# Ernexa Therapeutics Inc.: Form 10-Q for the period ended Jun 30, 2014

- Company: [Ernexa Therapeutics Inc.](/companies/erna.md) (CIK 748592)
- Form: 10-Q
- Filed: 2014-08-14
- Accepted by EDGAR: Aug 14, 2014, 14:44 ET
- Period: 2014-06-30
- Accession: 0001019687-14-003169
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/748592/000101968714003169/ntn_10q-063014.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/748592/000101968714003169/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Selling, general and administrative | 3 months, 2014-04-01 to 2014-06-30 | $4.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2014-01-01 to 2014-06-30 | $8.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-04-01 to 2014-06-30 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2014-01-01 to 2014-06-30 | −$2.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2014-04-01 to 2014-06-30 | −$3.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2014-01-01 to 2014-06-30 | $7.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-04-01 to 2014-06-30 | −$1.3m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2014-01-01 to 2014-06-30 | −$2.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-04-01 to 2014-06-30 | −$0.02 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2014-01-01 to 2014-06-30 | −$0.02 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 6 months, 2014-01-01 to 2014-06-30 | −$2.0m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 6 months, 2014-01-01 to 2014-06-30 | $485.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2014-06-30 | $11.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-06-30 | $15.5m | us-gaap:AssetsCurrent |
| Total assets | at 2014-06-30 | $22.6m | us-gaap:Assets |
| Current liabilities | at 2014-06-30 | $5.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2014-06-30 | $8.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2014-06-30 | $13.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,589 characters.

#### CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

*This Quarterly Report on Form 10-Q (including, but not limited to, the following discussion of our financial condition and results of operations) and the documents incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect future events, results, performance, prospects and opportunities, including statements related to our strategic plans and targets, revenue generation, product availability and offerings, capital needs, capital expenditures, industry trends and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements which refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, under the section entitled “Risk Factors,” and in other reports we file with the Securities and Exchange Commission from time to time. Readers are urged not to place undue reliance on the forward-looking statements contained in this report or incorporated by reference herein, which speak only as of the date of this report. Except as required by law, we do not undertake any obligation to revise or update any such forward-looking statement to reflect future events or circumstances.*

*You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this report.*

### OVERVIEW

We provide an entertainment and marketing services platform for hospitality venues that offer games, events, and entertainment experiences to their consumers. Our interactive entertainment network helps our network subscribers to acquire, engage and retain their consumers. Built on an extended network platform, this entertainment system has historically allowed multiple players to interact at the venue, but also enables competition between different venues, referred to as massively multiplayer gaming. We have been embarking on a complete change of our network architecture, technology platform and player engagement paradigms, which we currently refer to as Buzztime Entertainment on Demand, or BEOND. We continue to support our legacy network product line, which we refer to as Classic.

We currently generate revenue by charging subscription fees for our service to our network subscribers, leasing equipment) to certain network subscribers, hosting live trivia events, and from selling advertising aired on in-venue screens and part of customized games. During 2014, we expect to begin generating revenue directly from the consumers of certain network subscribers by offering premium products via our BEOND platform in addition to offering the games that we have historically provided to consumers for free.

Currently, over 3,100 venues in the U.S. and Canada subscribe to our interactive entertainment network, where we estimate it is available on approximately 10,000-15,000 screens daily. We currently have over five million player registrations, and over 50 million of our games are played each year. Additionally, our mobile application has been installed on over one million consumer mobile devices. Approximately 43% of our network subscriber venues are related to national and regional restaurants and include Buffalo Wild Wings, Old Chicago, Beef O’Brady’s, Black Angus, Buffalo Wings & Rings, Native New Yorker, Houlihan’s, Boston Pizza and Hooters.

We own several trademarks and consider the Buzztime®, Playmaker®, Mobile Playmaker, BEOND Powered by Buzztime and Play Along trademarks to be among our most valuable assets. These and our other registered and unregistered trademarks used in this document are our property. Other trademarks are the property of their respective owners.

### RECENT DEVELOPMENTS

In April 2014, we completed an underwritten public offering in which we issued a total of 12,765,000 shares of our common stock (including shares issued upon exercise of an over-allotment option). The public offering price for each share of common stock was $0.55, and we received $7,020,750 in gross proceeds from the offering. The net proceeds from the offering were approximately $6,369,000, after deducting underwriting discounts of 7% and estimated offering expenses payable by us.

