NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FORMATION AND BUSINESS OF THE COMPANY:
Semotus(R) Solutions, Inc. ("We" or "Our"), is a leading provider of enterprise
application software connecting employees wirelessly to critical business
systems, information, and processes. We help mobile employees make better and
faster decisions, increase customer satisfaction, and improve efficiencies in
business processes for shorter sales and service cycles. Our wireless software
products and services include our HipLinkXS family of software. Our enterprise
application software and services provide mobility, convenience, and efficiency
and improve profitability. These software solutions provide real time, event
driven alerting, mobile access and control of business-critical software
applications, databases, networks and servers.
We were formed under the laws of the State of Nevada on June 18, 1996. On June
27, 1996, we went public through an acquisition of a public corporation,
Datalink Communications Corporation ("DCC"), which was previously Lord Abbott,
Inc., a Colorado corporation formed in 1986. As a part of the transaction, we
also acquired a Canadian corporation, DSC Datalink Systems Corporation,
incorporated in Vancouver, British Columbia, which changed its name to Semotus
Systems Corp.
We currently have one wholly owned subsidiary: Clickmarks, Inc. ("Clickmarks").
All significant intercompany transactions and balances have been eliminated in
consolidation. In the year ended March 31, 2007, we closed the operations of
Expand Beyond Corporation, and Expand Beyond filed for liquidation under Chapter
7 of the U.S. Bankruptcy Code on October 15, 2007. We also transferred our
research and development activities from Vancouver, Canada to Pakistan.
Additionally, the Global Market Pro Family and other legacy wireless financial
data consumer services and software were sold to Stockgroup Systems, Ltd.
pursuant to an asset purchase agreement signed in May of 2007. Operations of
Clickmarks consist mainly of sales of software products and professional
services and support of existing software applications. Clickmarks utilizes a
patented Presentation Level Integration (PLI) technology which enables rapid
creation of composite applications and web services out of existing backend
systems, which may be delivered via web, portal, and mobile front-ends.
Clickmarks' technology has also been added to our HipLinkXS family of software
products, as well as sold as a stand-alone software solution.
2. BASIS OF PRESENTATION AND FUTURE PROSPECTS
The accompanying condensed consolidated financial statements include the
accounts of Semotus Solutions, Inc. and its subsidiaries. The condensed
consolidated balance sheet as of September 30, 2007, the condensed consolidated
statements of operations and comprehensive loss for the three and six months
ended September 30, 2007 and 2006, and the condensed consolidated statements of
cash flows for the six months ended September 30, 2007 and 2006 have been
prepared by us, without audit and in accordance with the instructions to Form
10-QSB and Regulation SB. In the opinion of our management, all adjustments
(including normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended September 30, 2007 are not necessarily indicative of the results that may
be expected for the year ending March 31, 2008. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. We
believe that the disclosures provided are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and related
notes included in our Annual Report on Form 10-KSB for the year ended March 31,
2007.
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results could differ from those estimates.
The condensed consolidated financial statements include the accounts of Semotus
Solutions, Inc. and our wholly owned subsidiary, Clickmarks. All significant
intercompany transactions and balances have been eliminated in consolidation.
