may indicate a slowdown of collections, with an impact on future cash position. This is addressed further in MD&A under Liquidity and Capital Resources.
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The Consolidated Statement of Operations tells the reader whether the Company had a profit or loss. It shows key sources of revenue and major expense categories. It is important to note period-to-period comparisons of each line item of this statement, reasons for any fluctuation and how costs are managed in relation to the overall revenue trend of the business. These statements are prepared using accrual accounting under generally accepted accounting standards in the United States. This is addressed further in MD&A under Revenues and Expenses.
The Consolidated Statement of Cash Flows explains the actual sources and uses of cash. Some expenses of the Company, such as depreciation and amortization, do not result in a cash outflow in the current period, since the underlying patent expenditure or asset purchase was made years earlier. New capital expenditures, on the other hand, result in a disbursement of cash, but will be expensed in the Consolidated Statement of Operations over their useful lives. Fluctuations in receivables and payables also explain why the net change in cash is not equal to the net loss reported on the Statement of Operations. Therefore, it is possible that the impact of a net loss on cash is less or more than the actual amount of the loss. This is discussed further in MD&A under Liquidity and Capital Resources.
The Consolidated Statement of Changes in Stockholders’ Equity shows the impact of the operating results on the Company’s equity. In addition, this statement shows new equity brought into the Company through stock sales or stock option exercise. This is discussed further in MD&A under Liquidity and Capital Resources.
Results of Operations
The following discussion and analysis relates to our results of operations for the year ended December 31, 2008 compared to the year ended December 31, 2007, and the year ended December 31, 2007 compared to the year ended December 31, 2006. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this report.
Continuing Operations
For the Year Ended December 31, 2009, Compared to the Year Ended December 31, 2008
Revenues
There were no revenues for the years ended December 31, 2009 and December 31, 2008.
Operating Expenses
Operating expenses for the year ended December 31, 2009 decreased to $56,000 from $151,000 for the year ended December 31, 2008, a decrease of 62%. The decrease in operating expenses resulted from a decrease in general and administrative expense due to the suspension of operations.
Net Loss
The net loss was $59,000 for the year ended December 31, 2009, compared to a net loss of $144,000 for the year ended December 31, 2008.
Liquidity and Capital Resources
At December 31, 2009, we had $1,800 in cash and cash equivalents as compared to $66,800 at December 31, 2008.. We had working capital of ($10,000) at December 31, 2009 as compared with working capital of $48,000 at December 31, 2008.
As previously disclosed, pursuant to an Asset Purchase Agreement, we sold substantially all of our assets and those of our wholly-owned subsidiary, DPI (excluding certain assets, such as cash), to a wholly-owned subsidiary of DTS, Inc. This transaction was approved by the stockholders on June 15, 2007, and was closed on July 2, 2007.
There is no current source of future cash flow for the Company as we sold substantially all of our audio assets and those of our wholly-owned subsidiary, Desper Products, Inc., on July 2, 2007.
In September 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly owned subsidiary thereof pursuant to which we agreed to sell substantially all of our assets (other than certain excluded assets, such as cash). The consummation of the asset sale was subject to approval of holders of a majority of the outstanding shares of the Common Stock of the Company. In April 2007, the Company sold an aggregate of 16,236,615 shares (1,623,662 shares after the 1-for-10 reverse stock split effected in December, 2008) of its Common Stock to certain investors.
The Company held a special meeting of stockholders on June 15, 2007 to vote on the asset sale transaction but not with respect to the dissolution of the Company. The asset sale transaction was approved. The asset sale transaction closed on July 2, 2007. $0.21/share, or $1,365,000, was distributed to shareholders in April 2008 upon completion of a 270 day escrow period.
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Our current policy is to retain earnings, if any, for operations in connection with selling the Company as a shell corporation, maintain our status as a reporting company and/or merge the Company successfully into a new operating business.
Net Operating Loss Carryforwards
At December 31, 2009, we had net operating loss carryforwards for Federal income tax purposes of approximately $21,000,000 which are available to offset future Federal taxable income, if any, through 2015. Approximately $20,700,000 of these net operating loss carryforwards are subject to an annual limitation of approximately $1,000,000. Utilization of these loss carryforwards is subject to further limitation as a result of change in ownership of the Company, as defined by Federal tax law.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are not exposed to material future earnings or cash flow fluctuations from changes in interest rates at December 31, 2009 because of our suspension of operations. We have not entered into any derivative financial instruments to manage interest rate risk or for speculative purposes and we are not currently evaluating the future use of such financial instruments.
