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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended
December 31, 2009
Commission File Number 0-25882
EZENIA! INC.
(Exact name of registrant as specified in its
charter)
DELAWARE
|
|
04-3114212
|
(State or other
jurisdiction of incorporation or organization)
|
|
(I.R.S. employer identification
number)
|
14 Celina Ave, Suite 17-18,
Nashua, New Hampshire 03063
(Address of principal executive offices,
including zip code)
(603) 589-7600
(Registrants telephone number, including area
code)
Securities Registered
Pursuant to Section 12(b) of the Act:
None
Securities Registered
Pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
Preferred Stock Purchase Rights
Indicate by check mark if the
Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act Yes
o
No
x
Indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act Yes
o
No
x
Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
o
No
o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large Accelerated
Filer
o
|
|
Accelerated
Filer
o
|
|
|
|
Non-Accelerated
Filer
o
|
|
Smaller
Reporting Company
x
|
Indicate by checkmark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act) Yes
o
No
x
The aggregate market value of the
voting and non-voting common stock held by non-affiliates of the Registrant as
of June 30, 2009 was
$2,931,643
(computed by reference to the price at which the Registrants common stock was
last sold on the OTC Bulletin Board on
June 30, 2009
).
The number of shares outstanding
of the Registrants common stock as of
March 30, 2010
was
14,658,217.
DOCUMENTS INCORPORATED BY
REFERENCE
Portions
of the definitive Proxy Statement to be delivered to stockholders in connection
with the Annual Meeting of Stockholders are incorporated by reference into Part III
hereof. With the exception of the portion of such Proxy Statement that is
expressly incorporated herein, such Proxy Statement shall not be deemed filed
as part of this Annual Report on Form 10-K.
Table of Contents
Ezenia! Inc.
2009 Form 10-K Annual Report
Table of Contents
The Companys
trademarks include Ezenia!, the Ezenia! Logo, InfoWorkSpace, LaunchPad, and
Encounter. All other trademarks
referred to in this document are the property of their respective companies.
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PART I
This Annual Report on Form 10-K contains
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. Actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might
cause such a difference are discussed in this report, including in Item 1A Risk
Factors beginning on page 8.
ITEM 1. BUSINESS
Founded in 1991, Ezenia! Inc., a Delaware corporation (Ezenia, we,
or the Company), develops and markets products that enable organizations to
provide technically advanced high-quality group communication to commercial,
governmental, consumer and institutional users. Our products allow individuals
and groups, regardless of proximity constraints, to interact and share
information in a natural, spontaneous way voice-to-voice, face-to-face,
mouse-to-mouse, or keyboard-to-keyboard flexibly, securely and in real time.
Using our products, individuals can interact through a natural meeting
experience, allowing groups to work together effectively and disseminate vital
information quickly in an extremely secure manner using advanced technology for
both network security and data encryption.
We offer one of the most comprehensive commercially
available lines of group communication products. Our InfoWorkSpace software product enables
voice communication, secure messaging, white boarding, virtual workspaces, and
JPEG-based video across a wide range of networks including local area networks,
and wide area networks. Furthermore,
because our products are well suited for operating from small enclave environments
to large multi-locations on public networks, they can be deployed with relative
ease at small sites or in locations with a large number of users. Users can be virtually anywhere on the planet
so long as they have network access.
We sold InfoWorkSpace and related services to customers in the federal
government, mostly in the Department of Defense (DoD) and the intelligence
community (IC), either directly, or in many instances, in partnership with
the premier defense contractors and/or integrators. We believe that it is in our interest to
leverage these partnerships with well-established contractors and/or
integrators to further expand the deployment and provide the support of
InfoWorkSpace in large-scale opportunities.
Company Background and Evolution
True Collaboration versus Videoconferencing
In 1991, Ezenia, known at the time as VideoServer, designed, developed,
manufactured, and sold Multipoint Control Systems or Units (MCS or MCU) for
both the circuit-oriented, Integrated Services Digital Network based and
packet-switched, Internet Protocol-based videoconferencing applications. Our
MCS was unique at the time with its PC-based, flexible hardware design approach
and system configurations, leveraging commercial off-the-shelf base operating
systems. At that time, traditional videoconferencing
vendors concentrated mostly on the development of more and more sophisticated,
standard-based endpoints to be used in point-to-point videoconferencing. We focused our business, not on the
endpoints, but on systems deployed in the infrastructure backroom, to enable
three or more sites or parties involved in videoconferencing to properly
communicate among themselves, by switching video sources based on audio
processing of current and immediately preceding speakers. Our technical
advantages were derived by masking and compensating for incompatibilities
between endpoints from different manufacturers, algorithmic transcoding,
compensation for different bandwidth requirements, and simultaneous
multi-windowed video arrangements on the monitor known as Hollywood Squares,
just to name a few.
In the late 1990s, we fully realized the limitations and narrow
applications of our videoconferencing products which, among many deficiencies,
were monolithic, required highly specialized support and services, stood apart
from the normal office environment that most information workers were
accustomed to, and did not provide a solution to the need to truly collaborate
and disseminate information in real time.
Contrary to how most
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videoconferencing vendors would like to indoctrinate potential
customers, video in particular talking heads as in the case of most video conferences
was and is, now more than ever, far from being the piece de resistance of
true, meaningful real-time collaboration. Furthermore, its monolithic approach,
whereby you either get a successful videoconference session or get nothing,
relegates all other more critical collaboration activities second to video
talking heads. Most importantly, the
lack of presence awareness detection and the inability to leverage the web for
ease of access, prevent flexible, on-demand, free-flowing collaboration sessions
whereby participants can come, go, or be invited at will.
In March 2001, we completed the first phase of our transformation
with the acquisition of the InfoWorkSpace business from General Dynamics. As an application solution and technology
built on top of Placewares (see Third-Party Technology below) web
conferencing technology, InfoWorkSpace:
·
Allows users to be aware of the online
presence of colleagues, enables true multimedia collaboration sessions starting
with the simplest secure information messaging (keyboard-to-keyboard) and
expanding to the most complex all-encompassing (mouse-to-mouse) sharing and
dissemination of mission critical information simultaneously with in-session,
super-imposed audio conferencing and/or JPEG-based video;
·
Leverages commercially off-the-shelf base
operating systems such as the Windows and Solaris platforms;
·
and
·
Fits into the virtual office environment
with which most information workers are familiar.
We believe that
the use and growth of real-time collaborative technologies within commercial or
governmental enterprises, while still early in their adoption curve, are
increasing. The investment in
information and collaborative technologies helps customers flatten their
organizations, improve enterprise wide communication, shorten the
decision-making process, and facilitate real-time reactions to critical
issues. Rather than just providing
access to inert data stored on a server, the goal today is to find ways to
enable information workers to collaborate and share their expertise to derive
knowledge from databases in real-time and in a secure environment. Collaborative technologies are about creating
informational value through better, faster and more efficient human interaction
and cooperation, not just more data.
Businesses and governmental organizations today need solutions that make
it easier for people to work together, share information and expertise,
coordinate activities across departments, networks, agencies, building
complexes, facilities spread all over the country, and field deployments around
the world.
As a result, we
intend to concentrate our product development efforts on technical advancements
that allow users to convey critical information that must be delivered and that
ensures security to our customers.
Products
Our expertise is
in developing products that deliver highly secure and flexible support for
informational collaboration, in-session audio conferencing, and video streaming
capabilities across a wide range of platforms.
Our products have been designed with a scalable, modular architecture to
give customers the flexibility to add capacity, processing power, and
conferencing features as the customer network and application requirements
grow. Using a common set of hardware and software building blocks, customers
can choose from a wide range of product configurations that differ in capacity,
price, network connectivity and features, all of which share the same operating
software user interface. Products may be configured for use in customer
premises or environments, or may be configured with specialized packaging for
use in a telephone carriers central office setting. We believe a key
differentiator for our products is the built-in robust security features, which
allows them to be installed in some of the highest clearance and security sites
in the market.
InfoWorkSpace
InfoWorkSpace is a comprehensive suite of collaboration applications
designed to allow any organization to more efficiently communicate,
particularly when attempting to work as, and within, a group. From an overall perspective, InfoWorkSpace,
when used effectively can reduce or even eliminate dependency on travel,
traditional
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video conferencing, traditional audio conferencing and the phone, and
even e-mail and file servers.
Essentially, InfoWorkSpace presents and enables a corporate campus or
enterprise whose resources can be accessed by an information worker through his
or her own desktop or laptop PC. Users
can browse through the virtual campus, facility, or building to locate the room
to be used for a meeting, or just pick the needed contact(s) and initiate
the meeting with the click of the mouse.
Our customers, including the U.S. intelligence community, the U.S.
Joint Forces Command, and various branches of the U.S. Armed Forces including
the Marines, Navy, Air Force and Army, have leveraged the flexibility of
InfoWorkSpace to aid in a myriad of missions.
From daily mission briefs to medevac procedures in Afghanistan to
operational support in Iraq, InfoWorkSpace has increasingly become a vital part
of the U.S. defense network. The
stability, scalability and security of InfoWorkSpace allow our customers to
depend on our software to complete mission-critical assignments and save lives
in some of the worlds most dangerous areas.
At a basic level, InfoWorkSpace is a cross-platform solution in a box,
supporting both UNIX and Windows-based operating systems. A standard software
suite comes complete with our server software package, database, application
server, and user directory along with a number of ancillary add-ons. This suite
provides a self-sufficient workgroup environment for a user base of up to
several hundred and even thousands of users. However, with a few simple system
configurations, InfoWorkSpace servers can be federated in such a way that
multiple servers can trust one another in order to support collaboration across
an enterprise with an even larger audience of participants.
InfoWorkSpace security infrastructure is built upon
the best practices that have been in use in operating systems for decades. Much like a UNIX administrator can restrict
access to a directory or even a file to a limited set of users, InfoWorkSpace administrators
can lock rooms down to prevent users from seeing sensitive data that is outside
their area of responsibility. Permission-based access allows administrators to
finely tune a users access profile to the file level. Data can be encrypted using standard SSL
protocols and access can be controlled with PKI and X.509 certificates; our
PKI/PKE implementation has been certified by the Joint Interoperability Test
Center (JITC) in Fort Huachuca, Arizona.
All data within the application can be audited and searched for specific
words or patterns of words.
InfoWorkSpace provides a high level of security capabilities and an
audit safety net to capture any breaches that may arise from human errors.
The stability, scalability, flexibility and security
capabilities of InfoWorkSpace are critically important for our customers, but
the true power of InfoWorkSpace is in its collaboration applications. Users can participate in an interactive
conference with absolutely no set up procedures. This is a significant leap forward from where
the industry was just a few years ago, using videoconferences as the only
interactive medium. InfoWorkSpace eliminates
the need to have a heavy piece of hardware at each terminal point of
collaboration, to schedule a conference with a bridge operator, or to have a
whole new network infrastructure to support an interactive conferencing
capability. Information workers, once
logged into InfoWorkSpace, can initiate a conference by going to a virtual room
and inviting the participants as needed.
Rooms are either pre-defined or created on demand as needs dictate. Once
inside a room, either by joining or being invited into a session, participants
can have an audio conference straight from the software. With InfoWorkSpace, no
set up is required and no additional cost is incurred. Participants even can be in multiple rooms at
the same time, offering a more productive virtual environment than in the
physical world. Participants can share and work on documents from the file
cabinet associated with a room. Users can have an interactive whiteboard
session and save the results. Users also can manage their calendars and
participate in message boards and save that information to the server where
they can access it at any time from any place.
A high-level summary of InfoWorkSpace features and
functions is listed below:
·
Information messaging, in a one-to-one arrangement, in
a conference environment, or in multiple combinations of one-on-one and/or
conference environments;
·
Audio conversation and conferencing, in a one-to-one
arrangement, in a conference environment, or in multiple combinations of
one-on-one and/or conference environments;
·
Interactive whiteboard which all users can see and
modify in real time;
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·
Application sharing which allows the screen view of
any application on any desktop or laptop PC of any information worker to be
broadcasted to all other participants;
·
Secure file cabinet, from which permission-based
access allows for documents to be stored, retrieved, and monitored at any time
from any place;
·
EZinFORM, a forms manager designed for an agency to
document a task order where multiple sites and people are deployed on a mission
that requires rapid updates to critical events;
·
EZinCMD, a unit commander can consolidate views and
people into a critical command and control battlefield situation for rapid
response;
·
Multi-Level security allows users of one security
level to have real-time collaboration sessions with users at another security
level with the use of the DIA-certified Information Support Server Environment
(ISSE) Guard;
·
SSL and PKI encryption, which, when configured,
renders traffic secure across the wire;
·
Full system auditing, which allows all data and
actions to be audited and searchable;
·
Informal meetings, a lightweight application that
provides all interactive capabilities;
·
Virtual campuses, buildings, offices and persistent
meetings, a robust all encompassing application that provides rich, secure,
scalable, real-time collaborative capabilities and recreates the office
environment with facilities like file cabinet, document storage and retrieval
message board, calendaring, etc.; and
·
Virtual auditorium-style meetings with geographically
dispersed presenter panels and large audiences, coupled with fully functional
multimedia presentations and recordings, including in-band audio, as well as
seating control and assignment, private sidebar discussions, moderator control,
audience Q&A sessions, etc.
Market
and Channels
We market our
InfoWorkSpace
products and
related services to customers within the U.S. federal government, primarily to
the DoD and to the intelligence community worldwide. We also provide these
products and services to the defense and intelligence organizations of foreign
allies of the U. S. government.
InfoWorkSpace
products and
services are licensed on an annual subscription and renewal basis, during which
software updates and basic technical support are included as part of base
offerings. Enhanced service offerings are also offered in a subscription model.
Training, installation, and customization are sold on an as needed basis.
The worldwide government marketplace is best understood as a matrix of
customers, sales vehicles (contracts), and sales channels. We employ a sales model which is an analog to
this government market matrix.
InfoWorkSpace
products and related
services are available to specific segments of the government, using various
vehicles, including our GSA Schedule, and multiple channels both directly, with
our own sales force, and indirectly with partners such as General Dynamics,
Harris Corporation, Science and Applications International Corporations, and
Northrop Grumman, among others.
During the year ended December 31, 2009, approximately 73% of our
sales of
InfoWorkSpace
and related
services were through our indirect channels. Our top end-user customers for
InfoWorkSpace
products and related
services in 2009 were the Armed Forces, and intelligence, and security
agencies. Sales to these customers accounted for approximately 56%, 16% and 5%,
respectively, of total revenue in 2009.
We conduct our
sales and marketing activities from our principal offices in Nashua, New
Hampshire, and Sterling, Virginia.
Research
and Product Development
We believe that our future success depends on our ability to continue
to enhance and expand our existing enterprise collaboration products and to
develop new products that maintain our technology leadership. We have invested
and will continue to invest in the development of products and core
technologies while also leveraging the integration of best-of-breed software
components through strategic partnerships. Extensive product development input
is obtained via direct feedback from end-users and suggested improvements from
strategic
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partners and resellers. We
carefully monitor the migration of industry standards and remain committed to
developing products utilizing such standards.
