UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
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OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period
from to
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COMMISSION
FILE NUMBER 0-26140
Remote
Dynamics, Inc.
(Exact
name of registrant as specified in its charter)
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DELAWARE
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51-0352879
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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200
CHISHOLM PLACE, SUITE 120 PLANO,
TEXAS
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75075
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(214) 440-5200
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.0001 par value
(Title of
class)
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as define
in Rule 405 of the Securities Act). Yes
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No
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Indicate
by check mark whether the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate
by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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
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No
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
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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.
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Large
Accelerated Filer
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Accelerated
Filer
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Non-accelerated
Filer
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Smaller
reporting company
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(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
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State the
aggregate market value of the voting and non-voting equity held by
non-affiliates of the Registrant computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of March 25, 2009: $413,322.
Indicate
by check mark whether the issuer filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes
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No
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As of
March 25, 2009, 4,737,534,793 shares of the Registrant’s Common Stock were
outstanding.
Remote
Dynamics, Inc.
FORM
10-K
For
the Fiscal Year Ended December 31, 2008
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In
addition to the historical information contained herein, the discussion in this
Form 10-K contains certain forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties, such as
statements concerning: growth and anticipated operating results; developments
with our creditors; developments in our markets and strategic focus; new
products and product enhancements; potential acquisitions and the integration of
acquired businesses, products and technologies; strategic relationships and
future economic and business conditions. The cautionary statements made in this
Form 10-K should be read as being applicable to all related forward-looking
statements whenever they appear in this Form 10-K. Our actual results could
differ materially from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under the section captioned “Risk Factors” in
Item 1.A. of this Form 10-K as well as those cautionary statements and
other factors set forth elsewhere herein.
General
We
market, sell and support automatic vehicle location (“AVL”) and mobile resource
management solutions targeting companies that own and operate private vehicle
fleets, construction equipment, and unpowered assets such as containers and
trailers. Our AVL solutions are designed for diverse industry
vertical markets such as construction, field services, distribution, limousine,
electrical/plumbing, waste management, and government. Our core
technology, telematics, combines wireless communications, GPS location
technology, geospatial solutions and vehicle data integration with a
web-accessible application that aids in the optimization of remote business
solutions. We believe our fleet management solution contributes to
increased operator efficiency by improving the productivity of mobile workers
through real-time position reports, route-traveled information, and exception
based reporting designed to highlight mobile workforce inefficiencies. This
in-depth reporting enables our customers to correct those inefficiencies and
deliver cost savings to their bottom line.
Our
REDIview product line forms the basis of our current business
plan. We expect this product line to provide the foundation for a
growth in revenues and, if our revenues grow as we anticipate, ultimately
profitability. We do not expect to achieve profitability or
positive cash flow for 2009. Our plans for 2009 include growing our
subscriber base through direct sales to new and existing customers and
continuing to control our operating costs. However, there can be no
assurance that we will achieve our sales targets for 2009. Failure to do
so may have a material adverse effect on our business, financial condition and
results of operations. Moreover, despite actions to increase revenue,
control operating costs, and to improve profitability and cash flow, our
operating losses will continue through 2009 and net operating cash outflows will
continue through the second quarter of 2009.
We are
not in compliance with certain of our obligations relating to our secured
convertible notes. Our failure to comply with our obligations
relating to these securities exposes us to demands for immediate repayment (in
some cases, at a premium to outstanding principal) as well as default interest
and liquidated damages claims by the security holders.
We have obtained the agreement of
certain of our note holders to extend the payment schedule and maturity date of
the notes and have resumed making payments to certain of our note holders of
amounts due under the notes in the form of our common stock. We plan
to continue to explore alternatives to restructure or otherwise satisfy our
obligations to our note holders. However, we do not currently
have the cash on hand to repay amounts due under our secured convertible notes
if the note holders elect to exercise their repayment or other
remedies. If our efforts to restructure or otherwise satisfy
our obligations under the notes are unsuccessful,
and we are unable to raise enough money
to cover the amounts payable under the notes, we may be forced to restructure,
file for bankruptcy, sell assets or cease operations.
We had a
working capital deficit of $3.4 million, excluding the outstanding amount of our
secured convertible notes of $10.8 million, as of December 31,
2008. We believe that we will have sufficient
capital
to fund our ongoing operations through 2009, assuming that we are able to meet
our sales targets and to negotiate acceptable payment arrangements with our
senior security holders, vendors and other creditors. The sufficiency of
our cash resources depends to a certain extent on general economic, financial,
competitive or other factors beyond our control. We do not currently
have any arrangements for additional financing and we may not be able to secure
additional debt or equity financing on terms acceptable to us, or at all, at the
time when we need such financing. Furthermore, our ability to secure
certain types of additional financings is restricted under the terms of our
existing financing arrangements. There can be no assurance that we will be
able to consummate a transaction for additional capital prior to substantially
depleting our available cash reserves, and our failure to do so may force us to
restructure, file for bankruptcy, sell assets or cease operations.
Our
principal executive offices are located at 400 Chisholm Place, Suite 411, Plano,
Texas 75075, and our telephone number is (214) 440-5200. Our website
URL is www.remotedynamics.com. References to “we”, “us”, “our”, “Remote
Dynamics, Inc.”, or “RMTD” refer to Remote Dynamics, Inc. and its
subsidiaries. REDIview™ is a registered trademark of Remote Dynamics,
Inc.
Company
History and Recent Financings
We were
originally incorporated in Delaware in 1994. We have undergone a
number of changes in our business strategy and organization. We filed
for bankruptcy in 2004, and changed our name to “Remote Dynamics, Inc.” in
connection with our exit from bankruptcy that same year.
On
November 30, 2006, we agreed to acquire from Bounce Mobile Systems, Inc.
(“BMSI”) 100% of the capital stock of BounceGPS, Inc., a provider of mobile
asset management solutions, in exchange for:
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5,000
shares of our newly authorized series C convertible preferred stock
(initially convertible into 51% of our fully diluted shares of common
stock);
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A
series B subordinated secured convertible promissory note in the principal
amount of $660,000;
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An
original issue discount series B subordinated secured convertible
promissory note in the principal amount of
$264,000;
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A
series E-7 warrant to purchase 1,547 shares of common stock;
and
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A
series F-4 warrant to purchase 1,547 shares of common
stock.
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The
acquisition closed on December 4, 2006. As part of the acquisition of
BounceGPS, Inc., we acquired mobile subscribers, executive management and
marketing expertise.
Bounce
Mobile Systems, Inc. acquired control of our Company in the transaction and,
accordingly, we have treated the transaction as a “reverse merger” for financial
reporting purposes. Nonetheless, the historical operations of Remote
Dynamics, Inc. represent substantially all of our continuing business and
operations.
On
November 20, 2007, we completed an increase in the number of our authorized
shares of common stock to 750,000,000 and a one-for-fifty reverse stock split of
our common stock. On August 13, 2008, we completed an increase in the
number of our authorized shares of common stock to 5,000,000,000 and a
one-for-four-hundred reverse stock split of our common stock. The
share and per-share information disclosed within this Form 10-K reflect the
completion of these reverse stock splits.
On or
about April 13, 2009, we will complete an increase in the number of our
authorized shares of common stock to 15,000,000,000.
We have
historically relied on a series of financings and asset sales to fund our
ongoing operations. A summary of our recent financing history
is set forth below.
Series
A Note Financing
On
February 24, 2006, we closed a Note and Warrant Purchase Agreement with certain
institutional investors pursuant to which we sold $5.75 million of our series A
senior secured convertible notes and original issue discount series A notes
(collectively, “Series A Notes”) and common stock purchase warrants in a private
placement transaction. In the private placement, we received
proceeds of approximately $4.1 million in cash (after deducting brokers’
commission but before payment of legal and other professional fees, the 15%
original issue discount of $750,000 and the tendering of 50 shares of our Series
B preferred convertible stock with an aggregate face value of
$500,000).
The Series A Notes matured on February
23, 2008, and are currently due and payable.
The
Series A Notes are secured by
substantially all of our assets. The Series A Notes are convertible at the
option of the holder into our common stock at a fixed conversion price of
$0.000117, subject to adjustment for stock splits and combinations, certain
dividends and distributions, reclassification, exchange or substitution,
reorganization, merger, consolidation or sales of assets; issuances of
additional shares of common stock, and issuances of common stock
equivalents. We may make scheduled principal
installment payments in cash or in registered shares of its common stock. If
paid in common stock, certain conditions must be satisfied, and the number of
registered shares to be paid to the holder must be an amount equal to the
principal installment amount divided by eighty percent (80%) of the average of
the closing bid price for the ten (10) trading days immediately preceding the
principal payment date.
Under the
Series A Note and Warrant Purchase Agreement, Remote Dynamics made certain
covenants to the investors, including, as long as any notes or warrants remain
outstanding, to have authorized and reserved for issuance 120% of the
aggregate number of shares of the Company’s common stock needed for issuance
upon conversion of the notes and exercise of the warrants. The Company also
agreed to prepare and file resale registration statements with the SEC for the
shares of common stock underlying the notes and warrants. If the registration
statements are not filed or declared effective within specified time frames or
the Company fails to meet other specified deadlines, the investors are entitled
to monetary liquidated damages equal to 1.5% of the total amount invested by
such investor in the private placement, plus an additional 1.5% liquidated
damages for each 30-day period thereafter. The Company is obligated to maintain
the effectiveness of the registration statements until the earlier of (a) the
date when the underlying securities have been sold or (b) the date on which the
underlying shares of common stock can be sold without restriction under Rule
144(k).
We have
failed to comply with certain of our other obligations relating to the Series A
Notes, including our failure to make scheduled principal payments and to
register for resale the shares of common stock underlying the notes and warrants
issued in the Series A private placement. The Series A Notes provide
for a default interest rate of 10% per annum on the outstanding principal amount
of the notes for periods in which certain specified events of default occur and
are continuing and liquidated damages for non-compliance with our registration
obligations. As of December 31, 2008, we have accrued $960,927
in default interest and liquidated damages under the Series A
Notes.
Our
non-compliance with the terms of the notes also exposes us to the risk that our
note holders could seek to exercise prepayment or other remedies under the
notes. We have received one outstanding notice of default from a
holder of our Series A Notes. The notice demands immediate payment
in cash of $287,500. To date, we have made no payment in respect of the
note holder demand and it remains outstanding
In March,
2008, we resumed making payments to certain of our note holders of amounts due
under the notes by issuing shares of our common stock under the terms of the
notes. During 2008, we issued 55,669,326 shares of common stock as
partial principal payments on the Series A Notes in satisfaction of $548,000 of
obligations due under the notes. We expect to issue additional shares
of our common stock in payment of amounts due under the notes during 2009 and
thereafter. In general, the
shares
issued are available for immediate resale by the holders in accordance with Rule
144 under the Securities Act of 1933, as amended.
We do not
currently have the cash on hand to repay amounts due under our Series A Notes if
the note holders elect to exercise their repayment or other
remedies. If our efforts to restructure or otherwise satisfy
our obligations under the notes are unsuccessful, and we are unable to raise
enough money to cover the amounts payable under the notes, we may be forced to
restructure, file for bankruptcy, sell assets or cease operations.
Series
B Note Financing
On
November 30, 2006, we entered into a Note and Warrant Purchase Agreement with
BMSI and other accredited investors. Pursuant to the Note and Warrant
Purchase Agreement, we received $1,691,500 in gross proceeds from the
sale of up to (i) $1,691,500 principal amount of our series B subordinated
secured convertible promissory notes, (ii) $1,278,200 principal amount of our
original issue discount series B subordinated secured convertible promissory
notes, (iii) series E-7 warrants to purchase 306,963 shares of our common stock,
and (iv) series F-4 warrants to purchase 306,963 shares of our common
stock.
The
series B subordinated secured convertible promissory notes and the series B
original issue discount series B subordinated secured convertible promissory
notes (collectively, the “Series B Notes”) are secured by all of our assets,
subject to existing liens, are due on dates ranging from December 4, 2009 to May
2011 and began scheduled amortization of principal (in nine quarterly
installments) on dates ranging from August 1, 2007 to May 21,
2011. We may make principal installment payments in cash or in
registered shares of our common stock. If paid in common stock, certain
conditions must be satisfied, and the number of registered shares to be paid to
the holder must be an amount equal to the principal installment amount divided
by the lesser of (i) $1.00 and (ii) 90% of the average of the volume weighted
average trading prices of the common stock for the ten trading days immediately
preceding the principal payment. The Series B Notes are convertible
into our common stock at a conversion price of $0.000124 per share, subject to
adjustment for stock splits and combinations, certain dividends and
distributions, reclassification, exchange or substitution, reorganization,
merger, consolidation or sales of assets; issuances of additional shares of
common stock, and issuances of common stock equivalents.
Upon the
occurrence of specified events of default under the Series B Notes, the holders
may: (a) demand prepayment of the notes as described below, (b) demand that the
principal amount of the notes then outstanding be converted into shares of our
common stock, and/or (c) exercise any of the holders other rights or remedies
under the transaction documents or applicable law. If the holders
require us to prepay all or a portion of the notes, the prepayment price would
be equal to 120% of the principal amount of the notes. The holders
would also recover all other costs or expenses due in respect of the notes and
the other transaction documents.
As part
of the Series B Note financing, we agreed:
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pursuant
to the terms of "most favored nations" rights granted to the Series A note
holders investors, to issue in exchange for $1,013,755 principal amount of
the Series A Notes, an additional (i) $1,146,755 principal amount of
Series B Notes, (ii) $458,702 principal amount of Series B OID Notes,
(iii) series E-7 warrants to purchase 3,860 shares of our common stock,
and (iv) series F-4 warrants to purchase 3,860 shares of our common
stock. We have not received and will not receive any additional
proceeds from the exchange. As of December 31, 2007 and
December 31, 2008, We had issued (i) $1,003,394 principal amount of Series
B Notes, (ii) $401,357 principal amount of Series B OID Notes, (iii)
series E-7 warrants to purchase 2,352 shares of our common stock and (iv)
series F-4 warrants to purchase 2,352 shares of our common stock, in
exchange for $901,144 principal amount of the Series A
Notes. The exchange was completed as of December 31, 2007.
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to
issue, in exchange for 50 shares of our Series B convertible preferred
stock with an aggregate face value of $500,000, (held by SDS ) an
additional (i) $700,000 principal amount of Series B Notes, (ii) series
E-7 warrants to purchase 1,172 shares of our common stock, and
(iii) series F-4 warrants to purchase 1,172 shares of our
common stock. As of December, 31, 2007, this exchange was
completed in its entirety.
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to
pay to the placement agent for the transaction consideration consisting of
(a) a cash sales commission of $150,480, (b) warrants to purchase 822
shares of our common stock at an exercise price of $0.000124 per share (as
of December 31, 2008) and being exercisable for ten years, (c) series E-7
warrants to purchase 617 shares of our common stock, and (d) series F-4
warrants to purchase 617 shares of our common stock. We also
paid $60,000 to Strands Management Company, LLC for consulting work as
well as $59,816 in legal counsel fees as part of the private
placement.
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We have
failed to comply with certain of our other obligations relating to the Series B
Notes, including our failure to make scheduled principal payments and to
register for resale the shares of common stock underlying the notes and warrants
issued in the Series B private placement. The Series B Notes
provide for a default interest rate of 10% per annum on the outstanding
principal amount of the notes for periods in which certain specified events of
default occur and are continuing and liquidated damages for non-compliance with
our registration obligations. As of December 31, 2008, we have
accrued $800,077 in default interest and liquidated damages under the Series B
Notes.
Our
non-compliance with the terms of the notes also exposes us to the risk that our
note holders could exercise their prepayment or other remedies under the
notes.
In March,
2008, we commenced making payments to certain of our Series B note holders of
amounts due under the notes by issuing shares of our common stock under the
terms of the notes. During 2008, we issued 17,873,879 shares of
common stock as partial payments on the Series B Notes in satisfaction of
$264,000 of obligations due under the notes. We expect to issue
additional shares of our common stock in payment of amounts due under the notes
during 2009 and thereafter.
We do not
currently have the cash on hand to repay amounts due under our Series B Notes if
the note holders elect to exercise their repayment or other
remedies. If our efforts to restructure or otherwise satisfy
our obligations under the notes are unsuccessful, and we are unable to raise
enough money to cover the amounts payable under the notes, we may be forced to
restructure, file for bankruptcy, sell assets or cease operations.
Products
and Services
We market
and sell products and services in the AVL market in the United States. Our AVL
products are designed to maximize the productivity of a mobile workforce as well
as reduce vehicle mileage and fuel-related expenses.
We
commercially launched our current product offering, REDIview, in
2005. REDIview is an Internet and service bureau-based software
application that provides an extensive array of real-time and accurate mapping,
trip replay, and vehicle activity reports. REDIview includes a series
of exception-based reports designed to highlight inefficiencies in the
operations of a fleet of vehicles, construction equipment, or non-powered
assets, such as trailers or containers. Utilizing GPRS and ORBCOMM
satellite technology and our proven, high-capacity network service center,
customers may access their information securely through the Internet from any
personal computer or certain other devices.
REDIview
incorporates technologies that allow for fast and effective integration into
legacy applications operated by companies with vehicle fleets and mobile
workers. This design allows companies to easily extend their existing
supply chain management systems to the mobile workforce for transaction
processing and customer fulfillment. REDIview was also designed to be
hardware and network agnostic to provide the maximum flexibility in designing
solutions that best fit the customer’s specific needs.
The
REDIview mobile data logging units combine global positioning system (GPS)
technologies along with the latest in wireless and Internet protocol-based
communications to deliver real-time location, speed, and other conditions of the
vehicle on a minute-by-minute basis. In addition, the units may be configured to
accept additional sensor inputs regarding operations of the vehicle and vehicle
equipment.
Competition
We
believe that our primary competitors in the automatic vehicle location market
include:
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Largest Competitor
– Our
largest competitor is Trimble Navigation Limited. Trimble
entered our market in 2007 through its acquisition of @Road,
Inc. @Road's mobile resource management system enables vehicle
location, wireless voice and text communications, and remote transaction
processing with signature capture using a PDA. Trimble is an
international provider of GPS and other advanced positioning
solutions.
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Mid-Sized Competitors –
There are several other mid-sized companies that we routinely compete with
throughout the United States. Mid-sized competitors include:
Teletrac, Hughes Telematics, Telogis, Navtrak, Discrete
Wireless and Fleetmatics.
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Other Regional Competitors and
Resellers
- There are numerous smaller regional companies and
national resellers selling into the
market.
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Employees
At
December 31, 2008, we had 18 employees. Our employees are not
represented by a collective bargaining agreement. None of our
employees are represented by a labor organization, and we are not a party to any
collective bargaining agreement. We have not experienced any work stoppages and
consider our relations with our employees to be good.
Competition
in the recruiting of personnel in the AVL industry is intense. We believe that
our future success will depend in part on our continued ability to hire,
motivate and retain qualified management, sales and marketing, and technical
personnel. To date, we have not experienced significant difficulties in
attracting or retaining qualified employees.
Infrastructure
And Operations
Networks
.
We use wireless
data and/or voice technologies, combined with GPS satellite technology, for all
of our products. Our strategy is to select and use wireless networks
that provide the “best fit” for each product and application or specific
customer need.
Wireless Data
Transmission
. The REDIview product utilizes the general packet
radio service (“GPRS”) bearer channel of the GSM network to provide Internet
protocol based wireless data transmission. Currently, there are two
major carriers providing GSM/GPRS coverage in the United States: T-Mobile and
AT&T Wireless, both of which provide coverage in the major metropolitan
areas in the United States. These carriers have announced joint
arrangements to continue to expand GSM/GPRS coverage in the United States,
including interoperability among the two carriers. We believe the
coverage, bandwidth and price of the GSM/GPRS network make it best suited for
the next generation technology. We also use the ORBCOMM Satellite
network to provide services for customers that are in remote areas not covered
by the GSM footprint.
Navigation
Technology
.
GPS
technology allows customers to identify the location of any mobile asset at any
time via satellite. GPS is operated by the United States government, and
broadcasts navigational information from a network of dedicated satellites
orbiting the earth. GPS navigational receivers interpret signals from multiple
satellites to determine the receiver’s geographical coordinates, elevation and
velocity. GPS navigational signals can be received worldwide, without
adaptation of the receiver unit to foreign standards. The Company believes that
the network of GPS navigational satellites will be maintained by the United
States Defense Department in an operational status for the foreseeable
future.
Although stand-alone GPS units are available for purchase by any consumer at
relatively low cost, the Company believes that raw navigational information is
of little use in tracking assets unless the GPS receiver is integrated with a
computer system, such as the Company’s mobile communication units, to record
routes traveled relative to mapped roadways or to transmit position reports to a
central dispatcher.
Strategic
Service Alliances of the Company
AT&T
Wireless
.
The
Company provides GSM/GPRS data services to its REDIview customers pursuant to a
data reseller agreement with AT&T Wireless now known as AT&T Wireless
(“AT&T”) effective as of November 1, 2004 and a messaging agreement
effective September 27, 2004. The data reseller agreement and messaging
agreement have an initial term of two years and automatically renews for
successive one year terms unless either party provides the other party with
written notice of termination at least 30 days prior to the end of the initial
term or any renewal term. However, the data reseller agreement and
the messaging agreement may be terminated by AT&T or the Company for
convenience upon 90 days prior written notice.
If
AT&T terminates the data reseller agreement and messaging agreement and
ceases to provide GSM/GPRS services to the Company for resale to its customers,
the REDIview units in the Company’s base of installed REDIview customers would
no longer be able to send or receive data messages until the Company could reach
an agreement with another provider and retrofit such units to utilize the
GSM/GPRS service of such alternative provider. There can be no
assurances that the Company would be able to reach an agreement with another
wireless carrier for GSM/GPRS service and/or retrofit its existing REDIview
customer base to utilize the GSM/GPRS service of such alternative provider the
failure to do so would have a material adverse effect on the Company’s business,
financial condition and results of operations.
Key
Manufacturers
.
The Company does
not manufacture or assemble its products but purchases complete mobile units
from multiple manufacturers to minimize risk and not become dependent on one
supplier.
In
addition to the other information in this Form 10-K, the following factors
should be considered in evaluating Remote Dynamics, Inc. and our
business.
We
have operated at a significant loss in recent periods, have a substantial
working capital deficit, and may not have adequate funds to continue as a going
concern.
We have
incurred significant operating losses since our inception, and these losses will
continue for the near future. We may not ever achieve profitability. Even if we
do achieve profitability, we may not be able to sustain or increase profits on a
quarterly or annual basis. For 2008 and 2007, our independent
registered public accounting firm issued an opinion on our financial statements
which included an explanatory paragraph expressing substantial doubt about our
ability to continue as a going concern.
We do not
expect to achieve positive operating cash flow until the second quarter of
2009. Our plans for 2009 include growing our subscriber base through
direct sales to new and existing customers. However, there can be no
assurance that we will achieve our sales targets for 2009. Failure to do so may
have a material adverse effect on our business, financial condition and results
of operations. Moreover, despite actions to increase revenue and to
improve profitability and cash flow, our operating losses will continue in 2009
and net operating cash outflows will continue into at least the second quarter
of 2009.
Critical
success factors in our plans to achieve positive cash flow from operations
include:
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Ability to increase sales of the
REDIview product line.
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Retaining
existing customers.
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Training and development of new
sales staff.
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There can
be no assurances that any of these success factors will be realized or
maintained.
We had a
working capital deficit of $3.4 million, excluding the gross amount of our
outstanding secured convertible notes of $10.8 million, as of December 31,
2008. We believe that we will have sufficient capital to fund our
ongoing operations through 2009, assuming that we are able to meet our sales
targets and operating cost reduction plans and to negotiate acceptable payment
arrangements with our senior security holders, vendors and other
creditors. The sufficiency of our cash resources depends to a certain
extent on general economic, financial, competitive or other factors beyond our
control. We do not currently have any arrangements for additional financing and
we may not be able to secure additional debt or equity financing on terms
acceptable to us, or at all, at the time when we need such financing. Further,
our ability to secure certain types of additional financings is restricted under
the terms of our existing financing arrangements. There can be no assurance that
we will be able to consummate a transaction for additional capital prior to
substantially depleting our available cash reserves, and our failure to do so
may force us to restructure, file for bankruptcy, sell assets or cease
operations.
We
are currently not in compliance with our obligations under our senior securities
and, as a result, our senior security holders may declare the
securities immediately due and payable, we may be required
to pay default interest, monetary liquidated damages and/or amounts
in excess of the outstanding amount due under of the securities, and we may be
forced to restructure, file for bankruptcy, sell assets or cease
operations.
We are
not in compliance with our obligations relating to our secured convertible notes
and our convertible preferred stock, including with respect to our secured
convertible notes, our failure to make required principal and
other payments when due.
Our
non-compliance with the terms of the notes exposes us to the risk that our note
holders could seek to exercise prepayment or other remedies under the
notes. Events of default under the notes include:
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our
failure to make the principal installment amount on a designated principal
payment date;
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our
failure to comply with our registration obligations with respect to shares
of our common stock issuable upon conversion of the note or exercise of
warrants issued to the note
investors;
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the
suspension from listing or failure of our common stock to be listed on the
OTC Bulletin Board or one of the major
exchanges;
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our
notice to the holder of our inability to comply or intention not to comply
with proper requests for conversion of the
notes;
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our
default in the performance of any material covenant in the notes, the
purchase agreement for the notes, the registration rights agreement
relating to the notes or any other ancillary documents relating to the
notes;
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our
making of a false or incorrect representation or warranty in the purchase
agreement for the notes, the registration rights agreement relating to the
notes or any other ancillary documents relating to the
notes;
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our
default in any payment of principal or interest on the indebtedness
represented by the notes, or default in the observance or performance of
any other agreement relating to such indebtedness in excess of
$100,000;
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our
application for appointment of a receiver or liquidator or filing a
petition in bankruptcy or other similar relief which is not dismissed
within 30 days; and
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the
filing of a proceeding against us seeking the liquidation, reorganization,
or dissolution of us or similar relief which is not dismissed within 30
days.
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Upon the
occurrence of an event of default on our secured convertible notes, the holders
may (a) demand prepayment of the notes as described below, (b) demand that the
principal amount of the notes then outstanding be converted into shares of our
common stock at the conversion price discussed in more detail below, and/or (c)
exercise any of the holder’s other rights or remedies under the transaction
documents or
applicable
law. If the holders require us to prepay all or a portion of
the notes, the prepayment price would be equal to 120% of the principal amount
of the notes. The holders would also recover all other costs or
expenses due in respect of the notes and the other transaction
documents.
Our
failure to comply with our obligations relating to these securities also exposes
us to default interest and liquidated damages claims by the note
holders. As of December 31, 2008, we had incurred approximately
$1,761,004 in default interest and liquidated damages under our secured
convertible notes.
The
holders of shares of convertible preferred stock have the right to cause us to
redeem any or all of their shares at a price equal to 100% of face value, plus
accrued but unpaid dividends, upon the occurrence of specified events, including
our breach of any material term under the related financing documents (subject
to applicable notice and cure periods).
