UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended
December 31,
2007
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period from ______________________ to
_______________________
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Commission
file number:
333-131857
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Lightspace
Corporation
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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04-3572975
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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529
Main Street, Suite 330, Boston, Massachusetts
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02129
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
(617) 868-1700
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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None
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None
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Securities
registered pursuant to Section 12(g) of the Act:
________________
(Title
of
Class)
________________
(Title
of
Class)
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 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 registrant’s 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.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer
o
Accelerated
Filer
o
Non-Accelerated
Filer
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See definitions for “large accelerated file”, “accelerated filer” and “smaller
reporting company” in Rule 126-2 of the Exchange Act. (Check one)
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated
filer
o
Smaller
reporting company
x
(Do
not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes
o
No
x
As
of
December 31, 2007, the aggregate market value of voting stock and non-voting
stock held by non-affiliates of the registrant was approximately
$6,112,998
.
As
of
March 28, 2008, there were 15,282,495 common shares outstanding.
LIGHTSPACE
CORPORATION
ANNUAL
REPORT ON FORM 10K
FOR
THE YEAR ENDED DECEMBER 31, 2007
Table
of Contents
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PART I
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3
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Item
1.
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Business
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3
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Item
1A. Risk Factors
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8
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Item
1B. Unresolved Staff Comments
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15
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Item
2.
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Properties
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15
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Item
3.
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Legal
Proceedings
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15
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Item
4.
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Submission
of Matters to a Vote of Securities Holders
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15
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PART II
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17
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Item
5.
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Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Securities
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17
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Item
6.
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Selected
Financial Data
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18
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
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25
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Item
8.
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Financial
Statements and Supplementary Data
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26
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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26
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Item
9A. Controls and Procedures
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26
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Item
9B. Other Information
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27
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PART III
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28
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Item
10. Directors and Executive Officers and Corporate
Governance
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28
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Item
11. Executive Compensation
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30
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Item
12. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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35
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Item
13. Certain Relationships and Related Transactions, and Director
Independence
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41
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Item
14. Principal Accountant Fees and Services
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42
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PART IV
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43
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Item
15. Exhibits, Financial Statements Schedules
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43
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PART I
CAUTIONARY
STATEMENTS
The
Private Securities Litigation Reform Act of 1995 contains certain safe harbor
provisions regarding forward-looking statements. This Annual Report on
Form 10-K may contain forward-looking statements and information, which
involve risks and uncertainties. Actual results may differ significantly.
Forward-looking statements are other than statements of historical fact,
and
include statements concerning plans, objectives, goals, expectations,
projections, and future events. Without limiting the foregoing, forward-looking
statements are identified by terminology such as “may,” “should,” “expects,”
“intends,” “estimates,” “believes,” “projects,” and other similar terminology.
All such forward-looking statements are expressly qualified by the cautionary
statements contained in this Annual Report on Form 10-K, including those
under the heading “Risk Factors.” We have attempted to identify the most
significant risks to our business; however, there can be no assurance that
we
have identified all possible significant risks which may affect us. We undertake
no obligation to update any forward-looking statements we make.
Item
1. Business
Corporate
Overview
Lightspace
was formed as a Delaware corporation on August 13, 2001. Our principal business
is researching, designing, developing, marketing and selling immersive,
interactive environments, called “Lightspace” systems, comprised of patent
pending hardware and software technologies designed and developed by us that
integrate light, sound and movement. Since our formation, our principal
activities have consisted of product research, design and development, market
research, business planning, marketing, sales, and distribution of our products.
Technology
The
core
component of the Lightspace product set is a pressure-sensitive, display
panel
technology that converts everyday surfaces such as floors, walls, bar tops,
tabletops and ceilings into customizable, adaptable, interactive display,
gaming, fitness or educational platforms. Through the integration of light,
sound and movement, Lightspace technology enables an infinite number of
patron-driven experiences for businesses that entertain and engage people.
We
have completed development and manufacturing of the first generation of
Lightspace systems and are now actively engaged in further enhancing its
functionality as well as developing the next generation of interactive tile.
We
are always focused on maximizing the customer value proposition by providing
entertainment and design systems that deliver high impact results, high
flexibility and low acquisition and operating costs.
Our
product development strategy is focused on increasing product functionality
and
in reducing product cost. The current version of the product consists of
interactive tiles which use a four-inch by four-inch pixel size. The tiles
display millions of discrete colors using Red-Green-Blue light emitting diodes
(RGB LEDs), are pressure sensitive and are interconnected via a network.
In
addition to the tiles, the product is deployed with a control station which
controls the network connections and a vinyl covering to protect electronics
in
the tiles from exposure to liquids.
Part
of
our product development process has focused on reducing the cost of the current
tile design over time. In the year ended December 31, 2007, we reduced the
cost
to manufacture each tile by approximately 20%. We anticipate that additional
measures, including re-engineered product designs and higher volume production
may produce further cost reductions.
Lightspace
Interactive System.
The
Lightspace Interactive Surface (“LIS”) consists of the interactive Lightspace
tile system, the Lightspace control station and the Lightspace Management
System
(“LMS”) which includes software, games and effects packages. The LIS can display
lights, effects, images, logos and video in response to the location and
movement of participants within its perimeter. The LIS can integrate with
existing products and technologies such as sound boards, lighting consoles,
display devices (TV screens, projectors, etc.), video servers and industry
standard protocols, such as Digital Multiplexing (“DMX”) and Musical Instrument
Digital Interface (“MIDI”).
Lightspace
Tiles.
Lightspace
tiles are software driven, LED illuminated and interactive. The tiles can
be
installed on floors, walls, ceilings and other surfaces such as bar tops
and
dance cubes. Tiles can be mounted in both surface and recessed configurations
and may be interactive or static. Each tile is an individually addressable
node,
driven by the Lightspace control station and management software via physical
network connections. The tiles can also be used as backlight signage to display
logos, advertisements, or promotions.
The
dimensions of each tile are 16-inches by 16-inches horizontally and
two-and-a-half inches vertically. The horizontal surface of each tile consists
of 16 individual four-inch by four-inch pixels displaying millions of discrete
colors by using color matched RGB LEDs. Multiple tiles are mounted in an
array
to create the Lightspace interactive surface. The tiles are manufactured
from
high-strength polycarbonate, allowing each tile to withstand 3,000 pounds
of
load. Power is distributed from tile to tile via a fault tolerant distribution
array. One power supply can support up to 100 tiles with the ability to connect
power supplies in parallel for installations of larger sizes.
Lightspace
Control Station with Lightspace Management System (“LMS”).
The
Lightspace Control Station with LMS is an integrated hardware/software product
that creates, stores and plays interactive and non-interactive “Lightsofts”
(programmed light effects), “Lightshows” (programmed combinations of Lightsofts)
and games on the LIS. The LMS is comprised of the Visual Display Interface
(“VDI”), allowing the user to control and change Lightsofts at will by
manipulating customization parameters, and the Lightsoft Creator and Lightshow
Creator software that collectively facilitate the management, creation and
control of Lightsofts and Lightshows. The system can run both manually and
automatically, providing users with complete control and versatility. In
addition to the visual features described above, the LMS has several diagnostic
tools that verify functionality and calibrate the LIS.
Acquisition
On
March
29, 2007, Lightspace Emagipix Corporation (“LEC”), a newly formed wholly-owned
subsidiary of Lightspace Corporation, entered into an agreement with
Illumination Design Works, Inc. to acquire the assets related to the in process
development of its emagipix technology, an interactive lighting technology
that
utilizes electroluminescent sheets. The purchase price for the emagipix
technology consisted of an initial cash payment of $45,000 upon signing the
agreement a subsequent cash payment of $255,000 and the issuance of a $950,000
convertible term secured non-recourse note to Illumination Design Works,
Inc.
upon the closing of the technology purchase.
On
April
30, 2007, LEC completed the acquisition of the emagipix technology. In
connection with the acquisition, the developer of the emagipix technology
(a
former officer and co-founder of Lightspace Corporation and the principal
owner
of Illumination Design Works, Inc.), re-commenced employment with
Lightspace.
The
$950,000 convertible term secured non-recourse note bears interest a 5% per
annum, payable yearly, and is due and payable on April 30, 2011. The note
is
secured by a pledge of 76% of the stock of LEC. The principal of the note
is
convertible at any time up and until April 30, 2011, at the option of the
holder, into the common stock of Lightspace Corporation at a conversion price
of
$0.80 per share. Upon the occurrence of certain defined events of default
by the
noteholder, Lightspace has the right to convert the note to common stock
at the
lower of the conversion price of $0.80 or current market price of the common
stock.
We
accounted for the acquisition of the emagipix technology as the acquisition
of
in process research and development and recorded a charge to operations in
the
June 30, 2007 quarter of $1,250,000 for the purchase price and $56,612 in
related legal expenses.
Markets
Lightspace
systems are designed to serve a wide variety of markets in many applications,
such as: “smart surface” sports training, interactive dance floors, guided
navigation through public spaces, “smart rooms,” video games built into walls
and floors played through movement of the whole body (“exergaming” or
“exertainment”), combining education with physical activity (“edutainment”),
sports arena surfaces, military or other training simulations and Las
Vegas-style gaming.
Our
current customers are in the markets of family entertainment centers, child
care
and fitness centers, retail stores, special event agencies, and nightclubs.
Further markets under development or consideration in the near term include
location-based entertainment, trade show exhibits and designs, architects
and
designers, museums and science centers, physical rehabilitation and assisted
living facilities.
Initial
Markets Already Entered
Family
Entertainment Centers.
Family
entertainment centers (“FECs”) are leisure facilities encompassing multiple
anchor attractions, offering activities from bowling, video games and miniature
golf to go-karts, batting cages and skating rinks. FECs may range in size
from
small indoor play facilities for young children to multiple-acre facilities
offering indoor and outdoor activities for participants of all ages. There
are
approximately 10,000 FECs worldwide, with 8,100 located in the United States.
We
specifically developed Lightspace Play, a suite of interactive games for
the
LIS, to address this market.
Rental
Agencies
.
The
rental industry can be subdivided into party and special event rentals and
advertising, promotional and trade show services.
The
party
and special event rental sector services high-end bar/bat mitzvahs, birthday
parties, children’s events, weddings, fund-raisers and other family or community
events. In addition to revenue gained through purchases of Lightspace systems
by
small businesses operating in this sector, we anticipate that revenue may
also
be generated through system upgrades, maintenance contracts, and new software
content packages.
The
advertising, promotional and trade show services sector includes high-end
public
and corporate promotional event planners. The scale of both the businesses
operating in this sector and the events themselves tend to be significantly
larger when compared to the party and special events rental sector. Lightspace
believes that our products can continue to be sold or leased to numerous
event
planners to be used at various high-end corporate and private events. Due
to the
nature of these events, extremely large floors and custom applications are
often
required, which offer the potential for high sales and rental
prices.
Nightclubs.
According
to Dun & Bradstreet, there are 5,373 drinking establishments in the United
States that are designated as nightclubs and discotheques, where the primary
entertainment activity is dancing. Additionally, there are approximately
8,500
lounges and clubs where dancing takes place but is not the primary entertainment
activity of the establishment. Using LED and pressure sensing technologies,
Lightspace Dance was developed specifically to provide a unique interactive
product for this market.
Marketing
and Sales
Lightspace
actively markets its interactive lighting and entertainment products to
industries including family entertainment centers, child care and fitness
centers, special events, interior and architectural design and nightclubs.
Lightspace systems are sold in standard sizes starting at approximately $18,000
and custom designed installations many times larger or smaller, with a price
point determined by the size and customization work required for each
installation. A limited amount of marketing has been done to date due to
very
tight budget restrictions and has consisted primarily of trade shows and
internet advertising. Sales are conducted through a combination of internal
sales people, external sales representatives and limited dealership channels.
At
present, the majority of our sales are made directly to the end-user. We
have
only made a limited amount of sales through distributors, but anticipate
this
distribution channel to grow in the future. We have established relationships
with third party shipping and logistics firms to enable rapid, low-cost
distribution of our product to customer sites.
Lightspace
Interactive Surfaces are currently divided into three specific product lines:
(a)
Lightspace Play is an entertainment system that creates a unique interactive
gaming platform that combines lighting and interactive technologies to produce
a
recreational experience for children and adults;
(b)
Lightspace Dance enhances the club experience by offering interactive dance
floors, dance cubes, bar tops or runways and walls that respond to club goers
movements upon the surface; and
(c)
Lightspace Design is an illuminated, interactive tile system displaying
customizable light and video effects that can be mounted on practically any
flat
surface and used for a variety of purposes.
We
anticipate that a significant amount of our 2008 marketing budget, excluding
personnel costs, will be spent on tradeshows, with approximately 80% of our
sales coming directly or indirectly from those tradeshows. Approximately
six
primary tradeshows have been selected for 2008 that target key potential
clientele within our current markets. The remainder of the marketing budget
will
be distributed between internet advertising, marketing materials and collateral,
photo shoots, video shoots, public relations and other marketing
costs.
For
the
year ended December 31, 2007, sales of our products and recognition of other
revenue were made to customers in the United States, $1,297,308; to customers
in
South America, $133,563; to customers in Europe, $233,064; to customers in
Asia/Africa/Australia, $165,287; and to customers in Canada, $20,950. For
the
year ended December 31, 2006, sales of our products and recognition of other
revenue were made to customers in the United States, $567,827,;to customers
in
Asia, $141,851; and to customers in other countries, $138,523. For the year
ended December 31, 2005, sales of our products and recognition of other revenue
were made to customers in the United States, $748,800; to customers in Asia,
$114,675; to a Canadian customer, $121,750; and to customers in other countries,
$40,381.
In
the
year ended December 31, 2007, two customers individually accounted for more
than
10% of product sales. These two customers accounted for $477,172, or
approximately 27% of total product sales. In each of the two years ended
2006
and 2005, we had two different customers that accounted for $367,851, or
approximately 47%, and four different customers that accounted for $670,200,
or
approximately 68%, respectively of total product sales. We believe this is
more
a result of the low number of sales and the large dollar values of certain
sales
and is expected at this point of Lightspace’s operating history.
Competition
We
believe that Lightspace is the first company to develop and offer modularized,
illuminated, display surfaces for floors, walls, bar tops, tabletops and
ceilings that are adaptable, pressure sensitive and responsive to human touch.
Other companies offer LED display panel technology products or interactive
environments using alternative approaches to ours. For example, Element Labs,
Inc. currently sells a non-interactive display tile and Reactrix Systems,
Inc.
currently sells an interactive environment using a projection and camera-based
system of limited size. However, we are not aware of any commercial products
similar to Lightspace interactive tiles.
Research
and Development
During
the 2007 fiscal year we continued to invest in our research and development
efforts. By applying our research and development across all our products
and
markets, our strategy is to develop cost-effective interactive tiles and
rapidly
bring them to market. Our next generation product development is taking shape
as
we are leveraging new technological changes in our industry and in the markets
in which we sell our products. We anticipate that our next generation product
line will have a variety of new state-of-the-art capabilities and enhancements
in hardware, software, mechanical, and optical components.
Research
and development spending was $2,541,795 for the year ended December 31, 2007
as
compared to $1,001,539 for the year ended December 31, 2006, an increase
of
$1,540,256, or 154%. $1,306,612 of this increase is attributed to the purchase
of the emagipix technology. We have budgeted approximately $1,294,000 in
2008
research and development spending for the design, development and testing
of the
next generation of Lightspace products.
Manufacturing
We
have
made a strategic decision to outsource our manufacturing and depend upon
a
network of vendors, custom parts suppliers, and contract manufacturers to
produce our products. We intend to monitor the cost-effectiveness of our
vendor
network and, when possible, streamline our supply chain to reduce cost, identify
and establish relationships with second and third sources for critical materials
and services, and ensure ready availability for increasing demand. We are
not
reliant on any one supplier for any of our critical parts or supplies.
Product
Warranty and Return Policy
We
provide a limited warranty to all customers for a period of one year from
the
date of acceptance. We warrant that the unaltered products will substantially
conform to the applicable specifications. During the warranty period, products
may be returned for service under our established RMA process and procedures.
Pursuant to our warranty, our sole and exclusive liability is, at our option,
to
repair, replace, or refund the fees paid for the defective
products.
Intellectual
Property
We
have
filed for a number of domestic and international patents covering core aspects
of our product design, such as our sensing technology, all of which are
currently pending. We have received trademark protection in the United States
for the mark “Lightspace,” and endeavor to develop goodwill in this mark as we
market and sell our products. We also rely on copyright laws to protect computer
programs relating to our websites and our proprietary technologies, although
to
date we have not registered for copyright protection. We have registered
Internet domain names related to our business in order to protect our
proprietary interests. We also enter into confidentiality and invention
assignment agreements with our employees and consultants and confidentiality
agreements with other third parties, and we actively monitor access to our
proprietary technology.
Governmental
Regulation and Certification
To
the
best of our knowledge, we believe that we are complying with United States
regulations concerning lighting, video and sound systems.
Personnel
We
currently employ 10 persons on a full-time basis. On February 15, 2007 our
Chief
Financial Officer resigned and was replaced on April 30, 2007. In July, 2007
we
named our Vice President of Operations to the Chief Operating Officer position.
We believe that our employee relations are good. We intend to continue to
conduct our business primarily using employees and, in some instances,
consultants.
Available
Information
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to reports filed or furnished pursuant
to Section 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), are available free of charge at an Internet website maintained
by the Securities and Exchange Commission (the “SEC”) that contains reports,
proxy and information statements, and other information regarding issuers
that
file electronically with the SEC at
http://www.sec.gov
;
and on
our website at http://www.Lightspacecorp.com as soon as reasonably practicable
after such reports are filed with the Securities and Exchange Commission.
The
information posted on our web site is not incorporated into this Annual
Report.
You
may
read and copy any materials that we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549, on official business
days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information
on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The Annual Report and our other public reports may also be obtained without
charge upon written request to Lightspace Corporation, 529 Main Street, Suite
330, Boston, Massachusetts 02129, Attention, Investor
Relations.
Item
1A. Risk Factors
You
should carefully consider the following factors which may affect future results
of operations. If any of the adverse events described below actually occur,
our
business, financial condition and operating results could be materially
adversely affected and you may lose part or all of the value of your investment.
If you choose to invest in our securities, you should be able to bear a complete
loss of your investment.
Limited
cash balance
As
of
March 28, 2008, our cash balance was approximately $36,000. Our ability to
continue operating is in doubt based on our available cash balance. If we
cannot
raise sufficient cash externally or generate cash through increased sales,
we
may not continue as a going concern.
Because
we have a limited operating history, you have a limited basis on which to
evaluate our ability to achieve our business objectives.
We
have
only developed and marketed the Lightspace system since 2004. As a result,
we
have only a limited operating history. We are confronted with the risks inherent
in a start-up company, including difficulties and delays in connection with
the
production and sales of our Lightspace systems, operational difficulties
and our
potential under-estimation of production and administrative costs. If we
cannot
successfully manage our business and growth, we may not be able to generate
future profits and may not be able to support our operations.
We
are in the early stages of our development, have yet to achieve net earnings
since inception and may not generate sufficient revenues to stay in
business.
Since
inception we have incurred net losses. There can be no assurance that we
will
achieve or sustain profitability in the future. The success of our business
will
depend on our ability to introduce and sell our systems to customers, develop
new product extensions and applications and raise additional capital for
operations; future expanded marketing and further product development. You
should consider the costs and difficulties frequently encountered by companies
in their early stages of launching a product and establishing a market presence.
No assurance can be given that we will generate sufficient revenues to stay
in
business or achieve profitability.
Our
products are complex and could have unknown defects or errors, which may
give
rise to claims against us, diminish our brand or divert our resources from
other
purposes.
Despite
many improvements to the current generation of our tile resulting in very
high
durability and reliability, our new or existing products may contain defects
and
errors or may in the future contain defects, errors or performance problems
that
could result in expensive and time-consuming design modifications or warranty
charges, delays in the introduction of new products or enhancements, significant
increases in our service and maintenance costs, exposure to liability for
damages, damaged customer relationships and harm to our reputation. Any of
these
problems could materially harm our results of operations and ability to achieve
market acceptance. In addition, increased development and warranty costs
could
be substantial and could adversely affect our operating margins.
We
may need additional capital, which may not be available on acceptable terms,
to
fund our growth or sustain our business.
We
may
require additional capital to support our growth and cover operational expenses
as we
expand
our marketing and product development. Our future capital requirements will
depend on many factors, including our rate of revenue growth, the expansion
of
our marketing and sales activities, the timing and extent of spending to
support
product development efforts, the timing of introductions of new products
and
enhancements to existing products, the acquisition of new capabilities or
technologies, and the continuing market acceptance of our products and services.
To the extent that existing cash, cash equivalents, cash from operations
and
cash from short-term borrowing are insufficient to fund our future activities,
we may need to raise additional funds through public or private equity or
debt
financing. Although we are currently not a party to any agreement or letter
of
intent with respect to potential investments in, or acquisitions of, businesses,
services or technologies, we may enter into these types of arrangements in
the
future, which could also require us to seek additional equity or debt financing.
Additional funds may not be available on terms favorable to us or at all.
If we
are unable to obtain additional financing on reasonable terms, we may not
have
sufficient capital to operate our business as planned.
If
we fail to adequately protect our intellectual property and proprietary
technology, our ability to produce and market our products may be
impaired.
Our
success and ability to compete will largely depend upon our ability to protect
our proprietary technology, which includes several components of our products.
We rely primarily on patent, copyright, trade secret and trademark laws to
protect our technology. Lightspace generally enters into confidentiality
and
invention assignment agreements with our employees, consultants and vendors
and
generally seeks to control access to our proprietary information. We have
applied for patents in the United States and certain other countries for
protection of our core technology. Our ability to compete effectively, if
at
all, with other companies may be materially dependent on such know-how as
we
develop and upon the issuance of future patents. We cannot assure you that
patents will be issued or that, if none are issued, there will be no material
adverse effect on our ability to market our products or license our technology.
We cannot assure you as to the scope of any patents that may be issued or
that
claims related thereto would not be asserted by other parties. There can
be no
assurance that there is no adversely held United States or foreign patent
or
other form of proprietary protection that could successfully be asserted
against
those held by Lightspace.
We
cannot
assure you that the validity of our patents, if issued, will be sustained
if
judicially tested, that our products will not infringe upon patents owned
by
others or that competitors with substantially greater financial resources
will
not develop similar or functionally-similar products outside the protection
of
any patents that might be granted to Lightspace. A third party could also
assert
claims against us, our customers or vendors that our technology infringes
the
third party's proprietary rights.
Infringement
claims asserted against us or our vendors may have a material adverse effect
on
our business, results of operations or financial condition. We or our vendors
may not be able to withstand such claims. Resolution of any claims, with
or
without merit, could be time-consuming and expensive, and could divert our
management's attention away from the execution of our business plan. Moreover,
any settlement or adverse judgment resulting from the claim could require
us to
pay substantial amounts or obtain a license to continue to use the technology
that is the subject of the claim, or otherwise restrict or prohibit our use
of
the technology. There can be no assurance that we would be able to obtain
a
license from the third party asserting the claim on commercially reasonable
terms, if at all, that we would be able to develop alternative technology
on a
timely basis, if at all, or that we would be able to obtain a license to
use a
suitable alternative technology to permit us to continue offering, and our
customers to continue using, our affected product. In addition, we may be
required to indemnify our vendors and other partners for third party
intellectual property infringement claims, which would increase the cost
to us
of an adverse ruling in such a claim. An adverse determination could also
prevent us from offering our products to others.
