ITEM 1. BUSINESS
Use of Certain Defined Terms
Except as otherwise indicated by the context, references in this report to:
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“Cimarron,” “Cimarron Software, Inc.,” “we,” “us,” or “our,” “Successor” and the “Company” are references to the business of Cimarron Software, Inc.
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“Securities Act” refers to the Securities Act of 1933, as amended, and “Exchange Act” refers to the Securities Exchange Act of 1934, as amended.
About Cimarron
Cimarron Software, Inc. was founded in 1995 using technology based on work begun at the University of Utah Human Genome Center (the “Human Genome Center”). The Human Genome Center was funded by the National Institutes of Health (the “NIH”) from the period of 1989 to 2000. Its purpose was to develop technology for mapping the human genome. Most if not all of this research moved into the commercial sector during the period of 2000 to the present. Cimarron no longer maintains a relationship with the Human Genome Center as it no longer exists. Most of the Human Genome Center researchers have moved on to other academic endeavors or private businesses. The Company’s relationship with the Human Genome Center exposed it to the data management requirements of these new technologies and enabled it to develop new software technology and methodologies that are being licensed and serviced by Cimarron today. It also created a network of people in the Life Sciences field that we use today to generate sales leads and ultimately revenue. Cimarron still maintains contracts and contacts with the NIH's National Center for Human Genome Research and with Clinical Diagnostic Labs to help manage data generated by the technologies developed at the Human Genome Center and the commercial network that the Human Genome Center enabled it to develop.
Our original technology that was licensed from the University of Utah in 1995 is no longer used in any of the current projects and was rewritten with private investment capital raised in 1999 and 2002. Our current technology being licensed to customers is free of any encumbrances or limitations and is wholly owned by us.
Our focus is Laboratory Workflow Systems (LWS), which work as Laboratory Information Management Systems (LIMS), but are structured to follow the flow within the laboratory.
Cimarron designs and develops innovative and effective LWS. We offer a combination of technical and consulting services, proprietary software products, and custom system development to meet the needs of our customers. Cimarron Software places extreme value on satisfying our customers with high quality products and services.
Cimarron employs an experienced staff of software designers, programmers, technical writers, automation engineers, biologists and scientists. Our technical experts develop and deploy custom and off-the-shelf software for clients throughout the United States, Europe, and Asia.
Cimarron Products
A Cimarron LWS provides the information modeling, sample tracking, workflow, and reporting capabilities required by today's high-throughput data factories within the dynamic and expanding life sciences markets. These systems can be tailored to meet our customers' exacting and frequently changing requirements.
Our technical staff has extensive industrial biology and software expertise, and provides technical and consulting services in many disciplines, including the following:
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Genotyping
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Genetic Diagnostics
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DNA Sequencing
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Gene Expression
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Proteomics
The LWS product line is comprised of three main types of product, each aimed at the different phases of selling to and supporting the customer.
Custom Software Development
Custom software development is a type of professional service product. Using software development and product management staff, solutions are created that are either based on a packaged system (and therefore are extensions of an existing product), or are new workflow systems that are intended to work stand alone or possibly in conjunction with other packaged products. Custom software is also developed to add future support to a customer’s system that is not being addressed via standard product upgrades or follow-on product development.
Our promise to the customer is that custom software solutions are compatible with packaged systems, which is accomplished through the use of the common underlying software platform.
Software Development Kit (SDK)
SDKs are intended for customers that possess significant in-house software development groups. Potential customers for the SDK are those that go into the sales process:
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intending to build their first system on their own rather than buy;
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hoping to develop independently once Cimarron builds their first system; or
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looking for reassurance that they can build systems on their own.
The SDK consists of specific software tools that can be used for LWS development:
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a Configurator
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an Installer
Specific documentation for each feature set is also available:
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Tutorial, with tutorial workflow
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Developer’s Guide, which expands on the content of the tutorial where necessary
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Training Slides, which cover the Tutorial and Developer’s Guide in a class format
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Reference Guide
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Installation/Site Preparation Guide
Software Maintenance Plans (SMPs)
Our products follow industry norms for high-end software systems. SMPs are comprised of service promises and software upgrades such as the following:
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Phone, e-mail and back-office technical support
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Onsite troubleshooting
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Software maintenance releases
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Software upgrades
Customer Base
Our customers fall within these areas of the life sciences market:
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Pharmaceutical or Drug Discovery Companies
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Clinical Laboratories
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Biotech Companies
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Public Research and Development Institutions (Academic or Government)
Target customers are those with laboratories that have one or more of the following factors:
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Laboratory is experiencing some kind of change or additions of instrumentation or experiment platform that outstrips current software support
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Laboratory is being newly set up
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Customer has an outdated, possibly in-house created, LIMS solution
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Customer has no LIMS solution
Customer Focus
One of Cimarron's primary goals is to meet the requirements and expectations of our customers. Our success depends upon this.
