Attached files
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EX-31.1 - WORLDGATE COMMUNICATIONS INC | v184563_ex31-1.htm |
EX-32.1 - WORLDGATE COMMUNICATIONS INC | v184563_ex32-1.htm |
EX-32.2 - WORLDGATE COMMUNICATIONS INC | v184563_ex32-2.htm |
EX-31.2 - WORLDGATE COMMUNICATIONS INC | v184563_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the quarterly period ended March 31, 2010
|
||
OR
|
||
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the transition period from ________________ to
________________
|
Commission
file number: 000-25755
WORLDGATE
COMMUNICATIONS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
23-2866697
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
3190
Tremont Avenue
Trevose,
Pennsylvania
|
19053
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(215)
354-5100
(Registrant’s
telephone number, including area code)
[None]
(Former
name, former address and former fiscal year, if changed since last
report)
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 x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes ¨ No ¨
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
Securities Exchange Act of 1934.
Large
accelerated filero
|
Accelerated
filer ¨
|
Non-accelerated
filer o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act
of
1934).
Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class
|
Outstanding
at May 6, 2010
|
|
Common
Stock, par value $0.01 per share
|
339,297,403
shares
|
WORLDGATE
COMMUNICATIONS, INC.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE THREE MONTHS ENDED MARCH 31, 2010
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
|
2
|
|
ITEM
1. FINANCIAL STATEMENTS
|
2
|
|
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
15
|
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
.
|
21
|
ITEM
4T. CONTROLS AND PROCEDURES
|
21
|
|
PART
II. OTHER INFORMATION
|
22
|
|
ITEM
1. LEGAL PROCEEDINGS
|
22
|
|
ITEM
6. EXHIBITS
|
22
|
ITEM
1. FINANCIAL STATEMENTS
WORLDGATE
COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars
in thousands except share amounts)
March
31,
|
December
31,
|
|||||||
2010
(Unaudited)
|
2009*
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 649 | $ | 578 | ||||
Trade
accounts receivable less allowance for doubtful accounts of $42 at
March 31, 2010 and December 31, 2009
|
50 | 24 | ||||||
Other
receivables
|
52 | 15 | ||||||
Inventory, net
|
1,310 | 763 | ||||||
Prepaid
and other current assets
|
245 | 281 | ||||||
Total
current assets
|
2,306 | 1,661 | ||||||
Property
and equipment, net
|
661 | 739 | ||||||
Deferred
debt issuance costs, net
|
3,285 | - | ||||||
Total
assets
|
$ | 6,252 | $ | 2,400 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 387 | $ | 535 | ||||
Due
to related parties
|
1,151 | 262 | ||||||
Accrued
expenses
|
422 | 409 | ||||||
Accrued
compensation and benefits
|
180 | 100 | ||||||
Accrued
severance
|
42 | 232 | ||||||
Warranty
reserve
|
10 | 15 | ||||||
Deferred
revenues and income
|
1,283 | 1,460 | ||||||
Note
payable
|
- | 22 | ||||||
Total
current liabilities
|
3,475 | 3,035 | ||||||
Long
term liabilities:
|
||||||||
Revolving
Loan, with related party
|
3,800 | 1,400 | ||||||
Total liabilities
|
7,275 | 4,435 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
deficiency:
|
||||||||
Preferred
Stock, $.01 par value, 13,500,000 shares authorized, and 0 shares issued
at March 31, 2010 and December 31, 2009
|
- | - | ||||||
Common
Stock, $.01 par value; 700,000,000 shares authorized at March
31, 2010 and December 31, 2009; and 339,297,403 and 337,947,088
shares issued and outstanding at March 31, 2010 and December 31,
2009, respectively
|
3,393 | 3,380 | ||||||
Additional
paid-in capital
|
274,177 | 270,330 | ||||||
Accumulated
deficit
|
(278,593 | ) | (275,745 | ) | ||||
Total
stockholders’ deficiency
|
(1,023 | ) | (2,035 | ) | ||||
Total
liabilities and stockholders’ deficiency
|
$ | 6,252 | $ | 2,400 |
*
Condensed from audited financial statement
2
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars
in thousands except share and per share amounts)
Three
Months Ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Net
revenues
|
$ | 287 | $ | 1,238 | ||||
Cost
of revenues
|
178 | 914 | ||||||
Gross
profit
|
109 | 324 | ||||||
Expenses
from operations:
|
||||||||
Engineering
and development
|
921 | 502 | ||||||
Operations
|
215 | 120 | ||||||
Sales
and marketing
|
312 | 31 | ||||||
General
and administrative
|
1,297 | 892 | ||||||
Depreciation
and amortization
|
88 | 40 | ||||||
Total
expenses from operations
|
2,833 | 1,585 | ||||||
Loss
from operations
|
(2,724 | ) | (1,261 | ) | ||||
Other
income (expense):
|
||||||||
Interest
and other income
|
- | 8 | ||||||
Change
in fair value of derivative warrants and conversion
options
|
- | 3,925 | ||||||
Income
from service fee contract termination
|
- | 348 | ||||||
Interest
and other expense
|
- | (58 | ) | |||||
Related
party interest
|
(79 | ) | (14 | ) | ||||
Amortization
of debt issuance costs
|
(45 | ) | - | |||||
Amortization
of debt discount
|
- | (683 | ) | |||||
Total
other income (expense)
|
(124 | ) | 3,526 | |||||
Net
(loss) income
|
$ | (2,848 | ) | $ | 2,265 | |||
Net
(loss) income per common share:
|
||||||||
Basic
|
$ | $ (0.01 | ) | $ | 0.02 | |||
Diluted
|
$ | (0.01 | ) | $ | 0.02 | |||
Weighted
average common shares outstanding:
|
||||||||
Basic
|
361,461,433 | 118,906,345 | ||||||
Diluted
|
361,461,433 | 120,824,031 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
WORLDGATE
COMMUNICATIONS, INC.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
(Unaudited)
(Dollars
and shares in thousands)
Common
Stock
|
Additional
|
Accumulated
|
Total
Stockholders’
|
|||||||||||||||||
Shares
|
Amount
|
Paid-In Capital
|
Deficit
|
Deficiency
|
||||||||||||||||
Balance
at January 1, 2010
|
337,947 | $ | 3,380 | $ | 270,330 | $ | (275,745 | ) | $ | (2,035 | ) | |||||||||
Issuance
of Common Stock upon exercise of stock options
|
1,350 | 13 | 133 | - | 146 | |||||||||||||||
Non-cash
stock based compensation
|
- | - | 384 | - | 384 | |||||||||||||||
Issuance
of warrants to WGI (See Note 6)
|
- | - | 3,330 | - | 3,330 | |||||||||||||||
Net
Loss
|
- | - | - | (2,848 | ) ) | (2,848 | ) | |||||||||||||
Balance
at March 31, 2010
|
339,297 | $ | 3,393 | $ | 274,177 | $ | (278,593 | ) | $ | (1,023 | ) |
4
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars
in thousands)
Three Months Ended March 31
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
(loss) income
|
$ | (2,848 | ) | $ | 2,265 | |||
Adjustments
to reconcile net (loss) income to cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
88 | 40 | ||||||
Amortization
of debt issuance costs
|
45 | - | ||||||
Amortization
of debt discount
|
- | 683 | ||||||
Change
in fair value of derivative warrants and conversion
options
|
- | (3,925 | ) | |||||
Loss
on disposal of fixed assets
|
- | 1 | ||||||
Inventory
reserve
|
- | 600 | ||||||
Non-cash
stock based compensation
|
384 | 64 | ||||||
Bad
debt expense
|
- | 157 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
accounts receivable
|
(26 | ) | 11 | |||||
Other
receivables
|
(37 | ) | 1 | |||||
Inventory
|
(547 | ) | (482 | ) | ||||
Prepaid
and other current assets
|
36 | 56 | ||||||
Accounts
payable
|
(148 | ) | 109 | |||||
Due
to related parties
|
889 | - | ||||||
Accrued
expenses and other current liabilities
|
13 | 273 | ||||||
Accrued
severance
|
(190 | ) | - | |||||
Accrued
compensation and benefits
|
80 | 57 | ||||||
Warranty
reserve
|
(5 | ) | 10 | |||||
Deferred
revenues and income
|
(177 | ) | (782 | ) | ||||
Net
cash used in operating activities
|
(2,443 | ) | (862 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(10 | ) | (27 | ) | ||||
Net
cash used in investing activities
|
(10 | ) | (27 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of common stock
|
146 | - | ||||||
Proceeds
from the issuance of notes
|
- | 780 | ||||||
Proceeds
from revolving loan with related party
|
2,400 | - | ||||||
Repayments
of notes
|
(22 | ) | - | |||||
Net
cash provided by financing activities
|
2,524 | 780 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
71 | (109 | ) | |||||
Cash
and cash equivalents, beginning of period
|
578 | 429 | ||||||
Cash
and cash equivalents, end of period
|
$ | 649 | $ | 320 | ||||
Supplemental
disclosures of non-cash financing activities:
|
||||||||
Cumulative
effect of a change in accounting principle:
|
||||||||
Detachable
warrants
|
$ | - | $ | 885 | ||||
Additional
paid-in capital
|
- | (1,751 | ) | |||||
Accumulated
deficit
|
- | 1,449 | ||||||
Issuance
of warrants to WGI (See Note 6)
|
3,330 | - |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in
thousands except per share and per unit amounts)
1.
|
Business
and Basis of presentation
|
WorldGate
Communications, Inc. and its subsidiaries (“WorldGate” or the “Company”) is a
provider of digital voice and video phone services and next generation video
phones. The Company designs and develops digital video phones featuring
real-time, two-way video. It also provides a turn-key digital voice and video
communication services platform supplying complete back-end support
services.