The
market for our products is uncertain and sales of our Lightspace systems
may not
generate sufficient revenues to meet our operating expenses.
The
business of Lightspace, marketing unique interactive tiles, must be considered
a
novel industry without substantial precedent or assurance of commercial success.
We are introducing our Lightspace systems as new products to customer markets
unfamiliar with their use and benefits. Actual demand for our product may
be
less than we anticipate. If there is an insufficient market for our products,
or
if our products fail to generate widespread acceptance within the market,
our
future sales may fail to produce revenues sufficient to meet our operating
expenses. If this occurs, our business may fail and the purchasers of our
securities may lose their entire investment.
Our
revenues may experience severe fluctuations, which could cause our business
to
suffer or fail.
Our
operating results have fluctuated in the past and are likely to do so in
the
future. Our revenues from the sale of our products and services are not
predictable with any significant degree of certainty. The length of our sales
cycles, which may vary from customer to customer, may last for months, while
our
short-term expense levels are relatively fixed and based on our expectations
for
future revenues. Our inability to adequately reduce short-term expenses or
to
predict our future revenues may adversely affect our business, operating
results
and financial condition.
We
may not be able to compete against existing and potential competitors in
the
markets we serve.
Our
competitors may be able to respond more quickly to new or emerging technologies
or changes in customer requirements than we can. In addition, current and
potential competitors may have greater name recognition and more extensive
customer bases. Increased competition could result in price reductions, fewer
customer orders and reduced margins.
If
we are unable to improve the effectiveness and breadth of our sales and research
and development organizations, our future revenue may be adversely affected.
We
will
need to improve the effectiveness and breadth of our sales operations in
order
to increase market awareness and sales of our products. Competition for
qualified sales personnel is intense, and we might not be able to hire the
kind
and number of sales personnel we are targeting. In addition, we will need
to
effectively train and educate our sales force if we are going to be successful
in selling our Lightspace systems. Likewise, our efforts to improve and refine
our Lightspace systems require highly skilled engineers and programmers.
Competition for professionals capable of expanding our research and development
organization is intense due to the limited number of people available with
the
necessary technical skills. If we are unable to identify, hire or retain
qualified sales marketing and technical personnel, our ability to achieve
future
revenue may be adversely affected.
Our
efforts to sell our products internationally may be unsuccessful and result
in
losses.
We
have
sold Lightspace systems to a small number of customers in Asia, Australia,
Canada, Europe, Japan, and Africa. Although we intend to expand our
international selling efforts, we have limited experience marketing and
distributing our products internationally. In addition, other inherent risks
may
apply to international markets, including:
(a)
the
impact of recessions in economies outside the United States;
(b)
greater difficulty in accounts receivable collections and longer collection
periods;
(c)
potentially adverse tax consequences;
(d)
greater difficulty in protecting our intellectual property;
(e)
fluctuations in exchange rates; and
(f)
political and economic instability.
The
inability to integrate our business in international jurisdictions may adversely
affect our future operations.
Our
marketing strategies may not be successful, which would adversely affect
our
future revenues and profitability.
Our
revenues and profitability depend on the successful marketing of our Lightspace
systems and the development of distribution channels in the United States
and
internationally. We cannot assure you that customers will be interested in
purchasing our products. We initially plan to use direct marketing to sell
our
products via trade shows, magazines and the Internet. If our marketing
strategies fail to attract customers or develop adequate sales channels,
our
product sales will not produce future revenues sufficient to meet our operating
expenses or fund our future operations. If this occurs, our business may
fail
and purchasers of our securities may lose their entire investment.
Failures
or delays in introducing new technologies or products could negatively impact
our revenues.
The
potential markets and uses for our Lightspace systems remain uncertain. The
introduction of products involving new technologies could render our products
obsolete. Our future success and revenue growth will depend on our ability
to
develop and introduce a variety of new products and product enhancements
to
address the needs of our customers. We may experience delays in developing
our
Lightspace systems in the future. Material delays in introducing new products
or
product enhancements may cause customers to forgo purchases of our products
or
to purchase those of our competitors.
Our
products may not always be compatible with third-party technologies, which
could
adversely affect our business.
Our
products are designed to interact and be compatible with a range of third-party
hardware and software technologies used by our customers. The future design
and
development plans of such third parties may not be in line with our future
product development. We may also rely on third parties to license or otherwise
provide us with access to these technologies so that we may test and develop
compatible products. Third parties may refuse or be otherwise unable to provide
us with the necessary access to their technology. If our products cease to
be
compatible with certain third-party technology, our business and operating
results may be materially adversely affected.
We
depend on third party suppliers and manufacturers, and our business would
be
harmed if these parties fail to meet our requirements.
We
rely
on a small number of critical third party suppliers and third party
manufacturers for key components, many of which are custom-built to our
specifications. We outsource the manufacture of all commodity components
that
are made with materials and components procured from third party suppliers.
If
we fail to develop or maintain relationships with these or other suppliers,
or
if these suppliers are unable to provide components as we require, we may
be
unable to manufacture our products or our products may be available only
at a
higher cost or after a long delay, which could prevent us from delivering
products to customers within required timeframes. In addition, our manufacturers
may fail to produce the products for our Lightspace systems to our
specifications, in sufficient quantities to meet our needs or in a workmanlike
manner and may not deliver the products on a timely basis. Any change in
manufacturers could disrupt our business due to delays in finding a new
manufacturer, providing specifications and testing initial production. As
a
result, we may experience order cancellation and loss of future revenues.
We
have experienced turnover among key officers and employees, and any inability
to
attract qualified successors in the future could harm our business and
prospects.
Our
employment relationships are generally at will. Our former Chief Financial
Officer resigned from Lightspace effective February 15, 2007 and was replaced
on
April 30, 2007. We can make no assurances that additional key employees will
not
leave us in the future. If any more of our key employees, including any of
our
officers, were to leave us, we could face substantial difficulty in hiring
qualified successors and could experience a loss in productivity while any
such
successor obtains the necessary training and experience. We do not have key
person life insurance covering any of our employees.
Lightspace
management has limited experience in the management of a public entity.
The
management of Lightspace consists of individuals who have limited experience
in
the management of a public company. Failure to properly comply with the
obligations required of a public company could result in stockholder suits,
substantial costs and a diversion of management's attention and
resources.
A
trading market for our units, common stock and warrants may not develop or
be
sustained, which may limit your ability to resell our securities.
There
is
a limited trading market for our securities at this time. Our securities
are
quoted on the OTC Bulletin Board. If an active public trading market does
not
develop and continue, you may have limited liquidity and may be forced to
hold
your units, common stock and warrants for an indefinite period of
time.
The
market for our common stock and warrants may be limited, and our stockholders
may have difficulty reselling their shares and warrants when desired or at
attractive prices.
Our
common stock and warrants trade in low volumes and at low prices. Some investors
view low-priced stocks as unduly speculative and therefore not appropriate
candidates for investment. Many institutional investors have internal policies
prohibiting the purchase or maintenance of positions in low-priced stocks.
This
has the effect of limiting the pool of potential purchases of our securities
at
present price levels. Shareholders may find greater percentage spreads between
bid and asked prices, and more difficulty in completing transactions and
higher
transaction costs when buying or selling our securities than they would if
our
common stock were listed on a major stock exchange, such as The New York
Stock
Exchange or The NASDAQ National Market.
Additionally,
the market prices for securities of software and technology companies have
been
volatile throughout our existence. Historical trading characteristics for
public
companies in this industry include limited market support, low trading volume,
and wide spreads (on a percentage basis) between the bid and ask prices.
Announcements regarding product developments, technological advances,
significant customer orders, and financial results may significantly influence
per share prices.
We
do not intend to register our securities under Section 12(g) of the
Exchange Act, which may limit your access to information about
us.
We
do not
intend to register our securities under Section 12(g) of the Exchange Act
unless and until we are required based on having at least 500 stockholders
of
record and a certain amount of assets. While we will be subject to the periodic
reporting requirements of Section 15(d) of the Exchange Act, we will not be
subject to certain other provisions of the Exchange Act, including those
related
to proxy and information statements, insider reporting and short-swing profit
liability, reporting by certain beneficial owners of our equity securities,
and
rules relating to tender offers. Certain provisions of the Sarbanes-Oxley
Act
also will not apply to us until we are registered under Section 12. As a
result, you may not have access to certain information that is otherwise
generally available to holders of publicly traded securities.
We
must comply with new regulatory requirements regarding internal control over
financial reporting and corporate governance, which will cause us to incur
increased costs, and our failure to comply with these requirements, could
cause
our stock price to decline.
Section 404
of the Sarbanes-Oxley Act of 2002 requires that we annually evaluate and
report
in Form
10-K
on
our systems of internal controls and that our independent registered public
accounting firm may be required to report on our evaluation of those
controls. We have had material weaknesses in our internal controls in the
past.
We cannot assure you that there will not in the future be material weaknesses
in
our internal controls that would be required to be reported in future Annual
Reports. A negative reaction by the equity markets to the reporting of a
material weakness could cause our stock price to decline.
We
are
also spending an increased amount of management time and focus as well as
external resources to comply with changing laws, regulations and standards
relating to corporate governance and public disclosure. This has resulted
in
additional accounting and legal expenses. These additional expenses could
adversely affect our operating results and the market price of our stock
could
suffer as a result.
Our
common stock is subject to the Securities and Exchange Commission's "penny
stock" regulations, which limit the liquidity of common stock held by our
stockholders.
Based
on
the anticipated trading price, our common stock and warrants are considered
"penny stock" for purposes of federal securities laws, and therefore subject
to
regulations which affect the ability of broker-dealers to sell our securities.
Broker-dealers who recommend a "penny stock" to persons (other than established
customers and accredited investors) must make a special written suitability
determination and receive the purchaser's written agreement to a transaction
prior to sale.
As
long
as the penny stock regulations apply to our common stock and warrants, it
may be
difficult to trade such securities because compliance with the regulations
can
delay and/or preclude certain trading transactions. Broker-dealers may be
discouraged from effecting transactions in our securities because of the
sales
practice and disclosure requirements for penny stock. This could adversely
affect the liquidity and/or price of our common stock and warrants, and impede
the sale of our common stock and warrants in the secondary market.
Our
warrants may have limited value unless the price of our common stock equals
or
exceeds the exercise price of the warrants at the time of
exercise.
The
price
of our common stock may not meet or exceed the exercise price of the warrants
during the warrant exercise period. If this happens, the value of common
stock
which you purchase by exercising your warrants may be significantly less
than
the exercise price which you must pay. If you choose not to exercise your
warrants during the exercise period, your warrants will expire. As a result
your
warrants may become worthless.
Our
warrants are exercisable during a period that continues until April 30,
2011. If a current registration statement covering the warrants is not in
effect, you may not be able to exercise or resell your
warrants.
Our
warrants may be exercised at any time until November 2, 2011. We have agreed,
and the law requires us, to keep our registration statement current so long
as
any of the warrants are outstanding. However, if a current registration
statement is not in
effect,
you may not be able to exercise or resell your warrants. If at their expiration
date the warrants are not currently exercisable, the expiration date will
be
extended until 30 days following notice to the holders of the warrants that
the warrants are again exercisable. Nevertheless, there is a possibility
that
you will never be able to exercise the warrants, and that you will never
receive
shares of our common stock. This potential inability to exercise the warrants
may have an adverse effect on demand for the warrants and the prices that
can be
obtained from reselling them.
If
an exemption from registration on which we have relied on for any of our
past
offerings of securities were later challenged legally, we may have to expend
time and money defending them or risk paying expenses for defense and/or
rescission.
We
have
previously offered our securities in private transactions in reliance on
exemptions from registration under the Securities Act of 1933, as amended
(the
"Securities Act"), and state securities laws. In the future, if the basis
of an
exemption were challenged, we risk potential claims which could require
rescission of those transactions with return of funds and interest to the
investors. Such claims could be expensive and time consuming to defend and
if we
are unsuccessful could have a material adverse effect on our
business.
There
may be substantial sales of our common stock by stockholders which could
cause
the price of our stock to fall.
Future
sales of substantial amounts of our common stock in the public market, if
one
develops, could cause the market price of our common stock to decline and
could
impair the value of your investment. As of December 31, 2007, we had 15,282,495
shares of common stock outstanding and the sales of common stock by these
stockholders may depress any trading market that develops before you are
able to
sell the common stock or warrants, or the shares of common stock issued upon
exercise of the warrants.
Our
certificate of incorporation authorizes us to issue additional shares of
stock,
which could dilute your ownership interest and influence in
Lightspace.
We
are
authorized to issue up to 75,000,000 shares of common stock, which may be
issued
by our board of directors for such consideration as they may deem sufficient
without seeking stockholder approval. The issuance of additional shares of
common stock in the future will reduce the proportionate ownership and voting
power of current stockholders.
Outstanding
warrants and options, and additional future obligations to issue our securities
to various parties, may dilute the value of your investment and may adversely
affect our ability to raise additional capital.
As
of
December 31, 2007, we had committed to issue up to 29,965,315 additional
shares
of common stock under the terms of warrants, options and other arrangements
that
can be exercised at exercise prices ranging from $0.80 to $7.50 per share.
We
have
historically issued shares of our common stock or granted stock options to
employees, consultants and vendors as a means to conserve cash, and we may
continue to grant additional shares of stock and issue stock options in the
future. As of December 31, 2007, we had outstanding options to purchase
5,143,610 shares of our common stock to officers, directors and employees
under
our 2005, 2006 and 2007 Stock Incentive Plans. Under our 2006 and 2007 Stock
Incentive Plans, we have the authority to grant an additional 1,026,542 common
stock options to directors, officers, employees and consultants.
For
the
length of time these warrants and options are outstanding, the holders will
have
an opportunity to profit from a rise in the market price of our common stock
without assuming the risks of ownership. This may adversely affect the terms
upon which we can obtain additional capital. The holders of such derivative
securities would likely exercise or convert them at a time when we would
be able
to obtain equity capital on terms more favorable than the exercise or conversion
prices provided by the notes, warrants or options.
We
have not paid dividends on our common stock in the past and do not expect
to do
so in the future.
We
cannot
assure you that our operations will result in sufficient revenues to enable
us
to operate at profitable levels or to generate positive cash flow sufficient
to
pay dividends. We have never paid dividends on our common stock in the past
and
do not expect to do so in the foreseeable future.
A
majority of our common stock is beneficially owned by a small number of persons.
As a result, our other stockholders may be unable to affect the outcome of
any
stockholder vote.
A
majority of the outstanding shares of our common stock is beneficially owned
by
a small number of persons who may be able to control the outcome of any
stockholder vote. Such power could have the effect of delaying, deterring
or
preventing a change of control, business combination or other transaction
that
might otherwise be beneficial to our stockholders and warrant holders. These
factors could be viewed adversely by the market and could depress the prevailing
market price for our common stock and warrants. Furthermore, sales of
substantial amounts of our common stock or warrants, or the perception that
these sales might occur, may also depress prevailing market prices of our
common
stock and warrants.
Changes
in the accounting treatment of stock options will adversely affect our results
of operations.
Statement
of Financial Accounting Standards No. 123(R),
Share-Based
Payment,
issued
in 2004,
addresses
accounting for stock-based compensation arrangements, including stock options
and shares issued to employees and directors under various stock-based
compensation arrangements. This statement requires that we use the fair value
method, rather than the intrinsic-value method, to determine compensation
expense for all stock-based arrangements. Under the fair value method,
stock-based compensation expense is determined at the measurement date, which
is
generally the date of grant, as the aggregate amount by which the expected
future value of the equity security at the date of acquisition exceeds the
exercise price to be paid. The resulting compensation expense, if any, is
recognized for financial reporting over the term of vesting or performance.
This
statement was first effective for us on January 1, 2006 for all prospective
stock option and share grants of stock-based compensation awards and
modifications to all prior grants, and will have the effect of increasing
our
compensation costs recognized in operations from historical levels for all
stock-based compensation awards and modifications of prior awards
granted.
Item
1B. Unresolved Staff Comments
None
Item
2. Properties
Effective
May 1, 2006, we entered into a five-year lease in Boston, Massachusetts for
approximately 16,000 square feet for office, research and development, and
assembly and testing of Lightspace systems. The terms of this new lease provide
for average annual base rental payments of approximately $293,500 per year,
plus
an allocated percentage of the increase in the building operating costs over
defined base year operating costs. We expect that the Boston facility will
accommodate our present needs and future growth.
Item
3. Legal Proceedings
In
October 2007, we were served notice of a wrongful termination claim against
us
by a former employee. The former employee is seeking damages in the amount
of
lost compensation. We believe there is no merit to the lawsuit and intend
to
defend against it. A contingency accrual for the potential litigation was
established in the June 2007 quarter.
Given
our
current cash balance, any significant judgment against us could have severe
financial implications.
In
March
2008, we received a letter from a vendor claiming breach of contract and
non-payment of bills due. As of March 28, 2008 approximately $76,000 was
owed to
this vendor, this amount was not in dispute. Additionally, the vendor claimed
to
have purchased approximately $36,000 in materials on our behalf which as
of
March 28, 2007, had not been invoiced to the Company. On March 28, 2007,
the
case was settled and we agreed to the payment of the $76,000 to be made by
March
31, 2008. The additional $36,000 allegedly owed was settled for approximately
$28,000 to be paid within 90 days. On March 28, 2007, the Company obtained
short
term loans due April 28, 2008 for $70,000 from a shareholder and ex-directors,
the proceeds of which are to be used in payment of the $76,000.
During
the normal course of business, we may at times be involved in disputes and/or
litigation with respect to our products, operations or employees. We are
not
currently involved in any other significant litigation.
Item
4. Submission of Matters to a Vote of Securities Holders
At
our
Annual Meeting of Stockholders held on December 10, 2007, our stockholders
approved and ratified the following actions:
1.
Election of Directors:
The
following individuals were elected as directors of the Company:
|
Director
Nominee
|
|
Number
of
Votes
For
|
|
Number
of Broker Non-Votes Represent “For” Votes
|
|
Number
of Votes Against
|
|
Number
of Votes
Withheld
|
|
|
Gary
Florindo
|
|
|
8,036,950
|
|
|
3,504,400
|
|
|
0
|
|
|
0
|
|
|
Robert
U. Giannini
|
|
|
7,189,958
|
|
|
3,504,400
|
|
|
0
|
|
|
846,992
|
|
|
Joseph
Parkinson
|
|
|
7,255,622
|
|
|
3,504,400
|
|
|
0
|
|
|
781,328
|
|
Each
director was elected to serve until the 2008 Annual Meeting of Stockholders
and
until their respective successors have been elected and qualified. Messrs.
Giannini and Parkinson resigned as directors on March 27, 2008.
There
were no disagreements among Messrs. Parkinson or Giannini and the Company.
2.
Adoption of 2007 Stock Incentive Plan:
5,627,462
shares were voted in favor of the approval of the adoption of the 2007 Stock
Incentive Plan, 2,409,488 shares were voted against (including 3,504,400 shares
representing broker non-votes), and there were no abstentions.
3.
Appointment of Miller Wachman LLP:
8,036,950
shares were voted in favor of the appointment of Miller Wachman LLP as
independent auditors of the Company until the next Annual Meeting of
Stockholders (including 3,504,400 representing broker non-votes) no shares
were
voted against, and there were no abstentions.
Item
5. Market for the Registrant’s Common Equity, Related Stockholder
Matters
and Issuer Purchases of Equity Securities
2007
Unregistered Sales of Equity Securities
On
April
30, 2007 we sold 586,173 units at the offering price of $6.40 per unit to
“accredited investors” (as such term is defined in Rule 501 of Regulation D
promulgated by the SEC), resulting in aggregate proceeds of $3,751,507. After
expenses of the offering of $311,507, the net proceeds were approximately
$3,440,000. Each equity unit consists of: (1) eight shares of common stock;
(2) eight warrants to purchase a total of eight shares of common stock at
an exercise price of $1.00 per warrant; (3) two warrants to purchase a
total of two shares of common stock at an exercise price of $1.25 per warrant;
and (4) two warrants to purchase a total of two shares of common stock at
an exercise price of $1.63 per warrant. The sale of 586,173 units resulted
in
the issuance of: (1) 4,689,384 shares of common stock; (2) 4,689,384 warrants
to
purchase a total of 4,689,384 shares of common stock at an exercise price of
$1.00 per warrant; (3) 1,172,346 warrants to purchase a total of 1,172,346
shares of common stock at an exercise price of $1.25 per warrant; and (4)
1,172,346 warrants to purchase a total of 1,172,346 shares of common stock
at an
exercise price of $1.63 per warrant. The warrants are exercisable at the option
of the holder at any time up until April 30, 2012, at which date the warrants
expire. In the event of a split, stock dividend or reclassification of our
common stock, the warrants will be adjusted proportionately.
The
offering and sale of the units were made exempt from registration under the
Securities Act since the private placement was made by Lightspace in reliance
on
the exemptions set forth in Section 4(2) of the Securities Act and Rule 505
and
Rule 506 promulgated under Regulation D by the SEC.
In
connection with the sale of the equity units, we paid Griffin Securities, Inc.,
the financial advisor for the private placement, a fee in the amount of $187,575
and issued to Griffin Securities a purchase warrant exercisable for 58,617
units, in the same form sold in the private placement, at an exercise price
of
$6.40 per unit.
We
used a
portion of the net proceeds from the private placement to complete the
acquisition of the emagipix technology by the payment of the balance of the
cash
purchase price of $255,000. The balance of the net proceeds will be used for
general working capital purposes, including payment of the expenses of
registering the private placement units for resale.
As
a
result of the private placement, issued and outstanding shares of our common
stock at December 31, 2007 increased to 15,224,323 from 10,593,111 at December
31, 2006. Additionally, issued and outstanding common stock warrants at December
31, 2007 were 23,634,205, exercisable at prices that range from $0.80 to $7.50.
At December 31, 2006, the Company had issued and outstanding common stock
warrants in the aggregate amount of 15,427,789, exercisable at prices that
range
from $0.80 to $7.50.
In
addition, as a result of the private placement, we entered into a Registration
Rights Agreement with the purchasers of the units, whereby we agreed to file
a
registration statement, within 45 days of the closing, to register for resale
the shares of common stock, warrants and shares of common stock issuable upon
exercise of the warrants, included in the units issued in the private
placement.
2007
Share Repurchases
In
the
December 2007 quarter, we repurchased 24,931 shares directly from stockholders.
