Utah
|
87-0627421
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
20374 Seneca Meadows
Parkway, Germantown, MD
|
20876
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
|
(Do
not check if a smaller reporting company)
|
Page
|
|
EXPLANATORY
NOTE
|
2 |
PART
I. FINANCIAL INFORMATION
|
3
|
Item
1. Financial Statements (Unaudited)
|
3
|
Condensed
Consolidated Balance Sheets:
September
30, 2009 and December 31, 2008
|
3
|
Condensed
Consolidated Statements of Operations and Comprehensive Income
(Loss):
Three
And Nine Months Ended September 30, 2009 and
2008
|
4
|
Condensed
Consolidated Statement of Equity:
January
1, 2009 through September 30, 2009
|
5
|
Condensed
Consolidated Statements of Cash Flows:
Nine
Months Ended September 30, 2009 and 2008
|
6
|
Notes
to Unaudited Condensed Consolidated Financial Statements:
September
30, 2009
|
8
|
Item
2. Management’s Discussion and Analysis
|
24
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk.
|
35
|
Item
4. Controls and Procedures
|
35
|
PART
II. OTHER INFORMATION
|
36
|
Item
1. Legal Proceedings
|
36
|
Item
1A. Risk Factors
|
36
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
37
|
Item
3. Defaults Upon Senior Securities
|
37
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
37
|
Item
5. Other Information
|
37
|
Item
6. Exhibits
|
38
|
(Unaudited)
September
30,
|
December
31,
|
|||||||
ASSETS
|
2009
|
2008
|
||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
38,449
|
$
|
168,492
|
||||
Accounts
receivable, net
|
687,056
|
836,336
|
||||||
Inventories
|
1,286,296
|
1,733,940
|
||||||
Other
current assets
|
195,204
|
230,539
|
||||||
Current
assets from discontinued operations
|
-
|
476,459
|
||||||
Total
current assets
|
2,207,005
|
3,445,766
|
||||||
Property
and equipment, net
|
290,924
|
403,593
|
||||||
Other
assets:
|
||||||||
Marketable
securities
|
-
|
397,403
|
||||||
Deferred
financing costs, net
|
287,178
|
432,136
|
||||||
Goodwill
and other intangible assets, net
|
14,956,212
|
15,137,469
|
||||||
Other
assets
|
8,890
|
98,807
|
||||||
Other
assets from discontinued operations
|
-
|
6,593,169
|
||||||
Total
other assets
|
15,252,280
|
22,658,984
|
||||||
Total
Assets
|
$
|
17,750,209
|
$
|
26,508,343
|
||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$
|
3,148,184
|
$
|
2,561,213
|
||||
Accrued
liabilities and expenses
|
1,968,910
|
1,996,044
|
||||||
Line
of credit
|
449,741
|
574,005
|
||||||
Other
current liabilities
|
141,059
|
278,033
|
||||||
Current
Liabilities from discontinued operations
|
-
|
13,450,362
|
||||||
Total
current liabilities
|
5,707,894
|
18,859,657
|
||||||
Long-term
liabilities:
|
||||||||
Convertible
debentures, net of debt discounts of $538,305 and $825,585,
respectively
|
1,067,718
|
1,311,065
|
||||||
Derivative
liability
|
1,870,113
|
2,573,126
|
||||||
Note
payable
|
300,000
|
-
|
||||||
Deferred
lease liability and other
|
50,791
|
50,791
|
||||||
Total
long-term liabilities
|
3,288,622
|
3,934,982
|
||||||
Commitments
and contingencies
|
-
|
-
|
||||||
Equity
|
||||||||
Preferred
stock, par value $.001 per share; 15,000,000 shares authorized; none
issued and outstanding at September 30, 2009 and December 31,
2008
|
-
|
-
|
||||||
Common
stock, par value $.001 per share; 155,000,000 shares authorized;
96,563,771 and 87,525,495 shares issued and outstanding at
September 30, 2009 and December 31, 2008,
respectively
|
96,564
|
87,526
|
||||||
Additional
paid-in-capital
|
119,296,304
|
118,197,450
|
||||||
Accumulated
deficit
|
(110,639,175
|
)
|
(114,801,318
|
)
|
||||
Accumulated
comprehensive loss
|
-
|
(32,750
|
)
|
|||||
Total
