Enveric Biosciences, Inc. - Quarter Report: 2009 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
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þ |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2009 |
OR
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o |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 000-26460
SPATIALIZER AUDIO LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
|
Delaware |
95-4484725 | |
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(State or other jurisdiction of
incorporation or organization) |
(IRS Employer
Identification No.) |
410 Park Avenue--15 th Floor New York, New York 10022
(Address of principal corporate offices)
Telephone Number: (212) 231-8359
(Registrant’s telephone number, including area code)
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 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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Accelerated filer o |
Non-accelerated filer o
(Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes x No o
As of August 10, 2009, there were 20,000,000 shares of the Registrant’s Common Stock outstanding.
1
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION |
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Item 1. |
FINANCIAL STATEMENTS |
2 |
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Item 2. |
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS |
10 |
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Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
13 |
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Item 4. |
CONTROLS AND PROCEDURES |
13 |
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PART II. OTHER INFORMATION |
13 | |
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Item 1. |
LEGAL PROCEEDINGS |
13 |
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Item 1A. |
RISK FACTORS |
13 |
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Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
15 |
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Item 3. |
DEFAULTS UPON SENIOR SECURITIES |
15 |
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Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
15 |
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Item 5. |
OTHER INFORMATION |
15 |
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Item 6. |
EXHIBITS |
15 |
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SIGNATURES |
16 | |
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EXHIBIT 31.1 |
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EXHIBIT 31.2 |
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EXHIBIT 32.1 |
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EXHIBIT 32 .1 |
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2
CONSOLIDATED CONDENSED BALANCE SHEETS
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June 30, |
December 31, | |||||||
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2009 |
2008 | |||||||
| ASSETS |
(unaudited) |
|||||||
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Current Assets: |
||||||||
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Cash and Cash Equivalents |
$ |
13,399 |
$ |
66,833 |
||||
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Prepaid Expenses and Deposits |
868 |
2,842 |
||||||
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Total Current Assets |
14,267 |
69,675 |
||||||
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Total Assets |
$ |
14,267 |
$ |
69,675 |
||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
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Current Liabilities: |
||||||||
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Accounts Payable |
143 |
5,206 |
||||||
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Accrued Professional Fees |
-- |
16,000 |
||||||
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Accrued Expenses |
1,000 |
- |
||||||
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Total Current Liabilities |
1,143 |
21,206 |
||||||
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Commitments and Contingencies |
||||||||
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Shareholders’ Equity: |
||||||||
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Preferred shares, $.01 par value, 1,000,000 shares authorized, none issued and outstanding |
- | - | ||||||
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Common shares, $.01 par value, 300,000,000 shares authorized, 6,500,000 shares issued and outstanding |
65,000 |
65,000 |
||||||
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Additional Paid-In Capital |
45,854,856 |
45,854,856 |
||||||
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Accumulated Deficit |
(45,906,732 |
) |
(45,871,387 |
) | ||||
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Total Shareholders’ Equity |
13,124 |
48,469 |
||||||
|
$ |
14,267 |
$ |
69,675 |
|||||
See notes to Consolidated financial statement (following) .
3
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
For the Three Month Period Ended |
For the Six Month Period Ended |
|||||||||||||||
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June 30,
2009 |
June 30,
2008 |
June 30,
2009 |
June 30,
2008 |
|||||||||||||
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Revenues : |
||||||||||||||||
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rrrRoyalty Revenues |
$ |
0 |
$ |
0 |
$ |
0 |
$ |
0 |
||||||||
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C Cost of Revenues |
0 |
0 |
0 |
0 |
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G Gross Profit |
0 |
0 |
0 |
0 |
||||||||||||
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O Operating Expenses : |
||||||||||||||||
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G General and Administrative |
13,601 |
37,999 |
30,293 |
108,681 |
||||||||||||
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O Operating Income (Loss) |
(13,601 |
) |
(37,999) |
(30,293 |
) |
(108,681) |
||||||||||
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In Interest and Other Expense |
0 |
0 |
|
0 |
0 |
|||||||||||
|
0 |
1,515 |
0 |
12,649 |
|||||||||||||
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In Income (Loss) Before Income Taxes |
(13,601 |
) |
(36,484) |
(30,293) |
(96,033) |
|||||||||||
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In Income Taxes |
(28) |
- |
(5,053) |
(4,842) |
||||||||||||
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N Net Income (Loss) |
$ |
(13,629) |
$ |
(36,484) |
$ |
(35,346) |
$ |
(100,875) |
||||||||
|
B Basic and Diluted Earnings Per Share |
$ |
(0.00) |
$ |
(0.00) |
$ |
(0.00) |
$ |
(0.01) |
||||||||
|
W Weighted Average Shares Outstanding |
6,500,000 |
6,500,000 |
6,500,000 |
6,500,000 |
||||||||||||
See notes to Consolidated financial statement (following) .
