UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20092010
Commission File Number 0-25882
EZENIA! INC.
(Exact name of registrant as specified in its charter)
DELAWARE |
| 04-3114212 |
(State or other jurisdiction of incorporation |
| (IRS Employer Identification No.) |
or organization) |
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14 Celina Avenue, Suite 17-18, Nashua, NH 03063
(Address of principal executive offices, including zip code)
(603) 589-7600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨o No ¨o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- acceleratednon-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.
Large Accelerated Filer | Accelerated Filer | |
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Non-Accelerated Filer | Smaller Reporting Company x | |
(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 x
The number of shares outstanding of the registrant’s Common Stock as of October 30, 200931, 2010 was 14,658,217.15,593,007.
EZENIA! INC.
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Part I. | Financial Information |
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Item 1 | Condensed Consolidated Financial Statements (unaudited) |
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| Condensed Consolidated Balance Sheets as of September 30, | 3 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||
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Exhibits & Certifications |
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Note: Ezenia!, the Ezenia! Logo, InfoWorkSpace, LaunchPad and Encounter are trademarks of Ezenia! Inc. All other trademarks are property of their respective companies.
EZENIA! INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share related data)
(Unaudited)
|
| September 30, |
| December 31, |
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| September 30, |
| December 31, |
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| 2009 |
| 2008 |
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| 2010 |
| 2009 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 5,253 |
| $ | 6,774 |
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| $ | 3,009 |
| $ | 4,203 |
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Accounts receivable, less allowances of $28 at September 30, 2009 and at December 31, 2008 |
| 194 |
| 771 |
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Marketable securities |
| 190 |
| 180 |
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Accounts receivable, less allowances of $9 at September 30, 2010 and $28 at December 31, 2009 |
| 68 |
| 129 |
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Prepaid software licenses |
| 1,072 |
| 1,125 |
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| 1,746 |
| 1,239 |
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Prepaid expenses and other current assets |
| 190 |
| 186 |
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| 157 |
| 169 |
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Total current assets |
| 6,709 |
| 8,856 |
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| 5,170 |
| 5,920 |
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Deposits |
| 15 |
| 15 |
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| 29 |
| 15 |
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Capitalized software, net |
| 119 |
| — |
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Equipment and improvements, net |
| 162 |
| 243 |
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| 66 |
| 133 |
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Total assets |
| $ | 6,886 |
| $ | 9,114 |
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| $ | 5,384 |
| $ | 6,068 |
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Liabilities and stockholders’ equity |
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Current liabilities |
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Accounts payable |
| $ | 226 |
| $ | 257 |
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| $ | 286 |
| $ | 273 |
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Accrued expenses |
| 1,754 |
| 1,674 |
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| 1,740 |
| 1,627 |
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Accrued restructuring |
| 228 |
| 287 |
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| 98 |
| 228 |
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Accrued employee compensation and benefits |
| 233 |
| 150 |
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| 232 |
| 195 |
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Deferred revenue |
| 1,248 |
| 1,326 |
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| 1,269 |
| 876 |
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Total current liabilities |
| 3,689 |
| 3,694 |
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| 3,625 |
| 3,199 |
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Deferred revenue, net of current portion |
| 577 |
| 3 |
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Stockholders’ equity |
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Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued and outstanding |
| — |
| — |
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| — |
| — |
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Common stock, $.01 par value, 40,000,000 shares authorized, 15,417,754 issued and 14,658,217 outstanding at September 30, 2009 and December 31, 2008 |
| 154 |
| 154 |
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Common stock, $.01 par value, 40,000,000 shares authorized, 15,561,976 issued and 14,802,439 outstanding at September 30, 2010 and 15,417,754 issued and 14,658,217 outstanding at December 31, 2009 |
| 163 |
| 154 |
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Capital in excess of par value |
| 66,129 |
| 65,586 |
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| 66,922 |
| 66,459 |
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Accumulated deficit |
| (60,141 | ) | (57,375 | ) |
| (62,958 | ) | (60,802 | ) | ||||
Treasury stock at cost, 759,537 shares at September 30, 2009 and December 31, 2008 |
| (2,945 | ) | (2,945 | ) | |||||||||
Treasury stock at cost, 759,537 shares at September 30, 2010 and December 31, 2009 |
| (2,945 | ) | (2,945 | ) | |||||||||
Total stockholders’ equity |
| 3,197 |
| 5,420 |
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| 1,182 |
| 2,866 |
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Total liabilities and stockholders’ equity |
| $ | 6,886 |
| $ | 9,114 |
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| $ | 5,384 |
| $ | 6,068 |
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See accompanying notes to unaudited condensed consolidated financial statements.