In November 2013, we completed a private placement of units (consisting of shares of common stock and warrants to purchase shares of common stock) to accredited investors. The purchase price of each unit was $0.40 for gross proceeds of $2,400,000. In the aggregate, we issued 6,000,000 shares of common stock and warrants to purchase 3,600,000 shares. The warrants have an exercise price of $0.40 per share and are exercisable beginning on the six-month anniversary of the issuance date and expire on the five-year anniversary of the issuance date.

### CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to deferred costs and revenues, depreciation of broadcast equipment, the provision for income taxes including the valuation allowance, stock-based compensation, bad debts, investments, purchase price allocations related to acquisitions, including any earnout liability, impairment of software development costs, goodwill, broadcast equipment, intangible assets and contingencies, including the reserve for sales tax inquiries. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require management’s most subjective judgments.

There have been no material changes in our critical accounting policies, estimates and judgments during the three and six months ended June 30, 2014 from those described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2013.

### RESULTS OF OPERATIONS

### Three months ended June 30, 2014 compared to the three months ended June 30, 2013

We generated a net loss of $1,348,000 for the three months ended June 30, 2014 compared to a net loss of $99,000 for the three months ended June 30, 2013.

#### Revenue

Revenue increased $1,341,000, or 24%, to $6,873,000 for the three months ended June 30, 2014 from $5,532,000 for the three months ended June 30, 2013 due to increased equipment lease revenue under sales-type lease arrangements of $1,565,000 and to a lesser extent, due to increased other revenue of $180,000 related to advertising and our hosted live trivia events. The increased revenue was offset by decreased subscription revenue of $404,000 resulting from lower average site count of our Buzztime network subscribers. Equipment lease revenue (which has lower margins due to the cost we incur to purchase the equipment) is recognized when we lease BEOND equipment to certain network subscribers. The equipment lease revenue is a one-time payment that covers the lease of the equipment for three-years, after which the party may purchase the equipment for a nominal fee or lease new equipment. Accordingly, we expect this type of equipment lease revenue to fluctuate from period to period as certain network subscribers convert their locations from using the Classic playmakers to the BEOND tablets, and to decrease thereafter.

Comparative site count information for the Buzztime Network is as follows:

|  | Network Subscribers as of June 30, 2014 | 2013 |
| --- | ---: | ---: |
| United States | 2,930 | 3,154 |
| Canada | 173 | 198 |
| Total | 3,103 | 3,352 |

11

#### Direct Costs and Gross Margin

A comparison of direct costs and gross margin for the three months ended June 30, 2014 and 2013 is show in the table below:

|  | For the three months ended June 30, 2014 | 2013 |
| --- | ---: | ---: |
| Revenues | $6,873,000 | $5,532,000 |
| Direct Costs | 2,806,000 | 1,485,000 |
| Gross Margin | $4,067,000 | $4,047,000 |
| Gross Margin Percentage | 59% | 73% |

Gross margin as a percentage of revenue decreased to 59% for the three months ended June 30, 2014 from 73% for the three months ended June 30, 2013. The decrease in gross margin was primarily related to lower margin sales-type lease arrangements. Direct costs increased $1,321,000, or 89%, to $2,806,000 for the three months ended June 30, 2014 from $1,485,000 for the three months ended June 30, 2013. The increase in direct costs was due primarily to increased equipment expense of $1,206,000, and to a lesser extent due to increased service provider fees resulting from more installations and technical service calls, increased freight expense, increased revenue share expense and increased depreciation and amortization expense. The equipment expense, which is recognized as a one-time expense, relates to BEOND equipment that we purchased to lease to certain network subscribers for approximately three years. We expect this type of equipment expense to fluctuate from period to period as certain network subscribers convert their locations from using the Classic playmakers to the BEOND tablets, and to decrease thereafter.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $622,000, or 16%, to $4,577,000 for the three months ended June 30, 2014 from $3,955,000 for the three months ended June 30, 2013. The increase was primarily due to higher payroll and related expense of $337,000 resulting from increased headcount and capitalizing less salary expense for software development activities, increased professional fees of $128,000, and increased marketing expense of $89,000 primarily related to trade shows and public relations.

#### Impairment of Capitalized Software

Impairment of capitalized software increased $612,000 to $639,000 for the three months ended June 30, 2014 from $27,000 for the three months ended June 30, 2013 as a result of abandoning certain capitalized software development projects that we concluded were no longer a current strategic fit or for which we determined that the marketability of the content had decreased due to obtaining additional information regarding the specific purpose for which the content was intended.