We do not
currently have the cash on hand to repay amounts due under our secured
convertible notes or other senior securities if the holders elect to exercise
their repayment or other remedies. If our efforts to
restructure or otherwise satisfy our obligations under the securities are
unsuccessful, and we are unable to raise enough money to cover the amounts
payable under the securities, we may be forced to restructure, file for
bankruptcy, sell assets or cease operations.
We
are repaying our secured convertible notes in shares of our common
stock valued at a discount of the common stock’s trading price which results in
a significant issuance of new shares of common stock to the note holders and
causes material dilution to the then existing holders of our common
stock.
We issued
a significant number of shares of our common stock in payment of amounts due
under our secured convertible notes during 2008 and expect to continue to do so
in 2009 and thereafter. Under the terms of the notes, we have
issued the shares at a discount to the trading price of our common
stock. In general, the shares issued are available for immediate
resale by the holders in accordance with Rule 144 under the Securities Act of
1933, as amended.
In 2008,
and through March 25, 2009, we issued 3,067,407,599 shares of common stock as
partial principal payments on the Series A Notes in satisfaction of $1,150,000
of obligations due under the notes. Additionally, we issued
1,065,811,416 shares of common stock as partial payments on the Series B Notes
in satisfaction of $450,000 of obligations due under the notes.
To
accommodate these share issuances, we completed an increase in the number of our
authorized shares of common stock to 750,000,000 and a one-for-fifty reverse
stock split of our common stock on November 20, 2007 and a further increase in
the number of our authorized shares of common stock to 5,000,000,000 and a
one-for-four-hundred reverse stock split on August 13, 2008. We
are in the process of increasing our authorized shares of common stock to
15,000,000,000. We anticipate that we will issue the full number of
newly authorized shares of common stock in 2009 in payment of amounts due under,
or in connection with the conversion of, our outstanding convertible
securities.
As of
March 25, 2009, we would have to issue 85,299,736,567 shares of our common stock
to repay amounts outstanding under our senior secured
notes. Accordingly, we will likely need to implement additional
reverse stock splits and/or increases in our authorized shares to meet our
obligations to note holders.
There
are a large number of shares of common stock underlying our senior securities
that may be available for future sale and the sale of these shares may depress
the market price of our common stock.
As of
March 25, 2009, we had outstanding $3,044,516 principal amount of our Series A
Notes and $6,948,439 principal amount of our Series B Notes, in each case,
excluding accrued default interest and liquidated damages payable. To
repay these amounts in shares of our common stock (utilizing the most recent
conversion price), we would have to issue 85,299,736,567 shares of our common
stock.
In
general, any shares of common stock we issue in respect of our senior securities
will be available for immediate resale by the holders in accordance with Rule
144 under the Securities Act of 1933, as amended.
Sales of
significant amounts of common stock in the public market, or the perception that
such sales may occur, could materially decrease the market price of our common
stock. These sales might also make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
We
have pledged all of our assets to existing creditors.
Our
secured convertible notes are secured by a lien on substantially all of our
assets. A default by us under the secured convertible notes would
enable the holders of the notes to take control of substantially all of our
assets. The holders of the secured convertible notes have no
operating experience in our industry and if we were to default and the note
holders were to take over control of our Company, they could force us to
substantially curtail or cease our operations. If this happens,
an investor could lose their entire investment in our common stock.
In addition, the existence of our asset
pledges to the holders of the secured convertible notes will make it more
difficult for us to obtain additional financing required to repay monies
borrowed by us, continue our business operations and pursue our growth strategy.
Potential
future offerings could dilute the interest of our common
stockholders.
We expect
in the future to increase our capital resources by making additional offerings
of equity and debt securities, including classes of preferred stock and common
stock. However, there can be no assurances that we will be able to obtain any
such financing on terms acceptable to us or at all. The effect of additional
equity offerings may be the dilution of the equity of our stockholders or the
reduction of the price of shares of our common stock, or both. We are unable to
estimate the amount, timing or nature of additional offerings as they will
depend upon market conditions and other factors.
BMSI
can vote an aggregate of 96.0% of the voting power of our common stock and can
exercise control over corporate decisions including the appointment of
directors.
BMSI can vote an aggregate of
101,420,687,948 shares (or 96.0%) of the voting power of our common
stock. Accordingly, BMSI will exercise control in determining the
outcome of all corporate transactions or other matters, including the election
of directors, mergers, consolidations, the sale of all or substantially all of
our assets, and also the power to prevent or cause a change in
control. Our other stockholders will be minority shareholders and as
such will have little to no say in the direction of the Company and the election
of directors. Additionally, it will be difficult if not impossible
for investors to remove designees of BMSI as directors of the Company, which
will mean BMSI will remain in control of who serves as officers of the Company
as well as whether any changes are made in the Board of
Directors. Potential investors in the Company should be aware that
even if they own shares of our common stock and wish to vote them at annual or
special shareholder meetings, their shares will likely have little effect on the
outcome of corporate decisions.
The
certificates of designation for our Series C and Series B convertible
preferred stock contain restrictions on our ability to take certain actions
without the approval of the Series C and Series B convertible preferred
stockholders, including entering into mergers or issuing additional debt or
equity, and also contains certain mandatory redemption events which could force
us to redeem shares when we do not have the funds to do so.
We are
prohibited from taking numerous actions without the approval of the holders of
at least a majority of our series C, and, in certain cases, our series B
convertible preferred stock, including, without limitation:
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amending
our certificate of incorporation or
bylaws;
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entering
into an asset sale, merger or similar
transaction;
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creating
or issuing senior or pari passu securities;
or
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issuing
equity or debt securities.
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Accordingly,
we may not be able to obtain the approval of our convertible preferred
stockholders needed to complete a necessary or advisable financing transaction,
or necessary to effect any other transaction that our board of directors deems
to be in the best interests of our stockholders.
The
certificate of designations for our convertible preferred stock also contain
numerous redemption events, including any breach by us of any of the transaction
documents pursuant to which we issued the securities. If any of these redemption
events were to occur, the holders of our convertible preferred stock could force
us to redeem their shares. We may not have the funds available to affect a
forced redemption and the holders could take further actions such as forcing us
into involuntary bankruptcy.
We
face significant competition in the automatic vehicle location
marketplace.
Our
REDIview product faces significant competition from internal development teams
of customers and potential customers and from several other suppliers of similar
products, many of which may have greater name recognition and greater financial
and technological resources. As the demand by business for mobile tracking
services increase, the quality, functionality and breadth of competing products
and services will likely improve and new competitors may enter the market.
Further, the adoption of widespread industry standards may make it easier for
new market entrants or existing competitors to improve their existing services,
to offer some or all of the services we presently offer or may offer in the
future, or to offer new services that we do not offer. We can provide no
assurance that our products will compete successfully with the products of our
competitors or that we will adapt to changes in the business, regulatory or
technological environment as successfully as our competitors. If we are unable
to compete successfully, our ability to acquire or retain customers may be
limited which could result in a material adverse effect on our business,
financial condition and results of operations.
We
may be unable to adapt to shifts in technology in the wireless communications
industry.
Technology
in the wireless communications industry is in a rapid and continuing state of
change as new technologies and enhancements to existing technologies continue to
be introduced. Our future success will depend upon our ability to develop and
market products and services that meet changing customer needs and that
anticipate or respond to technological changes on a timely and cost-effective
basis. We can offer no assurance that we will be able to keep pace with
technological developments. Our failure to develop and market products and
services that meet changing customer needs and that anticipate or respond to
technological changes on a timely and cost-effective basis could result in a
material adverse effect on our business, financial condition and results of
operations.
If
wireless carriers on which we depend for services decide to abandon or do not
continue to expand their wireless networks, we may lose subscribers and our
revenues could decrease.
Currently,
our automatic vehicle location products rely primarily on GSM/GPRS networks.
GPRS is the internet protocol-based dedicated high speed wireless data channel
for the GSM wireless network. If wireless carriers abandon these protocols
in favor of other types of wireless technology, we may not be able to provide
services to our customers. In addition, if wireless carriers do not expand their
coverage areas, we will be unable to meet the needs of our customers who may
wish to use some of our services outside the current coverage area.
We
rely primarily on AT&T Wireless for the provision of GSM/GPRS data services
to our REDIview customers and our inability to renew our agreements with
AT&T Wireless may require us to retrofit our installed base of REDIview
units.
We
provide GSM/GPRS data services to our REDIview customers pursuant to a data
reseller agreement with AT&T Wireless effective as of November 1, 2004
and a messaging agreement effective September 27, 2004. The data reseller
agreement and messaging agreement have an initial term of 2 years and
automatically renews for successive one year terms unless either party provides
the other party with written notice of termination at least 30 days prior
to the end of the initial term or any renewal term. However, the data reseller
agreement and the messaging agreement may be terminated by AT&T or by us for
convenience upon 90 days prior written notice.
If
AT&T terminates the data reseller agreement and messaging agreement and
ceases to provide GSM/GPRS services to us for resale to our customers, the
REDIview units in our base of installed REDIview customers would no longer be
able to send or receive data messages until we could reach an agreement with
another provider and retrofit such units to utilize the GSM/GPRS service of this
alternative provider. There can be no assurances that we would be able to reach
an agreement with another wireless carrier for GSM/GPRS service and/or retrofit
our existing REDIview customer base to utilize the GSM/GPRS service of the
alternative provider. The failure to do so would have a material adverse effect
on our business, financial condition and results of operations.
We
depend on Global Positioning System technology owned and controlled by others.
If we do not have continued access to GPS technology or satellites, our REDIview
product line will cease to function.
Our
REDIview products depend upon signals from GPS satellites built and maintained
by the U.S. Department of Defense. GPS satellites and their ground support
systems are subject to electronic and mechanical failures and sabotage. If one
or more satellites malfunction, there could be a substantial delay before they
are repaired or replaced, if at all, and our products and services may cease to
function.
In
addition, the U.S. government could decide not to continue to operate and
maintain GPS satellites over a long period of time or to charge for the use of
GPS. Furthermore, because of ever-increasing commercial applications of GPS and
international political unrest, U.S. government agencies may become increasingly
involved in the administration or the regulation of the use of GPS signals in
the future. If factors such as these affect GPS by affecting the availability,
quality, accuracy or pricing of GPS technology, these factors could have a
material adverse effect on our business, financial condition and results of
operations.
Any
natural disaster, terrorist attack or other occurrence that renders our network
service center inoperable could significantly hinder the delivery of our
services to our customers because we lack an effective remote back-up
communications system.
Currently,
our disaster recovery systems focus on internal redundancy and diverse routing
within the network services center operated by us. We do not currently have a
remote back-up communications system that would enable us to continue to provide
mobile communications services to our customers in the event of a natural
disaster, terrorist attack or other occurrence that rendered our network
services center inoperable. Accordingly, our business is subject to the risk
that this disaster, attack, security intrusion by a computer hacker or other
occurrence could hinder or prevent us from providing services to some or all of
our customers. The delay in the delivery of our services could cause some of our
customers to discontinue business with us which could have a material adverse
effect on our business, financial condition and results of
operations.
We
depend on our key personnel, and the loss of one or more of these individuals
could have a material adverse effect on our business, financial condition and
results of operations.
We are
dependent on the efforts of Gary Hallgren, our Chief Executive Officer, and Greg
Jones, our Senior Vice President, Operations. We maintain employment
agreements with these executives which expire in February 2010.
In
addition, we are also dependent upon a group of our employees possessing
valuable technical skills.
The loss
of services of one or more of these individuals could materially and adversely
affect our business and future prospects. We do not maintain key-man life
insurance on any of our officers or employees. We can provide no assurance that
we will be able to attract and retain additional management and technical
personnel required in connection with the growth and development of our
business.
Increases
in the wholesale rates for digital wireless service could reduce our service
margin.
We
currently purchase digital wireless service at wholesale rates to operate
certain parts of our business. While we presently have no reason to belief that
these rates will increase, these rates are outside of our control and any
increase in the digital wireless serviced may have a material adverse effect on
our costs which could decrease our profit margins and revenues.
Product
liability claims could have a material adverse effect on our business by
creating additional costs related to the payment or settlement of these
claims.
It is
possible that the operation of our products may give rise to product liability
claims. Product liability claims present a risk of protracted litigation,
substantial money damages, attorney’s fees, costs and expenses and diversion of
our management’s attention. Product liability claims that exceed policy limits
applicable to our liability insurance or that are excluded from the policy
coverage could result in a material adverse effect on our business, financial
condition and results of operations.
Changes
in industry-specific government regulations could require us to materially
increase our expenses to pay compliance fees.
We
believe that our products and services are currently exempt from both Federal
Communications Commission and state regulations. We rely on our long-distance
providers and wireless providers to comply with any applicable regulatory
requirements. In the event that our services are reclassified as
“telecommunications services,” we could be forced to expend substantial time,
money and resources to comply with the applicable regulations and contribute to
applicable universal services funds mandated by federal regulations. An event
like this could result in a material adverse effect on our business, financial
condition and results of operations owing to this increase in
expenses.
We
may not be able to adequately protect our proprietary technology, and our
intellectual property rights may be challenged by others.
Our
products and services are highly dependent upon our technology and the scope and
limitations of our proprietary intellectual property rights. In order to protect
our technology, we rely on a combination of copyrights and trade secret laws, as
well as certain customer licensing agreements, employee and third-party
confidentiality and non-disclosure agreements and other similar arrangements. If
our assertion of proprietary intellectual property rights is held to be invalid,
or if another party’s use of our technology were to occur to any substantial
degree, our business, financial condition and results of operations could be
materially adversely affected.
Several
of our competitors have obtained and can be expected to obtain patents that
cover products or services directly or indirectly related to those which we
offer. Our management attempts to be aware of patents containing claims that may
pose a risk of infringement by our products or services. In addition, patent
applications in the United States are confidential until a patent is issued;
accordingly, our management cannot evaluate the extent to which our products or
services may infringe on future patent rights being sought by others. In
general, if it were determined that any of our products, services or planned
enhancements infringed valid patent rights held by others, we would be required
to obtain licenses to develop and market these products, services or
enhancements from the holders of the patents, to redesign such products or
services to avoid infringement, or to cease marketing such products or services
or developing the enhancements. In this event, we also might be required to pay
past royalties or other damages. We can provide no assurance that, should it
become necessary, we would be able to obtain licenses on commercially reasonable
terms, or that we would be able to design or redesign our products to
incorporate
alternative technologies, without a material adverse effect on our business,
financial condition and results of operations.
Our
adoption of “Reverse Merger Accounting” makes comparisons of our financial
position and results of operations with those of prior fiscal periods more
difficult.
In
connection with our acquisition of BounceGPS in December 2006, we implemented
“Reverse Merger Accounting” in accordance with FAS 141 “Accounting for Business
Combinations” whereby our financial statements reflect the historical operations
of BounceGPS as they are the accounting acquirer. Accordingly,
BounceGPS is deemed to be the purchaser and surviving company for accounting
purposes and its net assets are included in the balance sheet at their
historical book values and the results of operations of BounceGPS have been
presented for the comparative prior period. The results of operations of Remote
Dynamics, Inc. are included in our financial statements subsequent to December
4, 2006 with the purchase price allocated to the acquired assets and liabilities
of Remote Dynamics, Inc. as of December 4, 2006. As a result, the
consolidated financial statements for periods after our reverse merger are not
comparable to our consolidated financial statements for the periods prior to our
reverse merger. The application of “Reverse Merger Accounting” makes it more
difficult to compare our post-merger operations and results to those in
pre-merger periods and could therefore adversely affect trading in and the
liquidity of our common stock.
Our
certificate of incorporation and bylaws and state law contain provisions that
could discourage a takeover.
We have
adopted a certificate of incorporation and bylaws, which in addition to state
law, may discourage, delay or prevent a merger or acquisition that any one of
our stockholders may consider favorable. These provisions include the
following:
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authorizing
the board to issue blank check preferred stock on terms it deems
advisable;
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prohibiting
cumulative voting in the election of directors;
and
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limiting
the persons who may call special meetings of
stockholders;
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We have
adopted a certificate of incorporation that permits our board to issue shares of
preferred stock without stockholder approval (other than approvals of the series
B and series C convertible preferred stockholders currently required), which
means that our board could issue shares with special voting rights or other
provisions that could deter a takeover. In addition to delaying or preventing an
acquisition, the issuance of a substantial number of shares of preferred stock
could adversely affect the price of our common stock and dilute existing
stockholders.
The
price of our common stock is volatile.
Historically,
market prices for securities of emerging companies in the telecommunications
industry have been highly volatile. Future announcements concerning our
business, our financial condition, the business of our competitors or our
wireless providers, including results of technological innovations, new
commercial products, financial transactions, government regulations, proprietary
rights or product or patent litigation, may have a significant impact on the
market price of shares of our common stock. The market price and trading volume
of our common stock has been highly volatile in recent periods and our common
stock is often thinly traded.
We
do not expect to pay dividends on our common stock in the foreseeable
future.
We have
never paid cash dividends on our common stock and have no plans to do so in the
foreseeable future. We intend to retain earnings, if any, to develop and expand
our business.
Our
headquarters are located in Plano, Texas. We occupy approximately 4,600
square feet of floor space in this facility. This facility includes our
corporate administration, operations, marketing, research and development, sales
and technical support personnel. The lease for our headquarters facility
extends through August 2012.
In March
2008, Teletouch Communications, Inc. brought a lawsuit against the Company
alleging the Company was liable for payment of a $5.8 million default judgment
obtained by Teletouch against DataLogic International, Inc., based on corporate
alter ego and other claims (Teletouch Communications, Inc. dba Teletouch v.
Remote Dynamics, Inc., Collin County, Texas District Court).
The Company believes that Teletouch’s claims are without
merit.
We are
subject to legal proceedings and claims that involve the collection of payments
due by us or arise in the ordinary course of business. We do not
believe that any claims other than those described above exist where the outcome
of such matters would have a material adverse affect on our consolidated
financial position, operating results or cash flows. However, there
can be no assurance such legal proceedings will not have a material impact on
future results.
Not
applicable.
Our
Common Stock was initially offered to the public in June, 1995, and was quoted
on the NASDAQ National Market until February, 1999, after which time it began
trading on the NASDAQ SmallCap Market under the symbol “HWYM.” Our
common stock next traded under the symbol “REDI” on the NASDAQ SmallCap Market
until February, 2006, when it began trading on the OTC Bulletin Board under the
symbol “REDI.OB” following de-listing from the NASDAQ SmallCap
Market. On November 20, 2007, our symbol changed to “RDYM.OB”
concurrent with the effectiveness of our 1-for-50 reverse common stock
split. On August 14, 2008, our symbol changed to “RMTD.OB” concurrent
with the effectiveness of our 1-for-400 reverse common stock
split. The following table sets forth the range of high and low
trading prices on the OTC Bulletin Board, as applicable, for the Common Stock
for the periods indicated. Such price quotations represent
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions.
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SALE
PRICES
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HIGH
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LOW
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2007
|
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First
Quarter
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$
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760.00
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$
|
40.00
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Second
Quarter
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$
|
108.00
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$
|
28.00
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Third
Quarter
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$
|
108.00
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$
|
28.00
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Fourth
Quarter
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$
|
200.00
|
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$
|
200.00
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|
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2008
|
|
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First
Quarter
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$
|
112.00
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$
|
1.20
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Second
Quarter
|
|
$
|
5.20
|
|
|
$
|
0.08
|
|
|
Third
Quarter
|
|
$
|
0.28
|
|
|
$
|
0.004
|
|
|
Fourth
Quarter
|
|
$
|
0.0011
|
|
|
$
|
0.0002
|
|
There
were 31 holders of record of our common stock as of March 25, 2009
.
The last sale
price for our common stock as reported on March 25, 2009 was
$0.000125.
We did
not pay dividends on our common stock for the year ended December 31, 2008 and
have no plans to do so in the foreseeable future. Furthermore, covenants in the
Certificates of Designation for our Series B convertible preferred stock and our
Series C convertible preferred stock require the consent of a majority of the
Series B convertible preferred stock and the Series C convertible preferred
stock, voting as separate classes before may pay a dividend on our common
stock.
We do not
have an equity compensation plan.
Not
applicable.
“Safe
Harbor” Statement under the Private Litigation Reform Act of 1995
This
Annual Report, other than historical information, may include forward-looking
statements, including statements with respect to financial results, product
introductions, market demand, sales channels, industry trends, sufficiency of
cash resources and certain other matters. These statements are made under the
“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995
and involve risks and uncertainties which could cause actual results to differ
materially from those in the forward-looking statements, including those
discussed in the section entitled “Risk Factors” in Item 1.A. and elsewhere
in this Annual Report on Form 10-K and other filings with the Securities
and Exchange Commission.
Overview
We
market, sell and support automatic vehicle location (“AVL”) and mobile resource
management solutions targeting companies that operate fleets of vehicles and
equipment. Our AVL solutions are designed for fleets within diverse industry
vertical markets such as construction, field services, distribution,, limousine,
electrical/plumbing, waste management, and government. Our core
technology, telematics, combines wireless communications, GPS location
technology, geospatial solutions and vehicle data integration with a
web-accessible application that aids in the optimization of remote business
solutions. We believe our fleet management solution contributes to
increased operator efficiency by improving the productivity of mobile workers
through real-time position reports, route-traveled information, and exception
based reporting designed to highlight mobile workforce inefficiencies. This
in-depth reporting enables our customers to correct those inefficiencies and
deliver cost savings to the bottom line.
Our
REDIview product line forms the basis of our current business plan for
2009. We expect this product line to provide the foundation for a
growth in revenues and, if our revenues grow as we anticipate, ultimately
profitability. In implementing our business plan, we have completed a
significant cost and operational-based restructuring, including rightsizing the
workforce. We are focusing our efforts on enhancing the existing
REDIview product line by adding new functionality in the areas of dispatching,
security, and maintenance.
As shown
in the tables below, we ended 2008 with 11,210 units in service representing a
17% increase from the 9,560 units in service we had as of the end of
2007.
|
|
|
March
31,
2007
|
|
|
June
30,
2007
|
|
|
September
30,
2007
|
|
|
December
31,
2007
|
|
|
Ending
REDIview units
|
|
|
8,838
|
|
|
|
9,226
|
|
|
|
9,057
|
|
|
|
9,560
|
|
|
|
|
March
31,
2008
|
|
|
June
30,
2008
|
|
|
September
30,
2008
|
|
|
December
31,
2008
|
|
|
Ending
REDIview units
|
|
|
10,182
|
|
|
|
10,462
|
|
|
|
10,787
|
|
|
|
11,210
|
|
As a
result of the securities issued to BMSI in our November 2006 Share Exchange
Agreement and Note and Warrant Purchase Agreement transactions, BMSI obtained
and currently has effective control of our board of directors, management, 96.0%
of the voting power of our common stock outstanding, and beneficial ownership of
approximately 62.2% of our common stock (on an as-converted, fully diluted
basis). Accordingly, our financial statements reflect the historical
operations of BounceGPS as the acquisition has been treated as a reverse merger
in accordance with FAS 141 “Accounting for Business Combinations” with BounceGPS
considered the accounting acquirer. Accordingly, BounceGPS is deemed to be the
purchaser and surviving company for accounting purposes and its net assets are
included in the balance sheet at their historical book values and the results of
operations of BounceGPS have been presented for the comparative prior
period. The results of operations of Remote Dynamics, Inc. are
included in our financial statements subsequent to December 4, 2006 with the
purchase price allocated to the acquired assets and liabilities of Remote
Dynamics, Inc. as of December 4, 2006.
Results
of Operations
Year
Ended December 31, 2008, Compared to Year Ended December 31, 2007
Revenues
for 2008 totaled $5,258,000 compared to $4,721,000 for 2007. Service
revenue was $3,474,000 in 2008 compared to $3,176,000 for 2007. This
9% increase in service revenue is primarily attributable to an increase in units
of service partially offset by a reduction in service revenue per
unit. We ended 2008 with 11,210 units in service, a 17% increase over
the 9,560 units in service at December 31, 2007. Service revenue per
unit decreased 9%, from $30.69 per unit in 2007 to $27.88 per unit in 2008 due
to competitive pressure and the decreasing cost of cellular
technology. Product revenue was $1,567,000 in 2008
compared to $1,385,000 in 2007. This 13% increase is primarily
attributable to the increase in units in service. In accordance with
our revenue recognition policies, REDIview unit sales and the associated cost of
sales are deferred and recognized over the customer’s contract
life.
Total
gross profit margin was 62.4% in 2008 compared 62.7% in 2007. The
2008 gross profit margin of 62.4% includes 4 percentage points or $588,000 of
amortization of the deferred performance obligation of our installed base
related to the reverse merger transaction on December 4, 2006. The
amortization of the deferred performance obligation is complete at the end of
2008 and will not be incurred in 2009. Excluding the amortization of
the deferred performance obligation, the 2008 gross profit margins total
58.7%. The 2007 gross profit margin includes 7 percentage points or
$752,000 of amortization of the deferred performance obligation of our installed
base related to the reverse merger transaction on December 4,
2006. Excluding the amortization of the deferred performance
obligation, the 2007 gross profit margins total 55.6%. The Company
expects gross profit margins of greater than 55% to continue throughout
2009.
Total
operating expenses decreased from $4,208,000 in 2007 to $3,905,000 during 2008.
This 7% decrease is attributable to management’s efforts to reduce expenses as
well as a reduction in depreciation and amortization. General and
administrative, sales and marketing, and engineering expenses decreased
5%, from
$3,259,000 in 2007 to $3,096,000 in 2008. Depreciation and
amortization expense decreased 15%, from $949,000 in 2007 to $809,000 in
2008.
Interest
expense totaled $2,102,000 for 2008 compared to $4,757,000 for
2007. The current year interest expense primarily relates to the
accretion of the Series A and Series B Notes in the amount of $392,000, and
$828,000, respectively, as well as $647,000 of default interest and liquidated
damages on the Series A and Series B Notes and $107,000 amortization of deferred
financing fees. The 2007 interest expense primarily relates to the
accretion of the Series A Notes, Series B Notes, and the HFS Note in the amount
of $2,628,000, $625,000, and $616,000, respectively, as well as $812,000 of
default interest and liquidated damages on the Series A and Series B Notes and
$85,000 amortization of deferred financing fees.
Interest
income totaled $42,000 for 2008 compared to $105,000 for 2007. The
interest income primarily relates to interest on internally financed leases from
customers of our REDIview and legacy products.
We
recorded a loss on the extinguishment of debt totaling $341,000 for 2007 for the
exchange of Series A Notes into Series B Notes and the exchange of the HFS Note
into Series B Notes. We also recorded a loss on the extinguishment of
redeemable preferred stock totaling $363,000 for 2007 for the exchange of Series
B preferred stock into Series B Notes.
Other
income of $383,000 for 2007 is primarily due to the reversal of a legal accrual
of $230,000 and gains from creditor resolution settlements of
$83,000.