Our management believes, after discontinuing all operations that were
unprofitable, that the remaining continuing operations are
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sustainable and that we will have enough cash to maintain our operations over
the next twelve months. Although those operations range from slightly cash
positive to cash negative on a monthly basis, the overall trend toward positive
cash flow is continuing. Further, with the trend toward an economic recovery,
our operations should be augmented in the current fiscal year. Our continued
operation is dependant on increasing sales and achieving profitability and/or
obtaining sufficient long-term financing.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Liabilities". This Statement permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective 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. The fair value option established by this Statement
permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity shall report unrealized gains and
losses on items for which the fair value option has been elected in earnings (or
another performance indicator if the business entity does not report earnings)
at each subsequent reporting date. This Statement is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
We do not believe that the adoption of SFAS 159 will have a material affect on
our financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" (FIN
48). FIN 48 prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We are currently evaluating the impact of
adopting FIN 48 on our financial statements.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value
Measurements (SFAS 157). The standard provides guidance for using fair value to
measure assets and liabilities. The standard also responds to investors'
requests for expanded information about the extent to which companies measure
assets and liabilities at fair value, the information used to measure fair
value, and the effect of fair value measurements on earnings. The standard
applies whenever other standards require or permit assets or liabilities to be
measured at fair value. The standard does not expand the use of fair value in
any new circumstances. SFAS 157 must be adopted prospectively as of the
beginning of the year it is initially applied. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We are currently evaluating the
impact this standard will have on our financial statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in the Current Year Financial
Statements" (SAB 108). SAB 108 addresses how the effects of prior-year
uncorrected misstatements should be considered when quantifying misstatements in
current-year financial statements. SAB 108 requires an entity to quantify
misstatements using a balance sheet and income-statement approach and to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors. The guidance
is applicable for fiscal years ending after November 15, 2006. We currently do
not believe that SAB 108 will have a material impact on our financial
statements.
4. STOCK-BASED COMPENSATION
On April 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), "Share-Based Payment," requiring us to recognize expense
related to the fair value of our employee stock option awards. We recognize the
cost of all share-based awards on a straight line vesting basis over the vesting
period of the award. Total stock compensation expense recognized during the
three months ended September 30, 2007 and 2006 was $34,464 and $37,976,
respectively, and during the six months ended September 30, 2007 and 2006 was
$89,093 and $172,262, respectively.
Prior to April 1, 2006, we accounted for our stock option plans under the
recognition and measurement provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations, as permitted by SFAS
No. 123, "Accounting for Stock-Based Compensation." Effective April 1, 2006, we
adopted the fair value recognition provisions of SFAS No. 123(R), using the
modified-prospective-transition method. Under that transition method,
compensation cost recognized in 2006 includes: (a) compensation
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cost for all share-based payments granted prior to, but not yet vested as of
April 1, 2006, based on the grant date fair value estimated in accordance with
the original provisions of SFAS No. 123, and (b) compensation cost for all
share-based payments granted subsequent to April 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123(R). Results for prior periods have not been restated.
As a result of adopting SFAS 123(R) on April 1, 2006, our income before income
taxes and net income for the six month period ended September 30, 2006, was
$31,301 lower than if we had continued to account for share-based compensation
under Opinion 25. Basic and diluted earnings per share would have been $(0.01)
and $(0.03) for the three month and six month periods ended September 30, 2006,
if the Company had not adopted SFAS No. 123(R). Prior to the adoption of SFAS
No. 123(R), we presented all tax benefits of deductions resulting from the
exercise of stock options as operating cash flows in the Statement of Cash
Flows. Beginning on April 1, 2006 we changed our cash flow presentation in
accordance with SFAS No. 123(R) which requires the cash flows resulting from the
tax benefits resulting from tax deductions in excess of the compensation cost
recognized for those options (excess tax benefits) to be classified as financing
cash flows.
We have estimated the fair value of our option awards granted after April 1,
2006 using the Black-Scholes option valuation model that uses the assumptions
noted in the following table. Expected volatilities are based on the historical
volatility of our stock. We use actual data to estimate option exercises,
forfeitures and cancellations within the valuation model. The expected term of
options granted is 4 years and represents the period of time that options
granted are expected to be outstanding. The risk-free rate for periods within
the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
Fiscal Year Fiscal Year
Ended Ended
March 31, March 31,
Black-Scholes -Based Option Valuation Assumptions 2007 2008
-------------------------------------------------- ---- ----
Fair value of options granted during the period $ 2.96 $1.40
Expected term (in years) 4 years 4 years
Expected volatility 95.68% 94.51%
Weighted average volatility 95.68% 94.51%
Expected dividend yield -- --
Risk-free rate 4.94% 4.56%
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The following table summarizes the stock option transactions for the three
months ended September 30, 2007 based upon a closing stock price of $0.80 per
share as of September 30, 2007.