This includes the development of interoperable collaboration products to
meet either industry needs and/or DoD-driven interoperability criteria, while
maintaining a keen focus on the security aspects of enterprise collaboration,
including solutions in the web conferencing arena.
As of December 31, 2009, our research and development staff
consisted primarily of software engineers augmented with U.S.-based and
U.S.-citizen software contractors. Many of our software engineers carry either
secret or top-secret levels of security clearance. Our research and development
expenditures were approximately $1.7 million and $2.1 million in 2009 and 2008,
respectively, representing approximately 49% and 32% of revenue, respectively.
Costs that are incurred
internally in researching and developing computer software products are charged
to expense until technological feasibility has been established. Once
technological feasibility is established, all software costs are capitalized
until the product is available for general release to customers.
Judgment is required in
determining when technological feasibility of a product is established. In most
cases, we have determined that technological feasibility for our software
products/updates is reached shortly before the products are released to
manufacturing. With the exception of
InfoWorkSpace
version
3.0 released in 2006, costs incurred after technological feasibility have
historically not been material, and accordingly, were expensed when incurred.
Customer
Support and Service
We provide technical
support and services to our resellers and direct customers. A high level of
continuing service and support is critical to our objective of developing
long-lasting relationships with customers and partners. Our partners and
resellers offer a broad range of support including installation, maintenance
and on-site and headquarters-level technical support of products to their
end-user customers. We provide a comprehensive service program, including
problem management, training, diagnostic tools, software updates and upgrades,
as well as spare parts programs to facilitate and supplement the efforts of our
partners and resellers.
We offer a
technical support hotline to our resellers and customers, which is staffed by
our network engineers who generally provide either immediate or same-day
responses to most questions. As our products have built-in remote diagnostic
capabilities, most problems can be diagnosed without incurring travel expenses
for on-site visits. When necessary, however, support engineers are dispatched
to the customers facility for critical situations. All of our support
engineers carry various levels of security clearance.
Third-Party Technology
We license technology from third-parties, including software which is
integrated with internally developed software, and used in our products to
perform key functions. There can be no
assurance that functionally similar technology will continue to be available on
commercially reasonable terms in the future, or at all. In particular, in April 2007 we entered
into a new agreement with Microsoft Corporation, with an effective date of January 1,
2007, to extend an existing software distribution license agreement through December 2008.
This agreement was subsequently amended to, among other things, extend the
payment terms through June 2011. The software distribution license
agreement allows us to integrate Microsofts Live Communication software into
our InfoWorkSpace product line.
Competition
The market for
multimedia collaboration is an emerging segment with new vendors entering the
competitive landscape and old vendors from existing industries. Furthermore,
multimedia collaboration can also be grouped into two main groups: real-time
synchronous solutions versus asynchronous products. While most vendors adopt the client-server
architecture, some insist on the merit of peer-to-peer. Still yet, large
vendors offer both types of
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products. From
another perspective, vendors could be classified into two classes of
providers: the first group provides
customer-premise solutions while the second implements a hosted environment.
Even though our
business primarily focuses on the real-time synchronous, client-server,
customer-premise market segment within the government, depending upon the
possible perspectives, various vendors could be considered as likely
competitors, including Adobe, Cisco, EMC, IBM, and Oracle, in this intensely
contested market segment.
Many of these
companies, as well as other current and potential competitors, have
substantially greater financial, technical, and sales and marketing resources
than we do. If we are unable to retain our existing customers in the U.S.
government, or are unable to convince a sufficient number of new companies or
customers with an interest in collaborative technologies to adopt our
InfoWorkSpace collaborative software product over alternative technologies
marketed by our competitors, our financial results will suffer, through price
reductions and loss of market share.
The principal
competitive factors in the market for multimedia collaboration are security,
scalability, reliability, price, performance, network management capabilities,
integration, breadth of capabilities, customer support and interoperability. We
plan to compete by offering the best-of-breed enterprise solutions encompassing
all of these factors. However, we cannot
be certain that potential customers will be attracted to our products,
especially if our competitors invest substantially more money into their
products and technology.
Proprietary
Rights
We rely on a combination of contractual rights, trade secrets and
copyright laws to establish and protect our intellectual property rights. We
believe that, because of the rapid pace of technological change in the data
communications and telecommunications industries, intellectual property
protection for our products is only one factor in our success, complementing
the knowledge, abilities and experience of our employees, the frequency of our
product enhancements, our relationships with our partners, our relationships
with our customers and their satisfaction with the performance of
InfoWorkSpace, the effectiveness of our marketing activities, and the
responsiveness and quality of our services.
Employees
At December 31, 2009, we employed 24 people on a full-time basis.
None of our employees is represented by a labor organization.
Our success depends, to a significant degree,
upon the continuing contributions of our key management, sales, marketing and
research and development personnel, many of whom would be difficult to replace,
including Khoa Nguyen, our Chief Executive Officer and President. We do not carry key-man life insurance on any
of our employees, including Mr. Nguyen.
We do not have employment contracts with our key personnel other than Mr. Nguyen.
We believe that our future success will depend in large part upon our ability
to attract additional key employees and retain our key employees.
Availability of Filings
You may access, free of charge, through our
website at www.ezenia.com, our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and any amendments
to such reports, all filed pursuant to Section 13(a) and 15(d) of
the Securities Exchange Act of 1934, as amended (the Exchange Act). The
information contained on our website is not incorporated by reference into this
document and should not be considered a part of this report. Our website address is included in this
document as an inactive textual reference only.
ITEM 1A. RISK FACTORS
The risks and uncertainties described below are not the only ones that
we face. Additional risks and uncertainties of which we are unaware, or that we
currently deem immaterial, also may become important factors that affect us
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in the future. If any of these risks were to occur, our business,
financial condition, or results of operations could be materially and adversely
affected. This section includes or refers to certain forward-looking
statements; you should read the explanation of the qualifications and
limitations on such forward-looking statements found in the section captioned
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Adverse
economic and market conditions may result in further budgetary constraints
within the defense and intelligence communities, as well as a downturn in
spending on real-time collaboration solutions by other users, that could
adversely affect our revenues and results of operations.
Unfavorable changes in economic and market
conditions, including inflation, recession, or other changes, may result in
further budgetary constraints on governmental users, and lower spending by
commercial, consumer and institutional users of real-time collaboration
solutions. If demand for real-time collaboration products declines
significantly, or government or corporate spending for those products declines,
our business, results of operations, and financial condition would be adversely
affected. Challenging economic conditions also may impair the ability of our
customers to pay for products and services they have purchased. The adverse
effects of any sustained downturn in spending on our operating results may be
exacerbated by our investment in expanding our sales, service, engineering, and
marketing organizations, which may continue despite any such downturn. There is
no assurance that, if operations were to deteriorate and additional financing
were to become necessary, we would be able to obtain financing in amounts
sufficient to meet operating requirements or at terms which are satisfactory
and which allow us to remain competitive.
The continued redirection of budget funds and
increased competition within our Department of Defense customer base would
negatively impact our results of operations and financial condition.
We believe our revenue has declined due to redirections of the IT
budget by the Defense Information Systems Agency (DISA) to competing
solutions selected for the Net-Centric Enterprise Services (NCES)
programs. While we believe that there
are potential opportunities for limited recovery and new sales in our existing
DoD customer base, we will continue to face severe difficulties in this market
due to such redirection of budget funds and the promotion of competing
solutions by the DISA, including a collaborative product being sponsored and
offered free by the DISA to these customers.
We may be
unable to return to profitability
.
As further described under Managements Discussion and Analysis of
Financial Condition and Results of Operations, despite our net loss in 2009,
management believes that its existing cash and other resources are sufficient
to fund operations for at least the next 12 months. However, we can provide no assurances that we will achieve our goal of
consistent quarterly revenue and profit growth, both of which are largely
dependent on whether we can meet our future new order booking targets. If we
are unable to secure new orders, we may not be able to generate sufficient
revenue and may not be able to return to profitability.
Moreover, there are a number
of circumstances which could result in our needing additional capital sooner
than anticipated, such as unexpected costs associated with our product
development and sales and marketing efforts.
If adequate capital is not available to us when we
need it, we may be required to further curtail our operations which would, in
turn, further raise doubt about our ability to return to profitability.
A
significant portion of our revenue is attributable to a small number of major
customers,
none of whom is obligated to continue to use
our products and services.
While we are focusing efforts on broadening our customer base, sales to
a relatively small number of customers within the U.S. government, specifically
within the DoD and the intelligence community, have accounted for a significant
portion of revenue. This concentration
of customers may cause revenue and operating results to fluctuate from quarter
to quarter based on major customers requirements, and the timing of their
orders and shipments. Our agreements with customers generally do not include
minimum purchase commitments or
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exclusivity arrangements. Our
operating results could be materially and adversely affected if any present
major customer were to reduce its level of orders, change to another vendor,
realize a reduction in approved funding for collaborative technologies, or
delay paying or fail to pay amounts due to us.
Loss of access to certain third-party technology utilized in
our products could materially harm our business.
We utilize certain
technology which we license from third parties, including software which is
integrated with internally developed software, and use in our products to
perform key functions. There can be no
assurance that functionally similar technology will continue to be available on
commercially reasonable terms in the future, or at all. In April 2007, we entered into a new
agreement with Microsoft Corporation to extend an existing software
distribution license agreement through December 2008. This agreement was
subsequently amended to, among other things, extend its payment terms through June 2011. This software distribution license agreement
allows us to integrate Microsofts Live Communication software with our
proprietary software, to create
InfoWorkSpace
. Loss of access to this third-party
technology, whether due to termination or expiration of the agreement with
Microsoft or the failure to renew the agreement, would result in material harm
to our business and results of operations.
Our success
depends upon market acceptance of our collaboration products.
Sales of real-time collaboration products
account for all of our revenue. As a result, our success depends on the
acceptance and the rate of adoption of Internet-based collaboration products,
in general, and our
InfoWorkSpace
product, in
particular. We can provide no assurance
that any of the markets for our products will develop to the extent, in the
manner, or at the rate anticipated by us.
In particular, while our sales have historically been within certain
organizations of the U.S. government and intelligence community, we are
pursuing the sale of our products in the commercial market as well. There can be no assurance of success in the
commercial market for
InfoWorkSpace
, or other
products that we may introduce in 2010 or beyond. In addition, future prices
that we are able to obtain for our products may decrease as a result of new
product introductions by others, price competition, technological change or
other factors.
If we are
unable to adapt to the rapid pace of change in our market, our business could
be adversely affected.
Our market is characterized by changing
technology, emerging industry standards, evolving network developments and
product introductions. The adoption rate
of new technologies and products may adversely impact near-term growth of the conferencing
market as users evaluate the alternatives.
For 2010 we plan to continue investments in the enhancement and
development of our current and new products to address the evolving technology
landscape. Our success will depend, in
part, upon our ability through continued investments to maintain technological
leadership, to enhance our existing product offerings, and to develop new
products that achieve market acceptance.
Our results
of operations would suffer if we are unable to effectively compete in the
market for multimedia collaboration products.
The market for multimedia collaboration
products is highly competitive. A number of companies have introduced
competitive products. Furthermore, the market may attract new entrants. Some
competitors have longer operating histories and greater financial, technical,
sales, and marketing resources. If we
were unable to retain our existing customers, or convince a sufficient number
of new customers to adopt our collaborative software products over competitive
alternatives, our financial results would suffer.
The principal competitive factors in the market for multimedia
collaboration are, and are expected to
continue to be, breadth of capabilities, demonstrated interoperability, price,
performance, network management capabilities, reliability, scalability,
customer support and security. We plan
to compete by offering collaboration
10
Table of Contents
and enterprise products with a broad range of capabilities and high
performance. However, we cannot be
certain that potential customers will be attracted to our products, especially
if competitors were to invest substantially more money into their products and
technology.
If we release products containing
defects or experience delays in releasing new products, our competitive
position could be adversely effected.
As part of our strategy, we expect to release
new products and new versions of our existing products. Even if our new versions of existing products
contain the features and functionality that our customers desire, if we are
unable to timely introduce these new products or product releases, our
competitive position will be harmed. We
can provide no assurances that we will be able to successfully complete the
development of currently planned or future products or product releases in a
timely manner or at all. Also, due to
the complexity of our products, internal quality assurance testing and customer
testing of pre-commercial releases may reveal product performance issues or
desirable product enhancements that could cause delays in development and
release of future products or current upgrades of our existing products.
We may be unsuccessful in protecting our
intellectual property rights which could result in the loss of a competitive
advantage.
Our
ability to compete effectively against other companies in our industry depends,
in part, on our ability to protect our current and future proprietary
technology under patent, copyright, trademark, trade secret and unfair
competition laws. We cannot assure that our means of protecting our proprietary
rights in the United States or abroad will be adequate, or that others will not
develop technologies similar or superior to our technology or design around our
proprietary rights. In addition, we may incur substantial costs in attempting
to protect our proprietary rights.
Also,
we may become subject to claims that we infringe the intellectual property
rights of others in the future. We cannot assure that, if made, these claims
will not be successful. Any claim of infringement could cause us to incur
substantial costs defending against the claim even if the claim is invalid, and
could distract management from other business. Any judgment against us could
require substantial payment in damages and could also include an injunction or
other court order that could prevent us from offering certain products.
The loss of
or failure to retain or attract talented directors, officers and personnel
could harm our business.
Our success depends, to a significant degree,
upon the continuing contributions of our key management, sales, marketing, and
research and development personnel, some of whom would be difficult to replace,
including Khoa Nguyen, our Chief Executive Officer and President.
We do not carry key-man life
insurance on any of our employees, including Mr. Nguyen.
We do not have employment
contracts with our key personnel other than Mr. Nguyen. We believe that
our future success will depend in large part upon our ability to retain and
attract such key employees.
As the result of our
diminishing financial resources, our workforce has been reduced by
approximately one-half since December 31, 2006, from 47 to 24 employees as
of December 31, 2009. As a result,
our ability to continue many activities has been impaired, which in turn may
prevent or further delay our return to profitability and otherwise have a
material adverse effect on our results of operations and financial condition.
Moreover, we have five directors on our Board of Directors, three of
whom meet the standards for independence as specified by the SEC and the
national stock exchanges. Historically,
we have strived to have an audit committee comprised of at least three
independent directors, as required by the national stock exchanges. Currently, we have two directors serving on
our audit committee. We are continuing in our attempts to identify additional
qualified individuals to serve as independent directors. However, highly-qualified individuals may not
11
Table of Contents
be available or willing to serve as directors and there can be no
assurance that we will be able to identify, recruit and ultimately secure the
services of such individuals in a timely manner or at all.
The trading price of our common stock may continue to be volatile,
which may adversely affect our business, and investors in our common stock may
experience substantial losses.
The market price of our common stock, like that of other technology
companies, is highly volatile and is subject to wide fluctuations in response
to quarterly variations in operating results, or other events or factors. Our
stock price may also be affected by broader market trends unrelated to our
performance. Due to this volatility,
investors in our common stock may experience substantial losses.