Adjusted
EBITDA Presentation
EBITDA
represents net income (loss) before interest, taxes, depreciation and
amortization, and in the case of Adjusted EBITDA, before goodwill impairment,
gains or losses on the extinguishment of debt and preferred stock, restructuring
charges and other non-operating costs. EBITDA is not a measurement of
financial performance under GAAP. However, we have included data with respect to
EBITDA because we evaluate and project the performance of our business using
several measures, including EBITDA. The computations of Adjusted EBITDA for
2008 and 2007 are as follows.
|
|
|
Year
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net
loss
|
|
$
|
(2,683
|
)
|
|
$
|
(6,221
|
)
|
|
Add
non-EBITDA items included in net results:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
809
|
|
|
|
949
|
|
|
Interest
expense, net
|
|
|
2,060
|
|
|
|
4,652
|
|
|
Non-recurring
reversal of legal accrual
|
|
|
—
|
|
|
|
(230
|
)
|
|
Loss
on debt extinguishment
|
|
|
—
|
|
|
|
341
|
|
|
Loss
on redeemable preferred stock extinguishment
|
|
|
—
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
$
|
186
|
|
|
$
|
(146
|
)
|
We
consider adjusted EBITDA to be an important supplemental indicator of our
operating performance, particularly as compared to the operating performance of
our competitors, because this measure eliminates many differences among
companies in financial, capitalization and tax structures,
capital
investment cycles and ages of related assets, as well as certain recurring
non-cash and non-operating items. We believe that consideration of EBITDA should
be supplemental, because EBITDA has limitations as an analytical financial
measure. These limitations include the following: EBITDA does not reflect our
cash expenditures, or future requirements for capital expenditures or
contractual commitments; EBITDA does not reflect the interest expense, or the
cash requirements necessary to service interest or principal payments, on our
indebtedness; although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be replaced in the
future, and EBITDA does not reflect any cash requirements for such replacements;
EBITDA does not reflect the effect of earnings or charges resulting from matters
we consider not to be indicative of our ongoing operations; and not all of the
companies in our industry may calculate EBITDA in the same manner in which we
calculate EBITDA, which limits its usefulness as a comparative
measure.
Management
compensates for these limitations by relying primarily on its GAAP results to
evaluate its operating performance and by considering independently the economic
effects of the foregoing items that are not reflected in EBITDA. As a result of
these limitations, EBITDA should not be considered as an alternative to net
income (loss), as calculated in accordance with generally accepted accounting
principles, as a measure of operating performance, nor should it be considered
as an alternative to cash flows as a measure of liquidity.
Liquidity
and Capital Resources
We have
incurred significant operating losses since our inception and have limited
financial resources until such time that we are able to generate positive cash
flow from operations. We had cash and cash equivalents of $0 as of
December 31, 2008 (compared to $228,000 as of December 31, 2007).
Net cash
used in operations in 2008 was $247,000, primarily due to a net loss of $2.7
million offset by accretion of notes payable $1,293,000 and amortization of
customer lists and other intangibles of $739,000. Net cash used in operations in
2007 was $887,000, primarily due to a net loss of $6.2 million offset by
accretion of notes payable $3,871,000, loss on extinguishment of debt of
$341,000, loss on extinguishment of redeemable preferred stock of $363,000,
increase in accounts payable of $280,000, and depreciation and amortization of
$1,035,000.
Net cash
used in investing activities in 2008 was $16,000 versus $1,000 in
2007.
Net cash
provided by financing activities in 2008 was $35,000, primarily due to the net
proceeds of the Series B Note offering of $128,000 offset by payments on capital
leases and other notes payable of $93,000. Net cash provided by
financing activities in 2007 was $995,000, primarily due to the net proceeds of
the Series B Note offering of $982,000.
We do not
expect to achieve profitability in 2009. Key to achieving
profitability is to obtain a REDIview customer base that provides monthly
recurring revenues and corresponding gross margins that exceed operating costs
and expenses to support the REDIview customer base.
Our plans for 2009 include
increasing direct sales to new and existing customers in an effort to build
recurring revenue and continuing to identify additional operating cost
reductions. However, there can be no assurance that we will achieve our
sales targets for 2009. Failure to do so may have a material adverse effect on
our business, financial condition and results of
operations. Moreover, despite actions to increase revenue, to reduce
operating costs and to improve profitability and cash flow, our operating losses
will continue in 2009 and net operating cash outflows will continue into at
least the second quarter of 2009.
We had a
working capital deficit of $3.4 million, excluding the gross amount of our
outstanding secured convertible notes of $10.8 million, as of December 31,
2008. We believe that we will have sufficient capital to fund
our ongoing operations through 2008, assuming that we are able to meet our sales
targets and operating cost reduction plans and to negotiate acceptable payment
arrangements with our senior security holders, vendors and other
creditors. The sufficiency of our cash resources also depends to a certain
extent on general economic, financial, competitive or other factors beyond our
control.
We do not
currently have any arrangements for additional financing and we may not be able
to secure additional debt or equity financing on terms acceptable to us, or at
all, at the time when we need such financing. Further, our ability to
secure certain types of additional financings is restricted under the terms of
our existing financing arrangements. There can be no assurance that we
will be able to consummate a transaction for additional capital prior to
substantially depleting our available cash reserves, and our failure to do so
may force us to restructure, file for bankruptcy, sell assets or cease
operations.
The
following table summarizes our secured convertible notes payable by maturity
dates as of December 31, 2008 (in 000’s) (as we currently are not in compliance
with certain of our obligations relating to the Series A and B Notes, we
classify the secured convertible notes payable as a current liability on our
balance sheet):
|
|
|
Principal
|
|
|
Less
Discount
|
|
|
Carrying
Amount
|
|
|
Fiscal
Year ending December 31, 2008
|
|
$
|
10,781
|
|
|
$
|
1,301
|
|
|
$
|
9,480
|
|
We have
failed to comply with our obligations relating to the notes, including our
failure to make scheduled principal payments and to register for resale the
shares of common stock underlying the notes and warrants issued in the related
private placements. The notes provide for a default interest
rate of 10% per annum on the outstanding principal amount of the notes for
periods in which certain specified events of default occur and are continuing
and for liquidated damages for non-compliance with our registration
obligations. As of December 31, 2008, we have accrued
$1,761,004 in default interest and liquidated damages under our secured
convertible notes.
Our
non-compliance with the terms of the notes also exposes to the risk that our
note holders could seek to exercise prepayment or other remedies under the
notes.
In March,
2008, we resumed making payments to certain of our note holders of amounts due
under the notes by issuing shares of our common stock under the terms of the
notes. In 2008, and through March 25, 2009, we issued 3,067,407,599
shares of common stock as partial principal payments on the Series A Notes in
satisfaction of $1,150,000 of obligations due under the
notes. Additionally, we issued 1,065,811,416 shares of common stock
as partial payments on the Series B Notes in satisfaction of $450,000 of
obligations due under the notes.
To
accommodate these share issuances, we completed an increase in the number of our
authorized shares of common stock to 750,000,000 and a one-for-fifty reverse
stock split of our common stock on November 20, 2007 and a further increase in
the number of our authorized shares of common stock to 5,000,000,000 and a
one-for-four-hundred reverse stock split on August 13, 2008. We
are in the process of increasing our authorized shares of common stock to
15,000,000,000. We anticipate that we will issue the full number of
newly authorized shares of common stock in 2009 in payment of amounts due under,
or in connection with the conversion of, our outstanding convertible
securities.
As of
March 25, 2009, we would have to issue 85,299,736,567 shares of our common stock
to repay amounts outstanding under our senior secured
notes. Accordingly, we will likely need to implement additional
reverse stock splits and/or increases in our authorized shares to meet our
obligations to note holders.
We do not
currently have the cash on hand to repay amounts due under our secured
convertible notes if the note holders elect to exercise their repayment or other
remedies. If our efforts to restructure or otherwise satisfy
our obligations under the notes are unsuccessful, and we are unable to raise
enough money to cover the amounts payable under the notes, we may be forced to
restructure, file for bankruptcy, sell assets or cease operations.
Outstanding
Debt, Preferred Securities and Warrants
Series
A Notes
As of
March 25, 2009 we had $3,044,516 principal amount of our Series A Notes
outstanding. The Series A Notes are secured by substantially all of
our assets. The Series A Notes are convertible at the option of the
holder into our common stock at a fixed conversion price of $0.000117, subject
to adjustment for stock splits and combinations, certain dividends and
distributions, reclassification, exchange or substitution, reorganization,
merger, consolidation or sales of assets; issuances of additional shares of
common stock, and issuances of common stock equivalents. We may
make scheduled principal installment payments in cash or in registered shares of
its common stock. If paid in common stock, certain conditions must be satisfied,
and the number of registered shares to be paid to the holder must be an amount
equal to the principal installment amount divided by eighty percent (80%) of the
average of the closing bid price for the ten (10) trading days immediately
preceding the principal payment date.
Upon the occurrence of specified
events of default on the Series A Notes, the holders may (a) demand prepayment
of the notes as described below, (b) demand that the principal amount of the
notes then outstanding be converted into shares of our common stock; and/or (c)
exercise any of the holder’s other rights or remedies under the transaction
documents or applicable law. If the holders require us to prepay all
or a portion of the notes, the prepayment price would equal to 120% of the
principal amount of the notes. The holders would also recover all
other costs or expenses due in respect of the notes and the other transaction
documents.
Series
B Notes
As of
March 25, 2009 we had $6,948,439 principal amount of our Series B Notes
outstanding. The Series B Notes and the Series B OID Notes are
secured by all of our assets, subject to existing liens, are due on dates
ranging from December 4, 2009 to May 21, 2011 and began scheduled amortization
of principal (in nine quarterly installments) on dates ranging from August 1,
2007 to May 21, 2011. We may make principal installment payments in
cash or in registered shares of its common stock. If paid in common stock,
certain conditions must be satisfied, and the number of registered shares to be
paid to the holder must be an amount equal to the principal installment amount
divided by the lesser of (i) $1.00 and (ii) 90% of the average of the volume
weighted average trading prices of the common stock for the ten trading days
immediately preceding the principal payment. The Series B Notes and
Series B OID Notes are convertible into our common stock at a conversion price
of $0.000124 per share, subject to adjustment for stock splits and combinations,
certain dividends and distributions, reclassification, exchange or substitution,
reorganization, merger, consolidation or sales of assets; issuances of
additional shares of common stock, and issuances of common stock
equivalents.
Upon the occurrence of specified
events of default on the Series B Notes, the holders may: (a) demand prepayment
of the notes as described below, (b) demand that the principal amount of the
notes then outstanding be converted into shares of our common stock, and/or (c)
exercise any of the holder’s other rights or remedies under the transaction
documents or applicable law. If the holders require us to prepay all
or a portion of the notes, the prepayment price would equal to 120% of the
principal amount of the notes. The holders would also recover all
other costs or expenses due in respect of the notes and the other transaction
documents.
Series
B Preferred Stock
The
series B convertible preferred stock issued to SDS in connection with our 2005
financing has a face amount of $10,000 per share ($5,220,000 in the aggregate),
ranks senior to our series C convertible preferred stock and our common stock
with respect to payment of amounts upon any liquidation, dissolution or winding
up of the Company, and is entitled to receive non-cumulative dividends in an
amount equal to 3% per year when, as, and if declared by our Board of
Directors.
The
series B convertible preferred stock is convertible into common stock at a
conversion price of $31,000 per share, subject to adjustment for stock splits
and combinations, and certain dividends and distributions.
The
holders of shares of series B convertible preferred stock have the right to
cause us to redeem any or all of its shares at a price equal to 100% of face
value, plus accrued but unpaid dividends in the following events:
|
|
·
|
We
fail to remove any restrictive legend on any certificate or any shares of
common stock issued to the holders of Series B convertible preferred stock
upon conversion of the Series B convertible preferred stock as and when
required and such failure continues uncured for five business
days;
|
|
|
·
|
We
provide written notice (or otherwise indicate) to any holder of Series B
convertible preferred stock, or state by way of public announcement
distributed via a press release, at any time, of our intention not to
issue, or otherwise refuse to issue, shares of common stock to any holder
of Series B convertible preferred stock upon conversion in accordance with
the terms of the certificate of designation for our Series B convertible
preferred stock;
|
|
|
·
|
We
or any of our subsidiaries make an assignment for the benefit of
creditors, or applies for or consents to the appointment of a receiver or
trustee for us or for a substantial part of our property or
business;
|
|
|
·
|
Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings
for the relief of debtors shall be instituted by or against us or any of
our subsidiaries which shall not be dismissed within 60 days of their
initiation;
|
|
|
·
|
We
sell, convey or dispose of all or substantially all of our assets;
or
|
|
|
·
|
We
otherwise breach any material term under the private placement transaction
documents, and if such breach is curable, shall fails to cure such breach
within 10 business days after we have been notified thereof in writing by
the holder.
|
The
series B convertible preferred stock generally has the right to vote on all
matters before the common stockholders on an as-converted basis voting together
with the common stockholders as a single class. In addition, the holders of a
majority of the Series B convertible preferred stock, voting as a separate
class, have the right to appoint one member of our Board of Directors and one
observer to meetings of our Board of Directors and its
committees. Although the holder of our Series B convertible
preferred stock retains the right to do so in the future, it has not yet
exercised its right to appoint a board member.
Series
C Preferred Stock
The
series C convertible preferred stock issued to BMSI in connection with our
acquisition of BounceGPS has a face amount of $1,000 per share ($5,379,000 in
the aggregate), ranks junior to our series B convertible preferred stock and
senior to our common stock with respect to payment of dividends and amounts upon
any liquidation, dissolution or winding up of the Company, and is entitled to
receive cumulative dividends in an amount equal to 8% per year (payable at the
election of the holder in cash or additional shares).
The
series C convertible preferred stock was initially convertible into 51% of the
number of our fully diluted shares, as defined to include, without
limitation:
|
|
·
|
Shares
of common stock outstanding on the date of issuance of the Series C
Preferred Stock;
|
|
|
·
|
Shares
of common stock issuable upon conversion, exercise or exchange of any
convertible security or purchase right outstanding on the date
of issuance (including, without limitation, the series C
convertible preferred stock, our series B convertible preferred stock, the
Series A Notes, the Series B Notes, the Series B OID Notes and outstanding
warrants);
|
|
|
·
|
Shares
of common stock issuable upon conversion, exercise or exchange of any
convertible security or purchase right issued after the issuance date of
the series C convertible preferred stock in conversion, exercise or
exchange of securities outstanding as of the issuance date or as a
dividend, interest payment, liquidated damages, penalty, compromise,
settlement or other payment of certain securities or pursuant
to or in connection with any agreement, indebtedness or other obligation
of the Company existing as of the issuance date, or with respect to any
amendment, waiver or modification thereto or extension
thereof;
|
|
|
·
|
Shares
of common stock issued after the issuance date of the series C convertible
preferred stock as a dividend, interest payment, liquidated damages,
penalty, compromise, settlement or other payment of certain securities
or pursuant to or in connection with any agreement,
indebtedness or other obligation of the Company existing as of the
issuance date, or with respect to any amendment, waiver or modification
thereto or extension thereof; and
|
|
|
·
|
Shares
of common stock authorized for issuance from time to time under our equity
incentive plans.
|
The
holders of shares of Series C convertible preferred stock have the right to
cause us to redeem any or all of its shares at a price equal to 100% of face
value, plus accrued but unpaid dividends in the following events:
|
|
·
|
We
fail to remove any restrictive legend on any certificate or any shares of
common stock issued to the holders of Series B convertible preferred stock
upon conversion of the Series B convertible preferred stock as and when
required and such failure continues uncured for five business
days;
|
|
|
·
|
We
provide written notice (or otherwise indicate) to any holder of Series B
convertible preferred stock, or state by way of public announcement
distributed via a press release, at any time, of our intention not to
issue, or otherwise refuse to issue, shares of common stock to any holder
of Series B convertible preferred stock upon conversion in accordance with
the terms of the certificate of designation for our Series B convertible
preferred stock;
|
|
|
·
|
We
or any of our subsidiaries make an assignment for the benefit of
creditors, or applies for or consents to the appointment of a receiver or
trustee for us or for a substantial part of our property or
business;
|
|
|
·
|
Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings
for the relief of debtors shall be instituted by or against us or any of
our subsidiaries which shall not be dismissed within 60 days of their
initiation;
|
|
|
·
|
We
sell, convey or dispose of all or substantially all of our
assets;
|
|
|
·
|
We
merge or consolidate with or into, or engage in any other business
combination with, any other person or entity, in any case which results in
either (i) the holders of our voting securities immediately prior to such
transaction holding or having the right to direct the voting of fifty
percent (50%) or less of our total outstanding voting securities of or
such other surviving or acquiring person or entity immediately following
such transaction or (ii) the members of our board of directors comprising
fifty percent (50%) or less of the members of our board of directors or
such other surviving or acquiring person or entity immediately following
such transaction;
|
|
|
·
|
We
have fifty percent (50%) or more of the voting power of our capital stock
owned beneficially by one person, entity or
“group”;
|
|
|
·
|
We
experience any other change of control not otherwise addressed above;
or
|
|
|
·
|
We
otherwise breach any material term under the private placement transaction
documents, and if such breach is curable, shall fails to cure such breach
within 10 business days after we have been notified thereof in writing by
the holder.
|
The
series C convertible preferred stock generally has the right to vote on all
matters before the common stockholders on an as-converted basis voting together
with the common stockholders as a single class. In addition, the holders of a
majority of the Series C convertible preferred stock, voting as a separate
class, have the right to appoint a majority of the members of our Board of
Directors (as long as we have not exercised our limited rights to redeem series
C convertible preferred stock).
Warrants
As of
March 25, 2009, we had outstanding the following common stock purchase
warrants:
|
|
·
|
Series A-7
warrants to purchase 1,031 shares of common stock at an exercise price of
$0.000117 per share subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets; issuances of additional shares of common stock, and issuances
of common stock equivalents. The series A-7 warrants can be
exercised on a cashless basis beginning one year after issuance if (i) the
per share market value of a share of our common stock (either the volume
the weighted average price or the fair market value as determined by an
independent appraiser) is greater than the warrant price; and (ii) a
registration statement for the warrant stock is not then in
effect. The series A-7 warrants are exercisable for a
seven-year period from the date of issuance (95 of these warrants are
exercisable over 5 years).
|
|
|
·
|
Series B-4
warrants to purchase 688 shares of common stock at an exercise price
of $0.000117 per share subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets; issuances of additional shares of common stock, and issuances
of common stock equivalents. The series B-4 warrants can be
exercised on a cashless basis beginning one year after issuance if (i) the
per share market value of a share of our common stock (either the volume
the weighted average price or the fair market value as determined by an
independent appraiser) is greater than the warrant price; and (ii) a
registration statement for the warrant stock is not then in effect. The
series B-4 warrants are exercisable for a four-year period beginning on
the date a resale registration statement for the shares underlying the
warrants is declared effective by the Securities and Exchange Commission
(65 of these warrants are exercisable over 5
years).
|
|
|
·
|
Series C-3
warrants to purchase 1,375 shares of common stock at an exercise price of
$0.000117 per share subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets; issuances of additional shares of common stock, and issuances
of common stock equivalents. The series C-3 warrants can be
exercised on a cashless basis beginning one year after issuance if (i) the
per share market value of a share of our common stock (either the volume
the weighted average price or the fair market value as determined by an
independent appraiser) is greater than the warrant price; and (ii) a
registration statement for the warrant stock is not then in
effect. The series C-3 warrants are exercisable for a
three-year period from the date of issuance. 125 of these
warrants are exercisable over 5
years.
|
|
|
·
|
Series
D-1 warrants (callable only at our option) to purchase 963 shares in the
aggregate of common stock at an exercise price per share equal to the
lesser of: (a) $17.50 and (b) 90% of the average of the 5 day
volume weighted average price of our common stock on the OTC Bulletin
Board preceding the call notice, as defined in the
warrant.
|
|
|
·
|
Series
E-7 Warrants to purchase 314,839 shares of common stock at an exercise
price of $0.000117 per share, subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets; issuances of additional shares of common stock, and issuances
of common stock equivalents. The series E-7 warrants are
exercisable for a seven-year period from the date of
issuance.
|
|
|
·
|
Series
F-4 Warrants to purchase 314,839 shares of common stock at an exercise
price of $0.000117 per share, subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets; issuances of additional shares of common stock, and issuances
of common stock equivalents. The series F-4 warrants are exercisable for a
four-year period beginning on the date a resale registration statement for
the shares underlying the warrants is declared effective by the Securities
and Exchange Commission.
|
|
|
·
|
The
following warrants issued to SDS in connection with our 2005
financings: (i) a common stock purchase warrant with a 5-year
term to purchase 83 shares of common stock at an exercise price of $200.00
per share, (ii) a common stock purchase warrant with a 5-year term to
purchase 1,453 shares of common stock at an exercise price of $843.00, and
(iii) a common stock purchase warrant with a 5-year term to purchase 100
shares at an exercise price of $35,000.00 per
share.
|
|
|
·
|
Warrants
issued to the placement agents in our Series A Note financing to purchase
125 shares of common stock at an exercise price per share equal
to $0.000117 with a term of 5 years following the
closing.
|
|
|
·
|
Warrants issued to the placement
agents in our Series B Note financing to purchase 617 shares of common
stock at an exercise price per share equal to
$0.000117
with a term of 5 years following
the closing.
|
Contractual
Obligations
The
following summarizes the Company’s significant financial commitments at December
31, 2008 (in thousands):
|
|
|
Payments
due by period
|
|
|
|
|
Total
|
|
|
Less
than 1 Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
More
than 5 Years
|
|
|
Obligations
under Series A Note and Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Payments – Notes & OID
|
|
$
|
3,646
|
|
|
$
|
3,646
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Obligations
under Series B Note and Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Payments – Notes & OID
|
|
|
7,135
|
|
|
|
7,135
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Default
Penalties & Interest – Series A Notes
|
|
|
961
|
|
|
|
961
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Default
Penalties & Interest – Series B Notes
|
|
|
800
|
|
|
|
800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Capital
Lease Obligations
|
|
|
11
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Operating
Leases
|
|
|
14
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Note
Payable – Related Parties
|
|
|
250
|
|
|
|
250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
12,817
|
|
|
$
|
12,817
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Critical
Accounting Policies and Estimates
Management’s
discussion and analysis of financial condition and results of operations are
based upon our consolidated financial 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, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to product
returns, bad debts, inventories, income taxes, warranty obligations, maintenance
contracts and contingencies. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
Recognition
We
recognize revenue when earned in accordance with the applicable accounting
literature including: EITF No. 00-21, “Revenue Arrangements With
Multiple Deliverables”, Statement of Position 97-2, “Software Revenue
Recognition”, and Staff Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements”, as amended by Staff Accounting Bulletin No. 104, “Revenue
Recognition in Financial Statements”. Revenue is recognized when the
following criteria are met: there is persuasive evidence that an
arrangement exists, delivery has occurred and all obligations under such
arrangement have been fulfilled, the price is fixed and determinable, and
collectibility is reasonably assured.
Initial
sale proceeds received under multiple-element sales arrangements that require us
to deliver products and services over a period of time and which are not
determined by us to meet certain criteria are deferred. All REDIview
sales proceeds related to delivered products are deferred and recognized over
the contract life that typically ranges from one to five
years. Product sales proceeds recognized under this method are
portrayed in the accompanying Consolidated Statement of Operations as “Ratable
product revenues.” The related deferred revenue is classified as a current and
long term liability on the Consolidated Balance Sheets under the captions
“Deferred product revenues – current portion” and “Deferred product revenues -
non-current portion.” If the customer relationship is terminated
prior to the end of the customer contract term, such deferred sales proceeds are
recognized as revenue in the period of termination. Under sales
arrangements, which initially meet the earnings criteria described above,
revenues are recognized upon shipment of the products or upon customer
acceptance of the delivered products if terms of the sales arrangement give the
customer the right of acceptance.
Service
revenue generally commences upon product installation and customer acceptance
and is billed and recognized during the period such services are
provided.
We
provide lease financing to certain customers of our REDIview and legacy
products. Leases under these arrangements are classified as
sales-type leases or operating leases. These leases typically have
terms of one to five years, and all sales type leases are discounted at interest
rates ranging from 14% to 18% depending on the customer’s credit
risk. The net present value of the lease payments for sales-type
leases is recognized as product revenue and deferred under our revenue
recognition policy described above. Income from operating leases is
recognized ratably over the term of the leases.
Deferred
Product Costs
We defer
certain product costs (generally consisting of the direct cost of product sold
and installation costs) for our sales contracts determined to require deferral
accounting. The deferred costs are classified as a current and long
term asset on the balance sheet under the captions “Deferred product costs –
current portion” and “Deferred product costs - non-current
portion”. Such costs are recognized over the longer of the term of
the service contract or the estimated life of the customer relationship and are
portrayed in the accompanying Consolidated Statements of Operations as “Ratable
product costs.” Such terms range from one to five
years. If the customer relationship is terminated prior to the end of
the estimated customer relationship period, such costs are recognized in the
period of termination.
Allowance
for Doubtful Accounts
We use
estimates in determining the allowance for doubtful accounts based on historic
collection experience, current trends and a percentage of the accounts
receivable aging categories. In determining these percentages we review
historical write-offs, including comparisons of write-offs to provisions for
doubtful accounts and as a percentage of revenues and monitor collections
amounts and statistics,
Inventory
We write
down our inventory for estimated obsolescence or unmarketable inventory equal to
the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected by management,
additional inventory write-downs may be required. Historically, our
estimates for inventory obsolescence have not differed materially from actual
results.
Stock-Based
Compensation
In
December of 2004, the Financial Accounting Standards Board (“FASB”) issued FAS
123R, which applies to transactions in which an entity exchanges its equity
instruments for goods or services and also applies to liabilities an entity may
incur for goods or services that are based on the fair value of those equity
instruments. For any unvested portion of previously issued and
outstanding awards, compensation expense is required to be recorded based on the
previously disclosed FAS 123 methodology and amounts. Prior periods
presented are not required to be restated. We adopted FAS 123R as of
January 1, 2006 and applied the standard using the modified prospective
method. Remote Dynamics extinguished all prior stock options upon
emergence from bankruptcy effective July 2, 2004 and has not issued any new
stock options beyond that date.
Beneficial Conversion
Feature
From time
to time, the Company has debt with conversion options that provide for a rate of
conversion that is below market value. This feature is normally characterized as
a beneficial conversion feature ("BCF"), which is recorded by the Company
pursuant to Emerging Issues Task Force (“EITF”) Issue No. 98-5 ("EITF 98-5"),
Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,
and EITF Issue No. 00-27,
Application of EITF Issue No. 98-5
to Certain Convertible Instruments.
If a BCF exists, the
Company records it as a debt discount. Debt
discounts
are amortized to interest expense over the life of the debt on a straight-line
basis, which approximates the effective interest method.
