x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
DELAWARE
|
84-1108035
|
|
(State
or other jurisdiction of
|
(I.R.S.
employer
|
|
incorporation
or organization)
|
identification
no.)
|
Page
|
||||
PART
I. Financial Information:
|
||||
Item
1.
|
Financial
Statements
|
1
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
2
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
7
|
||
Item
4T.
|
Controls
and Procedures
|
8
|
||
PART
II. Other Information:
|
8
|
|||
Item
1.
|
Legal
Proceedings
|
8
|
||
Item1A.
|
Risk
Factors
|
9
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
9
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
9
|
||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
9
|
||
Item
5.
|
Other
Information
|
9
|
||
Item
6.
|
Exhibits
|
10
|
||
Signatures
|
11
|
Consolidated
Balance Sheets
|
F-1
|
|
Consolidated
Statements of Operations and Comprehensive Loss
(Unaudited)
|
F-2
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
F-3
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
F-5
|
|
December 31,
|
June 30,
|
|
|||||
|
2009
|
2009
|
|
|||||
|
(Unaudited)
|
|
||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
2,075
|
$
|
1,663
|
||||
Accounts
receivable, net of allowance of $109 and $87
|
3,024
|
2,154
|
||||||
Inventories
|
444
|
318
|
||||||
Prepaid
expenses and other current assets
|
377
|
507
|
||||||
Total
Current Assets
|
5,920
|
4,642
|
||||||
Property
and Equipment, Net
|
968
|
1,028
|
||||||
Other
Assets
|
||||||||
Goodwill
|
9,293
|
9,548
|
||||||
Amortizable
intangible assets, net
|
3,165
|
3,566
|
||||||
Software
development costs, net
|
1,635
|
1,691
|
||||||
Other
long-term assets
|
86
|
179
|
||||||
Total
Assets
|
$
|
21,067
|
$
|
20,654
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$
|
1,618
|
$
|
1,386
|
||||
Accrued
expenses and other
|
4,385
|
3,162
|
||||||
Payroll
and other taxes
|
333
|
278
|
||||||
Derivative
liabilities
|
243
|
-
|
||||||
Current
portion of long-term debt, net of debt discount
|
5,933
|
1,598
|
||||||
Current
portion of deferred revenue
|
432
|
482
|
||||||
Taxes
payable
|
633
|
708
|
||||||
Total
Current Liabilities
|
13,577
|
7,614
|
||||||
Long-Term
Liabilities
|
||||||||
Deferred
revenue, net of current portion
|
411
|
748
|
||||||
Deferred
income taxes
|
778
|
880
|
||||||
Long-term
debt, net of current portion
|
217
|
4,713
|
||||||
Other
|
188
|
199
|
||||||
Total
Liabilities
|
15,171
|
14,154
|
||||||
Commitments
and contingencies
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock:
|
||||||||
Par
value $0.0001 per share; 10,000,000 shares authorized, none issued and
outstanding
|
-
|
-
|
||||||
Common
stock:
|
||||||||
Par
value $0.0001 per share; 150,000,000 shares authorized, 83,773,264 and
83,462,337 shares issued and outstanding, respectively
|
8
|
8
|
||||||
Additional
paid-in capital
|
29,419
|
30,219
|
||||||
Accumulated
other comprehensive loss
|
(590
|
)
|
(482
|
)
|
||||
Accumulated
deficit
|
(22,941
|
)
|
(23,245
|
)
|
||||
Total
Stockholders' Equity
|
5,896
|
6,500
|
||||||
Total
Liabilities and Stockholders' Equity
|
$
|
21,067
|
$
|
20,654
|
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
December 31,
|
December 31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
$
|
6,746
|
$
|
5,005
|
$
|
12,958
|
$
|
10,850
|
||||||||
Cost
of revenues
|
2,487
|
2,235
|
5,434
|
4,990
|
||||||||||||
Gross
profit
|
4,259
|
2,770
|
7,524
|
5,860
|
||||||||||||
Operating
expenses
|
||||||||||||||||
Research
and development
|
763
|
709
|
1,607
|
1,494
|
||||||||||||
Sales
and marketing
|
620
|
561
|
1,264
|
1,160
|
||||||||||||
General
and administrative
|
2,322
|
1,478
|
3,227
|
2,983
|
||||||||||||
Depreciation
and amortization
|
289
|
260
|
571
|
528
|
||||||||||||
Total
operating expenses
|
3,994
|
3,008
|
