|
x
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
(State
or other jurisdiction of incorporation
or
organization)
|
95-4439334
(I.R.S.
Employer Identification No.)
|
|
4505
Emperor Blvd., Ste. 320
Durham,
North Carolina
(Address
of principal executive offices)
|
27703
(Zip
Code)
|
Title
of each class
|
Name
of each exchange on which registered
|
|
N/A
|
N/A
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
x
|
PART
I
|
3
|
||
Item
1.
|
Business
|
3
|
|
Item
1A.
|
Risk
Factors
|
9
|
|
Item
1B.
|
Unresolved
Staff Comments
|
15
|
|
Item
2.
|
Properties
|
15
|
|
Item
3.
|
Legal
Proceedings
|
15
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
15
|
|
PART
II
|
15
|
||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and
Issuer
|
||
Purchases
of Equity Securities
|
15
|
||
Item
6.
|
Selected
Financial Data
|
16
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
32
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
33
|
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
57
|
|
Item
9A.
|
Controls
and Procedures
|
57
|
|
Item
9A(T).
|
Controls
and Procedures
|
57
|
|
Item
9B.
|
Other
Information
|
59
|
|
PART
III
|
59
|
||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
59
|
|
Item
11.
|
Executive
Compensation
|
59
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related
|
||
Stockholder
Matters
|
59
|
||
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
59
|
|
Item
14.
|
Principal
Accounting Fees and Services
|
59
|
|
PART
IV
|
60
|
||
Item
15.
|
Exhibits,
Financial Statement Schedules
|
60
|
|
SIGNATURES
|
64
|
||
EXHIBIT
INDEX
|
65
|
Item 1.
|
Business
|
·
|
SaaS
applications for business management, web marketing, and
e-commerce;
|
·
|
Software
business tools that assist customers in developing written content;
and
|
·
|
Services
that are designed to complement our product offerings and allow us to
create custom business solutions that fit our end users’ and channel
partners’ needs.
|
·
|
Accounting
software applications: NetSuite, Intuit, SAP, Sage, Microsoft, and
others
|
·
|
Human
resource software applications: ADP, Sage, and
others
|
·
|
SFA/CRM
applications: Microsoft, Sage, salesforce.com, NetSuite, and
others
|
·
|
e-Commerce
solutions: Register.com, GoDaddy.com, 1and1 Internet, eBay’s Storefront,
Yahoo! Store, Microsoft, NetSuite, Intuit, and
others
|
Doron
Roethler
Chairman
of the Board and Interim President and Chief Executive Officer; Managing
Director of TMF Airmarine BV, an independent aviation spare parts
company
|
Shlomo
Elia
Director
of 3Pen Ltd., a private holding company focusing on business opportunities
in Internet infrastructure and telecommunications
|
|
Roberta
B. Hardy
Managing
partner of Silk Road Partners, LLC, a “Mentor Capital” firm providing
guidance to early stage companies and exit strategies for later stage
companies; Chairman of A Million Dreams Across America, a non-profit
organization that provides intensive training for entrepreneurs; and
Chairman of Atlantis Group, LLC, an angel investment
group
|
C.
James Meese, Jr.
President
of Business Development Associates, Inc., a strategic advisory firm that
consults with middle market companies on acquisitions, divestitures,
valuations and corporate governance.
|
Dror
Zoreff
President
and CEO of Donor Management Services, Inc., a New York-based company that
provides major donors, corporations, and foundations a unique set of tools
and services to ensure their charitable gifts are properly used and
achieve the desired
impact
|
Doron
Roethler
Interim
President and Chief Executive Officer
|
Neile
King
Chief
Operating Officer and Vice President, Sales and
Marketing
|
Timothy
Krist
Chief
Financial Officer
|
ITEM
1A.
|
Risk
Factors
|
Item 1B.
|
Unresolved
Staff Comments
|
Item 2.
|
Properties
|
Item 3.
|
Legal
Proceedings
|
Item 4.
|
Submission
of Matters to a Vote of Security
Holders
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
High
|
Low
|
|||||||
Year
Ended December 31, 2007:
|
||||||||
First
Quarter
|
$ | 3.00 | $ | 1.95 | ||||
Second
Quarter
|
$ | 2.95 | $ | 1.85 | ||||
Third
Quarter
|
$ | 2.83 | $ | 0.55 | ||||
Fourth
Quarter
|
$ | 2.80 | $ | 1.50 | ||||
Year
Ended December 31, 2008:
|
||||||||
First
Quarter
|
$ | 2.60 | $ | 1.65 | ||||
Second
Quarter
|
$ | 3.40 | $ | 1.32 | ||||
Third
Quarter
|
$ | 3.30 | $ | 1.95 | ||||
Fourth
Quarter
|
$ | 3.15 | $ | 1.50 |
Period
|
Total
Number of
Shares
Purchased
(1)
|
|
Average
Price
Paid Per
Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
|
Maximum
Number of
Shares That May
Yet Be Purchased
Under the Plans
or
Programs
|
||
October
1 – October 31, 2008
|
-
|
|
$
|
-
|
|
-
|
-
|
|
November
1 – November 30, 2008
|
-
|
|
$
|
-
|
|
-
|
-
|
|
December
1 – December 31, 2008
|
122
|
$
|
2.55
|
-
|
-
|
|||
Total
|
122
|
|
$
|
2.55
|
|
-
|
-
|
(1)
|
Represents shares
repurchased in connection with tax withholding obligations under the
Company’s 2004 Equity Compensation
Plan.
|
Item
6.
|
Selected
Financial Data
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
·
|
Subscription
fees – monthly fees charged to customers for access to our SaaS
applications
|
|
·
|
Professional
service fees – fees related to consulting services, some of which
complement our other products and
applications
|
|
·
|
License
fees – fees charged for perpetual or term licensing of platforms or
applications
|
|
·
|
Other
revenues – revenues generated from non-core activities such as hosting and
maintenance fees; syndication and integration fees; original
equipment manufacturer, or OEM, contracts; and miscellaneous other
revenues
|
·
|
Our
total revenues for the year were $4.9 million, a decrease from 2007 of
$65,000, or 1%. This overall decrease in revenues was primarily
attributable to decreases in subscription fees and license fees, offset in
part by increases in professional service fees and other
revenue.
|
·
|
Our
gross profit for the year was $4.0 million, a decrease from 2007 of
$391,000, or 9%. This decline was primarily attributable to lower revenue,
but it was also impacted by higher costs incurred in connection with
supporting several new customers acquired in the latter part of 2007 and
first part of 2008 as well as a higher turnover rate of members of
existing direct-selling organization
customers.
|
·
|
Operating
expenses for the year were $13.7 million, an increase over 2007 of $4.1
million, or 44%. A significant portion of this increase was a loss on
impairment of intangible assets of $3.5 million that we recognized in
2008. The remaining increase was in sales and marketing expenses, as a
result of revenue-share arrangements with new customers and as we began to
turn our attention towards marketing our new and enhanced products;
and in research and development expenses, as we worked in 2008 to
enhance our product offerings.
|
·
|
Our
loss from operations for the year was $9.6 million, an increase over 2007
of $4.5 million, or 89%. This amount includes the effect of the loss on
impairment of intangible assets of $3.5 million discussed above. Net loss
per basic and fully diluted share was $0.54 in 2008 compared to $0.32 in
2007.
|
·
|
Cash
and cash equivalents at December 31, 2008 were $19,000 compared to $3.5
million at December 31, 2007. The primary reason for this decrease is that
in 2008, we established automated sweeps among our banking accounts
whereby all available cash at the end of each day is used to pay down our
line of credit, the purpose of which is to reduce our interest
expense.
|
·
|
In
the third quarter of 2008, we began capitalizing the costs associated with
our new industry-standard platform and expect to launch the first release
in the first half of 2009.
|
·
|
We
made significant investments in our server infrastructure to support the
launch of our new industry-standard platform, including the ability to
host up to 250,000 concurrent
users.
|
·
|
We
closed our Grand Rapids, Michigan facility and consolidated all operations
in our Durham, North Carolina headquarters. We also concluded an upstream
merger that dissolves our wholly owned subsidiaries, Smart Commerce and
Smart CRM.
|
·
|
Investment in technology,
product development, and infrastructure
.
We plan to
complete and launch the first release of our new industry-standard
platform in 2009 along with enhanced versions of our business tools and
applications. In addition, we expect to continue investing in our
production server infrastructure to ensure scalability and reliability
through load balancing and redundancy as users are
added.
|
·
|
Investment in
marketing
.
In the latter
part of 2008, we began to shift our focus from development to sales and
marketing of our products. We expect to increase this effort dramatically
in 2009 through public relations, attendance at trade shows, print and
electronic advertisements, e-mail marketing, white-paper placement,
webcasts, blogging, and paid search, among other
tactics.
|
·
|
Expansion of our sales
channels
.
We intend to
expand our sales force and channel partner relationships to reach more
small-business end users.
|
·
|
Continuation of operating
improvements
.
We continue to
streamline our operations in an effort to reduce cash burn, reach
profitability, and improve efficiencies. Some of these successes came near
the end of 2008, but we will continue to focus on this critical area in
2009 by questioning current practices, closely scrutinizing
actual-to-budget variances to identify deviations early, and realigning
the business as required to meet the needs of our
operations.
|
2008
|
2007
|
|||||||||||||||
Dollars
|
%
of
Revenue
|
Dollars
|
%
of
Revenue
|
|||||||||||||
Total
revenues
|
$ | 4,872,985 | 100.0 | % | $ | 4,937,654 | 100.0 | % | ||||||||
Cost
of revenues
|
837,789 | 17.2 | % | 511,619 | 10.4 | % | ||||||||||
Gross
profit
|
$ | 4,035,196 | 82.8 | % | $ | 4,426,035 | 89.6 | % | ||||||||
Operating
expenses
|
13,653,175 | 280.2 | % | 9,512,581 | 192.6 | % | ||||||||||
Loss
from operations
|
$ | (9,617,979 | ) | (197.4 | )% | $ | (5,086,546 | ) | (103.0 | )% | ||||||
Other
income (expense), net
|
(204,171 | ) | (4.2 | )% | (420,080 | ) | (8.5 | )% | ||||||||
Net
loss
|
$ | (9,822,150 | ) | (201.6 | )% | $ | (5,506,626 | ) | (111.5 | )% | ||||||
Net
loss per common share
|
$ | (0.54 | ) | $ | (0.32 | ) |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Subscription
fees
|
$ | 2,683,770 | $ | 2,829,343 | $ | (145,573 | ) | (5 | )% | |||||||
Professional
service fees
|
2,045,508 | 1,436,770 | 608,738 | 42 | % | |||||||||||
License
fees
|
26,250 | 580,000 | (553,750 | ) | (95 | )% | ||||||||||
Other
revenue
|
117,457 | 91,541 | 25,916 | 28 | % | |||||||||||
Total
revenues
|
$ | 4,872,985 | $ | 4,937,654 | $ | (64,669 | ) | (1 | )% |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Subscription
fees
|
$ | 2,683,770 | $ | 2,829,343 | $ | (145,573 | ) | (5 | )% | |||||||
Percent
of total revenues
|
55.1 | % | 57.3 | % |
Years Ended December 31, | Year-Over-Year Change | |||||||||||||||
2008
|
2007
|
Dollars |
Percent
|
|||||||||||||
Professional
service fees
|
$ | 2,045,508 | $ | 1,436,770 | $ | 608,738 | 42 | % | ||||||||
Percent
of total revenues
|
42.0 | % | 29.1 | % |
Years Ended December 31, | Year-Over-Year Change | |||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
License
fees
|
$ | 26,250 | $ | 580,000 | $ | (553,750 | ) | (95 | )% | |||||||
Percent
of total revenues
|
0.5 | % | 11.7 | % |
Years Ended December 31, | Year-Over-Year Change | |||||||||||||||
2008 | 2007 | Dollars | Percent | |||||||||||||
Other
revenue
|
$ | 117,457 | $ | 91,541 | $ | 25,916 | 28 | % | ||||||||
Percent
of total revenues
|
2.4 | % | 1.9 | % |
Years Ended December 31, | Year-Over-Year Change | |||||||||||||||
2008 | 2007 | Dollars | Percent | |||||||||||||
Cost
of revenues
|
$ | 837,789 | $ | 511,619 | $ | 326,170 | 64 | % | ||||||||
Percent
of total revenues
|
17.2 | % | 10.4 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
General
and administrative
|
$ | 4,815,404 | $ | 4,896,928 | $ | (81,524 | ) | (2 | )% | |||||||
Sales
and marketing
|
2,739,595 | 2,118,245 | 621,350 | 29 | % | |||||||||||
Research
and development
|
2,626,034 | 2,497,408 | 128,626 | 5 | % | |||||||||||
Loss
on impairment of intangible assets
|
3,472,142 | - | 3,472,142 | - | ||||||||||||
Total
operating expenses
|
$ | 13,653,175 | $ | 9,512,581 | $ | 4,140,595 | 44 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
General
and administrative
|
$ | 4,815,404 | $ | 4,896,928 | $ | (81,524 | ) | (2 | )% | |||||||
Percent
of total revenues
|
98.8 | % | 99.2 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Sales
and marketing
|
$ | 2,739,595 | $ | 2,118,245 | $ | 621,350 | 29 | % | ||||||||
Percent
of total revenues
|
56.2 | % | 42.9 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Research
and development
|
$ | 2,626,034 | $ | 2,497,408 | $ | 128,626 | 5 | % | ||||||||
Percent
of total revenues
|
53.9 | % | 50.6 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Loss
on impairment of intangible assets
|
$ | 3,472,142 | $ | - | $ | 3,472,142 | - | |||||||||
Percent
of total revenues
|
71.3 | % | 0.0 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Interest
expense, net
|
$ | (633,014 | ) | $ | (569,975 | ) | $ | 63,039 | 11 | % | ||||||
Legal
reserve and debt forgiveness, net
|
- | (34,877 | ) | (34,877 | ) | (100 | )% | |||||||||
Gain
on legal settlements, net
|
411,710 | - | 411,710 | - | ||||||||||||
Other
income
|
17,133 | 184,772 | (167,639 | ) | (91 | )% | ||||||||||
Total
other expense
|
$ | (204,171 | ) | $ | (420,080 | ) | $ | (215,909 | ) | (51 | )% |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Interest
expense, net
|
$ | 633,014 | $ | 569,975 | $ | 63,039 | 11 | % | ||||||||
Percent
of total revenues
|
13.0 | % | 11.5 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Gain
on legal settlements, net
|
$ | 411,710 | $ | - | $ | 411,710 | - | |||||||||
Percent
of total revenues
|
8.4 | % | 0.0 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Other
income
|
$ | 17,133 | $ | 184,772 | $ | (167,639 | ) | (91 | )% | |||||||
Percent
of total revenues
|
0.4 | % | 3.7 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Net
cash used in operating activities
|
$ | 5,041,255 | $ | 4,298,510 | $ | 742,745 | 17 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Net
cash used in investing activities
|
$ | 578,405 | $ | 79,553 | $ | 498,852 | 627 | % |
Years
Ended December 31,
|
Year-Over-Year
Change
|
|||||||||||||||
2008
|
2007
|
Dollars
|
Percent
|
|||||||||||||
Net
cash provided by financing activities
|
$ | 2,164,301 | $ | 7,525,117 | $ | (5,360,816 | ) | (71 | )% |
·
|
convert
the principal then outstanding on its notes into shares of our common
stock, or
|
·
|
receive
immediate repayment in cash of the notes, including any accrued and unpaid
interest.