Item 8. Financial Statements and Supplementary Data
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Spatializer Audio Laboratories, Inc.:
We have audited the accompanying consolidated balance sheets of Spatializer Audio Laboratories, Inc. and subsidiaries (“Company”) as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended then. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements 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 financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spatializer Audio Laboratories, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s circumstances raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RAMIREZ INTERNATIONAL
Financial & Accounting Services, Inc.
Irvine, California
March 30, 2010
12
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
December 31, 2009
|
December 31, 2008
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and Cash Equivalents
|
$ | 1,792 | $ | 66,833 | ||||
|
Prepaid Expenses and Other Current Assets
|
0 | 2,842 | ||||||
|
Total Current Assets
|
$ | 1,792 | $ | 69,675 | ||||
|
Total Assets
|
$ | 1,792 | $ | 69,675 | ||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accounts Payable
|
$ | 11,867 | $ | 5,206 | ||||
|
Accrued Professional Fees
|
0 | 16,000 | ||||||
|
Total Current Liabilities
|
$ | 11,867 | $ | 21,206 | ||||
|
Commitments and Contingencies
|
||||||||
|
Stockholders’ Equity (Deficit):
|
||||||||
|
Common stock, $0.01 par value; 300,000,000 shares authorized; 6,500,000 sharesissued and outstanding.
|
$ | 650,000 | $ | 650,000 | ||||
|
Additional Paid-In Capital
|
46,634,856 | 46,634,856 | ||||||
|
Accumulated Deficit
|
(47,294,931 | ) | (47,236,387 | ) | ||||
|
Total Stockholders’ Equity
|
$ | (10,075 | ) | $ | 48,469 | |||
|
Total Liabilities and Stockholders’ Equity
|
$ | 1,792 | $ | 69,675 | ||||
13
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Year Ended December 31
|
||||||||
|
2009
|
2008
|
|||||||
|
Operating Expenses:
|
||||||||
|
General and Administrative
|
$ | 55,569 | $ | 151,441 | ||||
|
Operating Income (Loss)
|
$ | (55,569 | ) | $ | (151,441 | ) | ||
|
Interest Income
|
$ | 0 | $ | 12,684 | ||||
| $ | 0 | $ | 12,684 | |||||
|
Loss before income taxes
|
$ | (55,569 | ) | $ | (138,793 | ) | ||
|
Income Taxes
|
(2,975 | ) | (4,843 | ) | ||||
|
Net Loss
|
$ | (58,544 | ) | $ | (143,636 | ) | ||
|
Basic and Diluted Loss per Share
|
$ | (.01 | ) | $ | (.02 | ) | ||
|
Weighted-Average Shares Outstanding
|
6,500,000 | 6,500,000 | ||||||
See accompanying notes to consolidated financial statements
14
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Year Ended December 31
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net Loss
|
$
|
(58,544)
|
$
|
(143,636)
|
||||
|
Adjustments to Reconcile Net Loss to Net Cash (Used) by Operating Activities:
|
||||||||
|
Net Change in Assets and Liabilities:
|
||||||||
|
Prepaid Expenses, Deposits and Other Assets
|
2,842
|
20,146
|
||||||
|
Accounts Payable
|
6,661
|
4,307
|
||||||
|
Accrued Expenses and Other Liabilities
|
(16,000
|
)
|
(31,003
|
)
|
||||
|
Net Cash Provided (Used) by Operating Activities
|
(65,041)
|
(150,186)
|
||||||
|
Cash Flows from Investing Activities:
|
||||||||
|
Short Term Investments
|
0
|
1,000,000
|
||||||
|
Net Cash Provided (Used) by Investing Activities
|
0
|
1,000,000
|
||||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Cash Distribution
|
0
|
(1,365,000)
|
||||||
|
Net Cash Provided (Used) by Financing Activities
|
0
|
(1,365,000)
|
||||||
|
Increase (Decrease) in Cash and Cash Equivalents
|
(65,041)
|
(515,186)
|
||||||
|
Cash and Cash Equivalents, Beginning of Year
|
66,833
|
582,019
|
||||||
|
Cash and Cash Equivalents, End of Year
|
$
|
1,792
|
$
|
66,833
|
||||
|
Supplemental Disclosure of Cash Flow Information:
|
||||||||
|
Cash Paid During the Year for:
|
||||||||
|
Income Taxes
|
$
|
2,975
|
$
|
4,843
|
||||
See accompanying notes to consolidated financial statements
15
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
Common Shares
|
||||||||||||||||||||
|
Number of Shares
|
Par Value
|
Additional
Paid-In-Capital
|
Accumulated Deficit
|
Total
Stockholders’ Equity
|
||||||||||||||||
|
Balance, December 31, 2007
|
6,500,000
|
$
|
650,000
|
$
|
46,634,856
|
$
|
(45,727,751
|
)
|
$
|
1,557,105
|
||||||||||
|
Distributions to Stockholders
|
(1,365,000)
|
(1,365,000)
|
||||||||||||||||||
|
Net Loss
|
(143,636
|
)
|
(143,636
|
)
|
||||||||||||||||
|
Balance, December 31, 2008
|
6,500,000