The repurchases were not part of a share repurchase plan and no share repurchase
plan is currently in place.
|
Month
|
|
Number
of shares
|
|
Average
price paid per share
|
|
|
December
|
|
|
24,931
|
|
$
|
0.00008
|
|
Item
6. Selected Financial Data
Lightspace
was incorporated in 2001 and incurred or recorded only minor expenses and no
revenues in 2001 and 2002. Operations were commenced in the second half of
2003
when we received our first significant private investor equity
funding.
|
|
|
Year
Ended December 31,
|
|
Operations
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,849,172
|
|
$
|
848,201
|
|
$
|
1,025,606
|
|
$
|
380,521
|
|
$
|
-
|
|
|
Product
cost
|
|
|
1,598,325
|
|
|
870,082
|
|
|
824,808
|
|
|
663,441
|
|
|
-
|
|
|
Gross
margin
|
|
|
250,847
|
|
|
(21,881
|
)
|
|
200,798
|
|
|
(282,920
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,541,795
|
|
|
1,001,539
|
|
|
895,942
|
|
|
1,543,653
|
|
|
214,004
|
|
|
Selling
and marketing
|
|
|
1,372,896
|
|
|
1,033,715
|
|
|
648,315
|
|
|
1,005,569
|
|
|
67,734
|
|
|
Administrative
|
|
|
1,077,262
|
|
|
772,134
|
|
|
1,019,189
|
|
|
1,043,649
|
|
|
192,975
|
|
|
Total
operating expenses
|
|
|
4,991,953
|
|
|
2,807,388
|
|
|
2,563,446
|
|
|
3,592,871
|
|
|
474,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(4,741,106
|
)
|
|
(2,829,269
|
)
|
|
(2,362,648
|
)
|
|
(3,875,791
|
)
|
|
(474,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on debt and equity conversion
|
|
|
-
|
|
|
402,298
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Interest
expense - net
|
|
|
(59,453
|
)
|
|
(281,449
|
)
|
|
(551,859
|
)
|
|
(228,586
|
)
|
|
(4,957
|
)
|
|
Net
loss
|
|
$
|
(4,800,559
|
)
|
$
|
(2,708,420
|
)
|
$
|
(2,914,507
|
)
|
$
|
(4,104,377
|
)
|
$
|
(479,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.35
|
)
|
$
|
(0.51
|
)
|
$
|
(3.00
|
)
|
$
|
(4.25
|
)
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
13,719,367
|
|
|
5,333,381
|
|
|
971,182
|
|
|
965,182
|
|
|
944,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
585,737
|
|
$
|
879,987
|
|
$
|
123,951
|
|
$
|
47,546
|
|
$
|
1,133,896
|
|
|
Total
assets
|
|
|
1,463,141
|
|
|
1,570,269
|
|
|
505,880
|
|
|
463,883
|
|
|
1,284,204
|
|
|
Notes
payable
|
|
|
237,381
|
|
|
237,381
|
|
|
4,639,234
|
|
|
2,364,247
|
|
|
237,000
|
|
|
Long
term debt
|
|
|
950,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
liabilities
|
|
|
2,268,683
|
|
|
1,273,260
|
|
|
6,016,372
|
|
|
3,292,917
|
|
|
426,272
|
|
|
Stockholders'
equity (deficit)
|
|
|
(805,542
|
)
|
|
297,009
|
|
|
(5,510,492
|
)
|
|
(2,829,034
|
)
|
|
857,932
|
|
See
Item
5
,
Market
for the Registrant’s Common Equity and Related Stockholder Matters, in this
Annual Report for a discussion of our 2007 year sales of registered and
unregistered equity securities.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion of our results of operations and financial condition should
be read in conjunction with the selected historical data and the historical
financial statements and notes thereto included elsewhere herein. This
discussion contains forward-looking statements that relate to future events
and
our future financial performance. These statements involve known and unknown
risks, uncertainties and other factors, including those set forth in the section
entitled “Risk Factors” and elsewhere herein. Our actual results and performance
may be materially different from any future results or performance implied
by
these forward-looking statements.
OVERVIEW
Lightspace
provides interactive lighting entertainment products to retail stores, family
entertainment centers, theme parks, fashion shows, nightclubs, special events,
stage lighting and sound providers, health clubs and architectural lighting
and
design. Our current product lines include: (a) Lightspace Play, an interactive
36 tile gaming platform for child and adult recreation; (b) Lightspace Dance,
an
interactive floor, generally in sizes of 86 tiles and larger, that displays
customizable lights and effects; and (c) Lightspace Design, an interactive
tile
system that displays customizable lights and video effects that can be mounted
on any flat surface.
Formed
in
2001 and headquartered in Boston, Massachusetts, Lightspace has developed
systems that have been installed and used in a variety of capacities and in
some
of the world’s most prestigious venues. Lightspace has expertise in a variety of
consumer markets, business sectors, and technology fields.
On
March
29, 2007, Lightspace Emagipix Corporation (“LEC”), a newly formed wholly-owned
subsidiary of Lightspace Corporation, entered into an agreement with
Illumination Design Works, Inc. to acquire the assets related to the in process
development of its emagipix technology, an interactive lighting technology
that
utilizes electroluminescent sheets. The purchase price for the emagipix
technology consisted of an initial cash payment of $45,000 upon signing the
agreement and a cash payment of $255,000 and the issuance of a $950,000
convertible term secured non-recourse note to Illumination Design Works, Inc.
upon the closing of the technology purchase.
On
April
30, 2007, LEC completed the acquisition of the emagipix technology. In
connection with the acquisition, the developer of the emagipix technology (a
former officer and co-founder of Lightspace Corporation and the principal owner
of Illumination Design Works, Inc.), re-commenced employment with
Lightspace.
Lightspace
has incurred net operating losses and negative operating cash flows since
inception. As of December 31, 2007, we had an accumulated retained deficit
of
$15,112,193 and a stockholders’ deficit of $805,542. Our cash and cash
equivalents position as of December 31, 2007 was $585,737 and our net current
asset position (current assets minus current liabilities) was negative $168,362.
We expect to incur additional losses and negative operating cash flows through
at least the quarter ending December 2008 to fund the operating losses and
the
increases to inventory and accounts receivable to support forecasted sales
growth. Lightspace’s long-term success is dependent on obtaining sufficient
capital to fund its operations and development of its products, bringing such
products to the worldwide market, and obtaining sufficient sales volume to
be
profitable. To achieve these objectives, we may be required to raise additional
capital through public or private financings or other arrangements. It cannot
be
assured that such financings will be available on terms attractive to
Lightspace, if at all. Such financings may be dilutive to stockholders and
may
contain restrictive covenants.
RESULTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND
2006
Revenue
and Operating Results
For
the
year ended December 31, 2007, revenue was
$1,849,172
,
an
increase of $1,000,971, or approximately 118%, from revenue of
$848,201
recorded
in the year ended December 31, 2006. The net loss for the year ended December
31, 2007 was $4,800,559 as compared to the net loss for the year ended December
31, 2006
of
$2,708,420
.
The net
loss for the year ended December 31, 2007 includes the purchase price of
$1,306,612 for the emagipix technology as discussed under the section Liquidity,
Capital Resources and Cash Flow.
The
revenue for the year ended December 31, 2007 was comprised of the sales of
products, $1,741,070, and other revenue of $108,102, as represented by deferred
maintenance revenue and other services, and parts sales. In the year ended
December 31, 2007, there were 48 product installation sites, representing 2,886
interactive tiles, comprised of 40 Lightspace Play installations, five
Lightspace Dance installations, and three Lightspace Design installations.
The
revenue for the year ended December 31, 2006 was comprised of sales of products,
$780,843, and other revenue of $67,358, as represented by deferred maintenance
revenue, sales of miscellaneous parts and other services. In the year ended
December 31, 2006, there were 16 product installation sites, representing 1,068
interactive tiles, comprised of eight Lightspace Play installations, five
Lightspace Design installations, and three Lightspace Dance
installations.
Our
product backlog as of December 31, 2007 was $136,433, representing 334
interactive tiles. We expect that this backlog will be shipped and installed
prior to March 31, 2007. Product backlog as of December 31, 2006 was
$208,134, representing 343 interactive tiles. Cancellation of a signed contract
or order included in product backlog requires the consent of Lightspace.
For
the
year ended December 31, 2007, sales of our products and recognition of other
revenue were made to customers in the United States, $1,296,808; to customers
in
South America, $133,563; to customers in Europe, $233,064; to customers in
Asia/Africa/Australia, $164,787; and to customers in Canada, $20,950.
For
the
year ended December 31, 2006, sales of our products and recognition of other
revenue were made to customers in the United States, in the amount of $567,827,
to customers in Asia, in the amount of $141,851, and to customers in other
countries, $138,523.
In
the
year ended December 31, 2007, two customers individually accounted for more
than
10% of product sales. These two customers accounted for $477,172, or
approximately 27% of total product sales. In each of the two years ended 2006
and 2005, we had two different customers that accounted for $367,851, or
approximately 47%, and four different customers that accounted for $670,200,
or
approximately 68%, respectively of total product sales. We believe this is
more
a result of the low number of sales and the large dollar values of certain
sales
and is expected at this point of Lightspace’s operating history.
Product
Cost and Gross Margin
For
the
years ended December 31, 2007 and 2006, Lightspace recorded positive gross
margins of $250,847, or approximately 14%, and negative gross margins of
$21,881, or -3%, respectively. The year ended December 31, 2006 includes a
provision of $196,371 for obsolete inventory component parts and interactive
tiles resulting from engineering design changes to be incorporated into the
production of interactive tiles in the first quarter of 2007. In addition to
the
2006 provision for obsolescence, another factor affecting the significant
decline in the 2006 gross margin is that the fixed cost of our manufacturing
and
customer service organizations, as discussed hereafter, was spread over a lower
number of sales of interactive tiles, 1,068 tiles in the year ended December
31,
2006 versus 3,146 tiles in the year ended December 31, 2007. Due to the low
dollar volume of sales in 2006, these margin rates are not representative of
margin rates that may be achieved if we achieve higher volume levels.
Product
cost includes the direct cost of materials, associated freight charges, and
the
allocated per unit cost of the contractor's manufacturing labor, overhead and
profit associated with products sold. For the most part, these costs are
variable and increase or decrease with volume. Product cost also includes
Lightspace's personnel and related expenses assigned to manufacturing and
customer service. These latter costs tend to be a fixed cost that decreases
on a
per unit basis as volume increases.
We
continue to explore additional ways of reducing our product costs through both
the re-engineering of technical elements of our product as well as examining
our
vendor pricing and establishing new relationships when necessary. We expect
to
show continued improvements in product cost in 2008.
Inflation
In
the
opinion of management, inflation has not had a material effect on our
operations.
Operating
Expenses
Research
and development spending was $2,541,795 for the year ended December 31, 2007
as
compared to $1,001,539 for the year ended December 31, 2006, an increase of
$1,540,256, or 154%. $1,306,612 of this increase is attributed to the purchase
of the emagipix technology. We have budgeted approximately $1,294,000 in 2008
research and development spending for the design, development and testing of
the
next generation of Lightspace products.
Selling
and marketing expenditures were $1,372,896 for the year ended December 31,
2007
as compared to $1,033,715 for the year ended December 31, 2006, an increase
of
$339,181, or 33%. The increase in sales and marketing spending in the year
ended
December 31, 2007 is related to the 2007 hiring of marketing and sales staff
and
increased spending for trade shows, advertising, demonstration interactive
tile
floors and employee travel expenses.
Administrative
expenditures were $1,077,262 for the year ended December 31, 2007 as compared
to
$772,134 for the year ended December 31, 2006, an increase of $305,128, or
40%.
In the year ended December 31, 2007, administrative expenses were impacted
by
approximately $157,000 in stock option compensation expense as well as $242,000
of legal and other consulting fees incurred in connection with financing and
SEC
reporting.
Interest
Expense
Net
interest expense for the year ended December 31, 2007 was $59,453 as compared
to
$281,449 for the year ended December 31, 2006, a decrease of $221,996, or 79%.
The decrease in interest expense for the year ended December 31, 2007 is due
to
the conversion to common stock and common stock warrants on April 27, 2006
of
$2,701,853 in principal amount of convertible and demand notes, and the
conversion to common stock and warrants on May 3, 2006 of $2,400,000 in
principal amount of senior secured notes, all as discussed in Liquidity, Capital
Resources and Cash Flow below.
Income
Taxes
As
of
December 31, 2007 and 2006, Lightspace had operating loss carryforwards of
approximately $7,299,000 and $3,384,000, respectively, available to offset
future taxable income for United States federal and state income tax purposes.
As of December 31, 2007, approximately $4,231,000 of the operating loss
carryforwards are restricted as to yearly usage, as discussed hereafter. The
United States federal tax operating loss carryforwards expire commencing in
2021
through 2027. The state tax operating loss carryforwards expire commencing
in
2007 through 2011. Additionally, as of December 31, 2007, Lightspace had
research and development credit carryforwards of approximately $102,000
available to be used as a reduction of federal income taxes. The deferred tax
asset related to the operating loss carryforwards, tax credits and other items
deductible against future taxable income was $3,314,458 and $1,611,591 as of
December 31, 2007 and 2006, respectively. We have provided a valuation allowance
at those dates equal to the full amount of the deferred tax asset, and will
continue to fully reserve the deferred tax asset until it can be ascertained
that all or a portion of the asset will be realized.
Our
ability to use the operating loss carryforwards and tax credit carryforwards
to
offset future taxable income is subject to restrictions enacted in the United
States Internal Revenue Code of 1986. These restrictions severely limit the
future use of the loss carryforwards if certain ownership changes described
in
the code occur. The common stock ownership changes occurring as a result of
the
securityholder debt and equity conversion on April 27, 2006, the conversion
of
senior secured notes on May 3, 2006, and the private placement on April 30,
2007
have resulted in reductions and in limitations in the use of the operating
loss
and tax credit carryforwards. The value of the operating loss carryforwards
on
April 30, 2007, $8,699,000, was reduced to $4,231,000. In future years, such
reduced operating loss carryforwards of $4,231,000 can be used only to offset
approximately $441,000 of taxable income per year, if any. We may use operating
losses and tax credits generated subsequent to the date of the ownership change
without limitation. Unrestricted carryforwards generated in the period
subsequent to the April 30
th
ownership change to December 31, 2007 are approximately $3,040,000. Therefore,
in future years, we may be required to pay income taxes even though significant
operating loss and tax credit carryforwards exist.
LIQUIDITY,
CAPITAL RESOURCES AND CASH FLOW
We
have
incurred net operating losses and negative operating cash flows since inception.
At December 31, 2007, we had an accumulated retained earnings deficit of
$15,112,193 and stockholders’ deficit of $805,541. Our cash position as of
December 31, 2007 was $585,737, and our net current asset position (current
assets minus current liabilities) was negative $168,362. We expect to incur
additional losses and negative operating cash flows through at least the fourth
quarter of 2008. At March 28, 2008 our cash balance was approximately $36,000
and we may need additional capital to fund the operating losses and the
increases to inventory and accounts receivable to support forecasted sales
growth. Lightspace’s long-term success is dependent on obtaining sufficient
capital to fund its operations and development of its products, bringing such
products to the worldwide market, and obtaining sufficient sales volume to
be
profitable. To achieve these objectives, we may be required to raise additional
capital through public or private financings or other arrangements. There can
be
no assurance that such financings will be available on terms attractive to
Lightspace, if at all. Such financings may be dilutive to stockholders and
may
contain restrictive covenants.
On
April
30, 2007 we closed a private placement of our equity units. We sold 586,173
units at the offering price of $6.40 per unit, resulting in aggregate proceeds
of $3,751,507. After expenses of the offering of $311,507, the net proceeds
were
approximately $3,440,000. Each equity unit consists of: (1) eight shares of
common stock; (2) eight warrants to purchase a total of eight shares of
common stock at an exercise price of $1.00 per warrant; (3) two warrants to
purchase a total of two shares of common stock at an exercise price of $1.25
per
warrant; and (4) two warrants to purchase a total of two shares of common
stock at an exercise price of $1.63 per warrant. The sale of 586,173 units
resulted in the issuance of: (1) 4,689,384 shares of common stock; (2) 4,689,384
warrants to purchase a total of 4,689,384 shares of common stock at an exercise
price of $1.00 per warrant; (3) 1,172,346 warrants to purchase a total of
1,172,346 shares of common stock at an exercise price of $1.25 per warrant;
and
(4) 1,172,346 warrants to purchase a total of 1,172,346 shares of common stock
at an exercise price of $1.63 per warrant. The warrants are exercisable at
the
option of the holder at any time up until April 30, 2012, at which date the
warrants expire. In the event of a division of our common stock, the warrants
will be adjusted proportionately.
In
connection with the sale of the equity units, we paid Griffin Securities, Inc.,
the financial advisor for the private placement, a fee in the amount of $187,575
and issued to Griffin Securities a purchase warrant exercisable for 58,617
units, in the same form sold in the private placement, at an exercise price
of
$6.40 per unit.
We
used a
portion of the net proceeds from the private placement to complete the
acquisition of the emagipix technology by the payment of the balance of the
cash
purchase price of $255,000. The balance of the net proceeds will be used for
general working capital purposes, including payment of the expenses of
registering the private placement units for resale.
As
a
result of the private placement, issued and outstanding shares of our common
stock at December 31, 2007 increased to 15,282,495 from 10,593,111 at December
31, 2006. Additionally, issued and outstanding common stock warrants at December
31, 2007 were 23,634,205, exercisable at prices that range from $0.80 to $7.50.
At December 31, 2006, the Company had issued and outstanding common stock
warrants in the aggregate amount of 15,427,789, exercisable at prices that
range
from $0.80 to $7.50.
Manufacturing
Operations
We
currently contract for the production and assembly of interactive tiles from
an
independent manufacturing company and have had discussions with other contract
manufacturers as secondary sources for the production and assembly of our
interactive tiles. The current contract manufacturer is ISO- (International
Organization for Standardization) certified and, to date, we have not
experienced either quality or production difficulties.
Deferred
Revenue and Backlog
Our
deferred income balance as of December 31, 2007 was $96,280. Deferred income
is
represented by: (1) advance deposits received from customers for the future
purchase and installation of a Lightspace system (2) sales that have shipped
but
do not meet all the requirements of our revenue recognition policy and (3)
the
balance of deferred maintenance revenue to be recognized as income over the
remaining term of the maintenance contract. Customer deposits are the segment
of
our product backlog that, in addition to being supported by a signed contract,
is also supported by a customer advance payment. Our product backlog as of
December 31, 2007 and 2006 was approximately $136,433 and $208,000,
respectively.
Market
Risk
Market
risk represents the risk of loss arising from adverse changes in market rates
and foreign exchange rates. As of December 31, 2007, we did not have any
material exposure to interest rate risk. All of our products and services are
denominated in U.S. dollars, therefore we are not exposed to foreign currency
risk with respect to our accounts receivable. All materials and components
that
we buy for the manufacturing of our products are also priced in U.S. dollars.
We
also did not have any operations outside the United States. Accordingly, we
do
not have any material foreign currency risk at this time.
Off-Balance
Sheet Arrangements
As
of
December 31, 2007, we leased our office and manufacturing space and certain
office equipment. Total rent expense for the years ended December 31, 2007,
2006
and 2005 was $316,424, $364,875and $329,754, respectively.
Effective
May 1, 2006, the Company entered into a five-year lease for approximately 16,000
square feet to be used for office and manufacturing operations. The terms of
this new lease provide for average annual base rental payments of approximately
$293,500 per year, plus an allocated percentage of the increase in the building
operating costs over defined base year operating costs.
The
table
below sets forth our known contractual obligations as of December 31,
2007:
|
Contractual
Obligation
|
|
Payments
Due by Period
|
|
|
|
|
Total
|
|
1
Year
|
|
2-3
Years
|
|
4-5
Years
|
|
Thereafter
|
|
|
Facility
lease
|
|
$
|
1,131,739
|
|
$
|
314,783
|
|
$
|
674,758
|
|
$
|
142,198
|
|
|
-
|
|
|
Purchase
orders
|
|
$
|
1,239,632
|
|
$
|
1,239,632
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Other
leases
|
|
|
8,845
|
|
|
3,931
|
|
|
4,914
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
2,380,216
|
|
$
|
1,558,346
|
|
$
|
679,672
|
|
$
|
142,198
|
|
|
-
|
|
Recent
Accounting Pronouncements
Statement
of Financial Accounting Standards No. 123(R),
Share-Based
Payment,
addresses
accounting for stock-based compensation arrangements, including stock options
and shares issued to employees and directors under various stock-based
compensation arrangements. This statement requires Lightspace to use the fair
value method, rather than the intrinsic-value method, to determine compensation
expense for all stock-based arrangements. Under the fair value method,
stock-based compensation expense is determined at the measurement date, which
is
generally the date of grant, as the aggregate amount by which the expected
future value of the equity security at the date of acquisition exceeds the
exercise price to be paid. The resulting compensation expense, if any, is
recognized for financial reporting over the term of vesting or performance.
This
statement was first effective for Lightspace on January 1, 2006 for all
prospective stock option and share grants of stock-based compensation awards
and
modifications to all prior grants, and will have the effect of increasing our
compensation costs recognized in result of operations from historical levels
for
all stock-based compensation awards and modifications of prior awards
granted.
In
September 2005, our stockholders approved adoption of our 2005 Stock Plan.
The
plan provides that the Board of Directors may grant up to 72,080 incentive
stock
options and/or nonqualified stock options to directors, officers, key employees
and consultants. The plan provides that the exercise price of each option must
be at least equal to the fair market value of the common stock at the date
such
option is granted. For grants to individuals who own more than 10% of the
outstanding common stock of Lightspace, the exercise price must be at least
110%
of fair market value at the time of grant. Options granted under the plan expire
within 10 years or less from the date of grant and vest over a period not
to exceed four years. At December 31, 2006, we have reserved 53,680 shares
of
common stock for issuance under the plan upon exercise of outstanding options.
Effective with the approval and adoption of the 2006 Stock Plan in June 2006,
no
additional options can be issued under the 2005 Stock Plan.
In
June 2006, our stockholders approved adoption of the 2006 Stock Incentive
Plan (the “2006 Stock Plan”), pursuant to which up to 2,118,622 incentive stock
options and/or nonqualified stock options may be granted to directors, officers,
key employees and consultants. In 2006, under the 2006 Stock Plan, Lightspace
granted to officers and key employees options to purchase 1,836,810 shares
of
common stock at an exercise price of $0.80 per share. The options vest ratably
over a three year period and expire in ten years. Under the provisions of
Statement of Financial Accounting Standards No. 123(R), Share-Based Payment,
we
determined the total stock-based compensation expense for these option grants
was $483,000, utilizing the following assumptions: volatility - 57%; estimated
option exercise period - 2 to 3 years; risk free interest rate - 5.14% to 5.17%;
and expected total forfeitures related to these option grants of
6.9%.
At
our
Annual Meeting of Stockholders held on December 10, 2007, our stockholders
approved adoption of the 2007 Stock Incentive Plan (the “2007 Stock Plan”),
pursuant to which up to 4,000,000 incentive stock options and/or nonqualified
stock options may be granted to directors, officers, key employees and
consultants. In 2007, under the 2007 Stock Plan, the Company granted to
directors, officers and key employees 3,245,856 options to purchase 3,245,856
shares of common stock at an exercise price of $1.10 per share. The options
vest
ratably over a three to four year period and expire in ten years.
The
provision for stock-based compensation for common stock options granted under
our Stock Incentive Plans for the year ended December 31, 2007 was $258,009.
The
Company did not record a tax benefit related to the provision for stock-based
compensation due to the Company’s net operating loss carryforwards; accordingly,
the net loss for the year ended December 31, 2007 was increased by $258,009,
and
basic and diluted net losses per share were each increased by $0.02 per share
for the year ended December 31, 2007. As of December 31, 2007, total
unrecognized stock-based compensation expense related to the common stock option
grants expected to be charged to operations over the next two and three-quarter
years is estimated to approximate $1,937,000.