|
·
|
issued
in the initial closing on November 14, 2007 shall be $3.05;
and
|
·
|
issued
on August 12, 2008 and November 21, 2008 shall be the lower of $3.05 or
120% multiplied by the average of the closing bid and asked prices of
shares of our common stock quoted in the Over-The-Counter Market Summary
(or, if our shares are traded on the Nasdaq Stock Market or another
exchange, the closing price of shares of our common stock quoted on such
exchange) averaged over five trading days prior to the closing date of the
sale of such notes.
|
·
|
the
average of the high and low prices of our common stock on the OTCBB
averaged over the five trading days prior to the closing date of the
issuance of such note;
|
·
|
if
our common stock is not traded on the Over-The-Counter market, the closing
price of the common stock reported on the Nasdaq National Market or the
principal exchange on which the common stock is listed, averaged over the
five trading days prior to the closing date of the issuance of such note;
or
|
·
|
the
closing price of our common stock on the OTCBB, the Nasdaq National Market
or the principal exchange on which the common stock is listed, as
applicable, on the trading day immediately preceding the date such note is
converted, in each case as adjusted for stock splits, dividends or
combinations, recapitalizations or similar
events.
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
Item
8.
|
Financial
Statements and Supplementary Data
|
Page
|
|
REPORT
OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
|
34
|
CONSOLIDATED
BALANCE SHEETS
|
35
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
36
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
37
|
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS’
EQUITY (DEFICIT)
|
38
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
39
|
December 31,
2008
|
December 31,
2007
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 18,602 | $ | 3,473,959 | ||||
Accounts
receivable, net
|
184,930 | 815,102 | ||||||
Note
receivable
|
60,000 | 55,000 | ||||||
Prepaid
expenses
|
289,372 | 90,886 | ||||||
Deferred
financing costs
|
- | 301,249 | ||||||
Total
current assets
|
552,904 | 4,736,196 | ||||||
Property
and equipment, net
|
365,993 | 174,619 | ||||||
Capitalized
software, net
|
261,221 | - | ||||||
Note
receivable, non-current
|
372,317 | 225,000 | ||||||
Prepaid
expenses, non-current
|
258,301 | - | ||||||
Intangible
assets, net
|
1,410,245 | 2,882,055 | ||||||
Goodwill
|
- | 2,696,642 | ||||||
Other
assets
|
1,736 | 60,311 | ||||||
TOTAL
ASSETS
|
$ | 3,222,717 | $ | 10,774,823 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 398,237 | $ | 628,370 | ||||
Notes
payable
|
2,341,177 | 2,287,682 | ||||||
Deferred
revenue
|
323,976 | 329,805 | ||||||
Accrued
liabilities
|
478,917 | 603,338 | ||||||
Total
current liabilities
|
3,542,307 | 3,849,195 | ||||||
Long-term
liabilities:
|
||||||||
Notes
payable
|
5,327,211 | 3,313,903 | ||||||
Deferred
revenue
|
67,353 | 247,312 | ||||||
Total
long-term liabilities
|
5,394,564 | 3,561,215 | ||||||
Total
liabilities
|
8,936,871 | 7,410,410 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity (deficit):
|
||||||||
Common
stock, $0.001 par value, 45,000,000 shares authorized, 18,333,601 and
18,159,768 shares issued and outstanding at December 31, 2008 and December
31, 2007, respectively
|
18,334 | 18,160 | ||||||
Additional
paid-in capital
|
66,945,588 | 66,202,179 | ||||||
Accumulated
deficit
|
(72,678,076 | ) | (62,855,926 | ) | ||||
Total
stockholders’ equity (deficit)
|
(5,714,154 | ) | 3,364,413 | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
$ | 3,222,717 | $ | 10,774,823 |
Year Ended
December 31,
2008
|
Year Ended
December 31,
2007
|
|||||||
REVENUES:
|
||||||||
Subscription
fees
|
$ | 2,683,770 | $ | 2,829,343 | ||||
Professional
service fees
|
2,045,508 | 1,436,770 | ||||||
License
fees
|
26,250 | 580,000 | ||||||
Other
revenue
|
117,457 | 91,541 | ||||||
Total
revenues
|
4,872,985 | 4,937,654 | ||||||
COST
OF REVENUES
|
837,789 | 511,619 | ||||||
GROSS
PROFIT
|
4,035,196 | 4,426,035 | ||||||
OPERATING
EXPENSES:
|
||||||||
General
and administrative
|
4,815,405 | 4,896,928 | ||||||
Sales
and marketing
|
2,739,595 | 2,118,245 | ||||||
Research
and development
|
2,626,034 | 2,497,408 | ||||||
Loss
on impairment of intangible assets
|
3,472,141 | - | ||||||
Total
operating expenses
|
13,653,175 | 9,512,581 | ||||||
LOSS
FROM OPERATIONS
|
(9,617,979 | ) | (5,086,546 | ) | ||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest
expense, net
|
(633,014 | ) | (569,975 | ) | ||||
Legal
reserve and debt forgiveness, net
|
- | (34,877 | ) | |||||
Gain
on legal settlements, net
|
411,710 | - | ||||||
Other
income
|
17,133 | 184,772 | ||||||
Total
other expense
|
(204,171 | ) | (420,080 | ) | ||||
NET
LOSS
|
$ | (9,822,150 | ) | $ | (5,506,626 | ) | ||
NET
LOSS PER COMMON SHARE:
|
||||||||
Basic
and fully diluted
|
$ | (0.54 | ) | $ | (0.32 | ) | ||
WEIGHTED-AVERAGE
NUMBER OF SHARES USED IN COMPUTING NET LOSS PER COMMON
SHARE:
|
||||||||
Basic
and fully diluted
|
18,309,771 | 17,046,608 |
Year Ended
December 31,
2008
|
Year Ended
December 31,
2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (9,822,150 | ) | $ | (5,506,626 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
825,846 | 841,625 | ||||||
Amortization
of deferred financing costs
|
301,249 | 433,054 | ||||||
Provision
for accounts and contract receivable allowances
|
430,505 | - | ||||||
Equity-based
compensation
|
424,513 | 548,368 | ||||||
Registration
rights penalty
|
- | (62,376 | ) | |||||
Accrual
for loss on legal settlements
|
- | 250,000 | ||||||
Gain
on debt forgiveness
|
- | (215,123 | ) | |||||
Gain
on disposal of assets
|
(3,729 | ) | - | |||||
Loss
on impairment of intangible assets
|
3,472,142 | - | ||||||
Changes
in assets and liabilities:
|
||||||||
Accounts
receivable
|
199,667 | (567,483 | ) | |||||
Notes
receivable
|
(152,317 | ) | (280,000 | ) | ||||
Prepaid
expenses
|
(456,787 | ) | 10,081 | |||||
Other
assets
|
58,575 | (47,271 | ) | |||||
Accounts
payable
|
(230,133 | ) | (8,444 | ) | ||||
Deferred
revenue
|
(185,788 | ) | 252,089 | |||||
Accrued
and other expenses
|
97,152 | 53,596 | ||||||
Net
cash used in operating activities
|
(5,041,255 | ) | (4,298,510 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property and equipment
|
(330,748 | ) | (77,520 | ) | ||||
Purchase
of trade name
|
- | (2,033 | ) | |||||
Proceeds
from sale of furniture and equipment
|
13,564 | - | ||||||
Capitalized
software
|
(261,221 | ) | - | |||||
Net
cash used in investing activities
|
(578,405 | ) | (79,553 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from debt borrowings
|
8,780,303 | 4,750,000 | ||||||
Repayments
of debt borrowings
|
(6,713,500 | ) | (2,834,272 | ) | ||||
Restricted
cash
|
- | 250,000 | ||||||
Issuance
of common stock, net of costs
|
97,500 | 5,359,389 | ||||||
Net
cash provided by financing activities
|
2,164,303 | 7,525,117 | ||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(3,455,357 | ) | 3,147,054 | |||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
3,473,959 | 326,905 | ||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 18,602 | $ | 3,473,959 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | 360,692 | $ | 302,627 | ||||
Taxes
|
$ | 40,367 | $ | - | ||||
Supplemental
schedule of non-cash financing activities:
|
||||||||
Conversion
of debt to equity
|
$ | 228,546 | $ | - | ||||
Assets
acquired under capital lease
|
$ | 48,214 | $ | 23,949 | ||||
Shares
issued in settlement of notes payable
|
$ | - | $ | 129,311 |
Common
Stock
|
Additional
|
|||||||||||||||||||
Shares
|
$0.001
Par Value
|
Paid-In
Capital
|
Accumulated
Deficit
|
Totals
|
||||||||||||||||
BALANCES,
DECEMBER
31, 2006
|
$ | 15,379,030 | 15,379 | $ | 59,159,919 | $ | (57,349,300 | ) | $ | 1,825,998 | ||||||||||
Exercise
of options
|
55,204 | 55 | 25,945 | - | 26,000 | |||||||||||||||
Issuance
of common stock, net of expenses
|
2,352,941 | 2,353 | 5,331,035 | - | 5,333,388 | |||||||||||||||
Registration
rights share issuances and settlements
|
83,093 | 83 | 402,899 | - | 402,982 | |||||||||||||||
Equity-based
compensation
|
289,500 | 290 | 548,078 | - | 548,368 | |||||||||||||||
Issuance
of warrants
|
- | - | 734,303 | - | 734,303 | |||||||||||||||
Net
loss
|
(5,506,626 | ) | (5,506,626 | ) | ||||||||||||||||
BALANCES,
DECEMBER
31, 2007
|
$ | 18,159,768 | 18,160 | $ | 66,202,179 | $ | (62,855,926 | ) | $ | 3,364,413 | ||||||||||
Exercise
of options
|
206,069 | 206 | 97,294 | - | 97,500 | |||||||||||||||
Issuance
of common stock, net of expenses
|
19,608 | 20 | 228,527 | - | 228,547 | |||||||||||||||
Equity-based
compensation
|
70,000 | 70 | 424,443 | - | 424,513 | |||||||||||||||
Cancellations
of unvested restricted share issuances and forfeitures for payment of tax
obligations
|
(121,844 | ) | (122 | ) | (6,855 | ) | - | (6,977 | ) | |||||||||||
Net
loss
|
(9,822,150 | ) | (9,822,150 | ) | ||||||||||||||||
BALANCES,
DECEMBER
31, 2008
|
$ | 18,333,601 | 18,334 | $ | 66,945,588 | $ | (72,678,076 | ) | $ | (5,714,154 | ) |
1.