#### Depreciation and Amortization Expense

Depreciation and amortization expense (excluding depreciation and amortization included in direct operating costs) decreased $29,000, or 16%, to $151,000 for the three months ended June 30, 2014 from $180,000 for the three months ended June 30, 2013, primarily due to assets becoming fully depreciated or amortized.

#### Other (Expense) Income, Net

We had other expense, net of $51,000 for the three months ended June 30, 2014, compared to other income, net of $21,000 for the three months ended June 30, 2013. This $72,000 increase in expense was primarily due to increased foreign currency exchange losses related to the operations of our Canadian subsidiary and increased interest expense due to higher notes payable balances outstanding.

#### Income Taxes

We expect to incur state income tax liability in 2014 related to our U.S. operations. We also expect to pay income taxes in Canada due to profitability of our Canadian subsidiary. For the three months ended June 30, 2014, we recorded a tax benefit of $3,000 and for the three months ended June 30, 2013, we recorded a tax provision of $5,000. We have established a full valuation allowance for substantially all deferred tax assets, including our net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets.

#### EBITDA

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is not intended to represent a measure of performance in accordance with GAAP. Nor should EBITDA be considered as an alternative to statements of cash flows as a measure of liquidity. EBITDA is included herein because we believe it is a measure of operating performance that financial analysts, lenders, investors and other interested parties find to be a useful tool for analyzing companies like us that carry significant levels of non-cash depreciation and amortization charges in comparison to their net income or loss calculation in accordance with GAAP.

The reconciliation of our consolidated net loss calculated in accordance with GAAP to EBITDA for the three months ended June 30, 2014 and 2013 is shown in the table below. EBITDA should not be considered as substitutes for, or superior to, net loss calculated in accordance with GAAP.

|  | For the three months ended June 30, 2014 | 2013 |
| --- | ---: | ---: |
| Net loss per GAAP | $(1,348,000) | $(99,000) |
| Interest expense, net | 40,000 | 5,000 |
| Income tax (benefit) provision | (3,000) | 5,000 |
| Depreciation and amortization | 690,000 | 694,000 |
| EBITDA | $(621,000) | $605,000 |

### Six months ended June 30, 2014 compared to the six months ended June 30, 2013

We generated a net loss of $1,997,000 for the six months ended June 30, 2014 compared to a net loss of $468,000 for the six months ended June 30, 2013.

#### Revenue

Revenue increased $1,643,000, or 14%, to $13,291,000 for the six months ended June 30, 2014 from $11,648,000 for the six months ended June 30, 2013 due primarily to increased equipment lease revenue under sales-type lease arrangements of $2,287,000, and to a lesser extent due to increased other revenue of $308,000 related to advertising and our hosted live trivia events. The increased revenue was offset by decreased subscription revenue of $952,000 resulting from lower average site count of our Buzztime network subscribers, offset by slightly higher average revenue per unit. Equipment lease revenue (which has lower margins due to the cost we incur to purchase the equipment) is recognized when we lease BEOND equipment to certain network subscribers. The equipment lease revenue is a one-time payment that covers the lease of the equipment for three-years, after which the party may purchase the equipment for a nominal fee or lease new equipment. Accordingly, we expect this type of equipment lease revenue to fluctuate from period to period as certain network subscribers convert their locations from using the Classic playmakers to the BEOND tablets, and to decrease thereafter.

#### Direct Costs and Gross Margin

A comparison of direct costs and gross margin for the six months ended June 30, 2014 and 2013 is show in the table below:

|  | For the six months ended June 30, 2014 | 2013 |
| --- | ---: | ---: |
| Revenues | $13,291,000 | $11,648,000 |
| Direct Costs | 5,336,000 | 3,485,000 |
| Gross Margin | $7,955,000 | $8,163,000 |
| Gross Margin Percentage | 60% | 70% |

13

Gross margin as a percentage of revenue decreased to 60% for the six months ended June 30, 2014 from 70% for the six months ended June 30, 2013. The decrease in gross margin was primarily related to lower margin sales-type lease arrangements. Direct costs increased $1,851,000, or 53%, to $5,336,000 for the six months ended June 30, 2014 from $3,485,000 for the six months ended June 30, 2013. The increase in direct costs was primarily due to increased equipment expense of $1,867,000, and to a lesser extent due to increased revenue share expense, offset by decreased depreciation and amortization expense and direct salary expense. The equipment expense, which is recognized as a one-time expense, relates BEOND equipment that we purchased to lease to certain network subscribers for approximately three years. We expect this type of equipment expense to fluctuate from period to period as certain network subscribers convert their locations from using the Classic playmakers to the BEOND tablets, and to decrease thereafter.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $772,000, or 9%, to $8,945,000 for the six months ended June 30, 2014 from $8,173,000 for the six months ended June 30, 2013. The increase was due primarily to higher payroll and related expense of $450,000 resulting from increased headcount partially due to managing our warehouse directly rather than through a third party and capitalizing less salary expense for software development activities. To a lesser extent, the increase was also due to increased professional fees of $201,000 and increased marketing expense of $120,000 primarily related to trade shows and public relations.