Our common stock is traded on the OTC Bulletin Board, making it a less liquid investment than if it were traded on a national securities exchange.
The shares of our common stock were delisted from The Nasdaq National Market in August 2003 and are now traded on the OTC Bulletin Board. As a result, an investor may find it more difficult to dispose of our stock due to low trading volume or obtain accurate quotations as to the market value of our stock. In addition, we are subject to Rule 15c2-11 promulgated by the SEC (Rule 15c2-11). If we fail to meet criteria set forth in such rule (for example, by failing to file periodic reports as required by the Exchange Act), various practice requirements are imposed on broker-dealers who sell securities governed by Rule 15c2-11 to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchasers written consent to the transactions prior to sale. Consequently, Rule 15c2-11 may have a material adverse effect on the ability of broker-dealers to sell our securities, which may materially affect the ability of stockholders to sell the securities in the secondary market. The listing of our securities on the OTC Bulletin Board may make it more difficult for investors to trade in our securities, which could lead to further declines in our share price. Our shares being traded on the OTC Bulletin Board also makes it more difficult for us to raise additional capital, as we may incur additional costs under state blue sky laws if we were to sell additional securities.
Provisions of Delaware law, our charter and by-laws and our
shareholder rights plan may make a takeover more difficult.
Provisions of our certificate of incorporation and
by-laws and in the Delaware corporate law may make it difficult and expensive
for a third party to pursue a tender offer, change in control or takeover
attempt that is opposed by our management and Board of Directors. Moreover, our
shareholder rights plan, adopted in April 2008, could make it more
difficult for a third party to acquire, or could discourage a third party from
acquiring, our company or a large block of our common stock. A third party that
acquires 15% or more of our common stock (an acquiring person) could suffer
substantial dilution of its ownership interest under the terms of the
shareholder rights plan through the issuance of common stock or common stock
equivalents to all shareholders other than the acquiring person. We also have a
staggered board of directors that makes it difficult for stockholders to change
the composition of our board of directors in any one year. These anti-takeover
provisions could impede the ability of public stockholders to change our
management and Board of Directors.
ITEM
1B. UNRESOLVED STAFF COMMENTS
There are no unresolved staff
comments as of the date of this report.
ITEM
2. DESCRIPTION OF PROPERTY
Our corporate
office and principal research, development and manufacturing facility is
located in Nashua, New Hampshire, in an approximately 12,000 square foot
facility. We currently lease this
facility pursuant to a lease agreement that terminates in 2010. We also have a
sales office located in Sterling, Virginia, which we lease pursuant to a lease
agreement that terminates in 2013.
During 2007, we completed our consolidation of our Colorado Springs and
Nashua facilities in Nashua, New Hampshire.
12
Table of
Contents
ITEM 3. LEGAL PROCEEDINGS
We are subject to
various legal proceedings and claims that arise in the ordinary course of
business. We believe that the outcomes of these matters will not materially and
adversely affect our business, financial position or financial results.
ITEM 4. (REMOVED AND RESERVED.)
13
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT
S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Since 2003, our common stock has been quoted on the OTC Bulletin Board,
under the symbol EZEN.OB. The
following table sets forth, for the periods indicated, the high and low bid or
sale prices per share of our common stock as reported on the OTC Bulletin
Board.
|
|
Quarter ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2009
|
|
|
|
|
|
|
|
|
|
Common stock price - high
|
|
$
|
0.17
|
|
$
|
0.25
|
|
$
|
0.23
|
|
$
|
0.18
|
|
Common stock price low
|
|
$
|
0.06
|
|
$
|
0.08
|
|
$
|
0.11
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Common stock price - high
|
|
$
|
0.75
|
|
$
|
0.65
|
|
$
|
0.47
|
|
$
|
0.35
|
|
Common stock price low
|
|
$
|
0.52
|
|
$
|
0.46
|
|
$
|
0.30
|
|
$
|
0.05
|
|
As of March 16,
2010, we had approximately 112 stockholders of record. This does not reflect
persons or entities that hold their stock in nominee or street name through
various brokerage firms. We have not paid dividends on our common stock and we
anticipate that we will reinvest future earnings, if any, and therefore, do not
intend to pay dividends in the foreseeable future.
See Part III,
Item 12 for information regarding securities authorized for issuance under our
equity compensation plans.
ITEM
6. SELECTED FINANCIAL DATA
The selected consolidated financial data
should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our audited consolidated
financial statements.
(In
thousands, except per share amounts)
|
|
Year ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007 (1)
|
|
2006 (2)
|
|
2005 (3)
|
|
OPERATING DATA
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,532
|
|
$
|
6,683
|
|
$
|
8,988
|
|
$
|
13,192
|
|
$
|
13,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(3,518
|
)
|
(3,126
|
)
|
(4,410
|
)
|
2,899
|
|
3,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes
|
|
(3,427
|
)
|
(3,069
|
)
|
(3,836
|
)
|
3,405
|
|
3,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
(3,427
|
)
|
(3,069
|
)
|
(4,547
|
)
|
3,918
|
|
3,803
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.23
|
)
|
(0.21
|
)
|
(0.31
|
)
|
0.27
|
|
0.26
|
|
Diluted
|
|
(0.23
|
)
|
(0.21
|
)
|
(0.31
|
)
|
0.26
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,383
|
|
$
|
6,774
|
|
$
|
9,395
|
|
$
|
12,059
|
|
$
|
9,405
|
|
Total current assets
|
|
5,920
|
|
8,856
|
|
13,598
|
|
19,482
|
|
16,864
|
|
Stockholders equity (deficit)
|
|
2,866
|
|
5,420
|
|
7,773
|
|
11,901
|
|
7,932
|
|
14
Table of Contents
(1) 2007 amounts include a charge of $1.45 million to reserve for
excess purchase commitments under the Microsoft license agreement, which was
recorded as a component of cost of product revenue, and income tax expense of
$711,000 related to an increase in the valuation allowance for deferred tax
assets recorded in 2006 and 2005.
(2) 2006 amounts include a tax benefit of $513,000, or $0.04 per
share, related to a reduction in the valuation allowance associated with
deferred tax assets of approximately $579,000 offset by approximately $66,000
of current federal and state tax expense.
(3) 2005 amounts include a tax benefit of $91,000, or $0.01 per
share, related to a reduction in the valuation allowance associated with
deferred tax assets.
Quarterly financial
information (unaudited)
|
|
Quarter ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2009
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
989
|
|
$
|
907
|
|
$
|
819
|
|
$
|
817
|
|
Gross profit
|
|
522
|
|
508
|
|
549
|
|
606
|
|
Loss from operations
|
|
(943
|
)
|
(1,002
|
)
|
(901
|
)
|
(672
|
)
|
Net (loss)
|
|
$
|
(937
|
)
|
$
|
(964
|
)
|
$
|
(864
|
)
|
$
|
(662
|
)
|
Net (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
2008
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,811
|
|
$
|
1,739
|
|
$
|
1,745
|
|
$
|
1,388
|
|
Gross profit
|
|
1,122
|
|
1,063
|
|
1,076
|
|
847
|
|
Loss from operations
|
|
(587
|
)
|
(920
|
)
|
(747
|
)
|
(872
|
)
|
Net (loss)
|
|
$
|
(553
|
)
|
$
|
(883
|
)
|
$
|
(748
|
)
|
$
|
(885
|
)
|
Net (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor For Forward Looking Statements
Managements Discussion
and Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with the Consolidated Financial Statements and
Notes included in Item 8 of this Annual Report. MD&A contains forward-looking
statements and information which involve risks and uncertainties. Statements indicating that we expect, estimate,
believe, are planning, plan to, intend or will are forward-looking,
as are other statements
concerning
our business strategy, our proposed new product offerings, key differentiators
in our market, changes in the competitive landscape, future financial results,
our ability to generate cash and to meet our working capital needs, and other
events that have not yet occurred. These forward-looking statements are neither
promises nor guarantees, but involve risks and uncertainties that may cause
actual results to differ materially from those in the forward-looking
statements. Factors that may cause such differences include, but are not
limited to, the impact of global economic and political conditions on our
business, our ability to maintain or accurately forecast revenue growth, our
history of liquidity concerns and operating losses, customer acceptance of our
InfoWorkSpace
product and other new products, our ability to compete in
an intensely competitive market, our ability to develop and introduce new
products or enhancements on schedule and that respond to customer requirements
and rapid technological change, our dependence on the
15
Table of Contents
U.S.
government as our largest customer, budgetary constraints within the defense
and intelligence communities, our ability to select and implement appropriate
business models, plans and strategies and to execute on them, our ability to
identify, hire, train, motivate, and retain highly qualified management/other key
personnel and our ability to manage changes and transitions in management/other
key personnel, our reliance on third-party technology, and unauthorized use or
misappropriation of our intellectual property, as well as the risk factors
discussed in Item 1A of this Annual Report and in other periodic reports filed
with the SEC. Readers should not place
undue reliance on any such forward-looking statements, which speak only as of
the date they are made. We disclaim any obligation to publicly update or revise
any such statement to reflect any change in our expectations or in events,
conditions, or circumstances on which any such statements may be based, or that
may affect the likelihood that actual results will differ from those contained
in the forward-looking statements.
Overview
In 2009, overall revenue decreased approximately 47% when compared to
the year ended December 31, 2008.
The reduction in revenue is primarily attributed to a decrease in
renewals and sales from certain DoD customers as well as budgetary
consolidations and the promotion of competing solutions by the DISA, including
a collaborative product being sponsored and offered for free by the DISA to
these customers. As a result, we
experienced an operating loss of $3.5 million and a net loss of approximately
$3.4 million in 2009 compared to an operating loss of $3.1 million and a net
loss of approximately $3.1 million in 2008, resulting in a loss of $0.23 per
share in 2009, compared to a loss of $0.21 per share in 2008.
Revenue relating to our InfoWorkSpace product decreased approximately
47% in 2009 compared to 2008. Gross
profit also declined approximately 47% compared to 2008, but the gross profit
percentage increased .7% to 61.9% in 2009 as compared to 2008. Operating
expenses decreased $1.5 million to $5.7 million for 2009, as compared to $7.2
million for 2008. The decrease in our operating expenses in 2009, which
includes an increase of $143,000 share-based compensation expense resulting
from a revision to our forfeiture rate estimates based on actual historical
activity, was a result of further spending reductions and belt-tightening
measures in all areas of the company in response to declining revenue. Our
other income increased slightly year over year as we saw an increase in investment
gains, offset partially by a decrease in our interest earned, due to lower
interest rates and a lower average cash balance.
In 2007, we entered into a new agreement with
Microsoft to extend an existing software distribution license agreement through
December 2008. Under the agreement,
we were required to purchase a minimum of $1.7 million during 2007 and $2.75
million of licenses during 2008, plus purchase an additional $0.5 million over
the life of the two year agreement. During 2007, we reviewed our forecast for
license sales over the balance of the agreement and recorded a charge of $1.45
million to reserve for an excess purchase commitment. The charge was recorded as a component of
cost of product revenue during the year ended December 31, 2007.
In December 2008, the Microsoft
agreement was amended to extend the term through June 2011 and reduce the
remaining purchase commitment to $2.75 million, $154,000 of which was satisfied
during 2008 and $840,000 in 2009. The
amended agreement requires that we make additional payments of $1.1 million and
$0.7 million during 2010 and 2011, respectively. In addition to the remaining $1.8 million
license purchase commitment, we have approximately $1.1 million of prepaid
licenses on hand that have yet to be deployed to customers. During 2009, we continued to experience a
decline in the volume of our customer license renewals. As of December 31, 2009, we reviewed our
forecast for license sales through the amended term (June 2011) and
believe that the $1.45 million reserve remains the appropriate reserve for the
excess purchase commitment. The
computation of the excess purchase commitment reserve requires management to
make certain assumptions regarding future license renewals and sales
growth. Actual results may differ
materially from managements estimates.
Although our revenue has declined as a result
of the redirections of IT budget by the DISA, coupled with the current
difficult economic conditions which lengthen the business development and sales
activities on the commercial segment, our immediate focus is to continue to
enhance our existing various collaborative product and service offerings and to
develop and ultimately deploy the next generation of products and services, via
aggressive
16
Table of Contents
and concentrated sales, service, engineering,
and marketing efforts. We plan to continue to vigorously defend and endeavor to
protect our customer base within the military and intelligence community, while
pursuing new opportunities with various agencies and first responders dealing
with the threat of terrorism and natural disasters, as well as emerging
commercial applications. This focus is subject to change as the driving
influence in our future direction is based on the needs and requirements of our
customer base, both current and future, and may be adversely affected by
current economic and market conditions.
Critical Accounting Policies
The discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our
estimates, including those related to revenue recognition, bad debts,
inventories, income taxes and warranty obligations. 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 value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
critical accounting policies and the related judgments and estimates affect the
preparation of our consolidated financial statements.
Revenue Recognition
Product revenue consists of sales of
InfoWorkSpace
software licenses and maintenance agreements,
InfoWorkSpace
product related training, installation, and
consulting. Revenue from sales of
InfoWorkSpace
software license and maintenance agreements is
recognized ratably over the subscription software license contract periods,
which are generally one year. Revenue from
InfoWorkSpace
training, installation, and consulting services are
recognized as the services are performed provided there is vendor specific
objective evidence of fair value, which is the price charged when the services
are sold separately.
Product development revenue relates to contracts
involving customization of the
InfoWorkSpace
product according to a customers specifications.
When reliable estimates are available for the costs and efforts necessary to
complete the product development and the contract does not include contractual
milestones or other acceptance criteria, product development revenue is
recognized under the percentage-of-completion contract method based upon input
measures, such as hours. When such
estimates are not available, we defer all revenue recognition until we have
completed the contract and have no further obligations to the customer. Revenue associated with contracts for product
development revenue with milestone-based deliverables requiring a customers
acceptance is recognized upon the customers acceptance in accordance with the
terms of the contract. The associated
cost recognition with these deliverables or milestones is deferred until the
terms of acceptance are satisfied and revenue is recognized. Certain of our
product development contracts are subject to government audit and retroactive
adjustment of the direct and indirect costs used to determine the contract
billings. Product development revenue
and accounts receivable reported in the financial statements are recorded at
the amount expected to be received.
Product development revenue is adjusted to actual upon final audit and
retroactive adjustment. Estimated
contractual allowances are provided based on managements evaluation of current
contract terms.
Products and software licenses are sold without any
contractual right of return by the customer.
Deferred revenue represents amounts received from customers under
subscription software licenses, maintenance agreements, or for product sales in
advance of revenue recognition.
Judgments are required in evaluating the creditworthiness of our
customers. In all instances, revenue is
not recognized until we have evidence of an arrangement, the fee is fixed and
determinable and collectability is reasonably assured. Amounts billed to customers related to
shipping and handling charges are recorded upon shipment and the related costs
are included in cost of goods sold.
17
Table of Contents
Allowance for Doubtful Accounts
Our policy is to maintain allowances for estimated
losses resulting from the inability of our customers to make required payments.