Weighted
Average Aggregate
Stock Options Shares Price Intrinsic Value
------------- ------ ----- ---------------
Outstanding at July 1, 2007 242,403 $ 4.45 $ --
Granted 17,000 1.00 9,520
Exercised -- -- --
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Forfeited (1,750) 4.37 --
(6,980) 3.40 --
Expired
Outstanding at September 30, 2007 250,673 4.25 --
Exercisable at September 30, 2007 192,749 4.68 --
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There were no options exercised in the three months ended September 30, 2007.
5. EARNINGS PER SHARE (EPS) DISCLOSURES
In accordance with SFAS No. 128 "Earnings per Share" (EPS), we report Basic and
Diluted EPS as follows: Basic EPS is computed as net income (loss) divided by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur from common shares issuable
through stock options, warrants and other convertible securities. Common
equivalent shares are excluded from the computation of net loss per share if
their effect is anti-dilutive.
For the three and six months ended September 30, 2007, 177,853 potential shares
were included in the shares used to calculate diluted EPS, as their effect is
dilutive, and 527,437 potential shares were not included in the shares used to
calculate diluted EPS, as their effect is not dilutive due to the fact that the
exercise prices of all of our options and warrants are greater than the average
market price of our stock over the three and six month periods ended September
30, 2007.
For the three and six months ended September 30, 2006, 9,737,533 potential
shares, were excluded from the shares used to calculate diluted EPS as their
effect is anti-dilutive.
6. AMEX DEFICIENCY
We received a deficiency letter from the American Stock Exchange (Amex) dated
July 14, 2006, advising that, based upon its review of our financial statements
included in our Annual Report on Form 10-KSB for the fiscal year ended March 31,
2006, we are not in compliance with Amex' continued listing requirements.
Specifically, we are not in compliance with Section 1003(a)(iii) of the Amex
Company Guide, because our stockholders' equity is less than $6,000,000 and we
sustained losses from continuing operations and/or net losses in our five most
recent fiscal years.
We submitted a compliance plan to Amex in August of 2006 which outlines our
plans to regain compliance with Amex' continued listing requirements. Since that
time, we have provided updates and amendments to our original compliance plan.
The plan was approved on November 15, 2006. Therefore, our listing is being
continued pursuant to an extension period that was to end concurrent with the
closing of the merger with Citytalk, Inc. However, all contractual extensions
with Citytalk have expired, and we have decided to pursue other alternatives to
the merger with Citytalk and NTCH. To maintain our listing, we are subject to
periodic review by AMEX staff during this extension period. If we do not make
progress consistent with our plan, the AMEX will initiate delisting proceedings
pursuant to Section 1009 of the AMEX Company Guide.
As of September 30, 2007 our total stockholders' equity was greater than
$6,000,000, at $6,674,358 and our net income for the six months ended September
30, 2007 was $3,471,805.
7. BANK LINE OF CREDIT
On September 30, 2004 we entered into a loan and security agreement with a
medium sized local bank. As of September 30, 2006, there was an outstanding
balance of $100,000 under this line of credit. On March 5, 2007, we terminated
the agreement and there was nothing outstanding under this line of credit.
8. STOCKGROUP ASSET SALE
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We entered into a definitive Asset Purchase Agreement and Transition Services
Agreement on May 8, 2007 with Stockgroup Systems, Ltd. ("Stockgroup"), relating
to the sale of our wireless financial information assets (the "Agreement"). As
part of the Agreement, we agreed to sell our financial data wireless
distribution technology and intellectual property, and the related wireless
financial data services, including the Global Market Pro family of software and
services. The purchase price for this asset sale consists of up to $350,000;
$150,000 to be paid upon the Closing and the remaining $200,000 to be paid
through a monthly revenue share of 30%, subject to a reduction to 15% should
total revenues fall below 25% within six months of Close, until $200,000 has
been paid to us or two years have passed from the date of Closing, whichever
occurs first. On May 9, 2007, we completed the above described disposition of
assets. In accordance with the Transition Services Agreement, we are continuing
to provide certain transition services to Stockgroup, including certain
accounting, administrative and technical services related to the financial data
products. As of September 30, 2007, Stockgroup owed us a total of $199,570,
comprising the unpaid balance of 158,107 from the original $200,000 purchase
price and $41,463 for transitional services provided by Semotus to date.