The
Company is transitioning from a business model focused primarily on one-time
digital video phone equipment sales to delivering an integrated audio and video
telephony solution. Upon completion of the redevelopment of its video phone
platform, the Company will not only offer a line of consumer video phones but
the Company will also provide a turnkey digital voice and video phone
service.
The
Company markets its video phone equipment, communications and support services
through two segments.
Through
its Consumer Services segment, the Company markets its video phone equipment,
bundled with digital voice and video phone service and support, principally to
end user consumers.
Through
its Original Equipment Manufacturer (the “OEM Direct”) segment the Company
distributes its digital video phones directly to telecommunications service
providers who already have a complete digital voice and video management and
network infrastructure.
The
unaudited condensed consolidated financial statements of the Company for the
three months ended March 31, 2010 and 2009 presented herein have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for quarterly reports on Form 10-Q. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with United States generally accepted accounting
principles (“GAAP”) have been condensed or omitted pursuant to such rules and
regulations. In addition, the December 31, 2009 condensed consolidated
balance sheet was derived from the audited financial statements, but does not
include all disclosures required by GAAP. These financial statements
should be read in conjunction with the audited financial statements for the year
ended December 31, 2009 and the notes thereto included in the Company’s Annual
Report on Form 10-K. The accounting policies used in preparing these
unaudited condensed consolidated financial statements are materially consistent
with those described in the audited December 31, 2009 financial
statements.
The
financial information in these financial statements reflects, in the opinion of
management, all adjustments of a normal recurring nature necessary to present
fairly the results for the interim periods. Quarterly operating results are not
necessarily indicative of the results that may be expected for other interim
periods or the year ending December 31, 2010. All significant
intercompany accounts have been eliminated in consolidation.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, as of the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. Judgments and estimates of uncertainties are required in
applying the Company’s accounting policies in many areas. Some of the
areas requiring significant judgments and estimates are as
follows: inventory valuation, stock-based compensation, valuation of
warrants and deferred tax asset valuation allowance.
6
2.
|
Liquidity
Considerations
|
The
Company’s ability to generate cash is dependent upon the sale of its product and
services, its ability to enter into arrangements to provide services, and on
obtaining cash through the private or public issuance of debt or equity
securities. Given that the Company’s voice and video phone business involves the
development of a new video phone necessary for the digital video phone service
with no market penetration in an underdeveloped market sector, no assurances can
be given that sufficient sales, if any, will materialize. The lack of success of
the Company’s sales efforts could also have an adverse impact on the Company’s
ability to raise additional financing.
Based on
management’s internal forecasts and assumptions regarding its short term cash
requirements, the increase in and full utilization of the expanded credit line
of the Revolving Loan (See Note 6), the planned completion of the development of
the Company’s new voice and video phone, the commencement of delivery of these
new video phones expected in May 2010, the expected placement of purchase orders
and receipt of advance funds for the purchase of units by ACN Digital Phone
Service, LLC (“ACN DPS”), a subsidiary of ACN, Inc. (“ACN”), pursuant to a
Master Purchase Agreement pursuant to which ACN DPS committed to purchase
300,000 videophones over a two-year period (the “Master Purchase Agreement”) and
the Company’s current forecast for sales for other products and services, the
Company believes that it will have sufficient working capital to support its
current operating plans through at least March 31, 2011.
If these
assumptions do not materialize, or do not materialize in the projected
timeframe, the Company will need to obtain additional funding through the
private or public issuance of debt or equity securities. The Company continues
to evaluate possibilities to obtain additional financing through public or
private equity or debt offerings, asset securitizations, or from other sources
to address the risks inherent in its plans and to help insure that the Company
has the adequate financial resources in the event the realization of its plan
requires additional time or is faced by additional marketplace
challenges.
The
Company continues to focus on the business elements that it believes are
important for its sustainability. The Company continues to explore additional
product and service sales opportunities. The Company believes that growing the
Consumer Services segment of its business, which includes a recurring revenue
stream, is an essential element in the long term sustainability of its
operations. In addition, the Company is focused on reducing the cost of its
voice and video phone which it believes will facilitate the growth of the
Company’s product and services.
There can
be no assurance given, however, that the Company’s efforts will be successful or
that any additional financing will be available and can be consummated on terms
acceptable to the Company, if at all. There can also be no assurance given that
any additional sales can be achieved through additional service and distribution
opportunities. If the Company is unable to obtain additional funds, and its
plans are not achieved in the planned time frame, the Company may be required to
reduce the size of the organization which could have a material adverse impact
on its business.
The
Company has incurred recurring net losses and has an accumulated deficit of
$278,593, stockholder’s deficiency of $1,023 and a working capital deficiency of
$1,169.
3. Summary of
Significant Accounting Policies
Reclassification
Certain
prior year amounts have been reclassified to conform to the current-year
presentation.
Fair
value of financial instruments
The Company’s financial instruments
consist primarily of cash and cash equivalents, accounts receivable and accounts
payable. The book value of cash and cash equivalents,
accounts receivable and accounts payable is considered to be
representative of their values because of their short term
maturities. Due to the Company’s relationship, the carrying value of
the revolving loan with a related party approximates fair value, as determined
by comparison of rates currently available for obligations with similar terms
and maturities.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, the price is
fixed or determinable, the collectability is reasonably assured, and the
delivery and acceptance of the equipment has occurred or services have been
rendered. Management exercises judgment in evaluating these factors in
light of the terms and conditions of its customer contracts and other existing
facts and circumstances to determine appropriate revenue recognition. Due to the
Company’s limited commercial sales history, its ability to evaluate the
collectability of customer accounts requires significant judgment. The Company
periodically evaluates its equipment customers and service customers’ accounts
for collectability at the date of sale and periodically
thereafter.
7
The
Company’s revenue is net of any collections of state or municipal taxes, fees or
surcharges on the charges to customers for the products and services that they
purchase (such as sales and use, excise, utility, user, and ad valorem taxes),
and net of other applicable charges related to the Company’s voice over Internet
protocol (“VoIP”) offering (including 911, Telecommunications Relay Services
(“TRS”) and Universal Service Fund (“USF”) fees) Any permitted administrative
fees for the administration and collection of these taxes and surcharges is
included in revenue. If the Company is subject to the above taxes,
fees and surcharges, to the extent permitted by law, the Company generally
passes such charges through to its customers.
Revenues
are also offset by a reserve for any price refunds and consumer rebates
consistent with Accounting Standards Codification (“ASC”) Topic 605-50. In
addition, revenues are also offset to reflect any consideration given by a
vendor to a customer for which an otherwise identifiable benefit has not been
received. This consideration includes warrants given to a customer (See Note
7).
During
the three months ended March 31, 2010 the Company shipped $178 of
units previously recorded as a deferred revenue as of December 31,
2009 and as such recorded this as revenue in the three months ended March 31,
2010. Prior to the shipment of these units, these units
were held and revenue deferred by the Company pending shipment to the ultimate
customer. As of March 31, 2010, the Company was not holding any
video phones, for which the Company has received payment.
The
Company displays dual presentation of earnings per share as both basic and
diluted earnings per share (“EPS”). Basic EPS includes no dilution
and is computed by dividing net (loss) income attributable to common
stockholders by the weighted average number of common shares outstanding for the
period. Basic weighted average shares outstanding at March 31, 2010
includes 23,246,063 of weighted average shares for the three month period ended
March 31, 2010 issuable in the future under the terms of the WGI Anti-Dilution
Warrant, as this warrant is exercisable at a nominal amount ($0.01 per
share). Diluted EPS includes, under the “treasury stock” and “if
converted” methods, the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. Outstanding stock options, warrants and other potential stock issuances
are not included in the computation when they are not in the money or their
effect would be anti-dilutive.