|
$
|
650,000
|
$
|
46,634,856
|
$
|
(47,236,387
|
)
|
$
|
48,469
|
||||||||||
|
Net Loss
|
(58,544
|
)
|
(58,544
|
)
|
||||||||||||||||
|
Balance, December 31, 2009
|
6,500,000
|
$
|
650,000
|
$
|
46,634,856
|
$
|
(47,294,931
|
)
|
$
|
(10,075
|
)
|
|||||||||
See accompanying notes to consolidated financial statements
16
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Ability to Continue as a Going Concern; Sale of Substantially All Assets
Spatializer was a developer, licensor and marketer of next generation technologies for the consumer electronics, personal computing, entertainment and cellular telephone markets. The Company’s wholly-owned subsidiary, Desper Products, Inc. (“DPI”), was in the business of developing proprietary advanced audio signal processing technologies and products for consumer electronics, entertainment, and multimedia computing. All Company revenues were generated from DPI. DPI was dissolved during December, 2008.
On September 18, 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly owned subsidiary thereof pursuant to which the Company and DPI agreed to sell substantially all of their intellectual property assets.
The Asset Purchase Agreement and the transactions contemplated therein were approved by the stockholders of the Company at a special meeting on June 15, 2007. The Asset Purchase Agreement was consummated with DTS on July 2, 2007. Upon the conclusion of a nine month indemnification period, the Company distributed substantially all of its remaining cash assets to its stockholders, after satisfying its liabilities and leaving a cash residual of approximately $100,000.
The foregoing financial information has been prepared assuming that the Company will continue as a going concern. As a result of the sale of substantially all of the Company’s assets as discussed above, the Company is now a shell company and its future plans are uncertain. These circumstances raise substantial doubt about the likelihood that the Company will continue as a going concern. The foregoing financial information does not include any adjustments that might result from the outcome of this uncertainty.
(2) Significant Accounting Policies
Basis of Consolidation — The consolidated financial statements include the accounts of Spatializer Audio Laboratories, Inc. and its wholly-owned subsidiary, Desper Products, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents — Cash equivalents consist of highly liquid investments with original maturities of three months or less.
17
Earnings Per Share — The Company determines earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share (“SFAS 128”). Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.
Since the Company generated net losses in 2009 and 2008, outstanding stock options would have been anti-dilutive and were not applicable to these calculations.
Stock Option Plan — On January 1, 2006 the Company adopted SFAS 123R, Share Based Payment , using the modified prospective transition method to account for changes to the method of accounting for options outstanding at the effective date.
Income Taxes — Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Use of Estimates — Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Fair Value of Financial Instruments — The carrying values of cash equivalents, accounts payable and accrued liabilities at December 31, 2009 and 2008 approximated fair value due to their short maturity or nature.
(3) Shareholders’ Equity
The Company effected a 1-for-10 reverse stock split as of November 21, 2008. Accordingly, all common share data in the accompanying consolidated financial statements have been restated to reflect the effects of the split.
On April 25, 2007, pursuant to a Common Stock Purchase Agreement dated April 25, 2007, the Company sold to a group of investors, in a private transaction, an aggregate of 1,623,661 shares for an aggregate purchase price of $162,366. At the closing of the stock sale, the investors delivered into escrow an additional contingent amount of $259,786. Such escrowed funds were released to the Company on July 16, 2007, within the prescribed period after the closing of the transactions contemplated by the Asset Purchase Agreement described in Note 1. The aggregate purchase price of the shares, net of transaction costs of $48,823, was recorded as common stock and additional paid-in capital.
In April 2008, a distribution was made to shareholders of $1,365,000, or $0.21/share.