6,669
|
6,165
|
||||||||||||
Operating
income (loss)
|
265
|
(238
|
)
|
855
|
(305
|
)
|
||||||||||
Other
income (expense)
|
||||||||||||||||
Interest
expense
|
(352
|
)
|
(428
|
)
|
(730
|
)
|
(800
|
)
|
||||||||
Write
down of investment available-for-sale securities
|
-
|
(3,957
|
)
|
-
|
(3,957
|
)
|
||||||||||
Interest
income
|
-
|
13
|
-
|
13
|
||||||||||||
Change
in fair value of derivative liabilities
|
277
|
-
|
315
|
-
|
||||||||||||
Gain
on settlement of liability
|
-
|
-
|
50
|
-
|
||||||||||||
Other,
net
|
(1
|
)
|
11
|
(1
|
)
|
13
|
||||||||||
Total
other Net
|
(76
|
)
|
(4,361
|
)
|
(366
|
)
|
(4,731
|
)
|
||||||||
Income
(loss) before provision for income taxes
|
189
|
(4,599
|
)
|
489
|
(5,036
|
)
|
||||||||||
Provision
for income taxes
|
426
|
198
|
646
|
313
|
||||||||||||
Net
Loss
|
(237
|
)
|
(4,797
|
)
|
(157
|
)
|
(5,349
|
)
|
||||||||
Reversal
of unrealized loss on investments in available-for-sale
securities
|
-
|
1,556
|
-
|
808
|
||||||||||||
Foreign
currency translation loss
|
(234
|
)
|
(2,595
|
)
|
(108
|
)
|
(3,643
|
)
|
||||||||
Total
comprehensive loss
|
$
|
(471
|
)
|
$
|
(5,836
|
)
|
$
|
(265
|
)
|
$
|
(8,184
|
)
|
||||
Loss
per share attributed to common stockholders - basic and
diluted
|
$
|
-
|
$
|
(0.05
|
)
|
$
|
-
|
$
|
(0.06
|
)
|
||||||
Weighted
average shares outstanding - basic and diluted
|
83,765,095
|
92,814,017
|
83,630,793
|
92,773,620
|
For the Six Months Ended
|
||||||||
December 31,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$
|
(157
|
)
|
$
|
(5,349
|
)
|
||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
571
|
528
|
||||||
Write
down of investments in available-for-sale securities
|
-
|
3,957
|
||||||
Debt
discount and debt issuance cost amortization
|
315
|
409
|
||||||
Fair
value of stock issued for services
|
32
|
17
|
||||||
Gain
on settlement of liability
|
(50
|
)
|
-
|
|||||
Deferred
income taxes
|
(102
|
)
|
-
|
|||||
Change
in fair value of derivative liabilities
|
(315
|
)
|
-
|
|||||
Warrants
issued for settlement of service agreement
|
36
|
-
|
||||||
Changes
in assets and liabilities
|
||||||||
Accounts
receivable
|
(951
|
)
|
742
|
|||||
Inventories
|
(141
|
)
|
367
|
|||||
Prepaid
expenses and other assets
|
122
|
236
|
||||||
Accounts
payable
|
266
|
(1,032
|
)
|
|||||
Accrued
expenses and other liabilities
|
1,388
|
(233
|
)
|
|||||
Deferred
revenue
|
(371
|
)
|
(229
|
)
|
||||
Taxes
payable
|
(52
|
)
|
(154
|
)
|
||||
Net
cash provided by (used in) operating activities
|
591
|
(741
|
)
|
Cash flows from investing
activities:
|
||||||||
Purchase
of property and equipment
|
(68
|
)
|
(95
|
)
|
||||
Capitalized
software development costs
|
(67
|
)
|
(119
|
)
|
||||
Net
cash used in investing activities
|
(135
|
)
|
(214
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of Parent company common stock, net of cash issuance
costs
|
-
|
841
|
||||||
Proceeds
from long-term debt, net of cash issuance costs
|
-
|
500
|
||||||
Payments
on long-term debt
|
(221
|
)
|
(258
|
)
|
||||
Net
cash provided by (used in) financing activities
|
(221
|
)
|
1,083
|
|||||
Effect
of exchange rate changes
|
177
|
(777
|
)
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
412
|
(649
|
)
|
|||||
Cash
and cash equivalents, beginning of period
|
1,663
|
1,964
|
||||||
Cash
and cash equivalents, end of period
|
$
|
2,075
|
$
|
1,315
|
||||
Supplemental
disclosures of cash flow information
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$
|
414
|
$
|
373
|
||||
Income
taxes
|
$
|
175
|
$
|
104
|
||||
Supplemental disclosures of
non-cash investing and financing activities:
|
||||||||
Value
of distributed shares
|
$
|
-
|
$
|
29
|
||||
Value
of retired shares
|
$
|
-
|
$
|
2,126
|
||||
Cumulative
effect to retained earnings due to adoption of accounting