9. EQUITY PRIVATE PLACEMENT
We did not close any equity private placements in the six months ended September
30, 2007.
We closed an equity private placement of $560,000 on May 16, 2006. Under the
terms of the private placement, we sold to Southshore Capital Fund, Ltd. and
Southridge Partners, LP an aggregate of 3,294,118 shares of common stock at
$0.17 per share and 2,810,000 share purchase warrants. Each warrant entitles the
holder to purchase an additional share of common stock at a price of $0.30 per
share until May 16, 2011. These warrants are not exercisable until November 16,
2006. We incurred no placement agent fees, but after payment of expenses in the
amount of $45,000, we received net proceeds of $515,000. These funds will be
used to increase our sales and marketing efforts and for other general working
capital purposes.
10. MERGER AGREEMENT
We entered into a definitive Agreement and Plan of Reorganization on November
10, 2006 with Citytalk, Inc. (Citytalk), relating to the merger of Citytalk with
and into Semotus, with Semotus as the surviving corporation of the merger (the
"Merger Agreement"). All contractual extensions have expired.
11. CONVERTIBLE PROMISSORY NOTES, NET OF DISCOUNTS
We entered into an investment agreement on November 13, 2006 with an individual
investor, Richard Sullivan, Citytalk's Chairman and CEO, under which he invested
$225,000 into us in the form of a convertible promissory note (the "Convertible
Promissory Note") which may be converted by Mr. Sullivan at his discretion at
any time into shares of our restricted common stock at a conversion price of two
dollars ($2.00) per share, for a total of 112,500 shares. The closing price of
our common stock on November 13, 2006 was $2.80 per share, thereby creating a
beneficial conversion feature in the Convertible Promissory Note. Applying EITF
00-27, "Application of Issue 98-5 to Certain Convertible Instruments", the
beneficial conversion feature is calculated to be $61,277 (net of accretion of
$11,489). The Convertible Promissory Note is recorded net of the beneficial
conversion feature and the discount will be amortized over the life of the
Convertible Promissory Note. The unpaid principal shall accrue interest at 8%
per annum and all unconverted principal and interest is due and payable on
November 1, 2008. We did not incur any placement agent fees or expenses for this
$225,000 investment. These funds are being used to increase our sales and
marketing efforts and for other general working capital purposes.
This Convertible Promissory Note was converted in full on September 13, 2007 at
$2.00 per share and we issued a total of 120,000 shares of restricted common
stock, comprising of 112,500 shares for the principal of $225,000 and 7,500
shares for the accrued interest of $15,000. $51,702 in unamortized discount was
written off at the time of conversion.