Credit limits are established through a process of reviewing the financial
history and stability of each customer. Where appropriate, we obtain credit
rating reports and financial statements of the customer when determining or
modifying their credit limits. We regularly evaluate the collectability of our
trade receivable balances based on a combination of factors. When a customers
account balance becomes past due, we initiate dialogue with the customer to
determine the cause. If it is determined that the customer will be unable to
meet its financial obligation to us, such as in the case of a bankruptcy
filing, deterioration in the customers operating results or financial
position, or other material events impacting the customers business, we record
a specific allowance to reduce the related receivable to the amount we expect
to recover given all information presently available.
At December 31, 2009, our accounts receivable
balance of approximately $129,000 is reported net of allowances of
approximately $28,000. We believe our reported allowances are adequate. If the
financial conditions of our customers were to deteriorate, however, resulting
in their inability to make payments, we may need to record additional
allowances, which would result in additional expenses being recorded for the
period in which such determination was made.
Accounting
for Share-Based Compensation
We
have stock option plans that provide for the purchase of our common stock by
certain of our employees, directors, and advisory board members. We recognize
compensation expense for our share-based payments based on the fair value of
the awards. Share-based payments include stock option grants under our stock
option plans.
The determination of the fair value of share-based payment awards
includes estimating the expected life of the award, the expected stock price
volatility over the expected life of the awards, expected dividend yield, and
risk-free interest rate. Expected volatilities are based on historical
volatility of our common stock. We base
the expected term of the options on our historical option exercise data with a
minimum life expectancy equal to the vesting period of the option. We base the risk-free interest rate on the
U.S. Treasury yield in effect at the time of the grant for a term closest to
the expected life of the options. Expected dividend yield is not considered as
we have not made any dividend payments and have no plans of doing so in the
foreseeable future. Forfeitures are estimated based upon our historical
experience. This estimate is adjusted periodically based on the extent to which
actual forfeitures differ, or are expected to differ, from the previous
estimate.
We recorded $873,000 and $703,000
of share-based compensation expense in 2009 and 2008, respectively.
During 2009 we
reviewed our recent unvested option forfeiture history and revised our
estimated forfeitures to an annual rate of 15% and trued up the recorded
compensation expense to the revised rate.
This estimate revision increased expenses by approximately $143,000 in
2009.
Income Taxes
The calculation of tax assets and liabilities
involves significant judgment in estimating the impact of uncertainties in the
application of complex tax laws.
Deferred tax assets and liabilities are determined at the end of each
year based on the future tax consequences that can be attributed to net
operating loss and credit carryovers as well as the differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The deferred
tax assets are reduced by a valuation allowance if it is more likely than not
that the tax benefits will not be realized.
The realization of deferred tax assets is dependent upon the generation
of future taxable income. In determining
the valuation allowance, we consider past performance, expected future taxable
income, and qualitative factors when estimating future taxable income. Our forecast of expected future taxable
income is for future periods that can be reasonably estimated. Changes in results that differ materially
from our current expectations may cause us to change our judgment on future
taxable income. These changes, if any, may require us to adjust our existing
tax valuation allowance higher or lower than the amount we have previously
recorded.
18
Table of Contents
Results of Operations Years Ended December 31, 2009 and 2008
Revenue
Revenue
declined 47% in 2009 to approximately $3.5 million when compared to 2008.
Product revenue related to
InfoWorkSpace
declined approximately $3.1 million or 47%, while product development
revenue declined by approximately $52,000. Product development revenue is
revenue related to product customization work performed for customers seeking
enhancements to our current product. During 2008, product development revenue
included $67,000 related to the completion of reviews of development projects
that occurred from 2004 to 2007. The
decline in license revenue in 2009 was the result of a shortfall in license
renewals primarily due to redirections of the IT budget by the DISA and the
second NCES contract award to our competitor, which resulted in a number of our
existing customers not renewing their licenses and/or reducing the number of
licenses used. We believe that if we
successfully execute on our strategy, we will be able to compensate for this
decline in license renewals, at least in part, by the introduction of our product
to new customers.
Gross profit
Cost of
revenue includes material costs, costs of third-party software licenses, direct
labor and overhead, customer support costs, and engineering and development
costs associated with sponsored and customized product development revenue.
Gross profit as a percentage of revenue increased in 2009 to 61.8%, from 61.5%
in 2008.
Research and development
Research and development expenses include payroll, employee benefits,
other headcount-related costs, and miscellaneous costs associated with product
development. Research and development expenses decreased to approximately $1.7
million in the year ended December 31, 2009, from approximately $2.1
million in 2008. This decrease is primarily attributable to a reduction in the
number of employees, recruiting, supplies and consulting costs.
Sales and marketing
Sales and marketing expenses include payroll, employee benefits, and
other headcount-related costs associated with sales and marketing personnel
along with expenses pertaining to advertising, tradeshows, seminars, and other
marketing-related programs. Sales and
marketing expenses decreased 50% to approximately $1.0 million in 2009 from
approximately $2.0 million in the year ended December 31, 2008. This
decrease is primarily attributable to an elimination of commercial and federal
sales and business development personnel located in New Jersey, Florida,
California and associated consultants in addition to a flattening of the
organization, thereby resulting in significant cost savings and bringing the
expense profile more in line with the focus of the business. Currently, all new Federal and DoD business
is primarily consolidated in our Sterling, Virginia office while renewals and
commercial business is mainly driven from the Nashua, New Hampshire
headquarters. As the current product
line InfoWorkSpace evolves with additional enhancements and new product
derivatives are expected to be launched, sales and marketing currently remain
our primary focus for investment in order to rebuild our revenue.. .
General and administrative
General and administrative costs include payroll, employee benefits,
and other headcount-related costs associated with the finance, human resources,
management information systems, and other administrative headcount, and legal
and investor relations costs, and other administrative fees. General and administrative expenses were
approximately $2.5 million in 2009, an increase of $0.1 million over those
incurred in 2008. An increase of
approximately $115,000 is attributable to a
revision to our forfeiture rate estimates based on
actual historical activity,
and resulting adjustment to share-based
compensation expense in 2009. An additional increase of approximately
19
Table of Contents
$130,000 is the result of market gains recorded as deferred
compensation expense along with increases in headcount-related expenses offset
by decreases in relocation, consulting, and legal and professional expenses.
Occupancy and other facilities-related expenses
Occupancy and other facilities-related expenses decreased 18% to
approximately $259,000 in the year ended December 31, 2009, from
approximately $317,000 in 2008. These costs include rent expense and other
operating costs associated with our headquarters in Nashua, New Hampshire, and
our sales offices in Sterling, Virginia. This decrease is primarily due to a
reduction in telecommunications charges and software licenses due to vendor
changes and insurance expense.
Restructuring charge
We recorded a $215,000 charge to operations
in 2007 in recognition of our consolidation of our Colorado Springs and Nashua
facilities in Nashua, New Hampshire, which was completed in December 2007.
An additional restructuring charge of $219,000 was recorded in 2008, as we
experienced delays in finding a subtenant for the Colorado facility. The charge
represents the estimated future costs of the lease pertaining to the Colorado
Springs facility, net of estimated sublease proceeds.
Interest income
Interest income consists of interest on cash and cash equivalents. Interest income decreased to approximately
$45,000 in 2009 from approximately $155,000 in 2008. The decrease in 2009 was
primarily related to a decrease in the interest rates and a reduced cash
balance.
Other income
Other income consists of gains and losses related to
short-term mutual fund investments. In 2009, we recorded a gain of
approximately $46,000 due to the increase in the market value of our short-term
investments, while we recorded a loss due to a decline in the market value of
approximately $98,000 in 2008.
Income tax benefit
Due to the uncertainty of future taxable income, we have
not recorded an income tax benefit for the losses incurred in 2009 and 2008.
Liquidity and Capital Resources
At December 31, 2009, we had cash and cash equivalents of
approximately $4.4 million.
We incurred a loss from operations of approximately $3.5 million for the
year ended December 31, 2009, and a net loss for the year of approximately
$3.4 million, as compared with an operating loss in 2008 of approximately $3.1
million, and a net loss of approximately $3.1 million in 2008.
We used
cash for operations of $2.3 million in fiscal year 2009 compared to expending
cash of $2.6 million in 2008. Cash expended for operating activities in 2009
was primarily the result of a net loss and a decline in deferred revenue,
offset by a decrease in accounts receivable and non-cash items such as
depreciation, and share-based compensation. Cash used by operating activities
in 2008 was primarily the result of a net loss and a decline in deferred
revenue offset by decreases in accounts receivable and prepaid software
licenses, and non-cash items such as depreciation, amortization of capitalized
software and share-based compensation.
We
invested approximately $43,000 in property and equipment in fiscal 2009
compared to $45,000 in fiscal 2008. We generated cash from financing activities
of $13,000 in 2008 primarily from proceeds of sales of our common stock
pursuant to our various stock plans, and no cash from financing activities in
2009.
20
Table of Contents
We lease our primary facility in Nashua, New Hampshire, under an
operating lease, which expires in August 2010. In July 2007, we
signed an additional lease for 6,000 square feet adjacent to our existing rented
space in Nashua, New Hampshire. This
lease will expire in August 2010. We also have leased office space,
located in Sterling, Virginia which was recently extended to June 2013. Future minimum lease obligations at December 31,
2009, under all of these non-cancelable operating leases are $84,000 in 2010,
$98,000 in 2011, $35,000 in 2012 and $18,000 in 2013.
In September 2007, we announced our plan to consolidate our
Colorado Springs and Nashua facilities in Nashua, New Hampshire by the end of
2007. We recorded a restructuring charge
of $215,000 to cover the expected lease payments of the Colorado Springs
facility, net of expected sublease proceeds. In 2008, we reassessed our
exposure in consideration of the current real estate market and interest in the
space to date by potential subtenants.
Based on the resulting conclusions, we recorded an additional
restructuring charge of $219,000 in 2008. The space is leased by us through November 2011
and is currently available for subleasing. We estimate that we will have to pay
$228,000, net of estimated sublease proceeds, over the remaining lease term.
Our gross remaining obligation on the lease, including estimated operating
expenses, is approximately $394,000.
In April 2007, we entered into a new
agreement with Microsoft to extend an existing software distribution license
agreement through December 2008.
Under the agreement, we are required to purchase a minimum of $1.7
million and $2.75 million of licenses during 2007 and 2008 respectively, plus
purchase an additional $0.5 million over the life of the two year agreement.
During 2007, we reviewed our forecast for license sales over the balance of the
agreement and recorded a charge of $1.45 million to reserve for an excess
purchase commitment. The charge was recorded
as a component of cost of product revenue during the year ended December 31,
2007.
In December 2008, the Microsoft
agreement was amended to extend the term through June 2011 and reduce the
remaining purchase commitment to $2.75 million, $154,000 of which was satisfied
during 2008 and $840,000 in 2009. The
amended agreement requires that we make additional payments of $1.1 million and
$0.7 million during 2010 and 2011, respectively. In addition to the remaining $1.8 million
license purchase commitment, we have approximately $1.1 million of prepaid
licenses on hand that have yet to be deployed to customers. During 2009, we continued to experience a
decline in the volume of our customer license renewals and a lengthening of the
sales cycle for new license sales. As of
December 31, 2009, we reviewed our forecast for license sales through the
amended term (June 2011) and believe that the $1.45 million reserve
remains the appropriate reserve for the excess purchase commitment. The computation of the excess purchase
commitment reserve requires management to make certain assumptions regarding
future license renewals and sales growth.
Actual results may differ materially from managements estimates.
We
include standard intellectual property indemnification provisions in our
licensing agreements in the ordinary course of business. Pursuant to our
product license agreements, we will indemnify, hold harmless, and agree to
reimburse the indemnified party for losses suffered or incurred by the
indemnified party, generally business partners or customers, in connection with
certain patent, copyright or other intellectual property infringement claims by
third parties with respect to our products. Other agreements with our customers
provide indemnification for claims relating to property damage or personal
injury resulting from the performance of services by us or our subcontractors.
Historically, our costs to defend lawsuits or settle claims relating to such
indemnity agreements have been insignificant. Accordingly, the estimated fair
value of these indemnification provisions is immaterial.
In May 2003, after failing to
comply with certain continued listing standards for the NASDAQ SmallCap Market,
including maintaining a minimum bid price of at least $1.00 per share, or the
requirement to have a minimum of $2.5 million in stockholders equity, we
received a delisting notification from NASDAQ.
After exercising our right for an appeal of this determination to a
NASDAQ Listing Qualifications Panel, the Panel determined to delist our
securities from The NASDAQ Stock Market in August 2003. Since then, our
common stock has been quoted on the OTC Bulletin Board. The market value and liquidity of our common
stock, as well as our ability to raise additional capital, has been and may
continue to be materially adversely affected by this delisting decision.
Operating costs are continually under
review and adjusted accordingly. With the decline in revenue in 2009, we
21
Table of Contents
took the necessary steps to reduce
spending to the appropriate levels. We
intend to continue to make the necessary improvements to our infrastructure in
2010 by adding resources where and when required which we believe is necessary
in order to compete successfully in the ever-increasingly competitive
collaborative software market.
Order bookings, which are purchase
orders placed by customers, are not recorded as revenue or recognized as
revenue until all requirements of that order are satisfied, although the cash
flow received from these orders may more closely follow the receipt date of the
order. Based upon our current bookings
forecast, expense structure and commitments, management believes that its
existing cash resources will be sufficient to fund its anticipated working
capital and capital expenditure needs for at least the next twelve months.
The following table summarizes our outstanding contractual obligations:
(in
thousands)
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Total
|
|
Operating leases
|
|
$
|
84
|
|
$
|
98
|
|
$
|
35
|
|
$
|
18
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Microsoft License Agreement
|
|
1,080
|
|
676
|
|
|
|
|
|
1,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,164
|
|
$
|
710
|
|
$
|
35
|
|
$
|
18
|
|
$
|
1,927
|
|
Recent
Accounting pronouncements
In June 2009, the Financial Accounting Standards Board (the FASB) issued Statement No. 168,
The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles
. This statement establishes the FASB
Accounting Standards Codification (the Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. generally accepted accounting principles (GAAP). The purpose of the Codification is to
simplify GAAP, without change, by consolidating the numerous accounting rules into
logically organized topics. The
Codification affects the way companies reference GAAP in financial statements
and in their accounting policies. This Statement is effective for financial
statements issued for periods ending after September 15, 2009. Effective July 1, 2009, changes to the
source of authoritative GAAP, the Codification, are communicated through an
Accounting Standards Update (ASU).
ASUs will be published for all authoritative GAAP promulgated by the
FASB, regardless of the form in which such guidance may have been issued prior
to release of the Codification. In June 2009,
the FASB issued ASU No. 2009-01,
The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles
, which amended the Codification for the issuance of
Statement No. 168. The ASU includes
Statement No. 168 in its entirety.
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To
date, we have not utilized derivative financial instruments or derivative
commodity instruments. We invest cash in highly liquid investments, consisting
of highly rated U.S. and state government securities, commercial paper,
short-term money market funds and mutual funds. These investments are subject
to general credit and market risk and we have no debt other than our
contractual lease obligations. A 10% change in interest rates would not have a
material impact on our financial position, operating results or cash flows. We
have closed our foreign offices, and sales to foreign customers from the United
States are in U.S. dollars. Therefore,
we have no significant foreign currency risk.