Accounting
Policies and Use of Estimates
The
financial statements of Lightspace are prepared in conformity with accounting
principles generally accepted in the United States of America. These accounting
principles require us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. Lightspace is also required
to make certain judgments that affect the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, we evaluate our
estimates and the process under which those estimates are formulated. Lightspace
develops its estimates based upon historical experience as well as assumptions
that are considered to be reasonable under the circumstances. Actual results
may
differ from these estimates.
We
believe that the following critical accounting policies impact the more
significant judgments and estimates used in the preparation of the financial
statements:
Revenue
Recognition -
Lightspace recognizes revenue from the sale of its entertainment systems when
all of the following conditions have been met: (1) evidence exists of an
arrangement with the customer, typically consisting of a purchase order or
contract; (2) our products have been delivered and risk of loss has passed
to
the customer; (3) we have completed all of the necessary terms of the contract
including but not limited to, installation of the product and training; (4)
the
amount of revenue to which we are entitled is fixed or determinable; and (5)
we
believe it is probable that it will be able to collect the amount due from
the
customer. To the extent that one or more of these conditions has not been
satisfied, Lightspace defers recognition of revenue. Revenue from maintenance
contracts is recorded on a straight-line basis over the term of the contract.
An
allowance for uncollectible receivables is established by a charge to
operations, when in our opinion it is probable that the amount due to Lightspace
will not be collected.
Inventory
Reserve -
A
reserve for obsolete and slow moving inventory is established by a charge to
product cost when, in the opinion of the Company, engineering design changes,
the introduction of new products or forecasted selling prices have reduced
the
net realizable value of such inventory below cost.
Warranty
Reserve -
Our
products are warranted against defects for twelve months following the sale.
Reserves for potential warranty claims are provided at the time of revenue
recognition and are based on several factors including historical claims
experience, current sales levels and Lightspace’s estimate of repair
costs.
Internal
Accounting Controls
During
the course of the audit of our 2005 financial statements, Miller Wachman LLP,
our independent registered public accounting firm, brought to the attention
of
our management several weaknesses and reportable conditions that represented
significant deficiencies in the design and operation of internal controls,
which
may have adversely affected Lightspace’s ability to initiate, record, process
and report financial data. We have taken the following corrective steps that
we
believe adequately addressed these deficiencies.
The
weaknesses and reportable conditions in our system of internal controls occurred
during the approximate period from March 2005 through August and September
2005.
During this period, due to the cash situation at Lightspace, we operated without
any accounting or finance employees. Only entries affecting cash balances were
posted to the financial records, and consequently, no meaningful interim
financial statements were prepared. In August and September 2005, we hired
accounting consultants to post the transactions for this period and to prepare
quarterly and year-to-date financial statements. In October 2005, we signed
a
contract for a full time CFO and hired an office manager/accountant. In May
2006, the contract CFO accepted a position with us as a vice president and
CFO.
On February 15, 2007 our CFO resigned. He was replaced by our current CFO on
April 30, 2007. Since September 2005, we have produced timely monthly financial
statements, forecasts and budget comparisons.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
Market
risk represents the risk of loss arising from adverse changes in interest rates
and foreign exchange rates. We do not have any material exposure to interest
rate risk. All of our products and services are denominated in U.S. dollars,
as
a result of which we are not exposed to foreign currency risk with respect
to
our accounts receivable. All materials and components that we buy for the
manufacturing of our products are also priced in U.S. dollars. We also did
not
have any operations outside the United States. Accordingly, we do not have
any
material foreign currency risk at this time.
Item
8. Financial Statements
Table
of Contents
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated
Statements of Financial Position
|
F-3
|
|
|
|
|
Consolidated
Statements of Operations
|
F-4
|
|
|
|
|
Consolidated
Statement of Changes in Stockholders' Equity (Deficit)
|
F-5
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders
Lightspace
Corporation
We
have
audited the accompanying consolidated balance sheets of Lightspace Corporation
and Subsidiary (the "Company") as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash
flows
for
each
of the years in the three-year period ended December 31, 2007. Lightspace
Corporation’s management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit 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 control over
financing reporting. Our audit 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 Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes 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 financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Lightspace Corporation
and Subsidiary at December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Notes 1 and 2 to the financial
statements, the Company has suffered recurring losses and negative cash flows
from operations which raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are
also described in Notes 1 and 2. The viability of the Company is dependent
upon its ability to successfully further develop and market its technology
and
raise funds sufficient for such purpose. The accompanying financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities
that
might be necessary should the Company be unable to continue as a going
concern.
/s/
MILLER WACHMAN LLP
Boston,
Massachusetts
March
28,
2008
|
LIGHTSPACECORPORATION
and SUBSIDIARY
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
585,737
|
|
$
|
879,987
|
|
|
Accounts
receivable, net of allowance
|
|
|
144,293
|
|
|
52,678
|
|
|
Inventory,
net of reserves
|
|
|
193,854
|
|
|
163,824
|
|
|
Inventory
deposits
|
|
|
223,116
|
|
|
190,410
|
|
|
Other
current assets
|
|
|
3,321
|
|
|
4,250
|
|
|
Total
current assets
|
|
|
1,150,321
|
|
|
1,291,149
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment - Net
|
|
|
163,209
|
|
|
82,298
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
47,211
|
|
|
94,422
|
|
|
Security
deposits
|
|
|
102,400
|
|
|
102,400
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,463,141
|
|
$
|
1,570,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
237,381
|
|
$
|
237,381
|
|
|
Accounts
payable
|
|
|
514,380
|
|
|
695,852
|
|
|
Accrued
interest
|
|
|
63,612
|
|
|
12,955
|
|
|
Accrued
expenses
|
|
|
407,030
|
|
|
200,709
|
|
|
Deferred
income
|
|
|
96,280
|
|
|
126,363
|
|
|
Total
current liabilities
|
|
|
1,318,683
|
|
|
1,273,260
|
|
|
|
|
|
|
|
|
|
|
|
Long
term Debt
|
|
|
950,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Common
stock, $0.0001 par value; authorized 75,000,000 shares;
|
|
|
|
|
|
|
|
|
15,282,495
and 10,593,111 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at
December 31, 2007 and 2006, respectively
|
|
|
1,528
|
|
|
1,059
|
|
|
Treasury
stock - at cost
|
|
|
|
|
|
|
|
|
24,931
and 0 shares
|
|
|
|
|
|
|
|
|
at
December 31, 2007 and 2006, respectively
|
|
|
(2
|
)
|
|
-
|
|
|
Additional
paid-in capital
|
|
|
14,305,125
|
|
|
10,607,585
|
|
|
Retained
earning (deficit)
|
|
|
(15,112,193
|
)
|
|
(10,311,635
|
)
|
|
Total
stockholders' equity (deficit)
|
|
|
(805,542
|
)
|
|
297,009
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
1,463,141
|
|
$
|
1,570,269
|
|
See
accountants' report and notes to consolidated financial
statements
|
|
|
|
LIGHTSPACECORPORATION
and SUBSIDIARY
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
1,741,070
|
|
$
|
780,843
|
|
$
|
989,396
|
|
|
Other
|
|
|
108,102
|
|
|
67,358
|
|
|
36,210
|
|
|
Total
revenues
|
|
|
1,849,172
|
|
|
848,201
|
|
|
1,025,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
1,598,325
|
|
|
870,082
|
|
|
824,808
|
|
|
Gross
Margin
|
|
|
250,847
|
|
|
(21,881
|
)
|
|
200,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
2,541,795
|
|
|
1,001,539
|
|
|
895,942
|
|
|
Selling
and marketing
|
|
|
1,372,896
|
|
|
1,033,715
|
|
|
648,315
|
|
|
Administrative
|
|
|
1,077,262
|
|
|
772,134
|
|
|
1,019,189
|
|
|
Total
operating expenses
|
|
|
4,991,953
|
|
|
2,807,388
|
|
|
2,563,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(4,741,106
|
)
|
|
(2,829,269
|
)
|
|
(2,362,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on debt and equity conversion
|
|
|
-
|
|
|
402,298
|
|
|
-
|
|
|
Interest
expense - net
|
|
|
(59,453
|
)
|
|
(281,449
|
)
|
|
(551,859
|
)
|
|
Total
other income (expense)
|
|
|
(59,453
|
)
|
|
120,849
|
|
|
(551,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Provision For Income Taxes
|
|
|
(4,800,559
|
)
|
|
(2,708,420
|
)
|
|
(2,914,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
For Income Taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net
Loss
|
|
$
|
(4,800,559
|
)
|
$
|
(2,708,420
|
)
|
$
|
(2,914,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Net Loss per Share
|
|
$
|
(0.35
|
)
|
$
|
(0.51
|
)
|
$
|
(3.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
13,719,367
|
|
|
5,333,381
|
|
|
971,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accountants' report and notes to consolidated financial
statements
|
|
|
|
LIGHTSPACE
CORPORATION and SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT)
|
|
|
|
Series
A Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Treasury
Stock
|
|
Additional
|
|
Retained
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
|
Shares
|
|
|
|
Shares
|
|
|
|
Paid-In
|
|
Earnings
|
|
Equity
|
|
|
|
|
Issued
|
|
Amount
|
|
Issued
|
|
Amount
|
|
Issued
|
|
Amount
|
|
Capital
|
|
(Deficit)
|
|
(Deficit)
|
|
|
Balance
January 1, 2005
|
|
|
133,732
|
|
|
13
|
|
|
965,182
|
|
|
97
|
|
|
|
|
|
|
|
|
1,859,564
|
|
|
(4,688,708
|
)
|
|
(2,829,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable
|
|
|
|
|
|
|
|
|
12,000
|
|
|
1
|
|
|
|
|
|
|
|
|
89,999
|
|
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,049
|
|
|
|
|
|
143,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,914,507
|
)
|
|
(2,914,507
|
)
|
|
Balance
December 31, 2005
|
|
|
133,732
|
|
|
13
|
|
|
977,182
|
|
$
|
98
|
|
|
0
|
|
$
|
-
|
|
$
|
2,092,612
|
|
$
|
(7,603,215
|
)
|
$
|
(5,510,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable
|
|
|
|
|
|
|
|
|
1,544,865
|
|
|
154
|
|
|
|
|
|
|
|
|
2,724,622
|
|
|
|
|
|
2,724,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of senior notes
|
|
|
|
|
|
|
|
|
3,110,585
|
|
|
311
|
|
|
|
|
|
|
|
|
2,488,160
|
|
|
|
|
|
2,488,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock
|
|
|
(133,732
|
)
|
|
(13
|
)
|
|
160,479
|
|
|
16
|
|
|
|
|
|
|
|
|
85,586
|
|
|
|
|
|
85,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264,345
|
|
|
|
|
|
264,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
of private placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(499,595
|
)
|
|
|
|
|
(499,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
sale of equity securities
|
|
|
|
|
|
|
|
|
4,800,000
|
|
|
480
|
|
|
|
|
|
|
|
|
3,839,520
|
|
|
|
|
|
3,840,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
of public offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(468,157
|
)
|
|
|
|
|
(468,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,492
|
|
|
|
|
|
80,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,708,420
|
)
|
|
(2,708,420
|
)
|
|
Balance
December 31, 2006
|
|
|
-
|
|
$
|
-
|
|
|
10,593,111
|
|
$
|
1,059
|
|
|
0
|
|
$
|
-
|
|
$
|
10,607,585
|
|
$
|
(10,311,635
|
)
|
$
|
297,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,009
|
|
|
|
|
|
258,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement of equity securities
|
|
|
|
|
|
|
|
|
4,689,384
|
|
$
|
469
|
|
|
|
|
|
|
|
$
|
3,751,038
|
|
|
|
|
|
3,751,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
of private placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(311,507
|
)
|
|
|
|
|
(311,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,931
|
)
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,800,558
|
)
|
|
(4,800,558
|
)
|
|
Balance
December 31, 2007
|
|
|
-
|
|
$
|
-
|
|
|
15,282,495
|
|
$
|
1,528
|
|
|
(24,931
|
)
|
$
|
(2
|
)
|
$
|
14,305,125
|
|
$
|
(15,112,193
|
)
|
$
|
(805,542
|
)
|
See
accountants' report and notes to consolidated financial
statements
|
LIGHTSPACECORPORATION
and SUBSIDIARY
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,800,559
|
)
|
$
|
(2,708,420
|
)
|
$
|
(2,914,507
|
)
|
|
Adjustments
to reconcile net loss to cash used
|
|
|
|
|
|
|
|
|
|
|
|
in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
46,482
|
|
|
43,114
|
|
|
28,438
|
|
|
Amortization
of fair value of stock warrants
|
|
|
47,220
|
|
|
27,540
|
|
|
143,049
|
|
|
Stock
option compensation cost
|
|
|
258,009
|
|
|
80,492
|
|
|
|
|
|
Debt
and preferred stock conversion adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of common stock issued
|
|
|
-
|
|
|
350,018
|
|
|
-
|
|
|
Fair
value of common stock warrants issued
|
|
|
-
|
|
|
264,345
|
|
|
-
|
|
|
Non-cash
gain on debt conversion
|
|
|
-
|
|
|
(890,765
|
)
|
|
-
|
|
|
Emagipix
acquisition
|
|
|
950,000
|
|
|
-
|
|
|
-
|
|
|
Other
changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(91,615
|
)
|
|
(17,488
|
)
|
|
218
|
|
|
Inventory
|
|
|
160,380
|
|
|
(182,427
|
)
|
|
95,734
|
|
|
Other
assets
|
|
|
(222,187
|
)
|
|
(92,863
|
)
|
|
(81,072
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
75,505
|
|
|
307,727
|
|
|
878,417
|
|
|
Deferred
revenue
|
|
|
(30,083
|
)
|
|
88,743
|
|
|
(429,949
|
)
|
|
Net
cash used in operating activities
|
|
|
(3,606,848
|
)
|
|
(2,729,984
|
)
|
|
(2,279,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(127,400
|
)
|
|
(86,228
|
)
|
|
(8,910
|
)
|
|
Net
cash used in investing activities
|
|
|
(127,400
|
)
|
|
(86,228
|
)
|
|
(8,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
2,067,000
|
|
|
2,364,987
|
|
|
Repaymant
of senior secured notes
|
|
|
-
|
|
|
(1,367,000
|
)
|
|
-
|
|
|
Proceeds
from sale of equity securities
|
|
|
3,751,507
|
|
|
3,840,000
|
|
|
-
|
|
|
Expenses
of private and public sales of equity securities
|
|
|
(311,507
|
)
|
|
(967,752
|
)
|
|
-
|
|
|
Stock
repurchase
|
|
|
(2
|
)
|
|
-
|
|
|
-
|
|
|
Net
cash provided from financing activities
|
|
|
3,439,998
|
|
|
3,572,248
|
|
|
2,364,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(294,250
|
)
|
|
756,036
|
|
|
76,405
|
|
|
Cash
and Cash Equivalents - beginning of period
|
|
|
879,987
|
|
|
123,951
|
|
|
47,546
|
|
|
Cash
and Cash Equivalents - end of period
|
|
$
|
585,737
|
|
$
|
879,987
|
|
$
|
123,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
-
|
|
$
|
41,987
|
|
$
|
49,907
|
|
|
Taxes
paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Issuance
of notes payable
|
|
$
|
950,000
|
|
|
-
|
|
|
-
|
|
|
Notes
payable and accrued interest converted to common stock
|
|
|
-
|
|
$
|
5,839,582
|
|
$
|
90,000
|
|
|
See
accountants' report and notes to consolidated financial
statements
|
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
1.
NATURE OF THE BUSINESS AND OPERATIONS
Lightspace
Corporation (the “Company”), incorporated in August 2001 as a Delaware
corporation, provides interactive lighting entertainment products to numerous
industries including retail stores, family entertainment centers, theme parks,
fashion shows, nightclubs, special events, stage lighting & sound, health
clubs and architectural lighting and design.
The
Company has incurred net operating losses and negative operating cash flows
since inception. As of December 31, 2007, the Company had an accumulated
retained earnings deficit of $15,112,193. The Company has funded its operations
through December 31, 2007 from the issuance of private placements of common
stock and preferred stock, borrowings from stockholders and others, sales of
Lightspace products, and a $3,840,000 initial public offering of its equity
securities on November 2, 2006. The Company’s long-term success is dependent on
generating sufficient capital to fund its operations and development of its
products, bringing such products to the worldwide market, and obtaining
sufficient sales volume to be profitable.
The
Company is subject to certain risks common to technology-based companies in
similar stages of development. Principal risks to the Company include
uncertainty of growth in market acceptance for the Company’s products;
dependence on advances in interactive digital environments; history of losses
since inception; ability to remain competitive in response to new technologies;
costs to defend, as well as risks of losing, patent and intellectual property
rights; reliance on limited number of suppliers; reliance on outsourced
manufacture of the Company’s products for quality control and product
availability; ability to increase production capacity to meet demand for the
Company’s products; concentration of the Company’s operations in a limited
number of facilities; uncertainty of demand for the Company’s products in
certain markets; ability to manage growth effectively; dependence on key members
of the Company’s management; limited experience in conducting operations
internationally; and ability to obtain adequate capital to fund future
operations.
2.
BASIS OF PRESENTATION
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the ordinary course of business. The Company has incurred net losses of
$4,800,559 and $2,708,420 in 2007 and 2006, respectively and cumulative losses
from inception of $15,112,193 and $10,311,635 at December 31, 2007 and 2006,
respectively. Additionally, the Company has a total stockholders’ equity
(deficit) of ($805,542) and $297,009 at December 31, 2007 and 2006,
respectively. Additionally at March 28, 2008, the company’s cash balance was
approximately $36,000. These factors, amongst others, indicate that there is
substantial doubt that the Company will continue as a going concern. The
financial statements do not include any adjustments related to the recovery
of
assets and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
The
Company recognizes revenue from the sale of its entertainment systems when
all
of the following conditions have been met: (1) evidence exists of an
arrangement with the customer, typically consisting of a purchase order or
contract; (2) the Company’s products have been delivered and risk of loss
has passed to the customer; (3) the Company has completed all of the necessary
terms of the contract generally including but not limited to, installation
of
the product and training; (4) the amount of revenue to which the Company is
entitled is fixed or determinable; and (5) the Company believes it is
probable that it will be able to collect the amount due from the customer.
To
the extent that one or more of these conditions has not been satisfied, the
Company defers recognition of revenue. Revenue from maintenance contracts is
recorded on a straight-line basis over the term of the contract. An allowance
for uncollectible receivables is established by a charge to operations, when
in
the opinion of the Company, it is probable that the amount due to the Company
will not be collected.
Inventory
Inventories
are stated at the lower of cost or market value.
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect at the date of the financial statements the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and
the
reported amounts of revenue and expenses. Actual results could differ from
these
estimates.
Property
and Equipment
Property
and equipment are recorded at cost. For financial reporting, depreciation is
provided utilizing the straight-line method over the estimated three-year life
for equipment and furniture and fixtures. Leasehold improvements are depreciated
over the term of the lease. The Company utilizes accelerated methods of
depreciation for tax reporting.
Freight
Costs
Incoming
freight costs are capitalized with inventory cost. Outgoing freight is primarily
billed to customers and included in revenue and the corresponding costs in
cost
of sales.
Warranty
Reserve
The
Company’s products are warranted against manufacturing defects for
twelve months following the sale. Reserves for potential warranty claims
are provided at the time of revenue recognition and are based on several factors
including historical claims experience, current sales levels and the Company’s
estimate of repair costs.
Advertising
Expenditures
Advertising
costs are expensed as incurred and are included in sales and marketing operating
expenses.
Research
and Development
Research
and development costs are expensed as incurred.
Patent
Expenditures
The
legal
expenses and filing fees associated with the prosecution of patent applications
are expensed as incurred.
Income
Taxes
Deferred
tax assets and liabilities relate to temporary differences between the financial
reporting bases and the tax bases of assets and liabilities, the carryforward
tax losses and available tax credits. Such assets and liabilities are measured
using enacted tax rates and laws expected to be in effect at the time of their
reversal or utilization. Valuation allowances are established, when necessary,
to reduce the net deferred tax asset to an amount more likely than not to be
realized. For interim reporting periods, the Company uses the estimated annual
effective tax rate.
Loss
per Share
Basic
and
diluted net losses per common share are calculated by dividing the net loss
by
the weighted average number of common shares outstanding during the period.
Diluted net loss per share is the same as basic net loss per share, since the
effects of potentially dilutive securities are excluded from the calculation
for
all periods presented as their inclusion would be anti-dilutive. Dilutive
securities consist of convertible debt, convertible preferred stock, stock
options, and stock warrants.
Stock-Based
Compensation
Statement
of Financial Accounting Standards No. 123(R),
Share-Based
Payment,
addresses
accounting for stock-based compensation arrangements, including stock options
and shares issued to employees and directors under various stock-based
compensation arrangements. This statement requires that the Company use the
fair
value method, rather than the intrinsic-value method, to determine compensation
expense for all stock-based arrangements. Under the fair value method,
stock-based compensation expense is determined at the measurement date, which
is
generally the date of grant, as the aggregate amount by which the expected
future value of the equity security at the date of acquisition exceeds the
exercise price to be paid. The resulting compensation expense, if any,
is
recognized for financial reporting over the term of vesting or performance.
This
statement was first effective for the Company on January 1, 2006 for all
prospective stock option and share grants of stock-based compensation
awards
and modifications to all prior grants, and had the effect of increasing the
Company’s compensation costs recognized in operations from historical levels for
all stock-based compensation awards and modifications of prior awards
granted.
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
For
all
periods prior to January 1, 2006, the Company accounted for stock-based
compensation arrangements with employees and directors utilizing the
intrinsic-value method. Under this method, stock-based compensation expense
was
determined at the measurement date, which again is generally the date of grant,
as the aggregate amount by which the current market value of the equity security
exceeds the exercise price to be paid. The resulting compensation expense,
if
any, is recognized for financial reporting over the term of vesting or
performance. The Company has historically granted stock-based compensation
awards to employees and directors at an exercise price equal to the current
market value of the Company’s equity security at the date of grant. Accordingly,
no compensation expense has been recognized or will be recognized in the
financial statements for stock-based compensation arrangements with directors,
officers and employees for grants earned prior to January 1, 2006.
Stock-based
compensation arrangements with nonemployees or associated with borrowing
arrangements are accounted for utilizing the fair value method or, if a more
reliable measurement, the value of the services or consideration received.
The
resulting compensation expense, if any, is recognized for financial reporting
over the term of performance or borrowing arrangement.
Consolidation
The
Company’s 2007 consolidated financial statements include the accounts of
Lightspace Corporation and its subsidiary, Lightspace Emagipix Corporation
(LEC), which was established in April 2007. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial instruments, which include cash
equivalents, accounts receivable, accounts payable, accrued expenses and notes
payable approximate their fair values due to the short term nature of the
instruments.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentration
of
credit risk consist primarily of cash and cash equivalents. The Company’s cash
and cash equivalents are generally on deposit at one financial institution
and,
at times, exceed the federal insured limits. The Company believes that the
financial institution is of high credit quality and that the Company is not
subject to unusual credit risk beyond the normal credit risk associated with
commercial banking relationships.