EZENIA! INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share related data)
(Unaudited)
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| Three Months Ended |
| Nine Months Ended |
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
| September 30, |
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| September 30, |
| September 30, |
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| 2009 |
| 2008 |
| 2009 |
| 2008 |
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| 2010 |
| 2009 |
| 2010 |
| 2009 |
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Revenues |
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Product revenue |
| $ | 794 |
| $ | 1,680 |
| $ | 2,656 |
| $ | 5,211 |
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| $ | 640 |
| $ | 794 |
| $ | 2,061 |
| $ | 2,656 |
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Product development revenue |
| 25 |
| 65 |
| 59 |
| 82 |
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| — |
| 25 |
| — |
| 59 |
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| 819 |
| 1,745 |
| 2,715 |
| 5,293 |
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| 640 |
| 819 |
| 2,061 |
| 2,715 |
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Cost of revenues |
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Cost of product revenue |
| 260 |
| 663 |
| 1,111 |
| 2,027 |
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| 259 |
| 260 |
| 777 |
| 1,111 |
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Cost of product development revenue |
| 10 |
| 6 |
| 24 |
| 6 |
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| — |
| 10 |
| — |
| 24 |
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| 270 |
| 669 |
| 1,135 |
| 2,033 |
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| 259 |
| 270 |
| 777 |
| 1,135 |
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Gross profit |
| 549 |
| 1,076 |
| 1,580 |
| 3,260 |
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| 381 |
| 549 |
| 1,284 |
| 1,580 |
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Operating expenses |
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Research and development |
| 454 |
| 533 |
| 1,414 |
| 1,598 |
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| 228 |
| 454 |
| 695 |
| 1,414 |
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Sales and marketing |
| 293 |
| 565 |
| 827 |
| 1,658 |
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| 322 |
| 293 |
| 894 |
| 827 |
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General and administrative |
| 603 |
| 497 |
| 1,869 |
| 1,748 |
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| 429 |
| 603 |
| 1,572 |
| 1,869 |
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Depreciation |
| 33 |
| 45 |
| 118 |
| 165 |
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| 10 |
| 33 |
| 78 |
| 118 |
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Occupancy and other facilities-related expenses |
| 67 |
| 82 |
| 199 |
| 244 |
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| 67 |
| 67 |
| 221 |
| 199 |
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Restructuring charge |
| — |
| 101 |
| — |
| 101 |
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Total operating expenses |
| 1,450 |
| 1,823 |
| 4,427 |
| 5,514 |
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| 1,056 |
| 1,450 |
| 3,460 |
| 4,427 |
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Loss from operations |
| (901 | ) | (747 | ) | (2,847 | ) | (2,254 | ) |
| (675 | ) | (901 | ) | (2,176 | ) | (2,847 | ) | ||||||||
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Interest income |
| 10 |
| 37 |
| 40 |
| 129 |
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| 4 |
| 10 |
| 11 |
| 40 |
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Other income (expense) |
| 27 |
| (38 | ) | 41 |
| (60 | ) |
| 26 |
| 27 |
| 10 |
| 41 |
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|
| 37 |
| (1 | ) | 81 |
| 69 |
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| 30 |
| 37 |
| 21 |
| 81 |
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Net loss |
| $ | (864 | ) | $ | (748 | ) | $ | (2,766 | ) | $ | (2,185 | ) |
| $ | (645 | ) | $ | (864 | ) | $ | (2,155 | ) | $ | (2,766 | ) |
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Basic and diluted loss per share: |
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Basic |
| $ | (0.06 | ) | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.15 | ) |
| $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.14 | ) | $ | (0.19 | ) |
Diluted |
| $ | (0.06 | ) | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.15 | ) |
| $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.14 | ) | $ | (0.19 | ) |
Weighted average common shares: |
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Basic |
| 14,658,217 |
| 14,608,696 |
| 14,658,217 |
| 14,641,891 |
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| 15,559,301 |
| 14,658,217 |
| 15,147,365 |
| 14,658,217 |
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Diluted |
| 14,658,217 |
| 14,608,696 |
| 14,658,217 |
| 14,641,891 |
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| 15,559,301 |
| 14,658,217 |
| 15,147,365 |
| 14,658,217 |
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See accompanying notes to unaudited condensed consolidated financial statements.
EZENIA! INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Nine Months Ended |
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| Nine Months Ended |
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| September 30, |
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| 2009 |
| 2008 |
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| 2010 |
| 2009 |
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Operating activities |
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Net loss |
| $ | (2,766 | ) | $ | (2,185 | ) |
| $ | (2,155 | ) | $ | (2,766 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
| 118 |
| 165 |
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Amortization of capitalized software |
| — |
| 18 |
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Depreciation and amortization |
| 89 |
| 118 |
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Share-based compensation |
| 543 |
| 487 |
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| 375 |
| 543 |
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Reversal of bad debt reserve |
| (19 | ) | — |
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(Gain) loss on marketable securities |
| (10 | ) | (41 | ) | |||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
| 577 |
| 1,976 |
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| 80 |
| 577 |
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Prepaid software licenses |
| 53 |
| 46 |
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| (507 | ) | 53 |
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Prepaid expenses and other assets |
| (4 | ) | 74 |
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Accounts payable, accrued expenses, and employee and compensation benefits |
| 73 |
| (275 | ) | |||||||||
Prepaid expenses, security deposits and other assets |
| (2 | ) | (4 | ) | |||||||||
Accounts payable, accrued expenses, employee and compensation benefits and accrued restructuring |
| 33 |
| 73 |
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Deferred revenue |
| (78 | ) | (1,569 | ) |
| 967 |
| (78 | ) | ||||
Net cash used in operating activities |
| (1,484 | ) | (1,263 | ) | |||||||||
Net cash provided by (used in) operating activities |
| (1,149 | ) | (1,525 | ) | |||||||||
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Investing activities |
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Purchases of equipment and improvements |
| (37 | ) | (45 | ) |
| (11 | ) | (37 | ) | ||||
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Capitalized software development costs |
| (130 | ) | — |
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Net cash used in investing activities |
| (37 | ) | (45 | ) |
| (141 | ) | (37 | ) | ||||
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Financing activities |
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Proceeds from stock issued under employee benefit plans |
| — |
| 13 |
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| 96 |
| — |
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Net cash provided by financing activities |
| — |
| 13 |
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| 96 |
| — |
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Change in cash and cash equivalents |
| (1,194 | ) | (1,562 | ) | |||||||||
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Change in cash and cash equivalents |
| (1,521 | ) | (1,295 | ) | |||||||||
Cash and cash equivalents at beginning of period |
| 6,774 |
| 9,395 |
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| 4,203 |
| 6,641 |
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Cash and cash equivalents at end of period |
| $ | 5,253 |
| $ | 8,100 |
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| $ | 3,009 |
| $ | 5,079 |
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See accompanying notes to unaudited condensed consolidated financial statements.
EZENIA! INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business and Basis of Presentation
Ezenia! Inc. (“Ezenia”, “we”, “our”, “us”, or the “Company”) operates in one business segment, which is the design, development, manufacturing, marketing and sale of conferencing and real-time collaboration solutions for corporate and governmental networks and eBusiness. Founded in 1991, we develop and marketour products that enable organizations to provide high-quality group communication and collaboration capabilities to commercial, governmental, consumer and institutional users. Our products allow individuals and groups, regardless of proximity constraints, to interact and share information in a natural, spontaneous way –— voice-to-voice, face-to-face, mouse-to-mouse, keyboard-to-keyboard, flexibly, securely and in real-time.real time. Using our products, individuals can interact through a natural meeting experience, allowing groups to work together effectively and disseminate vital information quickly in a secure environment.