|
SUMMARY
OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
|
Computer
hardware
|
3
years
|
Computer
software
|
3
years
|
Furniture
and fixtures
|
7
years
|
Office
equipment
|
5
years
|
Leasehold
improvements
|
Shorter
of the estimated useful life or the lease term
|
Automobiles
|
5
years
|
Year Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Dividend
yield
|
0.0 | % | 0.0 | % | ||||
Expected
volatility
|
46 | % | 63 | % | ||||
Risk-free
interest rate
|
4.41 | % | 3.45 | % | ||||
Expected
lives (years)
|
4.3 | 4.6 |
2.
|
SEGMENT
INFORMATION
|
3.
|
BALANCE
SHEET ACCOUNTS
|
·
|
Subscription fees
–
Short-term and
long-term portions of cash received related to one- or two-year
subscriptions for domain names and/or e-mail
accounts.
|
·
|
License fees
–
Licensing revenue
where customers did not meet all the criteria of SOP 97-2. Such deferred
revenue will be recognized when delivery has occurred or collectibility
becomes probable.
|
·
|
Professional
service
fees
–
A
customer that purchased a license and paid professional service fees
during 2008 and 2007 to develop a customized application decided in the
latter part of 2008 to move the application to the Company’s new
technology platform. In connection with this new arrangement, the customer
desires customization beyond the original scope of the project and will
also be responsible for a monthly fee to maintain the application starting
in the second quarter of 2009. This deferred revenue represents the
difference between earned fees and unearned license and professional
service fees that will be recognized as professional service fees revenue
in 2009.
|
December 31,
2008
|
December 31,
2007
|
|||||||
Subscription
fees
|
$ | 89,852 | $ | 197,117 | ||||
License
fees
|
108,750 | 380,000 | ||||||
Professional
service fees
|
192,727 | - | ||||||
Totals
|
$ | 391,329 | $ | 577,117 | ||||
Current
portion
|
$ | 323,976 | $ | 329,805 | ||||
Non-current
portion
|
67,353 | 247,312 | ||||||
Totals
|
$ | 391,329 | $ | 577,117 |
4.
|
PROPERTY
AND EQUIPMENT AND CAPITALIZED
SOFTWARE
|
December 31,
2008
|
December 31,
2007
|
|||||||
Computer
hardware
|
$ | 1,182,513 | $ | 822,341 | ||||
Computer
software
|
480,262 | 583,724 | ||||||
Furniture
and fixtures
|
115,167 | 15,386 | ||||||
Office
equipment
|
68,850 | 114,384 | ||||||
Leasehold
improvements
|
52,994 | - | ||||||
Automobiles
|
- | 29,504 | ||||||
1,899,786 | 1,565,339 | |||||||
Less
accumulated depreciation
|
(1,533,793 | ) | (1,390,720 | ) | ||||
Property
and equipment, net
|
$ | 365,993 | $ | 174,619 |
December 31,
2008
|
December 31,
2007
|
|||||||
Capitalized
software
|
$ | 261,221 | $ | - | ||||
Less
accumulated amortization
|
- | - | ||||||
Capitalized
software, net
|
$ | 261,221 | $ | - |
5.
|
INTANGIBLE
ASSETS
|
Asset Category
|
Value
Assigned
|
Residual
Value
|
Weighted
Average
Amortization
Period
(in Years)
|
Impairments
|
Accumulated
Amortization
|
Carrying
Value (Net of
Impairments)
|
||||||||||||||||||
Customer
bases
|
$ | 1,944,347 | $ | - | 6.2 | $ | - | $ | 1,076,740 | $ | 867,607 | |||||||||||||
Acquired
technology
|
501,264 | - | 3 | - | 501,264 | - | ||||||||||||||||||
Non-compete
agreement
|
801,785 | - | 4 | - | 643,098 | 158,687 | ||||||||||||||||||
Trademarks
and copyrights
|
52,372 | - | 9.7 | - | 48,421 | 3,951 | ||||||||||||||||||
Trade
name
|
1,155,500 | N/A | N/A | (775,500 | ) | N/A | 380,000 | |||||||||||||||||
Goodwill
and workforce
|
2,696,642 | N/A | N/A | (2,696,642 | ) | N/A | - | |||||||||||||||||
Totals
|
$ | 7,151,910 | $ | - | $ | (3,472,142 | ) | $ | 2,269,523 | $ | 1,410,245 |
Asset Category
|
Value
Assigned
|
Residual
Value
|
Weighted
Average
Amortization
Period
(in Years)
|
Impairments
|
Accumulated
Amortization
|
Carrying
Value (Net of
Impairments)
|
||||||||||||||||||
Customer
bases
|
$ | 1,944,347 | $ | - | 6.2 | $ | - | $ | 741,130 | $ | 1,203,217 | |||||||||||||
Acquired
technology
|
501,264 | - | 3 | - | 368,986 | 132,278 | ||||||||||||||||||
Non-compete
agreements
|
891,785 | - | 4 | - | 510,152 | 381,633 | ||||||||||||||||||
Trademarks
and copyrights
|
52,372 | - | 9.7 | - | 42,945 | 9,427 | ||||||||||||||||||
Trade
name
|
1,155,500 | N/A | N/A | - | N/A | 1,155,500 | ||||||||||||||||||
Goodwill
and workforce
|
2,696,642 | N/A | N/A | - | N/A | 2,696,642 | ||||||||||||||||||
Totals
|
$ | 7,241,910 | $ | - | $ | - | $ | 1,663,213 | $ | 5,578,697 |
6.
|
NOTES
PAYABLE
|
|
·
|
convert
the principal then outstanding on its notes into shares of the Company’s
common stock, or
|
|
·
|
receive
immediate repayment in cash of the notes, including any accrued and unpaid
interest.
|
|
·
|
issued
in the initial closing on November 14, 2007 shall be $3.05;
and
|
|
·
|
issued
on August 12, 2008 and November 21, 2008 shall be the lower of $3.05 or
120% multiplied by the average of the closing bid and asked prices of
shares of the Company’s common stock quoted in the Over-The-Counter Market
Summary (or, if the Company’s shares are traded on the Nasdaq Stock Market
or another exchange, the closing price of shares of the Company’s common
stock quoted on such exchange) averaged over five trading days prior to
the closing date of the sale of such
notes.
|
Note Description
|
Short-Term
Portion
|
Long-Term
Portion
|
Total
|
Maturity
|
Rate
|
||||||||||||
Paragon
Commercial Bank credit line
|
$ | 2,272,118 | $ | - | $ | 2,272,118 |
Feb
2009
|
Prime less 0.5%
|
|||||||||
Insurance
premium note
|
42,753 | - | 42,753 |
Jul
2009
|
6.1 | % | |||||||||||
Various
capital leases
|
26,306 | 27,211 | 53,517 |
Various
|
10.7-18.9 | % | |||||||||||
Convertible
notes
|
- | 5,300,000 | 5,300,000 |
Nov
2010
|
8.0 | % | |||||||||||
Totals
|
$ | 2,341,177 | $ | 5,327,211 | $ | 7,668,388 |
Note Description
|
Short-Term
Portion
|
Long-Term
Portion
|
Total
|
Maturity
|
Rate
|
||||||||||||
Wachovia
Bank credit line
|
$ | 2,052,000 | $ | - | $ | 2,052,000 |
Aug 2008
|
LIBOR plus 0.9%
|
|||||||||
Acquisition
fee-iMart
|
209,179 | - | 209,179 |
Oct
2007
|
8.0 | % | |||||||||||
Acquisition
fee-Computility
|
19,182 | - | 19,182 |
Mar
2007
|
8.0 | % | |||||||||||
Capital
lease
|
7,321 | 13,903 | 21,224 |
Jun
2010
|
18.9 | % | |||||||||||
Convertible
notes
|
- | 3,300,000 | 3,300,000 |
Nov
2010
|
8.0 | % | |||||||||||
Totals
|
$ | 2,287,682 | $ | 3,313,903 | $ | 5,601,585 |
7.
|
COMMITMENTS
AND CONTINGENCIES
|
8.
|
STOCKHOLDERS’
EQUITY
|
Shares
|
Weighted
Average
Exercise Price
|
|||||||
BALANCE,
December 31, 2006
|
2,360,100 | $ | 5.33 | |||||
Granted
|
20,000 | 2.80 | ||||||
Exercised
|
(95,000 | ) | 1.30 | |||||
Canceled
|
(640,800 | ) | 5.98 | |||||
BALANCE,
December 31, 2007
|
1,644,300 | 5.07 | ||||||
Granted
|
35,000 | 3.19 | ||||||
Exercised
|
(325,000 | ) | 1.40 | |||||
Canceled
|
(1,083,050 | ) | 5.90 | |||||
BALANCE,
December 31, 2008
|
271,250 | $ | 5.89 |
Currently Exercisable
|
||||||||||||||||||||
Exercise Price
|
Number of
Options
Outstanding
|
Average
Remaining
Contractual
Life (Years)
|
Weighted
Average
Exercise
Price
|
Number of
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||||||
From
$2.50 to $3.50
|
98,750 | 5.6 | $ | 3.20 | 77,500 | $ | 3.19 | |||||||||||||
$5.00
|
25,000 | 6.3 | $ | 5.00 | 15,000 | $ | 5.00 | |||||||||||||
$7.00
|
75,000 | 6.8 | $ | 7.00 | 75,000 | $ | 7.00 | |||||||||||||
From
$8.61 to $9.00
|
72,300 | 3.1 | $ | 8.71 | 57,300 | $ | 8.69 | |||||||||||||
$9.60
|
200 | 6.7 | $ | 9.60 | 120 | $ | 9.60 | |||||||||||||
Totals
|
271,250 | 5.3 | $ | 5.89 | 224,920 | $ | 5.99 |
Shares
|
Weighted
Average
Exercise Price
|
Weighted
Average Fair
Value
|
||||||||||
Exercise
price exceeds market price
|
- | - | - | |||||||||
Exercise
price equals market price
|
35,000 | $ | 3.19 | $ | 0.63 | |||||||
Exercise
price is less than market price
|
- | - | - |
9.
|
INCOME
TAXES
|
December 31,
2008
|
December 31,
2007
|
|||||||
Net
current deferred income tax assets related to:
|
||||||||
Depreciation
|
$ | 319,000 | $ | 295,000 | ||||
Stock-based
expenses
|
226,000 | 226,000 | ||||||
Net
operating loss carryforwards
|
18,385,000 | 15,936,000 | ||||||
Total
|
18,930,000 | 16,457,000 | ||||||
Less
valuation allowance
|
(18,930,000 | ) | (16,457,000 | ) | ||||
Net
current deferred income tax
|
$ | - | $ | - |
Year Ended
December 31,
2008
|
Year Ended
December 31,
2007
|
|||||||
Statutory
federal tax rate
|
34 | % | 34 | % | ||||
Tax
benefit computed at statutory rate
|
$ | (3,340,000 | ) | $ | (1,872,000 | ) | ||
State
income tax benefit, net of federal effect
|
(447,000 | ) | (251,000 | ) | ||||
Change
in valuation allowance
|
2,449,000 | 1,661,000 | ||||||
Permanent
differences:
|
||||||||
SFAS
No. 123R
|
(63,000 | ) | 211,000 | |||||
Intangible
impairment
|
1,339,000 | - | ||||||
Other
permanent differences
|
9,000 | 17,000 | ||||||
Temporary
differences:
|
||||||||
Depreciation
and amortization
|
110,000 | 126,000 | ||||||
Accrued
liabilities
|
(57,000 | ) | 108,000 | |||||
Totals
|
$ | - | $ | - |
10.