The
following table presents the shares used in the computation of fully diluted
(loss) income per share for the three months ended March 31, 2010 and
2009:
For the three months ended March
31,
|
||||||||
2010
|
2009
|
|||||||
Numerator
for diluted EPS calculation:
|
||||||||
Net(loss)
income
|
$
|
(2,848
|
)
|
$
|
2,265
|
|||
Denominator
for diluted EPS calculation:
|
||||||||
Basic
weighted average common shares outstanding
|
361,461,433
|
118,906,345
|
||||||
Effect
of dilutive stock options
|
-
|
1,917,686
|
||||||
361,461,433
|
120,824,031
|
|||||||
Basic
EPS
|
$
|
(0.01)
|
$
|
0.02
|
||||
Fully
Diluted EPS
|
$
|
(0.01)
|
$
|
0.02
|
Potential
common shares excluded from net (loss) income per share for the three months
ended March 31, 2010, and 2009 were 173,825,517 and 21,772,220,
respectively because their effect would be anti-dilutive. Potential
common shares comprise shares of common stock issuable upon the exercise of
stock options, unvested restricted stock and warrants, and upon the conversion
of convertible debentures irrespective of whether such securities are in the
money.
8
Recent
Accounting Pronouncements
In
October 2009, the FASB issued new accounting guidance, under ASC Topic 985
on software, which amends the scope of existing software revenue recognition
accounting. Tangible products containing software components and non-software
components that function together to deliver the product’s essential
functionality would be scoped out of the accounting guidance on software and
accounted for based on other appropriate revenue recognition guidance.
This guidance is effective for all new or materially modified arrangements
entered into on or after January 1, 2011 with earlier application permitted
as of the beginning of a fiscal year. Full retrospective application of this new
guidance is optional. The Company has adopted this guidance effective for new
arrangements in the year 2010, the effect of which is not deemed to be
material.
The FASB
published FASB Accounting Standards Update 2009-13, Revenue Recognition (Topic
605)-Multiple Deliverable Revenue Arrangements which addresses the
accounting for multiple-deliverable arrangements to enable vendors to account
for products or services (deliverables) separately rather than as a combined
unit. Specifically, this guidance amends the criteria for Subtopic 605-25, Revenue Recognition-Multiple Element
Arrangements, for separating consideration in multiple-deliverable
arrangements. This guidance establishes a selling price hierarchy for
determining the selling price of a deliverable, which is based on: (a)
vendor-specific objective evidence, (b) third-party evidence; or (c)
estimates. This guidance also eliminates the residual method of allocation
and requires that arrangement consideration be allocated at the inception of the
arrangements to all deliverables using the relative selling price method and
also requires expanded disclosures. FASB Accounting Standards Update 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. The adoption of this standard will have an impact on the
Company’s consolidated financial position and results of operations for all
multiple deliverable arrangements entered into or materially modified in
2010.
The Company’s inventory consists
primarily of finished goods equipment to be sold to customers. The cost is
determined at the lower of cost or market on a first-in, first-out cost
basis. As of March 31, 2010 and December 31, 2009, the Company’s
inventory balance was net of a reserve of $757 for excess and obsolete inventory
that is not expected to be utilized in the continued development of the video
phone. The
Company adjusted its reserve for excess and obsolete inventory by $0 and $757
for the three months ended March 31, 2010 and for the year ended December 31,
2009, respectively, to reflect such valuation. Included in inventory
as of December 31, 2009 is $178 for units purchased in a “Bill and Hold”
arrangement for a single customer.
5. Accrued
Expenses
The
Company’s accrued expenses consisted of the following:
March 31, 2010
|
December 31, 2009
|
|||||||
Interest
on Notes
|
$
|
-
|
$
|
10
|
||||
Contingent
penalties
|
157
|
157
|
||||||
Board
fees
|
-
|
94
|
||||||
Taxes
|
45
|
33
|
||||||
Other
|
220
|
115
|
||||||
Totals
|
$
|
422
|
$
|
409
|
9
6.
Revolving Credit Line
On
October 28, 2009, the Company entered into the Revolving Loan and Security
Agreement (the “Revolving Loan”) with WGI Investment LLC (“WGI”), pursuant to
which WGI provided the Company a line of credit in a principal amount of
$3,000. On March 9, 2010, the Company entered into
the First Amendment to the Revolving Loan with WGI (the Revolving Loan as
amended by the First Amendment, the “Amended Revolving Loan”), pursuant to which
the maximum principal amount of the line of credit was increased to
$5,000. All other terms of the Revolving Loan remained unchanged.
Interest accrues on any loan advances at the rate of 10% per
annum. Interest is payable beginning June 1, 2010 and monthly
thereafter and any principal amount repaid by the Company is available for
re-borrowing. All outstanding principal and interest outstanding are
required to be repaid on October 28, 2014. The Company granted WGI a
security interest in substantially all the assets of the Company and the Company
made customary representations and covenants to WGI. Any loan
advance requires the satisfaction of customary borrowing
conditions. Upon the occurrence of an event of default, (1) WGI may
require repayment of all outstanding amounts under the Amended Revolving Loan,
may terminate its commitment to make additional loans to the Company, and may
exercise its rights with respect to the security interest in substantially all
of the assets of the Company and (2) all outstanding amounts under the Amended
Revolving Loan will bear interest at the rate of 15% per annum. As of
March 31, 2010, the Company received aggregate advances under the Revolving Loan
of $3,800. As of May 12, 2010, a total principal balance
of $4,600 has been drawn under the Amended Revolving
Loan.
In
connection with the Amended Revolving Loan, on March 9, 2010, the
Company granted WGI a warrant to purchase up to approximately 6,000,000 shares
of common stock at an exercise price of $0.574 per share (the “March 2010 WGI
Warrant”). The March 2010 WGI Warrant was fully vested on issuance
and has a term of 10 years. The March 2010 WGI Warrant has a value of
$3,330 utilizing the Black-Scholes option pricing model with the following
assumptions: term of 10 years, volatility of 162%, dividends of $0 and a
risk free interest rate of 3.71%. The value of the March 2010 WGI
Warrant was recorded as a deferred debt issuance cost and will be amortized on a
straight-line basis over the remaining term of the Amended Revolving
Loan. As of March 31, 2010, $45 of the March 2010 WGI Warrant of
$3,330 had been amortized and the balance of the deferred debt issuance cost was
recorded as a $3,285 long term asset.
7.
Stockholders’ Equity
April
2009 WGI and ACN DPS Transaction.
On April 6,
2009, the Company completed a private placement of securities to WGI pursuant to
the terms of a Securities Purchase Agreement, dated December 12, 2008 (the
“Securities Purchase Agreement”). In connection with the transaction, the
Company issued to WGI a warrant to purchase up to approximately 140.0 million
shares of common stock in certain circumstances (the “Anti-Dilution
Warrant”). The Anti-Dilution Warrant entitled WGI to purchase up to
140.0 million shares of common stock at an exercise price of $0.01 per share to
the extent the Company issues any capital stock upon the exercise or conversion
of (i) any warrants, options and other purchase rights that were outstanding as
of April 6, 2009 (“Existing Contingent Equity”), (ii) up to 19.7 million shares
underlying future options, warrants or other purchase rights issued by the
Company after April 6, 2009 (“Future Contingent Equity”), or (iii) the ACN 2009
Warrant (See below). The Anti-Dilution Warrant is designed to ensure
that WGI may maintain ownership of 63% of the issued and outstanding shares of
the Company’s capital stock in the event that any of the Company’s capital stock
is issued in respect of the Existing Contingent Equity, the Future Contingent
Equity or the ACN 2009 Warrant. The term of the Anti-Dilution Warrant
is ten years from the date of issuance, and the shares subject to the
Anti-Dilution Warrant will be decreased proportionally upon the expiration of
Existing Contingent Equity, Future Contingent Equity and the ACN 2009
Warrant.
The
following table summarizes, as of March 31, 2010, each contingent equity
category under the Anti-Dilution Warrant and the exercisability of the
Anti-Dilution Warrant.