The accompanying unaudited condensed consolidated financial statements include the accounts of Ezenia and its wholly-owned subsidiaries. In the opinion of management, these financial statements contain all normal and recurring adjustments necessary for a fair presentation of the results of these interim periods. Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although we believe the disclosures in these financial statements are adequate to make the information presented not misleading. These financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.2009. The results of operations for the interim periods shown are not necessarily indicative of the results for any future interim period or for the entire fiscal year.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities at the date of the financial statements and revenue and expenses during the reported period. Actual results could differ materially from these estimates. The accounting policies applied are consistent with those disclosed in Note 2 of our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008. We2009. The Company has evaluated all events or transactions that occurred after September 30, 2009 through November 10, 2009.the date of this filing. During this period, nowe did not have any material subsequent events came tothat impacted our attention.consolidated financial statements.
2. Revenue Recognition
Product revenue consists of sales of InfoWorkSpace (“IWS”) software licenses and maintenance agreements, IWS product relatedproduct--related training, installation, and consulting. Revenue from sales of IWS software licenses and maintenance agreements is recognized ratably over the subscription software license contract periods,period, which areis generally one year. Revenue from IWS training, installation, and consulting services is recognized as the services are performed because we believe we have established vendor specific objective evidence of fair value based on the price charged when the services are sold separately.
Product development revenue relates to contracts involving customization of the IWS product according to customer specifications. When reliable estimates are available for the costs and efforts necessary to complete the product development and the contract does not include contractual milestones or other acceptance criteria, product development revenue is recognized under the percentage of completion contract method based upon input measures, such as hours. When such estimates are not available, we defer all revenue recognition until we have completed the contract and have no further obligations to the customer. Revenue associated with contracts for product development with milestone-based deliverables requiring a customer’s acceptance is recognized upon the customer’s acceptance in accordance with the terms of the contract. The cost associated with these deliverables or milestones is deferred until the terms of acceptance are satisfied and revenue is recognized. Certain of our product development contracts are subject to government audit and retroactive adjustment of the direct and indirect costs used to determine the contract billings. Product development revenue and accounts receivable reported in the financial statements are recorded at the amount expected to be received. Product development revenue is adjusted to actual upon final audit and retroactive adjustment. Estimated contractual allowances are provided based on
management’s evaluation of current contract terms.
Product and software licenses are sold without any contractual right of return by the customer. Deferred revenue represents amounts received from customers under subscription software licenses and maintenance agreements, or for product sales in advance of revenue recognition. Judgments are required in evaluating the creditworthiness of our customers. In all instances, revenue is not recognized until we have determined, at the outset of the arrangement, that collectability is reasonably assured. Amounts billed to customers related to shipping and handling charges are recorded upon shipment and the related costs are included in cost of goods sold.
3. Share-Based Compensation
We account for share-based compensation as costs to be recognized for equity or liability instruments based on the fair value on the grant date, with expense recognized during the period over the periods thatwhich an employee provides service in exchange for the award and requires us toaward. We estimate forfeitures at the grant date. Total share-based compensation cost was $172,000$85,000 and $149,000$172,000 for the three months ended September 30, 2010 and 2009, respectively, and 2008, respectively,$375,000 and $543,000 and $487,000 for the nine months ended September 30, 2010 and 2009, and 2008, respectively. In July 2009, the Company granted 64,000 options to non-employees. The expense related to these options is immaterial, and is included in general and administrative expense on the accompanying statements of operations.
A summary of stock option activity under all of our stock option plans for the nine months ended September 30, 20092010 is as follows:
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| Weighted Average |
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| Number |
| Weighted Average |
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| Number |
| Exercise Price |
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| of Shares |
| Exercise Price |
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| of Shares |
| Fair Value |
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Options outstanding, December 31, 2008 |
| 3,239,157 |
| $ | 2.52 |
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Options outstanding, December 31, 2009 |
| 3,499,725 |
| $ | 1.61 |
| ||||||
Granted |
| 875,050 |
| 0.09 |
|
| 80,000 |
| 0.11 |
| ||
Exercised |
| — |
| — |
|
| — |
| — |
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Canceled |
| (396,532 | ) | 5.09 |
|
| (451,625 | ) | 5.25 |
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Options outstanding, March 31, 2009 |
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Options outstanding, March 31, 2010 |
| 3,128,100 |
| 1.05 |
| |||||||
Granted |
| 42,000 |
| 0.16 |
|
| 1,062,000 |
| 0.12 |
| ||
Exercised |
| — |
| — |
|
| (899,853 | ) | 0.11 |
| ||
Canceled |
| (154,975 | ) | 1.63 |
|
| (136,975 | ) | 0.28 |
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Options outstanding, June 30, 2009 |
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Options outstanding, June 30, 2010 |
| 3,153,272 |
| 1.04 |
| |||||||
Granted |
| 144,000 |
| 0.18 |
|
| 300,500 |
| 0.20 |
| ||
Exercised |
| — |
| — |
|
| (3,906 | ) | 0.09 |
| ||
Canceled |
| (136,375 | ) | 2.19 |
|
| (44,437 | ) | 0.59 |
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Options outstanding, September 30, 2009 |
| 3,612,325 |
| $ | 1.58 |
| ||||||
Options exercisable, September 30, 2009 |
| 1,767,565 |
|
| 2.67 |
| ||||||
Options outstanding September 30, 2010 |
| 3,405,429 |
| 0.97 |
| |||||||
Options exercisable, September 30, 2010 |
| 2,043,094 |
| 1.40 |
| |||||||
We estimate the fair value of each option award issued under our stock option plans on the date of grant using the Black-Scholes-basedBlack-Scholes option-pricing model, that usesusing the assumptions noted in the below table. Expected volatilities are based on historical volatility of our common stock. We base the expected term of the options on our historical option exercise data with a minimum life expectancy equal to the vesting period of the option. We base the risk-free interest rate on the U.S. Treasury yield in effect at the time of the grant for a term closest to the expected life of the options.