Comprehensive
Loss
Comprehensive
loss is the same as net loss for all periods presented.
Reclassifications
Certain
prior years’ amounts have been reclassified to conform to current year’s
presentation.
4.
OTHER CURRENT ASSETS
At
December 31, 2007, other current assets included $3,321 in prepaid salary.
On
December 31, 2006 other current assets included $3,000 of employee advances
and
approximately $1,250 of pre-paid salary.
5.
INVENTORY
At
December 31, 2007 and 2006, inventory consisted of raw materials of $32,697,
and
$84,160, and finished goods
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
5.
INVENTORY (continued)
of
$161,157, and $79,664, respectively. Advance payments for inventory have been
separately reported and are $223,116 and $190,410 for 2007 and 2006,
respectively.
6.
PROPERTY
AND EQUIPMENT
Property
and equipment consist of the following:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Furniture
and fixtures
|
|
$
|
48,775
|
|
$
|
48,775
|
|
|
Equipment
|
|
|
254,405
|
|
|
146,428
|
|
|
Software
|
|
|
19,422
|
|
|
-
|
|
|
Total
property and equipment, at cost
|
|
|
322,602
|
|
|
195,203
|
|
|
Less
accumulated depreciation and amortization
|
|
|
159,394
|
|
|
112,905
|
|
|
Property
and equipment, net
|
|
$
|
163,209
|
|
$
|
82,298
|
|
7.
ACCOUNTS PAYABLE
Included
in the accounts payable balances at December 31, 2006 is $52,385 due to the
former CEO of the Company, or an affiliate of such former officer, for
transactions in the normal course of business. On April 21, 2006, the Company
entered into a separation agreement, effective March 31, 2006, with such
officer, whereby the Company agreed to pay $67,636 of the account payable
balance immediately. The outstanding balance of $52,385 was completely paid
in
September 2007. Additionally, the December 31, 2006 accounts payable balance
includes $312,000 due to the underwriter of the Company’s public offering of
equity securities in November 2006 for a private placement fee incurred in
connection with the May 3, 2006 conversion into equity securities of $2,400,000
in principal amount of senior secured notes as discussed in Note 9. This
outstanding balance was also paid in full in 2007.
Two
of
our creditors account for approximately 33% of our accounts payable balance
on
December 31, 2007. On December 31, 2006, two creditors accounted for
approximately 62% of the then outstanding balance.
8.
ACCRUED EXPENSES
Accrued
expenses consist of the following:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Earned
vacation compensation
|
|
$
|
64,346
|
|
$
|
43,326
|
|
|
Legal
|
|
$
|
5,000
|
|
|
-
|
|
|
Audit
and tax services
|
|
|
79,500
|
|
|
37,000
|
|
|
Reserve
for warranty
|
|
|
32,000
|
|
|
20,000
|
|
|
Operating
lease payment differential
|
|
|
141,541
|
|
|
90,383
|
|
|
Other
|
|
|
84,643
|
|
|
10,000
|
|
|
Total
accrued expenses
|
|
$
|
407,030
|
|
$
|
200,709
|
|
9.
PRIVATE PLACEMENT OF EQUITY SECURITIES
On
April
30, 2007 Lightspace closed a private placement of its equity units. We sold
586,173 equity units at the offering price of $6.40 per unit, resulting in
aggregate proceeds to us of $3,751,507. After estimated expenses of the offering
of $311,507, the net proceeds were approximately $3,440,000. Each equity unit
consists of: (1) eight shares of common stock; (2) eight warrants to
purchase a total of eight shares of common stock at an exercise price of $1.00
per warrant; (3) two warrants to purchase a total of two shares of common
stock at an exercise price of $1.25 per warrant; and (4) two warrants to
purchase a total of two shares of common stock at an exercise price of $1.63
per
warrant. The sale of 586,173 units resulted in the issuance of: (1) 4,689,384
shares of common stock; (2) 4,689,384
warrants
to purchase a total of 4,689,384 shares of common stock at an exercise price
of
$1.00 per warrant; (3) 1,172,346 warrants to purchase a total of 1,172,346
shares of common stock at an exercise price of $1.25 per warrant; and (4)
1,172,346 warrants to purchase a total of 1,172,346 shares of common stock
at an
exercise price of $1.63 per warrant.
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
9.
PRIVATE PLACEMENT OF EQUITY SECURITIES (continued)
In
connection with the sale of the equity units, Lightspace paid Griffin
Securities, Inc., the financial advisor for the private placement, a fee in
the
amount of $187,575 and issued to Griffin Securities a purchase warrant
exercisable for 58,617 equity units, in the same form sold in the private
placement, at an exercise price of $6.40 per unit.
Lightspace
used a portion of the net proceeds from the private placement to fund the
acquisition of the emagipix technology by the payment of the cash purchase
price
of $300,000. The balance of the net proceeds will be used for general working
capital purposes, including payment of the expenses of registering the private
placement units for resale.
10.
TECHNOLOGY ACQUISITION
On
March
29, 2007, Lightspace Emagipix Corporation (“LEC”), a newly formed wholly-owned
subsidiary of Lightspace Corporation, entered into an agreement with
Illumination Design Works, Inc. to acquire the in-process development technology
emagipix, an interactive lighting technology that utilizes electroluminescent
sheets. The purchase price for the emagipix technology consisted of an initial
cash payment of $45,000, a subsequent cash payment of $255,000 and the issuance
of a $950,000 convertible term secured non-recourse note to Illumination Design
Works, Inc. upon the closing of the technology purchase on April 30,
2007.
On
April
30, 2007, LEC completed the acquisition of the emagipix technology. In
connection with the acquisition, the developer of the emagipix technology,
David
Hoch, (a former officer and co-founder of Lightspace Corporation and the
principal owner of Illumination Design Works, Inc.), re-commenced employment
with Lightspace. Upon employment with Lightspace as Chief Scientist, the Company
granted Mr. Hoch options to purchase 250,000 shares of common stock at an
exercise price of $0.80 per share.
The
$950,000 convertible term secured non-recourse note bears interest a 5% per
annum, payable yearly, and is due and payable on April 30, 2011. The note is
secured by a pledge of 76% of the stock of LEC. The principal of the note is
convertible at any time up and until April 30, 2011, at the option of the
holder, into the common stock of Lightspace Corporation at a conversion price
of
$0.80 per share. Upon the occurrence of certain defined events of default by
the
noteholder, Lightspace has the right to convert the note to common stock at
the
lower of the conversion price of $0.80 or current market price of the common
stock.
We
estimate that the cost to complete the development of the emagipix technology
will be between $1.5 million and $2.0 million. We further expect that the
technology will be commercially available within three years. Lightspace
accounted for the acquisition of the emagipix technology as the acquisition
of
in-process research and development and recorded a charge to operations in
the
June 30, 2007 quarter of $1,306,612, which included legal fees incurred in
connection with the acquisition.
11.
NOTES PAYABLE AND LONG TERM DEBT
Notes
payable and long term debt consists of the following:
|
|
|
December
31,
|
|
|
|
|
Interest
Rate
|
|
2007
|
|
2006
|
|
|
Contingent
promissory note
|
|
|
8.0
|
%
|
|
237,381
|
|
|
237,381
|
|
|
Long
term debt
|
|
|
5.0
|
%
|
|
950,000
|
|
|
-
|
|
|
Total
debt outstanding
|
|
|
|
|
$
|
1,187,381
|
|
$
|
237,381
|
|
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
11.
NOTES PAYABLE AND LONG TERM DEBT (continued)
Contingent
promissory note
In
connection with the securityholder debt and equity conversion on April 27,
2006,
$237,381 in principal amount of existing notes held by the former CEO were
converted into a $237,381 contingent promissory note. This note bears interest
at an annual rate of 8% and is payable only if the Company achieves two
consecutive quarters of positive EBITDA (i.e., earnings before interest, taxes,
depreciation and amortization), aggregating at least $1,000,000, or the Company
raises in a registered public offering of equity cash proceeds of at least
$10 million prior to December 31, 2008. If those conditions are not
met by December 31, 2008, or the former CEO is found to be in breach of the
terms of the severance agreement prior to such date, the note will not be
payable. In addition, Lightspace issued to the former CEO warrants to purchase
361,252 shares of common stock at an exercise price of $0.80 per share. The
warrants expire in five years, unless the terms for the payment of the
contingent promissory note are not met, in such case, the warrants expire on
March 31, 2009.
Long
term debt
As
part
of the acquisition of the emagipix in-process research and development, we
issued a $950,000 convertible term secured non-recourse note to Illumination
Design Works, Inc. upon the closing of the purchase on April 30, 2007. The
$950,000 convertible term secured non-recourse note bears interest a 5% per
annum, payable yearly, and is due and payable on April 30, 2011. The note is
secured by a pledge of 76% of the stock of LEC. The principal of the note is
convertible at any time up and until April 30, 2011, at the option of the
holder, into the common stock of Lightspace Corporation at a conversion price
of
$0.80 per share. Upon the occurrence of certain defined events of default by
the
noteholder, Lightspace has the right to convert the note to common stock at
the
lower of the conversion price of $0.80 or current market price of the common
stock.
12.
COMMON STOCK
The
Company closed the initial public offering of its securities on November 2,
2006. The Company sold 600,000 units at an offering price of $6.40 per unit,
resulting in aggregate proceeds to the Company of $3,840,000. The sale of
600,000 units resulted in the issuance of: (1) 4,800,000 shares of common stock;
(2) 816,000 warrants to purchase a total of 816,000 shares of common stock
at an
exercise price of $0.96 per warrant; (3) 5,616,000 warrants to purchase a total
of 5,616,000 shares of common stock at an exercise price of $1.00 per warrant;
(4) 1,404,000 warrants to purchase a total of 1,404,000 shares of common stock
at an exercise price of $1.25 per warrant; and (5) 1,404,000 warrants to
purchase a total of 1,404,000 shares of common stock at an exercise price of
$1.63 per warrant.
On
April
30, 2007 Lightspace closed a private placement of its equity units. We sold
586,173 equity units at the offering price of $6.40 per unit, resulting in
aggregate proceeds to us of $3,751,507. After expenses of the offering of
$311,507, the net proceeds were approximately $3,440,000. Each equity unit
consists of: (1) eight shares of common stock; (2) eight warrants to
purchase a total of eight shares of common stock at an exercise price of $1.00
per warrant; (3) two warrants to purchase a total of two shares of common
stock at an exercise price of $1.25 per warrant; and (4) two warrants to
purchase a total of two shares of common stock at an exercise price of $1.63
per
warrant. The sale of 586,173 units resulted in the issuance of: (1) 4,689,384
shares of common stock; (2) 4,689,384 warrants to purchase a total of 4,689,384
shares of common stock at an exercise price of $1.00 per warrant; (3) 1,172,346
warrants to purchase a total of 1,172,346 shares of common stock at an exercise
price of $1.25 per warrant; and (4) 1,172,346 warrants to purchase a total
of
1,172,346 shares of common stock at an exercise price of $1.63 per warrant.
At
December 31, 2007, the Company had reserved 29,965,315 shares of common stock
for: (1) the exercise of issued and outstanding common stock warrants
(23,634,205 shares); (2) authorized common stock options (5,143,610 shares);
and
(3) convertible debt (1,187,500).
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
13.
LOSS PER COMMON SHARE
Basic
and
diluted net losses per common share are calculated by dividing the net loss
by
the weighted average number of common shares outstanding during the period.
Diluted net loss per share is the same as basic net loss per share, since the
effects of potentially dilutive securities are excluded from the calculation
for
all periods presented as their inclusion would be anti-dilutive. Dilutive
securities consist of common stock options, common stock warrants, preferred
stock warrants, preferred stock and convertible debt.
The
following potentially dilutive securities were excluded from the calculation
of
diluted loss per share because their inclusion would be
anti-dilutive:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Common
stock options
|
|
|
5,143,610
|
|
|
1,820,490
|
|
|
72,080
|
|
|
Common
stock warrants
|
|
|
23,634,205
|
|
|
15,427,789
|
|
|
99,938
|
|
|
Preferred
stock warrants
|
|
|
-
|
|
|
-
|
|
|
16,390
|
|
|
Convertible
perferred stock
|
|
|
-
|
|
|
-
|
|
|
53,492
|
|
|
Convertible
debt
|
|
|
1,187,500
|
|
|
-
|
|
|
341,200
|
|
|
Total
|
|
|
29,965,315
|
|
|
17,248,279
|
|
|
583,100
|
|
14.
STOCK OPTION BASED COMPENSATION
Statement
of Financial Accounting Standards No. 123(R),
Share-Based
Payment,
addresses
accounting for stock-based compensation arrangements, including stock options
and shares issued to employees and directors under various stock-based
compensation arrangements. This statement requires that the Company use the
fair
value method, rather than the intrinsic-value method, to determine compensation
expense for all stock-based arrangements. Under the fair value method,
stock-based compensation expense is determined at the measurement date, which
is
generally the date of grant, as the aggregate amount by which the expected
future value of the equity security at the date of acquisition exceeds the
exercise price to be paid. The resulting compensation expense, if any, is
recognized for financial reporting over the term of vesting or performance.
This
statement was first effective for the Company on January 1, 2006 for all
prospective stock option and share grants of stock-based compensation awards
and
modifications to all prior grants, and will have the effect of increasing the
Company’s compensation costs recognized in operations from historical levels for
all stock-based compensation awards and modifications of prior awards
granted.
In
September 2005, our stockholders approved adoption of our 2005 Stock Plan.
The
plan provides that the Board of Directors may grant up to 72,080 incentive
stock
options and/or nonqualified stock options to directors, officers, key employees
and consultants. The plan provides that the exercise price of each option must
be at least equal to the fair market value of the common stock at the date
such
option is granted. For grants to individuals who own more than 10% of the
outstanding common stock of Lightspace, the exercise price must be at least
110%
of fair market value at the time of grant. Options granted under the plan expire
within 10 years or less from the date of grant and vest over a period not
to exceed four years. At December 31, 2006, we have reserved 53,680 shares
of
common stock for issuance under the plan upon exercise of outstanding options.
Effective with the approval and adoption of the 2006 Stock Plan in June 2006,
no
additional options can be issued under the 2005 Stock Plan.
On
June
9, 2006, our stockholders approved adoption of our 2006 Stock Plan. The plan
provides that the Board of Directors may grant up to 2,118,622 incentive stock
options and/or nonqualified stock options to directors, officers, key employees
and consultants. The plan provides that the exercise price of each option must
be at least equal to the fair market value of the common stock at the date
such
option is granted. For grants to individuals who own more
than
10%
of the outstanding common stock of Lightspace, the exercise price must be at
least 110% of fair market value at the time of grant. Options granted under
the
plan expire within ten years or less from the date of grant and vest over a
period not to exceed three years. As of December 31, 2006, we have reserved
2,118,622 shares of
common
stock for issuance under the 2006 Stock Plan upon the exercise of outstanding
options.
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
14.
STOCK OPTION BASED COMPENSATION (continued)
On
December 10, 2007, our stockholders approved adoption of the 2007 Stock
Incentive Plan (the “2007 Stock Plan”), pursuant to which up to 4,000,000
incentive stock options and/or nonqualified stock options may be granted to
directors, officers, key employees and consultants. In 2007, under the 2007
Stock Plan, the Company granted to directors, officers and key employees
3,245,856 options to purchase 3,245,856 shares of common stock at an exercise
price of $1.10 per share. The options vest ratably over a three year period
and
expire in ten years.
The
provision for stock-based compensation for common stock options granted under
our Stock Incentive Plans for the year ended December 31, 2007 was $258,009.
The
Company did not record a tax benefit related to the provision for stock-based
compensation due to the Company’s net operating loss carryforwards; accordingly,
the net loss for the year ended December 31, 2007 was increased by $258,009,
and
basic and diluted net losses per share were each increased by $0.02 per share
for the year ended December 31, 2007. As of December 31, 2007, total
unrecognized stock-based compensation expense related to the common stock option
grants expected to be charged to operations over the next two and three-quarter
years is estimated to approximate $1,937,000.
For
all
periods prior to January 1, 2006, the Company accounted for stock-based
compensation arrangements with employees and directors utilizing the
intrinsic-value method. Under this method, stock-based compensation expense
was
determined at the measurement date, which again is generally the date of grant,
as the aggregate amount by which the current market value of the equity security
exceeds the exercise price to be paid. The resulting compensation expense,
if
any, was recognized for financial reporting over the term of vesting or
performance. The Company has historically granted stock-based compensation
awards to employees and directors at an exercise price equal to the current
market value of the Company’s equity security at the date of grant. Accordingly,
no compensation expense has been recognized or will be recognized in the
financial statements for stock-based compensation arrangements with employees
and directors for grants earned prior to January 1, 2006.
The
following table summarizes the pro forma stock-based compensation expense and
the related effect on reported results of operations for stock option grants
to
employees and directors for periods prior to January 1, 2006 that would have
been recorded by the Company for the year ended December 31, 2005 under the
provisions of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, if the Company had adopted early application
thereof.
|
|
|
2005
|
|
|
Net
loss as reported
|
|
$
|
(2,914,507
|
)
|
|
Pro
forma stock option compensation
|
|
|
(8,903
|
)
|
|
Pro
forma net loss
|
|
$
|
(2,923,410
|
)
|
|
Basic
and diluted net losses per share:
|
|
|
|
|
|
As
reported
|
|
$
|
(3.00
|
)
|
|
Pro
forma
|
|
$
|
(3.01
|
)
|
The
fair
value of stock options at the date of grant was determined under the
Black-Scholes option pricing model. The assumptions utilized for the stock
options granted prior to January 1, 2006 are as follows: volatility - 59%;
estimated option exercise period - 2 to 3 years; risk free interest rate -
3.96%; and expected total forfeitures of 13.2%.
For
periods prior to November 2006, the Board of Directors established the exercise
price at the date of grant of a stock option after considering an extensive
range of factors. Such factors include, among others, the Company’s financial
performance to date, the Company’s future prospects and opportunities and recent
offering prices and sales of the Company’s common stock. Subsequent to October
2006, the Board of Directors has established the exercise price at the date
of
grant of a stock option by reference to the Company’s common stock trading value
that day on the OTC Bulletin Board.
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
14.
STOCK OPTION BASED COMPENSATION (continued)
In
September 2005, the Company granted under the 2005 Stock Plan options to
purchase 72,080 shares of common stock to officers, a director, and key
employees at an exercise price of $.83 per share, the fair market value of
the
Company’s common stock at that date. The 2005 options vest at stipulated dates
over a period not to exceed four years and expire in ten years. From July 2006
through December 2006, the Company granted under the 2006 Stock Plan options
to
purchase 1,836,810 shares of common stock to officers and key employees at
an
exercise price of $.80 per share, the fair market value of the Company’s common
stock at the dates of grant. The 2006 options vest
at
stipulated dates over a three year period and expire in ten years. Under the
2007 Stock Incentive Plan, we granted 3,245,856 options to purchase 3,245,856
shares of common stock to officers, directors and key employees at an exercise
price of $1.10 per share, the fair market value of the Company’s common stock at
the dates of grant. The 2007 options vest over three to four years and expire
in
ten years. Information with respect to stock options issued under the 2005,
2006
and 2007 Stock Plans are as follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
of
|
|
|
|
Average
|
|
|
|
|
Options
|
|
Exercise
Price
|
|
Exercise
Price
|
|
|
Outstanding
options at January 1, 2005
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Granted
|
|
|
72,080
|
|
|
0.83
|
|
|
0.83
|
|
|
Outstanding
options at December 31, 2005
|
|
|
72,080
|
|
|
0.83
|
|
|
0.83
|
|
|
Granted
|
|
|
1,836,810
|
|
|
0.80
|
|
|
0.80
|
|
|
Cancelled
|
|
|
(88,400
|
)
|
|
(0.80
to 0.83
|
)
|
|
(0.81
|
)
|
|
Outstanding
options at December 31, 2006
|
|
|
1,820,490
|
|
|
0.80
to 0.83
|
|
|
0.80
|
|
|
Granted
|
|
|
4,075,856
|
|
|
0.80
to 1.10
|
|
|
1.06
|
|
|
Cancelled
|
|
|
(752,736
|
)
|
|
(0.80
to 1.10
|
)
|
|
(0.82
|
)
|
|
Outstanding
options at December 31, 2007
|
|
|
5,143,610
|
|
$
|
0.80
to 1.10
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
life (years) outstanding options
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
9
3/8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable
options at December 31, 2006
|
|
|
85,654
|
|
$
|
0.80
to 0.83
|
|
$
|
0.81
|
|
|
Exerciseable
options at December 31, 2007
|
|
|
549,364
|
|
$
|
0.80
to 0.83
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
available for grant at December 31, 2006
|
|
|
351,812
|
|
|
|
|
|
|
|
|
Options
available for grant at December 31, 2007
|
|
|
1,026,542
|
|
|
|
|
|
|
|
Information
with respect to outstanding stock options under the 2005 Stock Plan, 2006 Stock
Plan and 2007 Stock Plans are as follows:
|
|
|
Options
Outstanding
|
|
Options
Exerciseable
|
|
|
|
|
|
|
Average
Remaining
|
|
Weighted
|
|
Number
|
|
Weighted
|
|
|
Exercise
Price
|
|
|
|
Contract
Life (years)
|
|
|
|
of
Options
|
|
AverageExercise
Price
|
|
|
$
0.80
|
|
|
1,561,224
|
|
|
8
4/5
|
|
$
|
0.80
|
|
|
497,834
|
|
$
|
0.80
|
|
|
0.83
|
|
|
51,530
|
|
|
6
3/4
|
|
|
0.83
|
|
|
51,530
|
|
|
0.83
|
|
|
1.10
|
|
|
3,530,856
|
|
|
9
2/3
|
|
|
1.10
|
|
|
-
|
|
|
-
|
|
|
$
0.80 to 1.10
|
|
|
5,143,610
|
|
|
9
3/8
|
|
$
|
1.01
|
|
|
549,364
|
|
$
|
0.80
|
|
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
15.
STOCK WARRANTS
On
April
30, 2007 we sold 586,173 units (consisting of our common stock and warrants)
at
the offering price of $6.40 per unit, resulting in gross proceeds of $3,751,507.
The sale of 586,173 units and the issuance to the financial advisor of a unit
purchase warrant exercisable for 58,617 units identical to the units sold in
the
private placement resulted in the issuance of: (1) 4,689,384 shares of common
stock; (2) 468,936 unit warrants to purchase a total of 468,936 shares of common
stock at an exercise price of $0.80 per warrant (3) 5,158,320 unit warrants
to
purchase a total of 5,158,320 shares of common stock at an exercise price of
$1.00 per warrant; (4) 1,289,580 unit warrants to purchase a total of 1,289,580
shares of common stock at an exercise price of $1.25 per warrant; and (5)
1,289,580 unit warrants to purchase a total of 1,289,580 shares of common stock
at an exercise price of $1.63 per warrant. The unit warrants are exercisable
at
the option of the holder at any time up until April 30, 2012, at which date
the
warrants expire. In the event of a division of our common stock, the warrants
will be adjusted proportionately.
We
had
entered into a Registration Rights Agreement with the purchasers of the units,
whereby we had agreed to file a registration statement, within 45 days of the
closing, to register for resale the shares of common stock, warrants and shares
of common stock issuable upon exercise of the unit warrants, included in the
units issued in the private placement to investors and the financial advisor.