stockholders’ equity
|
8,753,693
|
3,450,908
|
||||||
Non-controlling
interest
|
-
|
262,795
|
||||||
Total
equity
|
8,753,693
|
3,713,703
|
||||||
Total
Liabilities and Equity
|
$
|
17,750,209
|
$
|
26,508,343
|
For
The Three Months Ended
September
30,
|
For
The Nine Months Ended
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues,
net:
|
||||||||||||||||
Product
|
$
|
1,445,888
|
$
|
3,837,728
|
$
|
5,462,955
|
$
|
10,821,179
|
||||||||
Recurring
|
991,130
|
897,482
|
2,982,384
|
2,559,728
|
||||||||||||
Total
Revenue
|
2,437,018
|
4,735,210
|
8,445,339
|
13,380,907
|
||||||||||||
Cost
of Sales:
|
||||||||||||||||
Product
|
833,926
|
2,076,776
|
2,942,748
|
6,800,627
|
||||||||||||
Recurring
|
348,321
|
416,723
|
957,668
|
1,274,786
|
||||||||||||
Total
Cost of Sales
|
1,182,247
|
2,493,499
|
3,900,416
|
8,075,413
|
||||||||||||
Gross
Profit
|
1,254,771
|
2,241,711
|
4,544,923
|
5,305,494
|
||||||||||||
Operating
Expenses:
|
||||||||||||||||
Research
and Development
|
263,672
|
509,418
|
761,950
|
1,667,229
|
||||||||||||
Selling,
General and Administrative
|
1,732,053
|
2,123,035
|
5,089,221
|
7,268,375
|
||||||||||||
Impairment
write-down in investment in affiliate
|
-
|
-
|
-
|
380,000
|
||||||||||||
Stock
Based Compensation
|
65,746
|
194,483
|
243,366
|
704,613
|
||||||||||||
Depreciation
and Amortization
|
86,223
|
103,056
|
266,740
|
318,210
|
||||||||||||
Total
Operating Expense
|
2,147,694
|
2,929,992
|
6,361,277
|
10,338,427
|
||||||||||||
Loss
from Operations
|
(892,923
|
)
|
(688,281
|
)
|
(1,816,354
|
)
|
(5,032,933
|
)
|
||||||||
Other
Income (Expenses):
|
||||||||||||||||
Financing
Expense, net
|
(228,730
|
)
|
(243,424
|
)
|
(710,266
|
)
|
(2,191,431
|
)
|
||||||||
Gain
(Loss) on Derivative Liability
|
(650,338
|
)
|
(576,156
|
)
|
788,936
|
(1,594,609
|
)
|
|||||||||
Impairment
of Investment in Marketable Securities
|
(367,653
|
)
|
-
|
(367,653
|
)
|
-
|
||||||||||
(Loss)
on Sale of Investment
|
-
|
-
|
(29,371
|
)
|
-
|
|||||||||||
Total
Other Income (Expenses)
|
(1,246,721
|
)
|
(819,580
|
)
|
(318,354
|
)
|
(3,786,040
|
)
|
||||||||
Income
(Loss) Before Provision for Income Taxes
|
(2,139,644
|
)
|
(1,507,861
|
)
|
(2,134,708
|
)
|
(8,818,973
|
)
|
||||||||
Provision
for Income Taxes
|
-
|
-
|
-
|
-
|
||||||||||||
Income
(Loss) from Continuing Operations
|
$
|
(2,139,644
|
)
|
$
|
(1,507,861
|
)
|
$
|
(2,134,708
|
)
|
$
|
(8,818,973
|
)
|
||||
Discontinued
Operations
|
||||||||||||||||
Income
(Loss) from Discontinued Operations
|
-
|
(1,370,896
|
)
|
(635,735
|
)
|
(3,412,656
|
)
|
|||||||||
Gain
on Deconsolidation
|
-
|
-
|
6,932,586
|
-
|
||||||||||||
Net
Income (Loss)
|
$
|
(2,139,644
|
)
|
$
|
(2,878,757
|
)
|
$
|
4,162,143
|
$
|
(12,231,629
|
)
|
|||||
Net
income (loss) per share:
|
||||||||||||||||
Income
(loss) per share from continuing operations - basic
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
$
|
(0.16
|
)
|
||||
Income
(loss) per share from continuing operations -
diluted
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
$
|
(0.16
|
)
|
||||
Income
(loss) per share from discontinued operations –
basic
|
$
|
0.00
|
$
|
(0.02
|
)
|
$
|
0.07
|
$
|
(0.04
|
)
|
||||||
Income
(loss) per share from discontinued operations –
diluted
|
$
|
0.00
|
$
|
(0.02
|
)
|
$
|
0.07
|
$
|
(0.04
|
)
|
||||||
Net
income (loss) per share – basic
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
$
|
0.04
|
$
|
(0.16
|
)
|
|||||
Net
income (loss) per share - diluted
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
$
|
0.04
|
$
|
(0.16
|
)
|
|||||
Weighted
Average Common Shares Outstanding - basic
|
96,220,386
|
81,422,404
|