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||
|
| 2009 |
| 2008 |
|
| 2010 |
| 2009 |
|
Expected volatility |
| 111%-126% |
| 70%-93% |
|
| 153%-177% |
| 111%-126% |
|
Risk-free interest rate |
| 1.28%-1.76% |
| 1.52%-3.35% |
|
| 0.75%-1.63% |
| 1.28%-1.76% |
|
Expected life in years |
| 4.0 |
| 4.0 |
|
| 4.0 |
| 4.0 |
|
Expected dividend yield |
| None |
| None |
|
| None |
| None |
|
Based on the above assumptions, the weighted average estimated fair value of options granted for the three months ended September 30, 2010 and 2009 was $0.18 and 2008 was $0.14 and $0.19 per share, respectively. The weighted average estimated fair value of options granted for the nine months ended September 30, 2010 and 2009 was $0.12 and 2008 was $0.08 and $0.38 per share, respectively. We estimated forfeitures related to option grants at an annual rate of 29% for both the three-month and nine-month periods ended September 30, 2009 and 2008.15%.
Other reasonable assumptions about these factors could provide different estimates of fair value. Future changes in stock price volatility, life of options, interest rates, forfeitures and dividend practices, if any, may require changes in our assumptions, which could materially affect the calculation of fair value.
Total unrecognized equity-basedshare-based compensation expense related to unvested stock options, expected to be recognized over a weighted average period of 1.461.42 years, amounted to $756,000$403,000 at September 30, 2009.2010.
4. Research and Development Costs
Costs that are incurred internally in researching and developing computer software products are charged to expense until technological feasibility has been established. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers.
Judgment is required in determining when technological feasibility of a product is established. In most cases, we have determined that technological feasibility for our software products/updatesproducts is reached shortly before the products are released to manufacturing. WithIn the exceptionfirst quarter of IWS version 3.0 released in 2006, costs incurred after2010, we determined that technological feasibility have historically nothad been material,established for our newest product, MxM Secure version 2.0 (“MxM Secure”), therefore we capitalized $130,000 of costs related to the development of the product during the nine months ended September 30, 2010. The capitalized costs will be amortized over the expected life of the product which is three years. During the three and accordingly, were expensed when incurred.nine month periods ended September 30, 2010, we recorded approximately $11,000 of amortization expense related to the capitalized software.
5. Nonqualified Deferred Compensation Plan and Fair Value Measurements
In connection with our nonqualified deferred compensation plan (the “Plan”), eligible employees may elect to defer payment of a portionup to 100% of their compensation.base and incentive compensation into the Plan. We hold these funds in a rabbi trust managed by a third-party trustee, and such fundswe are consolidated withinunder no obligation to establish a fund or reserve in order to pay the accompanying financial statements. Asbenefits under the Plan except in the event of September 30, 2009 and December 31, 2008, the fair value of thea change in control.
These short-term investments was approximately $174,000 and $133,000, respectively, and is classified as cash and cash equivalents. The corresponding liability is recorded in accrued employee compensation and benefits.
The short-term investmentsare held in thea rabbi trust and are reported at fair value using Level 1 inputs (quoted market values). as marketable securities on the accompanying condensed consolidated balance sheets. The unrealized lossesgains (losses) related to the short-term investments held atfor the nine months ended September 30, 2010 and 2009 were approximately $10,000 and 2008$41,000, respectively. The unrealized gains (losses) related to the short-term investments for the three months ended September 30, 2010 and 2009 were approximately $26,000 and $27,000, respectively. They are reported as other expenses,income (expense), and the changes into the corresponding liability are recorded in general and administrative expenses, onin the accompanying condensed consolidated statements of operations. As of September 30, 2010 and December 31, 2009, the fair value of the short-term investments and the corresponding liability were approximately $190,000 and $180,000, respectively.
6. Earnings Per Share
Shares used in computing basic and diluted earnings per share for the three months and nine months ended September 30, 20092010 and 20082009 were as follows:
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
|
| 2010 |
| 2009 |
| 2010 |
| 2009 |
|
Basic weighted-average shares outstanding |
| 14,658,217 |
| 14,608,696 |
| 14,658,217 |
| 14,641,891 |
|
| 15,559,301 |
| 14,658,217 |
| 15,147,365 |
| 14,658,217 |
|
Dilutive impact from outstanding stock options |
| — |
| — |
| — |
| — |
|
| — |
| — |
| — |
| — |
|
Diluted weighted-average shares outstanding |
| 14,658,217 |
| 14,608,696 |
| 14,658,217 |
| 14,641,891 |
|
| 15,559,301 |
| 14,658,217 |
| 15,147,365 |
| 14,658,217 |
|
Outstanding options excluded as impact is anti-dilutive |
| 3,612,325 |
| 3,417,250 |
| 3,612,325 |
| 3,417,250 |
|
| 3,405,429 |
| 3,612,325 |
| 3,405,429 |
| 3,612,325 |
|
7. Commitments and Contingencies
In December 2007, we completed the closure of our Colorado Springs facility. Wefacility and recorded a restructuring charge of $215,000reserve to cover the expectedremaining lease payments, of the abandoned facility, net of expectedestimated sublease proceeds. In 2008,Each quarter we recorded an record
additional $219,000 charge basedoccupancy costs, resulting from the difference between the amount of actual sublease income that reduces our liability and the amount of sublease income we estimated when the reserve was established. The amount of these additional occupancy costs is approximately $51,000 for the nine months ended September 30, 2010, and the corresponding liability increases the restructuring liability on management’s estimates that the facility would remain vacant for several months beyond the point at which it was initially estimated to be subleased due to the weak real estate market.our condensed consolidated balance sheets. We previously estimatedestimate that we will have to pay $215,000$98,000, net of an expected sublease rental, over the remaining lease term. Our gross remaining lease obligation on our Colorado Springs facility, including estimated operating expense, is approximately $396,000.$195,000.