Shares Under Contingent Equity Categories
|
||||||||||||||||||||
Issuable as
of April 6, 2009 |
As of March 31, 2010
|
|||||||||||||||||||
Contingent
Equity
Categories |
Terminated
or Expired Shares |
Shares Not
Exercisable |
Shares
Exercisable |
Total Shares
Issuable (Exercisable and Non-Exercisable) |
||||||||||||||||
Existing
Contingent Equity
|
24,318,869 | 5,982,147 | 4,602,921 | 13,733,801 | 18,336,722 | |||||||||||||||
Future
Contingent Equity
|
19,689,182 | 98,639 | 18,590,543 | 1,000,000 | 19,590,543 | |||||||||||||||
ACN
2009 Warrant
|
38,219,897 | 0 | 38,219,897 | 0 | 38,219,897 | |||||||||||||||
Total
Contingent Equity
|
82,227,948 | 6,080,786 | 61,413,361 | 14,733,801 | 76,147,162 | |||||||||||||||
Anti-Dilution
Warrant
(Total
Contingent Equity * 1.7027027)
|
140,009,750 | 10,353,771 | 104,568,696 | 25,087,283 | 129,655,978 |
10
Concurrently
with the closing on April 6, 2009 of the transactions contemplated by the
Securities Purchase Agreement, the Company entered into a commercial
relationship with ACN DPS pursuant to which it agreed to design and sell video
phones to ACN DPS (the “Commercial Relationship”). As part of the Commercial
Relationship, the Company entered into two agreements with ACN DPS: a Master
Purchase Agreement pursuant to which ACN DPS committed to purchase 300,000
videophones over a two-year period (the “Master Purchase Agreement”) and a
Software Development and Integration and Manufacturing Assistance Agreement
pursuant to which ACN DPS committed to provide us with $1,200 to fund associated
software development costs. In connection with the Commercial Relationship, the
Company granted ACN DPS a warrant to purchase up to approximately 38.2 million
shares of Common Stock at an exercise price of $0.0425 per share (the “ACN 2009
Warrant”). The ACN 2009 Warrant granted to ACN DPS will vest incrementally based
on ACN DPS’s purchases of video phones under the Master Purchase
Agreement.
On March
30, 2010, the Company entered into the First Amendment (the “MPA Amendment”) to
the Master Purchase Agreement with ACN DPS. Among other changes, the MPA
Amendment amends the Master Purchase Agreement as follows:
·
|
As
soon as practicable after the Company provides a demonstration to ACN DPS
of the working video phone contemplated by the Master Purchase Agreement,
ACN DPS will issue its first purchase order under the Master Purchase
Agreement for 80,000 video phones.
|
·
|
ACN
DPS will pay the Company 50% of the purchase price for video phones
pursuant to a purchase order upon the later of (a) acceptance of the
purchase order by the Company and (b) five (5) weeks prior to the delivery
of video phones to ACN DPS at the Company’s manufacturing facility. ACN
DPS will pay the Company the remaining 50% of the purchase price upon
delivery of the video phones to ACN DPS at the Company’s manufacturing
facility.
|
In
connection with the MPA Amendment, on March 30, 2010 the Company granted ACN DPS
a warrant to purchase up to 3 million shares of common stock at an exercise
price of $0.0425 per share (the “ACN 2010 Warrant”). The ACN 2010 Warrant will
vest incrementally based on ACN DPS’s purchases of video phones under the Master
Purchase Agreement, as amended by the MPA Amendment.
Current
accounting principles require that revenue generated be reduced to reflect the
extent that ACN 2009 Warrant and ACN 2010 Warrant are determined to be
consideration given by a vendor to a customer for which an otherwise
identifiable benefit has not been received. The Company will record a charge for
the fair value of the portion of the ACN 2009 Warrant and ACN 2010 Warrant
earned from the point in time when shipments of units are initiated to ACN DPS
through the vesting date. Final determination of fair value of the ACN 2009
Warrant will occur upon actual vesting. Applicable accounting guidance requires
that the fair value of the ACN 2009 Warrant and the ACN 2010 Warrant be recorded
as a reduction of revenue to the extent of cumulative revenue recorded from ACN
DPS.
A summary
of the Company’s warrant activity for the three months ended March 31, 2010, is
as follows:
Warrants
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contract
Life
|
||||||||||
Outstanding,
January 1, 2010
|
168,755,235
|
$
|
0.04
|
9.22
|
||||||||
Granted
|
||||||||||||
March
2010 WGI Warrant (See Note 6)
|
6,000,000
|
0.57
|
||||||||||
ACN
2010 Warrant
|
3,000,000
|
0.04
|
||||||||||
Exercised
|
-
|
-
|
||||||||||
Cancelled
/ Forfeited/ Expired
|
-
|
-
|
||||||||||
Outstanding,
March 31, 2010
|
177,755,235
|
$
|
0.06
|
8.69
|
||||||||
Exercisable,
March 31, 2010
|
31,966,642
|
|
Stock
Option Plan
In
December 1996, the Company adopted the 1996 Stock Option Plan (“1996
Plan”). This plan provided for the grant of stock options to officers,
directors, employees and consultants. Grants under this plan may consist of
options intended to qualify as incentive stock options (“ISOs”) or nonqualified
stock options that are not intended to so qualify (“NQSOs”).
11
In
October 2004, the Company’s stockholders approved the 2003 Equity Incentive Plan
(“2003 Plan”). This plan replaced the 1996 Plan for new grants. No additional
shares were reserved for the new plan but rather all available shares under the
1996 Plan were made available for the new plan. In addition to ISOs and NQSOs,
the 2003 Plan also provides for performance based awards and restricted
stock.
On May
26, 2009, the Company’s Board of Directors approved the terms of Amendment No. 1
(the “Amendment”) to the 2003 Plan. The Amendment, among other things, increased
the maximum number of shares of common stock that may be issued or transferred
under the 2003 Plan to 26,500,000 and increased the maximum amount of shares
that may be issued in any fiscal year to any single participant in the 2003 Plan
underlying an option award to 2,000,000 shares.
Both the
1996 Plan and its successor, the 2003 Plan, are administered by a committee of
the Board of Directors. The committee determines the term of each award,
provided, however, that the exercise period may not exceed ten years from the
date of grant, and for ISOs, in certain instances, may not exceed five years. As
of March 31, 2010, there were 2,392,142 shares available for grant under the
2003 Plan and 21,157,563 options and restricted shares outstanding.
The
weighted-average fair value per share of options granted were $0.54 and $0.30
during the three months ended March 31, 2010 and 2009, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes fair value option valuation model. The following weighted-average
assumptions were used for grants in 2010 and 2009, respectively: expected
volatility of 149.9% and 157.0%; average risk-free interest rates of 2.77% and
2.00%; dividend yield of 0%; and expected lives of 6.25 years.
The
Company accounts for all stock based compensation as an expense in the financial
statements and associated costs are measured at the fair value of the award on
the date of grant. The Company also recognizes the excess tax benefits related
to stock option exercises as financing cash inflows instead of operating
inflows. As a result, the Company’s net (loss) income before taxes for the three
months ended March 31, 2010 and 2009 included approximately $384 and $64,
respectively, of stock based compensation. The stock based compensation expense
is included in general and administrative expense in the condensed consolidated
statements of operations. The Company has selected a “with-and-without” approach
regarding the accounting for the tax effects of share-based compensation awards.
A summary
of the Company’s stock options is presented below:
Stock Options
|
Weighted-Average
Exercise Price
|
Aggregate Intrinsic
Value
|
||||||||||
Outstanding,
December 31, 2009
|
21,641,878
|
$
|
0.14
|
|||||||||
During
the Period January 1, 2010 through March 31, 2010:
|
||||||||||||
Granted
|
560,000
|
$
|
0.
57
|
|||||||||
Exercised
|
(1,350,315
|
)
|
$
|
(0.11
|
)
|
|||||||
Cancelled/forfeited
|
(2,000
|
)
|
$
|
(0.11
|
)
|
|||||||
Outstanding,
March 31, 2010
|
20,849,563
|
$
|
0.41
|
$
|
3,938,479
|
|||||||
Exercisable,
March 31, 2010
|
1,992,848
|
$
|
0.16
|
$
|
240,406
|
As of
March 31, 2010, there was $4,869 of total unrecognized compensation arrangements
granted under the Plan. The cost is expected to be recognized through
2014.