93,787,069
|
76,880,047
|
||||||||||||
Weighted
Average Common Shares Outstanding - diluted
|
96,220,386
|
81,422,404
|
93,787,069
|
76,880,047
|
||||||||||||
Comprehensive
Income (Loss):
|
||||||||||||||||
Net
Income (Loss)
|
$
|
(2,139,644
|
)
|
$
|
(2,878,757
|
)
|
$
|
4,162,143
|
$
|
(12,231,629
|
)
|
|||||
Unrecognized
Gain (Loss) on Investment
|
-
|
(1,218,100
|
)
|
32,750
|
(2,776,304
|
)
|
||||||||||
Comprehensive
Income (Loss)
|
$
|
(2,139,644
|
)
|
$
|
(4,096,857
|
)
|
$
|
4,194,893
|
$
|
(15,007,933
|
)
|
Preferred
Shares
|
Preferred
Stock
Amount
|
Common
Shares
|
Common
Stock
Amount
|
Additional
Paid
in
Capital
|
Accumulated
Deficit
|
Comprehensive
Income (Loss)
|
Noncontrolling
Interest
|
Total
|
||||||||||||||||||||||||||||
Balance
at January 1, 2009
|
87,525,495
|
$
|
87,526
|
$
|
118,197,450
|
$
|
(114,801,318
|
)
|
$
|
(32,750
|
)
|
$
|
262,795
|
$
|
3,713,703
|
|||||||||||||||||||||
Shares
issued in exchange for services rendered at approximately $0.12 per
share
|
-
|
-
|
83,333
|
83
|
9,917
|
-
|
-
|
-
|
10,000
|
|||||||||||||||||||||||||||
Shares
issued for warrants exercised at $0.09 per share
|
-
|
-
|
780,000
|
780
|
70,746
|
-
|
-
|
-
|
71,526
|
|||||||||||||||||||||||||||
Shares
issued in exchange for convertible debentures
|
-
|
-
|
8,174,943
|
8,175
|
714,339
|
-
|
-
|
-
|
722,514
|
|||||||||||||||||||||||||||
Stock-based
compensation expense related to employee stock
options
|
-
|
-
|
-
|
-
|
233,366
|
-
|
-
|
233,366
|
||||||||||||||||||||||||||||
Stock-based
compensation expense related to the re-pricing of investor
warrants
|
-
|
-
|
-
|
-
|
70,486
|
-
|
-
|
-
|
70,486
|
|||||||||||||||||||||||||||
Unrealized
Gain on available for sale securities
|
-
|
-
|
-
|
-
|
-
|
-
|
32,750
|
-
|
32,750
|
|||||||||||||||||||||||||||
Reclass
of non-controlling interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(262,795
|
)
|
(262,795
|
)
|
|||||||||||||||||||||||||
Income
from discontinued operations
|
-
|
-
|
-
|
-
|
-
|
6,296,851
|
-
|
-
|
6,296,851
|
|||||||||||||||||||||||||||
Income
from continuing operations
|
-
|
-
|
-
|
-
|
-
|
(2,134,708
|
)
|
-
|
-
|
(2,134,708
|
)
|
|||||||||||||||||||||||||
Balance
at September 30, 2009
|
-
|
$
-
|
96,563,771
|
$
|
96,564
|
$
|
119,296,304
|
$
|
(110,639,175
|
)
|
$
|
-
|
$
|
-
|
$
|
8,753,693
|
For
the Nine Months
Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
Increase
(Decrease) In Cash and Equivalents
|
||||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
income (loss) attributable to common shareholders
|
$
|
4,162,143
|
$
|
(12,231,639
|
)
|
|||
Net
(income) loss from discontinued operations
|
(6,296,851
|
)
|
3,082,656
|
|||||
Net
income (loss) from continuing operations
|
(2,134,708
|
)
|
(9,148,983
|
)
|
||||
Adjustments
to reconcile net income (loss) from operations to cash (used
in) operating activities:
|
||||||||
Amortization
of debt discounts and financing costs
|
543,161
|
364,374
|
||||||
Loss
on sale of investment
|
29,371
|
-
|
||||||
Impairment
of investment in marketable securities
|
367,653
|
|||||||
(Gain)
loss on derivative liability
|
(788,936
|
)
|
1,594,609
|
|||||
Impairment
write-down on fixed assets and goodwill
|
-
|
710,000
|
||||||
Stock
based compensation
|
243,366
|
704,613
|
||||||
Fair
value of issuance of warrants and re-pricing (financing
expense)
|
70,486
|
1,798,662
|
||||||
Depreciation
and amortization
|
266,740
|
350,163
|
||||||
Increase
/ decrease in:
|
||||||||
Accounts
receivable, trade and other
|
766,598
|
455,162
|
||||||
Inventories
|
447,644
|
572,088
|
||||||
Prepaid
expenses and deposits
|
117,019
|
345,520
|
||||||
Deferred