At
December 31, 2007 and December 31, 2006, the weighted average exercise price
of
the common stock warrants outstanding was $1.24 and $1.30, respectively. At
December 30, 2007, the common stock warrants had an average remaining life
of
approximately four years.
Issued
and outstanding common stock warrants of the Company are as
follows:
|
|
|
|
|
Exercise
|
|
December
31,
|
|
December
31,
|
|
|
Type
of Warrant
|
|
Date
Issued
|
|
Price
|
|
2007
|
|
2006
|
|
|
$.80
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
0.80
|
|
|
361,252
|
|
|
361,252
|
|
|
$1.00
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
1.00
|
|
|
276,370
|
|
|
276,370
|
|
|
$3.00
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
3.00
|
|
|
649,892
|
|
|
649,892
|
|
|
$7.50
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
7.50
|
|
|
234,398
|
|
|
234,398
|
|
|
$0.80
Unit warrant
|
|
|
April
30, 2007
|
|
$
|
0.80
|
|
|
468,936
|
|
|
-
|
|
|
$0.96
Unit warrant
|
|
|
November
2, 2006
|
|
$
|
0.96
|
|
|
816,000
|
|
|
816,000
|
|
|
$1.00
Unit warrant
|
|
|
2006
and April 30, 2007
|
|
$
|
1.00
|
|
|
13,884,905
|
|
|
8,726,585
|
|
|
$1.25
Unit warrant
|
|
|
2006
and April 30, 2007
|
|
$
|
1.25
|
|
|
3,471,226
|
|
|
2,181,646
|
|
|
$1.63
Unit warrant
|
|
|
2006
and April 30, 2007
|
|
$
|
1.63
|
|
|
3,471,226
|
|
|
2,181,646
|
|
|
Total
common stock warrants outstanding
|
|
|
|
|
|
|
|
|
23,634,205
|
|
|
15,427,789
|
|
16.
INCOME TAXES
The
Company has recorded no provisions or benefits for income taxes for any period
presented due to the net operating losses incurred and the uncertainty as to
the
recovery of such net operating losses and other deferred tax assets as a
reduction of possible future taxable income, if any. Deferred tax assets
(liabilities) consist of the following:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
Operating
loss carryforwards
|
|
$
|
2,919,654
|
|
$
|
1,353,648
|
|
|
Stock
option compensation
|
|
|
103,204
|
|
|
32,197
|
|
|
Research
and development tax credits
|
|
|
102,674
|
|
|
68,733
|
|
|
Other
|
|
|
188,926
|
|
|
157,013
|
|
|
Total
deferred tax asset
|
|
|
3,314,458
|
|
|
1,611,591
|
|
|
Valuation
allowance
|
|
|
(3,314,458
|
)
|
|
(1,611,591
|
)
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
16.
INCOME TAXES (continued)
At
December 31, 2007 and 2006, the Company had operating loss carryforwards
of
approximately $7,299,000 and $3,384,000, respectively, available to offset
future taxable income for United States federal and state income tax purposes.
At December 31, 2007, approximately $4,231,000 of the operating loss
carryforwards were restricted as to yearly usage, as discussed hereafter.
The
United States federal tax operating loss carryforwards expire commencing
in 2021
through 2027. The state tax operating loss carryforwards expire commencing
in
2007 through 2011. Additionally, at December 31, 2006 the Company had research
and development credit carryforwards of approximately $69,000 available to
be
used as a reduction of federal income taxes.
The
deferred tax asset related to the operating loss carryforwards, tax credits
and
other items deductible against future taxable income was $3,314,458 and
$1,611,591 at December 31, 2007 and 2006. The Company has provided a valuation
allowance at those dates equal to the full amount of the deferred tax asset,
and
will continue to fully reserve the deferred tax asset until it can be
ascertained that all or a portion of the asset will be realized.
The
Company’s ability to use the operating loss carryforwards and tax credit
carryforwards to offset future taxable income is subject to restrictions
enacted
in the United States Internal Revenue Code of 1986. These restrictions severely
limit the future use of the loss carryforwards if certain ownership changes
described in the code occur. The common stock ownership changes occurring
as a
result of the securityholder debt and equity conversion on April 27, 2006,
the
conversion of senior secured notes on May 3, 2006, and the private placement
on
April 30, 007 have resulted in reductions and in limitations in the use of
the
operating loss and tax credit carryforwards. The value of the operating loss
carryforwards at the date of the April 30, 2007 ownership change was subject
to
annual usage restrictions and reductions from the ownership changes in 2006.
The
tax credit carryforwards at the date of the ownership change were similarly
reduced and restricted. The Company may use operating losses and tax credits
generated subsequent to the date of the ownership change without limitation.
Therefore, in future years, the Company may be required to pay income taxes
even
though significant operating loss and tax credit carryforwards
exist.
The
following table reconciles the provision for taxes with the expected income
tax
obligation (recovery) by applying the United States federal statutory rate
to
the net loss.
|
|
|
|
December
31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net
loss
|
|
$
|
(4,800,558
|
)
|
$
|
(2,708,420
|
)
|
$
|
(2,914,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
tax benefit at statutory rate
|
|
|
(1,632,190
|
)
|
|
(920,863
|
)
|
|
(990,932
|
)
|
|
State
tax, net of federal benefit
|
|
|
(288,033
|
)
|
|
(162,505
|
)
|
|
(174,870
|
)
|
|
Decrease
in tax loss and credits carryforwards, 50% ownership chang
|
|
|
231,701
|
|
|
1,874,491
|
|
|
-
|
|
|
Other
|
|
|
(14,345
|
)
|
|
665,701
|
|
|
23,931
|
|
|
Increase
(decrease) in valuation allowance
|
|
|
1,702,867
|
|
|
(1,456,824
|
)
|
|
1,141,871
|
|
|
Provision
for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
17.
CONCENTRATION OF CREDIT RISK
In
the year ended December 31, 2007, two customers
individually accounted for more than 10% of product sales. These two customers
accounted for $477,172, or approximately 27% of total product sales. In
each of
the two years ended 2006 and 2005, we had two different customers that
accounted
for $367,851, or approximately 47%, and four different customers that accounted
for $670,200, or approximately 68%, respectively of total product sales.
We
believe this is more a result of the low number of sales and the large
dollar
values of certain sales and is expected at this point of Lightspace’s operating
history.
The
Company is a co-employer of its employees with a professional employer
organization and is dependent upon that organization to process all transactions
related to payroll, payroll taxes and fringe benefits.
The
Company uses only one bank for its cash deposits. At various times during
the
year, balances have exceeded the $100,000 limit for FDIC
insurance.
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
18.
COMMITMENTS
Effective
May 1, 2006, the Company entered into a five-year lease for approximately
16,000
square feet to be used for office and manufacturing operations. The terms
of
this new lease provide for average annual base rental payments of approximately
$293,500 per year, plus an allocated percentage of the increase in the building
operating costs over a defined base year operating costs.
At
December 31, 2007, the Company leased its facilities and certain equipment
under
non-cancelable operating leases expiring through May 2011. At December 31,
2007
future minimum annual non-cancelable operating lease commitments were as
follows: 2008, $320,000; 2009, $338,000; 2010, $346,000; and 2011, $144,000.
Rent expense was $316,424, $364,875, and $329,754 for the years ended December
31, 2007, 2006 and 2005, respectively.
On
December 31, 2007, we have approximately $1,240,000 in purchase order
commitments to our vendors. The majority of this is to our tile supplier
for the
purchase of our interactive tiles.
19. RELATED
PARTY TRANSACTIONS
On
April 21, 2006, the Company entered into a severance agreement with the
former Chief Executive Officer, pursuant to which he resigned as an officer,
director and employee of Lightspace effective March 31, 2006. Under the
agreement, the former CEO was paid accrued wages and vacation pay, reimbursed
for recorded expenses incurred on behalf of Lightspace aggregating $47,636,
paid
$10,000 as severance, and paid a non-refundable $20,000 as advance payment
for
100 hours of consulting work. The Company recorded all liabilities to the
former
CEO as of March 31, 2006. Additionally, the Company agreed to pay $20,000
against an existing accounts payable balance of $72,835 due to Immersive
Promotions, an affiliate of the former CEO. The remaining balance of $52,835
was
paid to Immersive Productions in September 2007.
In
August
2007, we engaged and paid Joseph Parkinson $7,500 for strategic consulting
work.
Mr. Parkinson was a director of Lightspace from August 27, 2007 until his
resignation on March 27, 2008 but was not a director at the time of the
engagement.
20.
SEGMENT INFORMATION
The
Company conducts its operations and manages its business in one segment,
the
manufacture of hardware and development of software for interactive lighting
entertainment. Revenues, denominated in U.S. dollars, by geographical region
are
as follows:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
United
States
|
|
$
|
1,297,307
|
|
$
|
567,827
|
|
$
|
748,800
|
|
|
South
America
|
|
|
132,563
|
|
|
-
|
|
|
21,253
|
|
|
Europe
|
|
|
233,064
|
|
|
89,423
|
|
|
-
|
|
|
Asia/Australia
|
|
|
100,776
|
|
|
141,851
|
|
|
114,675
|
|
|
Africa
|
|
|
64,511
|
|
|
-
|
|
|
19,128
|
|
|
Canada
|
|
|
20,950
|
|
|
49,100
|
|
|
121,750
|
|
|
Total
|
|
$
|
1,849,172
|
|
$
|
848,201
|
|
$
|
1,025,606
|
|
LIGHTSPACE
CORPORATION and SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 2007 and
2006
21.
OTHER FINANCIAL ANALYSIS AND INFORMATION
Advertising
Expenditures
Advertising
costs are expensed as incurred and are included in sales and marketing operating
expenses. Advertising costs in the year ended December 31, 2007 were $10,777.
Advertising costs in the year ended December 31, 2006 were $35,264. In 2007,
we
spent a greater portion of our sales and marketing budget on trade shows
as the
impact on sales was deemed to be much greater than that of advertising.
Allowance
for Uncollectible Accounts Receivable
An
allowance for uncollectible accounts receivable is established by a charge
to
sales and marketing operating expenses, when in our opinion, it is probable
that
the amount due to the Company will not be collected. The allowance was increased
in 2007 due to a greater portion of credit sales. Our collection experience
did
not change however, with only a small portion of receivables deemed to be
overdue and write-offs immaterial. Summarized activity with respect to the
allowance for uncollectible accounts receivable is as follows:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Balance
at beginning of year
|
|
$
|
10,000
|
|
|
-
|
|
|
-
|
|
|
Provision
for losses
|
|
|
45,300
|
|
|
10,000
|
|
|
-
|
|
|
Receivables
charged against reserve
|
|
|
(5,170
|
)
|
|
-
|
|
|
-
|
|
|
Balance
at end of year
|
|
$
|
50,130
|
|
|
10,000
|
|
|
-
|
|
Inventory
Reserve
A
reserve
for obsolete and slow moving inventory is established by a charge to product
cost, when in the opinion of the Company, engineering design changes, the
introduction of new products or forecasted selling prices have reduced the
net
realizable value of such inventory below cost. Summarized activity with respect
to the inventory reserve is as follows:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Balance
at beginning of year
|
|
$
|
142,651
|
|
$
|
38,295
|
|
$
|
-
|
|
|
Provision
for losses
|
|
|
83,361
|
|
|
196,371
|
|
|
38,295
|
|
|
Inventory
charged against reserve
|
|
|
(83,382
|
)
|
|
(92,015
|
)
|
|
-
|
|
|
Balance
at end of year
|
|
$
|
142,629
|
|
$
|
142,651
|
|
$
|
38,295
|
|
Warranty
Reserve
The
Company’s products are warranted against manufacturing defects for
twelve months following the sale. Reserves for potential warranty claims
are provided at the time of revenue recognition by a charge to product cost,
and
are based on several factors including historical claims experience, current
sales levels and the Company’s estimate of repair costs. Summarized activity
with respect to the warranty reserve is as follows:
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance
at beginning of year
|
|
$
|
20,000
|
|
$
|
35,000
|
|
$
|
10,000
|
|
|
Provision
for warranty repairs
|
|
|
12,000
|
|
|
(4,890
|
)
|
|
25,000
|
|
|
Warranty
labor and materials
|
|
|
-
|
|
|
(10,110
|
)
|
|
-
|
|
|
Balance
at end of year
|
|
$
|
32,000
|
|
$
|
20,000
|
|
$
|
35,000
|
|
22.
LEGAL PROCEEDING AND SUBSEQUENT EVENTS
In
October 2007, we were served notice of a wrongful termination claim against
us
by a former employee. The former employee is seeking damages in the amount
of
lost compensation. We believe there is no merit to the lawsuit and intend
to
defend against it. A contingency accrual for the potential litigation was
established in the June 2007 quarter.
Given
our
current cash balance, any significant judgment against us could have severe
financial implications.
In
March
2008, we received a letter from a vendor claiming breach of contract and
non-payment of bills due. As of March 28, 2008 approximately $76,000 was
owed to
this vendor, this amount was not in dispute. Additionally, the vendor claimed
to
have purchased approximately $36,000 in materials on our behalf which as
of
March 28, 2007, had not been invoiced to the Company. On March 28, 2007,
the
case was settled and we agreed to the payment of the $76,000 to be made
by March
31, 2008. The additional $36,000 allegedly owed was settled for approximately
$28,000 to be paid within 90 days. On March 28, 2007, the Company obtained
short
term loans due April 28, 2008 for $70,000 from a shareholder and ex-directors,
the proceeds of which are to be used in payment of the
$76,000.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
Item
9A. Controls and Procedures
Disclosure
Controls and Procedures
We
conducted an evaluation, under the supervision and with the participation
of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the
design and operation of our “disclosure controls and procedures” (as such term
is defined in Exchange Act, Rules 13a-15(e) and 15d-15(e)) as of the end
of the
period covered by this report. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls
and
procedures are effective, as of the end of the period covered by this report,
to
ensure that information required to be disclosed in our Exchange Act reports
is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms, and that the
information is accumulated and communicated to our management, including
our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate “internal
control over financial reporting” (as such term is defined in Exchange Act,
Rules 13a-15(f) and 15d-15(f)). 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.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements or fraud.
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.
Our
internal control system was designed to provide reasonable assurance to our
management and board of directors regarding the preparation and fair
presentation of published financial statements. We know of no fraudulent
activities or any material accounting irregularities. Lightspace does not
have
an independent audit committee. We are advised that an independent committee
is
not required for OTC Bulletin Board listings, but may further review the
advisability and feasibility of establishing such a committee in the future.
We
are
aware of the general standards and requirements of the Sarbanes-Oxley Act
of
2002 and have implemented procedures and rules to comply, so far as applicable,
such as a prohibition on company loans to management and affiliates. We do
not
have any audit committee as we do not believe the act requires a separate
committee for companies that are reporting companies, but not registered
under
the Securities and Exchange Act of 1934 (e.g., companies registered under
Section 15(d)) and whose shares trade only on the OTC Bulletin
Board.
Management
utilized the criteria set forth in “Internal Control-Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission,
or COSO, to conduct an assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2007. Based on the assessment,
management has concluded that, as of December 31, 2007, our internal control
over financial reporting is effective
This
Annual Report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit
the
company to provide only the management’s report in this annual report.
Changes
in Internal Control
No
changes in our internal control over financial reporting occurred during
the
quarter ended December 31, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Item
9B. Other Information
None
Item
10. Directors and Executive Officers
and
Corporate Governance
Directors
and Executive Officers
The
following table shows the names and ages of our directors, executive officers
and the positions they hold with Lightspace. Our bylaws provide that directors
may be elected at our annual stockholders meeting, at a special stockholders
meeting called for such purpose,
or
in the
event of a vacancy by the majority vote of the remaining directors and hold
office until the next annual stockholders meeting and until their successors
are
elected and qualified. Our bylaws provide that the board of directors shall
consist of such number of members as the board may determine from time to
time,
but not less than one and not more than thirteen. Executive officers are
selected by the board of directors and serve at its discretion.
|
|
|
Age
|
|
Position
with Lightspace
|
|
Gary
Florindo
|
|
31
|
|
Chief
Executive Officer and Director
|
|
|
|
|
|
|
|
Louis
Nunes
|
|
44
|
|
Vice
President and Chief Financial Officer
|
|
|
|
|
|
|
|
Brian
Batease
|
|
44
|
|
Vice
President and Chief Operating
Officer
|
Gary
Florindo
was
appointed our Chief Executive Officer on March 31, 2006. He previously served
as
our Vice President of Sales since May 2004 and on our board of directors
since
July 2005. Mr. Florindo has over ten years experience in sales and business
development, primarily in computer software and hardware, networking,
professional services and infrastructure management. Prior to joining
Lightspace, Mr. Florindo was a Senior Account Executive with Fiberlink
Communications, Inc. from 2002 to 2003, and with Cable & Wireless PLC from
2003 to 2004. From 2001 to 2002, Mr., Florindo was a national account manager
for Digex, Inc., and was the Director of Web Hosting Sales with PSINet, Inc.
from 1998-2001.
Louis
Nunes
joined
Lightspace as Chief Financial Officer on April 30, 2007. Mr. Nunes has over
15
years of experience in finance and accounting. Before joining Lightspace,
Mr.
Nunes was Controller at Third Screen Media from 2006 to 2007 prior to its
acquisition in 2007. From 2005 to 2006, Mr. Nunes served as Controller at
Verdasys, Inc. and from 2004 to 2005 worked at EMC Corporation in the Business
Planning function. From 2003 to 2004, Mr. Nunes served as Controller at
Integrated IT Solutions where he was instrumental in creating and instituting
key internal controls and successfully oversaw all aspects of the finance
and
accounting functions. Mr. Nunes is a Certified Public Accountant, a Certified
Internal Auditor and holds the Chartered Financial Analyst
designation.
Brian
Batease
was
named
Chief Operating Officer in July 2007. Prior to this Mr. Batease was Vice
President of Manufacturing and Operations since November 2006. Mr. Batease
has
over twenty years experience in manufacturing processes and operations. Prior
to
joining Lightspace, Mr. Batease was Chief Operations Officer with True To
Form
Lighting from 2004 to 2006, where he was responsible for inventory management
and factory operations. From 2002 to 2004 Mr. Batease was Head of Manufacturing
at City Theatrical, Inc. where he was responsible for inventory processes
and
management. From 1997 to 2002, Mr. Batease was Vice President of Manufacturing
with Electronic Theatre Controls.
Robert
Giannini
and
Joseph
Parkinson
resigned
as directors on March 27, 2007. There were no disagreements among Messrs.
Parkinson or Giannini and the Company.
Meetings
of the Board of Directors
Our
Board
of Directors met in person ten times and acted by unanimous written those
ten
times during the year ended December 31, 2007. Through August 23, 2007, our
Board of Directors consisted solely of Mr. Gary Florindo, President and Chief
Executive Officer. Messrs. Parkinson and Giannini were appointed to the Board
by
Mr. Florindo on August 23, 2007 and were ratified by a stockholder vote on
December 10, 2007 at our Annual Meeting of Stockholders. During the year
ended
December 31, 2007, each of our directors attended at least 75% of the
aggregate of the total number of meetings of the Board of Directors during
that
period of time such person was a director.
Independent
Directors and Board of Directors’ Committees
Mr.
Florindo, who is also our Chief Executive Officer, is not deemed to be an
independent director. The present size of our Board of Directors does not
permit
the establishment of separate committees of the Board, such as an audit
committee; accordingly, the Board of Directors has direct responsibility
of
reviewing the financial information proposed to be provided to stockholders
and
others, the internal control systems and disclosure controls established
by
management, internal controls over financing reporting, and the audit process
and the independent auditors’ qualifications, independence and performance. Mr.
Parkinson, prior to his resignation, was qualified as an audit committee
financial expert and was independent for audit committee purposes. The
membership of our Board of Directors was recently reduced. We hope to add
more
independent directors, including a “financial expert”; however, there can be no
assurance we will be able to do so. In the event we expand our Board of
Directors, we will establish and adopt written charters for specific Board
of
Directors’ Committees, as appropriate, to assist in corporate governance.
Policy
Regarding Board Attendance
Our
directors are expected to attend meetings of the Board and meetings of
committees on which they serve. Our directors are expected to spend the time
needed at each meeting and to meet as frequently as necessary to properly
discharge their responsibilities. We encourage members of our Board of Directors
to attend annual meetings of stockholders, but we do not have a formal policy
requiring them to do so.
Director
Compensation
Directors
who are employees of Lightspace do not receive and will not receive any separate
compensation for serving in the additional capacity as directors. If we increase
the membership of our Board of Directors with qualified non-management
directors, we will establish an appropriate compensation plan for such
directors.
Communications
with our Board of Directors
We
have
established the following process for stockholders and other interested parties
to communicate directly with our Board of Directors. Persons wishing to
communicate with our Board should send correspondence to: The Board of
Directors, Attn: Assistant Secretary, Lightspace Corporation, 529 Main Street,
Suite 330, Boston, Massachusetts 02129. The Assistant Secretary will relay
that correspondence to the Board. Historically, we have received a low volume
of
communications from our stockholders. If the volume of communications increases
such that this process becomes burdensome, our Board of Directors may elect
to
adopt screening procedures.
Director
Liability and Indemnification
Under
Delaware law and our by-laws, we are required to indemnify our officers,
directors, employees and agents in certain situations. As permitted by Delaware
statutes, our certificate of incorporation eliminates in certain circumstances
the monetary liability of our directors for a breach of their fiduciary duties.
These provisions do not eliminate a director’s liability for:
|
|
·
|
Any
breach of the director’s duty of loyalty to the corporation or its
stockholders;
|
|
|
·
|
Acts
or omissions not in good faith or which involve intentional misconduct
or
a knowing violation of law
|
Under
Section 174 of Title 8 of the Delaware code; and
|
|
·
|
Any
transaction from which the director derived an improper personal
benefit.
|
As
to
indemnification for liabilities arising under the Securities Act for directors,
officers or persons controlling Lightspace, we have been informed that, in
the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy and therefore unenforceable.
Code
of Ethics
We
have
adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to
all of our directors and employees, including our chief executive officer,
chief
financial officer and other officers. Our Code of Ethics includes provisions
covering conflicts of interest, the reporting of illegal or unethical behavior,
business gifts and entertainment, compliance with laws and regulations, insider
trading practices, antitrust laws, bribes or kickbacks, corporate record
keeping, and corporate accounting and disclosure. The Code of Ethics is
available at the Investor Relations section of our website at
www.Lightspacecorp.com. Our Code of Ethics may also be obtained without charge
upon written request to Lightspace Corporation, 529 Main Street, Suit 330,
Boston, Massachusetts 02129, Attention: Investor Relations.