The 2003
Plan provides for performance share grants of restricted shares of common stock,
which are bookkeeping entries representing a right to receive a payment in cash,
shares of common stock, or a combination thereof as determined by the
Compensation and Stock Option Committee equal to the value of the shares of
common stock on achievement of performance criteria. An aggregate of 1,151,000
restricted shares were granted on October 3, 2007 and December 20, 2007 to
certain executives that vest upon the achievement of certain performance
criteria. As of March 31, 2010, 308,000 of the restricted shares remain
outstanding with the balance having been cancelled or forfeited. These awards
vest pursuant to the following performance criteria: (a) 10% of the shares vest
upon achieving each of a 10%, 20%, 30% 40% and 50% increase in the Company’s
total gross revenue in a quarter over its third quarter 2007 total gross revenue
shown on its statement of operations as reported in its SEC filings, (b) 25% of
the shares vest upon the Company’s achievement of a quarterly operating cash
break even (defined as zero or positive “net cash provided by operations”
consistent with or as reported on the “Consolidated Statement of Cash Flows” in
the financial statements filed with SEC) and (c) 25% of the shares vest upon the
Company’s achievement of 10% net income as a percent of revenue
12
It was
determined that it was more likely than not that the remaining 308,000
outstanding restricted shares, with a fair value of $83, would vest. As such,
the Company is amortizing the fair value of these shares over the expected
period that they will vest and recorded compensation expense of $8 and $0 for
these grants for each of the three months ended March 31, 2010 and 2009,
respectively. There were no changes to the restricted shares during the quarter
ended March 31, 2010.
8.
Commitments and Contingencies
Leases
On March
24, 2010, the Company entered into an Office Space Lease (the “Lease”), with
Horizon Office Development I, L.P., pursuant to which the Company will lease
approximately 18,713 square feet of office space at Horizon II, 3800 Horizon
Boulevard, Bensalem, Pennsylvania, at the Horizon Corporate Center. The office
space comprises part of the second floor of the building, and will be used for
engineering, corporate and administrative operations and activities. The new
premises are expected to be available for occupancy in the third quarter of 2010
following completion of leasehold improvements. The Lease has a term of 89
months from the commencement date. Following a full abatement of rent for the
first 5 months of the Lease term, the initial annual base rent is approximately
$449. The annual base rent increases each year to certain fixed amounts over the
course of the term as set forth in the Lease and will be approximately $505 in
the seventh year. In addition to the base rent, the Company will also pay its
proportionate share of building operating expenses, insurance expenses, real
estate taxes and a management fee. The Company paid a security deposit of
approximately $187 as security for its full and prompt performance of the terms
and covenants of the Lease.
The
Company has two options to extend the Lease for a period of 60 months each. Each
option to extend will be at 95% of the then market rent rate. The Company is
permitted to terminate the Lease as of the 65th month of the Lease term upon at
least 6 months prior notice, compliance with certain other conditions and the
payment of a termination fee equal to the amount of unamortized broker
commissions paid by landlord plus the unamortized amount of tenant improvement
costs and expenses expended by landlord. The Company has the right of first
offer during the Lease term, subject to certain conditions, to lease additional
space on the second and third floors of the building.
Disclosure
of Contractual Obligations
The
future minimum contractual lease commitments under non-cancelable leases for
each of the fiscal years ending December 31, are as follows:
2010
(April 1 to December 31, 2010)
|
$
|
11
|
||
2011
|
461
|
|||
2012
|
470
|
|||
2013
|
468
|
|||
2014
|
477
|
|||
Thereafter
|
1,487
|
|||
Total
|
$
|
3,374
|
Legal
Proceedings
From time
to time, the Company becomes involved in various legal proceedings, claims,
investigations and proceedings that arise in the normal course of operations.
While the results of such claims and litigation cannot be predicted with
certainty, the Company is not currently aware of any such matters that it
believes would have a material adverse effect on its financial position, results
of operations or cash flows. In accordance with generally accepted accounting
principles, the Company makes a provision for a liability when it is both
probable that a liability has been incurred and the amount of the loss or range
of loss can be reasonably estimated. These provisions are reviewed at least
quarterly and adjusted to reflect the impacts of negotiations, settlements,
rulings, advice of legal counsel, and other information and events pertaining to
a particular case.
13
9. Related
Party Transactions
As of
March 31, 2010, the Company reported $1,151 of related party liabilities,
consisting of $1,075 of accounts payable to ACN for purchases of inventory and
services and $76 of accrued interest to WGI on loan advances pursuant to the
Revolving Loan. The Company leases administrative, sales and customer
operations office space from related parties in Rochester, New York and Concord,
North Carolina, with combined annual lease costs not material to the
Company.
Financial
instruments that potentially subject the Company to a concentration of credit
risk principally consist of cash and cash equivalents and accounts
receivable. At times, the Company’s cash and cash equivalents may be
uninsured or in deposit accounts that exceed the Federal Deposit Insurance
Corporation insurance limit. At March 31, 2010, all of the Company’s cash
was held at one financial institution.
Accounts
receivable primarily consisted of receivables from the sales of its video phone
service, and from the sale of video phones to distributors, service providers
and from its web site. As a result of the creditworthiness and
payment history related to these sales, there was an allowance for potential
credit losses of $42 as of both March 31, 2010 and December 31,
2009.
Sales to
major customers, in excess of 10% of total revenues and accounts receivable,
were as follows for each of the three months ended March 31, 2010 and 2009 and
accounts receivables of March 31, 2010 and December 31, 2009 were as
follows:
Customer
|
Sales
|
Accounts
Receivable
|
||||||||||||||
|
For
the Three
Months Ended March 31, 2010 |
For
the Three
Months Ended March 31, 2009 |
As
of March 31,
2010 |
As
of December
31, 2009 |
||||||||||||
A
|
68 | % | 64 | % | 0 | 96 | % | |||||||||
B
|
0 | 26 | % | 0 | 0 |
As of
March 31, 2010, Kenmec is the sole direct volume manufacturer of video phones to
the Company. A formal relationship was established with Kenmec in
November 2009. Kenmec is a Taiwanese manufacturer and distributor of high
performance, high speed data and computer networking products. The
components and raw materials used in the Company’s video phone product are
generally available from a multitude of vendors and are sourced based by Kenmec,
among other factors, on reliability, price and availability.
In
addition, ACN has agreed to provide to the Company the ability to purchase from
time to time the Iris 3000 video phone. During the three months ended
March 31, 2010, the Company purchased $742 of Iris 3000 video phones from ACN.
11.
Client and Segment Data
The
Company’s reportable operating segments consist of the following two
business segments principally based upon the sale and distribution channels of
the Company’s products and services: Consumer Services and OEM Direct. The
reporting for the Consumer Services segment includes the revenue and cost of
revenues for products and related recurring services. The reporting for the OEM
Direct segment includes the revenue and cost of revenues for digital video
phones and maintenance services.
These
product and service channels are provided to different customer groups, and are
managed under a consolidated operations management. The
Company’s reportable segments have changed from the prior year to accommodate
the refinement of selling and distribution of the Company’s products and
services into these two channel groups. Total revenues by segment include
revenues to unaffiliated customers. The Company evaluates performance based on
revenue and gross margin. Gross margin is net revenues less costs of
goods sold.
14
The
following tables summarize financial information about the Company’s business
segments for the three months ended March 31, 2010 and 2009.
For the three months ended March 31, 2010
|
||||||||||||
Consumer
Services |
OEM Direct
|
Consolidated
|
||||||||||
Revenues
|
$ | 87 | $ | 200 | $ | 287 | ||||||
Gross
Profit
|
$ | 77 | $ | 32 | $ | 109 | ||||||
Identifiable
Assets
|
$ | 909 | $ | 450 | $ | 1,359 |
For the three months ended March 31, 2009
|
||||||||||||
Consumer
Services |
OEM Direct
|
Consolidated
|
||||||||||
Revenues
|
$ | 109 | $ | 1,129 | $ | 1,238 | ||||||
Gross
Profit
|
$ | 96 | $ | 228 | $ | 324 | ||||||
Identifiable
Assets
|
$ | 68 | $ | 1,870 | $ | 1,938 |
The
identifiable assets noted above include inventory and account receivables, as
applicable to each segment.
12.