The adjustments to the accrued restructuring liability related to the shutdown of the Colorado Springs facility for the nine months ended September 30, 20092010 were as follows (in thousands):
8
Restructuring balance as of January 1, 2009 |
| $ | 287 |
|
Cash payments |
| 59 |
| |
Restructuring liability at September 30, 2009 |
| $ | 228 |
|
Restructuring balance as of December 31, 2009 |
| $ | 228 |
|
Cash payments |
| (181 | ) | |
Additional occupancy costs |
| 51 |
| |
Restructuring liability at September 30, 2010 |
| $ | 98 |
|
We lease our primary facility in Nashua, New Hampshire, under an operating lease which will expire inwe have just extended until August 2010.2012. We also have office space in Sterling, Virginia, for our sales force under a lease that was recently extended towill expire in June 2013. Future minimum lease obligations at September 30, 2009,2010, under all of these non-cancelable operating leases are approximately $90,000$35,000 for the remainder of 2009, $178,000 in 2010, $132,000$70,000 in 2011, $35,000$60,000 in 2012 and $18,000 in 2013. We estimate sublease rental income for the Colorado Springs facility in the amounts of $13,000 for the remainder of 2009, $83,000 in 2010, and $64,000 in 2011.
In December 2008, our software distribution license agreement with Microsoft was amended to extend the term through June 2011 and reduce the remaining purchase commitment to $2.75 million, $154,000$1.7 million of which was satisfied during 2008.as of September 30, 2010. The amended agreement requires that we make minimum additional payments of $1.0 million, $1.1 millionapproximately $270,000 and $0.5 million$766,000 during 2009,the balance of 2010 and 2011, respectively. In addition to the remaining $1.0 million license purchase commitment, we have approximately $1.4 million of prepaid licenses on hand that have yet to be deployed to customers. As of September 30, 2009,2010, we reviewed our forecast for license sales through the amended term (June 2011) and believe that the $1.45 million excess purchase commitment reserve that was established during the year ended December 31, 2007, remains appropriate. The computation of the excess purchase commitment reserve requires management to make certain assumptions regarding future license renewals and sales growth. Actual results may differ materially from management’s estimates.
8. Related-Party Transactions
During 2007, we engagedPayments to two companies previously owned by one of our Directors, Selbre Associates and EC America, amounted to approximately $22,500 in each of the Carmen Group, Inc. (the “Carmen Group”nine-month periods ended September 30, 2010 and 2009. The two companies provide General Services Administration (“GSA”) as consultants to assistcontract management and consulting in the development and implementationmarketing of a strategy for marketing our products to the Federal purchasers within the Department of Defense and appropriate adjacent markets. The President of the Carmengovernment. These two companies were sold to Immix Group is the son of a member of our Board of Directors. We terminated the agreement with the Carmen Group during the fourth quarter of 2008. For the three months and nine months ended September 30, 2008, the Company paid the Carmen Group $75,000 and $225,000, respectively, for consulting services. The consulting service expense is included as a component of sales and marketing expenses on the accompanying condensed consolidated statements of operations.in 2009.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
This Form 10-Q, and other information provided by us or statements made by our directors, officers or employees from time to time, may contain “forward-looking” statements and information, which involve risks and uncertainties. Statements indicating that we “expect,” “estimate,” “believe,” “are planning,” or “plan to,” are forward-looking, as are other statements concerning our business focus, strategic initiatives, product development initiatives, new product launches, changes in the competitive landscape, business and industry trends, future financial results, expense control initiatives, changes in and maintenance of our customer base and the potential development of new business, changes in our relationship with Microsoft and related purchase commitment reserve, our ability to generate cash and to meet our working capital needs, and other events that have not yet occurred. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements. Factors that may cause such differences include, but are not limited to, our ability to maintain or accurately forecast revenue growth or to anticipate and accurately forecast a decline in revenue from any of our products or services, customer acceptance of our IWS version
3.0 and MxM Secure, version 2.0, our ability to compete in an intensely competitive market, our ability to develop and introduce new products or product enhancements on schedule and that respond to customer requirements and rapid technological change, our dependence on the U.S. government as our largest customer, budgetary constraints within the defense and intelligence communities or the redirection of such budgeted funds, new product introductions and product enhancements by competitors, our ability to select and implement appropriate business models, plans and strategies and to execute on them, our ability to identify, hire, train, motivate, and retain highly qualified management/other key personnel and our ability to manage changes and transitions in management/other key personnel, the impact of global economic and political conditions on our business, and unauthorized
9
use or misappropriation of our intellectual property, as well as the risk factors discussed in Part I-Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, Part II-Item 1A of this Quarterly Report on Form 10-Q,2009 and in other periodic reports filed with the Securities and Exchange Commission. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation to publicly update or revise any such statement to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements.
Overview
For the quarter ended September 30, 2009,2010, revenue declined approximately 53% or $926,000 from $1,745,00022% as compared to $819,000 for the same period in 2008,2009, operating loss was approximately $901,000,($675,000), and basic loss per share was ($0.06)0.04), up $0.01an improvement of $0.02 per share, when compared to the ($0.05)0.06) loss per share for the quarter ended September 30, 2008.2009. Revenue relating to our Infoworkspace, or IWS, product declined approximately 53%19% for the quarter ended September 30, 2010 as compared to the same period in 2009. Product development revenue was $25,000 for the quarter ended September 30, 2009 as compared towith no product development revenue in the same period in 2008, while2010. The reduction in revenue is primarily attributed to a decrease in renewals and sales from certain Department of Defense, or DoD, customers as well as budgetary consolidations and the promotion of competing solutions by the Defense Information Systems Agency, or DISA, including a collaborative product being sponsored and offered for free by DISA to these customers. Even though our product developmentexpense ratios were unfavorable as a result of the decline of revenue, decreased 62%we continued to focus on expense control,with operating expenses decreasing to approximately $1.1 million (including approximately $95,000 in share-based compensation and depreciation expenses) for the quarter ended September 30, 20092010 as compared to the same period in 2008. We continue to feel the negative impact of the budgetary constraints within the Department of Defense (“DOD”) as well as experiencing delays to several major project opportunities that we have been pursuing. In addition, the previously established Defense Information System Agency’s (“DISA”) initiative continues to adversely impact our sales of new and renewal licenses. Operating expenses for the quarter ended September 30, 2009 totaled $1,450,000, a decline of $373,000 or 20% from the quarter ended September 30, 2008. While operating expenses as a percentage of revenue increased due to the significant decline of revenue, we continue to focus on expense control.Operating expenses decreased to approximately $1.45$1.5 million (including approximately $205,000 in share-based compensation and depreciation expenses) for the quarter ended September 30, 2009 as compared to approximately $1.8 million (including approximately $193,000 in share-based compensation and depreciation expenses) for the same quarter in 2008.2009.