4
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
Six Months Ended | ||||||||
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June 30, | ||||||||
|
2009 |
2008 | |||||||
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Cash Flows from Operating Activities: |
||||||||
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Net Loss |
$ |
(35,346 |
) |
$ |
(100,875 |
) | ||
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Adjustments to reconcile net loss to net cash used in |
|
|
||||||
| operating activities: |
- |
- |
||||||
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Net Change in Assets and Liabilities: |
- |
- |
||||||
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Prepaid Expenses and Deposits |
1,975 |
20,146 |
||||||
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Accounts Payable |
(5,063) |
564 |
||||||
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Accrued Wages and Benefits |
(1,323 |
) | ||||||
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Accrued Professional Fees |
(15,000) |
(36,000 |
) | |||||
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Accrued Expenses |
5,735 |
|||||||
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Net Cash Used In Operating Activities |
(53,434 |
) |
(111,753 |
) | ||||
| Short Term Investments |
|
1,000,000 | ||||||
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Net Cash Provided By (Used in) Investing Activities |
- |
1,000,000 |
||||||
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Cash flows from Financing Activities: |
||||||||
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Cash Distribution |
- |
(1,365,000) |
||||||
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Repayment of Notes Payable |
- |
(9,680 |
) | |||||
|
Net Cash Provided by Financing Activities |
- |
(1,374,680 |
) | |||||
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Increase (Decrease) in Cash and Cash Equivalents |
(53,434 |
) |
(486,433 |
) | ||||
|
Cash and Cash Equivalents, Beginning of Period |
66,833 |
582,019 |
||||||
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Cash and Cash Equivalents, End of Period |
$ |
13,399 |
$ |
95,586 |
||||
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Supplemental Disclosure of Cash Flow Information: |
||||||||
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Cash paid during the period for: |
||||||||
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Interest |
$ |
- |
$ |
- |
||||
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Income Taxes |
5,053 |
4,842 |
||||||
See notes to Consolidated financial statement (following) .
SPATIALIZER AUDIO LABORATORIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Ability to Continue as a Going Concern, Sale of All or Substantially All of the Assets of Spatializer Audio Laboratories, Inc.
Spatializer was a developer, licensor and marketer of next generation technologies for the consumer electronics, personal computing, entertainment and cellular telephone markets. Our technology is incorporated into products offered by our licensees and customers on various economic and business terms. We were incorporated in the State
of Delaware in February 1994 and are the successor company in a Plan of Arrangement pursuant to which the outstanding shares of Spatializer Audio Laboratories, Inc., a publicly held Yukon, Canada corporation, were exchanged for an equal number of shares of our common stock. Our corporate office is located at 410 Park Avenue--15th Floor, New York, New York 10022
The Company’s former 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 are generated from DPI. DPI was a California
corporation incorporated in June 1986 and was dissolved during December, 2008.
On December 19, 2005, at a regularly scheduled board of directors meeting, the board of directors of Spatializer discussed its then 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 current financial statements have been prepared assuming that it will continue as a going concern.
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has no further operating activities, and has limited working capital and stockholders’ equity.
These matters raise substantial doubt about the Company’s ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon the Company’s ability to meet its financing requirements, raise additional capital, and the success of its future operations. Management’s plans are to complete a merger or acquisition or be able to maintain sufficient liquidity to continue to seek a merger or
acquisition. There can be no assurances that the Company will be able to accomplish this successfully, in which case the Company might be forced to liquidate or seek protection under the Federal bankruptcy statutes, or both. Management believes that actions planned and presently being taken provide an opportunity for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from these uncertainties.
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 such sale of assets and to authorize the dissolution of the Company. Proxies were mailed on or about December 1, 2006. The meeting was adjourned without a final vote, instead reconvening the meeting 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 10,428 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 16,236,615 shares for an aggregate purchase price of $162,366.15 with an additional payment of $259,786 placed into escrow to be released ten days after
the closing of the sale of assets to DTS in the second six months 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.
6
Upon the conclusion of the nine-month indemnification period, the Company distributed substantially all of its remaining cash assets to its stockholders, after satisfying its liabilities, leaving a cash residual of $109,915. As of June 30, 2009, the Company had a remaining cash residual of $13,399. The Company
currently has no plans to dissolve. The company raised an additional $36,450 on July 7, 2009, for working capital purposes. Please refer to subsequent events later on in the report.