Customer feedback is gathered by the Support, Sales & Marketing, and Product Management groups. Input is also gathered from partner companies’ support and deployment organizations. These groups are accountable for collecting customer inputs from a variety of sources including direct contact with the customer.
Cimarron’s Product Management group spends time at customer locations observing their experiences, synthesizing information, and using it to improve the Company's products. These experiences are reviewed in engineering design meetings and appropriate changes subsequently flow through all areas of the Company.
Industry Summary
For life sciences companies, Laboratory Information Management Systems (LIMS) are an integral part of their operations. But those companies may be spending too much on these systems: LIMS are often a life sciences company’s largest IT investment, after its enterprise resource planning (ERP) system-a cost that largely goes unrecognized. This is not because of the technology itself, but because of the way that systems have been deployed and used.
As a result, many companies are finding that they need to rethink their approach to LIMS. The value of LIMS in the industry can be seen in the technology’s proliferation over the years, as more and more companies have implemented LIMS to improve the management of laboratory information. All too often, however, various parts of the organization have done so on their own. They have put in individual niche solution systems that are not linked to an overall strategy-creating a patchwork of different and disconnected laboratory systems across the enterprise.
Today, it is not unusual to find life science companies with a dozen or more laboratory management systems in place-not to mention an array of electronic laboratory notebooks and other laboratory tools. That one-off, fragmented approach makes LIMS expensive. In addition to the upfront cost of the systems themselves, companies have to maintain and support separate systems, often with redundant resources. As a result, a company may well have hundreds of employees watching over its various LIMS systems across various sites. The cost of a fragmented LIMS landscape goes beyond IT budgets. Cimarron has found that the use of disparate systems leads to increased manual activity and inefficiencies, and skilled scientists may spend as much as a third of their time on LIMS-related administrative tasks, rather than research and testing. Moreover, with different sites using different systems and data, information sharing and accurate reporting are difficult, opening the door to compliance problems and slower decision making.
Overall, these issues can mean reduced throughput in a company’s labs and ultimately, delays in getting products to market. As life sciences companies consider ways to address these problems, they have the opportunity to step back and examine the big picture. Cimarron believes that they should look at LIMS not just as a necessary, back-office cost center where expenses need to be minimized. That is important, yes. But at the same time, they need to take a different view of LIMS-one that looks at the technology in its broader business context. By doing so, companies can position themselves to not only cut costs, but also use LIMS to help achieve sustainable, far-ranging business results and compete more effectively. In essence, life sciences companies need to develop a more strategic approach to the technology-a perspective that Cimarron has found to be a hallmark of many high performance businesses.
Competitive Strengths within the Industry
When a customer chooses Cimarron Software, they choose a team of experienced and talented individuals who possess deep expertise in the field of molecular biology-related informatics and data management. We pride ourselves on being consultants and solution providers-not as being product developers.
Cimarron's origins date back to the early stages of the genomics and bioinformatics era, and experts in these fields founded the Company specifically to address the need for laboratory information management systems (LIMS) in genomics and proteomics laboratories. The Company was formed in 1995 using technology based on a software design created at the University of Utah Human Genome Center. Our original aim was to provide customized solutions to meet the rapidly changing challenges of genomics and proteomics laboratories.
Over its history, Cimarron evolved from an existence as a small start-up company developing custom LIMS for a host of biotech and pharmaceutical companies, to a Center of Excellence for a major biotechnology company-Amersham Biosciences (GE Healthcare)-developing Laboratory Workflow Systems (LWS) embedded in and to support their instruments and reagents, and finally returning to our roots to become a dynamic group of experts providing specialized services and customized software to the health-related research community.
Over our 18 year corporate history we repeatedly have learned an important lesson-that no off-the-shelf system meets any laboratory’s work practices exactly. The laboratory is either forced to change their work practices to fit the software, or the software must be designed to be flexible enough to allow it to be modified for each implementation. Another important lesson is that things always change. Therefore, we have focused our efforts on developing a robust software developer’s kit (SDK) that provides generic adaptable software libraries, data models, and various tools to facilitate the rapid development of laboratory workflow systems that can be readily configured and customized to meet diverse laboratories’ specific needs.
We have used this platform to develop an adaptable specimen tracking workflow system for use in clinical trials. This clinical trials specimen tracking system adapts to frequent modifications that are made to the study protocol and must do so with virtually no ‘down time’. This application was never imagined when the platform and data models were conceived. We believe that our being able to develop this clinical trials application from the platform that was originally intended to support molecular biology laboratories, demonstrates that we were successful in our goal to design a flexible and generic platform. We were able to achieve this goal by distilling complex laboratory and analysis operations to fundamental and basic concepts, then developing modular and reusable software components to represent these basic concepts. We then use (configure) and extend (customize) these components as necessary to meet the specific requirements for each custom system. In addition, we believe that it demonstrates that we can build relevant and effective systems in domains where we have no past experience.