revenue
|
(20,536
|
)
|
(28,008
|
)
|
||||
Other
Assets
|
(62,595
|
)
|
157,654
|
|||||
Accounts
payable, net
|
(90,088
|
)
|
(803,822
|
)
|
||||
Accrued
expenses, net
|
172,319
|
(305,398
|
)
|
|||||
Cash
used in continuing operations
|
(72,506
|
)
|
(3,233,366
|
)
|
||||
Cash
used in discontinued operations
|
(287,997
|
)
|
(861,542
|
)
|
||||
Net
Cash Used In Operating Activities
|
(360,503
|
)
|
(4,094,908
|
)
|
||||
Cash
Flows From Investing Activities:
|
||||||||
Purchase
of property and equipment
|
(2,675
|
)
|
(14,375
|
)
|
||||
Advances
to unconsolidated subsidiary
|
(305,539
|
)
|
-
|
|||||
Proceeds
from sale of investment
|
33,129
|
-
|
||||||
Cash
used in continuing operations
|
(275,085
|
)
|
(14,375
|
)
|
||||
Cash
used in discontinued operations
|
(5,979
|
)
|
(994,344
|
)
|
||||
Net
Cash Used In Investing Activities
|
(281,064
|
)
|
(1,008,719
|
)
|
||||
Cash
Flows From Financing Activities:
|
||||||||
Proceeds
from issuance of convertible debentures
|
-
|
3,500,000
|
||||||
Proceeds
from sale of common stock, net of costs and fees
|
-
|
1,500,000
|
||||||
Proceeds
from issuance of notes payable
|
300,000
|
60,000
|
||||||
Proceeds
(repayments) from line of credit
|
(124,264
|
)
|
475,000
|
|||||
Financing
fees
|
(25,000
|
)
|
(462,566
|
)
|
||||
Repayment
of notes payable
|
-
|
(1,500,000
|
)
|
|||||
Proceeds
from the exercise of warrants
|
71,526
|
-
|
||||||
Repayment
of capital lease and other
|
(4,714
|
)
|
(4,625
|
)
|
||||
Cash
provided by continuing operations
|
217,548
|
3,567,809
|
||||||
Cash
provided by discontinued operations
|
293,976
|
56,228
|
||||||
Net
Cash Provided By Financing Activities
|
511,524
|
3,624,037
|
||||||
Net
Decrease In Cash and Equivalents
|
(130,043
|
)
|
(1,479,590
|
)
|
||||
Cash
and cash equivalents at the beginning of the period
|
168,492
|
1,629,583
|
||||||
Cash
and cash equivalents at the end of the period
|
$
|
38,449
|
$
|
149,993
|
For
the Nine Months Ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||
Cash
transactions:
|
||||||||
Cash
paid during the period for financing expenses
|
$
|
355,340
|
$
|
257,403
|
||||
Income
taxes paid
|
-
|
-
|
||||||
Non-cash
transactions:
|
||||||||
Stock
based compensation to employees and consultants in exchange for
services
|
$
|
243,366
|
$
|
704,613
|
||||
Fair
value of issuance of warrants and re-pricing (financing
expense)
|
70,486
|
1,798,662
|
||||||
(Gain)
loss on derivative liability
|
(788,936
|
)
|
1,594,609
|
|||||
Impairment
write-down on goodwill and fixed assets
|
-
|
710,000
|
||||||
Amortization
of debt discount on convertible debentures and financing
costs
|
543,161
|
364,374
|
||||||
Accrued
interest re classified as convertible debenture
principal
|
191,887
|
-
|
||||||
Value
of common stock issued in exchange for conversion of debenture
principal
|
722,514
|
710,000
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
Residual
Value
|
Weighted
Average
Amortization
Period
(Years)
|
||||||||||||||||
Amortized
Identifiable Intangible Assets:
|
||||||||||||||||||||
Subscriber
lists - EthoStream
|
$
|
2,900,000
|
$
|
(432,986
|
)
|
$
|
2,467,014
|
$
|
-
|
12.0
|
||||||||||
Total
Amortized Identifiable Intangible Assets
|
2,900,000
|
(432,986
|
)
|
2,467,014
|
-
|
9.6
|
||||||||||||||
Goodwill
- EthoStream
|
8,796,439
|
(2,000,000
|
)
|
6,796,439
|
-
|
|||||||||||||||
Goodwill
- SSI
|
5,874,016
|
-
|
5,874,016
|
-
|
||||||||||||||||
Total
|
$
|
17,570,455
|
$
|
(2,432,985
|
)
|
$
|
15,137,469
|
$
|
-
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
Residual
Value
|
Weighted
Average
Amortization
Period (Years)
|
|||||||||||||||