18
(4) Stock Options
In 1995, the Company adopted a stock option plan (the “Plan”) pursuant to which the Company’s Board of Directors may grant stock options to directors, officers and employees. The Plan was approved by the stockholders authorizes grants of options to purchase authorized but unissued common stock up to 10% of total common shares outstanding at each calendar quarter. Outstanding stock options under the Plan have five-year terms and vest and become fully exercisable up to three years from the date of grant. The Plan expired in February 2005 and no additional stock option grants have been made. The Company has not adopted a new stock option plan subsequently.
|
Weighted-Average
|
||||||||
|
Shares
|
Exercise Price
|
|||||||
|
Options outstanding at December 31, 2007
|
115,0000
|
$
|
.80
|
|||||
|
Options granted
|
||||||||
|
Options exercised
|
$
|
—
|
||||||
|
Options forfeited/expired
|
(55,000
|
)
|
$
|
.60
|
||||
|
Options outstanding at December 31, 2008
|
60,000
|
$
|
.98
|
|||||
|
Options granted
|
||||||||
|
Options exercised
|
$
|
—
|
||||||
|
Options forfeited/expired
|
(10,000
|
)
|
$
|
1.00
|
||||
|
Options outstanding at December 31, 2009
|
50,000
|
$
|
1.00
|
|||||
Net compensation cost for the years ended December 31, 2009 and 2008 was $0, as determined using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield — 0%; risk-free interest rate of 2.2%, expected volatility of 100% and an expected life of one year.
At December 31, 2009 and 2008, the number of options exercisable and fully vested was 60,000 and 50,000, respectively.
(5) Income Taxes
The Company files a consolidated return for U.S. income tax purposes. Income tax expense for the years ended December 31, 2009 and 2008 consisted of the following:
|
2009
|
2008
|
|||||||
|
State franchise tax
|
$
|
2,975
|
$
|
4,843
|
||||
|
Federal taxes
|
0
|
0
|
||||||
|
Total
|
$
|
2,975
|
$
|
4,843
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets is composed primarily of the net loss carry forwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, management believes it is more likely than not the Company will not realize the benefits of these deductible differences and has established a valuation allowance to fully reserve the deferred tax assets at December 31, 2009 and 2008. Additionally, the ultimate realizability of net operating losses may be limited by change of control provisions under Section 382 of the Internal Revenue Code.
(6) Subsequent Events
The Company has evaluated subsequent events through March 30, 2010, the date on which the accompanying financial statements were available to be issued. Jay Gottlieb, the Company President and Gregg Schneider loaned the company a total of $32,500 in January and February 2010 in order to fund operations. No other material subsequent events have occurred since December 31, 2009 that require recognition or disclosure in the financial statements.
19
(7) Quarterly Financial Data (unaudited)
Following is a summary of the quarterly results of operations for the years ended December 31, 2009 and 2008, with the information the first three quarters of 2008 restated to reflect separately the results of the Company’s discontinued operations related to disposed assets, as described in Notes 1 and 7:
|
Quarter Ended
|
||||||||||||||||
|
2008
|
March 31
|
June 30
|
September 30
|
December 31
|
||||||||||||
|
Net Revenues
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||
|
Gross Margin
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||
|
Net Income (Loss)
|
$
|
(64,391
|
)
|
$
|
(36,484
|
)
|
$
|
(7,747
|
)
|
$
|
(35,014
|
)
|
||||
|
Basic Income (Loss) Per Share
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||||
|
Quarter Ended
|
||||||||||||||||
|
2009
|
March 31
|
June 30
|
September 30
|
December 31
|
||||||||||||
|
Net Revenues
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||
|
Gross Margin
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||
|
Net Income (Loss)
|
$
|
(21,716
|
)
|
$
|
(13,629
|
)
|
$
|
(4,501
|
)
|
$
|
(18,698
|
)
|
||||
|
Basic (Loss) Per Share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
||||
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
On July 22, 2009, the Company announced that the Board of Directors of the Company had by mutual consent terminated the appointment of Ramirez International Financial & Accounting Services, Inc. (Ramirez International) as independent accountants of the Company, and appointed the firm of Schumacher & Associates, Inc. as the new independent accountants of the Company.