|
MAJOR
CUSTOMERS AND CONCENTRATION OF CREDIT
RISK
|
Year Ended December 31, 2008
|
||||||||
Revenue Type
|
Revenues
|
% of Total
Revenues
|
||||||
Customer
A
|
Professional
services
|
|
$
|
1,347,806
|
|
28
|
%
|
|
Customer
B
|
Subscription
fees
|
|
1,347,134
|
|
28
|
%
|
||
Customer
C
|
Subscription
fees
|
1,036,870
|
21
|
%
|
||||
Others
|
Various
|
|
1,141,175
|
|
23
|
%
|
||
Total
|
|
|
$
|
4,872,985
|
|
100
|
%
|
Year Ended December 31, 2007
|
||||||||
Revenue Type
|
Revenues
|
% of Total
Revenues
|
||||||
Customer
A
|
Professional
services
|
|
$
|
1,070,695
|
|
22
|
%
|
|
Customer
B
|
Subscription
fees
|
|
562,578
|
|
11
|
%
|
||
Customer
C
|
Subscription
fees
|
1,205,094
|
24
|
%
|
||||
Others
|
Various
|
|
2,099,287
|
|
43
|
%
|
||
Total
|
|
|
$
|
4,937,654
|
|
100
|
%
|
11.
|
EMPLOYEE
BENEFIT PLAN
|
12.
|
SUBSEQUENT
EVENTS
|
|
·
|
the
average of the high and low prices of the Company's common stock on the
OTC Bulletin Board averaged over the five trading days prior to the
closing date of the issuance of such
note;
|
|
·
|
if
the Company's common stock is not traded on the Over-The-Counter market,
the closing price of the common stock reported on the Nasdaq National
Market or the principal exchange on which the common stock is listed,
averaged over the five trading days prior to the closing date of the
issuance of such note; or
|
|
·
|
the
closing price of the Company's common stock on the OTC Bulletin Board, the
Nasdaq National Market or the principal exchange on which the common stock
is listed, as applicable, on the trading day immediately preceding the
date such note is converted, in each case as adjusted for stock splits,
dividends or combinations, recapitalizations or similar
events.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
Item
9A.
|
Controls
and Procedures
|
Item
9A(T).
|
Controls
and Procedures
|
|
·
|
developed
a new general ledger chart of accounts segregated by department to more
closely align our 2009 budget with actual results and to assign
accountability for expenses to departmental
managers;
|
|
·
|
implemented
a new accounting system that (a) allows assignment by our Chief Financial
Officer of role-specific permission rights, thereby mitigating certain
segregation of duties control weaknesses; and (b) allows the customization
of financial reports to improve the monitoring controls by our executive
management and our Board of
Directors;
|
|
·
|
to
reduce the possibility of fraud, implemented Positive Pay service with our
bank to ensure all checks or other debits that are presented for payment
are approved by us in advance;
|
|
·
|
with
respect to our previously identified controls regarding accrual analysis,
implemented a process by which the Controller prepares all accruals on a
rollforward basis, and the Chief Financial Officer reviews and approves
monthly financial statements prior to release to internal users; and where
applicable, entries to be reversed in the following period are notated as
such in the supporting accounting records;
and
|
|
·
|
with
respect to our previously identified controls regarding journal entries,
implemented a preparation and review process in which all journal entries
must be entered into the accounting system by the Chief Financial Officer
subsequent to his review and
approval.
|
|
(i)
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
(ii)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and
directors; and
|
|
(iii)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Item
9B.
|
Other
Information
|
Item
10.
|
Directors,
Executive Officers and Corporate
Governance
|
Item
11.
|
Executive
Compensation
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Item
14.
|
Principal
Accounting Fees and Services
|
Item
15.
|
Exhibits,
Financial Statement Schedules
|
Exhibit No.
|
Description
|
|
3.1
|
Amended
and Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 to our Registration Statement on Form SB-2, as
filed with the SEC on September 30, 2004)
|
|
3.2
|
Fifth
Amended and Restated Bylaws (incorporated herein by reference to Exhibit
3.1 to our Current Report on Form 8-K, as filed with the SEC on March 25,
2008)
|
|
4.1
|
Specimen
Common Stock Certificate (incorporated herein by reference to Exhibit 4.1
to our Registration Statement on Form SB-2, as filed with the SEC on
September 30, 2004)
|
|
4.2
|
Convertible
Secured Subordinated Note Purchase Agreement, dated November 14, 2007, by
and among Smart Online, Inc. and certain investors (incorporated herein by
reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q, as filed
with the SEC on November 14, 2007)
|
|
4.3
|
Form
of Convertible Secured Subordinated Promissory Note (incorporated herein
by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q, as filed
with the SEC on November 14, 2007)
|
|
4.4
|
First
Amendment to Convertible Secured Subordinated Note Purchase Agreement,
dated August 12, 2008, by and among Smart Online, Inc. and certain
investors (incorporated herein by reference to Exhibit 4.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November 12,
2008)
|
|
4.5
|
Second
Amendment and Agreement to Join as a Party to Convertible Secured
Subordinated Note Purchase Agreement and Registration Rights Agreement,
dated November 21, 2008, by and among Smart Online, Inc. and certain
investors
|
|
4.6
|
Third
Amendment to Convertible Secured Subordinated Note Purchase Agreement and
Registration Rights Agreement and Amendment to Convertible Secured
Subordinated Promissory Notes, dated February 24, 2009, by and among Smart
Online, Inc. and certain investors
|
|
4.7
|
Form
of Convertible Secured Subordinated Promissory Note to be issued post
January 2009
|
|
4.8
|
Commercial
Note dated February 20, 2008, payable by Smart Online, Inc. to Paragon
Commercial Bank (incorporated herein by reference to Exhibit 4.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 13,
2008)
|
|
10.1*
|
2004
Equity Compensation Plan (incorporated herein by reference to Exhibit 10.1
to our Registration Statement on Form SB-2, as filed with the SEC on
September 30, 2004)
|
|
10.2*
|
Form
of Incentive Stock Option Agreement under 2004 Equity Compensation Plan
(incorporated herein by reference to Exhibit 10.2 to our Annual Report on
Form 10-K, as filed with the SEC on July 11,
2006)
|
10.3*
|
Form
of Incentive Stock Option Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.7 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 15,
2007)
|
|
10.4*
|
Form
of Non-Qualified Stock Option Agreement under 2004 Equity Compensation
Plan (incorporated herein by reference to Exhibit 10.3 to our Annual
Report on Form 10-K, as filed with the SEC on July 11,
2006)
|
|
10.5*
|
Form
of Non-Qualified Stock Option Agreement under Smart Online, Inc.’s 2004
Equity Compensation Plan (incorporated herein by reference to Exhibit 10.8
to our Quarterly Report on Form 10-Q, as filed with the SEC on May 15,
2007)
|
|
10.6*
|
Form
of Restricted Stock Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.6 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 15,
2007)
|
|
10.7*
|
Form
of Restricted Stock Award Agreement for Employees (incorporated herein by
reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with
the SEC on August 21, 2007)
|
|
10.8*
|
Form
Restricted Stock Agreement for Employees (incorporated herein by reference
to Exhibit 10.1 to Amendment No. 1 to our Current Report on Form 8-K, as
filed with the SEC on February 11, 2008)
|
|
10.9*
|
Form
of Restricted Stock Agreement (Non-Employee Directors) (incorporated
herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as
filed with the SEC on May 31, 2007)
|
|
10.10*
|
Form
Restricted Stock Agreement (Non-Employee Directors) (incorporated herein
by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed
with the SEC on December 3, 2007)
|
|
10.11*
|
2001
Equity Compensation Plan (terminated as to future grants effective April
15, 2004) incorporated herein by reference to Exhibit 10.2 to our
Registration Statement on Form SB-2, as filed with the SEC on September
30, 2004)
|
|
10.12*
|
1998
Stock Option Plan (terminated as to future grants effective April 15,
2004) (incorporated herein by reference to Exhibit 10.3 to our
Registration Statement on Form SB-2, as filed with the SEC on September
30, 2004)
|
|
10.13*
|
Cash
Bonus Program (incorporated herein by reference to Exhibit 10.4 to our
Current Report on Form 8-K, as filed with the SEC on December 3,
2007)
|
|
10.14*
|
Equity
Award Program (incorporated herein by reference to Exhibit 10.5 to
Amendment No. 1 to our Current Report on Form 8-K, as filed with the SEC
on February 11, 2008)
|
|
10.15*
|
Employment
Agreement, dated April 1, 2004, with Thomas Furr (incorporated herein by
reference to Exhibit 10.14 to our Annual Report on Form 10-K, as filed
with the SEC on March 30, 2007)
|
|
10.16*
|
Amendment,
dated November 9, 2005, to Employment Agreement, dated April 1, 2004, with
Thomas Furr (incorporated herein by reference to Exhibit 10.15 to our
Annual Report on Form 10-K, as filed with the SEC on March 30,
2007)
|
|
10.17*
|
Amendment,
dated August 15, 2007, to Employment Agreement, dated April 1, 2004, with
Thomas Furr (incorporated herein by reference to Exhibit 10.5 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November 14,
2007)
|
|
10.18*
|
Employment
Agreement, dated November 30, 2007, with David E. Colburn (incorporated
herein by reference to Exhibit 10.2 to our Current Report on Form 8-K, as
filed with the SEC on December 3,
2007)
|
10.19*
|
Separation
and General Release Agreement, dated December 9, 2008, with David E.
Colburn (incorporated herein by reference to Exhibit 10.1 to our Current
Report Form 8-K, as filed with the SEC on December 10,
2008)
|
|
10.20*
|
Smart
Online, Inc. Revised Board Compensation Policy, effective February 2, 2007
(incorporated herein by reference to Exhibit 10.45 to our Registration
Statement on Form S-1, as filed with the SEC on April 3,
2007)
|
|
10.21*
|
Smart
Online, Inc. Revised Board Compensation Policy, effective April 1,
2009
|
|
10.22*
|
Indemnification
Agreement, dated April 14, 2006, by and between Smart Online, Inc. and Tom
Furr (incorporated herein by reference to Exhibit 10.44 to our Annual
Report on Form 10-K, as filed with the SEC on July 11,
2006)
|
|
10.23
|
Stock
Purchase Warrant and Agreement, dated January 15, 2007, by and between
Smart Online, Inc. and Atlas Capital, SA (incorporated herein by reference
to Exhibit 10.44 to our Registration Statement on Form S-1, as filed with
the SEC on April 3, 2007)
|
|
10.24
|
Amendment
No. 1 to Stock Purchase Warrant and Agreement, effective February 20,
2008, by and between Smart Online, Inc. and Atlas Capital SA (incorporated
herein by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q,
as filed with the SEC on May 13, 2008)
|
|
10.25
|
Form
of Securities Purchase Agreement, Registration Rights Agreement, and
Warrant to Purchase Common Stock of Smart Online, Inc., dated February 21,
2007, by and between Smart Online, Inc. and each of Magnetar Capital
Master Fund, Ltd. and Herald Investment Management Limited on behalf of
Herald Investment Trust PLC (incorporated herein by reference to Exhibit
10.46 to our Registration Statement on Form S-1, as filed with the SEC on
April 3, 2007)
|
|
10.26
|
Form
of Amendment to Registration Rights Agreement, dated March 26, 2007, by
and between Smart Online, Inc. and each of Magnetar Capital Master Fund,
Ltd. and Herald Investment Management Limited on behalf of Herald
Investment Trust PLC ( incorporated herein by reference to Exhibit 10.54
to Amendment No. 3 to our Registration Statement on Form S-1, as filed
with the SEC on July 31, 2007)
|
|
10.27
|
Form
of Amendment to Registration Rights Agreement, dated July 2, 2007, by and
between Smart Online, Inc. and each of Magnetar Capital Master Fund, Ltd.
and Herald Investment Management Limited on behalf of Herald Investment
Trust PLC (incorporated herein by reference to Exhibit 10.55 to Amendment
No. 3 to our Registration Statement on Form S-1, as filed with the SEC on
July 31, 2007)
|
|
10.28
|
Warrant
to Purchase Common Stock of Smart Online, Inc., and Registration Rights
Agreement, dated February 27, 2007, by and between Smart Online, Inc. and
Canaccord Adams Inc. (incorporated herein by reference to Exhibit 10.47 to
our Registration Statement on Form S-1, as filed with the SEC on April 3,
2007)
|
|
10.29
|
Form
of Registration Rights Agreement, of various dates, by and between Smart
Online, Inc. and certain parties in connection with the sale of shares by
Dennis Michael Nouri (incorporated herein by reference to Exhibit 10.48 to
our Registration Statement on Form S-1, as filed with the SEC on April 3,
2007)
|
|
10.30
|
Registration
Rights Agreement, dated November 14, 2007, by and among Smart Online, Inc.