The foregoing interim financial information is unaudited and has been prepared from the books and records of the Company. The financial information reflects all adjustments necessary for a fair presentation of the financial condition, results of operations and cash flows of the Company in conformity with generally accepted accounting
principles. All such adjustments were of a normal recurring nature for interim financial reporting. Operating results for the three months and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. Accordingly, your attention is directed to footnote disclosures found in the December 31, 2008 Annual Report and particularly to Note 2 thereof, which includes a summary of significant accounting policies.
The foregoing financial information has been prepared assuming that the Company will continue as a going concern. As discussed above, the Company’s current circumstances, including significant operating losses, 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, DPI through it dissolution in December 2008. All significant inter-company balances and transactions have
been eliminated in consolidation. Corporate administration expenses are not allocated to subsidiaries.
Concentration of Credit Risk — Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents. At June 30, 2009, all cash and cash equivalents were on deposit at one financial institution.
At June 30, 2009 and 2008, we did not have any accounts receivable
Cash and Cash Equivalents — Cash equivalents consist of highly liquid investments with original maturities of three months or less.
Earnings Per Share — 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.
Stock Option Plan — During the year ended December 31, 2005, the Company determined the effects of stock based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as amended which
permitted entities to recognize expense using the “fair-value” method over the vesting period of all employee stock-based awards on the date of grant. Alternatively, SFAS No. 123 allowed entities to continue to utilize the “intrinsic value” method for equity instruments granted to employees and provide pro forma net income (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants after 1994 as if the fair-value-based method defined in SFAS
No. 123 has been applied. The Company elected to continue to utilize the “intrinsic value” method for employee stock option grants and provide the pro forma disclosure provisions of SFAS No. 123 (Note 7)
7
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. Estimated compensation cost of $11,725 related to vested options
outstanding as of January 1, 2006, net of those cancelled or expired during 2006, has been recognized as additional paid-in capital. The statements of operations for periods prior to the effective date have not been restated.
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, 2008 and June 30, 2009 approximated fair value due to their short maturity or nature.
(3) Shareholders’ Equity
During the six months ended June 30, 2009 and 2008, no shares were issued, cancelled or converted, nor were any options granted or exercised.
The company effected a 1 for 10 reverse stock split in November 2008. Accordingly, all common share data in the accompanying consolidated financial statements have been restated to reflect the effects of the split.
At June 30, 2009, we had net operating loss carry-forwards for Federal income tax purposes of approximately $26,200,000 which were available to offset future Federal taxable income, if any, through 2013. Approximately $21,700,000 of these net operating loss carry forwards were subject to an annual limitation of approximately $1,000,000. As
a result of the events described in Item 5 below and the resulting change of control of the Company, it is expected that these net operating loss carry-forwards will be further limited to offset taxable income generated by the Company after 2007 .
(5) 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 which was approved by the stockholders authorizes grants of options to purchase authorized but un-issued common stock up to 10% of
total common shares outstanding at each calendar quarter, 4,876,339 as of March 31, 2007. Stock options were granted under the Plan with an exercise price equal to the stock’s fair market value at the date of grant. 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. To date, the Company has not adopted a new stock option plan.
|
WEIGHTED-AVERAGE | ||||||||||||
|
Exercisable |
Number |
Exercise Price | ||||||||||
|
Options outstanding at December 31, 2006 |
175,000 |
175,000 |
$ |
.90 |
||||||||
|
Options granted |
-- | -- |
$ |
-- | ||||||||
|
Options exercised |
-- |
-- |
$ |
-- |
||||||||
|
Options forfeited/expired |
(60,000) |
(60,000 |
) |
$ |
1.02 |
|||||||
|
Options outstanding at December 31, 2007 |
115,000 |
115,000 |
$ |
0.80 |
||||||||
|
Options granted |
-- |
-- |
|
$ |
-- | |||||||
|
Options exercised |
-- |
-- |
|
$ |
-- |
|||||||
|
Options forfeited/expired |
(55,000 |
) |
(55,000 |
) |
$ |
0.60 |
||||||
|
Options outstanding at December31, 2008 |
60,000 |
60,000 |
$ |
0.98 |
||||||||
|
Options granted |
-- |
-- |
|
$ |
-- | |||||||
|
Options exercised |
-- |
-- |
|
$ |
-- |
|||||||
|
Options forfeited/expired |
-- |
-- |
$ |
-- |
||||||||
|
Options outstanding at June 30, 2009 |
60,000 |
60,000 |
$ |
0.98 |
||||||||
At June 30, 2009 and 2008, there were no additional shares available for grant under the Plan, since the Plan had expired in 2005. The per share weighted-average fair value of stock options granted during 2005 was $0.02 on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
expected dividend yield of 0%, risk-free interest rate of 4.5%, expected volatility of 150% and an expected life of 5 years.