standard
|
$
|
461
|
$
|
-
|
||||
Cumulative
effect to additional paid-in-capital due to adoption of accounting
standard
|
$
|
868
|
$
|
-
|
||||
Cumulative
effect to debt discount due to adoption of accounting
standard
|
$
|
310
|
$
|
-
|
||||
Value
of warrants issued for amended debt covenants
|
$
|
-
|
$
|
15
|
||||
Issuance
of debt for property, plant, and equipment
|
$
|
-
|
$
|
403
|
||||
Gain
on sale of Parent company common stock
|
$
|
-
|
$
|
337
|
||||
Shares
of Parent company common stock remitted in exchange for Parent company
obligations
|
$
|
-
|
$
|
193
|
||||
Parent
company obligations assumed by Company
|
$
|
-
|
$
|
(140
|
)
|
|||
Loss
on settlement of Parent company obligations
|
$
|
-
|
$
|
53
|
|
·
|
Level 1 – Fair value based on
quoted prices in active markets for identical assets or
liabilities.
|
|
·
|
Level 2 – Fair value based on
significant directly observable data (other than Level 1 quoted prices) or
significant indirectly observable data through corroboration with
observable market data. Inputs would normally be (i) quoted prices in
active markets for similar assets or liabilities, (ii) quoted prices in
inactive markets for identical or similar assets or liabilities or (iii)
information derived from or corroborated by observable market
data.
|
|
·
|
Level 3 – Fair value based on
prices or valuation techniques that require significant unobservable data
inputs. Inputs would normally be a reporting entity’s own data and
judgments about assumptions that market participants would use in pricing
the asset or liability.
|
$
|
9,548,000
|
|||
Effect
of exchange rate changes
|
(255,000
|
)
|
||
Balance,
December 31, 2009
|
$
|
9,293,000
|
|
1)
|
When customer acceptance can be
estimated, expenditures are capitalized as work in process and deferred
until completion of the contract at which time the costs and revenues are
recognized.
|
|
2)
|
When customer acceptance cannot
be estimated based on historical evidence, costs are expensed as incurred
and revenue is recognized at the completion of the contract when customer
acceptance is obtained.
|
December
31
|
July
1,
|
|||||||
2009
|
2009
|
|||||||
Annual
dividend yield
|
0.0
|
%
|
0.0
|
%
|
||||
Expected
life (years)
|
1.00
- 4.00
|
4.50
|
||||||
Risk-free
interest rate
|
0.45%-2.65
|
%
|
0.54%-2.51
|
%
|
||||
Expected
volatility
|
146
|
%
|
175
|
%
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Fair
Fair value of warrants
|
-
|
$
|
-
|
$
|
235,000
|
$
|
235,000
|
|||||||||
Fair
Fair value of embedded conversion feature related to convertible
notes
|
-
|
-
|
$
|
8,000
|
$
|
8,000
|
||||||||||
Total
|
$
|
-
|
$
|
-
|
$
|
243,000
|
$
|
243,000
|
Balance
as of June 30, 2009
|
$
|
-
|
||
Cumulative
effect of adoption
|
558,000
|
|||
Change
in fair value
|
(315,000
|
)
|
||
Balance
as of December 31, 2009
|
$
|
243,000
|
December 31,
2009
|
June 30,
2009
|
|||||||
ComVest
term loan, net of debt discount of $229,000 and $303,000
|
$
|
4,771,000
|
$
|
4,697,000
|
||||
ComVest
revolver
|
1,000,000
|
1,000,000
|
||||||
Secured
notes
|
324,000
|
388,000
|
||||||
McKenna
note
|
42,000
|
150,000
|
||||||
Homann
note
|
-
|
63,000
|
||||||
Other
notes
|
13,000
|
13,000
|
||||||
6,150,000
|
6,311,000
|
|||||||
Less
current portion
|
(5,933,000
|
)
|
(1,598,000
|
)
|
||||
Long
term portion
|
$
|
217,000
|
$
|
4,713,000
|
(1)
|
On
August 1, 2007, the Company and Mr. McKenna entered into an agreement that
settled all outstanding actions by Mr. McKenna against the Company and its
subsidiaries related to the initial action against CarParts Technologies,
Inc., which is now known as ASNA. Pursuant to the settlement, the Company
paid Mr. McKenna $2,000,000 in cash, issued him an 8% promissory note in
the principal amount of $825,000, which is payable over 24 months, and