Amortized
Identifiable Intangible Assets:
|
|||||||||||||||||||
Subscriber
lists - EthoStream
|
$
|
2,900,000
|
$
|
(614,243
|
)
|
$
|
2,285,757
|
$
|
-
|
|
12.0
|
||||||||
Total
Amortized Identifiable Intangible Assets
|
2,900,000
|
(614,243
|
)
|
2,285,757
|
-
|
|
12.0
|
||||||||||||
Goodwill
- EthoStream
|
8,796,439
|
(2,000,000
|
)
|
6,796,439
|
-
|
||||||||||||||
Goodwill
- SSI
|
5,874,016
|
-
|
5,874,016
|
-
|
|||||||||||||||
Total
|
$
|
17,570,455
|
$
|
(2,614,243
|
)
|
$
|
14,956,212
|
$
|
-
|
September
30,
2009
|
December
31,
2008
|
|||||||
Accounts
receivable (factored)
|
$
|
1,087,086
|
$
|
1,961,535
|
||||
Advances
from factor
|
(342,876
|
)
|
(1,075,879
|
)
|
||||
Due
from factor
|
744,210
|
885,656
|
||||||
Accounts
receivable (non-factored)
|
85,846
|
127,080
|
||||||
Allowance
for doubtful accounts
|
(143,000
|
)
|
(176,400
|
)
|
||||
Total
|
$
|
687,056
|
$
|
836,336
|
September
30,
2009
|
December
31,
2008
|
|||||||
Raw
Materials
|
$ | 737,752 | $ | 843,978 | ||||
Finished
Goods
|
748,544 | 1,089,962 | ||||||
Reserve
for Obsolescence
|
(200,000 | (200,000 | ) | |||||
Total
|
$ | 1,286,296 | $ | 1,733,940 |
September
30,
2009
|
December
31,
2008
|
|||||||
Telecommunications
and related equipment
|
$
|
117,637
|
$
|
117,493
|
||||
Development
Test Equipment
|
153,484
|
153,484
|
||||||
Computer
Software
|
160,894
|
160,894
|
||||||
Leasehold
Improvements
|
228,017
|
248,778
|
||||||
Office
Equipment
|
371,251
|
377,851
|
||||||
Office
Fixtures and Furniture
|
249,604
|
265,315
|
||||||
Total
|
1,280,887
|
1,328,818
|
||||||
Accumulated
Depreciation
|
(989,966
|
)
|
(925,225
|
)
|
||||
$
|
290,924
|
$
|
403,593
|
September
30,
2009
|
December
31,
2008
|
|||||||
Senior
Convertible Debentures, accrue interest at 13% per annum and mature on May
29, 2011
|
$
|
1,606,023
|
$
|
2,136,650
|
||||
Debt
Discount - beneficial conversion feature, net of accumulated amortization
of $514,381 and $295,508 at September 30, 2009 and December 31, 2008,
respectively.
|
(292,508
|
)
|
(425,458
|
)
|
||||
Debt
Discount - value attributable to warrants attached to notes, net of
accumulated amortization of $432,243 and $277,913 at September 30, 2009
and December 31, 2008, respectively.
|
(245,797
|
)
|
(400,127
|
)
|
||||
Total
|
$
|
1,067,718
|
$
|
1,311,065
|
||||
Less:
current portion
|
-
|
-
|
||||||
$
|
1,067,718
|
$
|
1,311,065
|
For
the twelve months ended December 31,
|
Amount
|
|||
2009
|
$
|
-
|
||
2010
|
-
|
|||
2011
|
1,606,023
|
|||
2012
and thereafter
|
300,000
|
|||
$
|
1,906,023
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
$
|
1.00
- $1.99
|
4,417,133
|
3.93
|
$
|
1.02
|
4,273,550
|
$
|
1.01
|
||||||||||||||
$
|
2.00
- $2.99
|
997,500
|
5.48
|
$
|
2.52
|
957,250
|
$
|
2.51
|
||||||||||||||
$
|
3.00
- $3.99
|
536,250
|
6.08
|
$
|
3.23
|
413,500
|
$
|
3.28
|
||||||||||||||
$
|
4.00
- $4.99
|
70,000
|
5.83
|
$
|
4.33
|
58,500
|
$
|
4.33
|
||||||||||||||
$
|
5.00
- $5.99
|
100,000
|
5.57
|
$
|
5.17
|
88,000
|
$
|
5.16
|
||||||||||||||
6,120,883
|
4.42
|
$
|
1.56
|
5,790,800
|
$
|
1.52
|
Number
of
Shares
|
Weighted
Average
Price
Per
Share
|
|||||||
Outstanding
at January 1, 2008
|
8,105,429
|
$
|
1.98
|
|||||
Granted
|
185,000
|
1.00
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled
or expired
|
(1,296,500
|
)
|
2.71
|
|||||
Outstanding
at December 31, 2008
|
6,993,929
|
$
|
1.82
|
|||||
Granted
|
320,000
|
1.00
|
||||||
Exercised
|
-
|
-
|
||||||
Cancelled
or expired
|
(1,193,046
|
)
|
2.91
|
|||||
Outstanding
at September 30, 2009
|
6,120,883
|
$
|
1.56
|
September
30, 2009
|
September
30, 2008
|
|||||||
Significant
assumptions (weighted-average):