Subsequent Events
The
Company evaluates events that have occurred after the balance sheet date, but
before the financial statements are issued. Based upon the
evaluation, the Company did not identify any subsequent events that would have
required adjustment or disclosure in the condensed consolidated financial
statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollar amounts contained in this Item 2 are in thousands,
except for share and per share amounts)
FORWARD-LOOKING
AND CAUTIONARY STATEMENTS
From time
to time, we may provide information, whether orally or in writing, including
those contained in the following Management’s Discussion and Analysis of
Financial Condition and Results of Operations, which are deemed to be
“forward-looking” within the meaning of the Private Securities Litigation Reform
Act of 1995. Any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking
statements. These forward-looking statements and other information
are based on our beliefs as well as assumptions made by us using information
currently available. The words “if,” “will,” “predicts,”
“may,” “should,” “believe,” “anticipate,” “future,” “forward,” “potential,”
“estimate,” “reinstate,” “opportunity,” “goal,” “objective,” “continue,”
“exchange,” “growth,” “outcome,” “could,” “expect,” “intend,” “plan,”
“strategy,” “provide,” “commitment,” “result,” “seek,” “pursue,” “ongoing,”
“include” or in the negative of such terms or comparable terminology and similar
expressions, as they relate to us, are intended to identify forward-looking
statements. In accordance with the provisions of the Private
Securities Litigation Reform Act of 1995, we are making investors aware that
such forward-looking statements, because they relate to future events, are by
their very nature subject to many important factors that could cause actual
results to differ materially from those contemplated by the forward-looking
statements. Factors and risks that could cause actual results to
differ materially from those set forth or contemplated in forward looking
statements include the risks identified in our filings with the Securities and
Exchange Commission, including the risks identified in “Item 1A. Risk Factors”
in our Annual Report on Form 10-K for the fiscal year ended December 31,
2009. Forward-looking statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from such forward looking statements or
expectations. Readers are also cautioned not to place undue reliance
on these forward looking statements which speak only as of the date these
statements were made. Except as required by law, we do not intend to
update or revise any forward looking statements, whether as a result of new
information, future events or otherwise.
15
General
We are a
leading provider of digital voice and video phone services and next generation
video phones. We design and develop innovative digital video phones
featuring high quality, real-time, two-way video. We also provide a
turn-key digital voice and video communication services platform supplying
complete back-end support services with a focus on best-in-class customer
service. The unique combination of functional design, advanced
technology and use of IP broadband networks provides true-to-life video
communication. As a result, we bring family and friends closer
together through an immediate video connection allowing them to instantly hear
and see each other for a face-to-face conversation.
We are
transitioning from a business model focused primarily on one-time digital video
phone equipment sales to delivering an integrated audio and video telephony
solution. Upon completion of the redevelopment of our video phone
platform, we will not only offer what we believe is an industry leading line of
consumer video phones but we will also provide a turnkey digital voice and video
phone service. By building a service that is able to not only provide
video telephony, but also serve as a home’s primary telephone service, we enable
a recurring-revenue based business model that encourages service loyalty and one
where we are able to bundle in the cost of the video phone
itself. The end result is a lower start-up cost to the consumer
driving faster market adoption of our video phones. Further, we
believe WorldGate will be unique in the market in that we will offer an
end-to-end solution – digital video phones fully integrated with a digital voice
and video phone service – thus ensuring a quick and trouble-free
installation process.
We have
two reportable business segments: Consumer Services and OEM Direct. The Consumer
Services segment is aimed at the marketing and distribution of products and
related recurring services to end users. In the Consumer Services segment, we
market to three principal groups: (i) directly to retail consumers through the
Internet and our corporate website, (ii) through commissioned independent sales
agents, and (iii) on a wholesale basis through established telecommunication
providers who will offer our video phone bundle as a product extension to their
existing customer base. The OEM Direct segment is focused on selling digital
video phones and maintenance services directly to telecommunications service
providers who already have a digital voice and video management and network
infrastructure, such as incumbent service providers, CLECs, international
telecom service providers and cable service providers.
Trends
in Our Industry.
On
March 16, 2010, the Federal Communications Commission released its National
Broadband Plan, which seeks to support broadband deployment and programs to
encourage broadband adoption for the approximately 100 million U.S.
residents who do not have broadband at home. We expect the trend of greater
broadband adoption to continue. We benefit from this trend because our service
requires a broadband Internet connection and our potential addressable market
increases as broadband adoption increases.
Critical
Accounting Policies and Estimates.
Our
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United
States. These generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of net revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Our
significant accounting policies are described in the Management’s Discussion and
Analysis section and the notes to the consolidated financial statements included
in our annual report on Form 10-K for the fiscal year ended December 31, 2009.
Judgments and estimates of uncertainties are required in applying our accounting
policies in many areas. Following are some of the areas requiring significant
judgments and estimates: inventory valuation, stock based compensation,
valuation of warrants, and deferred tax asset valuation allowances. Management
has discussed the development and selection of these policies with the Audit
Committee of our Board of Directors, and the Audit Committee of the Board of
Directors has reviewed our disclosures of these policies. There have been no
material changes to the critical accounting policies or estimates reported in
the Management’s Discussion and Analysis section or the audited financial
statements for the year ended December 31, 2009 as filed with the Securities and
Exchange Commission.
16
Results
of Operations for the Three Ended March 31, 2010 and March 31,
2009.
Revenues.
For the three months ended March 31,
|
||||||||||||||||
2010
|
2009
|
Change
|
||||||||||||||
Revenues:
|
||||||||||||||||
Consumer
Services
|
$ | 87 | $ | 109 | $ | (22 | ) | (20 | )% | |||||||
OEM
Direct
|
$ | 200 | $ | 1,129 | $ | (929 | ) | (82 | )% | |||||||
Total
net revenues
|
$ | 287 | $ | 1,238 | $ | (951 | ) | (77 | )% |
Consumer
services revenues consist of shipments of products and related recurring
services to end users. For the three months ended March 31, 2010
compared with the three months ended March 31, 2009, the decrease of $22 in
Consumer Services revenues primarily reflects reduced recurring retail service
revenues of $19 resulting from reduced shipments of video
phones.
Direct
OEM revenues consist of digital video phones and maintenance services sold
directly to telecommunications service providers who already have a digital
voice and video management and network infrastructure. For the three
months ended March 31, 2010 compared with the three months ended March 31, 2009,
the decrease of $929 in OEM Direct revenues primarily reflects $795 of non
recurring engineering services revenue recognized in the first quarter of 2009
related to the settlement of the dispute with Aequus in January
2009. Additionally, there was $139 of reduced shipments of video
phones during the three months ended March 31, 2010 compared to the same period
in 2009 to our Video Relay Service (“VSR”) provider customers.
One
customer represented 68% and 64%, respectively, of our total revenue for the
three months ended March 31, 2010 and 2009.
Cost
of Revenues and Gross Profit
For the three months ended March 31,
|
||||||||||||||||
2010
|
2009
|
Change
|
||||||||||||||
Cost of
Revenues:
|
||||||||||||||||
Consumer
Services
|
$ | 10 | $ | 13 | $ | (3 | ) | (23 | )% | |||||||
OEM
Direct
|
$ | 168 | $ | 901 | $ | (733 | ) | (81 | )% | |||||||
Total
Cost of Revenues
|
$ | 178 | $ | 914 | $ | (736 | ) | (81 | )% | |||||||
Gross
Profit:
|
||||||||||||||||
Consumer
Services
|
$ | 77 | $ | 96 | $ | (19 | ) | (20 | )% | |||||||
OEM
Direct
|
$ | 32 | $ | 228 | $ | (196 | ) | (86 | )% | |||||||
Total
Gross Profit
|
$ | 109 | $ | 324 | $ | (215 | ) | (66 | )% |
Cost of
Revenues.
The cost
of revenues for the Consumer Services business segment consists of direct costs
related to product and delivery costs relating to the deliveries of video phones
to end user customers. For the three months ended March 31, 2010
compared with the three months ended March 31, 2009, the decrease of $3 in cost
of revenues for the Consumer Services business segment primarily reflects
slightly reduced shipments of video phones to our retail
customers.
The cost
of revenues for the OEM Direct business segment consists of direct costs related
to product and delivery costs related to deliveries of video phones primarily to
resellers and costs related to non-recurring engineering services
revenues. For the three months ended March 31, 2010 compared with the
three months ended March 31, 2009, the decrease of $733 in cost of revenues for
the OEM Direct business segment primarily reflects a $600 reserve for excess and
obsolete inventory recorded during the three months ended March 31,
2009. There was no inventory reserve recorded during the three months
ended March 31, 2010. In addition to the inventory reserve noted
above, for the three months ended March 31, 2010 cost of revenues were reduced
by $133 as a result of the reduced shipments to our VSR customers, when compared
to the same period in 2009.
17
Gross
Profit.
For the
three months ended March 31, 2010 compared with the three months ended March 31,
2009, the decrease of $19 in gross profit for the Consumer Services business
segment primarily reflects a decrease of $19 in product revenues. For the three
months ended March 31, 2010 compared with the three months ended March 31, 2009,
the decrease of $196 in gross profit for the OEM Direct business segment
primarily reflects reduced non recurring engineering service revenues and
reduced shipments of video phones to VRS customers. There were no non-recurring
engineering service revenues recorded during the three months ended March 31,
2010. The gross profit for the three months ended March 31, 2009 included a $600
inventory reserve described above in Cost of Revenues.