We entered into another investment agreement on February 1, 2007, with an
individual investor, Miro Knezevic and Gail L. Knezevic, Co-Trustees, Knezevic
Family Trust dated June 30, 1992, relating to a cash investment of US$200,000,
taken in the form of a convertible promissory note (the "Convertible Promissory
Note") which may be converted by the investor at his discretion at any time into
shares of our restricted common stock at a conversion price equal to the lesser
of (a) two dollars ($2.00) per share and (b) a fifteen percent (15%) discount
from the closing price of our common stock calculated using the average closing
price over ten consecutive trading days immediately preceding the date the
investor gives us a conversion notice, and with a floor which is not to exceed a
total maximum potential issuance of 177,853 shares. Additionally, during the
time period beginning from February 1, 2007 and ending on the earlier of
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(a) the date the investor gives us a conversion notice and (b) February 1, 2009,
if we issue common stock or securities convertible or exercisable into stock at
a price that is less than the conversion price, then, we shall reduce a certain
number of the investor's shares from the conversion price to an adjusted price,
in proportion to the number of securities we actually issue at the adjusted
price. The closing price of Semotus' common stock on February 1, 2007 was $2.40
per share, thereby creating a beneficial conversion feature in the Convertible
Promissory Note. Applying EITF 00-27, "Application of Issue 98-5 to Certain
Convertible Instruments", the beneficial conversion feature is calculated to be
$31,667 (net of accretion of $5,000). The unpaid principal shall accrue interest
at 10% per annum and all unconverted principal and interest is due and payable
on February 1, 2009. We will incur no placement agent fees or expenses for this
investment. The issuance of the underlying shares is dependent upon the American
Stock Exchange's approval. These funds will be used to increase our sales and
marketing efforts and for other general working capital purposes. As part of the
investment, we agreed to file a registration statement with the Securities and
Exchange Commission to qualify the resale of the 177,853 maximum total shares of
common stock potentially issuable upon the conversion of the Convertible
Promissory Note.
On October 23, 2007, we amended the Note to allow for a maximum potential
issuance of up to 308,152 shares of restricted common stock upon the conversion
of the Convertible Promissory Note and piggyback registration rights for those
additional shares. On October 23, 2007, the Note was converted in full at
$0.69615 per share and we issued 308,152 shares of restricted common stock,
comprising of 287,294 shares for the principal of $200,000 and 20,858 shares for
the accrued interest of $14,520.
12. RELATED PARTY TRANSACTIONS
Effective May 1, 1996, we entered into a three year employment agreement with
our Chief Executive Officer. This agreement was extended to May 1, 2007 and
automatically renewed for one-year terms unless notice is provided by either
party. Effective July 15, 2007, the Compensation Committee agreed that we should
terminate the existing employment agreement with Mr. LaPine and enter into a new
employment agreement with Mr. LaPine for a term of three years. Under this new
employment agreement, Mr. LaPine is entitled to a base salary of $240,000 per
year, plus discretionary increases in accordance in conformity with our standard
review procedure. However, Mr. LaPine's previous voluntary decrease of $24,000
annually in compensation will continue with the same voluntary decrease in his
annual salary under the new employment agreement so that Mr. LaPine will
continue to be compensated at an annual salary of $216,000. Mr. LaPine also
receives a car allowance in the amount of $1,000 per month. Mr. LaPine is
eligible for an annual bonus, with the actual amount of bonus paid to be
determined by the Committee in its sole discretion, based upon such factors and
performance goals as the Committee deems appropriate. If Mr. LaPine's employment
is terminated by the Company without cause or by Mr. LaPine for good reason as
provided in the Agreement, or if the Company is acquired or dissolves and a new
employment agreement satisfactory to Mr. LaPine cannot be reached, all stock and
stock options of the Company then owned by Mr. LaPine which are unvested shall
become immediately fully vested, and the Company shall pay to Mr. LaPine
severance pay equal to the remaining years and/or months of his then current
base salary that are due, based on a three year agreement term.
Effective January 2005 we entered into an independent contractor agreement with
a company located in Pakistan to provide us with certain engineering services.
This Pakistani company is partially owned by Mr. Umair Khan, who was our Chief
Operating Officer from December 14, 2005 to May 5, 2006 and who was the Chairman
and President of Clickmarks, Inc., one of our wholly owned subsidiaries, from
1999 until May 5, 2006. Mr. Khan is currently on our Advisory Board and as of
September 30, 2007 held 500 options to purchase shares of our common stock at
$5.00 per share.
13. CONCENTRATIONS OF CREDIT RISK:
There was no material concentration of revenue during the three months ended
September 30, 2007. However, two customers accounted for a total of 37% of our
revenue in the six months ended September 30, 2007, representing 22% and 15%,
respectively. Four customers accounted for 46% of our accounts receivable at
September 30, 2007.