We also distinguish ourselves by being able to adapt quickly to our customers’ specific environment and requirements. We achieve this adaptability by not being tied to our own products but rather by mastering emerging cutting-edge technologies. This ability has broadened our expertise by giving us experience with many different applications, instruments, and technologies.
Commission’s Position on Indemnification for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions of its Certificate of Incorporation, By-Laws, the General Corporation Law of the State of Utah or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer of controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Where You Can Find Us
Our corporate headquarters are located at 10 W. Broadway, Ste. 700, Salt Lake City, UT 84101. Our telephone number is (801) 532-3080.
ITEM 1A.
ITEM 1A. RISK FACTORS
The following risk factors should be considered carefully in addition to the other information contained in this report. This report contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our customers’ or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. “Risk Factors,” “Management’s Discussion and Analysis” and “Business,” as well as other sections in this report, discuss some of the factors that could contribute to these differences.
The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
An investment in our common stock is highly speculative and involves a high degree of risk. Therefore, you should consider all of the risk factors discussed below, as well as the other information contained in this document. You should not invest in our common stock unless you can afford to lose your entire investment and you are not dependent on the funds you are investing.
We have a going concern opinion from our auditors, indicating the possibility that we may not be able to continue to operate.
As of December 31, 2014 and 2013, the Company had an accumulated deficit of $13,989,036 and $13,881,992, respectively. These conditions factors raise substantial doubt that we will be able to continue operations as a going concern, and our independent auditors included an explanatory paragraph regarding this uncertainty in their report on our financial statements for the period ending December 31, 2014. Our ability to continue as a going concern is dependent upon our generating cash flow sufficient to fund operations and reducing operating expenses. Our business strategy may not be successful in addressing these issues. If we cannot continue as a going concern, our stockholders may lose their entire investment.
Our growth plan is based upon Management’s projection of what may happen in the future, and such predictions may not occur.
Our growth plan is based upon Management's projections of estimated available cash flow, expenses, revenue, revenue over profit, earnings before interest, taxes and depreciation, sales cycle time and other measures of projected economic performance. These projections are made in Management's view of what may happen in the future, and are not based upon historical projections. Projections or predictions of future events may not occur and actual results may differ materially from those expressed in or implied by such forward-looking statements.
We will incur increased costs as a result of being a public company.
We will incur significant legal, accounting and other expenses as a public company. We expect the laws, rules and regulations governing public companies to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and OTCBB rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Also, while there is limited regulation of our business at the state and federal level, any change to such regulation could adversely affect our business. Also, our clients are often regulated, and their ability to pay us or our ability to provide services may be impacted by changes in regulation. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our business may be materially impacted and our reputation may be harmed.
Investors may lose their entire investment if we fail to implement our business plan.
Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. These risks include, without limitation, competition, the absence of ongoing revenue streams, a competitive market environment, and lack of brand recognition. If we fail to implement and create a base of operations for our proposed business, we may be forced to cease operations, in which case investors may lose their entire investment.
Difficult economic conditions could harm our business.
Global, national, and local economic conditions continue to be challenging. Although the economy appears to be recovering in some countries, it is not possible for us to predict the extent and timing of any improvement in economic conditions which would lead to greater demand for our software. A continued economic downturn could adversely impact our business in the future by causing a decline in demand for our software as our life science customers seek to cut costs, particularly if the economic conditions are prolonged or worsen. In addition, such poor economic conditions may adversely impact our access to capital, which is needed for us continue operations as we have relatively low levels of working capital.
We have a single customer, a related party, that accounts for the majority of our revenues, and our business would be harmed were we to lose this customer.
For the years ended December 31, 2014 and 2013, a single customer, a related party, accounted for approximately 89% and 69% of our revenues, respectively. The Company believes that its transactions with the related party have been at arms-length at negotiated prices competitive and commensurate with industry prices. Were the Company to lose this customer, our revenues would drastically decline.
Our business operations may be adversely affected by legislative or regulatory changes.
Some of our customers are subject to a number of complex and stringent regulations affecting the clinical and research laboratory industries. We offer software relating to the conduct of laboratory management best practices and our customers are required to comply with applicable regulatory requirements governing, among other things, the design, conduct, performance, monitoring, auditing, recording, analysis and reporting related to their businesses. In the United States, the Food and Drug Administration (FDA) governs these activities pursuant to the agency’s Good Clinical Practice (GCP) regulations. Although we monitor regulations and test our software for compliance with applicable laws and regulations in the U.S. jurisdictions in which we operate, and have adopted standard operating procedures that are designed to satisfy regulatory requirements, our customers are subject to several regulatory jurisdictions with complex and varied regulatory frameworks. Any failure to maintain compliance with GCPs or other applicable regulations could lead to a variety of risks that could result in our customers choosing another software provider, which could have a material adverse effect on our business, financial condition and results of operations.
Future legal actions would cause our costs to increase.
There are presently no legal actions pending against the Company or to which it or any of its property are subject, nor to its knowledge are any such proceedings contemplated. In the event there was any such legal action, there would be costs of defense that would be variable. The Company anticipates a general increase in legal counsel cost going forward due to the increased compliance costs of running a public company and the legal work that may be necessary for implementing the Company’s business plan of expansion.