We continue to concentrate on enhancing our existing collaborative situational awareness product and service offerings. We continue our efforts to defend and reestablishre-establish our customer base within the military and intelligence community by pursuing new opportunities with various agencies and first responders. Our sales organization, advisors and partners are focusing on new sales activities in adjacent markets, re-energizing existing partnerships and fostering new relationships with strategic resellers and system integrators. Competition for the market for multi-media collaboration products, for military and commercial applications, however, remains highly competitive and has been negatively impacted by current economic and market conditions.
In May 2010 we announced our new MxM Secure software product dedicated to real-time secure messaging and information sharing for both the commercial and federal markets. MxM Secure is the culmination of over four years of development and incorporates our knowledge and experience into an intuitive, secure and elegant product for both marketplaces. The lessons we have learned from our deployment of our flagship product line, IWS, for use by the DoD and intelligence agencies was leveraged at every possible opportunity in the creation of MxM Secure. Architected and designed from the ground up, MxM Secure provides granular depth and flexible breadth of data protection and audit capabilities with extensive security capabilities as robust as in IWS. However, MxM Secure is optimized for simplicity of use, user configurable graphical interface, adaptable configuration of functionality, and ease of deployment either on premise or hosted models of deployment/use.
MxM Secure is an ideal fit for organizations that want to communicate and collaborate in real-time but need to satisfy regulatory compliance or for those organizations with a keen and urgent interest in securing company information such as trade secrets, sensitive negotiations, corporate policies, privacy concerns, and/or protection of their corporate digital reputation.
Our goal is to return to profitability as expeditiously as possible, while balancing prudent investments against expense control. We anticipate continued downward pressure on revenue due to current adverse economic conditions which have lengthened the business development and sales activities on both the federal and commercial segments of our business.
Results of Operations
Three Months Ended September 30, 20092010 Compared to the Three Months Ended September 30, 20082009
Revenue: RevenueProductrevenue declined 53%19% to approximately $819,000$640,000 for the quarter ended September 30, 20092010 from approximately $1.7 million$794,000 for the quarter ended September 30, 2008.2009. We believe that the decline in IWS revenue is primarily the result of budgetary constraints and uncertainties within the DOD,DoD, as well as the redirection of internalinformation technology, (“IT”)or IT, purchases due to the Net-Centric Enterprise Services, (the “NCES”)or NCES, programs administered by DISA as described above. ProductWe received no product development revenue amountedfor the quarter ended September 30, 2010, as compared to product development revenue of $25,000 for the quarter ended September 30, 2009 as compared to $65,000 for the quarter ended September 30, 2008. This revenue in 2008 was primarily attributable to our completion of the audits of our development projects for the years 2004 through 2007 and the release of associated revenue-related reserves.2009.
Gross Profit: Cost of revenue includes material costs, costs of third-party software licenses, assembly labor and overhead, customer support costs, and engineering and development costs associated with product development revenue. Gross profit as a percentage of revenue was approximately 60% for the quarter ended September 30, 2010 as compared to approximately 67% for the quarter ended September 30, 2009 as compared to approximately 62% for the quarter ended September 30, 2008. This 5% increase2009. The 7% decline in gross profit percentage was primarily due to the declineincrease in costs of third-party
10
Table software licenses, the initial amortization of Contents
the capitalized MxM Secure software licenses.development costs and other fixed costs.
Research and Development: Research and development expense includesexpenses include payroll, employee benefits, other headcount-related costs, and miscellaneous costs associated with product development. Research and development expenses declined by 15%50% to approximately $228,000 for the quarter ended September 30, 2010 from approximately $454,000 for the quarter ended September 30, 2009 from approximately $533,000 for the quarter ended September 30, 2008.2009. This decrease is primarily attributable to decreased spending on consulting expenses and employee-related compensation costs.reductions in headcount in late 2009.
Sales and Marketing: Sales and marketing expenses include payroll, employee benefits, and other headcount-related costs as well asassociated with sales and marketing personnel, advertising, tradeshows, seminars, and other marketing-related programs. Sales and marketing expenses declinedincreased by 48%10% to approximately $322,000 for the quarter ended September 30, 2010 from approximately $293,000 for the quarter ended September 30, 2009 from approximately $565,000 for the quarter ended September 30, 2008.2009. The decreaseincrease is primarily attributable to a decrease in sales and marketing headcount resulting in a decrease in employee-related compensation costs offset by the addition of consultants to expand our presence in the market and consultant expenses and exercised travel expense control.the launching of our new product MxM Secure.
General and Administrative: General and administrative expenses include payroll, employee benefits, other headcount-related costs associated with the finance, human resources, management information systems, and other administrative headcount, legal and investor relations costs, and other administrative fees. General and administrative expenses increaseddeclined by 21%29% to approximately $429,000 for the quarter ended September 30, 2010 as compared to approximately $603,000 for the quarter ended September 30, 2009, as compared to approximately $497,000 for the quarter ended September 30, 2008, primarily due to an increasea decline in employee-related compensation costs, life insurance expenses and deferredshare based compensation costs which is the result of stock market gains.costs.
Occupancy and Other Facilities-Related Expenses: Occupancy and other facilities-related expenses include rent expense and other operating costs associated with our facilities.headquarters facility located in Nashua, New Hampshire, and sales office located in Sterling, Virginia. Occupancy costs decreased by 18%remained flat quarter to approximately $67,000 during the three-month period ended September 30, 2009 as compared to approximately $82,000 for the corresponding period of the previous year. The decrease in spending was primarily due to a reduction in operating expenses.quarter.
Interest Income: Interest income consists of interest income on cash and cash equivalents. Interest income decreased to approximately $10,000$4,000 for the three months ended September 30, 20092010 from approximately $37,000$10,000 for the three-month period ended September 30, 2008.2009. This decrease is due to a decline in interest rates and a lower average cash balance on hand.
Other Expense:Income (Expense): For the quarter ended September 30, 2009,2010, we had other income of $27,000$26,000 compared to other expenseincome of $38,000$27,000 for the quarter ended September 30, 2008. The decrease is a result2009. This difference
results from unrealized gains on short-term investments.