Item
11. Executive Compensation
The
following table sets forth the total compensation for the years ended December
31, 2007, 2006 and 2005 paid or awarded to our elected executive officers,
our
Chief Executive Officer, our Chief Financial Officer, and our Chief Operating
Officer. Certain columns as required by the regulations of the Securities
and
Exchange Commission have been omitted as no information was required to be
disclosed under those columns.
|
Name
and Principal Position
|
|
|
Year
|
|
|
Salary
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gary
Florindo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO
and Director
|
|
|
2007
|
|
$
|
150,000
|
(1)
|
$
|
63,634
(1
|
)
|
$
|
35,134
|
|
$
|
248,768
|
|
|
VP
Sales and Director
|
|
|
2006
|
|
|
120,791
|
(2)
|
|
20,480
(2
|
)
|
|
15,123
|
|
|
156,394
|
|
|
Vice
President Sales
|
|
|
2005
|
|
|
103,788
|
|
|
|
|
|
|
|
|
103,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis
Nunes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
|
2007
|
|
|
83,814
|
(3)
|
|
24,551
(3
|
)
|
|
16,418
|
|
|
124,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Batease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Operating Officer
|
|
|
2007
|
|
|
121,875
|
(4)
|
|
27,654
(4
|
)
|
|
18,488
|
|
|
168,017
|
|
|
VP
Operations
|
|
|
2006
|
|
|
11,359
|
(5)
|
|
790
(5
|
)
|
|
2,374
|
|
|
14,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
C. Louney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
|
2007
|
|
|
20,816
|
|
|
|
|
|
3,310
|
|
|
24,126
|
|
|
Chief
Financial Officer
|
|
|
2006
|
|
|
83,079
|
(7)
|
|
15,360
(7
|
)
|
|
11,597
|
|
|
110,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
Kennedy Lang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
CEO and Director
|
|
|
2006
|
|
|
84,250(8
|
)
|
|
|
|
|
40,456
(4
|
|
|
124,706
|
|
|
|
|
|
2005
|
|
|
94,164
|
|
|
|
|
|
|
|
|
94,164
|
|
(1)
Effective July 1, 2007, Mr. Florindo’s salary was increased to $175,000 per
year. On September 1, 2007, we issued 493,221 options to purchase 493,221 shares
of common stock at an exercise price of $1.10 per share to Mr. Florindo pursuant
to our 2007 Stock Incentive Plan. The options vest over a three year period
and
expire in ten years. No options under this grant were vested at December 31,
2007. The fair value of this award at the date of grant was determined to be
$192,159 under the Black-Scholes option pricing model (see Note 15 to our
financial statements included herein for the assumptions used to calculate
the
fair value). For the year ended December 31, 2007, we recognized $21,351 of
the
fair value of this award as compensation expense in our statement of
operations.
(2)
Effective March 31, 2006, our former Chief Executive Officer resigned all
positions with Lightspace, and Mr. Florindo was elected sole director by a
vote
of our stockholders and appointed Chief Executive Officer. Upon his appointment
as Chief Executive Officer, Mr. Florindo’s annual salary was established at
$125,000 per year. Mr. Florindo, as a member of management, does not receive
any
compensation for serving as a director.
On
July
4, 2006, we issued 423,724 options to purchase 423,724 shares of common stock
at
an exercise price of $0.80 per share to Mr. Florindo pursuant to our 2006 Stock
Incentive Plan. The options vest over a three year period and expire in ten
years. At December 31, 2007, 211,862 of these options were vested. The fair
value of this award at the date of grant was determined to be $122,880 under
the
Black-Scholes option pricing model (see Note 15 to our financial statements
included herein for the assumptions used to calculate the fair value). For
the
year ended December 31, 2007, we recognized $42,283 of the fair value of this
award as compensation expense in our statement of operations.
On
September 30, 2006, we issued 14,370 options to purchase 14,370 shares of common
stock at an exercise price of $0.83 per share to Mr. Florindo pursuant to our
2005 Stock Incentive Plan. The options vest over a three year period and expire
in ten years. 17,585 options under this grant were vested at December 31, 2007.
(3)
Mr.
Nunes commenced employment with us on April 30, 2007. Mr. Nunes’ annual salary
is $125,000.
On
April
30, 2007 we issued 250,000 options to purchase 250,000 shares of common stock
at
an exercise price of $0.80 per share to Mr. Nunes pursuant to our 2006 Stock
Incentive Plan. The options vest over a three year period and expire in ten
years. At December 31, 2007, none of these options were vested. The fair value
of this award at the date of grant was determined to be $69,867 under the
Black-Scholes option pricing model (see Note 15 to our financial statements
included herein for the assumptions used to calculate the fair value). For
the
year ended December 31, 2007, we recognized $15,526 of the fair value of this
award as compensation expense in our statement of operations.
On
September 1, 2007, we issued 208,475 options to purchase 208,475 shares of
common stock at an exercise price of $1.10 per share to Mr. Nunes pursuant
to
our 2007 Stock Incentive Plan. The options vest over a three year period and
expire in ten years. No options under this grant were vested at December 31,
2007. The fair value of this award at the date of grant was determined to be
$81,222 under the Black-Scholes option pricing model (see Note 15 to our
financial statements included herein for the assumptions used to calculate
the
fair value). For the year ended December 31, 2007, we recognized $9,025 of
the
fair value of this award as compensation expense in our statement of
operations.
(4)
Mr.
Batease was named Chief Operating Officer in July 13, 2007. At that time Mr.
Batease’s annual salary was increased to $125,000. On July 13, 2007 we issued
150,000 options to purchase 150,000 shares of common stock at an exercise price
of $1.10 per share to Mr. Batease pursuant to our 2006 Stock Incentive Plan.
The
options vest over a three year period and expire in ten years. At December
31,
2007, none of these options were vested. The fair value of this award at the
date of grant was determined to be $59,860 under the Black-Scholes option
pricing model (see Note 15 to our financial statements included herein for
the
assumptions used to calculate the fair value). For the year ended December
31,
2007, we recognized $9,145 of the fair value of this award as compensation
expense in our statement of operations.
On
September 1, 2007, we issued 208,475 options to purchase 208,475 shares of
common stock at an exercise price of $1.10 per share to Mr. Batease pursuant
to
our 2007 Stock Incentive Plan. The options vest over a three year period and
expire in ten years. No options under this grant were vested at December 31,
2007. The fair value of this award at the date of grant was determined to be
$81,222 under the Black-Scholes option pricing model (see Note 15 to our
financial statements included herein for the assumptions used to calculate
the
fair value). For the year ended December 31, 2007, we recognized $9,025 of
the
fair value of this award as compensation expense in our statement of
operations.
(5)
Mr.
Batease was hired as VP of Operations in November 2006. His annual salary at
that time was $110,000. On December 1, 2006 we issued 100,000 options to
purchase 100,000 shares of common stock at an exercise price of $0.80 per share
to Mr. Batease pursuant to our 2006 Stock Incentive Plan. The options vest
over
a three year period and expire in ten years. At December 31, 2007, 36,111 of
these options were vested. The fair value of this award at the date of grant
was
determined to be $28,453 under the Black-Scholes option pricing model (see
Note
15 to our financial statements included herein for the assumptions used to
calculate the fair value). For the year ended December 31, 2007, we recognized
$9,484 of the fair value of this award as compensation expense in our statement
of operations. For the year ended December 31, 2006, we recognized $790 of
the
fair value of this award as compensation expense in our statement of operations.
(6)
On
February 15, 2007, Mr. Louney resigned as an officer and employee of Lightspace.
Mr. Louney agreed to provide transitional and financial accounting assistance
to
us through an approximate thirty day consulting agreement. Upon his resignation,
Mr. Louney forfeited all options.
(7)
From
October 4, 2005 to May 7, 2006, Mr. Louney had been our Vice President and
Chief
Financial Officer through a contract with AccountAbility Outsourcing, Inc.,
a
financial management firm. On May 8, 2006, Mr. Louney accepted a position with
us as Vice President, Chief Financial Officer and Assistant Secretary. Upon
employment with us in May of 2006, Mr. Louney’s annual salary was established at
$125,000 per year.
On
July
4, 2006, we issued 317,793 options to purchase 317,793 shares of common stock
at
an exercise price of $0.80 per share to Mr. Louney pursuant to our 2006 Stock
Incentive Plan. The options vest over a three year period and expired in ten
years. No options under this grant were vested at February 15, 2007. Upon his
resignation Mr. Louney forfeited all options. The fair value of this award
at
the date of grant was determined to be $92,160 under the Black-Scholes option
pricing model (see Note 15 to our financial statements included herein for
the
assumptions used to calculate the fair value). For the year ended December
31,
2006, we recognized $15,360 of the fair value of this award as compensation
expense in our statement of operations.
(8)
On
April 21, 2006, we entered into a severance agreement with Andrew Kennedy Lang,
a stockholder, a former director and our former Chief Executive Officer,
pursuant to which he resigned as an officer, director and employee of Lightspace
as of March 31, 2006. Under the agreement, we (i) paid him his accrued wages
and
vacation pay, (ii) reimbursed him for recorded expenses incurred on behalf
of
Lightspace aggregating $47,636, (iii) paid him $10,000 as severance and (iv)
paid him $20,000 as advance payment for 100 hours of consulting work. We also
paid $20,000 against an existing accounts payable balance of $72,385 due to
his
affiliate, Immersive Productions. The remaining balance due to Immersive
Productions was fully paid in September 2007.
We
issued
warrants to purchase 5,463 shares of Series A preferred stock at an exercise
price of $7.50 per share to Mr. Lang in 2004 (in connection with a loan from
Mr.
Lang to Lightspace) and warrants to purchase 15,130 shares of common stock
at an
exercise price of $7.50 per share in 2005 (in connection with Mr. Lang’s issuing
a personal guarantee for certain Lightspace indebtedness).
In
calendar years 2005 and 2004, Mr. Lang received salary payments from us at
reduced levels and on an intermittent basis. Mr. Lang’s salary continued at
these reduced levels until September 2005, when his salary was increased to
$250,000 per year.
Options
Granted in the 2007 Year
The
following table sets forth information with respect to options that we granted
to the executive officers named in the Executive Compensation Table during
the
year ended December 31, 2007.
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
of
Total
|
|
Exercise
|
|
|
|
Grant
Date
|
|
|
|
|
Underlying
|
|
Options
|
|
Price
|
|
|
|
Fair
|
|
|
Executive
Officer
|
|
Options
|
|
Granted
(1)
|
|
Per
Share (2)
|
|
Expiration
Date
|
|
Value
(3)
|
|
|
Gary
Florindo
|
|
|
493,221
|
|
|
12.1
|
%
|
$
|
1.10
|
|
|
September
2, 2017
|
|
$
|
192,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis
Nunes
|
|
|
250,000
|
|
|
6.1
|
%
|
$
|
0.80
|
|
|
May
1, 2017
|
|
$
|
69,867
|
|
|
|
|
|
208,475
|
|
|
5.1
|
%
|
$
|
1.10
|
|
|
September
2, 2017
|
|
$
|
81,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Batease
|
|
|
150,000
|
|
|
3.7
|
%
|
$
|
1.10
|
|
|
July
14, 2017
|
|
$
|
59,860
|
|
|
|
|
|
208,475
|
|
|
5.1
|
%
|
$
|
1.10
|
|
|
September
2, 2017
|
|
$
|
81,222
|
|
(1)
Percentages are calculated based upon a total of
4,075,856 options granted in the year ended December 31, 2007.
(2)
All
options were granted at fair market value at the time of grant. Grant date
fair
market value was determined by reference to the market price of common stock
on
the date of grant.
(3)
The
fair
value of stock options at the date of grant was determined under the
Black-Scholes option pricing model, less the amount that the officer is required
to pay upon exercise of the options. The assumptions utilized to calculate
fair
value for the stock options granted in 2007 are as follows: volatility -
53%
thru 57%; estimated option exercise period - 2 to 3 years; risk free interest
rate -4.16% thru 5.17%; and expected total forfeitures related to these option
grant of 6.9%.
Aggregate
Option Exercises in 2007 and Value of Options at December 31,
2007
The
following table sets forth information with respect to options that were
(1)
exercised during the year ended December 31, 2007 and (2) that remained
unexercised at December 31, 2007 for the executive officers named in the
Executive Compensation Table.
|
|
|
|
Year
2007
|
|
|
At
December 31, 2007
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Number
of
|
|
|
Number
of
|
|
|
Value
of
|
|
|
Value
of
|
|
|
|
|
|
Acquired
|
|
|
Valuee
|
|
|
Options
|
|
|
Options
|
|
|
Options
|
|
|
Options
|
|
|
Name
|
|
|
On
Exercise #
|
|
|
Realized
($)
|
|
|
Exercisablee
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Gary
Florindo
|
|
|
-
|
|
|
-
|
|
|
229,447
|
|
|
687,498
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis
Nunes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
458,475
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Batease
|
|
|
-
|
|
|
-
|
|
|
36,111
|
|
|
422,364
|
|
|
-
|
|
$
|
-
|
|
The
value
of options exercisable and unexercisable at December 31, 2007 includes only
options In-the-Money.
On
December 31, 2007 our common stock (LGTS: OB) closed at a price of $0.40
per
share. The In -the-Money value of executive officer options has been calculated
on the basis as the difference between $0.40 and the exercise price of the
option, multiplied by the number common shares underlying the option.
Upon
his
resignation on February 15, 2007, Mr. Louney forfeited all options.
Director
Compensation
Directors
who are employees of Lightspace do not receive and will not receive any separate
compensation for serving in the additional capacity as directors. When we
increase the membership of our Board of Directors with qualified non-management
directors, we will establish an appropriate compensation plan for such
directors.
Compensation
Discussion and Analysis
Our
Board
of Directors is responsible for developing the executive compensation
principles, policies and programs for our executive officers and is also
responsible for determining the compensation to be paid to our executive
officers.
Our
compensation programs are designed to provide our executive officers with market
competitive salaries and the opportunity to earn incentive compensation related
to performance expectations identified by our Board of Directors. The primary
objectives of the executive compensation program are to:
(a)
Support the achievement of our annual and long-term goals and objectives as
determined annually by our Board of Directors;
(b)
Establish base salaries targeted at a level comparable to companies of similar
size, location and structure, with incentive opportunities designed to pay
additional compensation for outstanding performance; and
(c)
Provide compensation plans and arrangements that encourage the retention of
better-performing executives.
Our
executive compensation practices seek to provide an opportunity for compensation
that varies with responsibility levels and performance. We seek to set base
salaries for our executive officers at levels which are competitive with levels
for executives with similar roles and responsibilities within institutions
of
similar size, location and structure. The Board of Directors reviews the
performance objectives for each executive officer on an annual basis. The
objectives are tailored to the particular responsibilities of each executive
officer.
We
have
not entered into employment agreements with any of our officers or employees.
Our executive officers receive the same fringe benefits (health, dental and
disability insurance and paid time off) provided to our other employees. We
currently do not have a pension plan, 401K plan, or key man life insurance
for
any of our officers or employees. We may establish a 401K plan in 2008; but
initially, we would not match employee contributions. It is the belief of the
Board of Directors that the overall mix of compensation provided to the
executive officers helps to achieve the compensation objectives discussed above.
The mix of the base salary and the deferred compensation allows us to provide
a
stable income level to retain our executives, while also giving us a
sufficiently flexible framework in order to be able to adapt to changes in
the
marketplace, as well as creating incentives for our named executives to achieve
and surpass our performance objectives.
Base
Salary
Base
salary is designed to compensate executive officers for fulfilling their basic
job responsibilities and to aid in their attraction and retention. The
base salaries depend on the named executives’ scope of responsibilities, their
performance, and the period over which they have performed their respective
responsibilities. Decisions regarding salary increases take into account
the named executive's current salary and the amounts paid to the executive's
peers within companies of similar size, location and structure. Base
salaries are reviewed by the Board of Directors on an annual basis.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Stock
Owned by Directors, Executive Officers and Greater-Than-5%
Stockholders
The
following table provides information about the beneficial ownership of our
common stock as of March 28, 2008.
|
·
|
each
person or entity known by us to own beneficially more than five percent
of
our common stock;
|
|
|
|
|
·
|
the
named executive officers;
|
|
|
|
|
·
|
each
of our directors; and
|
|
|
|
|
·
|
all
of our directors and executive officers as a group.
|
|
|
|
In
accordance with Securities and Exchange Commission rules, beneficial ownership
includes any shares for which a person or entity has sole or shared voting
power
or investment power and any shares for which the person or entity has the right
to acquire beneficial ownership within 60 days after December 31, 2007
through the exercise of any option, warrant or otherwise. Except as noted below,
we believe that the persons named in the table have sole voting and investment
power with respect to the shares of common stock set forth opposite their names.
Percentage of beneficial ownership is based on 15,282,495 shares of common
stock outstanding as of March 28, 2008, plus any shares of common stock issuable
upon exercise of presently exercisable common stock options or common stock
warrants held by such person or entity. All shares included in the “Right to
Acquire” column represent shares subject to outstanding stock options or
warrants that are exercisable within 60 days after March 28, 2008. The
address of our director and each of our executive officers is c/o Lightspace
Corporation, 529 Main Street, Suite 330, Boston, Massachusetts
02129.
|
|
|
|
Shares
|
|
|
Right
to
|
|
|
Shares
Owned
|
|
|
Ownership
|
|
|
Name
and Address of Beneficial Owner
|
|
|
Owned
|
|
|
Acquire
|
|
|
Beneficially
|
|
|
Percentage
|
|
|
AIGH
Investment Partners, LLC
|
|
|
2,609,275
|
|
|
3,913,913
|
|
|
6,523,188
|
(1)
|
|
34.03
|
%
|
|
6006
Berkeley Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore,
MD 21209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amtrust
International Insurance Ltd
|
|
|
1,151,520
|
|
|
1,727,280
|
|
|
2,878,800
|
(2)
|
|
16.95
|
%
|
|
10451
Mill Run Circle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owings
Mills, Maryland 21117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Giannini
|
|
|
-
|
|
|
2,585,080
|
|
|
2,585,080
|
(3)
|
|
14.47
|
%
|
|
c/o
Empire Asset Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
Rector Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
Ferry Building Company
|
|
|
843,736
|
|
|
1,265,604
|
|
|
2,109,340
|
(4)
|
|
12.77
|
%
|
|
One
State Street Plaza, 29th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
Kennedy Lang
|
|
|
1,102,405
|
|
|
840,348
|
|
|
1,942,753
|
(5)
|
|
12.07
|
%
|
|
387
Concord Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cambridge,
MA 02138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Right
to
|
|
|
Shares
Owned
|
|
|
Ownership
|
|
|
Name
and Address of Beneficial Owner
|
|
|
Owned
|
|
|
Acquire
|
|
|
Beneficially
|
|
|
Percentage
|
|
|
Shalom
Torah Centers
|
|
|
750,000
|
|
|
1,125,000
|
|
|
1,875,000
|
(6)
|
|
11.45
|
%
|
|
399
Park Avenue 12th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, New York 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fame
Associates
|
|
|
687,496
|
|
|
1,031,244
|
|
|
1,718,740
|
(7)
|
|
10.55
|
%
|
|
111
Broadway, 20th Floor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
York, NY 10006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herschel
Berkowitz
|
|
|
676,304
|
|
|
1,014,456
|
|
|
1,690,760
|
(8)
|
|
10.39
|
%
|
|
441
Yeshiva Lane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore,
MD 21208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pankaj
Tandon
|
|
|
920,883
|
|
|
443,665
|
|
|
1,364,548
|
(9)
|
|
8.69
|
%
|
|
8
Summit Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weston,
MA 02493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime
Resources, Inc.
|
|
|
465,335
|
|
|
698,001
|
|
|
1,163,336
|
(10)
|
|
7.29
|
%
|
|
1245
East Brickyard Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salt
Lake City, UT 84106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Illumination
Design Works, Inc
|
|
|
-
|
|
|
1,187,500
|
|
|
1,187,500
|
(11)
|
|
7.22
|
%
|
|
59
Foster Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belmont,
MA 02478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LaPlace
Group LLC
|
|
|
437,496
|
|
|
656,244
|
|
|
1,093,740
|
(12)
|
|
6.87
|
%
|
|
3666
Shannon Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleveland
Heights, OH 44118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellis
International
|
|
|
406,240
|
|
|
609,360
|
|
|
1,015,600
|
(13)
|
|
6.40
|
%
|
|
20
East Sunrise Highway, Suite 302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley
Stream, NY 11581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue
& Gold Enterprises, Inc.
|
|
|
390,547
|
|
|
585,821
|
|
|
976,368
|
(14)
|
|
6.16
|
%
|
|
11601
Wilshire Boulevard, Suite 2040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los
Angeles, CA 90025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
Marketing
|
|
|
362,496
|
|
|
543,744
|
|
|
906,240
|
(15)
|
|
5.74
|
%
|
|
PO
Box 3236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ramat-Gan,
52131 Israel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
Florindo, CEO and Director
|
|
|
16
|
|
|
162,849
|
|
|
162,865
|
(16)
|
|
1.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis
Nunes, CFO
|
|
|
-
|
|
|
83,333
|
|
|
83,333
|
(17)
|
|
0.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Batease, COO
|
|
|
-
|
|
|
16,667
|
|
|
16,667
|
(18)
|
|
0.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers (Group)
|
|
|
16
|
|
|
262,849
|
|
|
262,865
|
|
|
1.69
|
%
|
(1)
Includes unit warrants to purchase 3,913,913 shares of common stock at exercise
prices from $1.00 to $1.63 per share. We have been advised that the beneficial
owner and manager of AIGH Investment Partners, LLC is Orin
Hirschman.
(2)
Includes unit warrants to purchase 1,727,280 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(3)
Includes underwriter and financial advisor unit purchase warrants to purchase
2,585,080 shares of common stock at exercise prices from $0.80 to $1.63 per
share.
(4)
Includes unit warrants to purchase 1,265,604 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(5)
Includes (a) 172,107 shares of common stock held by L Ventures, of which Andrew
Kennedy Lang, our former chief executive officer, is an officer and holds an
ownership interest in; (b) 688,238 exchange warrants to purchase 688,238 shares
of common stock at exercise prices of $0.80 to $7.50 per warrant; (c) 12 unit
warrants to purchase 12 shares of common stock at exercise prices of $1.00
to
$1.63 per warrant; and (d) 152,098 exchange warrants to purchase 152,098 shares
of common stock at exercise prices of $1.00 to $3.00 per warrant owned by L
Ventures. Does not include 195,279 shares of common stock and exchange warrants
to purchase 89,446 shares of common stock held by Andrew Lang, the father of
Andrew Kennedy Lang, as to which Andrew Kennedy Lang exercises no voting control
or disposition control and disclaims beneficial ownership.
(6)
Includes unit warrants to purchase 1,125,000 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(7)
Includes unit warrants to purchase 1,031,244 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(8)
Includes unit warrants to purchase 1,014,456 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(9)
Includes exchange warrants to purchase 443,665 shares of common stock at
exercise prices of $3.00 to $7.50 per share.
(10)
Includes unit warrants to purchase 698,001 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(11)
Includes 1,187,500 shares of common stock issuable upon conversion of $950,000
convertible term note at a conversion rate of $0.80 per share.
(12)
Includes unit warrants to purchase 656,244 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(13)
Includes unit warrants to purchase 609,360 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(14)
Includes unit warrants to purchase 585,821 shares of common stock at exercise
prices from $1.00 to $1.63 per share. We have been advised that the beneficial
owner of Blue and Gold Enterprises, Inc. is Steven Antebi.
(15)
Includes unit warrants to purchase 543,744 shares of common stock at exercise
prices from $1.00 to $1.63 per share.