There are deficiencies with our internal controls that require improvements.
We are exposed to potential risks from legislation requiring companies to evaluate internal controls under Section 404a of the Sarbanes-Oxley Act of 2002. We will be exempt from the auditor attestation requirements concerning any such report so long as we are an emerging growth company or a smaller reporting company. The Company has evaluated whether our internal control procedures are effective and has concluded that as of December 31, 2014, the Company had material weaknesses in its internal control over financial reporting, and therefore there is a greater likelihood of undiscovered errors in our reported financial statements as compared to issuers without such material weakness.
Investors may never receive cash distributions, which could result in an investor receiving little or no return on his or her investment.
Distributions are payable at the sole discretion of our board of directors. We do not know the amount of cash that we will generate, if any, once we have more productive operations. Cash distributions are not assured, and we may never be in a position to make distributions.
We have issued Series A Preferred Stock, whose holders have rights superior to investors in our Common Stock.
We have issued 200,119 shares of Series A Preferred Stock. Holders of such stock have preferential rights to dividends and distributions upon a liquidation of the Company. Additionally, holders of the preferred stock have the right to convert the preferred stock into shares of common stock at a conversion price of $1.20 per share.
Our shares are thinly traded with wide share price fluctuations, low share prices, and minimal liquidity.
Our share price is volatile with wide fluctuations in response to several factors including potential investors’ anticipated feeling regarding our results of operations; increased competition; our ability or inability to generate future revenues; and market perception about our business. Our share price may also be affected by factors that are unrelated or disproportionate to our operating performance. Our share price might be affected by general economic, political, and market conditions, such as recessions, interest rates, or international currency fluctuations. In addition, our shares are thinly traded, highly volatile and is not followed by analysts to our knowledge. These factors may have a material negative effect on our share price.
We could potentially need to sell shares in the future, which would result in a dilution to our existing shareholders.
We may seek additional funds through the sale of our common stock. This will result in a dilution effect to our shareholders whereby their percentage ownership interest in Cimarron is reduced. The magnitude of this dilution effect will be determined by the number of shares we will have to issue in the future to obtain the funds required. The sale of additional stock to new shareholders will reduce the ownership position of the current shareholders. The price of each share outstanding common share may decrease in the event we sell additional shares.
Since our securities are subject to penny stock rules, you may have difficulty reselling your shares.
Our shares are "penny stocks" and are covered by Section 15(d) of the Securities Exchange Act of 1934, which imposes additional sales practice requirements on broker/dealers including: disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. For sales of our securities, the broker/dealer must make a special suitability determination and receive from its customer a written agreement prior to making a sale. The imposition of the foregoing additional sales practices could adversely affect a shareholder's ability to dispose of his stock.
We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any May 30.
Our status as an “emerging growth company” under the JOBS Act of 2012 may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
All of these risks are uncertain, and there may be other risks that we have not identified.
We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all such risk factors before making an investment decision with respect to our Common Stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
The Company manages all operations from within approximately 1700 square feet of leased space located in an office building at 10 W. Broadway in downtown Salt Lake City, Utah.
The Company entered into a lease agreement in July, 2014 for commercial office space located at 10 W. Broadway, Suite 700, Salt Lake City, Utah, 84101. The lease is a 5 year term.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There has been no market for our securities. Our common stock is not traded on any exchange or on the over-the-counter market. We hope to have a market maker file an application with the Financial Industry Regulatory Authority, FINRA for our common stock to be eligible for trading on the OTC Bulletin Board. We have retained a market maker who has agreed to file such application. However, there is no assurance that a trading market will develop, or, if developed, that it will be sustained.
No equity securities have been sold by us during the past three years or were repurchased by us during the year ending December 31, 2014. As of March 30, 2015, we had approximately 53 shareholders of record of our common stock.
We have never declared dividends or paid cash dividends on our common stock and our board of directors does not intend to distribute dividends in the near future.
Penny Stock Rules
We will be subject to the penny stock rules adopted by the Securities and Exchange Commission (“SEC”) that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our stockholders to sell their securities.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000, or annual income exceeding $200,000 individually, or $300,000 together with his or her spouse, is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:
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Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
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Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
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Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks;
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Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As the Company is a “smaller reporting company,” this item is not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the Twelve-month Periods Ended December 31, 2014 and 2013
The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales revenue for the periods indicated in dollars.
Revenues consist of non-technology integration consulting services, technology integration consulting services, product maintenance, and travel and expenses billed to the customer. Revenues increased for the year ended December 31, 2014, by $383,182 from the year ended December 31, 2013, primarily due to an increase in integration consulting services to a related party customer. The increase in cost of services is commensurate with the increase in revenues, and has decreased as a percentage of revenues compared to 2013 as a result of additional software consulting engineering efforts in the prior year. Gross profit increased due to the overall increase in revenues. Operating expenses increased for the year ended December 31, 2014 in conjuction with the increase in revenues.