|
||||||||
Risk-free
interest rate at grant date
|
3.5%
|
3.0%
|
||||||
Expected
stock price volatility
|
81%
|
74%
|
||||||
Expected
dividend payout
|
-
|
-
|
||||||
Expected
option life (in years)
|
5.0
|
5.0
|
||||||
Expected
forfeiture rate
|
12%
|
12%
|
||||||
Fair
value per share of options granted
|
$
|
0.30
|
$
|
0.62
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||||
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||||||||
$
|
1.00
|
740,000
|
2.84
|
$
|
1.00
|
740,000
|
$
|
1.00
|
Number
of
Shares
|
Weighted
Average
Price
Per
Share
|
|||||||
Outstanding
at January 1, 2008
|
1,815,937
|
$
|
1.00
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding
at December 31, 2008
|
1,815,937
|
$
|
1.00
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
(1,075,937
|
)
|
1.00
|
|||||
Outstanding
at September 30, 2009
|
740,000
|
$
|
1.00
|
Warrants
Outstanding
|
Warrants
Exercisable
|
|||||||||||||||||||||
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighed
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
$
|
0.58
|
76,639
|
2.59
|
$
|
0.58
|
76,639
|
$
|
0.58
|
||||||||||||||
$
|
0.60
|
800,000
|
3.85
|
$
|
0.60
|
800,000
|
$
|
0.60
|
||||||||||||||
$
|
0.61
|
2,500,000
|
3.92
|
$
|
0.61
|
2,500,000
|
$
|
0.61
|
||||||||||||||
$
|
2.59
|
862,452
|
2.12
|
$
|
2.59
|
862,452
|
$
|
2.59
|
||||||||||||||
$
|
3.98
|
3,078,864
|
2.29
|
$
|
3.98
|
3,078,864
|
$
|
3.98
|
||||||||||||||
$
|
4.17
|
359,712
|
3.06
|
$
|
4.17
|
359,712
|
$
|
4.17
|
||||||||||||||
7,677,667
|
2.97
|
$
|
2.35
|
7,677,667
|
$
|
2.19
|
Number
of
Shares
|
Weighted
Average
Price
Per
Share
|
|||||||
Outstanding
at January 1, 2008
|
7,673,627
|
$
|
4.15
|
|||||
Issued
|
4,164,140
|
1.31
|
||||||
Exercised
|
(3,380,000
|
)
|
0.70
|
*
|
||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding
at December 31, 2008
|
8,457,767
|
$
|
2.19
|
|||||
Issued
|
-
|
-
|
||||||
Exercised
|
(780,000
|
)
|
0.09
|
|||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding
at September 30, 2009
|
7,677,667
|
$
|
2.35
|
•
|
Level
1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or
liabilities;
|
•
|
Level
2: Quoted prices in markets that are not active, or inputs which are
observable, either directly or indirectly, for substantially the full term
of the asset or liability; or
|
•
|
Level
3: Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and are
unobservable.
|
(in
thousands)
|
Level
1
|
Level
2
|
Level
3
|
Assets
at
fair
value
|
||||||||||||
Cash
and cash equivalents
|
$
|
38
|
$
|
-
|
$
|
-
|
$
|
38
|
||||||||
Long-term
investments
|
-
|
-
|
8
|
8
|
||||||||||||
Total
|
$
|
38
|
$
|
-
|
$
|
8
|
$
|
46
|
||||||||
Derivative
liabilities
|
-
|
1,870
|
-
|
1,870
|
||||||||||||
Long-term
debt
|
300
|
-
|
1,068
|
1,368
|
||||||||||||
Total
|
$
|
389
|
$
|
1,870
|
$
|
1,068
|
$
|
3,238
|
Three
Months Ended September 30,
(Unaudited)
|
Nine
Months Ended September 30,
(Unaudited)
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Loss
from operations
|
$ | - | $ | (1,370,896 | ) | $ | (635,735 | ) | $ | (3,412,656 | ) | |||||
Elimination
of Liabilities, net of assets
|
- | - | 7,635,920 | - | ||||||||||||
Other
expenses
|
- | - | (67,329 | ) | - | |||||||||||
Income
(loss) from discontinued operations
|
$ | - | $ | (1,370,896 | ) | $ | 6,932,856 | $ | (3,412,656 | ) |
Three
Months Ended
|
||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||||||||||
Product
|
$
|
1,445,888
|
59%
|
$
|
3,837,728
|
81%
|
$
|
(2,391,840
|
)
|
-62%
|
||||||||||||||
Recurring
|
991,130
|
41%
|
897,482
|
19%
|
93,648
|
10%
|
||||||||||||||||||
Total
|
$
|
2,437,018
|
100%
|
$
|