(16)
Includes (a) 13,583 options to purchase 13,583 shares of common stock at an
exercise price of $0.83 per share; (b) 141,242 options to purchase 141,242
shares of common stock at an exercise price of $0.80 per share; (c) 8,000
options to purchase 8,000 shares of common stock from a co-founder of Lightspace
at an exercise price of $0.025 per share; and (d) 24 unit warrants to purchase
24 shares of common stock at exercise prices from $1.00 to $1.63 per share.
(17)
Includes options to purchase 83,333 shares of common stock at an exercise prices
of $0.80 per share.
(18)
Includes options to purchase 16,667 shares of common stock at an exercise prices
of $0.80 per share.
Changes
in Control
To
our
knowledge, we are not aware of any arrangements including the pledge by any
person of our securities, the operation of which may at a subsequent date result
in a change in control of Lightspace.
Equity
Compensation Plan
The
equity compensation plans that have been approved by our stockholders as of
December 31, 2007 were our 2005 Stock Incentive Plan, 2006 Stock Incentive
Plan,
and 2007 Stock Incentive Plan.
|
Equity
Compensation Plan Information as of December 31,
2007
|
|
|
Authorized
Plan
|
|
Number
of Common Shares to be Issued Upon Exercise of Outstanding
Options
|
|
Weighted
Average Exercise Price per Share
|
|
Number
of Common Share Remaining Available for Future
Issuance
|
|
|
2005
Stock Incentive Plan
|
|
|
51,530
|
|
$
|
0.83
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Stock Incentive Plan
|
|
|
1,846,224
|
|
$
|
0.85
|
|
|
272,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Stock Incentive Plan
|
|
|
3,245,856
|
|
$
|
1.10
|
|
|
754,144
|
|
|
Total
|
|
|
5,143,610
|
|
$
|
1.01
|
|
|
1,026,542
|
|
In
September 2005, our stockholders approved adoption of our 2005 Stock Plan.
The
plan provides that the Board of Directors may grant up to 72,080 incentive
stock
options and/or nonqualified stock options to directors, officers, key employees
and consultants. The plan provides that the exercise price of each option must
be at least equal to the fair market value of the common stock at the date
such
option is granted. For grants to individuals who own more than 10% of the
outstanding common stock of Lightspace, the exercise price must be at least
110%
of fair market value at the time of grant. Options granted under the plan expire
within 10 years or less from the date of grant and vest over a period not
to exceed four years. At December 31, 2006, we have reserved 53,680 shares
of
common stock for issuance under the plan upon exercise of outstanding options.
Effective with the approval and adoption of the 2006 Stock Plan in June 2006,
no
additional options can be issued under the 2005 Stock Plan.
On
June
9, 2006, our stockholders approved adoption of our 2006 Stock Plan. The plan
provides that the Board of Directors may grant up to 2,118,622 incentive stock
options and/or nonqualified stock options to directors, officers, key employees
and consultants. The plan provides that the exercise price of each option must
be at least equal to the fair market value of the common stock at the date
such
option is granted. For grants to individuals who own more than 10% of the
outstanding common stock of Lightspace, the exercise price must be at least
110%
of fair market value at the time of grant. Options granted under the plan expire
within ten years or less from the date of grant and vest over a period not
to
exceed three years. As of December 31, 2006, we have reserved 2,118,622 shares
of common stock for issuance under the 2006 Stock Plan upon the exercise of
outstanding options.
On
December 10, 2007, our stockholders approved adoption of our 2007 Stock Plan.
The plan provides that the Board of Directors may grant up to 4,000,000
incentive stock options and/or nonqualified stock options to directors,
officers, key employees and consultants. The plan provides that the exercise
price of each option must be at least equal to the fair market value of the
common stock at the date such option is granted. For grants to individuals
who
own more than 10% of the outstanding common stock of Lightspace, the exercise
price must be at least 110% of fair market value at the time of grant. Options
granted under the plan expire within ten years or less from the date of grant
and vest over a period not to exceed three years. As of December 31, 2007,
we
have reserved 4,000,000 shares of common stock for issuance under the 2007
Stock
Plan upon the exercise of outstanding options.
Issued
and Outstanding Common Stock Warrants
Issued
and outstanding warrants to purchase Lightspace common stock on December 31,
2007 and December 31, 2006 were as follows:
|
|
|
|
|
Exercise
|
|
December
31,
|
|
December
31,
|
|
|
Type
of Warrant
|
|
Date
Issued
|
|
Price
|
|
2007
|
|
2006
|
|
|
$.80
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
0.80
|
|
|
361,252
|
|
|
361,252
|
|
|
$1.00
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
1.00
|
|
|
276,370
|
|
|
276,370
|
|
|
$3.00
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
3.00
|
|
|
649,892
|
|
|
649,892
|
|
|
$7.50
Exchange warrant
|
|
|
April
27, 2006
|
|
$
|
7.50
|
|
|
234,398
|
|
|
234,398
|
|
|
$0.80
Unit warrant
|
|
|
April
30, 2007
|
|
$
|
0.80
|
|
|
468,936
|
|
|
-
|
|
|
$0.96
Unit warrant
|
|
|
November
2, 2006
|
|
$
|
0.96
|
|
|
816,000
|
|
|
816,000
|
|
|
$1.00
Unit warrant
|
|
|
2006
and April 30, 2007
|
|
$
|
1.00
|
|
|
13,884,905
|
|
|
8,726,585
|
|
|
$1.25
Unit warrant
|
|
|
2006
and April 30, 2007
|
|
$
|
1.25
|
|
|
3,471,226
|
|
|
2,181,646
|
|
|
$1.63
Unit warrant
|
|
|
2006
and April 30, 2007
|
|
$
|
1.63
|
|
|
3,471,226
|
|
|
2,181,646
|
|
|
Total
common stock warrants outstanding
|
|
|
|
|
23,634,205
|
|
|
15,427,789
|
|
On
April
27, 2006 in connection with the conversion and exchange under the Securityholder
Debt and Equity Conversion and Exchange Agreement, we issued 1,160,660 exchange
warrants to purchase a total of 1,160,660 shares of common stock at exercise
prices ranging from $1.00 to $7.50 per warrant. The exchange warrants are
exercisable at the option of the holder at any time up until April 30, 2011,
at
which date the warrants expire. In the event of a division of our common stock,
the warrants will be adjusted proportionately. The value of the warrants at
April 27, 2006 was determined to be $138,449 under the fair value computation
method utilizing a 4.89% risk free interest rate assumption, 59% volatility
factor and an expected life of three years. The $138,449 has been charged to
operations as debt conversion expense and as an increase to additional
paid-in-capital.
Additionally,
in connection with the securityholder conversion and exchange, $237,381 in
principal amount of existing notes held by the former CEO were converted into
a
$237,381 contingent promissory note. We issued to the former CEO 361,252
exchange warrants to purchase a total of 361,252 shares of common stock at
an
exercise price of $0.80 per warrant. The warrants expire on April 30, 2011,
unless the terms for payment of the contingent promissory note are not met,
in
which case the warrants will expire on June 30, 2009. The value of the warrants
at April 27, 2006 was determined to be $125,896 under the fair value computation
method utilizing a 4.89% risk free interest rate assumption, 59% volatility
factor and an expected life of three years. The $125,896 has been classified
as
deferred financing costs, chargeable to operations as additional interest
expense over three years, and as an increase to additional paid-in-capital.
On
May 3,
2006, we and noteholders holding $2,400,000 in principal amount of senior
secured notes agreed to convert $2,488,471 of senior secured note principal
and
accrued interest, at a conversion price of $6.40 per unit, into 388,821 units
plus fractional shares and warrants. The units that we issued to the senior
secured note holders are comprised of: (1) 3,110,585 shares of common stock;
(2)
3,110,585 unit warrants to purchase a total of 3,110,585 shares of common stock
at an exercise price of $1.00 per warrant; (3) 777,646 unit warrants to purchase
a total of 777,646 shares of common stock at an exercise price of $1.25 per
warrant; and (4) 777,646 unit warrants to purchase a total of 777,646 shares
of
common stock at an exercise price of $1.63 per warrant. The unit warrants are
exercisable at the option of the holder at any time up until April 30, 2011,
at
which date the warrants expire. In the event of a division of our common stock,
the warrants will be adjusted proportionately. No value has been assigned to
the
unit warrants issued in connection with the conversion.
On
November 2, 2006 we closed the initial public offering period for the sale
of
our securities. We sold 600,000 units at an offering price of $6.40 per unit,
resulting in aggregate proceeds of $3,840,000. The sale of 600,000 units,
including warrants issued to the underwriter as compensation, resulted in the
issuance of: (1) 4,800,000 shares of common stock; (2) 816,000 unit warrants
to
purchase a total of 816,000 shares of common stock at an exercise price of
$0.96
per warrant (pursuant to the unit warrants issued to the underwriter); (3)
5,616,000 unit warrants to purchase a total of 5,616,000 shares of common stock
at an exercise price of $1.00 per warrant; (4) 1,404,000 unit warrants to
purchase a total of 1,404,000 shares of common stock at an exercise price of
$1.25 per warrant; and (5) 1,404,000 unit warrants to purchase a total of
1,404,000 shares of common stock at an exercise price of $1.63 per warrant.
The
unit
warrants are exercisable at the option of the holder at any time up until April
30, 2011, at which date the warrants expire. In the event of a division of
our
common stock, the warrants will be adjusted proportionately. No value has been
assigned to the unit warrants issued in connection with the sale of units.
On
April
30, 2007 we sold 586,173 units (consisting of our common stock and warrants)
at
the offering price of $6.40 per unit, resulting in gross proceeds of $3,751,507.
The sale of 586,173 units and the issuance to the financial advisor of a unit
purchase warrant exercisable for 58,617 units identical to the units sold in
the
private placement resulted in the issuance of: (1) 4,689,384 shares of common
stock; (2) 468,936 unit warrants to purchase a total of 468,936 shares of common
stock at an exercise price of $0.80 per warrant (3) 5,158,320 unit warrants
to
purchase a total of 5,158,320 shares of common stock at an exercise price of
$1.00 per warrant; (4) 1,289,580 unit warrants to purchase a total of 1,289,580
shares of common stock at an exercise price of $1.25 per warrant; and (5)
1,289,580 unit warrants to purchase a total of 1,289,580 shares of common stock
at an exercise price of $1.63 per warrant. The unit warrants are exercisable
at
the option of the holder at any time up until April 30, 2012, at which date
the
warrants expire. In the event of a division of our common stock, the warrants
will be adjusted proportionately.
At
December 31, 2007 and December 31, 2006, the weighted average exercise price
of
the common stock warrants outstanding was $1.24 and $1.30, respectively. At
September 30, 2007, the common stock warrants had an average remaining life
of
approximately four years.
Transfer
Agent and Registrar
Continental
Stock
Transfer
& Trust Company, New York, New York, is the transfer agent and registrar of
our units, common stock and warrants. The mailing address of Continental Stock
Transfer & Trust Company is Two Broadway, New York, New York 10004. The
telephone number of our representative at Continental Stock Transfer & Trust
Company is 212-845-3204.
Periodic
Reporting Requirements
We
do not
intend to register our securities under Section 12(g) of the Securities
Exchange Act unless and until we are required based on having at least 500
stockholders of record and a certain amount of assets. While we will be subject
to the periodic reporting requirements of Section 15(d) of the Securities
Exchange Act, we will not be subject to certain other provisions of the
Securities Exchange Act, including those related to proxy and information
statements, insider reporting and short-swing profit liability, reporting by
certain beneficial owners of our equity securities, and rules relating to tender
offers. Certain provisions of the Sarbanes-Oxley Act also will not apply to
us
until we are registered under Section 12. As a result, you may not have
access to certain information that is otherwise generally available to holders
of publicly traded securities.
Item
13. Certain Relationships and Related Transactions
,
and Director Independence
The
following transactions were entered into with our former executive officer
and
director and 5% or greater stockholders. These transactions may or will continue
in effect and may result in conflicts of interest between us and these
individuals. Although our executive officers and directors have fiduciary duties
to us and our stockholders, we cannot assure that these potential conflicts
of
interest will always be resolved in our favor or in the favor of our
stockholders.
Immersive
Promotions
In
the
second quarter of 2005, we entered into a series of transactions with Immersive
Promotions (“Immersive”), an affiliate of Mr. Lang, our former CEO, wherein we
sold to Immersive 315 interactive tiles and other Lightspace systems components
for $219,718. Immersive was established as a rental and events company with
Mr.
Lang as a significant investor. Lightspace had previously determined that due
to
limited capital, our business objectives, and the potential of conflict with
our
current rental and promotional customers, we would not directly engage in the
retail business segment of events and promotions. The transactions with
Immersive were completed by a cash payment from Immersive of $110,000 and the
transfer to Immersive and cancellation of $109,718 in principal amount of demand
notes due to Mr. Lang.
Immersive’s
first possible promotional event was several months in the future. In the
interim, we had several potential customers, but had exhausted the available
inventory of interactive tiles. We agreed with Immersive to unwind the sale
to
Immersive and take back the unused 315 interactive tiles and other Lightspace
systems components. We paid back to Immersive $147,333 in cash, leaving a
balance due to Immersive of $72,385. As part of the April 21, 2006 severance
agreement with Mr. Lang, described below, we paid Immersive $20,000, and agreed
to use our best efforts to pay the $52,385 balance due by December 31, 2006.
The
$52,385 balance due to Immersive remained unpaid at December 31, 2006 and was
included in accounts payable at that date. In September 2007, the outstanding
balance of $52,385 due to Immersive was fully paid.
On
April
21, 2006, we entered into a severance agreement with Mr. Lang, a stockholder,
a
former director and our former Chief Executive Officer, pursuant to which he
resigned as an officer, director and employee of Lightspace. Under the
agreement, we (i) paid him his accrued wages and vacation pay, (ii) reimbursed
him for recorded expenses incurred on behalf of Lightspace aggregating $47,636,
(iii) paid him $10,000 as severance and (iv) paid him $20,000 as advance payment
for 100 hours of consulting work. We also paid $20,000 against the accounts
payable balance incurred in the transaction with Immersive Productions described
above.
Lang
Note
In
connection with the Exchange Agreement, $237,381 in principal amount of demand
notes held by Mr. Lang, formerly our CEO and a director and currently a
principal stockholder of Lightspace, were converted into a $237,381 contingent
promissory note. The note bears interest at an annual rate of 8% and is payable
by us only if we achieve
two
consecutive quarters of positive EBITDA (i.e.,
earnings
before interest, taxes, depreciation and amortization), aggregating at least
$1,000,000, or we raise in
a
registered public offering of equity cash proceeds of at least $10 million
prior
to December 31, 2008. If those conditions are not met by December 31, 2008,
or
Mr. Lang is found to be in breach of the terms of his Severance Agreement prior
to such date, the note will not be payable. In addition, Lightspace issued
to
Mr. Lang exchange warrants to purchase 361,252 shares of common stock at an
exercise price of $0.80 per share. The warrants expire on April 20, 2011, unless
the terms for payment of the note are not met, in which case the warrants will
expire on March 31, 2009.
Parkinson
Strategic Consulting Work
In August 2007, we engaged and paid Joseph Parkinson $7,500
for strategic consulting work. Mr. Parkinson was a director of Lightspace from
August 27, 2007 until his resignation on March 27, 2008 but was not a director
at the time of the engagement.
Director
Independence
Mr.
Florindo, who is also our Chief Executive Officer, is not deemed to be an
independent director.
Item
14. Principal Accountant Fees and Services
Independent
Registered Public Accounting Firm
Miller
Wachman LLP have been selected by the Board of Directors as the independent
registered public accounting firm to audit our financial statements for the
year
ending December 31, 2007. Miller Wachman LLP also served as our auditors
for each of the fiscal years ended December 31, 2003 through 2006. At our Annual
Meeting of Stockholders held on December 10, 2007, our stockholders ratified
the
selection of Miller Wachman as the independent registered public accounting
firm
to audit our financial statements until the next stockholder
meeting.
Independent
Registered Public Accounting Firm Fees
The
following table is a summary of the professional audit services and other
services rendered by our independent registered public accounting firm, Miller
Wachman LLP, for the fiscal years ended December 31, 2007 and
December 31, 2006:
|
|
|
December
31,
|
|
|
Type
of Service Fee
|
|
2007
|
|
2006
|
|
|
Audit
Fees
|
|
$
|
87,075
|
|
$
|
179,500
|
|
|
Audit-Related
Fees
|
|
|
-
|
|
|
-
|
|
|
Total
Audit Fees
|
|
|
87,075
|
|
|
179,500
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Fees
|
|
|
-
|
|
|
7,500
|
|
|
All
Other Fees
|
|
|
-
|
|
|
-
|
|
|
Total
Fees
|
|
$
|
87,075
|
|
$
|
187,000
|
|
Audit
Fees represent fees for professional services performed by Miller Wachman LLP
for the audit of our annual financial statements and the review of our quarterly
financial statements, as well as services that are normally provided with
respect to statutory and regulatory filings or similar engagements and related
expenses.
Audit-Related
Fees would include fees for assurance and related services performed by Miller
Wachman LLP that is reasonably related to the performance of the audit or review
thereof and fees for due diligence reviews.
Tax
Fees
represent fees for professional services performed by Miller Wachman LLP with
respect to tax compliance, tax advice and tax planning and related expenses.
These services include assistance with the preparation of federal and state
income tax returns.
All
Other
Fees would include fees for products and services provided by Miller Wachman
LLP, other than those disclosed above.
Pre-Approval
Policies and Procedures
Our
Board
of Directors pre-approves each engagement for audit or non-audit services before
we engage Miller Wachman LLP to provide those services. Our Board of Directors’
pre-approval procedures do not allow our management to engage Miller Wachman
LLP
to provide any specified services without the Board’s pre-approval of the
engagement for those services. All of the services provided by Miller Wachman
LLP for fiscal years 2007 and 2006 were pre-approved.
Item
15. Exhibits, Financial Statements Schedules
Available
Information
Our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to reports filed or furnished pursuant
to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, are available free of charge on our website at www.Lightspacecorp.com
as soon as reasonably practicable after such reports are filed with the
Securities and Exchange Commission. The Annual Report and our other public
reports may also be obtained without charge upon written request to Lightspace
Corporation, 529 Main Street, Suite 330, Boston, Massachusetts 02129, Attention,
Investor Relations. The information posted on our web site is not incorporated
into this Annual Report.
The
financial statements, schedules and exhibits listed below are filed as part
of
this report.
(1) Our
financial statements, the notes thereto and the report of our independent
registered public accounting firm are included under Item 8 of this
Form 10-K.
(2) All
schedules required by certain applicable accounting regulations of the
Securities and Exchange Commission have been omitted because the omitted
schedules are not required under the related instruction or do not apply or
because the information has been otherwise included in the financial statements
or notes thereto.
(3) Exhibits
Documents
listed below are being filed as exhibits in this Annual Report on
Form 10-K. Exhibits followed by a footnote (1) are not included herewith
and, pursuant to Rule 12b-32 of the General Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, reference is made to such documents as previously filed
as
exhibits with the SEC.
|
Exhibit
No.
|
|
Description
|
|
3.2
|
(1)
|
Second
Amended and Restated Certificate of Incorporation of Lightspace
Corporation
|
|
3.3
|
(2)
|
Amendment
to Certificate of Incorporation of Lightspace
Corporation
|
|
3.4
|
(1)
|
Amended
and Restated By-Laws of Lightspace Corporation
|
|
4.1
|
(1)
|
Form
of Certificate of Common Stock of Lightspace
Corporation
|
|
4.2
|
(1)
|
Form
of Common Stock Warrant of Lightspace Corporation
|
|
4.6
|
(1)
|
Form
of Unit of Lightspace Corporation
|
|
4.7
|
(3)
|
Form
of 5% Senior Secured Convertible Note due April 16,
2010
|
|
4.8
|
(2)
|
Amendment
No. 1, dated April 30, 2007, to Warrant Agreement, dated May 1,
2006, with
Continental Stock Transfer & Trust Company
|
|
10.1
|
(1)
|
Lease
Agreement Between Lightspace and the Schrafft's Nominee
Trust
|
|
10.2
|
(1)
|
Exchange
Agreement
|
|
10.3*
|
(1)
|
2005
Stock Incentive Plan
|
|
10.5
|
(1)
|
Form
of Lock-up Agreement
|
|
10.6*
|
(1)
|
2006
Stock Incentive Plan
|
|
10.8*
|
(1)
|
Severance
Agreement Between Lightspace and Andrew Kennedy Lang (Former
CEO)
|
|
10.9
|
(1)
|
Manufacturing
Agreement Between Lightspace and Contract Manufacturer
|
|
10.10
|
(3)
|
Agreement
for Purchase and Sale of of Assets, dated March 29,
2007
|
|
10.11
|
(3)
|
Form
of Registration Rights Agreement (with IDW)
|
|
10.12
|
(2)
|
Form
of Unit Subscription Agreement, dated as of April 11,
2007
|
|
10.13
|
(2)
|
Form
of Amendment No. 1 to Unit Subscription Agreement, dated as of
April 30,
2007
|
|
10.14
|
(2)
|
Form
of Amendment No. 2 to Unit Subscription Agreement, dated as of
April 30,
2007
|
|
10.15
|
(2)
|
Form
of Registration Rights Agreement, dated as of April 30,
2007
|
|
10.16*
|
(2)
|
Louis
Nunes Employment Letter
|
|
10.17*
|
(4)
|
2007
Stock Incentive Plan
|
|
10.18
|
(4)
|
Joe
Parkinson Consulting Agreement, dated August 23, 2007
|
|
14
|
(5)
|
Code
of Business Conduct and Ethics
|
|
31.1
|
(6)
|
Certification
of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley
Act of 2002
|
|
31.2
|
(6)
|
Certification
of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley
Act of 2002
|
|
32.1
|
(6)
|
Certification
of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
|
|
32.2
|
(6)
|
Certification
of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
|
|
*
Management contract or compensatory plan or arrangement.
|
|
(1)
|
Incorporated
by reference to our Registration Statement on Form S-1 (Commission
File
No. 333-131857).
|
|
(2)
|
Incorporated
by reference to our Current Report on Form 8-K, filed May 4,
2007.
|
|
(3)
|
Incorporated
by reference to our Current Report on Form 8-K, filed April 2,
2007.
|
|
(4)
|
Incorporated
by reference to our Current Report on Form 8-K, filed August 28,
2007.
|
|
(5)
|
Incorporated
by reference to our Annual Report on Form 10-K for the year ended December
31, 2006, filed March 26, 2007.
|
|
(6)
|
Filed
herewith.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 14(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.
|
|
|
|
|
|
LIGHTSPACE
CORPORATION
|
|
|
|
|
Date:
April 1, 2008
|
By:
|
/s/
GARY FLORINDO
|
|
|
Gary
Florindo
President
and
Chief
Executive Officer
|
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 in the
capacities and on the dates indicated.
|
|
|
|
|
Date:
April 1, 2008
|
By:
|
/s/
GARY FLORINDO
|
|
|
Gary
Florindo
President
and
Chief
Executive Officer
|
|
|
|
|
|
|
By:
|
|
|
|
Louis
P. Nunes
Chief
Financial Officer and
Chief
Accounting Officer
|
Lightspace (CE) (USOTC:LGTS)
過去 株価チャート
から 6 2024 まで 7 2024
Lightspace (CE) (USOTC:LGTS)
過去 株価チャート
から 7 2023 まで 7 2024