and certain investors (incorporated herein by reference to Exhibit 10.6 to
our Quarterly Report on Form 10-Q, as filed with the SEC on November 14,
2007)
|
|
10.31
|
Security
Agreement, dated November 14, 2007, among Smart Online, Inc. and Doron
Roethler, as agent for certain investors (incorporated herein by reference
to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as filed with the
SEC on November 14, 2007)
|
|
10.32
|
Promissory
Note, Loan Agreement, and Security Agreement, dated November 14, 2006, by
and between Smart Online, Inc. and Wachovia Bank, NA (incorporated herein
by reference to Exhibit 10.43 to our Annual Report on Form 10-K, as filed
with the SEC on March 30, 2007)
|
10.33
|
Promissory
Note, Modification Number One to Loan Agreement, and Security Agreement,
dated January 24, 2007, by and between Smart Online, Inc. and Wachovia
Bank, NA (incorporated herein by reference to Exhibit 10.8 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November 14,
2007)
|
|
10.34
|
Reimbursement
Agreement, dated November 10, 2006, by and between Smart Online, Inc. and
Atlas Capital SA (incorporated herein by reference to Exhibit 10.48 to our
Annual Report on Form 10-K, as filed with the SEC on March 25,
2008)
|
|
10.35
|
Amendment
to Reimbursement Agreement, effective February 20, 2008, by and between
Smart Online, Inc. and Atlas Capital SA (incorporated herein by reference
to Exhibit 10.5 to our Quarterly Report on Form 10-Q, as filed with the
SEC on May 13, 2008)
|
|
10.36
|
Sublease
Agreement, dated July 30, 2008, between Smart Online, Inc. and Advantis
Real Estate Services Company (incorporated herein by reference to Exhibit
10.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on
November 12, 2008) (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for confidential
treatment filed with the Securities and Exchange
Commission)
|
|
21.1
|
Subsidiaries
of Smart Online, Inc.
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14/15d-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14/15d-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [This
exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and shall not, except to the extent required by that Act, be
deemed to be incorporated by reference into any document or filed herewith
for the purposes of liability under the Securities Exchange Act of 1934,
as amended, or the Securities Act of 1933, as amended, as the case may
be.]
|
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [This
exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and shall not, except to the extent required by that Act, be
deemed to be incorporated by reference into any document or filed herewith
for the purposes of liability under the Securities Exchange Act of 1934,
as amended, or the Securities Act of 1933, as amended, as the case may
be.]
|
SMART
ONLINE, INC.
|
||
By:
|
/s/ Doron Roethler
|
|
March
30, 2009
|
Doron
Roethler, Principal Executive
Officer
|
March
30, 2009
|
By:
|
/s/ Doron Roethler
|
|
Doron
Roethler
|
|||
Principal
Executive Officer and Chairman of the Board
|
|||
March
30, 2009
|
By:
|
/s/ Timothy L. Krist
|
|
Timothy
L. Krist
|
|||
Principal
Financial Officer and Principal Accounting Officer
|
|||
March
30, 2009
|
By:
|
/s/ Shlomo Elia
|
|
Shlomo
Elia
|
|||
Director
|
|||
March
30, 2009
|
By:
|
/s/ Roberta B. Hardy
|
|
Roberta
B. Hardy
|
|||
Director
|
|||
March
30, 2009
|
By:
|
/s/ C. James Meese, Jr.
|
|
C.
James Meese, Jr.
|
|||
Director
|
|||
March
30, 2009
|
By:
|
/s/ Dror Zoreff
|
|
Dror
Zoreff
|
|||
Director
|
Exhibit No.
|
Description
|
|
3.1
|
Amended
and Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 to our Registration Statement on Form SB-2, as
filed with the SEC on September 30, 2004)
|
|
3.2
|
Fifth
Amended and Restated Bylaws (incorporated herein by reference to Exhibit
3.1 to our Current Report on Form 8-K, as filed with the SEC on March 25,
2008)
|
|
4.1
|
Specimen
Common Stock Certificate (incorporated herein by reference to Exhibit 4.1
to our Registration Statement on Form SB-2, as filed with the SEC on
September 30, 2004)
|
|
4.2
|
Convertible
Secured Subordinated Note Purchase Agreement, dated November 14, 2007, by
and among Smart Online, Inc. and certain investors (incorporated herein by
reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q, as filed
with the SEC on November 14, 2007)
|
|
4.3
|
Form
of Convertible Secured Subordinated Promissory Note (incorporated herein
by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q, as filed
with the SEC on November 14, 2007)
|
|
4.4
|
First
Amendment to Convertible Secured Subordinated Note Purchase Agreement,
dated August 12, 2008, by and among Smart Online, Inc. and certain
investors (incorporated herein by reference to Exhibit 4.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November 12,
2008)
|
|
4.5
|
Second
Amendment and Agreement to Join as a Party to Convertible Secured
Subordinated Note Purchase Agreement and Registration Rights Agreement,
dated November 21, 2008, by and among Smart Online, Inc. and certain
investors
|
|
4.6
|
Third
Amendment to Convertible Secured Subordinated Note Purchase Agreement and
Registration Rights Agreement and Amendment to Convertible Secured
Subordinated Promissory Notes, dated February 24, 2009, by and among Smart
Online, Inc. and certain investors
|
|
4.7
|
Form
of Convertible Secured Subordinated Promissory Note to be issued post
January 2009
|
|
4.8
|
Commercial
Note dated February 20, 2008, payable by Smart Online, Inc. to Paragon
Commercial Bank (incorporated herein by reference to Exhibit 4.1 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 13,
2008)
|
|
10.1*
|
2004
Equity Compensation Plan (incorporated herein by reference to Exhibit 10.1
to our Registration Statement on Form SB-2, as filed with the SEC on
September 30, 2004)
|
|
10.2*
|
Form
of Incentive Stock Option Agreement under 2004 Equity Compensation Plan
(incorporated herein by reference to Exhibit 10.2 to our Annual Report on
Form 10-K, as filed with the SEC on July 11, 2006)
|
|
10.3*
|
Form
of Incentive Stock Option Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.7 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 15,
2007)
|
|
10.4*
|
Form
of Non-Qualified Stock Option Agreement under 2004 Equity Compensation
Plan (incorporated herein by reference to Exhibit 10.3 to our Annual
Report on Form 10-K, as filed with the SEC on July 11,
2006)
|
|
10.5*
|
Form
of Non-Qualified Stock Option Agreement under Smart Online, Inc.’s 2004
Equity Compensation Plan (incorporated herein by reference to Exhibit 10.8
to our Quarterly Report on Form 10-Q, as filed with the SEC on May 15,
2007)
|
10.6*
|
Form
of Restricted Stock Agreement under Smart Online, Inc.’s 2004 Equity
Compensation Plan (incorporated herein by reference to Exhibit 10.6 to our
Quarterly Report on Form 10-Q, as filed with the SEC on May 15,
2007)
|
|
10.7*
|
Form
of Restricted Stock Award Agreement for Employees (incorporated herein by
reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with
the SEC on August 21, 2007)
|
|
10.8*
|
Form
Restricted Stock Agreement for Employees (incorporated herein by reference
to Exhibit 10.1 to Amendment No. 1 to our Current Report on Form 8-K, as
filed with the SEC on February 11, 2008)
|
|
10.9*
|
Form
of Restricted Stock Agreement (Non-Employee Directors) (incorporated
herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as
filed with the SEC on May 31, 2007)
|
|
10.10*
|
Form
Restricted Stock Agreement (Non-Employee Directors) (incorporated herein
by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed
with the SEC on December 3, 2007)
|
|
10.11*
|
2001
Equity Compensation Plan (terminated as to future grants effective April
15, 2004) incorporated herein by reference to Exhibit 10.2 to our
Registration Statement on Form SB-2, as filed with the SEC on September
30, 2004)
|
|
10.12*
|
1998
Stock Option Plan (terminated as to future grants effective April 15,
2004) (incorporated herein by reference to Exhibit 10.3 to our
Registration Statement on Form SB-2, as filed with the SEC on September
30, 2004)
|
|
10.13*
|
Cash
Bonus Program (incorporated herein by reference to Exhibit 10.4 to our
Current Report on Form 8-K, as filed with the SEC on December 3,
2007)
|
|
10.14*
|
Equity
Award Program (incorporated herein by reference to Exhibit 10.5 to
Amendment No. 1 to our Current Report on Form 8-K, as filed with the SEC
on February 11, 2008)
|
|
10.15*
|
Employment
Agreement, dated April 1, 2004, with Thomas Furr (incorporated herein by
reference to Exhibit 10.14 to our Annual Report on Form 10-K, as filed
with the SEC on March 30, 2007)
|
|
10.16*
|
Amendment,
dated November 9, 2005, to Employment Agreement, dated April 1, 2004, with
Thomas Furr (incorporated herein by reference to Exhibit 10.15 to our
Annual Report on Form 10-K, as filed with the SEC on March 30,
2007)
|
|
10.17*
|
Amendment,
dated August 15, 2007, to Employment Agreement, dated April 1, 2004, with
Thomas Furr (incorporated herein by reference to Exhibit 10.5 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November 14,
2007)
|
|
10.18*
|
Employment
Agreement, dated November 30, 2007, with David E. Colburn (incorporated
herein by reference to Exhibit 10.2 to our Current Report on Form 8-K, as
filed with the SEC on December 3, 2007)
|
|
10.19*
|
Separation
and General Release Agreement, dated December 9, 2008, with David E.
Colburn (incorporated herein by reference to Exhibit 10.1 to our Current
Report Form 8-K, as filed with the SEC on December 10,
2008)
|
|
10.20*
|
Smart
Online, Inc. Revised Board Compensation Policy, effective February 2, 2007
(incorporated herein by reference to Exhibit 10.45 to our Registration
Statement on Form S-1, as filed with the SEC on April 3,
2007)
|
|
10.21*
|
Smart
Online, Inc. Revised Board Compensation Policy, effective April 1,
2009
|
|
10.22*
|
Indemnification
Agreement, dated April 14, 2006, by and between Smart Online, Inc. and Tom
Furr (incorporated herein by reference to Exhibit 10.44 to our Annual
Report on Form 10-K, as filed with the SEC on July 11,
2006)
|
10.23
|
Stock
Purchase Warrant and Agreement, dated January 15, 2007, by and between
Smart Online, Inc. and Atlas Capital SA (incorporated herein by reference
to Exhibit 10.44 to our Registration Statement on Form S-1, as filed with
the SEC on April 3, 2007)
|
|
10.24
|
Amendment
No. 1 to Stock Purchase Warrant and Agreement, effective February 20,
2008, by and between Smart Online, Inc. and Atlas Capital SA (incorporated
herein by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q,
as filed with the SEC on May 13, 2008)
|
|
10.25
|
Form
of Securities Purchase Agreement, Registration Rights Agreement, and
Warrant to Purchase Common Stock of Smart Online, Inc., dated February 21,
2007, by and between Smart Online, Inc. and each of Magnetar Capital
Master Fund, Ltd. and Herald Investment Management Limited on behalf of
Herald Investment Trust PLC (incorporated herein by reference to Exhibit
10.46 to our Registration Statement on Form S-1, as filed with the SEC on
April 3, 2007)
|
|
10.26
|
Form
of Amendment to Registration Rights Agreement, dated March 26, 2007, by
and between Smart Online, Inc. and each of Magnetar Capital Master Fund,
Ltd. and Herald Investment Management Limited on behalf of Herald
Investment Trust PLC ( incorporated herein by reference to Exhibit 10.54
to Amendment No. 3 to our Registration Statement on Form S-1, as filed
with the SEC on July 31, 2007)
|
|
10.27
|
Form
of Amendment to Registration Rights Agreement, dated July 2, 2007, by and
between Smart Online, Inc. and each of Magnetar Capital Master Fund, Ltd.
and Herald Investment Management Limited on behalf of Herald Investment
Trust PLC (incorporated herein by reference to Exhibit 10.55 to Amendment
No. 3 to our Registration Statement on Form S-1, as filed with the SEC on
July 31, 2007)
|
|
10.28
|
Warrant
to Purchase Common Stock of Smart Online, Inc., and Registration Rights
Agreement, dated February 27, 2007, by and between Smart Online, Inc. and
Canaccord Adams Inc. (incorporated herein by reference to Exhibit 10.47 to
our Registration Statement on Form S-1, as filed with the SEC on April 3,
2007)
|
|
10.29
|
Form
of Registration Rights Agreement, of various dates, by and between Smart
Online, Inc. and certain parties in connection with the sale of shares by
Dennis Michael Nouri (incorporated herein by reference to Exhibit 10.48 to
our Registration Statement on Form S-1, as filed with the SEC on April 3,
2007)
|
|
10.30
|
Registration
Rights Agreement, dated November 14, 2007, by and among Smart Online, Inc.