22
Table of Contents
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Stockholders of
Ezenia! Inc.:
We have audited
the accompanying consolidated balance sheets of Ezenia! Inc. and subsidiaries
as of December 31, 2009 and 2008 and the related consolidated statements
of operations, stockholders equity and cash flows for the years then
ended. These financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our
audits in accordance with the auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Ezenia! Inc. and
subsidiaries as of December 31, 2009 and 2008 and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/
CATURANO AND
COMPANY, P.C.
|
|
Boston,
Massachusetts
|
March 30,
2010
|
24
Table of Contents
Consolidated Balance Sheets
(In thousands, except for
share and per share related data)
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Assets
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,383
|
|
$
|
6,774
|
|
Accounts receivable, less allowance of $28 at
December 31, 2009 and 2008
|
|
129
|
|
771
|
|
Prepaid software licenses
|
|
1,239
|
|
1,125
|
|
Prepaid expenses and other current assets
|
|
169
|
|
186
|
|
Total current assets
|
|
5,920
|
|
8,856
|
|
Deposits
|
|
15
|
|
15
|
|
Equipment and improvements, net
|
|
133
|
|
243
|
|
Total assets
|
|
$
|
6,068
|
|
$
|
9,114
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Accounts payable
|
|
$
|
273
|
|
$
|
257
|
|
Accrued expenses
|
|
1,627
|
|
1,674
|
|
Employee compensation and benefits
|
|
195
|
|
150
|
|
Accrued restructuring charges
|
|
228
|
|
287
|
|
Deferred revenue
|
|
876
|
|
1,326
|
|
Total current liabilities
|
|
3,199
|
|
3,694
|
|
Deferred revenue, net of current portion
|
|
3
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
Preferred stock, $.01 par value; 2,000,000 shares
authorized; none issued and outstanding
|
|
|
|
|
|
Common stock, $.01 par value; 40,000,000 shares
authorized; 15,417,754 issued and 14,658,217 outstanding in 2009 and in 2008
|
|
154
|
|
154
|
|
Capital in excess of par value
|
|
66,459
|
|
65,586
|
|
Accumulated deficit
|
|
(60,802
|
)
|
(57,375
|
)
|
Treasury stock; 759,537 shares at cost in 2009 and
2008
|
|
(2,945
|
)
|
(2,945
|
)
|
|
|
2,866
|
|
5,420
|
|
Total liabilities and stockholders equity
|
|
$
|
6,068
|
|
$
|
9,114
|
|
See accompanying notes.
25
Table of Contents
Consolidated Statements of Operations
(In thousands, except for share and per share related data)
|
|
Year ended December 31,
|
|
|
|
2009
|
|
2008
|
|
Revenue
|
|
|
|
|
|
Product revenue
|
|
$
|
3,471
|
|
$
|
6,570
|
|
Product development revenue
|
|
61
|
|
113
|
|
|
|
3,532
|
|
6,683
|
|
Costs of revenue
|
|
|
|
|
|
Cost of product revenue
|
|
1,322
|
|
2,556
|
|
Cost of product development
revenue
|
|
25
|
|
19
|
|
|
|
1,347
|
|
2,575
|
|
Gross profit
|
|
2,185
|
|
4,108
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
Research and development
|
|
1,711
|
|
2,084
|
|
Sales and marketing
|
|
1,033
|
|
2,024
|
|
General and administrative
|
|
2,547
|
|
2,408
|
|
Depreciation
|
|
153
|
|
182
|
|
Occupancy and other
facilities-related expenses
|
|
259
|
|
317
|
|
Restructuring charge
|
|
|
|
219
|
|
Total operating expenses
|
|
5,703
|
|
7,234
|
|
Loss from operations
|
|
(3,518
|
)
|
(3,126
|
)
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
Interest income
|
|
45
|
|
155
|
|
Other
|
|
46
|
|
(98
|
)
|
|
|
91
|
|
57
|
|
Loss before income taxes
|
|
(3,427
|
)
|
(3,069
|
)
|
Provision for income taxes
|
|
|
|
|
|
Net loss
|
|
$
|
(3,427
|
)
|
$
|
(3,069
|
)
|
Basic and diluted loss per
share:
|
|
|
|
|
|
Basic
|
|
$
|
(0.23
|
)
|
$
|
(0.21
|
)
|
Diluted
|
|
$
|
(0.23
|
)
|
$
|
(0.21
|
)
|
Weighted average common shares:
|
|
|
|
|
|
Basic
|
|
14,658,217
|
|
14,646,006
|
|
Diluted
|
|
14,658,217
|
|
14,646,006
|
|
See accompanying notes.
26
Table of Contents
Consolidated Statements of Stockholders Equity
(In
thousands, except for share related data)
|
|
|
|
|
|
Capital
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
in Excess of
|
|
Accumulated
|
|
Treasury
|
|
Stockholders
|
|
|
|
Shares
|
|
Par Value
|
|
Par Value
|
|
Deficit
|
|
Stock
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AS OF DECEMBER
31, 2007
|
|
14,601,092
|
|
$
|
154
|
|
$
|
64,870
|
|
$
|
(54,306
|
)
|
$
|
(2,945
|
)
|
$
|
7,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under employee benefit plans
|
|
57,125
|
|
|
|
13
|
|
|
|
|
|
13
|
|
Share-based compensation expense
|
|
|
|
|
|
703
|
|
|
|
|
|
703
|
|
Net loss
|
|
|
|
|
|
|
|
(3,069
|
)
|
|
|
(3,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AS OF DECEMBER 31, 2008
|
|
14,658,217
|
|
154
|
|
65,586
|
|
(57,375
|
)
|
(2,945
|
)
|
5,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
873
|
|
|
|
|
|
873
|
|
Net loss
|
|
|
|
|
|
|
|
(3,427
|
)
|
|
|
(3,427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES AS OF DECEMBER 31, 2009
|
|
14,658,217
|
|
$
|
154
|
|
$
|
66,459
|
|
$
|
(60,802
|
)
|
$
|
(2,945
|
)
|
$
|
2,866
|
|
See accompanying notes.
27
Table of Contents
Consolidated Statements of Cash
Flows
(In thousands)
|
|
Year ended December 31,
|
|
|
|
2009
|
|
2008
|
|
Operating activities
|
|
|
|
|
|
Net loss
|
|
$
|
(3,427
|
)
|
$
|
(3,069
|
)
|
Adjustments to reconcile net loss to net cash used
for operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
153
|
|
182
|
|
Amortization of capitalized software
|
|
|
|
18
|
|
Share-based compensation
|
|
873
|
|
703
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
642
|
|
1,708
|
|
Prepaid software licenses
|
|
(114
|
)
|
461
|
|
Prepaid expenses and other current assets
|
|
17
|
|
106
|
|
Accounts payable, accrued expenses, employee and
compensation benefits, and accrued restructuring
|
|
(45
|
)
|
(495
|
)
|
Deferred revenue
|
|
(447
|
)
|
(2,203
|
)
|
Net cash used for operating activities
|
|
(2,348
|
)
|
(2,589
|
)
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Purchases of equipment and improvements
|
|
(43
|
)
|
(45
|
)
|
Net cash used for investing activities
|
|
(43
|
)
|
(45
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Proceeds from stock issued under employee benefit
plans
|
|
|
|
13
|
|
Net cash provided by financing activities
|
|
|
|
13
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
(2,391
|
)
|
(2,621
|
)
|
Cash and cash equivalents at beginning of year
|
|
6,774
|
|
9,395
|
|
Cash and cash equivalents at end of year
|
|
$
|
4,383
|
|
$
|
6,774
|
|
Supplementary disclosure of cash flow information:
|
|
|
|
|
|
Interest paid
|
|
$
|
1
|
|
$
|
1
|
|
Income taxes refunded
|
|
$
|
|
|
$
|
(17
|
)
|
See
accompanying notes.
28
Table of Contents
Notes to the Consolidated Financial Statements
1. Nature
of Business and Basis of Presentation
Ezenia! Inc. (Ezenia,
we, or the Company) operates in one business segment, which is the design,
development, production, marketing and sale of real-time group collaboration
and communication solutions for corporate and governmental networks and
eBusiness. Founded in 1991, we develop
and market products that enable organizations to provide high-quality group
communication and collaboration capabilities to commercial, governmental,
consumer and institutional users. Our products allow individuals and groups,
regardless of proximity constraints, to interact and share information in a
natural, spontaneous way voice-to-voice, face-to-face, mouse-to-mouse, or
keyboard-to-keyboard, flexibly, securely and in real time. Using our products,
individuals can interact through a natural meeting experience, allowing groups
to work together effectively and disseminate vital information quickly in a
secure environment.
The consolidated financial statements
include the accounts of Ezenia and its wholly owned subsidiaries, Ezenia
International, Inc. and Ezenia Latin America, Inc. All
significant inter-company transactions and balances have been eliminated.
All assets and liabilities of our foreign subsidiaries are translated at the
rate of exchange at the end of the year, while sales and expense are translated
at the average rate in effect during the year. The net effect of these
translation adjustments was immaterial for all periods presented.
2. Summary
of Significant Accounting Policies
Use of
Estimates
The preparation of
the financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, if any, at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could
differ from these estimates.
Revenue Recognition
Product revenue consists of sales of
InfoWorkSpace
software licenses and maintenance agreements,
InfoWorkSpace
product related training and consulting. Revenue
from sales of
InfoWorkSpace
software license and
maintenance agreements is recognized ratably over the subscription software
license contract periods, which are generally one year. Revenue from
InfoWorkSpace
training, installation, and consulting services is
recognized as the services are performed provided there is vendor specific
objective evidence of fair value, which is the price charged when the services
are sold separately.
Product development revenue relates to contracts
involving customization of the
InfoWorkSpace
product according to a customers specifications.
When reliable estimates are available for the costs and efforts necessary to
complete the product development and the contract does not include contractual
milestones or other acceptance criteria, product development revenue is
recognized under the percentage-of-completion contract method based upon input
measures, such as hours. When such
estimates are not available, we defer all revenue recognition until we have
completed the contract and have no further obligations to the customer. Revenue associated with contracts for product
development revenue with milestone-based deliverables requiring a customers
acceptance is recognized upon the customers acceptance in accordance with the
terms of the contract. The associated
cost recognition with these deliverables or milestones is deferred until the
terms of acceptance are satisfied and revenue is recognized. Certain of our
product development contracts are subject to government audit and retroactive
adjustment of the direct and indirect costs used to determine the contract
billings. Product development revenue
and accounts receivable reported in the financial statements are recorded at
the amount expected to be received.
Product development revenue is adjusted to actual upon final audit and
retroactive adjustment. Estimated
contractual allowances are provided based on managements evaluation of current
contract terms. During 2008, the government completed a review of the 2004-2007
development contracts. Based upon these reviews, we recorded $67,000 of revenue
which had initially been deferred pending the completion of the reviews.
29
Table of Contents
Products and software licenses are sold without any
contractual right of return by the customer.
Deferred revenue represents amounts received from customers under
subscription software licenses, maintenance agreements, or for product sales in
advance of revenue recognition.
Judgments are required in evaluating the creditworthiness of our
customers. In all instances, revenue is
not recognized until we have evidence of an arrangement, the fee is fixed and
determinable and collectability is reasonably assured. Amounts billed to customers related to
shipping and handling charges are recorded as revenue upon shipment and the
related costs are included in cost of goods sold.
Third-Party Technology
Our InfoWorkSpace product incorporates third-party technology in the
form of software licenses, which we purchase from other software vendors. Software licenses purchased from vendors are
reported as prepaid licenses and, when deployed, amortized to cost of revenue
over the subscription period, which is generally one year.
Advertising
Advertising costs
are included in sales and marketing expense.
We use our website as our main form of advertising along with
participating in various industry-related trade shows. Advertising costs are
expensed as incurred. Advertising expense was approximately $16,000 and $17,000
in fiscal years 2009 and 2008, respectively.
Cash Equivalents
We consider all
highly liquid investments with a maturity of 90 days or less at the date of
purchase, or investments that can be converted to cash quickly such as mutual
funds, to be cash equivalents.
Financial Instruments and Concentrations of Credit
Risk
Our financial
instruments consist primarily of cash and cash equivalents, trade receivables,
accounts payable and accrued expenses.
The carrying value of these financial instruments approximates fair
value due to their short term to maturity.
Financial instruments, which potentially subject us to concentrations of
credit risk, are cash equivalents and accounts receivable.
Major financial
institutions maintain all of our cash equivalents. At times, balances may
exceed federally insured limits.
We have not experienced any
losses in such accounts, and believe we are not exposed to any significant
credit risk on cash and cash equivalents.
Concentration
of credit risk with respect to accounts receivable is limited to certain
customers to whom we make substantial sales.
To reduce risk, we routinely assess the financial strength of our
customers. We maintain an allowance for
doubtful accounts based on accounts past due according to contractual terms and
historical collection experience. Actual
losses when incurred are charged to the allowance.
Revenue from one
customer accounted for approximately 56% of total revenue in 2009 and 35% of
total revenue in 2008. Accounts
receivable from this customer accounted for approximately 76% and 29% of the
balances at December 31, 2009 and 2008, respectively. A second customer
accounted for approximately 16% of total revenue in 2009 and 10% of total
revenue in 2008. This customers
accounts receivable balance accounted for approximately 0% and 10% of the
balance at December 31, 2009 and 2008, respectively. A third customer accounted for approximately
5% of total revenue in 2009 and 28% of total revenue in 2008. This customers
accounts receivable balance accounted for approximately 0% and 43% of the
balance at December 31, 2009 and 2008, respectively. Revenue from
international markets was immaterial in both 2009 and 2008.
Equipment and Improvements
Equipment and
improvements are stated at cost and depreciated using the straight-line method
over the following estimated useful lives:
30
Table of Contents
Computer
software and equipment
|
|
3 years
|
Office equipment
|
|
5 years
|
Furniture and
fixtures
|
|
5 years
|
Leasehold
improvements
|
|
Shorter of lease
term or estimated useful life
|
Repairs and maintenance costs are expensed as incurred.
Research
and Development Costs
Costs that are incurred
internally in researching and developing a computer software product are
charged to expense until technological feasibility has been established for the
product. Once technological feasibility
is established, all software costs are capitalized until the product is
available for general release to customers.
During 2006, we released version 3.0 of our
InfoWorkSpace
software product. In connection with this development effort, a
total of $140,000 of costs were capitalized and amortized on a straight-line
basis over the estimated economic life of the product of 2 years. The costs were fully amortized during 2008.
Judgment is required in
determining when technological feasibility of a product is established as well
as its economic life. In most cases, we have determined that technological
feasibility for our software products/updates is reached shortly before the
products are released to manufacturing. Costs incurred after technological
feasibility is established have historically not been material, and
accordingly, were expensed when incurred in these instances.