Two customers accounted for 43% of our accounts receivable at September 30,
2006, and five customers accounted for 65% of our accounts receivable at
September 30, 2006.
14. REVERSE SPLIT
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On July 20, 2007, we effected a one-for-twenty reverse stock split of our common
stock. Pursuant to the reverse stock split, each twenty shares of authorized and
outstanding common stock have been reclassified and combined into one new share
of common stock. In connection with the reverse stock split, the number of
shares of common stock authorized under our Amended Articles of Incorporation
was correspondingly reduced from 150 million to 7.5 million shares, without any
change in par value per common share. The reverse split did not change the
number of shares of our preferred stock authorized, which remains at 5 million.
15. INNOFONE TRANSACTION
On July 23, 2007, we entered into a Software License Agreement and Stock
Issuance and Registration Rights Agreement with Innofone.com Incorporated
("Innofone"), relating to a royalty free license of our HipLinkXS and Clickmarks
software applications (the "Agreement"). The consideration for this software
license consisted of $3.75 million worth of Innofone's restricted common stock
at a price we calculate as $0.19 per share, which equals 19,736,842 shares, with
demand and piggyback registration rights. We also granted Innofone an option to
buy certain assets, including the Hiplinkxs and Clickmarks software application
products, the complete terms and conditions of which were not fully defined or
agreed upon ("Asset Sale"). At a minimum, this Asset Sale would require a
payment by Innofone of $250,000 and a convertible note due from Innofone in
favor of us for $500,000. Additionally, there is a post-closing purchase price
adjustment on the Innofone stock, should the stock fall below $3.75 million in
aggregate value, in order for Stockgroup to retain its option to purchase
certain assets of Semotus.
Pursuant to the post-closing purchase price adjustment provision in the
Agreement, Innofone issued to us 26,888,158 additional shares of Innofone
restricted common stock during the quarter, for a total of 46,625,000 shares of
Innofone's restricted common stock. As of September 30, 2007 we owned
approximately 35% of Innofone, and, accordingly, the investment is being
accounted for on the equity method. For the three months ended September 30,
2007, Innofone had no revenue and a net loss of approximately $390,000. Innofone
is currently delinquent in its SEC filings and working with its auditors to find
a cost effective way to become current. Innonfone's last quarterly report was
filed with the SEC on May 21, 2007 for the three and nine months ended March 31,
2007, in which it reported total assets of $53,523,822, total liabilities of
$39,256,222 and a net loss for the three and nine months ended March 31, 2007 of
$17,156,434 and $33,601,375, respectively.
As of October 22, 2007, Innofone had not paid us $250,000, and therefore its
option to buy certain assets expired. Innofone's right of first refusal to merge
with us has also therefore expired. Innofone has a right to buy back its common
stock in cash for $3,750,000, for a period of one year from July 23, 2007,
because the contingent future transactions were not completed.
16. SUBSEQUENT EVENTS
On October 15, 2007, Expand Beyond voluntarily filed Chapter 7 bankruptcy. We
already took a full impairment on Expand Beyond's operations as of the end of
our last fiscal year, ending March 31, 2007. Expand Beyond's operations had
effectively closed and management believes this will not have any effect on the
Company's operations in the future.
As of October 22, 2007, Innofone had not paid us $250,000, and therefore its
option to buy certain assets has expired. Innofone's right of first refusal to
merge with us has also therefore expired. Please see Note 15 for more details.
On October 23, 2007, we amended the $225,000 Convertible Promissory Note to
allow for a maximum potential issuance of up to 308,152 shares of restricted
common stock upon the conversion of the Convertible Promissory Note and
piggyback registration rights for those additional shares. On October 23, 2007,
the Note was converted in full and we issued 308,152 shares of restricted common
stock. Please see Note 11 for more details.