On December 30, 2009, the Company announced that the Board of Directors of the Company by mutual consent had terminated the appointment of Schumacher & Associates, Inc. (“Schumacher”) as independent certifying accountants of the Company, and appointed the firm of Ramirez International Financial & Accounting Services, Inc. as the new independent certifying accountants of the Company. The Company stated in its December 30, 2009 Form 8-K that, during its two most recently completed fiscal quarters ended June 30 and September 30, 2009 and through the termination date of December 30, 2009, there were two disagreements between Schumacher and the Company.
The first disagreement involved whether the Company should be presenting its financial statements as a development stage company. The second involved the valuations associated with the Company’s July 7, 2009 stock issuance which dispute culminated in the voiding of the transaction as discussed in the Company’s Form 8-K filed November 23, 2009.
With regard to the first disagreement, Schumacher believed that the Company may be a development stage company. The Directors believe the Company is not a development stage company and that this presentation is therefore unnecessary.
With regard to the second disagreement, the valuation issue, Schumacher believed that alternative valuation methods should be used when there is minimal active market trading, and as such, suggested the valuation be based on the sale of control of comparable shell companies. When an outside consultant noted that the price per share paid was below the Company’s .01 par value per share, an ultra vires act, an immediate rescission was affected thereby voiding the prior transaction. Since this transaction occurred and was rescinded within the Company’s third quarter, no restatement for prior periods is required.
20
Item 9A(T). Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for the preparation, integrity and fair presentation of its published consolidated financial statements. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles and, as such, include amounts based on judgments and estimates made by management. The Company also prepared the other information included in the annual report and is responsible for its accuracy and consistency with the consolidated financial statements.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting includes those policies and procedures that pertain to the Company’s ability to record, process, summarize and report reliable financial data. The Company maintains a system of internal control over financial reporting, which is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation of reliable published financial statements and safeguarding of the Company’s assets. The system includes a documented organizational structure and division of responsibility, established policies and procedures, including a code of conduct to foster a strong ethical climate, which are communicated throughout the Company, and the careful selection, training and development of our people.
The Board of Directors is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Board of Directors is responsible for the appointment and compensation of the independent registered public accounting firm. Corrective actions are being taken to address control deficiencies and other opportunities for improving the internal control system as they are identified.
Management recognizes that there are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
The Company assessed its internal control system quarterly and as of December 31, 2009 in relation to criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934. Based on its assessment, the Company believes that, as of the date of this report, its system of internal control over financial reporting as well as the disclosure controls and procedures was effective.
All bills are sent to the bookkeeper and the President/CEO authorizes all expenditures, checks are then drawn by the bookkeeper for payment based on such authorization and, finally, the CFO actually signs the check and distributes. The President/CEO has never signed a The bookkeeper has no check signing authority. . As of the date of this annual report, the Chairman of the Board and President, acting as the principal executive officer and its principal financial officer of the Company, have concluded that our system of internal control over financial reporting and disclosure controls and procedures as of December 31, 2008 were effective.
21
The consolidated financial statements have been audited by the independent registered public accounting firm of Ramirez International Financial & Accounting Services, Inc., which was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders and the Board of Directors. The report of the Company’s independent registered public accounting firm is presented within this annual report. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Director, Executive Officers and Corporate Governance
Directors and Officers
Michael Pearce, age 48, is Chairman of Pernix Therapeutics Holdings, Inc (NYSE Amex:PTX), a specialty pharmaceutical company. From November 2007 to March 2010, he was Chairman and Chief Executive Officer of Golf Trust of America, Inc. (NYSE Amex:GTA). Mr. Pearce has been a private investor in various companiessince 2002, with emphasis in distressed securities of publicly traded entities. From late 1999 through 2001, he served as Chief Executive Officer of iEntertainment Network. From 1996 to 1998, he served as Senior Vice President of Sales and Marketing of publicly traded VocalTec Communications, later returning in 1999 in a consulting capacity to its Chairman on matters pertaining to strategic alternatives, business development and mergers and acquisitions. From 1983 to 1996, he was employed in various technology industry management positions, including Senior Vice President of Sales and Marketing at Ventana Communications, a subsidiary of Thomson Corporation; Vice President of Sales at Librex Computer Systems, a subsidiary of Nippon Steel; and National Sales Manager at Hyundai Electronics America. From 1979 to 1983, he attended Southern Methodist University.
Gregg Schneider , age 34, is a private investor who specializes in undervalued publicly traded securities. During the past fourteen years, Mr. Schneider has been an active dealer in numismatic items, specializing in U.S. rare coins and currency. Mr. Schneider attended two years of courses at UCLA and is involved in several charitable organizations.