Income
Taxes
Deferred tax assets and liabilities are determined
at the end of each year based on the future tax consequences that can be
attributed to net operating loss and credit carryovers as well as the
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
The deferred tax assets are reduced by a valuation allowance if it is
more likely than not that the tax benefits will not be realized. The realization of deferred tax assets is
dependent upon the generation of future taxable income. In determining the valuation allowance, we
consider past performance, expected future taxable income, and qualitative
factors which we consider to be appropriate to be considered in estimating
future taxable income. Our forecast of
expected future taxable income is for future periods that can be reasonably
estimated. Results that differ
materially from our current expectations may cause us to change our judgment on
future taxable income. These changes, if any, may require us to adjust our
existing tax valuation allowance higher or lower than the amount we have
recorded.
Comprehensive
Loss
Comprehensive loss represents the change in equity
during a period from transactions and other events and circumstances from
non-owner sources. Comprehensive loss consists of the net loss for the years
ended December 31, 2009 and 2008, and is reported within the accompanying
consolidated statements of changes in stockholders equity.
Net Loss Per Share
Shares used in
computing basic and diluted net loss per share are as follows:
|
|
2009
|
|
2008
|
|
Basic
|
|
14,658,217
|
|
14,646,006
|
|
Effect of assumed exercise of
stock options
|
|
|
|
|
|
Diluted
|
|
14,658,217
|
|
14,646,006
|
|
Outstanding options excluded
as impact is anti-dilutive
|
|
3,499,725
|
|
3,239,157
|
|
31
Table of Contents
Accounting for Share-Based Compensation
Share-based compensation expense for all
stock-based payment awards made to employees and directors is measured based on
the grant-date fair value of the award.
Share-based compensation expense for awards granted to non-employees is
determined using the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably measured. The fair value of options and restricted
stock awards granted to non-employees is periodically remeasured as the
underlying options or awards vest.
We estimate the fair value
of each share-based award using the Black-Scholes option valuation model. The
Black-Scholes option valuation model incorporates assumptions as to stock price
volatility, the expected life of options, a risk-free interest rate and
dividend yield. We recognize share-based compensation expense on a
straight-line basis over the requisite service period of the award, which is
generally four years.
For the years ended December 31, 2009 and 2008, we recorded
share-based compensation expense in the consolidated statements of operations
as follows:
(
in
thousands
)
|
|
Year Ended
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
Cost of revenue
|
|
$
|
35
|
|
$
|
23
|
|
Research and development
|
|
64
|
|
63
|
|
Sales and marketing
|
|
103
|
|
79
|
|
General and administrative
|
|
671
|
|
538
|
|
|
|
$
|
873
|
|
$
|
703
|
|
We estimate the fair value of each option award issued under the plans
on the date of grant using a Black-Scholes based option-pricing model that uses
the assumptions noted in the following table.
Expected volatilities are based on historical volatility of our common
stock. We base the expected term of the
options on our historical option exercise data with a minimum life expected
equal to the vesting period of the option.
We base the risk-free interest rate on the U.S. Treasury yield in effect
at the time of the grant for a term closest to the expected life of the
options.
|
|
Year ended December 31,
|
|
|
|
2009
|
|
2008
|
|
Expected volatility
|
|
111%-126%
|
|
69.33%-92.39%
|
|
Risk-free interest rate
|
|
1.28%-1.76%
|
|
1.52%-3.35%
|
|
Expected life in years
|
|
4.0
|
|
4.0
|
|
Expected dividend yield
|
|
None
|
|
None
|
|
Based on the above assumptions, the weighted average
estimated fair value of options granted in fiscal years 2009 and 2008 was $0.08
and $0.37 per share, respectively. We
estimated forfeitures related to option grants at an annual rate of 29% per
year in 2008. During 2009, we reviewed our recent unvested option forfeiture
history and revised our estimated forfeitures to an annual rate of 15% and
recorded an additional $143,000 in compensation expense based upon the revised
rate.
Other reasonable assumptions about these factors could
provide different estimates of fair value.
Future changes in stock price volatility, life of options, interest
rates, forfeitures and dividend practices, if any, may require changes in our
assumptions, which could materially affect the calculation of fair value.
Total unrecognized share-based compensation expense related
to unvested stock options, expected to be recognized over a weighted average
period of 1.30 years, amounted to $697,000 at December 31, 2009.
32
Table of
Contents
There were no stock option exercises in 2009 and the
weighted average exercise price of stock options exercised for the year ended December 31,
2008 was $0.23. The total intrinsic
value of stock options exercised for the year ended December 31, 2008 was
$20,000
.
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
issued Statement No. 168,
The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles
. This Statement
establishes the FASB Accounting Standards Codification (the Codification) as
the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with U.S. generally accepted accounting principles (GAAP). The purpose of the Codification is to
simplify GAAP, without change, by consolidating the numerous accounting rules into
logically organized topics. The
Codification affects the way companies reference GAAP in financial statements
and in their accounting policies. This statement is effective for financial
statements issued for periods ending after September 15, 2009. Effective July 1, 2009, changes to the
source of authoritative GAAP, the Codification, are communicated through an
Accounting Standards Update (ASU).
ASUs will be published for all authoritative GAAP promulgated by the
FASB, regardless of the form in which such guidance may have been issued prior
to release of the FASB Codification. In June 2009,
the FASB issued ASU No. 2009-01,
The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles
, which amended the Codification for the issuance of
Statement No. 168. The ASU includes
Statement No. 168 in its entirety.
The Company has adopted the provisions of ASU No. 2009-01 by referencing
the Codification in these notes to the consolidated financial statements,
rather than previous accounting standards.
Subsequent
Events
The Company has evaluated all events or transactions through the date
of this filing. During this period, we did not have any material
subsequent events that impacted our consolidated financial statements.
3.
Equipment and
Improvements
Property and equipment are recorded at cost less accumulated
depreciation and amortization.
Depreciation is calculated using the straight-line method over the
useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of the estimated
useful lives of the improvements or the remaining lease term. For the years
ended December 31, 2009 and 2008, equipment and improvements consisted of
the following:
(in thousands)
|
|
2009
|
|
2008
|
|
Computer equipment and purchased software
|
|
$
|
321
|
|
$
|
441
|
|
Office equipment
|
|
27
|
|
34
|
|
Furniture and fixtures
|
|
51
|
|
51
|
|
Leasehold improvements
|
|
192
|
|
192
|
|
Total equipment and improvements
|
|
$
|
591
|
|
$
|
718
|
|
Less: accumulated depreciation
|
|
(458
|
)
|
(475
|
)
|
Total equipment and improvements, net
|
|
$
|
133
|
|
$
|
243
|
|
Depreciation expense for the years ended December 31, 2009 and
2008 was $153,000 and $182,000 respectively.
4.
Income Taxes
Due to
the uncertainty of future taxable income, we have not recorded an income tax
benefit for the losses incurred in 2009 and 2008.
33
Table of Contents
Our deferred tax assets consist of the following:
|
|
December 31, 2009
|
|
December 31, 2008
|
|
Deferred Tax Assets:
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
|
$
|
24,117
|
|
$
|
22,432
|
|
Purchased intangibles
|
|
2,731
|
|
3,243
|
|
Tax Credit Carryforwards
|
|
176
|
|
2,546
|
|
Reserves, accruals and allowances
|
|
98
|
|
147
|
|
Capitalized Research and Development Costs
|
|
|
|
75
|
|
Deferred Revenue
|
|
1
|
|
1
|
|
Depreciation and Amortization
|
|
72
|
|
78
|
|
Other
|
|
950
|
|
618
|
|
Total Gross Deferred Tax Asset
|
|
28,145
|
|
29,140
|
|
Valuation Allowance
|
|
(28,145
|
)
|
(29,140
|
)
|
Net Deferred Tax Asset
|
|
$
|
|
|
$
|
|
|
At December 31, 2009, we had domestic federal net operating loss (NOL)
carryforwards of approximately $68.7 million available to reduce future taxable
income, which expire at various dates beginning in 2020 through 2029. We
have state NOL carryforwards of approximately $20.4 million available to reduce
future state taxable income, which expire at various dates beginning in 2010
through 2029.
As described below under the provisions of the Code,
certain substantial changes in our ownership may result in a limitation on the
amount of NOL carryforwards which may be utilized annually to offset future
taxable income and taxes payable.
We have evaluated
the positive and negative evidence bearing upon the realizability of our
deferred tax assets, which are comprised principally of NOL carryforwards, and
have determined at this time that it is more likely than not that we will not
recognize the benefits of our federal and state deferred tax assets and, as a
result, a valuation allowance of approximately $28.1 million was established at
December 31, 2009 and approximately $29.1 million at December 31,
2008.
A reconciliation
of the expected income tax (benefit) computed using the federal statutory
income tax rate to our effective income tax rate is as follows for the years
ended December 31, 2009 and 2008.
(in thousands)
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Income tax computed at federal statutory tax rate
|
|
$
|
(1,165
|
)
|
$
|
(1,044
|
)
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
(195
|
)
|
(200
|
)
|
|
|
|
|
|
|
Change in valuation allowance
|
|
(995
|
)
|
1,232
|
|
|
|
|
|
|
|
R&D and other credits
|
|
(21
|
)
|
(31
|
)
|
|
|
|
|
|
|
Write off of tax credit carryforwards
|
|
2,393
|
|
|
|
|
|
|
|
|
|
Permanent differences and other
|
|
(17
|
)
|
43
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
|
|
FASB ASC 740 (ASC 740),
Income Taxes,
prescribes a recognition threshold of more-likely-than-not to be sustained upon
examination. ASC 740 also provides guidance on de-recognition, classification,
interest and
34
Table of Contents
penalties, accounting in interim periods, disclosures and
transition. We have determined that the realization of $2.4 million in
federal tax credits is in doubt. As a result, we would have recognized a $2.4
million increase in the liability for unrecognized tax benefits had we
recognized any benefit associated with the credits in prior periods. However, due
to past net operating losses, no benefit has been recognized; accordingly, no
liability has been recognized. During 2009 this asset and its associated
valuation allowance were derecognized in accordance with ASC 740.
At December 31, 2009, we had federal and state NOL carryforwards
of $68.7 million and $20.4 million, expiring at various dates through 2029.
Utilization of the NOL carryforwards may be subject to a substantial annual
limitation due to ownership change limitations that have occurred previously or
that could occur in the future provided by Section 382 of the Internal
Revenue Code of 1986, as amended, (the Code) as well as similar state
provisions. These ownership changes may limit the amount of NOL that can be
utilized annually to offset future taxable income and tax, respectively. In
general, an ownership change, as defined by Section 382, results from
transactions increasing the ownership of certain stockholders or public groups
in the stock of a corporation by more than 50 percentage points over a
three-year period. Since our formation, we have raised capital through the
issuance of capital stock on several occasions which, combined with the
purchasing stockholders subsequent disposition of those shares, may have
resulted in a change of control, as defined by Section 382, or could
result in a change of control in the future upon
subsequent disposition. We have not currently
completed a study to assess whether a change of control has occurred or whether
there have been multiple changes of control since our formation due to the
significant complexity and cost associated with such study and due to the
possibility of additional changes in control in the future. If we have
experienced a change of control at any time since our formation, utilization of
our NOL carryforwards would be subject to an annual limitation under Section 382.
Further, until a study is completed and any limitation known, no amounts are
being presented as an uncertain tax position under ASC 740.
We recognize interest and penalties related to uncertain tax positions
in income tax expense. As of December 31,
2009 and 2008, we had no accrued interest or penalties related to uncertain tax
positions.
We are subject to U.S. Federal and New Hampshire state income tax. The tax years 2000 through 2009 remain open
to examination by the major state taxing jurisdictions to which we are
subject. The Internal Revenue Service
completed an audit of our consolidated federal income tax return for the 2005
tax year with no adjustments.
5.
Commitments and Contingencies
We lease our primary facility in Nashua, New Hampshire, under an
operating lease, which expires in March 2010. In July 2007, we signed
an additional lease for 6,000 square feet adjacent to our existing rented space
in Nashua, New Hampshire. This lease
will expire in August 2010. We also have leased office space, located in
Sterling, Virginia, for our sales force, which was recently extended to June 2013. Future minimum lease obligations at December 31,
2009, under all of these non-cancelable operating leases are $84,000 in 2010,
$98,000 in 2011, $35,000 in 2012 and $18,000 in 2013.
In December 2007, we completed the closure of our Colorado Springs
facility. We recorded a restructuring
charge of $215,000 to cover the expected lease payments of this facility, net
of expected proceeds. In 2008, we reassessed our exposure in consideration of
the current real estate market and interest in the space to-date by potential
subtenants. Based on the resulting conclusions, we recorded an additional
restructuring charge of $219,000 during the year. A portion of the space is
leased through November 2011 and the remaining portion is currently
available for subleasing. We estimate that we will have to pay $228,000, net of
expected sublease rental, over the remaining lease term. Our gross remaining
obligation on the lease, including estimated operating expenses, is
approximately $394,000.
The adjustments to the accrued restructuring liability related to the
shutdown of the Colorado facility for the period ended December 31, 2009
were as follows (in thousands):
Restructuring balance as of December 31, 2008
|
|
$
|
287
|
|
Cash payments
|
|
(59
|
)
|
Restructuring liability at December 31, 2009
|
|
$
|
228
|
|
35
Table of Contents
In April 2007, we entered into a new
agreement with Microsoft to extend an existing software distribution license
agreement through December 2008.
Under the agreement, we were required to purchase a minimum of $1.7
million and $2.75 million of licenses during 2007 and 2008 respectively, plus
purchase an additional $0.5 million over the life of the two year agreement.
During 2007 we reviewed our forecast for license sales over the balance of the
agreement and recorded a charge of $1.45 million to reserve for an excess
purchase commitment. The charge was
recorded as a component of cost of product revenue during the year ended December 31,
2007.
In December 2008, the Microsoft
agreement was amended to extend the term through June 2011 and reduce the
remaining purchase commitment to $2.75 million, $154,000 of which was satisfied
during 2008 and $840,000 in 2009. The
amended agreement requires that we make additional payments of $1.1 million and
$0.7 million during 2010 and 2011, respectively. In addition to the remaining $1.8 million
license purchase commitment, we have approximately $1.1 million of prepaid
licenses on hand that have yet to be deployed to customers. During 2009, we continued to experience a
decline in the volume of our customer license renewals and a lengthening of the
sales cycle for new licenses. As of December 31, 2009, we reviewed our
forecast for license sales through the amended term (June 2011) and believe
that the $1.45 million reserve remains the appropriate reserve for the excess
purchase commitment. The computation of the excess purchase commitment reserve
requires management to make certain assumptions regarding future license
renewals and sales growth. Actual
results may differ materially from managements estimates.
The Company is subject
to various legal proceedings and claims that arise in the ordinary course of
business. We believe that the outcomes of these matters will not materially and
adversely affect our business, financial position or financial results.
6.
Stockholders Equity
We have authorized
2,000,000 shares of preferred stock, 50,000 shares of which are designated as Series D
Junior Participating Preferred Stock (Note 9), and the reminder of which are
undesignated. Each series of preferred stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences as
determined by our Board of Directors
(the Board).