issued Mr. McKenna 1,718,750 shares of the Company’s Common Stock, which
represented $825,000 at a value of $0.48 per share (the closing price of
the Company’s Common Stock on the date of settlement). Mr. McKenna was
also entitled to warrants to purchase an equivalent number of shares of
Common Stock at the same price. Upon entering this agreement all parties
agreed to withdraw all existing litigation and claims. The Company
finalized its agreement with McKenna on December 6, 2007 and revised its
litigation accrual to $3,650,000 to reflect the settlement. The shares
were issued in August 2007. In November 2007, the Company amended the
settlement agreement and issued 1,718,750 warrants to purchase Common
Stock for $0.48 per share. The warrants were issued to replace the Common
Stock included in the settlement agreement. In February 2009, the Company
orally advised Mr. McKenna that it would reduce the monthly payment on the
note to $18,650 per month from $37,313 per month, but there is no written
amendment to the note between the Company and Mr.
McKenna. Since February 2009, the note holder has accepted the
reduced monthly payments, and has not notified the Company of any
violations of the terms and conditions of the payment agreement. The
Company expects to satisfy this obligation from free cash
flow.
|
(2)
|
The
Company entered into a settlement agreement with Mr. Arthur Blumenthal, a
former shareholder of Anderson BDG, Inc. Mr. Blumenthal’s lawsuit against
the Company’s parent ADNW emanated from an agreement Mr. Blumenthal had
with a subsidiary of the Company, ASNA (f/k/a CarParts Technologies, Inc.)
for the purchase of Anderson BDG, that had not been settled although it
was past due. The Company assumed the liability as part of a plan of
spinning off certain businesses into the Company and renegotiated the
agreement with Mr. Blumenthal, the terms of which required the Company to
make a payment of $50,000 cash and the issuance to Mr. Blumenthal and
registration of 300,000 shares of the Company’s common stock, which were
issued in fiscal 2007 and valued at $0.48 per share, (the closing price of
the Company’s common stock on the date of settlement) or $144,000. The
Company subsequently completely settled the lawsuit with Mr. Blumenthal
and repaid his notes in fiscal
2008.
|
|
|
For the Three Months
|
|
|
|
|
|
|
|
|||||||
(In thousands)
|
|
Ended December 31,
|
|
|
|
|
|
|
|
|||||||
|
|
2009
|
|
|
2008
|
|
|
Variance $
|
|
|
Variance %
|
|
||||
Research
and development
|
$
|
763,000
|
$
|
709,000
|
$
|
54,000
|
7.6
|
%
|
||||||||
Sales
and marketing
|
620,000
|
561,000
|
59,000
|
10.5
|
%
|
|||||||||||
General
and administrative
|
2,322,000
|
1,478,000
|
844,000
|
57.1
|
%
|
|||||||||||
Depreciation
and amortization
|
289,000
|
260,000
|
29,000
|
11.2
|
%
|
|||||||||||
Total
Operating Expenses
|
$
|
3,994,000
|
$
|
3,008,000
|
$
|
986,000
|
32.8
|
%
|
(In thousands)
|
|
For the Six Months
Ended December 31,
|
|
|
|
|
|
|
|
|||||||
|
|
2009
|
|
|
2008
|
|
|
Variance $
|
|
|
Variance %
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research
and development
|
$
|
1,607,000
|
$
|
1,494,000
|
$
|
113,000
|
7.6
|
%
|
||||||||
Sales
and marketing
|
1,264,000
|
1,160,000
|
104,000
|
9.0
|
%
|
|||||||||||
General
and administrative
|
3,227,000
|
2,983,000
|
244,000
|
8.2
|
%
|
|||||||||||
Depreciation
and amortization
|
571,000
|
528,000
|
43,000
|
8.1
|
%
|
|||||||||||
Total
Operating Expenses
|
$
|
6,669,000
|
$
|
6,165,000
|
$
|
504,000
|
8.2
|
%
|
|
(1)
|
On August 1, 2007 the Company and
Mr. McKenna entered into an agreement resolving all outstanding actions by
Mr. McKenna against the Company and its subsidiaries related to the
initial action against CarParts Technologies, Inc., which is now known as