The following tables set forth key components of our balance sheets as of December 31st, both in dollars.
As of December 31, 2014, current assets decreased $41,766 from December 31, 2014, primarily due to an increase in cash and cash equivalents of $104,950 and accounts receivable of $3,280 which was partially offset by decreases in accounts receivable-related party by $105,560, and notes receivable - related party by $44,500. Non-current assets decreased due to a decrease in the long-term portion of notes receivable from related parties by $80,220. As of December 31, 2014, current liabilities decreased by $48,033 from December 31, 2013, due to decreases in accrued liabilities, accounts payable, notes payable - related party, and deferred revenue based on timing of the payment of expenses.
At December 31, 2014, the Company had cash funds of $163,772.
Liquidity and Capital Resources
The Company has been and is currently operating with a relatively low level of cash and liquidity and that could lead to difficulty if not favorably resolved. The Company desires to improve this situation through additional equity and debt investments in the Company and cash generated from higher revenues.
The Company anticipates that its cash needs for the next twelve months for working capital and capital expenditures will be approximately $120,000. As of December 31, 2014, the Company has $163,772 in cash and believes its current cash and cash flow from operations and notes receivable will be sufficient to meet anticipated cash needs for the next twelve months for working capital and capital expenditures, excluding servicing the note payable to related parties. The Company will likely require additional cash resources due to possible changed business conditions or other future developments. The Company may seek to sell additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
The Company’s ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including: investors’ perception of, and demand for, securities of web hosting and related service companies; conditions of the U.S. and other capital markets in which we may seek to raise funds; future results of operations, financial condition and cash flow. Therefore, the Company’s management cannot assure that financing will be available in amounts or on terms acceptable to the Company, or if at all. Any failure by the Company’s management to raise additional funds on terms favorable to the Company could have a material adverse effect on the Company’s liquidity and financial condition.
In the event we are not successful in reaching our sustained revenue targets, we anticipate that depending on market conditions and our plan of operations, we may incur operating losses. We base this expectation, in part, on the fact that we may not be able to generate enough gross profit to cover our operating expenses. Consequently, there remains the possibility that the Company may not continue to operate as a going concern in the long term. We are subject to many factors which could detrimentally affect us. Many of these risk factors are outside management’s control, including demand for our products and services, our ability to hire and retain talented and skilled employees and service providers, as well as other factors.
Subsequent Events
There have been no subsequent events that have a material impact on the Company.
Emerging Growth Company
We are an “emerging growth company” under the federal securities laws and would therefore be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
Critical Accounting Policies
Our financial statements are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 2 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.
Revenue Recognition
Revenues from contracts for non-technology integration consulting services with fees based on time and materials are recognized as the services are performed and amounts are earned in accordance with the Securities and Exchange Commission (the “SEC”), as amended by SAB No. 104, “Revenue Recognition” (“SAB 104”). The Company considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. In such contracts, the Company’s efforts, measured by time incurred, typically represent the contractual milestones or output measure, which is the contractual earnings pattern. For non-technology integration consulting contracts with fixed fees, the Company recognizes revenues as amounts become billable in accordance with contract terms, are consistent with the services delivered, and are earned.
Revenues from contracts for technology integration consulting services where the Company designs/redesigns, builds and implements new or enhanced systems applications and related processes for its clients are recognized on the percentage-of-completion method, which involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract. This method is followed where reasonably dependable estimates of revenues and costs can be made. Estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses.
Such revisions may result in increases or decreases to revenues and income and are reflected in the financial statements in the periods in which they are first identified. If the Company’s estimates indicate that a contract loss will occur, a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenues that will be generated by the contract and are included in cost of services and classified in accrued expenses. There were no uncompleted contracts as of December 31, 2014 and 2013.
Revenues for contracts with multiple elements are allocated based on the lesser of the element’s relative fair value or the amount that is not contingent on future delivery of another element. If the amount of non-contingent revenues allocated to a delivered element accounted for under the percentage-of-completion method of accounting is less than the costs to deliver such services, then such costs are deferred and recognized in future periods when the revenues become non-contingent. Fair value is determined based on the prices charged when each element is sold separately. Elements qualify for separation when the services have value on a stand-alone basis, fair value of the separate elements exists and, in arrangements that include a general right of refund relative to the delivered element, performance of the undelivered element is considered probable and substantially in the Company’s control. While determining fair value and identifying separate elements require judgment, generally fair value and the separate elements are readily identifiable as the Company also sells those elements unaccompanied by other elements.
Revenue related to product maintenance contracts is recognized on a straight-line basis over the delivery period. The maintenance contracts are generally one year in length. Maintenance fee revenue has been calculated for any portion allocable to the current year with the balance remaining as deferred revenue. The net unamortized deferred maintenance fees were $18,925 and $33,041 at the years ended December 31, 2014 and 2013, respectively.