Effective January 1, 2006, the Company adopted SFAS 123R “Share Based Payments, using the modified prospective transition method to account for changes to the method of accounting for 1,750,000 vested options outstanding at the effective date.
Estimated compensation cost related to vested options outstanding as of January 1, 2006 was recognized as additional paid-in capital. During the year ended December 31, 2006, 1,060,000 vested options expired or were cancelled, resulting in a reduction of compensation cost and additional paid-in capital. Net compensation cost
recorded for the year ended December 31, 2006 was $11,725; net loss for the year was increased by a corresponding amount, or a basic and diluted loss per share of $0.00. The grant-date fair value of vested options was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield of 0%, risk-free interest rate of 4.5%, expected volatility of 100% and an expected life of 3 years.
At June 30, 2009 and June 30, 2008, the number of options exercisable and fully vested was 60,000 and 115,000. The weighted-average exercise price of those options was $0.98; the weighted average remaining contractual term was 2 years; and the aggregate intrinsic value was zero per share. There were no warrants outstanding at
June 30, 2009 or 2008.
(6) Subsequent Event
On July 7, 2009, Spatializer Audio Laboratories, Inc. entered into Subscription Agreements with the below listed purchasers, each of whom is an accredited investor as defined in Rule 501 of Regulation D under the Securities Act of 1933 (the “Securities Act”):
|
Gregg Schneider, CFO |
4,505,000 |
|||
|
Jay Gottlieb, CEO |
5,584,615 |
|||
|
Josh Krom, Director |
350,000 |
|||
|
Larry Kaplan |
982,577 |
|||
|
Daniel J. Pearce |
998,000 |
|||
|
William Vlahos |
1,079,808 |
|||
|
13,500,000 |
The 13,500,000 shares represents approximately 67.5% of its common stock outstanding, in exchange for cash of $36,450, and future services. The services to be provided by the six investors is expected to consist principally of services related to the Company's new business plan. This transaction resulted in a change in control of the
Company.
This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, the audited consolidated financial statements and the notes thereto included in the Form
10-K and the unaudited interim consolidated financial statements and notes thereto included in this report. The Company plans to continue as a public entity and continues to seek merger, acquisition and business combination opportunities with other operating businesses or other appropriate financial transactions. Until such an acquisition or business combination is effectuated, the Company does not expect to have significant operations.
This report contains forward-looking statements, within the meaning of the Private Securities Reform Act of 1995, which are subject to a variety of risks and uncertainties. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in such forward-looking
statements.
Executive Overview
Revenues were $0 for the quarter ended June 30, 2009, compared to $0 for the quarter ended June 30, 2008.
Net loss was $13,629 for the quarter ended June 30, 2009, ($0.00) basic and diluted per share, compared to a net loss of $36,484, $(0.00) per share for the quarter ended June 30, 2008.
At June 30, 2009, we had $13,399 in cash and cash equivalents as compared to $66,833 at December 31, 2008. The decrease in cash resulted primarily from operating expenses incurred from the costs of maintaining the corporate entity as a public entity and from one time expenses due to compliance issues. We had working capital of
$13,124 at June 30, 2009, as compared with working capital of $48,469 at December 31, 2008.
10
We ceased commercial operations in 2006. 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.
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 |
|
• |
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. |
We believe the best way to achieve this is to give the reader:
|
• |
An understanding of our operating environment and its risks (see below and Item 1A of Part II of this Form 10-Q) |
|
• |
An outline of critical accounting policies |
|
• |
A review of our corporate governance structure |
|
• |
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 |
|
• |
Disclosure on our internal controls and procedures |
Operating Environment
|
• |
The market for our stock may not remain liquid and the stock price may be subject to volatility |
Certain other risk factors are set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 on file with the Securities and Exchange Commission.
11
Critical Accounting Policies
Our 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 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 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 current fiscal period. 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 liquid assets a company has available to build its business. This is addressed further in MD&A under Liquidity and Capital Resources.
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.
The Consolidated Statement of Cash Flows explains the actual sources and uses of cash.
Results of Operations
Net Loss
Our net loss for the three months ended June 30, 2009 was $21,716, compared to a net loss of $36,484 in the comparable period last year.