Jay Gottlieb, age 65, has been a director since May 2007. Mr. Gottlieb has been a private investor in various companies since 1998. He is involved in analysis and investment in undervalued special situations and shell corporations. He presently owns between 5% and 21% of 10 public companies and is a member of the Board of Directors of the Company. From 1992 to 1998 he was the editor of an investment service that analyzed and published extensive data on companies planning initial public offerings. From 1977 to 1991, Mr. Gottlieb was the President and Chairman of the Board of The Computer Factory, Inc., a nationwide organization involved in retail and direct sales, servicing and leasing of personal computers. From 1969 to 1988, he was President of National Corporate Sciences, Inc., a registered investment advisory service. Mr. Gottlieb holds a Bachelor of Arts from New York University.
Joshua Krom, age 33, is the President of Realty Asset Management, LLC, a full service real estate company which has specialized in acquiring and rapidly repositioning distressed properties with the goal of maximize its investors’ returns. Mr. Krom has significant experience in the financial analysis of residential portfolios, retail, industrial and apartment buildings. He is a member of some of the most prominent national Real Estate Owned organizations. Prior to forming Realty Asset Management, LLC, Mr. Krom practiced real estate and corporate law. He is a licensed attorney and real estate broker in California and a licensed real estate broker in Nevada. Mr. Krom received his Juris Doctorate degree from Emory University School of Law where he was a Dean’s Honors recipient. He graduated with High Honors from the University of California, Santa Barbara where he received a Bachelor of Arts Degree in Communications.
22
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3 and 4 furnished to us during the fiscal year ended December 31, 2009, we are not aware of any director, officer or beneficial owner of more ten percent (10%) of the Common Stock of the Company who failed to file on a timely basis any reports required by Section 16(a) of the Securities Exchange Act of 1934.
Code of Ethics
We adopted a Code of Ethics that applies to all of our directors, officers and employees, including our Chief Executive Officer, our Chief Financial Officer and, in the future, any other officers. The Company will provide a copy of our code of ethics to any person, free of charge, upon written request sent to our principal corporate office at 410 Park Avenue—15 th Floor, New York, New York 10032.
Corporate Governance
Mr. Pearce is currently considered independent, as defined in the NASD listing standards, and met the criteria for independence set forth in the rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Since 2005, no members have been nominated or appointed to the Audit Committee. In fact, the entire Board is acting in lieu of the Audit Committee and held four meetings during 2009.
Item 11. Executive Compensation
Compensation Discussion and Analysis
The Company does not currently have any full-time employees. The following summarizes payments made to Mr. Mandell, the former sole officer of the Company and its two part-time officers (both of whom are unpaid). The following table sets forth information concerning the compensation of Mr. Mandell, the only executive officer and employee of the Company during fiscal 2008 (until his resignation in April 2008).'
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
|
Year
|
Salary
|
Options Awards
|
Bonus
|
All Compensation
|
Total
|
||||||||||||||||
| Henry R. Mandell | ||||||||||||||||||||||
|
Former Chairman and Sole Officer
|
2009
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||
|
2008
|
$ | 20,108 | $ | 0 | $ | 10,000 | * | $ | 0 | ** | $ | 30,108 | ||||||||||
|
2007
|
$ | 95,000 | $ | 0 | $ | 35,000 | * | $ | 20,000 | ** | $ | 150,000 | ||||||||||
|
2006
|
$ | 90,000 | $ | 0 | $ | 0 | $ | 19,000 | $ | 109,000 | ||||||||||||
| Jay Gottlieb | ||||||||||||||||||||||
|
Chairman of the Board, CEO
|
2009
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||
|
2008
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
|
Gregg Schneider
|
||||||||||||||||||||||
|
Chief Financial Officer
|
2009
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||
|
2008
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
|
(1)
|
Includes bonus of $10,000 for work performed on the company’s 2008 10-K filing and in 2007 for 3.5% of $1,000,000 asset sale amount.
|
|
(2)
|
Cost of health insurance premiums
|
23
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards
|
Number of Securities
|
Number of Securities
|
||||||
|
Underlying
|
Underlying
|
||||||
|
Unexercised
|
Unexercised
|
Weighted Average
|
|||||
|
Options(#)
|
Options(#)
|
Option Exercise
|
Option Expiration
|
||||
|
Exercisable
|
Unexercisable
|
Price($)
|
Date
|
||||
|
50,000
|
50,000
|
$
|
1.00
|
2/21/2010
|
|||
Mr. Mandell did not exercise any options during the fiscal year ended December 31, 2009. All options held by Mr. Mandell were fully vested prior to January 1, 2007.