Issuance of Shares for
Non-Cash Consideration
The
Company accounts for the issuance of equity instruments to acquire goods and/or
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
determinable. The Company's accounting policy for equity instruments
issued to consultants and vendors in exchange for goods and services follows the
provisions of EITF Issue No. 96-18,
Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services
and EITF Issue No. 00-18,
Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than
Employees.
The measurement date for the fair value of the
equity instruments issued is determined at the earlier of (i) the date at which
a commitment for performance by the consultant or vendor is reached or (ii) the
date at which the consultant or vendor's performance is complete. In
the case of equity instruments issued to consultants, the fair value of the
equity instrument is recognized over the term of the consulting
agreement.
Goodwill
and Other Intangibles
We
account for goodwill, the vehicle management information license right, and
other intangibles in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) and
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS 144”). SFAS 144 requires us to review for impairment of our
long-lived assets, whenever events or changes in circumstances indicate that the
carrying amount of an asset might not be recoverable and exceeds its fair value.
Impairment evaluations involve our estimates of asset useful lives and future
cash flows. When this event occurs, we estimate the future cash flows expected
to result from the use of the asset and its eventual disposition. If the
undiscounted expected future cash flows are less than the carrying amount of the
asset and the carrying amount of the asset exceeds its fair value, we recognize
an impairment loss. We generally utilize an income approach, a discounted future
cash flow analysis and an analysis of market multiples to estimate fair value of
the asset. Actual useful lives and cash flows could be different from those
estimated. This could have a material affect on our operating results and
financial position. We test goodwill for impairment on an annual basis, or
between annual tests if we determine that a significant event or change in
circumstances warrants such testing in accordance with the provisions of SFAS
142 which requires a comparison of the carrying value of goodwill to the fair
value of the reporting unit. If the fair value of the reporting unit is less
than the carrying value of goodwill, an adjustment to the carrying value of
goodwill is required.
Impact
of Recently Issued Accounting Standards
Financial Accounting Standards No.
159 (“FAS 159”)
In February 2007, the FASB issued
FAS 159, The Fair Value Option for Financial Assets and Financial
Liabilities, or FAS 159. FAS 159 permits entities to choose
to measure many financial instruments and certain other items at fair value. The
objective of the guidance is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. FAS 159 is effective as of the beginning of
the first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of the fiscal year beginning on or before
November 15, 2007, provided the provisions of FAS 157 are applied. We
will adopted FAS 159 on January 1, 2008. The adoption of FAS 159 did
not have a material impact to our consolidated financial
statements.
Financial Accounting Standards No.
141 (R)
(“FAS 1
41
”)
In December 2007,
the FASB issued SFAS No. 141(R), Business Combinations. SFAS No.
141(R) establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree and
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase. SFAS No. 141(R) also sets forth the
disclosures required to be made in the financial statements to evaluate the
nature
and
financial effects of the business combination. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Accordingly, the Company will adopt this standard in fiscal
2009. The Company is currently evaluating the potential impact of the
adoption of SFAS 141(R) on its consolidated financial
statements.
Financial Accounting Standards No.
160 (R)
(“FAS 1
60
”)
In December 2007,
the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51. SFAS 160 will change the
accounting and reporting for minority interests, which will be recharacterized
as non-controlling interests (NCI) and classified as a component of equity. This
new consolidation method will significantly change the accounting for
transactions with minority interest holders. SFAS 160 requires
retroactive adoption of the presentation and disclosure requirements for
existing minority interests. All other requirements of SFAS 160 shall be
applied prospectively. SFAS 160 is effective for fiscal years
beginning after December 15, 2008 and, as such, the Company will adopt this
standard in fiscal 2009. The Company is currently evaluating the
potential impact of the adoption of SFAS 160 on its consolidated financial
statements.
Financial Accounting Standards No.
16
1
(“FAS 16
1
”)
In March 2008, the FASB
issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("FAS 161"). FAS 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance, and cash
flows. The provisions of FAS 161 are effective for the quarter ending
February 28, 2009. The Company is currently evaluating the impact of
the provisions of FAS 161.
Financial Accounting Standards No.
16
2
(“FAS 16
2
”)
In May 2008, the FASB
issued Statement of Financial Accounting Standards No. 162, "The Hierarchy of
Generally Accepted Accounting Principles"("FAS 162"). FAS 162 is effective 60
days following the SEC's approval of the Public Company Accounting Oversight
Board Auditing amendments to AU Section, 411 The Meaning of "Present Fairly in
Conformity with Generally Accepted Accounting Principles". The statement is
intended to improve financial reporting by identifying a consistent
hierarchy for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally accepted
accounting principles (GAAP). The Company has not completed its evaluation of
the effects, if any, that FAS 162 may have on its consolidated financial
position, results of operations and cash flows.
Off-Balance
Sheet Arrangements
As of
December 31, 2008, we did not have any significant off-balance sheet
arrangements, as defined in Item 303 of Regulation S-K.
Quantitative
and Qualitative Disclosures About Market Risk
We
do not have any material exposure to market risk associated with our cash and
cash equivalents. Our note payables are at a fixed rate and, thus, are not
exposed to interest rate risk.
The
information required by this item is included on pages F-1 through
F-6.
Not
applicable.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports made pursuant to the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). is
recorded, processed, summarized and reported within the timelines specified in
the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Principal Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance of achieving the desired control
objectives, and in reaching a reasonable level of assurance, management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As
required by Rule 13a-15(b) under the Exchange Act, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the year covered by this report. Based on the
foregoing, our Chief Executive Officer and Principal Financial Officer concluded
that our disclosure controls and procedures as of December 31,
2008 were effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms.
Management’s Report on Internal
Control Over Financial Reporting
Our Chief
Executive Officer and Principal Financial Officer are responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) of the Exchange Act.
Internal
control over financial reporting is promulgated under the Exchange Act as a
process designed by, or under the supervision of, our Chief Executive Officer
and Principal Financial Officer and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
|
|
•
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
|
•
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States and that our receipts
and expenditures are being made only in accordance with authorizations of
our management and directors; and
|
|
|
•
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition or disposition of our assets that could have a
material effect on the financial
statements.
|
Readers
are cautioned that internal control over financial reporting, no matter how well
designed, has inherent limitations and may not prevent or detect misstatements.
Therefore, even effective internal control over financial reporting can only
provide reasonable assurance with respect to the financial statement preparation
and presentation.
Our
management, under the supervision and with the participation of our Chief
Executive Officer and Principal Financial Officer, has evaluated the
effectiveness of our internal controls over financial reporting as of the end of
the period covered by this report based upon the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on our evaluation, management concluded
that our internal control over financial reporting was effective as of
December 31, 2008.
Remote
Dynamics, Inc. continues the process to complete a thorough review of its
internal controls as part of its preparation for compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404
requires our management to report on, and our external auditors to attest to,
the effectiveness of our internal control structure and procedures for financial
reporting. As a non-accelerated filer under Rule 12b-2 of the Exchange Act, our
first report under Section 404 as a smaller reporting company will be contained
in our Form 10-K for the period ended December 31, 2009.
This
annual report does not include an attestation report of the company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report.
There
were no changes in our internal controls over financial reporting (as such term
is defined in Rule 13a-15(f) under the Exchange Act) that occurred during
our year ended December 31, 2008, that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting. In the estimation of our senior management, none of the following
changes in the composition of management have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting:
Not
applicable.
The
following table presents information with respect to our directors and executive
officers.
|
Name
|
|
Age
|
|
Position
|
|
David
Walters
|
|
46
|
|
Director,
Chairman
|
|
Keith
Moore
|
|
48
|
|
Director,
Secretary
|
|
Dennis
Ackerman
|
|
61
|
|
Director
|
|
Thomas
Friedberg
|
|
49
|
|
Director
|
|
Gary
Hallgren
|
|
40
|
|
Chief
Executive Officer
|
|
Greg
Jones
|
|
43
|
|
Senior
VP, Operations
|
|
|
|
|
|
|
Directors
DAVID
WALTERS – Director and Chairman since December 5, 2006.
Mr.
Walters has served as Chairman and Chief Executive Officer of Bounce Mobile
Systems, Inc., since July 2006. Since February 2000, he has served as
a managing member of Monarch Bay Capital Group, LLC, a consulting company, and
since March 2006 as a managing member of Strands Management Company, LLC, also a
consulting company. Since April 2006, he has served as a managing
member of Monarch Bay Associates, LLC, a FINRA registered firm. Mr.
Walters has extensive experience in investment management, corporate growth
development strategies and capital markets. From October 1992 through
July 2000, he served as executive vice president and managing director in charge
of Capital Markets for Roth Capital (formerly Cruttenden Roth, "Roth"). As an
equity partner and a key senior management member, he was instrumental in
building the company's revenues from $7 million to $65 million. He managed the
capital markets group and led over 100 financings (public and private), raising
over $2 billion in growth capital. Mr. Walters sat on Roth's Board of
Directors from 1994 through 2000. Previously, Mr. Walters has
served as a vice president for both Drexel Burnham Lambert and Donaldson Lufkin
and Jenrette in Los Angeles, and has run a private equity investment fund. Mr.
Walters earned a B.S. in Bioengineering from the University of California, San
Diego in 1985. Mr. Walters also serves as Chairman of the Board
of Directors of Monarch Staffing, Inc. and STI Group, Inc. and a member of the
Board of Directors of Precision Aerospace Components, Inc.
KEITH
C. MOORE – Director and Secretary since December 5, 2006.
Mr. Moore
has served his entire career founding, growing and financing technology and
service companies. He is a managing member of Strands Management Company, LLC
and Monarch Bay Associates, LLC. Throughout his career Mr. Moore has
served in various executive capacities for micro-cap to Russell 1000 companies,
including Activision, Inc., DataLogic International, Inc., POPcast
Communications Corp., and Cinemaware, Inc. Mr. Moore has raised over
$100 million for these organizations and has grown collective revenues in excess
of $600 million. From 1996 through December 2007, Mr. Moore served in
Chief Executive and other executive capacities for DataLogic International,
Inc., Service Advantage International, Inc., POPcast Communications Corp.,
Cinemaware, Inc. and iTechexpress, Inc., overseeing their respective strategic
growth and capital raises. From 1991 through 1996, Mr. Moore served
as President, Chief Operating Officer, Chief Financial Officer, Director and
Consultant of Activision, Inc. (NASDAQ: ATVI), recognized as the
international market leader in videogames and multimedia
software. Mr. Moore is a founder of International Consumer
Technologies
Corp. and
was Vice President, Chief Financial Officer and Director since its inception in
July 1986 until its merger into Activision in December 1991. Mr.
Moore currently serves on the Board of Directors of Monarch Staffing, Inc., KG3,
Inc. and Service Advantage International, Inc. Mr. Moore also
serves on the Mission Hospital Foundation Executive Committee and Board of
Directors. Mr. Moore earned a B.S. in Accounting and a Masters in
Finance from Eastern Michigan University.
DENNIS
ACKERMAN — Director since January 4, 2006.
Mr. Ackerman
served as Director of the Bank of America Entrepreneurial Center from 1987
through December 2004. The Bank of America Entrepreneurial Center provides
business planning and business plan implementation services for businesses.
Since formation in 1987, the Center has assisted business with raising over
$500 million in working capital. From 1974 through 1987, Mr. Ackerman
served as President of an energy company with a distribution network covering
five states. Mr. Ackerman obtained a B.S. degree in Comprehensive Science
from the College of Education at Ohio State University in 1969.
THOMAS
FRIEDBERG — Director since November 20, 2007.
Thomas W.
Friedberg has been President of Mineral King Partners, LLC (and its predecessor
TWF Consulting), a strategic consulting firm that provides competitive
benchmarking, competitive and strategic financial analysis, and valuation
services since 2004. Previously, Mr. Friedberg advised various
technology companies, automobile salvage processors, specialty financial
institutions, and telecommunications service providers, with an emphasis on
wireless providers, for more than twenty years at firms such as Hambrecht &
Quist, Piper Jaffray, and Tucker Anthony Sutro, and as a partner at Genesis
Merchant Group Securities. Mr. Friedberg also served as Director of Investor
Relations and Strategic Financial Analysis at US WEST NewVector Group, US WEST’s
former publicly traded cellular and paging subsidiary where he directed the
financial aspects and analysis of all merger and acquisitions undertaken by the
Company. Mr. Friedberg received his MBA from the Wharton School at the
University of Pennsylvania and BA and BS degrees from Stanford University. From
1999 to 2007, Mr. Friedberg served on the Governor’s Commission on Science and
Technology for the State of Colorado at the appointment of Governor Bill
Owens. Since March 2007, Mr. Friedberg has also been an independent
FINRA-registered representative associated with Monarch Bay Associates,
LLC. MBA provides placement agent and other investment banking services to
us. See “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS”. Mr.
Friedberg does not perform any services related to MBA’s engagement by us and
does not have any direct or indirect pecuniary interest in MBA’s engagement by
us.
Executive
Officers
Except as
disclosed under “Employment Agreements” below, all officers serve until their
successors are duly elected and qualified or their earlier death, disability or
removal from office.
GARY HALLGREN
—
Chief Executive Officer since
February 16, 2007
Mr. Hallgren,
age 40, previously served as Vice President, Technical Services of Presentation
Products Inc., dba Spinitar, a systems integration company, from May 2005 to
February 2007. Previously, Mr. Hallgren served as Chief Executive Officer
(2002-2005) and Chief Operating Officer (2000-2002) of WirelessCar North
America, Inc., a joint venture of Volvo, Ericsson and Brainheart Capital which
provided wireless middleware and billing services to the telematics
marketplace. Mr. Hallgren received his Bachelors degree in
Engineering from University of Minnesota, Institute of Technology in
1991.
GREG JONES
—
Senior Vice President, Operations
since February 16, 2007
Mr. Jones,
age 43, previously served as Senior Director of Software Engineering for
Aeris.net, a leading provider of wireless mobile to mobile solutions to the
telematics industry, from October 2004 to February 2007. From 2000-2004, Mr.
Jones served as Director of Technology and Development of WirelessCar North
America, Inc., bringing to market wireless communications and billing solutions.
Prior
to
WirelessCar, Mr. Jones served as Director of Internet Development at Liberty
Enterprises, where he led a team that developed Liberty's hosted internet
banking solution for credit unions.
There are
no family relationships among the directors and executive officers of Remote
Dynamics, Inc.
Organization
of the Board of Directors and Meetings
Our Board
of Directors currently consists of four board members: David Walters,
Keith Moore, Dennis Ackerman, and Thomas Friedberg. All directors serve until
the next annual meeting of the stockholders or until their respective successors
are duly elected and qualified, or until their earlier death or removal from
office.
The
holder of a majority of the Series B convertible preferred stock has the
right to appoint one representative to our Board of Directors and is entitled to
designate one observer to meetings of our Board of Directors and its committees.
Although the holder of our Series B convertible preferred stock retains the
right to do so in the future, it has not yet exercised its right to appoint a
board member. The holder of our Series B convertible preferred stock has
designated Raahim Don as its board observer to attend the meetings of our Board
of Directors and its committees. If the holder of a majority of the
Series B convertible preferred stock provides written notice to us that it
intends to designate a board member, then the Board of Directors can, by
resolution, increase the size of the board by one board seat to accommodate the
request.
Audit Committee
. Our Board of
Directors maintains a separately standing audit committee, currently composed of
Keith Moore and Dennis Ackerman. Neither Mr. Ackerman nor Mr.
Moore qualifies as “independent,” as required by Rule 4200(a)(15) of the
National Association of Securities Dealers’ listing standards. The Audit
Committee, with the assistance of our independent accountants, determines the
adequacy of internal controls and other financial reporting matters, and reviews
and recommends to the board of directors for approval all published financial
statements.
Audit Committee Financial
Expert
. Our Board of Directors has determined that Keith Moore qualifies
as an audit committee financial expert under the Sarbanes-Oxley Act of 2002 and
the rules of the Securities and Exchange Commission. Mr. Moore does not
qualify as independent under Rule 4200(a)(15) of the National Association
of Securities Dealers’ listing standards.
Code of Ethics for Chief Executive
Officer and Senior Financial Officers
. On November 7, 2003, our
Board of Directors adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A full copy of this Code is
filed as Exhibit 14.1 filed in connection with our Annual Report on Form
10-K/A for the fiscal year ended August 31, 2004.
Nomination and Corporate Governance
Committee
. There have been no material changes to the procedures by which
our stockholders may recommend nominees to our Board of Directors.
Indemnification of Directors and
Officers.
We indemnify each person who is or was a director,
officer, employee or agent of Remote Dynamics, or serves at our request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts incurred in that capacity.
We will
indemnify only for actions taken:
|
|
·
|
in good faith in a manner the
indemnified person reasonably believed to be in or not opposed to the best
interests of Remote Dynamics;
or
|
|
|
·
|
with
respect to criminal proceedings, not
unlawful.
|
We will
also advance to the indemnified person payments incurred in defending a
proceeding to which indemnification might apply, provided the recipient agrees
to repay all such advanced amounts if it is ultimately determined that such
person is not entitled to be indemnified. Our Bylaws specifically provide that
the indemnification rights granted there under are nonexclusive. In accordance
with our Bylaws, we have purchased insurance on behalf of our directors and
officers in amounts that we believe to be reasonable.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934 requires our directors and executive
officers, and persons who own more than 10% of a registered class of our equity
securities to file with the Securities and Exchange Commission initial
statements of beneficial ownership of securities and subsequent changes in
beneficial ownership. Our officers, directors and greater-than-ten-percent
stockholders are required by the Securities and Exchange Commission’s
regulations to furnish us with copies of all Section 16(a) forms which they have
filed.
To our
knowledge, based solely on a review of the copies of such reports furnished to
us and written representations that no Form 5 reports were required, all of
our officers, directors and beneficial owners of more than 10% of our common
stock, the only class of securities registered under the Exchange Act, timely
complied with all Section 16(a) filing requirements applicable to them during
2008, except that BMSI filed two late Form 4 reports, David Walters filed two
late Form 4 reports and Keith Moore filed one late Form 4 report.
Compensation
of Directors
Our Board
of Directors has the authority to fix the compensation of directors. Our Bylaws
provide that directors may be reimbursed for reasonable expenses for their
services to us, and may be paid either a fixed sum for attendance at each Board
of Directors meeting or a stated annual director fee. We also reimburse our
directors for travel expenses.
|
DIRECTOR
COMPENSATION
|
|
|
Name
|
|
Fees
Earned
or
Paid in Cash ($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-equity
Incentive Plan Compensation ($)
|
|
|
Nonqualified
Deferred Compensation Earnings ($)
|
|
|
All
Other
Compensation
($)
|
|
Total
Compensation
($)
|
|
|
David
Walters
|
|
$
|
12,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,000
|
|
|
Dennis
Ackerman
|
|
|
12,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,000
|
|
|
Keith
Moore
|
|
|
12,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,000
|
|
|
Thomas
Friedberg
|
|
|
12,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
directors David Walters, Dennis Ackerman, Keith Moore, and Thomas Friedberg
receive an annual director's fee of $12,000, paid quarterly and prorated for
service.
The
following table describes compensation awarded, paid to or earned, for the last
fiscal year, by us to our Chief Executive Officer and Senior Vice President
of Operations during 2008.
|
SUMMARY
COMPENSATION TABLE
|
|
|
Name
and principal position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Non-equity
Incentive Plan Compensation ($)
|
|
|
Nonqualified
Deferred Compensation Earnings ($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
Compensation ($)
|
|
|
Gary
Hallgren, Chief Executive Officer
|
|
2008
|
|
$
|
165,000
|
|
|
$
|
76,374
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
(1)
|
|
$
|
241,374
|
|
|
Greg
Jones, Senior Vice President, Operations
|
|
2008
|
|
|
153,000
|
|
|
|
46,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
(2)
|
|
|
199,250
|
|
|
(1)
|
Mr.
Hallgren became our Chief Executive Officer effective February 16,
2007.
|
|
(2)
|
Mr.
Jones became our Senior Vice President, Operations effective February 16,
2007.
|
The
following table sets forth certain information concerning stock option awards
granted to our executive officers and our directors.
|
OPTION
AWARDS
|
|
|
STOCK
AWARDS
|
|
|
Name
|
|
Number
of securities underlying unexercised options (#)
Exercisable
|
|
|
Equity
Incentive Plan Awards: Number of Securities underlying unexercised
unearned options (#)
|
|
|
Option
exercise
price (#)
|
|
|
Option
expiration
date
|
|
|
Number
of shares or units of stock that have not vested (#)
|
|
|
Market
value of shares or units of stock that have not vested ($)
|
|
|
Equity
incentive plan awards: number of unearned shares, units or rights
that have not vested (#)
|
|
|
Equity
incentive plan awards: Market or payout value of unearned shares,
units or other rights that have not vested ($)
|
|
|
Gary
Hallgren, Chief Executive Officer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Greg
Jones, Senior Vice President, Operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Savings
Plan
We have a
401(k) Retirement Investment Profit-Sharing Plan that covers all of our
employees once they become eligible to participate. As permitted under the
401(k) Plan, employees may contribute up to 20% of their pre-tax earnings. The
maximum amount of contributions by any employee each calendar year is $15,500,
the maximum amount permitted under the Internal Revenue Code of 1986, as
amended. We match 50% of an employee’s contribution to the 401(k) Plan up to 6%
of pre-tax earnings for a total potential matching contribution of 3% of the
employee’s pre-tax earnings.
Employment
Agreements
As of
December 31, 2008, we have employment agreements with Gary Hallgren, our Chief
Executive Officer, and Greg Jones, our Senior Vice President,
Operations. The following is a summary of the material details of the
employment agreement.
Our
employment agreement with Mr. Hallgren expires February 2010 and automatically
renews in one year increments. The employment agreement
provides for a base salary of $165,000. If the employment agreement
is terminated by us (other than for specified cause events), Mr. Hallgren will
receive his full base salary for the lesser of (a) twelve months and (b) the
remaining term of the agreement (plus an additional six months if the
termination occurs within 60 days of the occurrence of a change in control of
the company).
Mr.
Hallgren (together with other members of our senior management) will receive a
quarterly bonus equal to 20% of our earnings before interest, taxes,
depreciation and amortization. In addition, if we consummate certain
corporate transactions in which the consideration received by our security
holders exceeds $20 million, Mr. Hallgren (together with other members of our
senior management) will receive a bonus equal to 10% of the aggregate
transaction value exceeding $20 million. Mr. Hallgren will determine the
allocation of the bonuses among Mr. Hallgren and the other members of our senior
management.
Mr.
Hallgren (together with other members of our senior management) will participate
in an EBITDA Bonus Program and Corporate Transaction Bonus Program as the same
may be established and
maintained
from time to time by us. Mr. Hallgren receives a cash draw of
$2,083.33 per month as an advance against payments under such bonus
programs.
Our
employment agreement with Mr. Jones expires February 2010 and automatically
renews in one year increments. The employment agreement
provides for a base salary of $153,000. If the employment agreement
is terminated by us (other than for specified cause events), Mr. Jones will
receive his full base salary for the lesser of (a) six months and (b) the
remaining term of the agreement (plus an additional six months if the
termination occurs within 60 days of the occurrence of a change in control of
the company).
Mr. Jones
(together with other members of our senior management) will participate in an
EBITDA Bonus Program and Corporate Transaction Bonus Program as the same may be
established and maintained from time to time by us. Our Chief
Executive Officer will determine the allocation of the bonuses among the members
of our senior management. Mr. Jones receives a cash draw of $1,000
per month as an advance against payments under such bonus programs.
Compensation
Committee Interlocks and Insider Participation
Due to
the limited number of directors constituting our Board of Directors and there
being no members of our executive team serving on the Board, we elected to
suspend the operation of our Compensation Committee effective June 1,
2007. As a result, the full Board of Directors considers and
participates in the compensation of our executive officers.
The
following table sets forth certain information regarding beneficial ownership of
our common stock as of March 30, 2009:
|
|
·
|
by
each person who is known by us to beneficially own more than 5% of our
common stock;
|
|
|
·
|
by
each of our executive officers and directors;
and
|
|
|
·
|
by
all of our executive officers and directors as a
group.
|
|
|
|
|
|
Beneficial
Ownership
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
|
|
|
Name
and Address of
|
|
Nature
of
|
|
|
|
|
Series
B
|
|
|
Series
C
|
|
|
|
|
|
Percent
of
|
|
|
Beneficial Owner (1)
|
|
Beneficial Owner (1)
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Total
|
|
|
Total (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bounce
Mobile Systems, Inc.
|
|
Stockholder
|
|
|
18,048,299,367
|
|
|
|
—
|
|
|
|
100,816,376,984
|
|
|
|
11
8,864,676,35
0
|
(3)
|
|
|
62.28
|
%
|
|
30950
Rancho Viejo Rd. #120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Juan Capistrano, CA 92675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis
Ackerman
|
|
Director
|
|
|
53,647,440
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53,647,44
0
|
(4)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Moore
|
|
Director
|
|
|
1,638,919,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,638,919,3
55
|
(5)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Friedberg
|
|
Director
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Walters
|
|
Chairman
and Director
|
|
|
19,687,218,721
|
|
|
|
—
|
|
|
|
100,816,376,984
|
|
|
|
120,503,595,70
5
|
(6)
|
|
|
63.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
Hallgren
|
|
Chief
Executive Officer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greg
Jones
|
|
Senior
VP, Operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officers and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
directors
as a group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
persons)
|
|
|
|
|
21,379,785,516
|
|
|
|
—
|
|
|
|
100,816,376,984
|
|
|
|
122,196,162,500
|
|
|
|
64.03
|
%
|
* Less
than 1%
(1)
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. In accordance with Commission rules, shares of the Company's common
stock which may be acquired upon exercise of stock options or warrants which are
currently exercisable or which become exercisable within 60 days of the date of
the table are deemed beneficially owned by the optionees. Subject to community
property laws, where applicable, the persons or entities named in the table
above have sole voting and investment power with respect to all shares of the
Company's common stock indicated as beneficially owned by them.
(2) Based
upon the following outstanding securities: (a) 4,737,534,793 shares of common
stock, (b) 522 shares of our series B convertible preferred stock (which were
convertible into 168 shares of common stock), (c) 5,379 shares of our series C
convertible preferred stock (which were convertible into 100,816,376,984 shares
of common stock), (d) $3,044,516 principal amount of our series A senior secured
convertible promissory notes (which were convertible into 29,263,938,179 shares
of common stock), (e) $6,948,439 principal amount of our series B subordinated
secured convertible promissory notes (which were convertible into 56,035,798,387
shares of common stock), (f) series A-7 warrants exercisable for 1,031 shares of
common stock, (g) series B-4 warrants exercisable for 688 shares of common
stock, (h) series C-3 warrants exercisable for 1,375 shares of common stock, (i)
series D-1 warrants exercisable for 963 shares of common stock, (j) series E-7
warrants exercisable for 314,839 shares of common stock, (k) series F-4 warrants
exercisable for 314,839 shares of common stock, and (l) other warrants
exercisable for 2,378 shares of common stock.