and certain investors (incorporated herein by reference to Exhibit 10.6 to
our Quarterly Report on Form 10-Q, as filed with the SEC on November 14,
2007)
|
|
10.31
|
Security
Agreement, dated November 14, 2007, among Smart Online, Inc. and Doron
Roethler, as agent for certain investors (incorporated herein by reference
to Exhibit 10.7 to our Quarterly Report on Form 10-Q, as filed with the
SEC on November 14, 2007)
|
|
10.32
|
Promissory
Note, Loan Agreement, and Security Agreement, dated November 14, 2006, by
and between Smart Online, Inc. and Wachovia Bank, NA (incorporated herein
by reference to Exhibit 10.43 to our Annual Report on Form 10-K, as filed
with the SEC on March 30, 2007)
|
|
10.33
|
Promissory
Note, Modification Number One to Loan Agreement, and Security Agreement,
dated January 24, 2007, by and between Smart Online, Inc. and Wachovia
Bank, NA (incorporated herein by reference to Exhibit 10.8 to our
Quarterly Report on Form 10-Q, as filed with the SEC on November 14,
2007)
|
|
10.34
|
Reimbursement
Agreement, dated November 10, 2006, by and between Smart Online, Inc. and
Atlas Capital SA (incorporated herein by reference to Exhibit 10.48 to our
Annual Report on Form 10-K, as filed with the SEC on March 25,
2008)
|
|
10.35
|
Amendment
to Reimbursement Agreement, effective February 20, 2008, by and between
Smart Online, Inc. and Atlas Capital SA (incorporated herein by reference
to Exhibit 10.5 to our Quarterly Report on Form 10-Q, as filed with the
SEC on May 13, 2008)
|
10.36
|
Sublease
Agreement, dated July 30, 2008, between Smart Online, Inc. and Advantis
Real Estate Services Company (incorporated herein by reference to Exhibit
10.1 to our Quarterly Report on Form 10-Q, as filed with the SEC on
November 12, 2008) (asterisks located within the exhibit denote
information which has been deleted pursuant to a request for confidential
treatment filed with the Securities and Exchange
Commission)
|
|
21.1
|
Subsidiaries
of Smart Online, Inc.
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14/15d-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14/15d-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. [This
exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and shall not, except to the extent required by that Act, be
deemed to be incorporated by reference into any document or filed herewith
for the purposes of liability under the Securities Exchange Act of 1934,
as amended, or the Securities Act of 1933, as amended, as the case may
be.]
|
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [This
exhibit is being furnished pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and shall not, except to the extent required by that Act, be
deemed to be incorporated by reference into any document or filed herewith
for the purposes of liability under the Securities Exchange Act of 1934,
as amended, or the Securities Act of 1933, as amended, as the case may
be.]
|
Exhibit 4.5
SMART ONLINE, INC.
SECOND AMENDMENT AND AGREEMENT TO JOIN AS A PARTY TO
CONVERTIBLE SECURED SUBORDINATED NOTE PURCHASE AGREEMENT AND
REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDMENT AND AGREEMENT TO JOIN AS A PARTY TO CONVERTIBLE SECURED SUBORDINATED NOTE PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into this 21st day of November 2008, by and among Smart Online, Inc., a Delaware corporation (the "Company"), and each of the undersigned holders (the "Holders," and individually, a "Holder") of Secured Subordinated Convertible Promissory Notes (the "Notes") issued pursuant to that certain Convertible Secured Subordinated Note Purchase Agreement dated as of November 14, 2007, by and among the Company and the Investors referenced on Schedule A attached thereto, as amended on August 12, 2008 (as amended, the "Original Purchase Agreement") and certain additional purchasers of the Notes (the "New Investors" and individually, a "New Investor"). Capitalized terms used but not defined herein shall have the meanings assigned to them in the Original Purchase Agreement.
RECITALS
WHEREAS, in connection with the sale of the Notes, the Company entered into the Original Purchase Agreement with the Investors named therein, the Registration Rights Agreement dated as of November 14, 2007 with the Investors named therein (the "Registration Rights Agreement") and a Security Agreement dated as of November 14, 2007 with Doron Roethler as collateral agent for the holders of the Notes (the "Security Agreement");
WHEREAS, the Company and the Holders desire to amend the Original Purchase Agreement and the Registration Rights Agreement to permit the Company to sell Additional Notes to the New Investors in a Subsequent Closing;
WHEREAS, each New Investor desires to join as a party to the Original Purchase Agreement, and the Registration Rights Agreement in connection with its purchase of Additional Notes in the principal amount set forth opposite the New Investor's name on Exhibit A hereto;
WHEREAS, Section 9(a) of the Original Purchase Agreement provides that any provision of the Agreement may be amended with the written consent of the Company and the Investors named therein holding at least a majority of the aggregate outstanding principal amount of the Notes;
WHEREAS, Section 3.6 of the Registration Rights Agreement provides that any provision of the Registration Rights Agreement may be amended with the written consent of the Company and the Investors named therein holding at least a majority of the aggregate outstanding principal amount of the Notes.
WHEREAS, the Holders constitute a majority of the aggregate outstanding principal amount of the Notes necessary to amend the provisions of the Original Purchase Agreement and the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the promises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Amendments to Original Purchase Agreement.
(a) The terms "Investor" and "Investors" referenced in the Original Purchase Agreement shall be amended to include each of the New Investors and the terms "Note" or "Notes" shall be amended to include each of the Additional Notes purchased by the New Investors.
(b) Schedule 1 to the Original Purchase Agreement shall be amended to include the schedule set forth in Exhibit A hereto
2. Amendment to Registration Rights Agreement. The terms "Investor" and "Investors" referenced in the Registration Rights Agreement shall be amended to include each of the New Investors and the terms "Note" or "Notes" shall be amended to include each of the Additional Notes purchased by the New Investors.
3. Acknowledgement and Joinder. Each New Investor hereby acknowledges that it has received a copy of the Original Purchase Agreement, the Security Agreement and the Registration Rights Agreement and has had the opportunity to review the terms thereof. Each New Investor hereby joins as a party and agrees to be bound by the terms and conditions of the Original Purchase Agreement, as hereby amended, and the Registration Rights Agreement, as hereby amended, on the date hereof. Each New Investor further acknowledges and agrees that pursuant to the Original Purchase Agreement and the Security Agreement, Doron Roethler is appointed as the agent for the Investors, including the New Investors, with respect to the matters set forth therein.
4. Consent of the Company and the Holders. The Company and the Holders hereby consent to the New Investors joining as a party to the Original Purchase Agreement, as hereby amended, and the Registration Rights Agreement, as hereby amended, to the addition of the name of the New Investors to the applicable exhibit or schedule to such agreements and to the distribution of such applicable exhibit or schedule, as amended, to the other parties to such agreements.
5. Representations and Warranties of the New Investors. Each New
Investor hereby confirms that each representation and warranty contained in
Section 3 of the Original Purchase Agreement, as hereby amended, is true in all
respects on and as of the date of this Agreement as though such representations
and warranties were made by such New Investor on and as of the date hereof. Each
New Investor further confirms that all agreements and conditions contained in
the Original Purchase Agreement, as hereby amended, that are required to be
performed or complied with by such New Investor on or before the date hereof
have been performed and complied with in all material respects as of the date
hereof.
6. Ratification. Except as specifically amended pursuant to this Agreement, each of the Original Purchase Agreement and the Registration Rights Agreement remains in full force and effect in accordance with its terms.
7. Validity. The parties agree that this Agreement is entered into in accordance with Section 9(a) of the Original Purchase Agreement and Section 3.6 of the Registration Rights Agreement.
8. Governing Law. This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws or choice of law provisions thereof.
9. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
10. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, successors and assigns.
11. Effectiveness of Agreement. This Agreement shall become effective upon the receipt by the Company of the funds set forth on Exhibit A under the caption "2nd Subsequent Closing Note Principal Amount."
[Signature page to follow]
[Signature Page to Second Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement]
IN WITNESS WHEREOF, the parties have executed this Second Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement as of the date first above written.
COMPANY: SMART ONLINE, INC.
By: /s/ David E. Colburn --------------------------- Name: David E. Colburn Title: President/CEO |
[Signature Page to Second Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement]
HSBC PRIVATE BANK (SUISSE) SA
By: /s/ Francois de Szy --------------------------- Name: Francois de Szy Title: Associate By: /s/ Giorgio Gagliani --------------------------- Name: Giorgio Gagliani Title: Associate |
[Signature Page to Second Amendment and Agreement to Join as a Party to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement]
UBP, UNION BANCAIRE PRIVEE
By: /s/ Malgioglio /s/ F. Rossi -------------------------------- Name: S. Malgioglio F. Rossi Title: Associate |
EXISTING HOLDERS: CRYSTAL MANAGEMENT LTD.
By: /s/ Doron Roethler --------------------------- Name: Doron Roethler Title: Beneficial Owner |
ATLAS CAPITAL S.A.
By: /s/ Avy Lugassy --------------------------- Name: Avy Lugassy Title: |
WILLIAM FURR
/s/ William Furr ------------------------------------ |
THE BLUELINE FUND
By: /s/ Ph. Pouponnot --------------------------- Name: Ph. Pouponnot Title: |
Exhibit A
SCHEDULE I
Schedule of Investors
Subsequent Closing Held on November 21, 2008
INVESTOR'S NAME AND ADDRESS 2nd Subsequent Closing Note Principal Amount -------------------------------------------------------------------------------- HSBC Private Bank (Suisse) SA US$250,000 Corporate Actions Department (TITCC) Montbrillant Business Center PO Box 3580 CH. 1211 Geneva 3 Switzerland Fax: + 41 (0)58 705 52 50 |
Exhibit A
SCHEDULE I
Schedule of Investors
Subsequent Closing Held on November 21, 2008
INVESTOR'S NAME AND ADDRESS 2nd Subsequent Closing Note Principal Amount -------------------------------------------------------------------------------- UBP, Union Bancaire Privee US$250,000 96-98, rue du Rhone Case postale 1320 CH-1211 Geneve 1 Switzerland Fax: 41 588 193 686 |
Exhibit 4.6
SMART ONLINE, INC.
THIRD AMENDMENT TO CONVERTIBLE SECURED SUBORDINATED NOTE
PURCHASE AGREEMENT AND
REGISTRATION RIGHTS AGREEMENT AND AMENDMENT TO CONVERTIBLE
SECURED SUBORDINATED PROMISSORY NOTES
THIS THIRD AMENDMENT TO CONVERTIBLE SECURED SUBORDINATED NOTE PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT AND AMENDMENT TO CONVERTIBLE SECURED SUBORDINATED PROMISSORY NOTES (this "Agreement") is entered into this 24th day of February 2009, by and among Smart Online, Inc., a Delaware corporation (the "Company"), and each of the undersigned holders (the "Holders," and individually, a "Holder") of Secured Subordinated Convertible Promissory Notes (the "Notes") issued pursuant to that certain Convertible Secured Subordinated Note Purchase Agreement dated as of November 14, 2007, by and among the Company and the Investors referenced on Schedule I attached thereto, as amended on August 12, 2008 and on November 21, 2008 (as amended, the "Original Purchase Agreement"). Capitalized terms used but not defined herein shall have the meanings assigned to them in the Original Purchase Agreement.