Nine Months Ended September 30, 20092010 Compared to the Nine Months Ended September 30, 20082009
Revenue: Revenue declined 49%24% to approximately $2.1 million for the nine months ended September 30, 2010 from approximately $2.7 million for the nine months ended September 30, 2009 from approximately $5.3 million for the nine months ended September 30, 2008.2009. We believe that the continued decline in IWS revenue is primarily the result of budgetary constraints uncertainties and delaysuncertainties within the DOD. We also believe thatDoD, as well as the redirection of IT purchases due to the NCES programs administratedadministered by DISA continues to negatively impact our revenue initiatives. Productas described above. We received no product development revenue was approximately $59,000 infor the first nine months of 2009ended September 30, 2010, as compared to approximately $82,000 inproduct development revenue of $59,000 for the first nine months of 2008. This revenue in 2008 was primarily attributable to our completion of the audits of our development projects for the years 2004 through 2007 and the release of associated revenue-related reserves.ended September 30, 2009.
Gross Profit: Cost of revenue includes material costs, costs of third-party software licenses, assembly labor and overhead, customer support costs, and engineering and development costs associated with product development revenue. Gross profit as a percentage of revenue was approximately 62% for the nine months ended September 30, 2010 as compared to approximately 58% for the nine months ended September 30, 2009 as compared to approximately 62% for the nine months ended September 30, 2008. This decline2009. The 4% increase in gross profit percentage was primarily due to the decline in IWS revenue, while certain costs remained fixed.of third-party software licenses.
Research and Development: Research and development expenses include payroll, employee benefits, other headcount-related costs, and miscellaneous costs associated with product development.
11
Research and development expenses declined by 12%51% to approximately $1,414,000$695,000 for the nine months ended September 30, 20092010 from approximately $1,598,000$1.4 million for the nine months ended September 30, 2008.2009. This decline was a resultdecrease is attributable to reductions in headcount in late 2009 and the capitalization of expense control on supplies, recruiting and consulting costs.$130,000 of engineering labor for our new product, MxM Secure.
Sales and Marketing: Sales and marketing expenses include payroll, employee benefits, and other headcount-related costs associated with sales and marketing personnel, advertising, tradeshows, seminars, and other marketing-related programs. Sales and marketing expenses declinedincreased by 50%8%, to approximately $894,000 for the nine months ended September 30, 2010 from approximately $827,000 for the nine months ended September 30, 2009, from approximately $1.7 million for the nine months ended September 30, 2008, due to a decline in employee-related compensation costs offset by the resultaddition of fewer sales people, a reductionconsultants to expand our presence in consulting costs, specifically the Carmen Group,market and other cost containment practices.in connection with the launch of our new product MxM Secure.
General and Administrative: General and administrative expenses include payroll, employee benefits, other headcount-related costs associated with the finance, human resources, management information systems, and other administrative headcount, legal and investor relations costs, and other administrative fees. General and administrative expenses increased 7%declined by approximately 16% to $1.6 million for the nine months ended September 30, 20092010 as compared to the nine months ended September 30, 2008, with expenses2009 of approximately $1.9 million during the nine-month period ended September 30, 2009 as compared to approximately $1.7 million for the nine months ended September 30, 2008.million. The increasedecline in expenses was primarily due to increasesdeclines in employee-related compensation costs, share based compensation expense and deferred compensation costs which are the result of stock market gains.life insurance expenses offset by increases in legal expenses associated with our Colorado lease and stockholder negotiations.
Occupancy and Other Facilities-Related Expenses: Occupancy and other facilities-related expenses include rent expense and other operating costs associated with our headquarters facility in Nashua, New Hampshire, and our sales and development office in Sterling, Virginia. Occupancy costs declinedincreased by 18%11% to approximately $199,000$221,000 during the nine-monthnine month period ended September 30, 20092010 as compared to approximately $244,000$199,000 for the corresponding period in 2008.2009. The declineincrease in spending was primarily due to additional expenses related to the vacated Colorado Springs facility, resulting from the difference between estimated and actual sublease income, offset by a reduction in operating expenses.
Interest Income, net: Interest income, net consists of interest income on cash and cash equivalents and marketable securities.equivalents. Interest income, net, declined to approximately $40,000$11,000 for the nine months ended September 30, 20092010 from approximately $129,000$40,000 for the nine-monthnine month period ended September 30, 2008.2009. The decline was due to a reduction in the interest rate during the nine months ended September 30, 20092010 as compared to the nine months ended September 30, 2008,2009, along with a lower cash balance.
Other Income (Expense): Other income (expense) consists primarily of unrealized gains (losses) on short-term investments. For the nine months ended September 30, 2008,2009, we recorded $60,000 in expensea $10,000 gain while we recorded a gain of $41,000 in the same period of 2009.2010 due to the changes in the fair value of these investments.
Liquidity and Capital Resources
At September 30, 2009,2010, we had cash and cash equivalents on hand of approximately $5.3$3.0 million. We incurred a loss from operations of approximately $901,000$675,000 for the three months ended September 30, 2009,2010, and a net loss for the quarter of approximately $864,000.$645,000. We incurred an operating loss of approximately $2.2 million and a net loss of approximately $2.2 million for the nine months ended September 30, 2010, as compared to an operating loss of approximately $2.8 million and a net loss of approximately $2.8 million for the nine months ended September 30, 2009.
In the nine-month period ended September 30, 2009,2010 we used cash from operations of approximately $1.5$1.1 million compared to using cash of approximately $1.3$1.5 million for the nine months ended September 30, 2008.2009. The cash used from operations for 2010 is primarily the result of an increase in prepaid software licenses and the net loss offset by an increase in accounts receivable and deferred revenue. The cash used from operations for 2009 is primarily athe result of the net loss and a reductiondecline in deferred revenue, offset by decreasesa decline in accounts receivable prepaid software licenses, and increasesby an increase in accounts payable.
We invested approximately $37,000$130,000 in propertycapitalized labor for our new product, MxM Secure, and equipment and did not generate cashgenerated approximately $96,000 from financing activities due to proceeds from sales of our common stock via exercise of employee stock options pursuant to our various stock option plans during the first nine months of 2009.ended September 30, 2010.