Share Repurchase Program
In October 2007, the Board authorized the repurchase up to $1.0
million of common stock. This authority
was exercised from time to time through November 2008. As of December 31,
2008, we had purchased $84,000 of our common stock under this program. The
authorization period has expired.
7.
Benefit
Plans
Stock Option Plans
Our Amended and
Restated 1991 Stock Incentive Plan (the 1991 Plan) provided for the sale or
award of common stock, or the grant of incentive stock options or nonqualified
stock options for the purchase of common stock, up to 6,090,541 shares to our
officers, employees and consultants. The
1991 Plan terminated on March 31, 2001, and no further options have been granted
under the 1991 Plan subsequent to that date.
At December 31, 2009, there were 253,500 shares of common stock
reserved for issuance upon exercise of outstanding options granted under the
1991 Plan.
Our 2001 Stock
Incentive Plan was approved and adopted by the Board on April 11, 2001
(the 2001 Plan). The 2001 Plan provided for the sale or award of common
stock, or the grant of non-qualified stock options for the purchase of common
stock, up to 5,000,000 shares to our officers, directors, employees and
consultants. Vesting
36
Table of Contents
of options granted
under the 2001 Plan accelerates upon a change of control or acquisition as
defined in the 2001 Plan. The 2001 Plan terminated on December 31, 2004
and no further options have been granted under the 2001 Plan subsequent to that
date. At December 31, 2009, there
were 14,250 shares of common stock reserved for issuance upon exercise of
outstanding options granted under the 2001 Plan.
Our 2004 Stock
Incentive Plan was approved and adopted by the Board on December 31, 2004
(the 2004 Plan). The 2004 Plan provides for the sale or award of common stock
or the grant of non-qualified stock options for the purchase of common stock,
up to 7,500,000 shares to our officers, directors, employees and consultants.
The Board administers the 2004 Plan, and the terms of grants and awards made
pursuant to the 2004 Plan. Vesting of
options granted under the 2004 Plan accelerates upon a change of control or
acquisition as defined in the 2004 Plan. The 2004 Plan will terminate on December 31,
2014. At December 31, 2009, there
were 3,197,975 shares of common stock reserved for issuance upon exercise of
outstanding options granted under the 2004 Plan.
In April 1995, the Board and stockholders approved our Non-Employee
Director Stock Option Plan (the Director Plan), which was amended by the
Board on June 5, 2002. The Director Plan provided that the Board, at its
discretion, was permitted to grant options to non-employee directors, subject
to terms and conditions as determined by the Board.
The Director Plan terminated on November 9, 2004,
and no further options have been granted under the Director Plan subsequent to
that date. At December 31, 2009,
there were 34,000 shares of common stock reserved for issuance upon exercise of
outstanding options granted under the Director Plan.
A summary of option activity under the 2004 Plan, 2001 Plan, the 1991
Plan and the Director Plan is as follows:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at December 31, 2007
|
|
2,747,066
|
|
$
|
3.40
|
|
Granted
|
|
1,364,600
|
|
0.63
|
|
Terminated
|
|
(815,384
|
)
|
2.48
|
|
Exercised
|
|
(57,125
|
)
|
0.23
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
3,239,157
|
|
2.52
|
|
Granted
|
|
1,061,050
|
|
0.10
|
|
Terminated
|
|
(800,482
|
)
|
3.29
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
3,499,725
|
|
$
|
1.61
|
|
The weighted average remaining contractual term and the aggregate
intrinsic value for options outstanding at December 31, 2009 were 7.00
years and $8,000 respectively. The
weighted average remaining contractual term and the aggregate intrinsic value
for options exercisable at December 31, 2009 was 6.77 years and $0,
respectively. The weighted average
intrinsic value of options outstanding and options vested or expected to vest
is $0.
Related information for options outstanding and exercisable as of December 31,
2009 under these option plans is as follows:
Range of exercise prices
|
|
Outstanding
Options
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Weighted
Average
Exercise Price
|
|
Exercisable
Options
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise Price
|
|
$
|
0.09
|
-
|
$
|
0.97
|
|
|
2,363,700
|
|
7.85
|
|
$
|
0.49
|
|
906,490
|
|
6.13
|
|
$
|
0.83
|
|
1.01
|
-
|
|
3.14
|
|
|
547,275
|
|
6.99
|
|
2.00
|
|
392,992
|
|
6.88
|
|
2.01
|
|
3.30
|
|
|
3.30
|
|
|
333,250
|
|
6.16
|
|
3.30
|
|
308,204
|
|
6.16
|
|
3.30
|
|
3.50
|
-
|
|
7.87
|
|
|
5,500
|
|
4.25
|
|
3.55
|
|
5,281
|
|
4.17
|
|
3.55
|
|
9.13
|
|
|
9.13
|
|
|
250,000
|
|
.14
|
|
9.13
|
|
250,000
|
|
.14
|
|
9.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,499,725
|
|
7.00
|
|
$
|
1.61
|
|
1,862,967
|
|
5.48
|
|
$
|
2.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested or expected to vest
|
|
2,959,413
|
|
6.38
|
|
$
|
1.84
|
|
1,862,967
|
|
|
|
$
|
2.61
|
|
37
Table of Contents
In July 2009, we granted options for an aggregate of 64,000 shares
to the non-employee members of our Advisory Panel. The Board of Advisors (BOA) was formed to
assist the Company and its management team
in the execution of sales, marketing, business development, and operational
matters to ensure the success of the Company.
These options vest as set forth in the 2004 Plan, with 25% of the
shares vesting on the first anniversary of the grant date and 6.25% of the
shares vesting every quarter thereafter, as long as a member remains active in
the Advisory Panel. The expense related to these options is immaterial, and was
included in general and administrative expense on the accompanying consolidated
statements of operations.
Savings
Plan
We sponsor a savings plan for our employees,
which has been qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted
to contribute to the 401(k) plan through payroll deductions within statutory
and plan limits. At the discretion of
the Board, we contributed approximately $39,000 and $47,000 to the 401(k) plan
in 2009 and 2008, respectively.
Deferred Compensation Plan
Effective March 31, 2006, we adopted the Ezenia Deferred
Compensation Plan (the Plan). Under this Plan, eligible employees may elect
to defer up to 100% of their base and incentive compensation into the Plan. We
are under no obligation to establish a fund or reserve in order to pay the
benefits under the Plan except in the event of a change in control. If funded, the plan Trustee makes all
investment decisions for the Trust on behalf of the participants. We have not
guaranteed a return on investment for the participants, however, all earnings
and losses on the Plan assets are borne by the participant. All contributions and earnings are fully
vested to the participant when made but are subject to our creditors in the
event of bankruptcy. As a result, the
assets held in the Plan have been recorded as cash equivalents in the
consolidated balance sheet with a corresponding liability being recorded as
deferred compensation, which is included in employee compensation and benefits
in the accompanying consolidated balance sheet.
Interest earned on the Plan assets is recorded as interest income in the
consolidated statement of operations. A corresponding entry to deferred
compensation is made to increase (decrease) the amounts due the participant
resulting from the changes in the asset value with an offsetting charge or
credit to general and administrative expense. Investment income (loss) and
compensation expense was approximately $47,000 and ($98,000) in the years ended
December 31, 2009 and 2008, respectively.
8. Fair
Value Measurements
We measure certain financial assets and liabilities at fair value based
on valuation techniques using the best information available, which may include
quoted market prices, market comparables, and discounted cash flow
projections. We measure fair value using
the framework established by the FASB accounting guidance for fair value
measurements and disclosures. This
framework requires fair value to be determined based on the exchange price that
would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants.
The valuation techniques are based upon observable and unobservable
inputs. Observable or market inputs
reflect market data obtained from independent sources. Unobservable inputs require management to
make certain assumptions and judgments based on the best information
available. Observable inputs are the
preferred source of values. These two
types of inputs create the following fair value hierarchy:
·
Level
1: valuations consist of unadjusted quoted prices in active markets for
identical assets and liabilities and has the highest priority;
38
Table of Contents
·
Level
2: valuations rely on quoted prices in markets that are not active or
observable inputs over the full term of the asset or liability;
·
Level
3: valuations are based on prices or third-party or internal valuation
models that require inputs that are significant to the fair value measurement
and are less observable and thus have the lowest priority.
The only financial instruments reported at fair value are our cash
equivalents, which include short-term mutual funds classified as trading
securities, and are reported at fair value using Level 1 inputs. The fair value
of the short-term mutual funds was $180,000 and $133,000 at December 31,
2009 and 2008, and the unrealized gain (loss) related thereto amounts to
$46,000 and ($98,000), and is recorded in cash and cash equivalents, and other
income (expense) for the years ended December 31, 2009 and 2008,
respectively.
9. Shareholder Rights Agreement
On April 15, 2008, we adopted a Shareholder Rights
Agreement. Pursuant to the terms of the Rights Agreement, the Board
declared a dividend distribution of one Preferred Stock Purchase Right (a Right)
for each outstanding share of our common stock to shareholders of record as of
the close of business on April 16, 2008 (the Record Date). In
addition, one Right will automatically attach to each share of common stock
issued between the Record Date and the Distribution Date (as defined in the
agreement). Each Right entitles the registered holder thereof to purchase
from us a unit consisting of one ten-thousandth of a share (a Unit) of our Series D
Junior Participating Cumulative Preferred Stock, par value $0.01 per share, at
a cash exercise price of $3.00 per Unit, subject to adjustment under certain
conditions specified in the Rights Agreement.
Initially, the Rights are not exercisable and are attached to and trade
with all shares of common stock outstanding as of, and issued subsequent to,
the Record Date. The Rights will separate from the common stock and will
become exercisable upon the occurrence of the earlier of several circumstances,
as defined in the agreement.
In the event that a Stock Acquisition Date (as defined in the
agreement) occurs, proper provision will be made so that each holder of a Right
(other than an Acquiring Person, as defined in the agreement, or its associates
or affiliates, whose Rights shall become null and void) will thereafter have
the right to receive upon exercise, in lieu of a number of Units of Preferred
Stock, that number of shares of our common stock (or, in certain circumstances,
including if there are insufficient shares of common stock to permit the
exercise in full of the Rights, Units of Preferred Stock, other securities,
cash or property, or any combination of the foregoing) having a market value of
two times the exercise price of the Right (such right being referred to as the Subscription
Right). Upon the occurrence of any of several particular circumstances,
as defined in the agreement, following the Stock Acquisition Date, each holder
of a Right will thereafter have the right to receive, upon exercise, common
stock of the acquiring company having a market value equal to two times the
exercise price of the Right (such right being referred to as the Merger Right).
The holder of a Right will continue to have the Merger Right whether or not
such holder has exercised the Subscription Right. Rights that are or were
beneficially owned by an Acquiring Person may (under certain circumstances
specified in the Rights Agreement) become null and void.
The Rights contain certain redemption rights and provisions, as defined
in the agreement. On April 21, 2008, we designated 50,000 of our 2,000,000
shares of authorized preferred stock as Series D Junior Participating
Preferred Stock.
10. Related-Party Transactions
During 2007, we engaged
the Carmen Group, Inc. (Carmen Group) as consultants to assist in the
development and implementation of a strategy for marketing our products to
Federal purchasers within the Department of Defense and appropriate adjacent
markets. The President of the Carmen Group is the son of a member of our Board
of Directors. We paid the Carmen Group $275,000 during the year ended December 31,
2008 for consulting services, and this amount is included in general and
administrative expense on the accompanying consolidated statements of
operations. We terminated the agreement with the Carmen Group during the fourth
quarter of 2008.
39
Table of Contents
The total amount paid to
the Carmen Group in 2007 and 2008 was approximately $465,000.
Payments to two
companies previously owned by our Director Mr. Ronald Breland, Selbre
Associates and EC America, amount to approximately $30,000 per year or
approximately $180,000 since 2005. The two companies provide General Services
Administration (GSA) contract management and consulting in the marketing of our
products to the Federal government. These two companies were sold to Immix
Group in 2009.
ITEM 9. CHANGES IN AND
DISAGREEMENTS
WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of
1934, as amended, as of December 31, 2009, our management, under the
supervision and with the participation of both the chief executive officer and
the chief financial officer, carried out an evaluation of the effectiveness of
our disclosure controls and procedures. Based on this evaluation, our
chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective at the reasonable assurance
level to ensure that the information required to be disclosed in the reports
filed or submitted by us under the Securities Exchange Act of 1934 as amended,
was recorded, processed, summarized, and reported within the requisite time
periods, including ensuring that such material information is accumulated and
communicated to our management to allow timely decisions regarding required
disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our
internal control over financial reporting that occurred during the quarter
ended December 31, 2009 that materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Managements Report on Internal Control Over Financial
Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) of
the Securities Exchange Act of 1934 as amended. Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management has assessed our internal control over financial reporting
in relation to criteria described in
Internal
Control Integrated Framework,
issued by the Committee of Sponsoring
Organizations of the Treadway
40
Table of Contents
Commission. Based on this assessment using those criteria, we concluded
that, as of December 31, 2009, our internal control over financial
reporting was effective.
This annual report does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to
attestation by our independent registered public accounting firm pursuant to
the rules of the Securities and Exchange Commission that permit us to
provide only managements report in this annual report.
ITEM 9B.
OTHER INFORMATION
None.
41
Table of Contents
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required by Item 10 will be included in our definitive
Proxy Statement to be delivered to stockholders in connection with the 2010
Annual Meeting of Stockholders. Such information is hereby incorporated herein
by reference.
We have adopted a Code of Business Conduct
and Ethics (the Code) that applies to all of our employees, including our
executive officers and directors. The Code is available on our website at
www.ezenia.com. We intend to disclose
any amendments to or waivers of the Code on behalf of our Chief Executive
Officer, Chief Financial Officer, Controller, and persons performing similar
functions on our website. We shall also provide to any person without charge,
upon request, a copy of the Code. Any
such request must be made in writing to Ezenia! Inc., c/o Investor Relations,
14 Celina Ave, Suite 17-18, Nashua, New Hampshire 03063.
ITEM
11. EXECUTIVE COMPENSATION
The information required by Item 11 will be included in our definitive
Proxy Statement to be delivered to stockholders in connection with the 2010
Annual Meeting of Stockholders. Such information is hereby incorporated herein
by reference.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 will be included in our definitive
Proxy Statement to be delivered to stockholders in connection with the 2010
Annual Meeting of Stockholders. Such
information is hereby incorporated herein by reference.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2009
regarding our equity compensation plans under which shares of our common stock
are authorized for issuance.