RECITALS
WHEREAS, in connection with the sale of the Notes, the Company entered into the Original Purchase Agreement with the Investors named therein, the Registration Rights Agreement dated as of November 14, 2007, as amended on August 12, 2008 and on November 21, 2008 with the Investors named therein (as amended, the "Original Registration Rights Agreement") and a Security Agreement dated as of November 14, 2007 with Doron Roethler as collateral agent for the holders of the Notes (the "Security Agreement");
WHEREAS, the Company and the Holders desire to amend the Original Purchase Agreement and the Original Registration Rights Agreement to permit the Company to sell Additional Notes to new investors or existing holders of Notes in one or more Subsequent Closings;
WHEREAS, the Company and the Holders desire to amend the Notes previously issued to provide that the conversion price of each Note be the same and be calculated based on the lower of the five day average of the high and low price of the Company's Common Stock on the applicable market or exchange or the closing price of the Company's Common Stock on the day immediately preceding conversion of the Note and to provide that the definition of "Conversion Price" contained in any Additional Note issued on or after the date hereof shall be conformed to the definition contained in the Notes, as hereby amended;
WHEREAS, Section 9(a) of the Original Purchase Agreement provides that any provision of the Agreement may be amended with the written consent of the Company and the Investors named therein holding at least a majority of the aggregate outstanding principal amount of the Notes;
WHEREAS, Section 8 of each of the Notes provides that any provision of the Notes may be amended with the written consent of the Company and the holders of a majority of the aggregate outstanding principal amount of the Notes;
WHEREAS, Section 3.6 of the Original Registration Rights Agreement provides that any provision of the Registration Rights Agreement may be amended with the written consent of the Company and the Investors named therein holding at least a majority of the aggregate outstanding principal amount of the Notes; and
WHEREAS, the Holders constitute a majority of the aggregate outstanding principal amount of the Notes necessary to amend the provisions of the Original Purchase Agreement; the Original Registration Rights Agreement and each of the Notes.
NOW, THEREFORE, in consideration of the promises and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Sale of Additional Notes. At any time on or before December 31, 2009, the Company may sell Additional Notes in one or more Subsequent Closings in the aggregate principle amount of up to $6,000,000 (the "Maximum Amount") to either existing holders of the Notes (the "Existing Investors") or to new investors (the "New Investors"), in each case subject to the prior written approval of the Agent. As a condition to the sale of any Additional Note to a New Investor, the Company and New Investor will execute an Agreement to Join as a Party to the Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the "Joinder Agreement"). Promptly after each such Subsequent Closing, the Company shall amend Schedule I to the Original Purchase Agreement, as hereby amended, and Schedule A to the Original Registration Rights Agreement, as hereby amended, to reflect the sale of any such Additional Notes without any action of the Holders or the parties thereto and shall distribute such revised schedules to the parties to such agreements.
2. Amendment to Original Purchase Agreement. The terms "Investor" and "Investors" referenced in the Original Purchase Agreement shall be automatically amended to include any New Investor upon execution of a Joinder Agreement by the Company and the New Investor and the terms "Note" or "Notes" shall be amended to include any Additional Notes purchased by a New Investor or Existing Investors.
3. Amendments to Registration Rights Agreement.
(a) The terms "Investor" and "Investors" referenced in the Original Registration Rights Agreement shall be amended to include any New Investor upon execution of a Joinder Agreement by the Company and the New Investor and the terms "Note" or "Notes" shall be amended to include the Additional Note purchased by a New Investor or Existing Investors.
(b) Section 1.13 of the Registration Rights Agreement shall be deleted and the following shall be inserted in lieu thereof
"1.13 "Maturity Date" shall have the meaning ascribed thereto in the Notes issued on or prior to January 6, 2009."
4. Amendments to Notes.
(a) The last sentence of the first paragraph of each Note shall be deleted and the following shall be inserted in lieu thereof:
"All unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) November 14, 2010, (ii) a Change of Control or (iii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Investor or made automatically due and payable in accordance with the terms hereof (such date upon which all amounts payable hereunder are due is referred to herein as the "Maturity Date")."
(b) Section 1(c) of each Note shall be deleted and the following shall be inserted in lieu thereof:
"(c) "Conversion Price" shall mean the lowest "Applicable Conversion
Price" determined for each Note issued under the Note Purchase
Agreement. The "Applicable Conversion Price" for each Note issued
under the Note Purchase Agreement shall be calculated by multiplying
120% by the lowest of (i) the average of the high and low prices of
the Common Stock on the OTC Bulletin Board averaged over the five
(5) trading days prior to the Closing Date of the issuance of such
Note, (ii) if the Common Stock is not traded on the Over-The-Counter
market, the closing price of the Common Stock reported on the Nasdaq
National Market or the principal exchange on which the Common Stock
is listed, averaged over the five (5) trading days prior to the
Closing Date of the issuance of such Note, or (iii) the closing
price of the Common Stock on the OTC Bulletin Board, the Nasdaq
National Market or the principal exchange on which the Common Stock
is listed, as applicable, on the trading day immediately preceding
the date such Note is converted (in each case as adjusted for stock
splits, dividends or combinations, recapitalizations or similar
events)."
5. Maturity Date and Conversion Price of Additional Notes. Notwithstanding the terms of the Original Purchase Agreement and the form of Note attached thereto as Exhibit A, each Holder agrees that the maturity date of any Additional Notes issued hereafter may be a date later than November 14, 2010 as determined by the Company and the purchaser of such Additional Notes, and that the definition of "Conversion Price" set forth in such Additional Notes shall be the same as provided in the Notes, as hereby amended.
6. Waivers. Each Holder, on behalf of itself and each other Investor hereby waives (i) the requirement that the Company provide them with notice of the sale on or prior to December 31, 2009 of Additional Notes up to the Maximum Amount and the right of Investors to participate in such sale of Additional Notes, as required pursuant to Section 1(c) of the Original Purchase Agreement or otherwise and (ii) the requirement that the aggregate principal amount of all Additional Notes issued in any Subsequent Closing shall not be less than $500,000.
7. Consent of the Company and the Holders. The Company and the Holders hereby consent to any New Investors joining as a party to the Original Purchase Agreement, as hereby amended, and the Original Registration Rights Agreement, as hereby amended, to the addition of the name of the purchaser of Additional Notes to the applicable exhibit or schedule to such agreements and to the distribution of such applicable exhibit or schedule, as amended, to the other parties to such agreements.
8. Ratification. Except as specifically amended pursuant to this Agreement, each of the Original Purchase Agreement, the Original Registration Rights Agreement and the Notes remains in full force and effect in accordance with its terms.
9. Validity. The parties agree that this Agreement is entered into in accordance with Section 9(a) of the Original Purchase Agreement, Section 3.6 of the Registration Rights Agreement and Section 8 of each outstanding Note.
10. Governing Law. This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws or choice of law provisions thereof.
11. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
12. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their heirs, successors and assigns.
13. Effectiveness of Agreement. This Agreement shall become effective upon its execution by the Company and Holders holding a majority of the aggregate outstanding principal amount of the Notes.
[Signature page to follow]
IN WITNESS WHEREOF, the parties have executed this Third Amendment to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement and Amendment to Convertible Secured Subordinated Promissory Notes as of the date first above written.
COMPANY: SMART ONLINE, INC.
By: /s/ Doron Roethler ----------------------------------- Name: Doron Roethler ----------------------------------- Title: Chairman of BOD ----------------------------------- |
[Signature Page to Third Amendment to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement and Amendment to Convertible Secured Subordinated Promissory Notes]
HOLDERS: CRYSTAL MANAGEMENT LTD.
By: /s/ Doron Roethler ----------------------------------- Name: Doron Roethler ----------------------------------- Title: ----------------------------------- |
ATLAS CAPITAL S.A.
By: /s/ Avy Lugassy 24/02/2009 ----------------------------------- Name: Avy Lugassy ----------------------------------- Title: ----------------------------------- |
WILLIAM FURR
/s/ William Furr -------------------------------------------- THE BLUELINE FUND |
HSBC PRIVATE BANK (SUISSE) SA
[Signature Page to Third Amendment to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement and Amendment to Convertible Secured Subordinated Promissory Notes]
UBP, UNION BANCAIRE PRIVEE
By: /s/ S. Malgioglio /s/ D. Fries ---------------------------------- Name: S. Malgioglio D. Fries ---------------------------------- Title: ---------------------------------- |
[Signature Page to Third Amendment to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement and Amendment to Convertible Secured Subordinated Promissory Notes]
Exhibit A
Form of Agreement to Join
Exhibit A
SMART ONLINE, INC.
AGREEMENT TO JOIN AS A PARTY TO THE CONVERTIBLE SECURED
SUBORDINATED NOTE PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
This Agreement to Join as a Party to the Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement (this "Agreement") is entered into as of _________ __, 2009, by and between Smart Online, Inc., a Delaware corporation (the "Company"), and the person or entity (a "Purchaser") listed on Schedule A attached hereto.
WHEREAS, on November 14, 2007, August 12, 2008, November 21, 2008 and January 6, 2009, the Company sold convertible subordinated promissory notes (the "Notes") in the aggregate principal amount of $5,800,000 pursuant to the terms of a certain Convertible Secured Subordinated Note Purchase Agreement dated as of November 14, 2007, as amended on August 12, 2008, November 21, 2008 and February __, 2009 (as amended or supplemented from time to time, the "Purchase Agreement");
WHEREAS, in connection with the sale of the Notes, the Company entered into the Registration Rights Agreement dated as of November 14, 2007, as amended on August 12, 2008, November 21, 2008 and February __, 2009 with the Investors named therein (as amended or supplemented from time to time, the "Registration Rights Agreement") and a Security Agreement dated as of November 14, 2007 with Doron Roethler as collateral agent for the holders of the Notes (the "Security Agreement")
WHEREAS, Section 1 of the Third Amendment to Convertible Secured Subordinated Note Purchase Agreement and Registration Rights Agreement and Amendment to Convertible Secured Subordinated Promissory Notes, dated as of February __, 2009 (the "Third Amendment") provides that the Company is entitled to include additional purchasers of its Notes as parties to the Purchase Agreement and the Registration Rights Agreement by amending Schedule 1 to the Purchase Agreement and Schedule A to the Registration Rights Agreement;
WHEREAS, each of the Purchasers desires to join as a party to the Purchase Agreement and the Registration Rights Agreement in connection with its purchase of a Note in the principal amount set forth opposite the Purchaser's name on Schedule A hereto.
NOW, THEREFORE, in consideration of the premises, the covenants of the parties set forth below and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. The Purchaser agrees to purchase and the Company agrees to issue and sell to the Purchaser a Note in substantially in the form attached to the Purchase Agreement in the principal amount set forth opposite such Purchaser's name on Schedule A hereto and with the maturity date set forth on Schedule A hereto (the "Additional Note"). In connection therewith, the Purchaser hereby joins as a party and agrees to be bound by the terms and conditions of the Purchase Agreement and the Registration Rights Agreement on the date hereof. The Purchaser hereby acknowledges that such Purchaser has received a copy of the Purchase Agreement, the Registration Rights Agreement and the Security Agreement and has had the opportunity to review the terms thereof.
2. The Purchaser hereby confirms that each representation and warranty contained in Section 3 of the Purchase Agreement, is true in all respects on and as of the date of this Agreement as though such representations and warranties were made by the Purchaser on and as of the date hereof. The Purchaser further confirms that all agreements and conditions contained in the Purchase Agreement that are required to be performed or complied with by the Purchaser on or before the date hereof have been performed and complied with in all material respects as of the date hereof.
3. The Purchaser hereby acknowledges and agrees that pursuant to the Purchase Agreement and the Security Agreement, Doron Roethler is appointed as the agent for the Investors, including the Purchaser, with respect to the matters set forth therein.
4. The Company hereby consents to the Purchaser joining as a party to the Purchase Agreement and the Registration Rights Agreement and to the addition of the name of the Purchaser to Schedule I to the Purchase Agreement and to the addition of the name of the Purchaser to the Schedule A to the Registration Rights Agreement.
5. The Purchaser and the Company agree that Purchaser shall be treated as an "Investor" under the Purchase Agreement and the Registration Rights Agreement and that the Additional Note shall be deemed to be a "Note" under each such agreement. The Purchaser and the Company further agree that no amendment to the Purchase Agreement or the Registration Rights Agreement need be executed by the parties thereto in order to effect such treatment.
6. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware without regard to conflicts of laws principles.
7. This Agreement may be executed in one or more counterparts.
8. This Agreement shall become effective with respect to the Purchaser upon the receipt by the Company of the funds set forth on Schedule A.
9. The Company agrees that upon its receipt of the funds set forth on Schedule A it shall issue to the Purchase a Note in substantially the form attached to the Purchase Agreement with the maturity date stated in Schedule A and that it shall amend Schedule I to the Purchase Agreement and Schedule A to the Registration Rights Agreement to reflect the purchase of the Additional Note by the Purchaser.
[Signature page to follow]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.
COMPANY: SMART ONLINE, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- |
PURCHASER: [NAME OF PURCHASER] By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- |
[Signature page to Agreement to Join as a Party]
SCHEDULE A TO AGREEMENT TO JOIN AS A PARTY
------------------------------ --------------------- --------------------------- Name and Address Principal Amount of Maturity Date of Additional Additional Note Note ------------------------------ --------------------- --------------------------- [Name of Purchaser $ [Address] Attn: Tel: Fax: Email: ------------------------------ --------------------- --------------------------- |
Exhibit 4.7
[Form of Note to be issued post January 2009]
THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS. THE COMPANY, IN ITS SOLE DISCRETION, SHALL HAVE THE RIGHT TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH ANY PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
SMART ONLINE, INC.