(3)
Consists of shares of common stock issuable upon conversion or exercise of the
following outstanding securities held by BMSI: (a) 5,379 shares of
our series C convertible preferred stock, (b) 604,310,965 shares of our common
stock, (c) $2,163,000 principal amount of series B subordinated secured
convertible notes (including original issue discount series B subordinated
secured convertible notes), (c) our series E-7 warrants to purchase 220,007
shares of our common stock, and (d) our series F-4 warrants to purchase 220,007
shares of our common stock.
(4) This
individual beneficially owns 53,647,440 shares issuable upon conversion of a
convertible promissory note issued by the Company.
(5)
Represents shares of our Common Stock held by Strands Management Company,
LLC. Keith Moore is a managing member and owns 50% of the interests
of Strands Management Company, LLC.
(6)
Represents shares of our Common Stock held by BMSI (as described in note #3
above) as well as shares of our Common Stock held by Strands Management Company,
LLC. David Walters is a managing member and owns 50% of the interests
of Strands Management Company, LLC.
In
connection with our November 2006 private placement, we agreed to pay $60,000
($15,000 per closing) to Strands Management Company, LLC (“Strands”), formerly
known as Monarch Bay Management Company, LLC, for consulting
work. David Walters (our Chairman) and Keith Moore (a member of our
Board of Directors) are managing members of Strands and each own 50% of
Strands.
As of
December 31, 2006, the Company owed $15,000 to Strands for these services
.
The Company made
payments totaling $15,000 and $60,000 for the year ended December 31, 2008 and
2007, respectively.
Additionally,
we agreed to pay a $20,000 documentation fee to BMSI in connection with our
December 2006 acquisition of BounceGPS from BMSI. David Walters (our
Chairman) is the Chairman and Chief Executive Officer of BMSI and beneficially
owns a majority of the outstanding common stock of BMSI. This payment was made
in January 2007.
BounceGPS,
our wholly owned subsidiary, had an agreement with Monarch Bay Capital Group,
LLC (“MBCG”) for corporate development and chief financial officer services
during the period from July
2006 to
May 2007. David Walters (our Chairman) is the managing member
of MBCG and beneficially owns 100% of MBCG. The agreement was
entered into prior to our December 2006 acquisition of BounceGPS and
prior to Mr. Walters joining our Board of Directors. Under the
agreement with MBCG, BounceGPS
paid to MBCG a monthly fee
of $20,000 in cash. Fees paid to MBCG totaled $0 and $80,000 for the
years ended December 31, 2008 and 2007, respectively. Remaining
amounts due to MBCG totaled $20,000 as of December 31, 2008.
On May 1,
2007, we entered into a Support Services Agreement with
Strands. David Walters, our Chairman, and Keith Moore, our director,
each are members of, and each own 50% of the ownership interests in
Strands. Under the Support Services Agreement, Strands provides us
with financial management services, facilities and administrative services,
business development services, creditor resolution services and other services
as agreed by the parties. We pay to Strands monthly cash fees of
$22,000 for the services. In addition, Strands will receive fees
equal to (a) 6% of the revenue generated from any business development
transaction with a customer or partner introduced to us by Strands and (b) 20%
of the savings to us from any creditor debt reduction resolved by Strands on our
behalf. The initial term of the Support Services Agreement expires on
May 1, 2009. Fees paid to Strands totaled $242,000 and $199,000 for
the year ended December 31, 2008 and 2007, respectively. The Company
had an outstanding balance due to Strands of $44,000 as of December 31,
2008.
On May 1,
2007, we entered into a Placement Agency and Advisory Services Agreement with
Monarch Bay Associates, LLC (“MBA”). (MBA is a FINRA registered
firm.) David Walters, our Chairman, and Keith Moore, our director,
each are members of, and each owns 50% of the ownership interests in MBA. Under
the agreement, MBA acts as our placement agent on an exclusive basis with
respect to private placements of our capital stock and as our exclusive advisor
with respect to acquisitions, mergers, joint ventures and similar
transactions. MBA will receive fees equal to (a) 9% of the
gross proceeds raised by us in any private placement (plus warrants to purchase
9% of the number of shares of common stock issued or issuable by us in
connection with the private placement) and (b) 3% of the total consideration
paid or received by us or our stockholders in an acquisition, merger, joint
venture or similar transaction. The initial term of the Placement
Agency and Advisory Services Agreement expired on May 1, 2008. A new
agreement was entered into effective December 1, 2008. No fees were
paid to MBA in 2007 or 2008.
On November 14, 2007, BounceGPS loaned
$21,875 to BMSI. Interest accrued at an annual rate of
10%. David Walters, Chairman, is also the Chairman and Chief
Executive Officer of BMSI and beneficially owns a majority of the outstanding
common stock of BMSI. We received payment in full, including
interest of $729 in March 2008.
On
December 26, 2007, BounceGPS loaned $22,000 to Monarch Staffing, Inc. and
$25,000 to a subsidiary of Monarch Staffing, Inc. Interest accrued at
an annual rate of 10%. David Walters (our Chairman) is also the
Chairman of Monarch Staffing and beneficially owns 41% of the outstanding common
stock of Monarch Staffing. David Walters (a member of our Board of
Directors) is also a director of Monarch Staffing and beneficially owns 41% of
the outstanding common stock of Monarch Staffing. Keith Moore (a
Director) is also a Director of Monarch Staffing and beneficially owns 41% of
the outstanding common stock of Monarch Staffing. We received payment
in full, including interest of $1,175 in March 2008.
On June
13, 2008, the Company borrowed $20,000 from Strands Management Company to cover
short-term working capital needs. This amount was repaid on June 18,
2008 with interest of 10% per annum.
On
September 16, 2008 and September 12, 2008, we entered into working capital line
of credit promissory notes with Gary Hallgren, our Chief Executive Officer, and
Strands Management Company, LLC, an entity owned by our directors David Walters
and Keith Moore. Our Board of Directors has authorized borrowings of
up to $100,000 under the terms of the promissory notes to meet our
working
capital
funding needs. The promissory notes are unsecured, bear interest at
an annual rate of 10% and are due and payable on demand by the
lender.
On
September 12, 2008, the Company borrowed $18,200 from Strands Management Company
to cover short-term working capital needs. This amount was repaid on
September 22, 2008 with interest of 10% per annum.
On
September 16, 2008, the Company borrowed $16,500 from Gary Hallgren, the CEO, to
cover short-term working capital needs. This amount was repaid on
September 19, 2008 with interest of 10% per annum.
On
November 6, 2008, we amended the working capital line of credit promissory note
with Strands Management Company, increasing the authorized borrowings to
$200,000. As of December 31, 2008, we have borrowed $106,000 against
the note. Accrued interest under the note, totals $2,200 as of
December 31, 2008.
On
February 25, 2009, the Company borrowed $24,000 from Gary Hallgren, the CEO, to
cover short-term working capital needs. This amount was repaid on
February 27, 2009 with interest of 10% per annum.
|
|
(a)
|
1.
Consolidated Financial
Statements.
|
The
following consolidated financial statements of Remote Dynamics, Inc. and
Subsidiaries, are submitted as a separate section of this report (See
F-pages), and are incorporated by reference in Item 7:
The
following Exhibits are filed herewith pursuant to Item 601 of
Regulation S-B or incorporated herein by reference to previous filings as
noted:
|
Exhibit
No.
|
Identification
of Exhibit
|
|
|
|
|
2.1.1
|
Share
Exchange Agreement with Bounce Mobile Systems, Inc. dated November 30,
2006 (1)
|
|
2.1.2
|
Registration
Rights Agreement with Bounce Mobile Systems, Inc. dated December 4, 2006
(1)
|
|
2.1.3
|
Security
Agreement with Bounce Mobile Systems, Inc. dated December 4, 2006
(1)
|
|
2.1.4
|
Series
B subordinated secured convertible promissory note of issued to Bounce
Mobile Systems, Inc. on December 4, 2006
(1)
|
|
2.1.5
|
Original
issue discount series B subordinated secured convertible promissory note
issued to Bounce Mobile Systems, Inc. on December 4, 2006
(1)
|
|
2.1.6
|
Series
E-7 Warrant issued to Bounce Mobile Systems, Inc. on December 4, 2006
(1)
|
|
2.1.7
|
Series
F-4 Warrant issued to Bounce Mobile systems, Inc. on December 4, 2006
(1)
|
|
3.1.1
|
Amended
and Restated Certificate of Incorporation dated June 30, 2004
(2)
|
|
3.1.2
|
Certificate
Of Amendment to the Amended and Restated Certificate of Incorporation
dated May 26, 2006 (3)
|
|
3.1.3
|
Certificate
Of Amendment to the Amended and Restated Certificate of Incorporation
dated November 19, 2007
|
|
3.1.4
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation
dated July 22, 2008 (12)
|
|
3.2
|
Third
Amended and Restated By-Laws dated June 30, 2004
(4)
|
|
4.1
|
Specimen
of certificate representing the Common Stock, $.01 par value, of Remote
Dynamics, Inc. (5)
|
|
4.2
|
Amended
and Restated Certificate of Designation, Preferences and Rights, Series B
Convertible Preferred Stock, as filed with Secretary of State of Delaware
on December 4, 2006 (1)
|
|
4.3
|
Certificate
of Designation, Preferences and Rights, Series C Convertible Preferred
Stock, as filed with Secretary of State of Delaware on December 4, 2006
(1)
|
|
10.1.1
|
Securities
Purchase Agreement with SDS Capital Group SPC, Ltd. dated May 31, 2005
(6)
|
|
10.1.2
|
Amendment
No. 1 to Securities Purchase Agreement with SDS Capital Group SPC, Ltd.
(1)
|
|
10.2.1
|
Registration
Rights Agreement by and between Remote Dynamics, Inc. and SDS Capital
Group SPC, Ltd. dated September 2, 2005
(6)
|
|
10.2.2
|
Stock
Purchase Warrant issued to SDS Capital Group SPC, Ltd. on September 2,
2005 for purchase of 2,000,000 shares of common stock
(6)
|
|
10.2.3
|
Stock
Purchase Warrant issued to SDS Capital Group SPC, Ltd. on September 2,
2005 for purchase of 1,666,667 shares of common stock
(6)
|
|
10.2.4
|
Stock
Purchase Warrant issued to SDS Capital Group SPC, Ltd. on September 2,
2005 for purchase of 700,000 shares of common stock
(6)
|
|
10.3.1
|
Note
and Warrant Purchase Agreement dated as of February 23, 2006
(7)
|
|
10.3.2
|
Registration
Rights Agreement dated as of February 23, 2006
(7)
|
|
10.3.3
|
Security
Agreement dated as of February 23, 2006
(7)
|
|
10.3.4
|
Form
of series A senior secured convertible promissory note due February 24,
2008 (7)
|
|
10.3.5
|
Form
of original issue discount series A senior secured convertible promissory
note due February 24, 2008 (7)
|
|
10.3.6
|
Form
of Series A-7 Warrant issued on February 24, 2006
(7)
|
|
10.3.7
|
Form
of Series B-4 Warrant issued on February 24, 2006
(7)
|
|
10.3.8
|
Form
of Series C-3 Warrant issued on February 24, 2006
(7)
|
|
10.3.9
|
Form
of Series D-1 Warrant issued on February 24, 2006
(7)
|
|
10.4.1
|
Note
and Warrant Purchase Agreement dated as of November 30, 2006
(1)
|
|
10.4.2
|
Registration
Rights Agreement dated as of November 30, 2006
(1)
|
|
10.4.3
|
Security
Agreement dated as of November 30, 2006
(1)
|
|
10.4.4
|
Form
of series B senior secured convertible promissory note due December 4,
2009 (1)
|
|
10.4.5
|
Form
of original issue discount series B senior secured convertible promissory
note due December 4, 2009 (1)
|
|
10.4.6
|
Form
of Series E-7 Warrant issued on December 4, 2006
(1)
|
|
10.4.7
|
Form
of Series F-4 Warrant issued on December 4, 2006
(1)
|
|
10.5.1
|
Amendment
No. 1 to Note and Warrant Purchase Agreement dated as of April
2008(14)
|
|
10.5.2
|
Form
of series B senior secured convertible promissory note due May 2011
(14)
|
|
10.5.3
|
Form
of original issue discount series B senior secured convertible promissory
note due May 2011 (14)
|
|
10.5.4
|
Form
of Series E-7 Warrant issued in May 2008
(14)
|
|
10.5.5
|
Form
of Series F-4 Warrant issued in May 2008
(14)
|
|
10.6.1
|
Addendum
No.1 to Promissory Note with HFS Minorplanet Funding, LLC
(13)
|
|
10.5#
|
2004
Restated Management Incentive Plan
(8)
|
|
10.6.1#
|
Employment
Agreement with Gary Hallgren dated February 16, 2007
(9)
|
|
10.6.2#
|
Employment
Agreement with Greg Jones dated February 16, 2007
(9)
|
|
10.7
|
Consulting
Agreement with Monarch Bay Management Company dated July 1, 2006
(10)
|
|
10.8.1
|
Support
Services Agreement with Monarch Bay Management Company dated May 1, 2007
(13)
|
|
10.8.2
|
Addendum
No. 1 to Support Services Agreement with Strands Management Company
(14)
|
|
10.9
|
Placement
Agency and Advisory Services Agreement with Monarch Bay Associates, LLC
dated May 1, 2007 (13)
|
|
10.9.1*
|
Placement
Agency and Advisory Services Agreement with Monarch Bay Associates, LLC
dated December 1, 2008
|
|
10.10
|
Form
of Working Capital Line of Credit Promissory Note
(15)
|
|
14.1
|
Code
of Ethics for Senior Financial Officers
(11)
|
|
21.1*
|
Subsidiaries
of Registrant
|
|
23.1*
|
Consent
of Chisholm Bierwolf Nilson & Morrill,
LLC
|
|
31.1*
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated
under the Securities Exchange Act of
1934
|
|
31.2*
|
Certification
of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14
promulgated under the Securities Exchange Act of
1934
|
|
32.1*
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
#
|
Management
contract and/or compensatory plan, contract or
arrangement
|
|
(1)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Current Report on Form 8-K,
as filed with the SEC on December 7,
2006.
|
|
(2)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Quarterly Report on Form
10-Q, as filed with the SEC on July 14,
2004.
|
|
(3)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Quarterly Report on Form
10-QSB, as filed with the SEC on July 17,
2006.
|
|
(4)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Annual Report on Form 10-K,
as filed with the SEC on November 18,
2004.
|
|
(5)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Registration Statement on
Form S-1, as amended (No. 33-9 1486), as declared effective by the SEC on
June 22, 1995
|
|
(6)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Current Report on Form 8-K,
as filed with the SEC on September 7,
2005.
|
|
(7)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Current Report on Form
8-K/A, as filed with the SEC on March 1,
2006.
|
|
(8)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Annual Report on Form 10-K,
as filed with the SEC on November 18,
2004.
|
|
(9)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Current Report on Form 8-K,
as filed with the SEC on February 22,
2007.
|
|
(10)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Annual Report on Form 10-K,
as filed with the SEC on April 16,
2007.
|
|
(11)
|
Filed
in connection with Company’s Form 10-K Annual Report for the year ended
August 31, 2003.
|
|
(12)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Annual Report on Form
10-KSB, as filed with the SEC on March 24,
2008.
|
|
(13)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Quarterly Report on Form
10-QSB, as filed with the SEC on May 15,
2007.
|
|
(14)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Quarterly Report on Form
10-Q, as filed with the SEC on May 15,
2008.
|
|
(15)
|
Incorporated
herein by reference to Remote Dynamics, Inc.’s Current Report on Form 8-K,
as filed with the SEC on September 19,
2008.
|
On March
23, 2007, the Audit Committee of our Board of Directors approved the engagement
of Chisholm Bierwolf Nilson & Morrill LLC (“CBN”) to serve as our principal
independent public accountant to audit our financial statements for the fiscal
year ended December 31, 2006. On March 8, 2006, the Audit Committee
of our Board of Directors approved the engagement of KBA Group LLP (“KBA”) to
serve as our principal independent public accountant to audit our financial
statements for the fiscal year ended August 31, 2006. Prior to March
8, 2006, our principal independent public accountant was BDO Seidman, LLP
(“BDO”). Audit fees billed by CBN relate to the audits for the
fiscal years ending December 31, 2008 and 2007. On March 27, 2007,
the Company changed its’ fiscal year end from August 31 to December
31. The accountant fees paid to KBA Group and BDO Seidman relate to
the previous fiscal year reporting of August 31. Audit fees billed by
our principal independent public accountants for services rendered for the audit
of our annual financial statements and review of our quarterly financial
statements included in Form 10-Q for the last two fiscal years are presented
below. Audit-related fees, tax fees, and other fees for services
billed by our principal independent public accountant during each of the last
two fiscal years are also presented in the following table:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Chisholm,
Bierwolf & Nilson
|
|
|
|
|
|
Audit
fees
|
|
$
|
31,600
|
|
|
$
|
41,859
|
|
|
Audit-related
fees (a)
|
|
$
|
2,913
|
|
|
|
3,325
|
|
|
Tax
fees (b)
|
|
$
|
—
|
|
|
|
—
|
|
|
Registration
Statement Fees
|
|
$
|
—
|
|
|
|
—
|
|
|
All
other fees
|
|
$
|
3,066
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
KBA
Group
|
|
|
|
|
|
|
|
|
|
Audit
fees
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Audit-related
fees (a)
|
|
$
|
—
|
|
|
|
—
|
|
|
Tax
fees (b)
|
|
$
|
—
|
|
|
|
—
|
|
|
Registration
Statement Fees
|
|
$
|
—
|
|
|
|
—
|
|
|
All
other fees
|
|
$
|
—
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
BDO
Seidman
|
|
|
|
|
|
|
|
|
|
Audit
fees
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Audit-related
fees (a)
|
|
$
|
—
|
|
|
|
—
|
|
|
Tax
fees (b)
|
|
$
|
—
|
|
|
|
—
|
|
|
Registration
Statement Fees
|
|
$
|
—
|
|
|
|
—
|
|
|
All
other fees
|
|
$
|
—
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Hartman,
Leito & Bolt, LLP
|
|
|
|
|
|
|
Audit
fees
|
|
$
|
—
|
|
|
|
—
|
|
|
Audit-related
fees (a)
|
|
$
|
—
|
|
|
|
—
|
|
|
Tax
fees (b)
|
|
$
|
—
|
|
|
|
14,805
|
|
|
Registration
Statement Fees
|
|
$
|
—
|
|
|
|
—
|
|
|
All
other fees
|
|
$
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Audit-related fees primarily include research services to validate certain
accounting policies.
(b) Tax
fees include costs for the preparation of our corporate income tax
return.
In
accordance with the Audit Committee Charter of our Audit Committee (“Charter”),
all audit and non-audit services to be provided by our principal accountant
relating to the audit of our financial statements must be pre-approved by our
Audit Committee. The Charter further provides that if the services to
be rendered by our principal accountant are services other than audit, review or
attest services, the pre-approval requirement is waived if: (a) the aggregate
amount of all such services provided by the principal accountant constitutes no
more than five percent (5%) of the total amount of revenues paid by us to our
principal accountant during the fiscal year in which the services are provided;
and (b) such services were not recognized by us at the time of the engagement to
be non-audit services; and (c) such services are promptly brought to the
attention of our Audit Committee and approved prior to the completion of the
audit by our Audit Committee or by one or more members of our Audit Committee
who are members of the Board of Directors to whom authority to grant such
approvals has been delegated by our Audit Committee. All the services
provided by our principal accountants during the fiscal years ended December 31,
2008 and 2007 were pre-approved by our Audit Committee.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
Dated:
March 31, 2009
|
REMOTE
DYNAMICS, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
By:
|
/s/
GARY HALLGREN
|
|
|
|
|
Gary
Hallgren
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
(Principal
Executive Officer)
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
GARY HALLGREN
|
|
Chief
Executive Officer
|
|
March
31, 2009
|
|
Gary
Hallgren
|
|
|
|
|
|
|
|
|
|
|
/s/
DAVID WALTERS
|
|
Chairman
and Director
(Principal
Financial and Accounting Officer)
|
|
March
31, 2009
|
|
David
Walters
|
|
|
|
|
|
|
|
|
|
|
/s/
DENNIS ACKERMAN
|
|
Director
|
|
March
31, 2009
|
|
Dennis
Ackerman
|
|
|
|
|
|
|
|
|
|
|
|
/s/
KEITH MOORE
|
|
Director
and Secretary
|
|
March
31, 2009
|
|
Keith
Moore
|
|
|
|
|
|
|
|
|
|
|
|
/s/
THOMAS FRIEDBERG
|
|
Director
|
|
March
31, 2009
|
|
Thomas
Friedberg
|
|
|
|
|
|
|
|
|
|
|
ANNUAL
REPORT ON FORM 10-KSB
ITEM
7
FINANCIAL
STATEMENTS
YEARS
ENDED DECEMBER 31, 2008 and 2007
REMOTE
DYNAMICS, INC.
PLANO,
TEXAS
The Board
of Directors and Stockholders
Remote
Dynamics, Inc.
Plano,
Texas
We have
audited the accompanying consolidated balance sheets of Remote Dynamics, Inc.