#### Impairment of Capitalized Software

Impairment of capitalized software increased $569,000 to $661,000 for the six months ended June 30, 2014 from $92,000 for the six months ended June 30, 2013 as a result of abandoning certain capitalized software development projects that we concluded were no longer a current strategic fit or for which we determined that the marketability of the content had decreased due to obtaining additional information regarding the specific purpose for which the content was intended.

#### Depreciation and Amortization Expense

Depreciation and amortization expense (excluding depreciation and amortization included in direct operating costs) decreased $76,000, or 20%, to $303,000 for the six months ended June 30, 2014 from $379,000 for the six months ended June 30, 2013, primarily due to assets becoming fully depreciated or amortized.

#### Other (Expense) Income, Net

We had $36,000 of other expense, net for the six months ended June 30, 2014, compared to other income, net of $26,000 for the six months ended June 30, 2013. This $62,000 increase in expense was primarily due to increased foreign currency exchange losses related to the operations of our Canadian subsidiary and increased interest expense due to higher notes payable balances outstanding.

#### Income Taxes

For the six months ended June 30, 2014 and 2013, we recorded a tax provision of $7,000 and $13,000, respectively.

#### EBITDA

EBITDA is not intended to represent a measure of performance in accordance with GAAP, nor should EBITDA be considered as an alternative to statements of cash flows as a measure of liquidity. EBITDA is included herein because we believe it is a measure of operating performance that financial analysts, lenders, investors and other interested parties find to be a useful tool for analyzing companies like us that carry significant levels of non-cash depreciation and amortization charges in comparison to their GAAP earnings or loss.

The following table reconciles our consolidated net loss per GAAP to EBITDA for the six months ended June 30, 2014 and 2013.

|  | For the six months ended June 30, 2014 | 2013 |
| --- | ---: | ---: |
| Net loss per GAAP | $(1,997,000) | $(468,000) |
| Interest expense, net | 64,000 | 12,000 |
| Income taxe provision | 7,000 | 13,000 |
| Depreciation and amortization | 1,375,000 | 1,483,000 |
| EBITDA | $(551,000) | $1,040,000 |

14

### LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2014, we had cash and cash equivalents of $11,164,000 compared to cash and cash equivalents of $5,455,000 as of December 31, 2013.

In April 2014, we completed an underwritten public offering in which we issued a total of 12,765,000 shares of our common stock (including shares issued upon exercise of an over-allotment option). The public offering price for each share of common stock was $0.55, and we received approximately $7,021,000 in gross proceeds from the offering. The net proceeds from the offering were approximately $6,369,000, after deducting underwriting discounts of 7% and estimated offering expenses payable by us.

In November 2013, we completed a private placement of units (consisting of shares of common stock and warrants to purchase shares of common stock) to accredited investors. The purchase price of each unit was $0.40 for gross proceeds of $2,400,000. In the aggregate, we issued 6,000,000 shares of common stock and warrants to purchase 3,600,000 shares. The warrants have an exercise price of $0.40 per share and are exercisable beginning on the six-month anniversary of the issuance date and expire on the five-year anniversary of the issuance date.

We have a credit facility under which we may borrow up to $5,700,000 for the purchase of certain capital equipment. Through June 30, 2014, we borrowed approximately $4,622,000. As of June 30, 2014, $3,712,000 remained outstanding, which reflects payments made through June 30, 2014.

We believe existing cash and cash equivalents, which includes the proceeds received from the public offering in April 2014, and the remaining availability on our credit facility will be sufficient to meet our operating cash requirements and to fulfill our debt obligations for at least the next twelve months. If our cash and cash equivalents are not sufficient to meet future cash requirements, we may be required to reduce planned capital expenses, reduce operational cash uses, sell assets, or seek financing. Any actions we may undertake to reduce planned capital purchases, reduce expenses, or generate proceeds from the sale of assets may be insufficient to cover shortfalls in available funds. If we require additional capital, we may be unable to secure additional financing on terms that are acceptable to us, or at all.