Plan Category
|
|
Number of securities to be
issued upon exercise
of outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Equity compensation plans
approved by securityholders
|
|
3,485,475
|
(1)
|
$
|
1.62
|
|
4,283,946
|
(2)
|
|
|
|
|
|
|
|
|
Equity compensation plans
not approved by securityholders
|
|
14,250
|
(3)
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
3,499,725
|
|
$
|
1.61
|
|
4,283,946
|
|
(1)
|
Includes 253,500 shares of common stock to be issued upon exercise of
outstanding options under the 1991 Plan, 34,000 shares of common stock to be
issued upon exercise of outstanding options under the
|
42
Table of Contents
|
Director Option Plan, and 3,197,975 shares of common stock to be
issued upon exercise of outstanding options under the 2004 Plan.
|
|
|
(2)
|
Includes 4,283,946 shares of common stock remaining available for
future issuance under the 2004 Plan. The 1991 Plan terminated on
March 31, 2001, and the 1994 Non-Employee Director Option Plan
terminated on November 9, 2004, and no additional options may be granted
under these plans.
|
|
|
(3)
|
Represents shares of common stock to be issued upon
exercise of outstanding options under the 2001 Plan. The 2001 Plan terminated
on December 31, 2004, and no additional options may be granted under
this plan.
|
A description of these equity incentive plans is included in Note 7 to
our Consolidated Financial Statements set forth herein.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS; DIRECTOR INDEPENDENCE
The information required by Item 13 will be
included in our definitive Proxy Statement to be delivered to stockholders in
connection with the 2010 Annual Meeting of Stockholders. Such information is
hereby incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by Item 14 will be included in our definitive Proxy
Statement to be delivered to stockholders in connection with the 2010 Annual
Meeting of Stockholders. Such information is hereby incorporated herein by
reference.
43
Table of
Contents
PART IV
ITEM 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)
Documents
Filed as Part of Form 10-K
1.
Consolidated
Financial Statements.
The following consolidated financial
statements and supplementary data are included in Part II-Item 8 filed as
part of this report:
·
Report of
Independent Registered Public Accounting Firm
·
Consolidated
Balance Sheets as of December 31, 2009 and 2008
·
Consolidated
Statements of Operations for the years ended December 31, 2009 and 2008
·
Consolidated
Statements of Stockholders Equity for the years ended December 31, 2009
and 2008
·
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and 2008
·
Notes to
Consolidated Financial Statements
·
Quarterly
Financial Information (unaudited)
2.
Financial
Statement Schedule.
·
Schedule II Valuation
and Qualifying Accounts
Schedules not listed above
have been omitted because they are not applicable, not required or the
information required is shown in the consolidated financial statements or the
notes thereto
.
3.
List of
Exhibits.
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
3.1(1)
|
|
Amended and Restated
Certificate of Incorporation of the Registrant.
|
3.2(11)
|
|
Certificate of
Designations, Preferences and Rights of a Series of Preferred Stock of
the Registrant classifying and designating the Series D Junior
Participating Cumulative Preferred Stock.
|
3.3(1)
|
|
Amended and Restated By-Laws
of the Registrant.
|
4.1(1)
|
|
Specimen Stock
Certificate.
|
4.2(12)
|
|
Shareholder
Rights Agreement, dated as of April 15, 2008, between Ezenia! Inc. and
Computershare Trust Company, N.A., as Rights Agent.
|
10.1(1)+
|
|
Amended and Restated 1991
Stock Incentive Plan of the Registrant.
|
10.2(1)
|
|
Amended and Restated 1994
Non-Employee Director Option Plan of the Registrant.
|
10.3(1)+
|
|
1995 Employee Stock
Purchase Plan of the Registrant.
|
10.4(8)+
|
|
2004 Stock Incentive Plan
of the Registrant.
|
10.5(1)
|
|
License Agreement dated
January 2, 1995 between the Registrant and Datapoint Corporation.
|
10.6(1)
|
|
Letter Agreement dated
December 31, 1994 between the Registrant and Fleet Bank of
Massachusetts, N.A.
|
10.7(2)+
|
|
Employment Agreement dated
as of November 9, 2007 between the Registrant and Khoa D. Nguyen.
|
10.8+(13)
|
|
First Amendment to Employment Agreement between the
Registrant and Khoa D. Nguyen, dated December 11, 2008
|
10.9(3)
|
|
Asset Purchase Agreement
dated as of December 28, 2000 between the Registrant and General
Dynamics Government Systems Corporation, as amended.
|
44
Table of Contents
10.10(a)(4)
|
|
Put Agreement dated as of
March 27, 2001 (as amended to date) by and between the Registrant and
General Dynamics Government Systems Corporation.
|
10.10(b)(7)
|
|
Agreement and Release
dated as of December 31, 2002 by and between the Registrant and General
Dynamics Government Systems Corporation.
|
10.11(5)+
|
|
2001 Stock Incentive Plan
of the Registrant.
|
10.12(6)
|
|
Asset Purchase Agreement
dated as of August 1, 2002 between the Registrant and Tandberg Telecom
AS.
|
10.13(6)
|
|
License Agreement dated as
of August 1, 2002 between the Registrant and Telecom AS.
|
10.14(6)
|
|
Promissory Note dated as
of August 1, 2002 made by the Registrant in favor Tandberg Telecom AS.
|
10.15(6)
|
|
Security Agreement dated
as of August 1, 2002 between the Registrant and Tandberg Telecom AS.
|
10.16(6)
|
|
Ezenia! License Agreement
dated as of October 30, 2002 between the Registrant and Tandberg Telecom
AS.
|
10.17(9)
|
|
First Amended and Restated
Software Distribution License Agreement dated January 1, 2005 by and between
Microsoft Corporation and Ezenia! Inc.
|
10.18(10)
|
|
Amendment to First Amended
and Restated Software Distribution License Agreement by and between Microsoft
Corporation and Ezenia! Inc. dated April 2007.
|
10.19(11)
|
|
Amendment to First Amended
and Restated Software Distribution License Agreement by and between Microsoft
Corporation and Ezenia! Inc. dated December 2008.
|
10.20+(13)
|
|
The Ezenia! Inc. Deferred Compensation Plan, as
amended and restated as of December 11, 2008.
|
10.21(14)
|
|
Indemnification Agreement
between the Registrant and each of its directors and executive officers.
|
21.1
|
|
Subsidiaries of the
Registrant.
|
23.2
|
|
Consent of Caturano and
Company, P.C.
|
31.1
|
|
Consent of the Companys
Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Consent of the Companys
Chief Financial Officer pursuant to 18 U. S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1*
|
|
Certification of the
Companys Chief 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 the
Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
Copies of any of these exhibits are available
without charge upon written request to Investor Relations, Ezenia! Inc., 14
Celina Avenue, Suite 17-18, Nashua, NH 03063.
*
|
Furnished herewith.
|
+
|
Management contract for
compensatory plan or arrangement required to be filed as an exhibit to this
report pursuant to Item 15(c) of this report.
|
(1)
|
Incorporated by reference
from the Companys Registration Statement on Form S-1.
|
(2)
|
Incorporated by reference
from the Companys Form 8-K filed with the Securities and Exchange
Commission on November 14, 2007.
|
(3)
|
Incorporated by reference
from the Companys Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2000.
|
(4)
|
Incorporated by reference
from the Companys Form 10-Q for the quarter ended September 30,
2001.
|
(5)
|
Incorporated by reference
from the Companys Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on December 21, 2001.
|
(6)
|
Incorporated by reference
from the Companys Form 10-Q for the quarter ended September 30,
2002.
|
(7)
|
Incorporated by reference
from the Companys Form 10-K filed with the Securities and
|
45
Table of Contents
|
Exchange Commission for
the year ended December 31, 2002.
|
(8)
|
Incorporated by reference
from the Companys Form 10-K/A filed with the Securities and Exchange
Commission for the year ended December 31, 2004.
|
(9)
|
Incorporated by reference
from the Companys Form 10-Q for the quarter ended March 31, 2005.
|
(10)
|
Incorporated by reference
from the Companys Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2007.
|
(11)
|
Incorporated by reference
from the Companys Registration Statement on Form 8-A, filed with the
Securities and Exchange Commission on April 21, 2008 (File
No. 000-25882)).
|
(12)
|
Incorporated herein by
reference to the Companys Registration Statement on Form 8-A, filed
with the Securities and Exchange Commission on April 21, 2008 (File
No. 000-25882)).
|
(13)
|
Incorporated herein by
reference to the Companys Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 2008.
|
(14)
|
Incorporated herein by
reference to the Companys Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 2, 2009.
|
46
Table
of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
|
EZENIA! INC.
|
|
|
|
|
|
By:
|
/s/ Khoa D. Nguyen
|
|
Khoa D. Nguyen
|
|
Chairman, Chief Executive
Officer, and President
|
|
(Principal executive
officer)
|
|
|
|
Date: March 30, 2010
|
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Khoa D. Nguyen
|
|
Chairman, Chief Executive Officer,
and President (Principal executive officer)
|
|
March 30, 2010
|
Khoa D. Nguyen
|
|
|
|
|
|
|
|
|
/s/ Ronald L. Breland
|
|
Director
|
|
March 30, 2010
|
Ronald L. Breland
|
|
|
|
|
|
|
|
|
|
/s/ Gerald P. Carmen
|
|
Director
|
|
March 30, 2010
|
Gerald P. Carmen
|
|
|
|
|
|
|
|
|
|
/s/ John A. McMullen
|
|
Director
|
|
March 30, 2010
|
John A. McMullen
|
|
|
|
|
|
|
|
|
|
/s/ George Q. Stevens
|
|
Director
|
|
March 30, 2010
|
George Q. Stevens
|
|
|
|
|
|
|
|
|
|
/s/ Thomas J. McCann
|
|
Chief Financial Officer
|
|
March 30, 2010
|
Thomas J. McCann
|
|
(Principal financial and accounting officer)
|
|
|
47
Table of
Contents
Exhibit Index
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
3.1(1)
|
|
Amended and Restated
Certificate of Incorporation of the Registrant.
|
3.2(11)
|
|
Certificate of
Designations, Preferences and Rights of a Series of Preferred Stock of
the Registrant classifying and designating the Series D Junior
Participating Cumulative Preferred Stock.
|
3.3(1)
|
|
Amended and Restated
By-Laws of the Registrant.
|
4.1(1)
|
|
Specimen Stock
Certificate.
|
4.2(12)
|
|
Shareholder
Rights Agreement, dated as of April 15, 2008, between Ezenia! Inc. and
Computershare Trust Company, N.A., as Rights Agent.
|
10.1(1)+
|
|
Amended and Restated 1991
Stock Incentive Plan of the Registrant.
|
10.2(1)
|
|
Amended and Restated 1994
Non-Employee Director Option Plan of the Registrant.
|
10.3(1)+
|
|
1995 Employee Stock
Purchase Plan of the Registrant.
|
10.4(8)+
|
|
2004 Stock Incentive Plan
of the Registrant.
|
10.5(1)
|
|
License Agreement dated
January 2, 1995 between the Registrant and Datapoint Corporation.
|
10.6(1)
|
|
Letter Agreement dated
December 31, 1994 between the Registrant and Fleet Bank of
Massachusetts, N.A.
|
10.7(2)+
|
|
Employment Agreement dated
as of November 9, 2007 between the Registrant and Khoa D. Nguyen.
|
10.8+(13)
|
|
First Amendment to Employment Agreement between the
Registrant and Khoa D. Nguyen, dated December 11, 2008
|
10.9(3)
|
|
Asset Purchase Agreement
dated as of December 28, 2000 between the Registrant and General
Dynamics Government Systems Corporation, as amended.
|
10.10(a)(4)
|
|
Put Agreement dated as of
March 27, 2001 (as amended to date) by and between the Registrant and
General Dynamics Government Systems Corporation.
|
10.10(b)(7)
|
|
Agreement and Release
dated as of December 31, 2002 by and between the Registrant and General
Dynamics Government Systems Corporation.
|
10.11(5)+
|
|
2001 Stock Incentive Plan
of the Registrant.
|
10.12(6)
|
|
Asset Purchase Agreement
dated as of August 1, 2002 between the Registrant and Tandberg Telecom
AS.
|
10.13(6)
|
|
License Agreement dated as
of August 1, 2002 between the Registrant and Telecom AS.
|
10.14(6)
|
|
Promissory Note dated as
of August 1, 2002 made by the Registrant in favor Tandberg Telecom AS.
|
10.15(6)
|
|
Security Agreement dated
as of August 1, 2002 between the Registrant and Tandberg Telecom AS.
|
10.16(6)
|
|
Ezenia! License Agreement
dated as of October 30, 2002 between the Registrant Tandberg Telecom AS.
|
10.17(9)
|
|
First Amended and Restated
Software Distribution License Agreement dated January 1, 2005 by and between
Microsoft Corporation and Ezenia! Inc.
|
10.18(10)
|
|
Amendment to First Amended
and Restated Software Distribution License Agreement by and between Microsoft
Corporation and Ezenia! Inc. dated April 2007.
|
10.19(11)
|
|
Amendment to First Amended
and Restated Software Distribution License Agreement by and between Microsoft
Corporation and Ezenia! Inc. dated December 2008.
|
10.20+(13)
|
|
The Ezenia! Inc. Deferred Compensation Plan, as
amended and restated as of December 11, 2008.
|
10.21(14)
|
|
Indemnification Agreement between the Registrant and
each of its officers and directors.
|
21.1
|
|
Subsidiaries of the
Registrant.
|
23.2
|
|
Consent of Caturano and
Company, P.C.
|
48
Table of Contents
31.1
|
|
Consent of the Companys
Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Consent of the Companys
Chief Financial Officer pursuant to 18 U. S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1*
|
|
Certification of the
Companys Chief 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 the
Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
*
|
Furnished herewith.
|
+
|
Management contract for
compensatory plan or arrangement required to be filed as an exhibit to this
report pursuant to Item 15(c) of this report.
|
(1)
|
Incorporated by reference
from the Companys Registration Statement on Form S-1.
|
(2)
|
Incorporated by reference
from the Companys Form 8-K filed with the Securities and Exchange
Commission on November 14, 2007.
|
(3)
|
Incorporated by reference
from the Companys Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2000.
|
(4)
|
Incorporated by reference
from the Companys Form 10-Q for the quarter ended September 30,
2001.
|
(5)
|
Incorporated by reference
from the Companys Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on December 21, 2001.
|
(6)
|
Incorporated by reference
from the Companys Form 10-Q for the quarter ended September 30,
2002.
|
(7)
|
Incorporated by reference
from the Companys Form 10-K filed with the Securities and
|
|
Exchange Commission for
the year ended December 31, 2002.
|
(8)
|
Incorporated by reference
from the Companys Form 10-K/A filed with the Securities and Exchange
Commission for the year ended December 31, 2004.
|
(9)
|
Incorporated by reference
from the Companys Form 10-Q for the quarter ended March 31, 2005.
|
(10)
|
Incorporated by reference
from the Companys Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2007.
|
(11)
|
Incorporated by reference
from the Companys Registration Statement on Form 8-A, filed with the
Securities and Exchange Commission on April 21, 2008 (File
No. 000-25882)).
|
(12)
|
Incorporated herein by
reference to the Companys Registration Statement on Form 8-A, filed
with the Securities and Exchange Commission on April 21, 2008 (File
No. 000-25882)).
|
(13)
|
Incorporated herein by
reference to the Companys Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 2008.
|
(14)
|
Incorporated herein by
reference to the Companys Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 2, 2009.
|
49
Ezenia (CE) (USOTC:EZEN)
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