and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders’ deficit, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform, an audit of their internal control over
financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Remote
Dynamics, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has a significant working capital
deficit, suffered recurring losses from operations and has negative cash flows
from operating activities that raise substantial doubt about its ability to
continue as a going concern. The Company’s plans in regard to these
matters are described in Note 1 to the financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Chisholm Bierwolf &
Nilson, LLC
Chisholm
Bierwolf & Nilson, LLC
Bountiful,
Utah
March 31,
2009
|
REMOTE
DYNAMICS, INC. AND SUBSIDIARIES
|
|
|
|
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
|
$
|
228
|
|
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
of
$85 and $54, respectively
|
|
|
803
|
|
|
|
526
|
|
|
Due
from related parties
|
|
|
—
|
|
|
|
71
|
|
|
Inventories,
net of reserve for obsolescence of $7 and $7, respectively
|
|
|
153
|
|
|
|
158
|
|
|
Deferred
product costs - current portion
|
|
|
580
|
|
|
|
352
|
|
|
Lease
receivables and other current assets, net
|
|
|
246
|
|
|
|
466
|
|
|
Total
current assets
|
|
|
1,782
|
|
|
|
1,801
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
|
|
|
and
amortization of $212 and $154, respectively
|
|
|
102
|
|
|
|
157
|
|
|
Deferred
product costs - non-current portion
|
|
|
352
|
|
|
|
336
|
|
|
Goodwill
|
|
|
616
|
|
|
|
616
|
|
|
Customer
Lists, net
|
|
|
1,610
|
|
|
|
2,162
|
|
|
Software,
net
|
|
|
502
|
|
|
|
674
|
|
|
Tradenames,
net
|
|
|
44
|
|
|
|
59
|
|
|
Deferred
financing fees, net
|
|
|
135
|
|
|
|
191
|
|
|
Lease
receivables and other assets, net
|
|
|
22
|
|
|
|
135
|
|
|
Total
assets
|
|
$
|
5,165
|
|
|
$
|
6,131
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,363
|
|
|
$
|
1,530
|
|
|
Accounts
payable - related parties
|
|
|
110
|
|
|
|
75
|
|
|
Deferred
product revenues - current portion
|
|
|
952
|
|
|
|
1,197
|
|
|
Series
A convertible notes payable (net of discount of $0 and $392,
respectively)
|
|
|
3,646
|
|
|
|
3,801
|
|
|
Series
B convertible notes payable (net of discount of $1,301 and $1,543,
respectively)
|
|
|
5,834
|
|
|
|
5,007
|
|
|
Note
payable - related parties
|
|
|
250
|
|
|
|
250
|
|
|
Accrued
expenses and other current liabilities
|
|
|
2,392
|
|
|
|
1,770
|
|
|
Accrued
expenses and other current liabilities - related parties
|
|
|
106
|
|
|
|
60
|
|
|
Total
current liabilities
|
|
|
14,653
|
|
|
|
13,690
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
product revenues - non-current portion
|
|
|
588
|
|
|
|
590
|
|
|
Other
non-current liabilities
|
|
|
34
|
|
|
|
110
|
|
|
Total
liabilities
|
|
|
15,275
|
|
|
|
14,390
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Preferred Stock - Series B (3% when declared, $10,000 stated
value,
|
|
|
|
|
|
|
650
shares authorized, 522 shares issued and outstanding at
|
|
|
|
|
|
|
|
|
|
December
31, 2008 and December 31, 2007, respectively (redeemable
in
|
|
|
|
|
|
|
|
|
|
liquidation
at an aggregate of $5,220,000 at December 31, 2008)
|
|
|
134
|
|
|
|
134
|
|
|
Redeemable
Preferred Stock - Series C (8% cumulative, $1,000 stated
value,
|
|
|
|
|
|
|
|
|
|
10,000
shares authorized, 5,274 and 5,202 shares issued and outstanding
at
|
|
|
|
|
|
|
|
|
|
December
31, 2008 and December 31, 2007, respectively (redeemable
in
|
|
|
|
|
|
|
|
|
|
liquidation
at an aggregate of $5,274,000 at December 31, 2008)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.0001 par value, 5,000,000,000 shares authorized,
677,858,548
|
|
|
|
|
|
|
shares
issued and 677,858,501 outstanding at December 31, 2008;
|
|
|
|
|
|
|
|
|
|
750,000,0000 shares
authorized, 3,483 shares issued and 3,437 outstanding
|
|
|
|
|
|
|
|
|
|
at
December 31, 2007, retroactively restated
|
|
|
68
|
|
|
|
14
|
|
|
Treasury
stock, 47 shares at December 31, 2008 and December 31,
2007,
|
|
|
|
|
|
|
|
|
|
respectively,
at cost, retroactively restated
|
|
|
—
|
|
|
|
—
|
|
|
Additional
paid-in capital
|
|
|
1,675
|
|
|
|
897
|
|
|
Accumulated
deficit
|
|
|
(11,987
|
)
|
|
|
(9,304
|
)
|
|
Total
stockholders' deficit
|
|
|
(10,244
|
)
|
|
|
(8,393
|
)
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
5,165
|
|
|
$
|
6,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
REMOTE
DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
|
|
Year
ended
|
|
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
|
|
|
|
|
|
Service
|
|
$
|
3,474
|
|
|
$
|
3,176
|
|
|
Ratable
product
|
|
|
1,567
|
|
|
|
1,385
|
|
|
Product
|
|
|
217
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
5,258
|
|
|
|
4,721
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
1,301
|
|
|
|
1,245
|
|
|
Ratable
product
|
|
|
575
|
|
|
|
330
|
|
|
Product
|
|
|
99
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
|
1,975
|
|
|
|
1,761
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
3,283
|
|
|
|
2,960
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,619
|
|
|
|
1,766
|
|
|
Sales
and marketing
|
|
|
681
|
|
|
|
774
|
|
|
Engineering
|
|
|
796
|
|
|
|
719
|
|
|
Depreciation
and amortization
|
|
|
809
|
|
|
|
949
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
3,905
|
|
|
|
4,208
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(622
|
)
|
|
|
(1,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
42
|
|
|
|
105
|
|
|
Interest
expense
|
|
|
(2,102
|
)
|
|
|
(4,757
|
)
|
|
Other
income
|
|
|
(1
|
)
|
|
|
383
|
|
|
Loss
on extinguishment of debt
|
|
|
-
|
|
|
|
(341
|
)
|
|
Loss
on extinguishment of redeemable preferred stock
|
|
|
-
|
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expenses)
|
|
|
(2,061
|
)
|
|
|
(4,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(2,683
|
)
|
|
|
(6,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(2,683
|
)
|
|
|
(6,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
Loss
on redemption of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(2,683
|
)
|
|
$
|
(6,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.19
|
)
|
|
$
|
(2,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
14,474
|
|
|
|
3
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
REMOTE
DYNAMICS, INC. AND SUBSIDIARIES
|
|
|
|
FOR
THE PERIOD JANUARY 1, 2007 THROUGH DECEMBER 31, 2008
|
|
(in
thousands, except share
information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Treasury
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
128
|
|
|
|
1
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
Issuance
of warrants in connection with Series B debt offering
|
|
|
—
|
|
|
|
—
|
|
|
|
45
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
45
|
|
|
Issuance
of warrants in connection with exchange of Series A Notes to Series B
Notes
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
Issuance
of warrants in connection with exchange of Series B Preferred Stock to
Series B Notes
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
Conversion
of Series A Notes to common stock
|
|
|
32
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
Conversion
of HFS Note to Series B Notes
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
Common
stock issued as partial principal payments on Series A
Notes
|
|
|
164
|
|
|
|
1
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,221
|
)
|
|
|
(6,221
|
)
|
|
Balance,
December 31, 2007
|
|
|
3,437
|
|
|
$
|
14
|
|
|
$
|
897
|
|
|
|
47
|
|
|
$
|
—
|
|
|
$
|
(9,304
|
)
|
|
$
|
(8,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
894
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
Common
stock issued as partial principal payments on Series A
Notes
|
|
|
55,669,326
|
|
|
|
6
|
|
|
|
542
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
548
|
|
|
Common
stock issued as partial principal payments on Series B
Notes
|
|
|
17,873,879
|
|
|
|
2
|
|
|
|
262
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
264
|
|
|
Conversion
of Series C preferred stock
|
|
|
604,310,965
|
|
|
|
60
|
|
|
|
(60
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance
of warrants in connection with Series B debt offering
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
Reduction
of par value in association with reverse stock split
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
18
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,683
|
)
|
|
|
(2,683
|
)
|
|
Balance,
December 31, 2008
|
|
|
677,858,501
|
|
|
$
|
68
|
|
|
$
|
1,675
|
|
|
|
47
|
|
|
$
|
—
|
|
|
$
|
(11,987
|
)
|
|
$
|
(10,244
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
REMOTE
DYNAMICS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (1 of 2)
(in
thousands)
|
|
|
Year
ended December 31,
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
2008
|
|
|
2007
|
|
|
Net
loss
|
|
$
|
(2,683
|
)
|
|
$
|
(6,221
|
)
|
|
Adjustments
to reconcile net loss to cash used in
|
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
70
|
|
|
|
154
|
|
|
Amortization
of customer lists and other intangibles
|
|
|
739
|
|
|
|
795
|
|
|
Amortization
of debt discount
|
|
|
17
|
|
|
|
7
|
|
|
Amortization
of deferred financing fees
|
|
|
107
|
|
|
|
85
|
|
|
Accretion
of HFS note payable
|
|
|
-
|
|
|
|
611
|
|
|
Accretion
of Series A notes
|
|
|
392
|
|
|
|
2,628
|
|
|
Accretion
of Series B notes
|
|
|
901
|
|
|
|
625
|
|
|
Provision
for bad debt
|
|
|
159
|
|
|
|
72
|
|
|
Loss
on extinguishment of debt
|
|
|
-
|
|
|
|
341
|
|
|
Loss
on extinguishment of redeemable preferred stock
|
|
|
-
|
|
|
|
363
|
|
|
Loss
on retirement of fixed assets
|
|
|
1
|
|
|
|
55
|
|
|
Common
stock issued for services
|
|
|
14
|
|
|
|
9
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(404
|
)
|
|
|
(214
|
)
|
|
Due
from related parties
|
|
|
71
|
|
|
|
(71
|
)
|
|
Inventory
|
|
|
6
|
|
|
|
128
|
|
|
Deferred
product costs
|
|
|
(244
|
)
|
|
|
(377
|
)
|
|
Lease
receivables and other assets
|
|
|
290
|
|
|
|
133
|
|
|
Deferred
product revenue
|
|
|
(247
|
)
|
|
|
(142
|
)
|
|
Accounts
payable
|
|
|
(18
|
)
|
|
|
260
|
|
|
Accounts
payable - related parties
|
|
|
(35
|
)
|
|
|
20
|
|
|
Accrued
expenses and other liabilities
|
|
|
570
|
|
|
|
(171
|
)
|
|
Accrued
expenses and other liabilities - related parties
|
|
|
47
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(247
|
)
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payments
made to acquire property and equipment
|
|
|
(16
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(16
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of Series B notes, net of offering costs
|
|
|
128
|
|
|
|
982
|
|
|
Proceeds
from line of credit
|
|
|
-
|
|
|
|
69
|
|
|
Payments
on capital leases and other notes payable
|
|
|
(93
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
35
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(228
|
)
|
|
|
107
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
|
|
228
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of year
|
|
|
-
|
|
|
|
228
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
REMOTE
DYNAMICS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (2 of 2)
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
12
|
|
|
$
|
7
|
|
|
Income
taxes paid
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Financing & Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for partial principal payment on Series A
Notes
|
|
$
|
548
|
|
|
$
|
15
|
|
|
Common
stock issued for partial principal payment on Series B
Notes
|
|
|
264
|
|
|
|
13
|
|
|
Common
stock issued for services
|
|
|
14
|
|
|
|
9
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
REMOTE
DYNAMICS, INC. AND SUBSIDIARIES
|
1.
|
ORGANIZATION,
BUSINESS OVERVIEW, ACQUISITIONS AND GOING
CONCERN
|
Organization and Business
Overview
The
consolidated financial statements presented are those of Remote Dynamics, Inc.
and its wholly-owned subsidiaries, BounceGPS, Inc. (formerly known as Huron
Holdings, Inc.) and HighwayMaster of Canada, LLC. Remote Dynamics,
Inc., a Delaware Corporation, (“Remote Dynamics”, “Company” and/or “We”) was
originally incorporated on February 3, 1994. We market, sell and
support automatic vehicle location (“AVL”) and mobile resource management
solutions targeting companies that operate private vehicle fleets. Our AVL
solutions are designed for fleets of vehicles or equipment within diverse
industry vertical markets such as construction, field services, distribution,
limousine, electrical, plumbing, waste management, and
government. Our core technology, telematics, combines wireless
communications, GPS location technology, geospatial solutions and vehicle data
integration with a web-accessible application that aids in the optimization of
remote business solutions. We believe our fleet management solution
contributes to increased operator efficiency by improving the productivity of
mobile workers through real-time position reports, route-traveled information,
and exception based reporting designed to highlight mobile workforce
inefficiencies. This in-depth reporting enables our customers to correct those
inefficiencies and deliver cost savings to their bottom line.
We
commercially introduced our current AVL product, REDIview, in
2005. REDIview was designed with a flexible architecture to
accommodate expected additional functional requirements that will be required to
effectively compete in the marketplace.
Our
REDIview product line forms the basis of our current business
plan. We expect this product line to provide the foundation for a
growth in revenues and, if our revenues grow as we anticipate, ultimately
profitability. We do not expect to achieve profitability for
2009. Our plans for 2009 include continuing to grow our sales staff as
revenues allow and managing our indirect sales channel partners in an effort to
grow out recurring revenue. However, there can be no assurance that
we will achieve our sales targets or our targeted operating levels for
2009. Failure to do so may have a material adverse effect on our business,
financial condition and results of operations. Moreover, despite
actions to increase revenue, reduce operating costs and to improve profitability
and cash flow, our operating losses will continue through 2009 and our net
operating cash outflows will continue into at least the second quarter of
2009.
August 2008 Reverse Stock
Split
On August
13, 2008, we amended our Amended and Restated Certificate of Incorporation to
(i) effect a one-for-four hundred reverse stock split of our common stock and
(ii) authorize (after giving effect to the reverse stock split) 5,000,000,000
authorized shares of our common stock having a par value of $0.0001 per
share. All equity transactions have been retroactively restated to
reflect these changes.
On or about April 3, 2009, the Company
will complete an increase in the number of its authorized shares of common stock
to 15,000,000,000.
Share Exchange
Agreement
Huron
Holdings, Inc., a Nevada Corporation, (HHI) was originally incorporated on
December 15, 1999. HHI provides local courier delivery services
to commercial and residential locations in the Phoenix area. HHI utilized
a fleet of delivery vans to perform these services on a contract basis for
international based shipping and logistics companies. On June 30,
2006, HHI purchased certain assets (referred to as BounceGPS) from DataLogic
International, Inc. (see below for further discussion on
acquisition). On July 17, 2006, HHI changed its name to BounceGPS,
Inc. (BounceGPS).
On
November 30, 2006, Remote Dynamics entered into a Share Exchange Agreement with
Bounce Mobile Systems, Inc. (“BMSI”). Pursuant to the Share Exchange
Agreement, Remote Dynamics agreed to acquire from BMSI 100% of the capital stock
of BounceGPS, a provider of mobile asset management solutions, in exchange for
5,000 shares of Remote Dynamics’ newly authorized series C convertible preferred
stock, a Series B Note in the principal amount of $660,000, a Series B OID Note
in the principal amount of $264,000, an E-7 Warrant to purchase 1,547 shares of
Remote Dynamics common stock, and a F-4 Warrant to purchase 1,547 shares of
Remote Dynamics common stock.
As a result of the securities issued
to BMSI in the Share Exchange Agreement and Note and Warrant Purchase Agreement
transactions, BMSI obtained and currently has effective control of Remote
Dynamics board of directors, management, 96.0% of the voting power of Remote
Dynamics common stock outstanding, and beneficial ownership of approximately
62.2% of Remote Dynamics common stock (on a as-converted, fully diluted
basis). Accordingly, the acquisition has been treated as a
reverse merger in accordance with FAS 141 “Accounting for Business Combinations”
with BounceGPS considered the accounting acquirer. Accordingly, BounceGPS is
deemed to be the purchaser and surviving company for accounting purposes and its
net assets are included in the balance sheet at their historical book values and
the results of operations of BounceGPS have been presented for the comparative
prior period.
The
results of operations of Remote Dynamics are included in our financial
statements subsequent to December 4, 2006 with the purchase price allocated to
the acquired assets and liabilities of Remote Dynamics as of December 4,
2006.
On December 4, 2006,
Remote Dynamics consummated the Share Exchange Agreement and acquired
100% of the capital stock of BounceGPS commensurate with Remote Dynamics
receiving a capital infusion from BMSI and other third parties.
Going
Concern
We have
incurred significant operating losses since our inception, and these losses will
continue for the near future. We may not ever achieve profitability. Even if we
do achieve profitability, we may not be able to sustain or increase profits on a
quarterly or annual basis. For 2008 and 2007, our
independent registered public accounting firm issued an opinion on our financial
statements which included an explanatory paragraph expressing substantial doubt
about our ability to continue as a going concern.
We do not
expect to achieve profitability for 2009 and we do not expect to achieve
positive operating cash flow until at least the second quarter of 2009.
Our plans for 2009 include increasing our sales staff and sales channel
development in an effort to build recurring revenue and continuing to identify
additional operating cost reductions. However, there can be no
assurance that we will achieve our sales targets or our targeted operating
results for 2009. Failure to do so may have a material adverse effect on our
business, financial condition and results of operations. Moreover,
despite actions to increase revenue, to reduce operating costs and to improve
profitability and cash flow, our operating losses will continue through 2009 and
net operating cash outflows will continue into at least the second quarter of
2009.
Critical
success factors in our plans to achieve positive cash flow from operations
include:
|
|
·
|
Ability to increase sales of the
REDIview product line.
|
|
|
·
|
Significant market acceptance of
our product offerings from new customers, including our REDIview product
line, in the United States.
|
|
|
·
|
Retaining our existing
customers.
|
|
|
·
|
Training and development of new
sales staff.
|
There can
be no assurances that any of these success factors will be realized or
maintained.
We had a
working capital deficit of $3.4 million, excluding the outstanding amount of our
secured convertible notes of $10.8 million, as of December 31,
2008. We believe that we will have sufficient capital to fund
our ongoing operations through 2009, assuming that we are able to meet our sales
targets and operating cost reduction plans and to negotiate acceptable payment
arrangements with our senior security holders, vendors and
other
creditors. The sufficiency of our cash resources also depends to a certain
extent on general economic, financial, competitive or other factors beyond our
control.
We do not
currently have any arrangements for additional financing and we may not be able
to secure additional debt or equity financing on terms acceptable to us, or at
all, at the time when we need such financing. Further, our ability to
secure certain types of additional financings is restricted under the terms of
our existing financing arrangements. There can be no assurance that we
will be able to consummate a transaction for additional capital prior to
substantially depleting our available cash reserves, and our failure to do so
may force us to restructure, file for bankruptcy, sell assets or cease
operations.
We have
failed to comply with our obligations relating to the notes, including our
failure to make scheduled principal payments and to register for resale the
shares of common stock underlying the notes and warrants issued in the related
private placements. The notes provide for a default interest
rate of 10% per annum on the outstanding principal amount of the notes for
periods in which certain specified events of default occur and are continuing
and for liquidated damages for non-compliance with our registration
obligations. As of December 31, 2008, we have accrued
$1,761,004 in default interest and liquidated damages under our secured
convertible notes.
Our
non-compliance with the terms of the notes also exposes us to the risk that our
note holders could seek to exercise prepayment or other remedies under the
notes. We have received one outstanding notice of default from
a holder of our Series A Notes. The notice demands immediate payment
in cash of $287,500. To date, we have made no payment in respect of the
note holder demand and it remains outstanding.
In March,
2008, we resumed making payments to certain of our note holders of amounts due
under the notes by issuing shares of our common stock under the terms of the
notes. During the year ended December 31, 2008, we issued 55,669,326
shares of common stock as partial principal payments on the Series A Notes in
satisfaction of $548,000 of obligations due under the
notes. Additionally, we issued 17,873,879 shares of common stock as
partial payments on the Series B Notes in satisfaction of $264,000 of
obligations due under the notes. We expect to issue additional shares
of our common stock in payment of amounts due under the notes during 2009 and
thereafter. In general, the shares issued are available for immediate
resale by the holders in accordance with Rule 144 under the Securities Act of
1933, as amended.
We do not
currently have the cash on hand to repay amounts due under our secured
convertible notes if the note holders elect to exercise their repayment or other
remedies. If our efforts to restructure or otherwise satisfy
our obligations under the notes are unsuccessful, and we are unable to raise
enough money to cover the amounts payable under the notes, we may be forced to
restructure, file for bankruptcy, sell assets or cease operations.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles
of Consolidation
Our
consolidated financial statements include our accounts and those of our wholly
owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
Estimates
Inherent in the Preparation of Financial Statements
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates
include the collectibility of accounts receivable and lease receivables, the
valuation of goodwill and intangibles, the valuation of common and preferred
stock, the valuation of convertible notes payable, and the valuation allowance
of the deferred tax asset. Actual results could differ from those
estimates.
Revenue
Recognition
We recognize revenue when earned in
accordance with the applicable accounting literature including: EITF
No. 00-21, “Revenue Arrangements With Multiple Deliverables”, Statement of
Position 97-2, “Software Revenue Recognition”, and Staff Accounting Bulletin No.
101, “Revenue Recognition in Financial Statements”, as
amended
by Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial
Statements”. Revenue is recognized when the following criteria are
met: there is persuasive evidence that an arrangement exists,
delivery has occurred and all obligations under such arrangement have been
fulfilled, the price is fixed and determinable and collectibility is reasonably
assured.
Initial sale proceeds received under
multiple-element sales arrangements that require us to deliver products and
services over a period of time and which are not determined by us to meet
certain criteria are deferred. All sales proceeds related to
delivered products are deferred and recognized over the contract life that
typically ranges from one to five years. Product sales proceeds
recognized under this method are portrayed in the accompanying Consolidated
Statement of Operations as “Ratable product revenues.” The related deferred
revenue is classified as a current and long term liability in the Consolidated
Balance Sheets under the captions “Deferred product revenues – current portion”
and “Deferred product revenues non-current portion.” If the customer
relationship is terminated prior to the end of the customer contract term, such
deferred sales proceeds are recognized as revenue in the period of
termination. Under sales arrangements, which initially meet the
earnings criteria described above, revenues are recognized upon shipment of the
products or upon customer acceptance of the delivered products if terms of the
sales arrangement give the customer the right of acceptance.
Service revenue generally commences
upon product installation and customer acceptance and is billed and recognized
during the period such services are provided.
We
provide lease financing to certain customers of our REDIview and legacy
products. Leases under these arrangements are classified as
sales-type leases or operating leases. These leases typically have
terms of one to five years, and all sales type leases are discounted at interest
rates ranging from 14% to 18% depending on the customer’s credit
risk. The net present value of the lease payments for sales-type
leases is recognized as product revenue and deferred under our revenue
recognition policy described above. Income from operating leases is
recognized ratably over the term of the leases.
Shipping
and Handling Fees and Costs
We record
amounts billed to customers for shipping and handling and related costs incurred
for shipping and handling as components of “Product revenues” and “Cost of
product revenues” respectively.
Deferred
Product Costs
We defer
certain product costs (generally consisting of the direct cost of product sold
and installation costs) for our sales contracts determined to require deferral
accounting. The deferred costs are classified as a current and long
term asset on the balance sheet under the captions “Deferred product costs –
current portion” and “Deferred product costs non-current
portion”. Such costs are recognized over the longer of the term of
the service contract or the estimated life of the customer relationship and are
portrayed in the accompanying Consolidated Statements of Operations as “Ratable
product costs.” Such terms range from one to five
years. If the customer relationship is terminated prior to the end of
the estimated customer relationship period, such costs are recognized in the
period of termination.
Financial
Instruments
We
consider all liquid interest-bearing investments with a maturity of ninety days
or less at the date of purchase to be cash equivalents. Short-term
investments mature between ninety days and one year from the purchase
date. The Company maintains its cash balances at credit-worthy
financial institutions that are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $250,000.
The
carrying amount of cash and cash equivalents, accounts receivable, notes
payable, accounts payable and accrued liabilities approximates fair value
because of their short-term maturity.
Allowance
for Doubtful Accounts
We use
estimates in determining the allowance for doubtful accounts based on historic
collection experience, current trends and a percentage of the accounts
receivable aging categories. In determining these
percentages
we review historical write-offs, including comparisons of write-offs to
provisions for doubtful accounts and as a percentage of revenues and monitor
collections amounts and statistics.
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
54
|
|
|
$
|
67
|
|
|
Additions
|
|
|
121
|
|
|
|
31
|
|
|
Deductions
|
|
|
(90
|
)
|
|
|
(44
|
)
|
|
Ending
balance
|
|
$
|
85
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
Business
and Credit Concentrations
We
continuously monitor collections and payments from our customers and maintain a
provision for estimated accounts receivable that may eventually become
uncollectible based upon historical experience and specific customer
information. There is no guarantee that we will continue to
experience the same credit loss history in future periods. If a
significant change in the liquidity or financial condition of a large customer
or group of customers were to occur, it could have a material adverse affect on
the collectibility of our accounts receivable and future operating
results.
AT&T
provides GSM/GPRS data services to its REDIview customers pursuant to a data
reseller agreement effective as of November 1, 2004 and a messaging agreement
effective September 27, 2004. The data reseller agreement and messaging
agreement have an initial term of two years and automatically renews for
successive one year terms unless either party provides the other party with
written notice of termination at least 30 days prior to the end of the initial
term or any renewal term. However, the data reseller agreement and
the messaging agreement may be terminated by AT&T or the Company for
convenience upon 90 days prior written notice.
If
AT&T terminates the data reseller agreement and messaging agreement and
ceases to provide GSM/GPRS services to the Company for resale to its customers,
the REDIview units in the Company’s base of installed REDIview customers would
no longer be able to send or receive data messages until the Company could reach
an agreement with another provider and retrofit such units to utilize the
GSM/GPRS service of such alternative provider. There can be no
assurances that the Company would be able to reach an agreement with another
wireless carrier for GSM/GPRS service and/or retrofit its existing REDIview
customer base to utilize the GSM/GPRS service of such alternative provider the
failure to do so would have a material adverse effect on the Company’s business,
financial condition and results of operations.
Inventories
Inventories
consist primarily of component parts and finished products that are valued at
the lower of cost or market. Cost is determined using the first-in, first-out
(FIFO) method. The Company records a write-down for excess and
obsolete inventory based on usage history and specific identification
criteria. There is a risk we will forecast demand for our products
and market conditions incorrectly and maintain excess
inventories. Therefore, there can be no assurance that we will not
maintain excess inventory and incur inventory lower or cost or market charges in
the future.
Property
and Equipment
Property and equipment is stated at
cost and depreciated on a straight-line basis over the estimated useful lives of
the various classes of assets, which generally ranged from two to seven
years. After the reverse merger transaction and the associated
purchase accounting, the new fair value of Remote Dynamic’s property and
equipment is being depreciated on a straight-line basis over the estimated
applicable remaining useful lives which generally ranged from one to five
years. Maintenance and repairs costs are expensed as
incurred.
Valuation
of Long-Lived Assets
We
evaluate the recoverability of our long-lived assets under Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires us to
review for impairment of our long-lived assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable and exceeds its fair value. Impairment evaluations
involve our estimates of asset useful lives and future cash
flows. When such an event occurs, we estimate the future cash flows
expected to result from the use of the asset and its eventual
disposition. If the undiscounted expected future cash flows are less
than the carrying amount of the asset and the carrying amount of the asset
exceeds its fair value, an impairment loss is recognized. We utilize
an expected present value technique, in which multiple cash flow scenarios that
reflect the range of possible outcomes and a risk-free rate are used, to
estimate fair value of the asset.
We assess
the impairment in value to our long-lived assets whenever events or
circumstances indicate that the carrying value may not be
recoverable. Significant factors, which would trigger an impairment
review, include the following:
|
|
·
|
significant
negative industry trends,
|
|
|
·
|
significant
changes in technology,
|
|
|
·
|
significant
underutilization of the asset, and
|
|
|
·
|
significant
changes in how the asset is used or is planned to be
used.
|
Goodwill
and Other Intangibles
We test
our goodwill for impairment on an annual basis, or between annual tests if it is
determined that a significant event or change in circumstances warrants such
testing, in accordance with the provisions of SFAS No. 142, “Goodwill
and Other Intangible Assets”, (“SFAS 142”) which requires a comparison of the
carrying value of goodwill to the fair value of the reporting
unit. If the fair value of the reporting unit is less than the
carrying value of goodwill, an adjustment to the carrying value of goodwill is
required. See Note 1 and Note 5 for further discussion on goodwill
and other intangible assets impairment.
Income
Taxes
The
Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income
Taxes
. Under SFAS No. 109, deferred tax assets and liabilities
are recognized for future tax benefits or consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. 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. A valuation allowance is provided for
significant deferred tax assets when it is more likely than not that such assets
will not be realized through future operations.
Stock-Based
Compensation
In
December of 2004, the Financial Accounting Standards Board (“FASB”) issued FAS
123R, which applies to transactions in which an entity exchanges its equity
instruments for goods or services and also applies to liabilities an entity may
incur for goods or services that are based on the fair value of those equity
instruments. For any unvested portion of previously issued and
outstanding awards, compensation expense is required to be recorded based on the
previously disclosed FAS 123 methodology and amounts. Prior periods
presented are not required to be restated. We adopted FAS 123R as of
January 1, 2006 and applied the standard using the modified prospective
method. Remote Dynamics extinguished all prior stock options upon
emergence from bankruptcy effective July 2, 2004 and have not issued any new
stock options beyond that date.
Beneficial
Conversion Feature
From time
to time, the Company has debt with conversion options that provide for a rate of
conversion that is below market value. This feature is normally characterized as
a beneficial conversion feature ("BCF"), which is recorded by the Company
pursuant to Emerging Issues Task Force (“EITF”) Issue No. 98-5 ("EITF 98-5"),
Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion
Ratios,
and EITF Issue No.
00-27,
Application of EITF
Issue No. 98-5 to Certain Convertible Instruments.
If a
BCF exists, the Company records it as a debt discount. Debt discounts
are amortized to interest expense over the life of the debt on a straight-line
basis, which approximates the effective interest method.
Issuance
of Shares for Non-Cash Consideration
The
Company accounts for the issuance of equity instruments to acquire goods and/or
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
determinable. The Company's accounting policy for equity instruments
issued to consultants and vendors in exchange for goods and services follows the
provisions of EITF Issue No. 96-18,
Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services
and EITF Issue No. 00-18,
Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than
Employees.
The measurement date for the fair value of the
equity instruments issued is determined at the earlier of (i) the date at which
a commitment for performance by the consultant or vendor is reached or (ii) the
date at which the consultant or vendor's performance is complete. In
the case of equity instruments issued to consultants, the fair value of the
equity instrument is recognized over the term of the consulting
agreement.
Earnings
Per Share
The
Company adopted the provisions of SFAS No. 128,
Earnings Per Share
("EPS"). SFAS No. 128 provides for the calculation of basic and
diluted earnings or loss per share. Basic loss per share
includes no dilution and is computed by dividing income or loss available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted loss per share reflects the potential
dilution of securities that could share in the earnings or losses of the
entity. Such amounts include shares potentially issuable pursuant to
the Notes and the attached warrants and the convertible preferred stock (see
Notes 8 and 10). For the years ended December 31, 2008 and 2007,
basic and diluted loss per share are the same as the potentially dilutive shares
were excluded from diluted loss per share as their effect would be anti-dilutive
for the year then ended.
The
securities listed below were not included in the computation of diluted earnings
per share as the effect from their conversion would have been
antidilutive:
|
|
|
For
the Year Ended
December
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Convertible
notes payable
|
|
|
33,015,890,449
|
|
|
|
82,535
|
|
|
Convertible
preferred stock
|
|
|
36,320,277,366
|
|
|
|
143,959
|
|
|
Outstanding
warrants to purchase common stock
|
|
|
636,112
|
|
|
|
30,615
|
|
Stock
warrants issued and outstanding total 636,112 at December 31, 2008.
New
Accounting Standards
Financial Accounting Standards No.
159 (“FAS 159”)
In February 2007, the FASB issued
FAS 159, The Fair Value Option for Financial Assets and Financial
Liabilities, or FAS 159. FAS 159 permits entities to choose
to measure many financial instruments and certain other items at fair value. The
objective of the guidance is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. FAS 159 is effective as of the beginning of
the first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of the fiscal year beginning on or before
November 15, 2007, provided the provisions of FAS 157 are
applied. The adoption of FAS 159 did not have a material impact
on the Company’s financial condition or results of
operations.