#### Working Capital

As of June 30, 2014, we had working capital (current assets in excess of current liabilities) of $10,081,000 compared to working capital of $4,310,000 as of December 31, 2013. The following table shows the change in our working capital from December 31, 2013 to June 30, 2014.

|  | Increase (Decrease) |
| --- | ---: |
| Working capital as of December 31, 2013 | $4,310,000 |
| Changes in current assets: |  |
| Cash and cash equivalents | 5,709,000 |
| Accounts receivable, net of allowance | 243,000 |
| Prepaid expenses and other current assets | 1,585,000 |
| Change in total current assets | 7,537,000 |
| Changes in current liabilities: |  |
| Accounts payable | 244,000 |
| Accrued compensation | (34,000) |
| Accrued expenses | 70,000 |
| Sales taxes payable | (16,000) |
| Income taxes payable | (20,000) |
| Notes payable | 823,000 |
| Obligations under capital lease | 2,000 |
| Deferred revenue | 781,000 |
| Other current liabilities | (84,000) |
| Change in total current liabilities | 1,766,000 |
| Net change in working capital | 5,771,000 |
| Working capital as of June 30, 2014 | $10,081,000 |

15

#### Cash Flows

Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

| Cash (used in) provided by: | For the six months ended June 30, 2014 | 2013 |
| --- | ---: | ---: |
| Operating activities | $(1,990,000) | $311,000 |
| Investing activities | (780,000) | (1,044,000) |
| Financing activities | 8,478,000 | 29,000 |
| Effect of exchange rates | 1,000 | (44,000) |
| Net increase (decrease) in cash and cash equivalents | $5,709,000 | $(748,000) |

*Net cash (used in) provided by operating activities.* We primarily depend on cash flows from operations to meet our cash requirements. Net cash used in operating activities was $1,990,000 for the six months ended June 30, 2014 compared to net cash provided by operating activities of $311,000 for the six months ended June 30, 2013. The $2,301,000 increase in cash used in operations was primarily due to an increase of net loss of $949,000, after giving effect to adjustments made for non-cash transactions and an increase in cash used in operating assets and liabilities of $1,352,000 during the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

Our largest use of cash is payroll and related costs. Cash used for payroll and related costs increased $179,000 to $5,245,000 for the six months ended June 30, 2014 from $5,066,000 during the six months ended June 30, 2013, due primarily to increased headcount. Our primary source of cash is cash we generate from customers. Cash received from customers increased $2,217,000 to $14,007,000 for the six months ended June 30, 2014 from $11,790,000 during the six months ended June 30, 2013, primarily as a result of increased revenue for the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

*Net cash used in investing activities.* We used $780,000 in cash for investing activities for the six months ended June 30, 2014 compared to a use of $1,044,000 during the six months ended June 30, 2013. The $264,000 decrease was primarily due to a decrease in capitalized software development activities of $499,000, offset by an increase in capital expenditures of $235,000 related to field equipment purchases.

*Net cash provided by financing activities.* Net cash provided by financing activities increased $8,449,000 to $8,478,000 for the six months ended June 30, 2014, compared to net cash provided by financing activities of $29,000 for the six months ended June 30, 2013. The change is primarily attributable to approximately $6,369,000 of net proceeds received from our public offering completed in April 2014, an increase in proceeds received from notes payable of $2,895,000, decreased payments on capital lease obligations of $60,000, and proceeds received from the exercise of stock options of $23,000. These increases in cash provided by financing activities were offset by increased uses of cash for payments on our notes payable of $878,000 and an increase in tax withholdings of $20,000 related to net-share settlements of restricted stock units.

### RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 10 of the condensed consolidated financial statements, “Recent Accounting Pronouncements.”

## Market risk

As filed, 143 characters.

Under SEC rules and regulations, as a smaller reporting company we are not required to provide the information otherwise required by this item.

## Controls and procedures

As filed, 1,400 characters.

#### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, or the Exchange Act) as to whether such disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, our chief executive officer and chief financial officer concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report.

#### Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 993 characters.

An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013 and under Item 1A of Part II of our Quarterly Report on Form 10-Q for the three months ended March 31, 2014 together with all other information contained or incorporated by reference in this report before you decide to invest in our common stock. If any of the risks described in our annual report occur, our business, financial condition, results of operations and our future growth prospects could be materially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of your investment. As of the date of this report, we do not believe that there have been any material changes to the risk factors previously disclosed in our annual report or in our previously filed quarterly report.

Filed Aug 14, 2014.
Source: SEC EDGAR, the filing index for accession 0001019687-14-003169. Last ingested by Listed: Nov 6, 2026, 17:52 ET. No prices; not investment advice.