Director Compensation
None of the Company’s directors received any cash compensation, stock option awards or other arrangements for services provided in their capacity as directors during the fiscal year ended December 31, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information (except as otherwise indicated by footnote) as to shares of common stock owned as of March 30, 2010 or which can be acquired within sixty days of March 30, 2009 by (i) each person known by management to beneficially own more than five percent (5%) of Spatializer’s outstanding common stock, (ii) each of Spatializer’s directors, and officers, and (iii) all executive officers and directors as a group. On March 30, 2009, there were 6,500,000 shares of common stock outstanding.
|
AMOUNT AND
|
||||||||
|
NATURE OF
|
||||||||
|
BENEFICIAL
|
PERCENT OF
|
|||||||
|
NAME OF BENEFICIAL OWNER
|
OWNERSHIP
|
CLASS
|
||||||
|
Jay Gottlieb
|
1,360,000 | 21.0 | % | |||||
|
Greggory A. Schneider(1)(3)
|
941,113 | 14.48 | % | |||||
|
Mike Pearce
|
0 | |||||||
|
All directors and executive officers as a group (3 persons)(1)(4)(5)
|
2,010,311 | 35.48 | % | |||||
|
(1)
|
The persons named in the table have sole voting and investment power with respect to all shares shown to be beneficially owned by them, subject to community property laws, where applicable, and the information contained in the footnotes to this table.
|
|
(2)
|
Based on the Schedule 13-D filed by Mr. Gottlieb with the Securities and Exchange Commission on December 3,2009. Mr. Gottlieb’s address is 27 Misty Brook Lane, New Fairfield, Connecticut 06812.
|
|
(3)
|
Based on the Schedule 13D filed by Mr. Schneider with the Securities and Exchange Commission on April 30, 2008. Mr. Schneider’s address is 10445 Wilshire Blvd., #1806, Los Angeles, California 90024.
|
24
During fiscal 2007, the Company concurrently sold to Mr. Gottlieb 873,911 shares, to Mr. Schneider 427,250 shares and to another third party 322,550 shares of Common Stock , all upon similar terms and conditions. Such persons have disclaimed being a “group” for Schedule 13D reporting purposes. The shares so acquired, together with shares previously acquired by certain of such persons in the open market, represent, in the aggregate, more than 35% of the issued and outstanding shares of the Company’s Common Stock.
Item 13. Certain Relationships and Related Transactions, and Director Independence
At this time, the Company has only two part-time employees (both unpaid officers) and an ad hoc bookkeeper. It has four directors, one of whom would be defined as independent in the NASD listing standards, and met the criteria for independence set forth in the rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has no formal policy in place as to the procedure for approving any transactions between the Company and its related persons (including officers, directors and stockholders). In the event that the Company should undertake any transaction that would require disclosure under this section, the Company may consider, in light of all then existing facts and circumstances, whether stockholder approval thereof should be sought.
Item 14. Principal Accountant Fees and Services
The following summarizes the fees paid or payable to Ramirez International Financial & Accounting Services, Inc. the principal accountant in connection with services related to the fiscal years ended December 31, 2009 and 2008:
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Audit Fees (1)
|
$
|
8,000
|
$
|
10,000
|
||||
|
Audit Related Fees (2)
|
2,500
|
7,500
|
||||||
|
All Other Fees
|
||||||||
|
Total Fees
|
$
|
10,500
|
$
|
17,500
|
||||
|
(1)
|
Audit Fees are fees for professional services rendered for the annual audit and services normally provided in connection with statutory and regulatory filings.
|
|
(2)
|
Relates to reviews of financial statements included in Form 10-Q filings.
|
The Company also paid fees of $5,050 to Schumacher & Associates in connection with the review of financial statements for the second and third quarters of 2009.
Since 2006, the Board of Directors’ Audit Committee has had no members. Thus, the Company’s Board of Directors has been and will be responsible for serving in the capacity of the Audit Committee and approving audit and non-audit services to be rendered by the Company’s independent auditor until such time, if any, as members may be appointed to the Audit Committee.
25
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
See Item 8.