Revenues include billings for travel and other out-of-pocket expenses prior to reimbursements to the employee by the Company.
The Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which superseded and replaced ASC 605-25, Revenue Recognition: Multiple-Element Arrangements, and most of ASC 985-605, Software: Revenue Recognition, which applies to all software and SaaS arrangements. Under the new standard, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In order to do so, an entity would follow the five-step process for in-scope transactions: 1) identify the contract with a customer, 2) identify the separate performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the separate performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, the provisions of the new standard are effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. An entity can apply the new revenue standard retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings. The Company is in the process of determining our approach to the adoption of this new revenue recognition standard, as well as the anticipated impact to the Company’s financial position or results of operations.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. ASU 2014-15 requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans and requires an express statement and other disclosures when substantial doubt is not alleviated. ASU No. 2014-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, early application is permitted. We are currently evaluating the accounting implication and do not believe the adoption of ASU 2014-15 to have material impact on our financial statements, although there may be additional disclosures upon adoption.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As the Company is a “smaller reporting company,” this item is not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders’ and the Board of Directors
Cimarron Software, Inc.
Salt Lake City, UT
We have audited the accompanying balance sheets of Cimarron Software, Inc. (the Company) as of December 31, 2014 and 2013 and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cimarron Software, Inc. at December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has historically incurred substantial losses from operations resulting in an accumulated deficit and negative working capital. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Mantyla McReynolds, LLC
Mantyla McReynolds, LLC
Salt Lake City, Utah
March 30, 2015
See accompanying notes to the financial statements
See accompanying notes to the financial statements
See accompanying notes to the financial statements
See accompanying notes to the financial statements
CIMARRON SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - The Company
The Company and Nature of Business
Cimarron Software, Inc., (the Company) was incorporated under the laws of the State of Utah on February 9, 1995, and is primarily a consultant, solution provider, developer and distributor of customized computer software for use in medical research.
Basis of Presentation
These financial statements have been prepared to reflect the financial position, results of operations and cash flows of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Note 2 - Summary of Significant Accounting Policies
Variable Interest Entity
The Company has analyzed its relationships with third parties to determine if it has an explicit or implicit interest in another entity which may be considered a Variable Interest Entity (VIE). An implicit variable interest exists between the Company and another entity which contracts with the Company to provide software programming to their end customer. This entity is majority owned by the majority shareholder and Chairman of the Company and a relative of the Chairman, though no financial support is provided by the Company to this entity. An entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. A corporation is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company does not have the obligation to absorb losses or the right to receive benefits that are significant to the VIE. Based on the Company’s assessment, it neither is the primary beneficiary of nor has a controlling financial interest in a VIE. Accordingly, no VIE has been consolidated by the Company.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Concentrations of Credit Risk and Customers
Financial instruments which potentially subject the Company to concentration of credit risk consists primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses when necessary, which, when realized, have been within the range of management’s expectations. As of December 31, 2014, 100% of the accounts receivable balance resulted from two entities, one of which is a related party. As of December 31, 2013, 100% of the accounts receivable resulted from two entities, one of which is a related party. Historically, the Company has not experienced significant credit losses on such receivables. No bad debt was recorded in 2014 or 2013. During the year ended December 31, 2014, 99% of the revenues resulted from two entities, one of which is a related party. During the year ended December 31, 2013, 93% of the revenues resulted from three entities, one of which is a related party. The loss of these significant customers would have a material adverse effect on operations.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less. As of December 31, 2014 and 2013, the Company’s cash balances were within the FDIC insurance coverage limits.
Research and Development
Costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with GAAP. All research and development costs have been expensed as incurred totaling $0 in fiscal 2014 and $279,791 in fiscal 2013. The company had no software development costs required to be capitalized under ASC 985-20, Costs of Software to be Sold, Leased or Marketed, and under ASC 350-40, Internal-Use Software, in fiscal 2014 and 2013. Rapid technological advances in hardware and software development, evolving standards in computer hardware and software technology, changing customer needs and frequent new product introductions and enhancements characterize the software markets in which we compete. We plan to continue to dedicate a significant amount of resources to research and development efforts to maintain and improve our current product and services offerings.
Revenue Recognition
Revenues from contracts for non-technology integration consulting services with fees based on time and materials are recognized as the services are performed and amounts are earned in accordance with the Securities and Exchange Commission (the “SEC”) Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”), as amended by SAB No. 104, “Revenue Recognition” (“SAB 104”). The Company considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is reasonably assured. In such contracts, the Company’s efforts, measured by time incurred, typically represent the contractual milestones or output measure, which is the contractual earnings pattern. For non-technology integration consulting contracts with fixed fees, the Company recognizes revenues as amounts become billable in accordance with contract terms, are consistent with the services delivered, and are earned.