Financial Accounting Standards No.
141 (R) (“FAS 141”)
In December 2007, the FASB issued
SFAS No. 141(R), Business Combinations. SFAS No. 141(R) establishes
principles and requirements for how an acquirer
recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree and
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase. SFAS No. 141(R) also sets forth the
disclosures required to be made in the financial statements to evaluate the
nature and financial effects of the business combination. SFAS No. 141(R)
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Accordingly, the Company will adopt this standard in
fiscal 2009. The Company is currently evaluating the potential impact
of the adoption of SFAS 141(R) on its consolidated financial
statements.
Financial Accounting Standards No.
160 (“FAS 160”)
In December 2007, the FASB issued SFAS
No. 160, Non-controlling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51. SFAS 160 will change the accounting and reporting
for minority interests, which will be recharacterized as non-controlling
interests (NCI) and classified as a component of equity. This new consolidation
method will significantly change the accounting for transactions with minority
interest holders. SFAS 160 requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. All
other requirements of SFAS 160 shall be applied
prospectively. SFAS 160 is effective for fiscal years beginning
after December 15, 2008 and, as such, the Company will adopt this standard
in fiscal 2009. The Company is currently evaluating the potential
impact of the adoption of SFAS 160 on its consolidated financial
statements.
Financial Accounting Standards No.
16
1
(“FAS 16
1
”)
In March 2008, the FASB
issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("FAS 161"). FAS 161 is intended to improve financial
reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance, and cash
flows. The provisions of FAS 161 are effective for the quarter ending
February 28, 2009. The Company is currently evaluating the impact of
the provisions of FAS 161.
Financial Accounting Standards No.
16
2
(“FAS 16
2
”)
In May 2008, the FASB
issued Statement of Financial Accounting Standards No. 162, "The Hierarchy of
Generally Accepted Accounting Principles"
("FAS
162"). FAS 162 is effective 60 days following the SEC's approval of the Public
Company Accounting Oversight Board Auditing amendments to AU Section, 411 The
Meaning of "Present Fairly in Conformity with Generally Accepted Accounting
Principles". The statement is intended to improve financial reporting
by
identifying
a consistent hierarchy for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles (GAAP). The Company has not completed
its evaluation of the effects, if any, that FAS 162 may have on its consolidated
financial position, results of operations and cash flows.
Inventories
consist of the following (in thousands):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Complete
systems
|
|
$
|
89
|
|
|
$
|
67
|
|
|
Component
parts
|
|
|
71
|
|
|
|
98
|
|
|
Reserve
for obsolescence – systems
|
|
|
(2
|
)
|
|
|
—
|
|
|
Reserve
for obsolescence – parts
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
|
$
|
153
|
|
|
$
|
158
|
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consist of the following (in thousands):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Machinery
and equipment
|
|
|
10
|
|
|
|
4
|
|
|
Capitalized
software costs
|
|
|
62
|
|
|
|
62
|
|
|
Leasehold
improvements
|
|
|
—
|
|
|
|
—
|
|
|
Vehicles,
computer equipment, and other equipment
|
|
|
242
|
|
|
|
245
|
|
|
|
|
|
314
|
|
|
|
311
|
|
|
Less: accumulated
depreciation and amortization
|
|
|
(212
|
)
|
|
|
(154
|
)
|
|
|
|
$
|
102
|
|
|
$
|
157
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
expense related to property and equipment charged to operations during the year
ended December 31, 2008 and 2007 was $70,000 and $154,000,
respectively.
|
5.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
Goodwill
and other intangible assets consist of the following as of December 31, 2008 and
2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Amortization
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
Period
|
|
|
|
|
2007
|
|
|
Addition
|
|
|
Amortization
|
|
|
Impairment
|
|
|
2008
|
|
|
(in
months)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
616
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
616
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
lists
|
|
|
2,162
|
|
|
|
-
|
|
|
|
(552
|
)
|
|
|
|
|
|
|
1,610
|
|
|
|
35
|
|
|
Software
|
|
|
674
|
|
|
|
-
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
502
|
|
|
|
35
|
|
|
Tradenames
|
|
|
59
|
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
44
|
|
|
|
35
|
|
|
|
|
$
|
3,511
|
|
|
$
|
-
|
|
|
$
|
(739
|
)
|
|
$
|
-
|
|
|
$
|
2,772
|
|
|
|
|
|
Total
amortization expense for the other intangible assets for the year ended December
31, 2008 and 2007 was approximately $739,000 and $796,000,
respectively.
Estimated
aggregate amortization expense for each of the five succeeding fiscal years is
as follows:
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Amortization
Expense
|
|
$
|
739
|
|
|
$
|
739
|
|
|
$
|
678
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
6.
|
LEASE
RECEIVABLES AND OTHER ASSETS
|
We
provide lease financing to certain customers of our REDIview and legacy
products. Leases under these arrangements are classified as
sales-type leases or operating leases. These leases typically have
terms of one to five years, and all sales type leases are discounted at interest
rates ranging from 14% to 18% depending on the customer’s credit
risk.
The net present value of the lease
payments for sales-type leases is recognized as product revenue and deferred
under the Company’s revenue recognition policy. The components
of the net investment in sales-type leases are as follows (in
thousands):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Minimum
lease payments receivable
|
|
$
|
146
|
|
|
$
|
381
|
|
|
Less: Allowance
for uncollectibles
|
|
|
(7
|
)
|
|
|
(16
|
)
|
|
|
|
|
139
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unearned
interest income
|
|
|
(14
|
)
|
|
|
(55
|
)
|
|
Net
investment in sales-type leases
|
|
$
|
125
|
|
|
$
|
310
|
|
|
|
|
|
|
|
|
|
|
|
The
long-term portion of the net investment in sales-type leases at December 31,
2008 and 2007 was $126,000 and $279,000, respectively.
Total
minimum lease payments receivable on sales-type leases as of December 31, 2008
are as follows (in thousands):
|
Fiscal
Year Ending December 31,
|
|
2008
|
|
|
|
|
|
|
|
2009
|
|
|
133
|
|
|
2010
|
|
|
12
|
|
|
2011
|
|
|
1
|
|
|
Total
minimum lease payments receivable
|
|
$
|
146
|
|
Income
from operating leases is recognized ratably over the term of the leases. There
are no future minimum rental payments due under operating leases as of December
31, 2008.
|
7.
|
ACCRUED
EXPENSES AND OTHER CURRENT
LIABILITIES
|
Accrued
expenses and other current liabilities consist of the following (in
thousands):
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Capital
leases - current portion
|
|
|
29
|
|
|
|
36
|
|
|
Property,
franchise, and other taxes payable
|
|
|
54
|
|
|
|
110
|
|
|
Accrued
warranty costs
|
|
|
60
|
|
|
|
68
|
|
|
Accrued
vacation
|
|
|
37
|
|
|
|
37
|
|
|
Accrual
for Series A & B default penalty and interest
|
|
|
1,791
|
|
|
|
1,114
|
|
|
Legal,
accounting, interest and other accruals
|
|
|
451
|
|
|
|
405
|
|
|
|
|
$
|
2,422
|
|
|
$
|
1,770
|
|
HFS
Note Payable
In 2004, Remote Dynamics issued a
$2,000,000 convertible promissory note to HFS Minorplanet Funding LLC
(“HFS”). The principal balance is due 36 months from the date
of funding, with an annual interest rate of 12%.
As
described in Note 1, as part of the purchase accounting for the reverse merger
transaction, the debt was adjusted to fair value. Accordingly, the
difference between the estimated fair value of $150,000 and the face amount of
the note payable totaling $2,000,000 is recorded as a debt
discount. The debt discount was accreted to interest expense over the
remainder of the term of the note.
On May 8,
2007, Remote Dynamics and HFS completed an exchange transaction in
which: (a) the $2,000,000 convertible promissory note originally
issued by the Company to HFS was cancelled, and (b) Remote Dynamics issued to
HFS (i) $1,000,000 principal amount of our series B subordinated secured
convertible promissory notes, (ii) $400,000 principal amount of our original
issue discount series B subordinated secured convertible promissory notes, (iii)
our series E-7 warrants to purchase 2,344 shares of our common stock and (iv)
our series F-4 warrants to purchase 2,344 shares of our common stock. We
recorded a loss on extinguishment of debt totaling $107,000 during the second
quarter of 2007 in relation to the exchange.
DataLogic
Note Payable
On June
30, 2006, BounceGPS issued a $250,000 note to DataLogic International, Inc. in
conjunction with the acquisition described in Note 1. The note has a
term of 2 years with an annual interest rate of 9%. Principal
payments of $31,250 were scheduled to commence October 1, 2006 and quarterly
thereafter. Interest is payable quarterly. BounceGPS is
currently in default as principal and interest payments have not been made in
accordance with the note agreement. The Company has accrued $66,551
of interest expense as of December 31, 2008. The $250,000 principal
balance has been classified as current on the accompanying consolidated balance
sheet due to the default mentioned above. Keith Moore, Director
and Audit Committee Chair of the Company, was previously the CEO and Chairman of
DataLogic International, Inc. BounceGPS has disputed the
obligation to make any payments under the note. See Note 12 for
further discussion on related party transactions.
Series A Note
Financing
On
February 24, 2006, Remote Dynamics closed a Note and Warrant Purchase Agreement
with certain institutional investors pursuant to which Remote Dynamics sold
$5.75 million of its series A senior secured convertible notes and original
issue discount series A notes (collectively, “Series A Notes”) in a private
placement transaction. In the private placement, Remote
Dynamics received proceeds of approximately $4.1 million in cash (after
deducting brokers’ commission but before payment of legal and other professional
fees, the 15% original issue discount of $750,000 and the tendering of 50 shares
of their 650 shares Series B preferred convertible stock with an aggregate face
value of $500,000 by our sole series B preferred convertible
stockholder).
The
Series A Notes are secured by substantially all of the Company’s assets. The
Series A Notes mature 24 months from issuance and are convertible at the option
of the holder into our common stock at a fixed conversion price of $0.000267 per
share. Beginning on September 1, 2006 and continuing thereafter on
the first business day of each month, Remote Dynamics must pay an amount to each
holder of a Series A Note equal to 1/18th of the original principal payment of
the note; provided, that if on any principal payment date the outstanding
principal amount of the note is less than such principal installment amount,
then Remote Dynamics must pay to the holder of the note the lesser amount.
Remote Dynamics may make such principal installment amounts in cash or in
registered shares of its common stock. If paid in common stock, certain
conditions must be satisfied, and the number of registered shares to be paid to
the holder must be an amount equal to the principal installment amount divided
by eighty percent (80%) of the average of the closing bid price for the ten (10)
trading days immediately preceding the principal payment date.
The
purchasers of the Series A Notes (and the placement agent in the transaction)
received the following common stock purchase warrants:
|
|
·
|
Series A-7
warrants to purchase 1,031 shares in the aggregate of common stock at
an initial exercise price of $8,000 per share subject to adjustment for
stock splits and combinations, certain dividends and distributions,
reclassification, exchange or substitution, reorganization, merger,
consolidation or sales of assets; issuances of additional shares of common
stock, and issuances of common stock equivalents. The exercise
price of the series A-7 warrants was $0.000267 as of December 31,
2008. The series A-7 warrants can be exercised on a cashless
basis beginning one year after issuance if (i) the per share market value
of a share of our common stock (either the volume the weighted average
price or the fair market value as determined by an
independent
|
|
|
appraiser)
is greater than the warrant price; and (ii) a registration statement for
the warrant stock is not then in effect. The series A-7
warrants are exercisable for a seven-year period from the date of issuance
(95 of these warrants are exercisable over 5
years).
|
|
|
·
|
Series B-4
warrants to purchase 688 shares in the aggregate of common stock at an
initial exercise price of $18,000 per share subject to adjustment for
stock splits and combinations, certain dividends and distributions,
reclassification, exchange or substitution, reorganization, merger,
consolidation or sales of assets; issuances of additional shares of common
stock, and issuances of common stock equivalents. The exercise
price of the series B-4 warrants was $0.000267 as of December 31,
2008. The series B-4 warrants can be exercised on a cashless
basis beginning one year after issuance if (i) the per share market value
of a share of our common stock (either the volume the weighted average
price or the fair market value as determined by an independent appraiser)
is greater than the warrant price; and (ii) a registration statement for
the warrant stock is not then in effect. The series B-4 warrants are
exercisable for a four-year period beginning on the date a resale
registration statement for the shares underlying the warrants is declared
effective by the Securities and Exchange Commission (65 of these warrants
are exercisable over 5 years).
|
|
|
·
|
Series C-3
warrants to purchase 1,375 shares in the aggregate of common stock at an
initial exercise price of $4,200 per share subject to adjustment for stock
splits and combinations, certain dividends and distributions,
reclassification, exchange or substitution, reorganization, merger,
consolidation or sales of assets; issuances of additional shares of common
stock, and issuances of common stock equivalents. The exercise
price of the series C-3 warrants was $0.000267 as of December 31,
2008. The series C-3 warrants can be exercised on a cashless
basis beginning one year after issuance if (i) the per share market value
of a share of our common stock (either the volume the weighted average
price or the fair market value as determined by an independent appraiser)
is greater than the warrant price; and (ii) a registration statement for
the warrant stock is not then in effect. The series C-3
warrants are exercisable for a three-year period from the date of issuance
(125 of these warrants are exercisable over 5
years).
|
|
|
·
|
Series
D-1 warrants (callable only at our option) to purchase 963 shares in the
aggregate of common stock at an exercise price per share equal to the
lesser of: (a) $7,000 and (b) 90% of the average of the 5 day
volume weighted average price of our common stock on the OTC Bulletin
Board preceding the call notice, as defined in the
warrant.
|
|
|
·
|
Warrants
issued to the placement agents in the financing to purchase 125 shares of
common stock at an exercise price per share equal to $0.000267 with a term
of 5 years following the closing.
|
Under the Series A Note and Warrant
Purchase Agreement, Remote Dynamics made certain covenants to the investors,
including, as long as any notes or warrants remain outstanding, to
have authorized and reserved for issuance 120% of the aggregate
number of shares of the Company’s common stock needed for issuance upon
conversion of the notes and exercise of the warrants. The Company also agreed to
prepare and file resale registration statements with the SEC for the shares of
common stock underlying the notes and warrants. If the registration statements
are not filed or declared effective within specified time frames or the Company
fails to meet other specified deadlines, the investors are entitled to monetary
liquidated damages equal to 1.5% of the total amount invested by such investor
in the private placement, plus an additional 1.5% liquidated damages for each
30-day period thereafter. The Company is obligated to maintain the effectiveness
of the registration statements until the earlier of (a) the date when the
underlying securities have been sold or (b) the date on which the underlying
shares of common stock can be sold without restriction under Rule
144(k).
We have
failed to comply with certain of our other obligations relating to the Series A
Notes, including our failure to make scheduled principal payments and to
register for resale the shares of common stock underlying the notes and warrants
issued in the Series A private placement. The Series A Notes provide
for a default interest rate of 10% per annum on the outstanding principal amount
of the notes for periods in which certain specified events of default occur and
are continuing and liquidated damages for non-compliance with our registration
obligations. As of December 31, 2008, we have accrued $960,927
in default interest and liquidated damages under the Series A
Notes.
Our
non-compliance with the terms of the notes also exposes us to the risk that our
note holders could seek to exercise prepayment or other remedies under the
notes. We have received one outstanding notice of default from
a holder
of our Series A Notes. The notice demands immediate payment in cash
of $287,500. To date, we have made no payment in respect of the note
holder demand and it remains outstanding.
In March,
2008, we resumed making payments to certain of our note holders of amounts due
under the notes by issuing shares of our common stock under the terms of the
notes. During the year ended December 31, 2008, we issued 55,669,326
shares of common stock as partial principal payments on the Series A Notes in
satisfaction of $548,000 of obligations due under the notes. We
expect to issue additional shares of our common stock in payment of amounts due
under the notes during 2009 and thereafter. In general, the shares
issued are available for immediate resale by the holders in accordance with Rule
144 under the Securities Act of 1933, as amended.
The
following tables summarize the Series A Notes as of December 31, 2008 and 2007
(000’s):
|
|
|
Principal
|
|
|
Less
Discount
|
|
|
Carrying
Amount
|
|
|
Total
Series A Notes – December 31, 2006
|
|
$
|
4,435
|
|
|
$
|
3,193
|
|
|
$
|
1,242
|
|
|
Accretion
of Series A Notes
|
|
|
—
|
|
|
|
(2,628
|
)
|
|
|
2,628
|
|
|
Nite
Capital Conversion
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(10
|
)
|
|
Exchange
of Series A Notes for Series B Notes
|
|
|
(225
|
)
|
|
|
(172
|
)
|
|
|
(53
|
)
|
|
Partial
Principal Payments
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
Total
Series A Notes – December 31, 2007
|
|
$
|
4,194
|
|
|
$
|
392
|
|
|
$
|
3,801
|
|
|
|
|
Principal
|
|
|
Less
Discount
|
|
|
Carrying
Amount
|
|
|
Total
Series A Notes – December 31, 2007
|
|
$
|
4,194
|
|
|
$
|
392
|
|
|
$
|
3,801
|
|
|
Partial
Principal Payments
|
|
|
(548
|
)
|
|
|
—
|
|
|
|
(548
|
)
|
|
Accretion
of Series A Notes
|
|
|
—
|
|
|
|
(392
|
)
|
|
|
392
|
|
|
Total
Series A Notes – December 31, 2008
|
|
$
|
3,646
|
|
|
$
|
0
|
|
|
$
|
3,646
|
|
Series B Note
Financing
On
November 30, 2006, the Company entered into a Note and Warrant Purchase
Agreement with BMSI and other accredited investors. Pursuant to the
Note and Warrant Purchase Agreement, the Company received $1,691,500
in gross proceeds from the sale of up to (i) $1,691,500 principal amount of its
series B subordinated secured convertible promissory notes, (ii) $1,278,200
principal amount of its original issue discount series B subordinated secured
convertible promissory notes, (iii) series E-7 warrants to purchase 306,963
shares of the Company’s common stock and (iv) series F-4 warrants to
purchase 306,963 shares of the Company’s common stock.
The
series B subordinated secured convertible promissory notes and the series B
original issue discount series B subordinated secured convertible promissory
notes (collectively, the “Series B Notes”) are secured by all of the Company’s
assets, subject to existing liens, are due on dates ranging from December 4,
2009 to May 2011 and began scheduled amortization of principal (in nine
quarterly installments) on dates ranging from August 1, 2007
to
May
2011. The Company may make principal installment payments in cash or
in registered shares of its common stock. If paid in common stock, certain
conditions must be satisfied, and the number of registered shares to be paid to
the holder must be an amount equal to the principal installment amount divided
by the lesser of (i) $1.00 and (ii) 90% of the average of the volume weighted
average trading prices of the common stock for the ten trading days immediately
preceding the principal payment. The Series B Notes are convertible
into the Company’s common stock at a conversion price of $0.00045 per share (as
of December 31, 2008), subject to adjustment for stock splits and combinations,
certain dividends and distributions, reclassification, exchange or substitution,
reorganization, merger, consolidation or sales of assets; issuances of
additional shares of common stock, and issuances of common stock
equivalents.
Upon the
occurrence of specified events of default under the Series B Notes, the holders
may (a) demand prepayment of the notes as described below, (b) demand that the
principal amount of the notes then outstanding be converted into shares of the
Company’s common stock; and/or (c) exercise any of the holder’s other rights or
remedies under the transaction documents or applicable law. If the
holders require the Company to prepay all or a portion of the notes, the
prepayment price would equal to 120% of the principal amount of the
notes. The holders would also recover all other costs or expenses due
in respect of the notes and the other transaction documents.
As part
of the Series B Note financing, the Company agreed:
|
|
·
|
pursuant
to the terms of "most favored nations" rights granted to the Series A note
holders investors, to issue in exchange for $1,013,755 principal amount of
the Series A Notes, an additional (i) $1,146,755 principal amount of
Series B Notes, (ii) $458,702 principal amount of Series B OID Notes,
(iii) series E-7 warrants to purchase 3,860 shares of the Company’s common
stock and (iv) series F-4 warrants to purchase 3,860 shares of the
Company’s common stock. The Company has not received and will
not receive any additional proceeds from the exchange. As of
December 31, 2008 and 2007, the Company had issued (i) $1,003,394
principal amount of Series B Notes, (ii) $401,357 principal amount of
Series B OID Notes, (iii) series E-7 warrants to purchase 2,352 shares of
the Company’s common stock and (iv) series F-4 warrants to purchase 2,352
shares of the Company’s common stock, in exchange for $901,144 principal
amount of the Series A Notes. The exchange was completed as of
December 31, 2007.
|
|
|
·
|
to
issue, in exchange for 50 shares of the Company’s Series B convertible
preferred stock with an aggregate face value of $500,000 (held by SDS) an
additional (i) $700,000 principal amount of Series B Notes, (ii) series
E-7 warrants to purchase 1,172 shares of the Company’s common stock and
(iii) series F-4 warrants to purchase 1,172 shares of the Company’s common
stock. As of December, 31, 2007, this exchange was
completed in its entirety.
|
|
|
·
|
to
pay to the placement agent for the transaction consideration consisting of
(a) a cash sales commission of $150,480 (b) warrants to purchase 822
shares of the Company’s common stock at an exercise price of $0.00045 per
share (as of December 31, 2008) and being exercisable for ten years, (c)
series E-7 warrants to purchase 617 shares of the Company’s common stock,
and (d) series F-4 warrants to purchase 617 shares of the Company’s common
stock. The Company also paid $60,000 to Strands Management
Company, LLC for consulting work as well as $59,816 in legal counsel fees
as part of the private placement.
|
The
Company has failed to comply with certain of its other obligations relating to
the Series B Notes, including the Company’s failure to make scheduled principal
payments and to register for resale the shares of common stock underlying the
notes and warrants issued in the Series B private
placement. The Series B Notes provide for a default interest
rate of 10% per annum on the outstanding principal amount of the notes for
periods in which certain specified events of default occur and are continuing
and liquidated damages for non-compliance with our registration
obligations. As of December 31, 2008, the Company has accrued
$800,077 in default interest and liquidated damages under the Series B
Notes.
The
Company’s non-compliance with the terms of the notes also exposes the Company to
the risk that the note holders could exercise their prepayment or other remedies
under the notes.
In March,
2008, the Company commenced making payments to certain of its Series B note
holders of amounts due under the notes by issuing shares of the Company’s common
stock under the terms of the notes. During the year ended December
31, 2008, the Company issued 17,873,879 shares of common stock as partial
payments on the Series B Notes in satisfaction of $264,000 of obligations due
under the notes. The Company expects to issue additional shares of
its common stock in payment of amounts due under the notes during 2009 and
thereafter.
The
Company does not currently have the cash on hand to repay amounts due under its
Series B Notes if the note holders elect to exercise their repayment or other
remedies. If the Company’s efforts to restructure or otherwise
satisfy its obligations under the notes are unsuccessful, and the Company is
unable to raise enough money to cover the amounts payable under the notes, the
Company may be forced to restructure, file for bankruptcy, sell assets or cease
operations.
BounceGPS
Acquisition
On
November 30, 2006, Remote Dynamics entered into a Share Exchange Agreement with
BMSI.
Pursuant to the
Share Exchange Agreement, the Company agreed to acquire from BMSI 100% of the
capital stock of BounceGPS, Inc., a provider of mobile asset management
solutions. As part of the consideration for the acquisition, the
Company issued to BMSI a Series B Note in the principal amount of $660,000 and a
Series B OID Note in the principal amount of $264,000. See Note 1 for
a more detailed description of the acquisition
The
following table summarizes the Series B Notes as of December 31, 2008 and 2007
(000’s):
|
|
|
Principal
|
|
|
Less
Discount
|
|
|
Carrying
Amount
|
|
|
Total
Series B Notes – December 31, 2006
|
|
$
|
2,716
|
|
|
$
|
1,019
|
|
|
$
|
1,698
|
|
|
Issuance
of Series B Notes
|
|
|
1,508
|
|
|
|
460
|
|
|
|
1,048
|
|
|
Exchange
of Series A Notes to Series B Notes
|
|
|
401
|
|
|
|
120
|
|
|
|
282
|
|
|
Exchange
of Series B Preferred Stock to Series B Notes
|
|
|
525
|
|
|
|
156
|
|
|
|
369
|
|
|
HFS
Conversion
|
|
|
1,400
|
|
|
|
414
|
|
|
|
986
|
|
|
Accretion
of Series B Notes
|
|
|
—
|
|
|
|
(625
|
)
|
|
|
625
|
|
|
Total
Series B Notes – December 31, 2007
|
|
$
|
6,550
|
|
|
$
|
1,543
|
|
|
$
|
5,007
|
|
|
|
|
Principal
|
|
|
Less
Discount
|
|
|
Carrying
Amount
|
|
|
Total
Series B Notes – December 31, 2007
|
|
$
|
6,550
|
|
|
$
|
1,543
|
|
|
$
|
5,007
|
|
|
Partial
Principal Payments
|
|
|
(265
|
)
|
|
|
—
|
|
|
|
(265
|
)
|
|
Issuance
of Series B Notes – May 22, 2008
|
|
|
848
|
|
|
|
674
|
|
|
|
174
|
|
|
Amortization
of debt discount and beneficial conversion feature from January 1, 2008 to
December 31, 2008
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
Accretion
of Series B Notes
|
|
|
—
|
|
|
|
(899
|
)
|
|
|
917
|
|
|
Total
Series B Notes – December 31, 2008
|
|
$
|
7,134
|
|
|
$
|
1,301
|
|
|
$
|
5,834
|
|
The
following table summarizes the Company’s convertible notes payable by maturity
dates as of December 31, 2008 (000’s) (as the Company currently is not in
compliance with certain of its obligations relating to the Series A and Series B
Notes, the Company is classifying the convertible notes payable as a current
liability on the balance sheet):
|
|
|
Principal
|
|
|
Less
Discount
|
|
|
Carrying
Amount
|
|
|
Fiscal
Year ending December 31, 2008
|
|
$
|
10,781
|
|
|
$
|
1,301
|
|
|
$
|
9,480
|
|
Accounting
for Series B Notes and Warrant Purchase Agreement
In
connection with the convertible Series B Notes and OID Notes, we issued warrants
to the Note holders to purchase approximately 231.9 million shares of our common
stock at exercise prices noted above. The fair value of the warrants was
estimated to be approximately $399,000 using the Black-Scholes pricing model.
The fair value of the warrants allocated to the warrants on a relative fair
value basis was determined to be approximately $262,000 and was recorded as
additional paid-in-capital and a debt discount. The debt discount
will be amortized to interest
expense
over the terms of the notes.