Our contractual obligations relate primarily to our facilities leases and a contractual purchase commitment. We lease our primary facility in Nashua, New Hampshire, under an operating lease, which was recently extended and expires in August 2010.2012. We also have a lease for office space in Sterling, Virginia, for sales and technical support operations, which was recently extended toexpires in June 2013. We ceased operations atA portion of the space under our Colorado Springs facility in the fourth quarter of 2007is subleased through November 2011 and no longer occupy those premises. We have initiated discussions with the landlord and its representatives to negotiate a settlement of the remaining liability under the lease. We can make no assurances regarding the outcome of these discussions or the timing of any future
12
payments with respect to this lease.portion is currently available for subleasing as we have ceased operations there.
In December 2008, our software distribution license agreement with Microsoft was amended to extend the term through June 2011 and reduce the remaining purchase commitment to $2.75 million, $154,000$1.7 million of which was satisfied during 2008.as of September 30, 2010. The amended agreement requires that we make minimum additional payments of $1.0 million, $1.1 millionapproximately $270,000 and $0.5 million$766,000 during 2009,the balance of 2010 and 2011, respectively. In addition to the remaining $1.0 million license purchase commitment, we have approximately $1.4 million of prepaid licenses on hand that have yet to be deployed to customers. As of September 30, 2009,2010, we reviewed our forecast for license sales through the amended term (June 2011) and believe that the $1.45 million excess purchase commitment reserve that was established during the year ended December 31, 2007, remains appropriate. The computation of the excess purchase commitment reserve requires management to make certain assumptions regarding future license renewals and sales growth. Actual results may differ materially from management’s estimates.
We include standard intellectual property indemnification provisions in our licensing agreements in the ordinary course of business. Pursuant to our product license agreements, we will indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally business partners or customers, in connection with certain patent, copyright, or other intellectual property infringement claims by third parties with respect to our products. Other agreements with our customers provide indemnification for claims relating to property damage or personal injury resulting from the performance of services by us or our subcontractors. Historically, our costs to defend lawsuits or settle claims relating to such indemnification provisions have been insignificant. Accordingly, the estimated fair value of these indemnification provisions is immaterial.
In May 2003, after failing to comply with certain continued listing standards for the NASDAQ SmallCap Market, including maintaining a minimum bid price of at least $1.00 per share, and the requirement to have a minimum of $2.5 million in stockholders’ equity, we received a delisting notification from NASDAQ. After exercising our right for an appeal of this determination to a NASDAQ Listing Qualifications Panel, the Panel determined to delist our securities from The NASDAQ Stock Market in August 2003. Since then, our common stock has been quoted on the OTC Bulletin Board. The market value and liquidity of our common stock, as well as our ability to raise additional capital, has been and may continue to be materially adversely affected by this delisting decision.
Operating costs were in line with our expectationsdeclined 22% to approximately $3.5 million for the nine months ended September 30, 2009. Operating costs declined 20%2010, as compared to approximately $4.4 million for the nine months ended September 30, 2009 as compared to approximately $5.5 million for the nine months ended September 30, 2008.2009. Expenses were lower in all-areas except for a slight increase in generalsales and administrativemarketing expenses, with the largest decline in salesresearch and marketing.development. The sales and marketing decline in engineering expenses was the result of reducingthe capitalization of engineering labor for our use of consultantsnew product, MxM Secure, and a reduction in employee-relatedemployee compensation costs.
Order bookings, which are purchase orders placed by customers, are not recognized as revenue until all requirements of that order are satisfied, although the cash flow received from these orders may more closely follow the receipt date of the order. Our cash balance decreaseddeclined by approximately $1.5$1.2 million for the nine months ended September 30, 20092010 with cash on hand at the end of the period of approximately $5.3$3.0 million. Management believes that its existing cash resources will be sufficient to fund its anticipated working capital and capital expenditure needs for at least the next twelve months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
To date, we have not utilized derivative financial instruments or derivative commodity instruments. We invest cash in highly liquid investments, consisting of highly rated U.S. and state government securities, commercial paper, mutual funds and short-term money market funds. These investments are subject to minimal credit and market risk and we have no debt other than our contractual lease obligations. A 10% change in interest rates would not have a material impact on our financial position, operating results or cash flows. We have closed our foreign offices, and sales to foreign customers are in U.S. dollars. Therefore, we have no significant foreign currency risk.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”),or the Exchange Act, as of September 30, 2009,2010, our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure
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controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level to ensure that the information required to be disclosed in the reports filed or submitted by us under the Exchange Act was recorded, processed, summarized, and reported within the requisite time periods, including ensuring that such material information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20092010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
From time to time, we are subject to a variety of claims and suits that arise in the ordinary course of business. While we cannot predict the outcome of these matters, we believe that the outcome will not materially affect our business, financial position or results of operations.
For factors that could affect our business, results of operation and financial condition, see the discussion of risk factors contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008.2009. There were no material changes in these risk factors for the period ended September 30, 2009.2010.
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31.1* |
| Certification of Khoa D. Nguyen, |
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31.2* |
| Certification of |
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32.1** |
| Certification of Khoa D. Nguyen, |
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32.2** |
| Certification |
* Filed herewith
** Furnished herewith
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Copies of any of these exhibits are available without charge upon written request to Investor Relations, Ezenia! Inc., 14 Celina Avenue, Suite 17-18, Nashua, NH 03063.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EZENIA! INC.
(Registrant)
Date: November | By: | /s/ Khoa D. Nguyen |
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| Khoa D. Nguyen |
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| Chairman and Chief Executive Officer, |
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| (principal executive officer) |
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Date: November | By: | /s/ |
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|
|
| Chief Financial Officer and Secretary |
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| (principal financial and accounting officer) |
Exhibits
Index
31.1* | Certification of Khoa D. Nguyen, Chairman and Chief Executive Officer of the Company, filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). | |
31.2* | Certification of Thomas J. McCann, Chief Financial Officer of the Company, filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). | |
32.1** | Certification of Khoa D. Nguyen, Chairman and Chief Executive Officer of the Company, furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). | |
32.2** | Certification of Thomas J. McCann, Chief Financial Officer of the Company, furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
* Filed herewith
** Furnished herewith