CONVERTIBLE SECURED SUBORDINATED PROMISSORY NOTE
$[_______________] __________ __, 20__
Durham, NC
FOR VALUE RECEIVED, Smart Online, Inc., a Delaware corporation (the "Company") promises to pay to [____________________] ("Investor"), or its registered assigns, in lawful money of the United States of America the principal sum of [__________] Dollars ($[_________]), or such lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this Note on the unpaid principal balance at a rate equal to 8.00% per annum, computed on the basis of the actual number of days elapsed and a year of 360 days. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) ________ __, 20__, (ii) a Change of Control or (iii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Investor or made automatically due and payable in accordance with the terms hereof (such date upon which all amounts payable hereunder are due is referred to herein as the "Maturity Date").
This Note is one of the "Notes" issued pursuant to the Convertible Secured Subordinated Note Purchase Agreement of even date herewith (as amended, modified or supplemented, the "Note Purchase Agreement") between the Company and the Investors (as defined in the Note Purchase Agreement). Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Note Purchase Agreement. This Note and the Investor are subject to certain restrictions, and are entitled to certain rights and privileges, set forth in the Note Purchase Agreement.
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT (THE "SECURITY AGREEMENT") DATED AS OF THE DATE HEREOF AND EXECUTED BY COMPANY FOR THE BENEFIT OF INVESTOR. ADDITIONAL RIGHTS OF INVESTOR ARE SET FORTH IN THE SECURITY AGREEMENT.
The following is a statement of the rights of Investor and the conditions to which this Note is subject, and to which Investor, by the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following capitalized terms have the following meanings:
(a) "Business Day" shall mean any day other than a Saturday or Sunday or other day on which the New York Stock Exchange is permitted or required by law to close.
(b) the "Company" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.
(c) "Conversion Price" shall mean the lowest "Applicable Conversion Price" determined for each Note issued under the Note Purchase Agreement. The "Applicable Conversion Price" for each Note issued under the Note Purchase Agreement shall be calculated by multiplying 120% by the lowest of (i) the average of the high and low prices of the Common Stock on the OTC Bulletin Board averaged over the five (5) trading days prior to the Closing Date of the issuance of such Note, (ii) if the Common Stock is not traded on the Over-The-Counter market, the closing price of the Common Stock reported on the Nasdaq National Market or the principal exchange on which the Common Stock is listed, averaged over the five (5) trading days prior to the Closing Date of the issuance of such Note, or (iii) the closing price of the Common Stock on the OTC Bulletin Board, the Nasdaq National Market or the principal exchange on which the Common Stock is listed, as applicable, on the trading day immediately preceding the date such Note is converted (in each case as adjusted for stock splits, dividends or combinations, recapitalizations or similar events).
(d) "Change of Control" shall mean (i) any consolidation or merger or other transaction or series of transactions involving the Company pursuant to which the Company's stockholders own less than fifty percent (50%) of the voting securities of the surviving entity (other than an equity financing) or (ii) the sale of all or substantially all of the assets of the Company.
(e) "Event of Default" has the meaning given in Section 4 hereof.
(f) "Lien" shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.
(g) "Note Purchase Agreement" has the meaning given in the introductory paragraph hereof.
(h) "Obligations" shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Company to Investor of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), now existing or hereafter arising under or pursuant to the terms of this Note, the Note Purchase Agreement and the Security Agreement, including, all interest, fees, charges, expenses, attorneys' fees and costs and accountants' fees and costs chargeable to and payable by the Company hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U. S. C. Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding.
(i) "Person" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority.
(j) "Requisite Percentage" shall mean, at least a majority of the aggregate outstanding principal amount of the Notes issued pursuant to the Note Purchase Agreement.
(k) "Securities Act" shall mean the Securities Act of 1933, as amended.
(l) "Security Agreement" has the meaning given in the introductory paragraphs to this Note.
(m) "Transaction Documents" shall mean this Note, each of the other Notes issued under the Note Purchase Agreement, the Note Purchase Agreement, the Registration Rights Agreement and the Security Agreement.
2. Interest. Accrued interest on this Note shall be payable in cash in quarterly installments commencing on the third month anniversary of the date of issuance of this Note with the final installment payable on the Maturity Date.
3. Prepayment. This Note may not be prepaid without the consent of a Requisite Percentage. Any prepayment must be made in connection with the prepayment of all outstanding Notes.
4. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note and the other Transaction Documents:
(a) Failure to Pay. The Company shall fail to pay (i) when due any principal or interest payment on the due date hereunder or (ii) any other payment required under the terms of this Note or any other Transaction Document on the date due and, with respect to this subclause (ii) only, such payment shall not have been made within five (5) days of the Company's receipt of written notice to the Company of such failure to pay;
(b) Non-Performance of Affirmative Covenants. The Company shall default in the due observance or performance of any material covenant set forth in the Note, the Note Purchase Agreement on the Security Agreement, which default shall continue uncured for 15 days after receipt of written notice to the Company thereof;
(c) Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent
(as such term may be defined or interpreted under any applicable statute), (vi)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it, or (vii) take any action for the purpose of effecting any of the
foregoing;
(d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 30 days of commencement;
(e) Misrepresentations. Any of the representations and warranties of the Company in the Note Purchase Agreement or the Security Agreement proves to have been false or misleading in any material respect when made or furnished or deemed made;
(f) Judgments. One or more judgments, decrees or orders (excluding settlement orders) for the payment of money shall be entered against the Company or any of its subsidiaries involving in the aggregate a liability of $1,000,000 or more, and any such judgment, decree or order shall continue without discharge or stay for a period of sixty (60) days; or
(g) Cross-Defaults. The Company or any of its subsidiaries shall default in the performance or observance of any agreement or instrument relating to any indebtedness, or any other event shall occur or condition exist, and the effect of such default, event or condition is to cause or permit the holder or holders of any such indebtedness to cause indebtedness, in excess of $500,000 individually or in the aggregate, to become due prior to its stated maturity.
5. Rights of Investor upon Default. Upon the occurrence or existence of
any Event of Default (other than an Event of Default described in Sections 4(c)
or 4(d)) and at any time thereafter during the continuance of such Event of
Default, Investor may, with the consent of the Agent, by written notice to the
Company, declare all outstanding Obligations payable by the Company hereunder to
be immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived. Upon the
occurrence or existence of any Event of Default described in Sections 4(c) and
4(d), immediately and without notice, all outstanding Obligations payable by the
Company hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived. In addition to the foregoing remedies, upon
the occurrence or existence of any Event of Default and subject to the consent
of the Agent, Investor may exercise any other right power or remedy granted to
it by the Transaction Documents or otherwise permitted to it by law, either by
suit in equity or by action at law, or both.
6. Conversion.
(a) Optional Conversion. At the Maturity Date, each Investor shall have the option to convert the entire principal amount of this Note then outstanding into Common Stock. The number of shares of Common Stock that this Note may be converted into shall be determined by dividing the principal amount then outstanding by the Conversion Price at the time of conversion. If the Investor elects to convert this Note at maturity, it shall provide the Company with written notice of its election at least one (1) day prior to the Maturity Date. Upon conversion, the Investor shall deliver to the Company the original of this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement reasonably acceptable to the Company whereby the holder agrees to indemnify the Company from any loss incurred by it in connection with this Note). However, upon such conversion of this Note, this Note shall be deemed converted and of no further force and effect, whether or not the Note is delivered for cancellation as set forth in the preceding sentence. If there shall occur a Change of Control, the Company shall give written notice to the Investor at least five (5) days prior to any closing thereof and the Investor's election to convert this Note shall be conditional upon the consummation thereof.
(b) Mechanics of Optional Conversion. As soon as practicable following surrender by the Investor of the original of its Note, the Company shall issue and deliver to Investor a certificate or certificates for the shares of Common Stock into which the Note has been converted (bearing such legends as may be required or advisable in the opinion of counsel to the Company). Such conversion shall be deemed to have been made immediately prior to the close of business on the Maturity Date, and the Investor shall be treated for all purposes as the record holder or holders of such Common Stock on such date.
(c) Fractional Shares; Interest; Effect of Conversion. No fractional shares shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Investor upon the conversion of this Note, the Company shall pay to Investor an amount equal to the product obtained by multiplying the Conversion Price by the fraction of a share not issued pursuant to the previous sentence. Upon conversion of this Note in full and the payment of any amounts specified in this Section 6(c), the Company shall be forever released from all its obligations and liabilities under this Note.
7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 below, the rights and obligations of the Company and Investor shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the holders of a Requisite Percentage.
9. Transfer of this Note or Securities Issuable on Conversion Hereof. With respect to any offer, sale or other disposition of this Note or securities into which such Note may be converted, Investor will give written notice to the Company prior thereto, describing briefly the manner thereof, together with (unless waived by the Company) a written opinion of Investor's counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall notify Investor that Investor may sell or otherwise dispose of this Note or such securities, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 9 that the opinion of counsel for Investor, or other evidence, is not reasonably satisfactory to the Company, the Company shall so notify Investor promptly after such determination has been made. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. Notwithstanding anything in this Section 9 to the contrary, no opinion of counsel shall be required with respect to any transfer by an Investor to its officers, directors, partners, members or other affiliates.
10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the holders of a Requisite Percentage.
11. Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Note Purchase Agreement, or at such other address or facsimile number as the Company shall have furnished to Investor in writing. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight courier service of recognized standing or (v) two days after being deposited in the U.S. mail, first class with postage prepaid.
12. Pari Passu Notes. Investor acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes issued pursuant to the Note Purchase Agreement or pursuant to the terms of such Notes. In the event Investor receives payments in excess of its pro rata share of the Company's payments to the Investors of all of the Notes, then Investor shall hold in trust all such excess payments for the benefit of the holders of the other Notes and shall pay such amounts held in trust to such other holders upon demand by such holders.
13. Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.
14. Waivers. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.
15. Remedies Cumulative. The remedies of Investor as provided herein and in the Note Purchase Agreement and in any other documents governing or securing repayment hereof shall be cumulative and concurrent and may be pursued singly, successively, or together, at the sole discretion of Investor to the extent provided herein and in the Note Purchase Agreement and may be exercised as often as occasion therefore shall arise. No act or omission of the Investor, including specifically, but without limitation, any failure to exercise any right, remedy or recourse, shall be effective as a waiver of any right of the Investor hereunder, unless set forth in a written document executed by the Investor, and then only to the extent specifically recited therein. A waiver or release with reference to one event shall not be construed as continuing, as a bar to, or as a waiver or release of any subsequent right, remedy or recourse as to any subsequent event. All notices, waivers, releases and/or consents by an Investor shall be directed to the Company only through the Agent.
16. No Rights of a Stockholder. Nothing contained in this Note shall be construed as conferring upon the Investor or any other Person the right to vote or consent or to receive notice as an stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company prior to the time that this Note is converted pursuant to Section 6.
17. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law provisions of the State of Delaware, or of any other state.
(Signature Page Follows)
The Company has caused this Note to be issued as of the date first written above.
SMART ONLINE, INC.
a Delaware corporation
Name of Subsidiary
|
State of
Incorporation
|
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Smart
Commerce, Inc.*
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Delaware
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Smart
CRM, Inc.*
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Delaware
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1.
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I
have reviewed this Annual Report on Form 10-K for the year ended December
31, 2008 of Smart Online, Inc.;
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2.
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Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
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3.
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Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
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4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
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(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
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(b)
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Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
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(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
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(d)
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Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
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5.
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The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
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(a)
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All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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(b)
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Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
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By:
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/s/ Doron Roethler
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||
Doron
Roethler
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|||
Date:
March 30, 2009
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Principal
Executive Officer
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1.
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I
have reviewed this Annual Report on Form 10-K for the year ended December
31, 2008 of Smart Online, Inc.;
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2.
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Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
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3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
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4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
|
(c)
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Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
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(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting;
and
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5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
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By:
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/s/ Timothy L. Krist
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||
Date:
March 30, 2009
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Timothy
L. Krist
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||
Principal
Financial Officer and Principal
Accounting
Officer
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/s/ Doron
Roethler
|
|
Doron
Roethler
|
|
Principal
Executive Officer
|
|
March
30, 2009
|
Timothy
L. Krist
|
|
Principal
Financial Officer and Principal Accounting Officer
|
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