Additionally,
the Series B Notes and OID Notes were considered to have a beneficial conversion
feature because they permitted the holders to convert their interest in the
Series B Notes and OID Notes into shares of our common stock at a deemed
effective fair value conversion price of $0.70 per share, which on the date of
issuance, was lower than the price of our common stock of $0.75 per share. The
total amount of the beneficial conversion feature was approximately
$51,000. This amount was recorded as additional paid-in-capital and
will be amortized to interest expense from the date of issuance to the earlier
of the maturity of the Series B Notes or to the date of the
conversion.
We
recorded $264,934 of transaction costs as deferred financing fees. We
also recorded $62,169 as deferred financing fees for the fair value of the
placement agent warrants which were valued using the Black-Scholes pricing
model. The deferred financing fees will be amortized to interest
expense from the date of the Series B Notes to the earlier of the maturity of
the Series B Notes or the date of conversion. During the year ended
December 31, 2008, $99,792 of the deferred financing fees was amortized to
interest expense.
The
Company has adopted the provisions of FAS No. 109 “Accounting for Income
Taxes”. The Company currently has no issues that create timing
differences that would mandate deferred tax expense. Net operating
losses would create possible tax assets in future years. Due to the
uncertainty as to the utilization of net operating loss carry forwards, a
valuation allowance has been made to the extent of any tax benefit that net
operating losses may generate.
No
provision for income taxes has been recorded due to the net operating loss
carryforwards totaling approximately $2.5 million as of December 31, 2008 that
will be offset against future taxable income. The available net
operating loss carry forwards of approximately $2.5 million expire in various
years through 2028. No tax benefit has been reported in the
consolidated financial statements because the Company believes there is a 50% or
greater chance the carry forwards will expire unused.
Deferred
tax asset and the valuation account is as follows (in thousands):
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
|
NOL
Carryforward
|
|
$
|
854
|
|
|
$
|
713
|
|
|
Valuation
allowances
|
|
|
(854
|
)
|
|
|
(713
|
)
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Federal Tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current
State Tax
|
|
|
—
|
|
|
|
—
|
|
|
Change
in NOL benefit
|
|
|
141
|
|
|
|
236
|
|
|
Change
in valuation allowance
|
|
|
(141
|
)
|
|
|
(236
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
The
Company’s effective tax rate differs from the federal and state statutory rates
due to the valuation allowance recorded for the deferred tax asset due to unused
net operating loss carry forwards and permanent differences.
The
following is a reconciliation of the provision for income taxes at the expected
rates to the income taxes reflected in the statement of operations:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Tax
at federal statutory rate
|
|
|
(34
|
)
%
|
|
|
(34
|
)
%
|
|
State
tax expense, net of federal tax effect
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
Permanent
differences
|
|
|
37
|
|
|
|
38
|
|
|
Change
in valuation allowance
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
10.
|
STOCKHOLDERS’
EQUITY INSTRUMENTS AND RELATED
MATTERS
|
Common Stock
As of
December 31, 2008 we had 5,000,000,000 shares of common stock authorized with a
par value of $0.0001. We had 677,858,548 common stock shares issued and
677,858,501 shares outstanding.
As of
December 31, 2007 we had 750,000,000 shares of common stock authorized with a
par value of $0.01. We had 3,483 common stock shares issued and 3,437
shares outstanding.
During
2007, the Company issued 128 shares of common stock for $9,000 of professional
services. These shares were valued at $9,000 and are included in
general and administrative expenses for the year ended December 31,
2007.
During
2007, the Company issued 32 shares of its common stock for conversion of $10,000
of principal amount Series A convertible notes.
During
2007, the Company issued 164 shares of its common stock as a partial principal
payment of $6,000 on the Series A Notes convertible notes.
During
2008, the Company issued 894 shares of common stock for $14,000 of professional
services. These shares were valued at $14,000 and are included in
general and administrative expenses.
During
2008, the Company issued 55,669,326 shares of common stock as partial principal
payments on the Series A Notes in satisfaction of $548,000 of obligations due
under the notes.
During
2008, the Company issued 17,873,879 shares of common stock as partial payments
on the Series B Notes in satisfaction of $264,000 of obligations due under the
notes.
On
August 13, 2008, we amended our Amended and Restated Certificate of
Incorporation to (i) effect a one-for-four hundred reverse stock split of our
common stock and (ii) authorize (after giving effect to the reverse stock split)
5,000,000,000 authorized shares of our common stock having a par value of
$0.0001 per share. All share and per-share information presented
herein is presented after giving effect to this reverse stock split, increase in
authorized shares and change in par value.
Series
B Preferred Stock
The
series B convertible preferred stock has a face amount of $10,000 per share
($5,220,000 in the aggregate), ranks senior to our series C convertible
preferred stock and our common stock with respect to payment
of
amounts upon any liquidation, dissolution or winding up of the Company, and is
entitled to receive non-cumulative dividends in an amount equal to 3% per year
when, as and if declared by our Board of Directors.
The
series B convertible preferred stock is convertible into common stock at a
conversion price of $31,000 per share, subject to adjustment for stock splits
and combinations, and certain dividends and distributions,
The
holders of shares of series B convertible preferred stock have the right to
cause us to redeem any or all of its shares at a price equal to 100% of face
value, plus accrued but unpaid dividends in the following events:
|
|
·
|
We
fail to remove any restrictive legend on any certificate or any shares of
common stock issued to the holders of Series B convertible preferred stock
upon conversion of the Series B convertible preferred stock as and when
required and such failure continues uncured for five business
days;
|
|
|
·
|
We
provide written notice (or otherwise indicate) to any holder of Series B
convertible preferred stock, or state by way of public announcement
distributed via a press release, at any time, of our intention not to
issue, or otherwise refuse to issue, shares of common stock to any holder
of Series B convertible preferred stock upon conversion in accordance with
the terms of the certificate of designation for our Series B convertible
preferred stock;
|
|
|
·
|
We
or any of our subsidiaries make an assignment for the benefit of
creditors, or applies for or consents to the appointment of a receiver or
trustee for us or for a substantial part of our property or
business;
|
|
|
·
|
Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings
for the relief of debtors shall be instituted by or against us or any of
our subsidiaries which shall not be dismissed within 60 days of their
initiation;
|
|
|
·
|
We
sell, convey or dispose of all or substantially all of our assets;
or
|
|
|
·
|
We
otherwise breach any material term under the private placement transaction
documents, and if such breach is curable, shall fail to cure such breach
within 10 business days after we have been notified thereof in writing by
the holder.
|
The series B convertible preferred
stock generally has the right to vote on all matters before the common
stockholders on an as-converted basis voting together with the common
stockholders as a single class. In addition, the holders of a majority of the
Series B convertible preferred stock, voting as a separate class, have the right
to appoint one member of our Board of Directors and one observer to meetings of
our Board of Directors and its committees. Although the holder of our
Series B convertible preferred stock retains the right to do so in the
future, it has not yet exercised its right to appoint a board
member.
Series
C Convertible Preferred Stock
On
November 30, 2006, we entered into a Share Exchange Agreement with
BMSI. Pursuant to the Share Exchange Agreement, we agreed to acquire
from BMSI 100% of the capital stock of BounceGPS. As part of the
consideration for the acquisition, we issued to BMSI 5,000 shares of our Series
C convertible preferred stock. See Note 1 for a more detailed
description of the acquisition.
The
series C convertible preferred stock has a face amount of $1,000 per share
($5,274,000 in the aggregate), ranks junior to our series B convertible
preferred stock and senior to our common stock with respect to payment of
dividends and amounts upon any liquidation, dissolution or winding up of the
Company, and is entitled to receive cumulative dividends in an amount equal to
8% per year (payable at the election of the holder in cash or additional
shares).
The
series C convertible preferred stock was initially convertible into 51% of the
number of our fully diluted shares, as defined to include, without
limitation:
|
|
·
|
Shares
of common stock outstanding on the date of issuance of the Series C
Preferred Stock;
|
|
|
·
|
Shares
of common stock issuable upon conversion, exercise or exchange of any
convertible security or purchase right outstanding on the date
of issuance (including, without limitation, the series C
convertible preferred stock, our series B convertible preferred stock, the
Series A Notes, the Series B Notes and outstanding
warrants);
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|
|
·
|
Shares
of common stock issuable upon conversion, exercise or exchange of any
convertible security or purchase right issued after the issuance date of
the series C convertible preferred stock in conversion, exercise or
exchange of securities outstanding as of the issuance date or as a
dividend, interest payment, liquidated damages, penalty, compromise,
settlement or other payment of certain securities or pursuant
to or in connection with any agreement, indebtedness or other obligation
of the Company existing as of the issuance date, or with respect to any
amendment, waiver or modification thereto or extension
thereof;
|
|
|
·
|
Shares
of common stock issued after the issuance date of the series C convertible
preferred stock as a dividend, interest payment, liquidated damages,
penalty, compromise, settlement or other payment of certain securities
or pursuant to or in connection with any agreement,
indebtedness or other obligation of the Company existing as of the
issuance date, or with respect to any amendment, waiver or modification
thereto or extension thereof; and
|
|
|
·
|
Shares
of common stock authorized for issuance from time to time under our equity
incentive plans.
|
The
holders of shares of Series C convertible preferred stock have the right to
cause us to redeem any or all of its shares at a price equal to 100% of face
value, plus accrued but unpaid dividends in the following events:
|
|
·
|
We
fail to remove any restrictive legend on any certificate or any shares of
common stock issued to the holders of Series B convertible preferred stock
upon conversion of the Series B convertible preferred stock as and when
required and such failure continues uncured for five business
days;
|
|
|
·
|
We
provide written notice (or otherwise indicate) to any holder of Series B
convertible preferred stock, or state by way of public announcement
distributed via a press release, at any time, of our intention not to
issue, or otherwise refuse to issue, shares of common stock to any holder
of Series B convertible preferred stock upon conversion in accordance with
the terms of the certificate of designation for our Series B convertible
preferred stock;
|
|
|
·
|
We
or any of our subsidiaries make an assignment for the benefit of
creditors, or applies for or consents to the appointment of a receiver or
trustee for us or for a substantial part of our property or
business;
|
|
|
·
|
Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings
for the relief of debtors shall be instituted by or against us or any of
our subsidiaries which shall not be dismissed within 60 days of their
initiation;
|
|
|
·
|
We
sell, convey or dispose of all or substantially all of our
assets;
|
|
|
·
|
We
merge or consolidate with or into, or engage in any other business
combination with, any other person or entity, in any case which results in
either (i) the holders of our voting securities immediately prior to such
transaction holding or having the right to direct the voting of fifty
percent (50%) or less of our total outstanding voting securities of or
such other surviving or acquiring person or entity immediately following
such transaction or (ii) the members of our board of directors comprising
fifty
percent
(50%) or less of the members of our board of directors or such other
surviving or acquiring person or entity immediately following such
transaction;
|
|
|
·
|
We
have fifty percent (50%) or more of the voting power of our capital stock
owned beneficially by one person, entity or
“group”;
|
|
|
·
|
We
experience any other change of control not otherwise addressed above;
or
|
|
|
·
|
We
otherwise breach any material term under the private placement transaction
documents, and if such breach is curable, shall fails to cure such breach
within 10 business days after we have been notified thereof in writing by
the holder.
|
The
series C convertible preferred stock generally has the right to vote on all
matters before the common stockholders on an as-converted basis voting together
with the common stockholders as a single class. In addition, the holders of a
majority of the Series C convertible preferred stock, voting as a separate
class, have the right to appoint a majority of the members of our Board of
Directors.
On May 9, 2008, we issued 318 shares of
series C convertible preferred stock to BMSI in satisfaction of our dividend
obligations under our outstanding series C convertible preferred stock for the
periods ended August 31, 2007, November 20, 2007 and February 29,
2008.
On May 12, 2008, BMSI converted 339
shares of series C convertible preferred stock into 750,276 shares of our common
stock.
On June 1, 2008, we issued 104 shares
of series C convertible preferred stock to BMSI in satisfaction of our dividend
obligations under our outstanding series C convertible preferred stock for the
period ended May 31, 2008.
On
September 1, 2008, we issued 106 shares of series C convertible preferred stock
to BMSI in satisfaction of our dividend obligations under our outstanding series
C convertible preferred stock for the period ended August 31, 2008.
On
December 1, 2008, we issued 108 shares of series C convertible preferred stock
to BMSI in satisfaction of our dividend obligations under our outstanding series
C convertible preferred stock for the period ended November 30,
2008.
On December 26, 2008, BMSI converted
225 shares of series C convertible preferred stock into 603,560,689 shares of
our common stock.
Warrants
As of
December 31, 2008, we had outstanding the following common stock purchase
warrants:
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·
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Series A-7
warrants to purchase 1,031 shares of common stock at an exercise
price of $0.000267 per share subject to adjustment for stock
splits and combinations, certain dividends and distributions,
reclassification, exchange or substitution, reorganization, merger,
consolidation or sales of assets; issuances of additional shares of common
stock, and issuances of common stock equivalents. The series
A-7 warrants can be exercised on a cashless basis beginning one year after
issuance if (i) the per share market value of a share of our common stock
(either the volume the weighted average price or the fair market value as
determined by an independent appraiser) is greater than the warrant price;
and (ii) a registration statement for the warrant stock is not then in
effect. The series A-7 warrants are exercisable for a
seven-year period from the date of issuance (95 of these warrants are
exercisable over 5 years).
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|
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·
|
Series B-4
warrants to purchase 688 shares of common stock at an exercise price
of $0.000267 per share subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets;
issuances
of additional shares of common stock, and issuances of common stock
equivalents. The series B-4 warrants can be exercised on a
cashless basis beginning one year after issuance if (i) the per share
market value of a share of our common stock (either the volume the
weighted average price or the fair market value as determined by an
independent appraiser) is greater than the warrant price; and (ii) a
registration statement for the warrant stock is not then in effect. The
series B-4 warrants are exercisable for a four-year period beginning on
the date a resale registration statement for the shares underlying the
warrants is declared effective by the Securities and Exchange Commission
(65 of these warrants are exercisable over 5
years).
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|
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·
|
Series C-3
warrants to purchase 1,375 shares of common stock at an exercise price of
$0.000267 per share subject to adjustment for stock
splits and combinations, certain dividends and distributions,
reclassification, exchange or substitution, reorganization, merger,
consolidation or sales of assets; issuances of additional shares of common
stock, and issuances of common stock equivalents. The series
C-3 warrants can be exercised on a cashless basis beginning one year after
issuance if (i) the per share market value of a share of our common stock
(either the volume the weighted average price or the fair market value as
determined by an independent appraiser) is greater than the warrant price;
and (ii) a registration statement for the warrant stock is not then in
effect. The series C-3 warrants are exercisable for a
three-year period from the date of issuance. 125 of these
warrants are exercisable over 5
years.
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|
|
·
|
Series
D-1 warrants (callable only at our option) to purchase 963 shares in the
aggregate of common stock at an exercise price per share equal to the
lesser of: (a) $7,000.00 or (b) 90% of the average of the 5 day
volume weighted average price of our common stock on the OTC Bulletin
Board preceding the call notice, as defined in the
warrant.
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|
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·
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Series
E-7 Warrants to purchase 314,839 shares of common stock at an exercise
price of $.00045 per share, subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets; issuances of additional shares of common stock, and issuances
of common stock equivalents. The series E-7 warrants are
exercisable for a seven-year period from the date of
issuance.
|
|
|
·
|
Series
F-4 Warrants to purchase 314,839 shares of common stock at an exercise
price of $.00045 per share, subject to adjustment for stock splits and
combinations, certain dividends and distributions, reclassification,
exchange or substitution, reorganization, merger, consolidation or sales
of assets; issuances of additional shares of common stock, and issuances
of common stock equivalents. The series F-4 warrants are exercisable for a
four-year period beginning on the date a resale registration statement for
the shares underlying the warrants is declared effective by the Securities
and Exchange Commission.
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|
|
·
|
The
following warrants issued to SDS in connection with our 2005
financings: (i) a common stock purchase warrant with a 5-year
term to purchase 83 shares of common stock at an exercise price of $200
per share, (ii) a common stock purchase warrant with a 5-year term to
purchase 1,453 shares of common stock at an exercise price of $843, and
(iii) a common stock purchase warrant with a 5-year term to purchase 100
shares at an exercise price of $35,000.00 per
share.
|
|
|
·
|
Warrants
issued to the placement agents in our Series A Note financing to purchase
125 shares of common stock at an exercise price per share equal to
$0.000267 per share with a term of 5 years following the
closing.
|
|
|
·
|
Warrants issued to the placement
agents in our Series B Note financing to purchase 617 shares of common
stock at an exercise price per share equal to $0.00045 per share with a
term of 5 years following the
closing.
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|
11.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Lease Commitments
We lease
certain office facilities and equipment under non-cancelable operating leases,
with expirations through August 2012. The future minimum lease
payments associated with such leases for the fiscal years ending December 31 are
as follows (in thousands).
|
2009
|
|
$
|
58
|
|
|
2010
|
|
|
59
|
|
|
2011
|
|
|
59
|
|
|
2012
|
|
|
39
|
|
|
|
|
$
|
215
|
|
During
the year ended December 31, 2008 and 2007, total rent charged to operating
expenses was approximately $58,000 and $70,000, respectively.
Product
Warranty Guarantees
We provide a limited warranty on all
REDIview product sales, at no additional cost to the customer that provides for
replacement of defective parts for one year after the product is
sold. We provide a limited warranty on all REDIview product sales, at
no additional cost to the customer that provides for replacement of defective
parts during the contract term, typically ranging from one to five years. We
have established an estimated liability for expected future warranty commitments
based on a review of historical warranty expenditures associated with these
products and other similar products. Changes in our product warranty
liability, which is included in “Accrued expenses and other current liabilities”
and “Other non-current liabilities” in the accompanying Consolidated Balance
Sheets, are summarized below (in thousands).
|
|
|
Fiscal
Years Ended
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Warranty
product liability at beginning of period
|
|
$
|
68
|
|
|
$
|
127
|
|
|
Accruals
for product warranties issued
|
|
|
57
|
|
|
|
56
|
|
|
Product
replacements
|
|
|
(65
|
)
|
|
|
(115
|
)
|
|
Adjustments
to pre-existing warranty estimates
|
|
|
—
|
|
|
|
—
|
|
|
Warranty
product liability at end of period
|
|
$
|
60
|
|
|
$
|
68
|
|
The
long-term portion of the warranty product liability at December 31, 2008 and
2007 was approximately $-0- and $-0-, respectively.
Retirement
Plan
The
Company sponsors a 401(k) Retirement Investment Profit-Sharing Plan (the
“Retirement Plan”) covering substantially all employees. In order to
attract and retain employees, the Company amended the Retirement Plan during
2000 to include a mandatory employer matching. Matching contributions
during the fiscal years ended December 31, 2008 and 2007 were approximately
$21,000 and $21,000 respectively.
Other
Purchase Commitments
As of
December 31, 2008, we had approximately $87,000 in primarily inventory-related
purchase commitments.
Litigation
In March
2008, Teletouch Communications, Inc. brought a lawsuit against the Company
alleging the Company was liable for payment of a $5.8 million default judgment
obtained by Teletouch against DataLogic International, Inc., based on corporate
alter ego and other claims (Teletouch Communications, Inc. dba Teletouch v.
Remote Dynamics, Inc., Collin County, Texas District Court).
The Company believes that Teletouch’s claims are without
merit.
From time
to time, we are subject to legal proceedings and claims that arise in the
ordinary course of business. We do not believe that any claims other
than those described above exist where the outcome of such matters would have a
material adverse affect on our consolidated financial position, operating
results or cash flows. However, there can be no assurance such legal
proceedings will not have a material impact on future results.
|
12.
|
RELATED
PARTY TRANSACTIONS
|
In June,
2006, BounceGPS, our wholly owned subsidiary, issued a $250,000 note to
DataLogic International, Inc. in conjunction with the acquisition of certain
assets. Keith Moore (a member of our Board of Directors), was the CEO
and Chairman of DataLogic International, Inc. at the time the note was
issued. Mr. Moore was not a member of our Board of Directors or the
board of directors of BounceGPS at the time the note was issued. Mr.
Moore is not a member of the board of directors of BounceGPS.
In
connection with our November 2006 private placement, we agreed to pay $60,000
($15,000 per closing) to Strands Management Company, LLC (“Strands”), formerly
known as Monarch Bay Management Company, LLC, for consulting
work. David Walters (our Chairman) and Keith Moore (a member of our
Board of Directors) are managing members of Strands and each own 50% of
Strands.
As of
December 31, 2006, the Company owed $15,000 to Strands for these services
.
The Company made
payments totaling $15,000 and $60,000 for the year ended December 31, 2008 and
2007, respectively.
Additionally,
we agreed to pay a $20,000 documentation fee to BMSI in connection with our
December 2006 acquisition of BounceGPS from BMSI. David Walters (our
Chairman) is the Chairman and Chief Executive Officer of BMSI and beneficially
owns a majority of the outstanding common stock of BMSI. This payment was made
in January 2007.
BounceGPS
had an agreement with Monarch Bay Capital Group, LLC (“MBCG”) for corporate
development and chief financial officer services during the period from July
2006 to May 2007. David Walters (our Chairman) is the managing
member of MBCG and beneficially owns 100% of MBCG. The
agreement was entered into prior to our December 2006 acquisition
of BounceGPS and prior to Mr. Walters joining our Board of
Directors. Under the agreement with MBCG, BounceGPS
paid to MBCG a monthly fee
of $20,000 in cash. Fees paid to MBCG totaled $0 and $80,000 for the
years ended December 31, 2008 and 2007, respectively. Remaining
amounts due to MBCG totaled $20,000 as of December 31, 2008.
On May 1,
2007, we entered into a Support Services Agreement with
Strands. David Walters, our Chairman, and Keith Moore, our director,
each are members of, and each own 50% of the ownership interests in
Strands. Under the Support Services Agreement, Strands provides us
with financial management services, facilities and administrative services,
business development services, creditor resolution services and other services
as agreed by the parties. We pay to Strands monthly cash fees of
$22,000 for the services. In addition, Strands will receive fees
equal to (a) 6% of the revenue generated from any business development
transaction with a customer or partner introduced to us by Strands and (b) 20%
of the savings to us from any creditor debt reduction resolved by Strands on our
behalf. The initial term of the Support Services Agreement expires on
May 1, 2009. Fees paid to Strands totaled $242,000 and $199,000 for
the year ended December 31, 2008 and 2007, respectively. The Company
had an outstanding balance due to Strands of $44,000 as of December 31,
2008.
On May 1,
2007, we entered into a Placement Agency and Advisory Services Agreement with
Monarch Bay Associates, LLC (“MBA”). (MBA is a FINRA registered
firm.) David Walters, our Chairman, and Keith Moore, our director,
each are members of, and each owns 50% of the ownership interests in MBA. Under
the agreement, MBA acts as our placement agent on an exclusive basis with
respect to private placements of our capital
stock and
as our exclusive advisor with respect to acquisitions, mergers, joint ventures
and similar transactions. MBA will receive fees equal to (a) 9%
of the gross proceeds raised by us in any private placement (plus warrants to
purchase 9% of the number of shares of common stock issued or issuable by us in
connection with the private placement) and (b) 3% of the total consideration
paid or received by us or our stockholders in an acquisition, merger, joint
venture or similar transaction. The initial term of the Placement
Agency and Advisory Services Agreement expired on May 1, 2008. The
new agreement was entered into effective December 1, 2008 under the
same terms as the prior agreement. No fees were paid to MBA in 2007
or 2008.
On November 14, 2007, BounceGPS loaned
$21,875 to BMSI. Interest accrued at an annual rate of
10%. David Walters, Chairman, is also the Chairman and Chief
Executive Officer of BMSI and beneficially owns a majority of the outstanding
common stock of BMSI. We received payment in full, including
interest of $729 in March 2008.
On
December 26, 2007, BounceGPS loaned $22,000 to Monarch Staffing, Inc. and
$25,000 to a subsidiary of Monarch Staffing, Inc. Interest accrued at
an annual rate of 10%. David Walters (our Chairman) is also the
Chairman of Monarch Staffing and beneficially owns 41% of the outstanding common
stock of Monarch Staffing. David Walters (a member of our Board of
Directors) is also a director of Monarch Staffing and beneficially owns 41% of
the outstanding common stock of Monarch Staffing. Keith Moore (a
Director) is also a Director of Monarch Staffing and beneficially owns 41% of
the outstanding common stock of Monarch Staffing. We received payment
in full, including interest of $1,175 in March 2008.
On June
13, 2008, the Company borrowed $20,000 from Strands Management Company to cover
short-term working capital needs. This amount was repaid on June 18,
2008 with interest of 10% per annum.
On September 16, 2008 and September 12,
2008, we entered into working capital line of credit promissory notes with Gary
Hallgren, our Chief Executive Officer, and Strands Management Company, LLC, an
entity owned by our directors David Walters and Keith Moore. Our
Board of Directors has authorized borrowings of up to $100,000 under the terms
of the promissory notes to meet our working capital funding
needs. The promissory notes are unsecured, bear interest at an annual
rate of 10% and are due and payable on demand by the lender.
On
September 12, 2008, the Company borrowed $18,200 from Strands Management Company
to cover short-term working capital needs. This amount was repaid on
September 22, 2008 with interest of 10% per annum.
On
September 16, 2008, the Company borrowed $16,500 from Gary Hallgren, the CEO, to
cover short-term working capital needs. This amount was repaid on
September 19, 2008 with interest of 10% per annum.
On
November 6, 2008, we amended the working capital line of credit promissory note
with Strands Management Company, increasing the authorized borrowings to
$200,000. As of December 31, 2008, we had borrowed $44,000 against
the note. Accrued interest under the note totaled $2,120 as of
December 31, 2008.
From
January 1, 2009 to March 25 2009, we made payments to certain holders of our
secured convertible notes of amounts due under the notes by issuing shares of
our common stock in accordance with the terms of the notes. For the
Series A notes, these payments were in the form of 3,011,738,754 shares of our
common stock in satisfaction of $601,381 of obligations due under the Series A
notes, representing issuance prices ranging from $.000117 to $.000587 per
share. For the Series B notes, these payments were in the form of
1,047,937,537 shares of our common stock in satisfaction of $185,961 of
obligations due under the Series B notes, representing issuance prices ranging
from $0.000124 to $.000477 per share (for the Series B Notes).
On
February 28, 2009, we issued 105 shares of series C convertible preferred stock
to BMSI in satisfaction of our dividend obligations under our outstanding series
C convertible preferred stock for the period ended February 28,
2009.
On or
about April 3, 2009, we will increase our authorized shares of common stock to
15,000,000,000 shares.
On January 1, 2009, we borrowed $22,000
from the working capital line of credit promissory note with Strands Management
Company. On January 13, 2009, we borrowed an additional $40,000 from
the working capital line.
On February 25, 2009, we borrowed
$24,000 from Gary Hallgren, the CEO, to cover short-term working capital
needs. This amount was repaid on February 27, 2009 with interest of
10% per annum.
Remote Dynamics (CE) (USOTC:RMTD)
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