Revenues from contracts for technology integration consulting services where the Company designs/redesigns, builds and implements new or enhanced systems applications and related processes for its clients are recognized on the percentage-of-completion method, which involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract. This method is followed where reasonably dependable estimates of revenues and costs can be made. Estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenues and income and are reflected in the financial statements in the periods in which they are first identified. If the Company’s estimates indicate that a contract loss will occur, a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenues that will be generated by the contract and are included in cost of services and classified in accrued expenses.
Revenues for contracts with multiple elements are allocated based on the lesser of the element’s relative fair value or the amount that is not contingent on future delivery of another element. If the amount of non-contingent revenues allocated to a delivered element accounted for under the percentage-of-completion method of accounting is less than the costs to deliver such services, then such costs are deferred and recognized in future periods when the revenues become non-contingent. Fair value is determined based on the prices charged when each element is sold separately. Elements qualify for separation when the services have value on a stand-alone basis, fair value of the separate elements exists and, in arrangements that include a general right of refund relative to the delivered element, performance of the undelivered element is considered probable and substantially in the Company’s control. While determining fair value and identifying separate elements require judgment, generally fair value and the separate elements are readily identifiable as the Company also sells those elements unaccompanied by other elements. There were no contracts in progress as of December 31, 2014 and 2013.
Revenue related to product maintenance contracts is recognized on a straight-line basis over the delivery period. The maintenance contracts are generally one year in length. Maintenance fee revenue has been calculated for any portion allocable to the current year with the balance remaining as deferred revenue. The net unamortized deferred maintenance fees were $18,925 and $33,041 at the years ended December 31, 2014 and 2013, respectively.
Revenues include billings for travel and other out-of-pocket expenses prior to reimbursements to the employee by the Company.
The Company reports revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue-producing transactions.
Accounts Receivable/Allowance for Doubtful Accounts
The Company records its client receivables and unbilled services at their face amounts less allowances. On a periodic basis, the Company evaluates its receivables and unbilled services and establishes allowances based on historical experience and other currently available information. As of December 31, 2014 and 2013, management determined there was no need to establish an allowance for doubtful accounts because there had been little history of nonpayment or indicators of credit risk, such as bankruptcy.
Fair Values of Financial Instruments
The fair value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and note payables approximate the carrying amount due to the short duration of these accounts.
Property, Equipment and Depreciation
Property and equipment are stated at cost less accumulated depreciation. Assets are depreciated using the straight-line method over the estimated useful lives ranging from five to seven years. Maintenance and repairs are charged to operating expenses as incurred. Upon sale or other disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to operating income.
Stock-based Compensation
The Company follows ASC 718, which requires the Company to measure compensation expense for the issuance of share-based awards at fair value and recognize compensation expense over the service period for awards expected to vest. The fair value of stock options was determined at the grant dates using the Black-Scholes option-pricing model. The Company uses historical data of peer companies with observable inputs with a similar size and in a similar industry. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results could differ from estimates, such amounts will be recorded as an adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results may differ substantially from these estimates.
Net Loss per Common Share
Basic earnings per share (“EPS”) are computed by dividing net loss (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net loss by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include stock options and preferred stock. The number of potential common shares outstanding relating to stock options and preferred stock is computed using the treasury stock method.
As the Company has incurred losses for the years ended December 31, 2014 and 2013, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of December 31, 2014 and 2013, there were 466,766 potentially dilutive shares.
Income Taxes
The Company accounts for income taxes under ASC 740. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is "more likely than not" that some component or all of the benefits of deferred tax assets will not be realized.
ASC 740 clarifies the accounting and disclosure for uncertainty in tax positions, as defined. The Company is subject to the provisions of ASC 740 and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.
Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which superseded and replaced ASC 605-25, Revenue Recognition: Multiple-Element Arrangements, and most of ASC 985-605, Software: Revenue Recognition, which applies to all software and SaaS arrangements. Under the new standard, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In order to do so, an entity would follow the five-step process for in-scope transactions: 1) identify the contract with a customer, 2) identify the separate performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the separate performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, the provisions of the new standard are effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. An entity can apply the new revenue standard retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings. The Company is in the process of determining our approach to the adoption of this new revenue recognition standard, as well as the anticipated impact to the Company’s financial position or results of operations.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. ASU 2014-15 requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans and requires an express statement and other disclosures when substantial doubt is not alleviated. ASU No. 2014-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, early application is permitted. We are currently evaluating the accounting implication and do not believe the adoption of ASU 2014-15 to have material impact on our financial statements, although there may be additional disclosures upon adoption.
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. As of December 31, 2014 and December 31, 2013, the Company had an accumulated deficit of $13,989,036 and $13,881,992, respectively. These conditions, in addition to negative working capital and operating losses in current and prior years, raise substantial doubt about the Company's ability to continue as a going concern.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to maintain or replace present financing, to acquire additional capital from investors, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
The Company intends to continue to serve its customers as a developer and distributor of customized computer software used in computer research. The Company intends to focus on raising additional capital and finding additional avenues to distribute its software. To the extent that any such financing involves the sale of our equity, our current stockholders could be substantially diluted. There is no assurance that we will be successful in achieving any or all of these objectives.