Expenses
From Operations
For the three months ended March 31,
|
||||||||||||||||
2010
|
2009
|
Change
|
||||||||||||||
Expenses
from Operations:
|
||||||||||||||||
Engineering
and development
|
$ | 921 | $ | 502 | $ | 419 | 83 | % | ||||||||
Operations
|
$ | 215 | $ | 120 | $ | 95 | 79 | % | ||||||||
Sales
and marketing
|
$ | 312 | $ | 31 | $ | 281 | 906 | % | ||||||||
General
and administrative
|
$ | 1,297 | $ | 892 | $ | 405 | 45 | % | ||||||||
Depreciation
and amortization
|
$ | 88 | $ | 40 | $ | 48 | 120 | % | ||||||||
Total
Expenses from Operations
|
$ | 2,833 | $ | 1,585 | $ | 1,248 | 79 | % |
Engineering and
Development. Engineering and development expenses primarily consist of
compensation, and the cost of design, programming, testing, documentation and
support of our video phone product. For the three months ended March 31, 2010
compared with the three months ended March 31, 2009, the increase of $419 in
engineering and development expenses primarily reflects the increased
development effort on the next generation video phone consisting of staff
compensation costs that increased by $253 and certain product developmental
expenditures that increased by $164.
Operations.
Operations expenses consist primarily of the indirect cost of providing the
software systems that enable us to manage our network and service offering and
the resources necessary to deliver these services, including our network
systems, customer portal, our customer service center, billing expenses, and
logistics and inventory management, For the three months ended March 31, 2010
compared with the three months ended March 31, 2009, the increase of $95 in
operations expenses primarily reflects increased consulting fees of $37,
increased customer care and network service costs of $76, and increased travel
expenditures of $29. Partially offsetting these increases were reduced staff
compensation costs of $42 for the three months ended March 31, 2010 compared to
the same period in 2009.
Sales and Marketing.
Sales and marketing expenses consist primarily of compensation attendance at
conferences and trade shows, travel costs, advertising, promotions and other
marketing programs related to the continued sales of our video phone products
and services. For the three months ended March 31, 2010 compared with the three
months ended March 31, 2009, the increase of $281 in sales and marketing
expenses primarily reflects a staff compensation cost increase of $107,
increased travel expenditures of $32 and $136 of increased trade show and
marketing expenditures that are part of the promotional effort for development
and growth of the new Consumer Services business segment.
General and
Administrative. General and administrative expenses consist primarily of
expenditures for administration, office and facility operations, as well as
finance and general management activities, including legal, accounting and
professional fees. For the three months ended March 31, 2010 compared with the
three months ended March 31, 2009, the increase of $405 in general and
administrative expenses primarily reflects an increase of $104 in consulting
fees and an increase of $321 in non-cash based compensation costs from the
issuance of employee stock options (see Note 7 of the accompanying consolidated
financial statements).
Other
Income and Expenses
For the three months ended March 31,
|
||||||||||||||||
2010
|
2009
|
Change
|
||||||||||||||
Other
Income and Expenses:
|
||||||||||||||||
Interest
and other income
|
$ | - | $ | 8 | $ | (8 | ) | (100 | )% | |||||||
Change
in fair value of derivative warrants and conversion
options
|
$ | - | $ | 3,925 | $ | (3,925 | ) | (100 | )% | |||||||
Amortization
of debt issuance costs
|
$ | (45 | ) | $ | - | $ | (45 | ) | (100 | )% | ||||||
Amortization
of debt discount
|
$ | - | $ | (683 | ) | $ | 683 | 100 | % | |||||||
Income
from service fee contract termination
|
$ | - | $ | 348 | $ | (348 | ) | (100 | )% | |||||||
Interest
expense
|
$ | (79 | ) | $ | (72 | ) | $ | (7 | ) | (10 | )% | |||||
Total
Other Income (Expense)
|
$ | (124 | ) | $ | 3,526 | $ | (3,650 | ) | 104 | % |
18
Interest and Other
Income. Interest and other income consisted of interest earned on cash
and cash equivalents. For the three months ended March 31, 2010 compared with
the three months ended March 31, 2009, the decrease of $8 in interest and other
income primarily reflects a refund received from a vendor during the three
months ended March 31, 2009. There were no refunds or other income received
during the three months ended March 31, 2010.
Change in fair value of
derivative warrants. The fair value adjustments of our derivative
warrants issued in our August 11, 2006 and October 13, 2006 private placements
were primarily a result of changes in our common stock price during the three
months ended March 31, 2009. For the three months ended March 31, 2010, there
were no derivative warrants outstanding, and as a result there were no changes
to the fair value recognized in our condensed consolidated financial statements
related to these derivative instruments.
Amortization of Debt
Issuance Costs and Debt Discount. For the three months ended March 31,
2009 the $683 of amortization of debt discount consists of the amortization of
the secured convertible debentures issued in the August 11, 2006 and October 13,
2006 private placements. For the three months ended March 31, 2009, the $45 of
amortization of debt issuance costs relates to warrants issued to WGI on March
9, 2010 (see Note 6 of the accompanying condensed consolidated financial
statements).
Income from Service Contract
Termination.
During the three months ended March 31, 2009, we realized $348 of other
income resulting from the payment from a
customer for the elimination of previously agreed service fees. There were no
contract termination fees realized during the three months ended March 31,
2010.
Interest Expense. For
the three months ended March 31, 2010 the interest expense of $79 primarily
reflects $66 of accrued interest under our Revolving Loan and Security
Agreement, as amended (see Note 6 of the accompanying condensed consolidated
financial statements), and $13 of the carrying costs under our ACN Service
Agreement (see Note 9 of the accompanying condensed consolidated financial
statements). The $72 of interest expense incurred for the three months ended
March 31, 2009 reflects interest under the secured convertible debentures issued
in the August 11, 2006 and October 13, 2006 (these secured convertible
debentures were terminated on April 6, 2009).
Income Taxes. We have
incurred net operating losses since inception and accordingly had no current
income tax provision and have not recorded any income tax benefit for those
losses, since realization of such benefit is currently uncertain.
Liquidity
and Capital Resources
Our
capitalization as of March 31, 2010 and as of December 31, 2009 is summarized
below:
March 31, 2010
|
December 31, 2009
|
|||||||
Capitalization:
|
||||||||
Short-term
debt, including current portion of long-term
debt
|
$ | - | $ | 22 | ||||
Long-term
debt
|
$ | 3,800 | $ | 1,400 | ||||
Total
debt
|
$ | 3,800 | $ | 1,422 | ||||
Stockholders’
deficiency
|
$ | (1,023 | ) | $ | (2,035 | ) | ||
Total
debt and stockholders’ deficiency (total
capitalization)
|
$ | 2,777 | $ | (613 | ) | |||
Percent
total debt to total capitalization
|
137 | % | 232 | % | ||||
Percent
long-term debt to equity
|
371 | % | 69 | % | ||||
Percent
total debt to equity
|
371 | % |
69
|
% |
The
weighted average annual interest rate on total debt at March 31, 2010 was 10.0%.
Total debt increased by $2,400 as of March 31, 2010 as compared to December 31,
2009. As of March 31, 2010, and subject to certain conditions which may limit
the amount that may be borrowed at any particular time, we had $1,200 of unused
borrowing capacity under our Revolving Loan and Security Agreement, as amended,
with WGI Investor LLC (“WGI”).
19
Sources of
Liquidity. As of March 31, 2010, our primary sources of
liquidity consisted of proceeds from borrowings from WGI under our Revolving
Loan and Security Agreement, as amended, pursuant to which WGI provides us a
line of credit in an aggregate principal amount of $5,000; the sale of video
phones and voice and video services; the exercise of options on our common
stock; and engineering development services. Cash and cash
equivalents are invested in investments that are highly liquid, are high quality
investment grade and have original maturities of less than three
months. As of March 31, 2010, we had cash and cash equivalents of
$649.
For the three months ended March 31,
|
||||||||||||||||
2010
|
2009
|
Change
|
||||||||||||||
Other Liquidity and Capital
Resources:
|
||||||||||||||||
Cash Used in Operations
|
$ | (2,443 | ) | $ | (862 | ) | $ | (1,581 | ) | (183 | )% | |||||
Cash Used in Investing
Activities
|
$ | (10 | ) | $ | (27 | ) | $ | (17 | ) | (63 | )% | |||||
Cash Provided by Financing
Activities
|
$ | 2,524 | $ | 780 | $ | 1,744 | 223 | % |
Cash Used in
Operations. For the three months ended March 31, 2010 compared with the
three months ended March 31, 2009, the increase of $1,581 in cash used in
operations primarily reflects increased operating expenses of $1,248 and
decreased gross profits of $215.