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Operating Expenses
Operating expenses in the three months ended June 30, 2009 were $13,601, compared to operating expenses of $37,999 in the comparable period last year. The decrease in operating expenses resulted from a decrease in general and administrative expense due to the suspension of operations.
Liquidity and Capital Resources
At June 30, 2009, we had $13,399 in cash and cash equivalents as compared to $66,833 at December 31, 2008. The decrease in cash resulted primarily from the use of cash to sustain ongoing expenses and one time compliance issues. We had working capital of $13,124 at June 30, 2009, as compared with working capital of $48,469 at December 31,
2008.
Based on current and projected operating levels, we no longer believe that we can maintain our liquidity position at a consistent level, on a short-term or long-term basis. On July 7, 2009, we raised an additional $36,450, for working capital purposes. Please refer to subsequent events later on in the report.
Net Operating Loss Carry forwards
At June 30 2009, we had net operating loss carry-forwards for Federal income tax purposes of approximately $26,200,000 which were available to offset future Federal taxable income, if any, through 2013. Approximately $21,700,000 of these net operating loss carry forwards were subject to an annual limitation of approximately $1,000,000 and
may be further limited due to the change in control of the company.
Not applicable.
After current management gained control of the Company in April 2008, the Company appointed a Chief Financial Officer so that the respective duties of the principal executive officer and principal financial officer are segregated and there are four functioning directors. There are three people involved in any Company financial
transactions. Specifically, 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 check, the CFO can not sign a check unless the bookkeeper has prepared and the bookkeeper has no check signing authority.
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With regard to revenues, since the Company has discontinued operations, its only function being to find a merger partner, revenues are minimal and the foregoing internal process should reflect a substantive improvement over that of recent prior years.
As of June 30, 2009, the Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s 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 that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were effective.
There were no changes in the Company’s internal controls over financial reporting, known to the CEO, that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
From time to time, we may be involved in various disputes and litigation matters arising in the normal course of business. As of August 10, 2009, we are not involved in any legal proceedings that are expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However,
litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, given the size of our Company, there exists the possibility of a material adverse impact on our results of operations of the period in which the ruling occurs. Our estimate of the potential impact on our financial position or overall results of operations for new legal proceedings could change in the future.
In addition to the other information set forth in this Quarterly Report, stockholders should carefully consider the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition or future results. The risks
described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
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There were no unregistered sales of equity securities or repurchases during the period covered by this report.
None
None
ITEM 5. SUBSEQUENT EVENTS
On July 7, 2009, Spatializer Audio Laboratories, Inc. entered into Subscription Agreements with the below listed purchasers, each of whom is an accredited investor as defined in Rule 501 of Regulation D under the Securities Act of 1933 (the “Securities Act”):
|
Gregg Schneider, CFO |
4,505,000 |
|||
|
Jay Gottlieb, CEO |
5,584,615 |
|||
|
Josh Krom, Director |
350,000 |
|||
|
Larry Kaplan |
982,577 |
|||
|
Daniel J. Pearce |
998,000 |
|||
|
William Vlahos |
1,079,808 |
|||
|
13,500,000 |
The above purchasers included three non-management purchasers and, as noted above, certain officers and directors of the Company. Such raise constituted a private placement properly exempt from the Securities Act pursuant to Section 4(2) and Regulation D Rule 505 thereunder. The aggregate amount raised in the private placement
was approximately $36,450. The proceeds will be used to increase the Company's working capital balances. The purchase price of $0.0027 per share was the average closing price for the 10 days ending June 5, 2009. There are now currently 20,000,000 shares of the company’s common stock outstanding after the completion of this sale.
The 13,500,000 shares represents approximately 67.5% of its common stock outstanding, in exchange for cash of $36,450, and future services. The services to be provided by the six investors is expected to consist principally of services related to the Company's new business plan. This transaction resulted in a change in control of the
Company
ITEM 6. EXHIBITS
|
31 |
Rule 13a-14(a)/15d-14(a) Certification | |
|
32 |
Section 1350 Certification |
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SIGNATURES
Pursuant to the requirements 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: August 13, 2009
|
SPATIALIZER AUDIO
LABORATORIES, INC.
(Registrant)
|
||
|
/s/ Jay Gottlieb |
||
|
Jay Gottlieb |
||
|
Chairman of the Board, President, Secretary, Treasurer and Principal Executive Officer |
||
|
/s/ GREGGORY SCHNEIDER |
||
|
Greggory Schneider |
||
|
Director, Chief Financial and Principal Financial Officer |
||
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