ASNA. The agreement provided that the Company would pay Mr. McKenna
$2,000,000 in cash, $825,000 on a promissory note with an interest rate of
8% amortized in equal payments over a 24-month period (see Note 6) and in
addition would issue Mr. McKenna 1,718,750 shares of Common Stock of the
Company, which represented an aggregate number of shares of common stock
of the Company that the parties determined fairly represented $825,000
(assuming a price of $0.48 per share of common stock, the closing price of
the Company’s common stock on the date of settlement). Mr. McKenna was
also entitled to warrants to purchase an equivalent number of shares of
common stock at the same price, which was valued at $412,000 (using the
Black-Scholes valuation model) and recorded as an additional litigation
cost for the year ended June 30, 2007. Upon entering this agreement all
parties agreed to withdraw all existing litigation and claims. The Company
recorded the settlement with McKenna as of June 30, 2007. The shares were
issued in fiscal 2008 (see Note 6). This settlement was amended during
fiscal 2008 (see Note 6).
|
|
(2)
|
Additionally,
the Company entered into a settlement agreement with Mr. Arthur
Blumenthal, a former shareholder of Anderson BDG, Inc. Mr. Blumenthal’s
lawsuit against the Company’s parent ADNW emanated from an agreement Mr.
Blumenthal had with a subsidiary of the Company, ASNA (f/k/a CarParts
Technologies, Inc.) for the purchase of Anderson BDG, that had not been
settled although it was past due. The Company assumed the liability as
part of a plan of spinning off certain businesses into the Company and
renegotiated the agreement with Mr. Blumenthal, the terms of which
required the Company to make a payment of $50,000 cash and the issuance to
Mr. Blumenthal and registration of 300,000 shares of the Company’s common
stock, which were issued in fiscal 2007 and valued at $0.48 per share,
(the closing price of the Company’s common stock on the date of
settlement) or $144,000. The Company subsequently completely settled the
lawsuit with Mr. Blumenthal and repaid his notes in fiscal
2008.
|
Exhibit
Number
|
|
Description
|
10.1
|
Letter
Agreement between Aftersoft Group, Inc. and Commonwealth Associates LP,
with exhibits.(incorporated herein by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed January 6,
2010).
|
|
10.2
|
Separation
Agreement dated January 20, 2010 between Aftersoft Group, Inc. and Ian
Warwick (incorporated herein by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed January 22, 2010).
|
|
10.3
|
Separation
Agreement dated January 20, 2010 between Aftersoft Group, Inc. and Simon
Chadwick (incorporated herein by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed January 22,
2010).
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
Aftersoft
Group, Inc.
|
||
Date
February 11, 2010
|
By:
|
/s/ Michael Jamieson
|
Michael
Jamieson
|
||
Interim
Chief Executive Officer
(Principal
Executive Officer)
|
||
Date
: February 11, 2010
|
By:
|
/s/ Charles F. Trapp
|
Charles
F. Trapp
|
||
Chief
Financial Officer
(Principal
Financial
Officer)
|
Exhibit
Number
|
|
Description
|
10.1
|
Letter
Agreement between Aftersoft Group, Inc. and Commonwealth Associates LP,
with exhibits.(incorporated herein by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed January 6,
2010).
|
|
10.2
|
Separation
Agreement dated January 20, 2010 between Aftersoft Group, Inc. and Ian
Warwick (incorporated herein by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed January 22, 2010).
|
|
10.3
|
Separation
Agreement dated January 20, 2010 between Aftersoft Group, Inc. and Simon
Chadwick (incorporated herein by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed January 22,
2010).
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|