4,735,210
|
100%
|
$
|
(2,298,192
|
)
|
-49%
|
Nine
months Ended
|
||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||||||||||
Product
|
$
|
5,462,955
|
65%
|
$
|
10,821,179
|
81%
|
$
|
(5,358,224
|
)
|
-50%
|
||||||||||||||
Recurring
|
2,982,384
|
35%
|
2,559,728
|
19%
|
422,656
|
17%
|
||||||||||||||||||
Total
|
$
|
8,445,339
|
100%
|
$
|
13,380,907
|
100%
|
$
|
(4,935,568
|
)
|
-37%
|
Three
Months Ended
|
||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||||||||||
Product
|
$
|
833,926
|
58%
|
$
|
2,076,775
|
54%
|
$
|
(1,242,849
|
)
|
-60%
|
||||||||||||||
Recurring
|
348,321
|
35%
|
416,723
|
46%
|
(68,402
|
)
|
-16%
|
|||||||||||||||||
Total
|
$
|
1,182,247
|
49%
|
$
|
2,493,498
|
53%
|
$
|
(1,311,251
|
)
|
-53%
|
Nine
months Ended
|
||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||||||||||
Product
|
$
|
2,942,748
|
54%
|
$
|
6,800,627
|
63%
|
$
|
(3,857,879
|
)
|
-57%
|
||||||||||||||
Recurring
|
957,668
|
32%
|
1,274,786
|
50%
|
(317,118
|
)
|
-25%
|
|||||||||||||||||
Total
|
$
|
3,900,416
|
46%
|
$
|
8,075,413
|
60%
|
$
|
(4,174,997
|
)
|
-52%
|
Three
Months Ended
|
||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||||||||||
Product
|
$
|
611,962
|
42%
|
$
|
1,760,952
|
46%
|
$
|
(1,148,991
|
)
|
-65%
|
||||||||||||||
Recurring
|
642,809
|
65%
|
480,759
|
54%
|
162,050
|
34%
|
||||||||||||||||||
Total
|
$
|
1,254,771
|
51%
|
$
|
2,241,711
|
47%
|
$
|
(986,941
|
)
|
-44%
|
Nine
months Ended
|
||||||||||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||||||||||
Product
|
$
|
2,520,207
|
46%
|
$
|
4,020,552
|
37%
|
$
|
(1,500,345
|
)
|
-37%
|
||||||||||||||
Recurring
|
2,024,716
|
68%
|
1,284,942
|
50%
|
739,774
|
58%
|
||||||||||||||||||
Total
|
$
|
4,544,923
|
54%
|
$
|
5,304,495
|
40%
|
$
|
(760,571
|
)
|
-14%
|
Three
Months Ended
|
||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||
Total
|
$
|
2,147,694
|
$
|
2,929,992
|
$
|
(782,298
|
)
|
-27%
|
Nine
months Ended
|
||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||
Total
|
$
|
6,361,277
|
$
|
10,338,427
|
$
|
(3,977,150
|
)
|
-38%
|
Three
Months Ended
|
||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||
Total
|
$
|
263,672
|
$
|
509,418
|
$
|
(245,746
|
)
|
-48%
|
Nine
months Ended
|
||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||
Total
|
$
|
761,950
|
$
|
1,667,229
|
$
|
(905,279
|
)
|
-54%
|
Three
Months Ended
|
||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||
Total
|
$
|
1,732,053
|
$
|
2,123,035
|
$
|
(390,982
|
)
|
-18%
|
Three
Months Ended
|
||||||||||||||||
September
30, 2009
|
September
30, 2008
|
Variance
|
||||||||||||||
Total
|
$
|
5,089,221
|
$
|
7,268,375
|
$
|
(2,179,154
|
)
|
-30%
|
● |
Advances
to our former subsidiary of approximately $305,000;.
|
|
● |
Net
repayments on our line of credit of approximately $124,000;
and
|
|
● |
Working
capital decreases related to our loss from continuing
operations.
|
Exhibit
Number
|
Description
Of Document
|
|
2.1
|
MST
Stock Purchase Agreement and Amendment (incorporated by reference to our
8-K filed on February 2, 2006)
|
|
2.2
|
Asset
Purchase Agreement by and between Telkonet, Inc. and Smart Systems
International, dated as of February 23, 2007 (incorporated by reference to
our Form 8-K filed on March 2, 2007)
|
|
2.3
|
Unit
Purchase Agreement by and among Telkonet, Inc., Ethostream, LLC and the
members of Ethostream, LLC dated as of March 15, 2007 (incorporated by
reference to our Form 8-K filed on March 16,
2007)
|
|
3.1
|
Articles
of Incorporation of the Registrant (incorporated by reference to our Form
8-K (No. 000-27305), filed on August 30, 2000 and our Form S-8 (No.