(b) Exhibits
The following Exhibits are filed as part of, or incorporated by reference into, this Report:
|
Exhibit Number
|
Description
|
|
|
2.1
|
Arrangement Agreement dated as of March 4, 1994 among Spatializer-Yukon, DPI and Spatializer-Delaware (Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No 33-90532, effective August 21, 1995.)
|
|
|
2.2
|
Asset Purchase Agreement dated as of September 18, 2006 among the Company, Desper Products, Inc., DTS, Inc. and DTS-BVI (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.)
|
|
|
3.1
|
Certificate of Incorporation of Spatializer-Delaware as filed February 28, 1994. (Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 33-90532,effective August 21, 1995.)
|
|
|
3.2
|
Amended and Restated Bylaws of Spatializer-Delaware. (Incorporated by reference to the Company’s Registration Statement on Form S-1,Registration No. 33-90532, effective August 21, 1995.)
|
|
|
3.3
|
Certificate of Designation of Series B 10% Redeemable Convertible Preferred Stock of the Company as filed December 27, 1999 (Incorporated by reference to the Company’s Annual Report on Form10-K, for the period ended December 31, 1999.)
|
|
|
3.4
|
Certificate of Amendment of Certificate of Incorporation of the Company as filed on February 25, 2000 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31, 1999.)
|
|
|
3.5
|
Certificate of Designation of Series B-1 Redeemable Convertible Preferred Stock as filed December 20, 2002 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31, 2002.)
|
|
|
3.6
|
Certificate of Elimination of Series A Preferred Stock as filed December 26, 2002 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31,2002.)
|
|
|
3.7
|
Certificate of Elimination of Series B Preferred Stock as filed December 26,2002 (Incorporated by reference to the Company’s Annual Report on Form 10-K, for the period ended December 31,2002.)
|
|
|
10.1
|
Spatializer-Delaware Incentive Stock Option Plan (1995 Plan). (Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 33-90532, effective August 21,1995.)
|
|
|
10.2
|
Spatializer-Delaware 1996 Incentive Plan. (Incorporated by reference to the Company’s Proxy Statement dated June 25, 1996 and previously filed with the Commission.)
|
|
|
10.3
|
Form of Stock Option Agreement (Incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005.)
|
|
|
10.4
|
License Agreement dated June 29, 1994 between DPI and MEC. (Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 33-90532, effective August 21,1995.)
|
26
|
Exhibit Number
|
Description
|
|
|
10.5
|
Employment Agreement dated November 12, 2005, between the Company and Henry Mandell, as amended. (Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005.)
|
|
|
10.6
|
Related Party Promissory Note to the Successor Trustee of the Ira A. Desper Marital Trust dated November 1, 2003. (Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K, for the period ended December 31, 2005.)
|
|
|
10.7
|
Lease for Office and Research Center in San Jose, CA. (incorporated by reference to)
|
|
|
10.8
|
Lease for Executive Office in Westlake Village, CA. (incorporated by reference to)
|
|
|
10.9
|
License Agreement between Spatializer Audio Laboratories, Inc., Desper Products, Inc. and Samsung Electronics, effective August 22, 2005. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.)
|
|
|
10.10
|
Employment Agreement dated January 6, 2006, between the Company and Henry Mandell. (Incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2006.)
|
|
|
10.11
|
Amendment to Employment Agreement between the Company and Henry Mandell
|
|
|
21.1
|
Subsidiaries of the Company
|
|
|
23.1
|
Consent of Independent Auditors
|
|
|
31.1
|
Principal Executive Officer Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
Principal Financial Officer Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Principal Executive Officer Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended)
|
|
|
32.2
|
Principal Financial Officer Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended)
|
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 30,2010
|
SPATIALIZER AUDIO LABORATORIES, INC.
(Registrant)
|
|||
|
|
By:
|
/s/ Jay Gottlieb
|
|
|
Jay Gottlieb
|
|||
|
Chairman of the Board, Secretary, Treasurer and Principal Executive Officer
|
|||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Josh Krom
|
|
|
||
|
Josh Krom
|
Director
|
March 30, 2010 | ||
|
/s/ Michael Pearce
|
|
|
||
|
Michael Pearce
|
Director
|
March 30, 2010
|
||
|
/s/ Gregg Schneider
|
|
|
||
|
Gregg Schneider
|
Director, Chief Financial and Principal Financial Officer
|
March 30, 2010
|
||
|
/s/ Jay Gottlieb
|
||||
|
Jay Gottlieb
|
Chairman of the Board, Secretary, Treasurer and Principal
|
March 30, 2010
|
||
| Executive Officer |
28