Cash Used in Investing
Activities. For the three months ended March 31, 2010 compared with the
three months ended March 31, 2009, the decrease of $17 in cash used in investing
activities primarily reflects decreased capital expenditures for furniture and
equipment.
Cash Provided by Financing
Activities. For the three months ended March 31, 2010 compared with the
three months ended March 31, 2009, the increase of $1,744 in cash provided by
financing activities primarily reflects advances of $2,400 received under our
Revolving Loan and Security Agreement, as amended, with WGI and $146 from the
exercise of stock options during the three months ended March 31, 2010. During
the three months ended March 31, 2009 we received $780 from notes
issued.
Operations and
Liquidity. We have incurred recurring net losses and have an accumulated
deficit of $278,593, stockholders’ deficiency of $1,023 and a working capital
deficiency of $1,169 as of March 31, 2010. On October 28, 2009, we entered into
a Revolving Loan and Security Agreement with WGI pursuant to which WGI agreed to
provide to the Company, a line of credit in a principal amount of $3,000. On
March 9, 2010, the principal amount of the line of credit was increased to
$5,000 (See Note 6 of the accompanying condensed consolidated financial
statements). As of March 31, 2010, the Company had received aggregate advances
under this agreement of $3,800, and during the period April 1, 2010 and through
May 12, 2010, the Company received an additional $800 in advances against the
increased credit line.
As of
March 31, 2010, we had $7,275 of liabilities and substantially all of our assets
are pledged pursuant to the Revolving Loan and Security Agreement, as amended.
These liabilities primarily included $3,800 under the Revolving Loan and
Security Agreement,as amended, $1,960 of accounts payable and accrued expenses,
$1,283 of deferred revenues and income, $180 of accrued compensation and
benefits and accrued terminated officer’s compensation of $42.
Our
ability to generate cash is dependent upon the sale of our product and services,
our ability to enter into arrangements to provide services, and on obtaining
cash through the private or public issuance of debt or equity securities. Given
that our voice and video phone business includes the development of a new video
phone with no market penetration in an underdeveloped market sector, no
assurances can be given that sufficient sales, if any, will materialize. The
lack of success of our sales efforts could also have an adverse impact on our
ability to raise additional financing.
Based on
management’s internal forecasts and assumptions regarding its short term cash
requirements, the increase in and full utilization of the expanded credit line
of the Revolving Loan (See Note 6 of the accompanying condensed consolidated
financial statements), the planned completion of the development of our new
video phone and the commencement of delivery of these new video phones expected
in May of 2010, the expected placement of purchase orders for the purchase of
units by ACN DPS in accordance with the ACN Master Purchase Agreement and the
accelerated terms under which we receive payment from ACN DPS for such order
(See Note 7 of the accompanying condensed consolidated financial statements),
and our current forecast for sales of other products and services, we currently
believe that we will have sufficient working capital to support our current
operating plans through March 31, 2011. However, there can be no assurance given
that these assumptions are correct or that the revenue projections associated
with sales of products and services will materialize to a level that will
provide us with sufficient capital or that sales will be sustainable over the
short and long term so as to obviate the need for additional
funding.
20
If these
assumptions do not materialize, or do not materialize in the timeframe we
project, we will need to obtain additional funding through the private or public
issuance of debt or equity securities. We continue to evaluate possibilities to
obtain additional financing through public or private equity or debt offerings,
asset securitizations, or from other sources to address the risks inherent in
our plans and to help insure that we have the adequate financial resources in
the event the realization of our plan requires additional time or is faced by
additional marketplace challenges.
We
continue to focus on the business elements we believe are important for our
sustainability. We continue to explore additional service and distribution sales
opportunities. We believe that growing the Consumer Services segment of our
business, which includes a recurring revenue stream, is an essential element in
the long term sustainability our operations. In addition, we are focused on
reducing the cost of our video phone which we believe facilitates the growth of
our product and services. Further, we believe that it is essential to maintain
our video technology leadership in order to support the growth of our
business.
There can
be no assurance given, however, that our efforts will be successful or that any
additional financing will be available and can be consummated on terms
acceptable to us, if at all. There can also be no assurance given that any
additional sales can be achieved through additional service and distribution
opportunities. If we are unable to obtain additional funds, and our plans are
not achieved in the planned time frame we may be required to reduce the size of
the organization which could have a material adverse impact on our
business.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
ITEM 4T.
CONTROLS AND PROCEDURES.
Evaluation of Disclosure
Controls and Procedures .
The
Company maintains disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) of Securities Exchange Act of 1934) that are designed to
ensure that information required to be disclosed in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to its management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding the
required disclosures. In designing and evaluating the disclosure controls and
procedures, the Company recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.
The
Company carried out an evaluation, under the supervision and with the
participation of management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures as of March 31, 2010. The Company’s Chief
Executive Officer and Chief Financial Officer concluded that as of March 31,
2010, its disclosure controls and procedures were designed properly and were
effective in ensuring that the information required to be disclosed by the
Company in the reports that we file and submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Commission’s rules and forms, and that such information is accumulated
and communicated to its management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
There is
no assurance that the necessary resources required under the new business model
are available going forward to ensure that our reporting systems will continue
to be appropriately designed or effective, or that a future material weakness
will not be found in our internal controls over financial reporting or
disclosure controls and procedures, which could result in a material
misstatement in future financial statements.
Change in Internal Control
over Financial Reporting .
21
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
Although
from time to time we may be involved in litigation as a routine matter in
conducting our business, we are not currently involved in any litigation which
we believe is material to our operations or balance sheet.
ITEM
6. EXHIBITS.
The
following is a list of exhibits filed as part of this report on Form
10-Q. Where so indicated, exhibits that were previously filed are
incorporated by reference. For exhibits incorporated by reference,
the location of the exhibit in the previous filing is indicated
parenthetically.
3.1
|
Certificate
of Elimination of the Series A Convertible Preferred Stock of WorldGate
Communications, Inc., dated March 26, 2010 (Incorporated by reference to
Exhibit 3.1 to our Current Report on Form 8-K filed March 31,
2010)
|
|
4.1
|
Revolving
Promissory Note, dated March 9, 2010, by WorldGate Communications, Inc.,
WorldGate Service, Inc., WorldGate Finance, Inc., Ojo Service LLC, and Ojo
Video Phones LLC in favor of WGI Investor LLC in a principal
amount of $5,000,000 (Incorporated by reference to Exhibit 4.1 to our
Current Report on Form 8-K filed March 9, 2010)
|
|
4.2
|
Warrant,
dated March 9, 2010, issued to WGI Investor LLC (Incorporated by reference
to Exhibit 4.2 to our Current Report on Form 8-K filed March 9,
2010)
|
|
4.3
|
Warrant,
dated March 30, 2010, issued to ACN Digital Phone Service, LLC
(Incorporated by reference to Exhibit 4.1 to our Current Report on
Form 8-K filed March 31, 2010)
|
|
10.1
|
First
Amendment to Revolving Loan and Security Agreement, dated March 9, 2010,
by and among WGI Investor LLC, WorldGate Communications, Inc., WorldGate
Service, Inc., WorldGate Finance, Inc., Ojo Service LLC, and Ojo Video
Phones LLC (Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed March 9, 2010)
|
|
10.2
|
Office
Space Lease, dated March 24, 2010, by and between Horizon Office
Development I, L.P. and WorldGate Service, Inc. (Incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed March 25,
2010)
|
|
10.3
|
First Amendment, dated March 30,
2010, to Master Purchase Agreement, by and between ACN Digital Phone
Service, LLC and Ojo Video Phones LLC [Certain
information in this exhibit has been omitted and has been filed separately
with the SEC pursuant to a confidential treatment request under
Rule 24b-2 of the Securities Exchange Act of 1934, as
amended]
(Incorporated by reference
to Exhibit 10.1 to our Current Report on Form 8-K filed March 31,
2010)
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a)*
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a)*
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of 2002**
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
by Section 906 of the Sarbanes-Oxley Act of
2002**
|
* Filed herewith
**
Furnished herewith
22
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.
WORLDGATE
COMMUNICATIONS, INC.
|
|||
Dated:
|
May
12, 2010
|
/s/ George E. Daddis Jr.
|
|
George
E. Daddis Jr.
|
|||
Chief
Executive Officer and President
|
|||
(Principal
Executive Officer)
|
|||
Dated:
|
May
12, 2010
|
/s/ Joel Boyarski
|
|
Joel
Boyarski
|
|||
Senior
Vice President, Chief Financial Officer and Treasurer
|
|||
(Principal
Financial and Accounting
Officer)
|