333-47986), filed on October 16, 2000)
|
|
3.2
|
Amendment
to Articles of Incorporation (incorporated by reference to our Form 10-Q
(No. 001-31972), filed August 11, 2008)
|
|
3.3
|
Amendment
to Articles of Incorporation (incorporated by reference to our Form 10-Q
(No. 001-31972), filed August 14, 2009)
|
|
3.4
|
Bylaws
of the Registrant (incorporated by reference to our Registration Statement
on Form S-1 (No. 333-108307), filed on August 28,
2003)
|
|
4.1
|
Form
of Warrant to Purchase Common Stock (incorporated by reference to our Form
8-K (No. 001-31972) filed on May 12, 2008)
|
|
4.2
|
Form
of Convertible Debenture (incorporated by reference to our Form 8-K (No.
001-31972) filed on June 5, 2008)
|
|
4.3
|
Form
of Warrant to Purchase Common Stock (incorporated by reference to our Form
8-K (No. 001-31972) filed on June 5, 2008)
|
|
4.4
|
Promissory
Note in Favor of Thermo Credit, LLC (incorporated by reference to our Form
8-K (No. 001-31972) filed on September 10, 2008)
|
|
4.5
|
Promissory Note in Favor of the Wisconsin
Department of Commerce (incorporated by reference to our Form 8-K (No.
001-31972) filed on September 17, 2009)
|
|
10.1
|
Amended
and Restated Telkonet, Inc. Incentive Stock Option Plan (incorporated by
reference to our Registration Statement on Form S-8 (No. 333-412), filed
on April 17, 2002)
|
|
10.2
|
Employment
Agreement by and between Telkonet, Inc. and Frank T. Matarazzo, dated as
of February 1, 2006 (incorporated by reference to our Form 10-K (No.
001-31972), filed March 16, 2006)
|
|
10.3
|
Settlement
Agreement by and among Telkonet, Inc. and Kings Road Investments Ltd.,
dated as of August 14, 2006 (incorporated by reference to our Form 8-K
(No. 001-31972), filed on August 16, 2006)
|
|
10.4
|
Settlement
Agreement by and among Telkonet, Inc. and Portside Growth &
Opportunity Fund, dated as of August 14, 2006 (incorporated by reference
to our Form 8-K (No. 001-31972), filed on August 16,
2006)
|
|
10.5
|
Employment
Agreement by and between Telkonet, Inc. and Jason Tienor, dated as of
March 15, 2007(incorporated by reference to our Form 10-K (No. 001-31972),
filed March 16, 2007)
|
|
10.6
|
Employment
Agreement by and between Telkonet, Inc. and Jeff Sobieski, dated as of
March 15, 2007(incorporated by reference to our Form 10-K (No. 001-31972),
filed March 16, 2007)
|
|
10.7
|
Securities
Purchase Agreement, dated May 30, 2008, by and between Telkonet, Inc. and
YA Global Investments LP (incorporated by reference to our Current Report
on Form 8-K filed on June 5, 2008)
|
|
10.8
|
Registration
Rights Agreement, dated May 30, 2008, by and between Telkonet, Inc. and YA
Global Investments LP (incorporated by reference to our Current Report on
Form 8-K filed on June 5, 2008)
|
|
10.9
|
Security
Agreement, dated May 30, 2008, by and between Telkonet, Inc. and YA Global
Investments LP (incorporated by reference to our Current Report on Form
8-K filed on June 5, 2008)
|
|
10.10
|
Commercial
Business Loan Agreement, dated September 9, 2008, by and between Telkonet,
Inc. and Thermo Credit, LLC (incorporated by reference to our Form 8-K
(No. 001-31972) filed on September 10, 2008)
|
|
10.11
|
Loan Agreement, dated September 11, 2009, by and
between Telkonet, Inc. and the Wisconsin Department of Commerce
(incorporated by reference to our Form 8-K (No. 001-31972) filed on
September 17, 2009)
|
|
10.12
|
General Business Security Agreement, dated
September 11, 2009, by and between Telkonet, Inc. and the Wisconsin
Department of Commerce (incorporated by reference to our Form 8-K (No.
001-31972) filed on September 17, 2009)
|
|
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Jason L.
Tienor
|
|
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Richard J.
Leimbach
|
|
32.1
|
Certification
of Jason L. Tienor 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 Richard J. Leimbach pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
Telkonet,
Inc.
(Registrant)
|
||
Date:
December 11 , 2009
|
By:
|
/s/
Jason L.
Tienor
|
Jason
L. Tienor
Chief
Executive Officer
(Duly
authorized officer)
|
||
By:
|
/s/ Richard J.
Leimbach
|
|
Richard
J.
Leimbach
Chief
Financial Officer
(Duly
authorized officer and principal financial
officer)
|