Note 3 - Related Party Transactions
Notes Payable - Related Party consists of balances due to original founders David Fuhrman and Robert Sargent, for additional services performed on behalf of the Company. As of December 31, 2014 and December 31, 2013, the Company has related party notes totaling $567,472 and $567,472, respectively.
Interest expenses on the related party notes payable accrues at a rate of six percent per annum and was $33,977 for the year ended December 31, 2014 and $34,076 for the year ended December 31, 2013. The interest on the related party notes was recorded as an increase to equity, since the interest amounts are not expected to be paid out, but are being contributed to the Company by primary shareholders.
A customer of the Company, Data in Motion LLC, is also a related party. This entity is majority owned by the majority shareholder and Chairman of the Company and a relative of the Chairman, though no financial support is provided by the Company to this entity. The Company recorded revenues from this related party of $1,208,359 (approximately 89% of total revenue) for the year ending December 31, 2014, and $673,900 (approximately 69% of total revenue) for the year ending December 31, 2013. In addition, the Company had related party accounts receivable for consulting services provided to this entity amounting to $208,843 and $314,403 as of December 31, 2014 and December 31, 2013, respectively.
The Company also had a related party note receivable for consulting services provided to this entity valued at $0 and $124,720 as of December 31, 2014 and 2013, respectively. This note bore interest at 6% per annum. The initial term of the note was six years with a maturity date of January 1, 2019. The remaining amount of the note was collected in full during September 2014. The Company recorded $4,002 and $18,411 of interest income related to this note for the years ending December 31, 2014 and 2013, respectively.
In 2010 the Company entered into an agreement with Haxton Management, LLC, an entity which is owned by a relative of the president of the Company, to provide financial management consulting services. The agreement states that for each hour of services billed to the Company, the associated fee shall be contributed to the Company. As a result of higher revenues, the Company's cash level increased during the year ended December 31, 2014. Management elected to amend the agreement with Haxton Management, LLC, and pay for these financial management consulting services in cash. For the years ended December 31, 2014 and 2013, the Company paid $120,000 and $0, which were reported as management consulting fees to a related party. For the years ended December 31, 2014 and 2013, the Company recognized contributions of $0 and $31,800, respectively, which were recorded as contributed services and recorded to paid in capital.
Additionally, the Company recognized services contributed by the president of the Company in the amount of $0 and $48,500 for a total of $0 and $80,300 of contributed services for the years ended December 31, 2014 and 2013, respectively.
Note 4 - Deferred Revenue
The Company charges a maintenance and support fee for the license and software. The maintenance agreement is paid in advance for 12 months of maintenance and support, which is recorded as deferred revenue and recognized as revenue straight-line over the service period. As of December 31, 2014 and 2013, the Company had $18,925 and $33,041 of deferred revenues.
Note 5 - Leases
The Company entered into a sub-lease agreement with a related party in November, 2010 for commercial office space. The terms of the verbal agreement are month-to-month. The Company ended the lease in June 2014. The Company paid sub-lease or rent payments in the amount of $7,913 and $15,031 during the years ended December 31, 2014 and 2013, respectively.
The Company entered into a lease agreement with an unrelated party in July, 2014 for commercial office space. The term of the agreement is for 5 years ending in June 2019. The terms of the lease required a security deposit of $3,033 and monthly payments of $3,033 with nominal increases each year thereafter. The Company sub-leases a portion of the commercial office space to a related party for $1,502 per month. The terms of the verbal agreement are month-to-month. The Company paid lease or rent payments in the amount of $18,198 and $0 and was reimbursed $9,099 and $0 by the related party during the years ended December 31, 2014 and 2013, respectively.
The future minimum lease payments as of December 31, 2014 are as follows:
The Company leased certain machinery and equipment in 2014 and 2013 under an agreement that is classified as a capital lease. The cost of equipment under capital leases is included in the balance sheets as property and equipment and was $35,782 and $32,396 at December 31, 2014 and 2013, respectively. Accumulated depreciation of the leased equipment at December 31, 2014 and 2013 was $27,166 and $18,319, respectively.
The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of December 31, 2014 are as follows:
Note 6 - Property and Equipment
Property and equipment consist of the following:
Depreciation expense of $9,578 and $8,794 was recorded for the years ended December 31, 2014 and 2013, respectively.
Note 7 - Income Taxes
The Company’s provision for income taxes was $121 and $220 for the years ended December 31, 2014 and 2013, respectively.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a full valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is calculated by multiplying a federal and state blended rate of 37.30% by the cumulative Net Operating Loss (“NOL”) of $11,798,675. The total valuation allowance is equal to the total deferred tax asset less any deferred tax liabilities.
The provision for income taxes consists of the following:
For the years ended December 31, 2014 and 2013, the Company had taxable loss of $104,254 and $133,998, respectively.
As of December 31, 2014, the Company’s available unused net operating loss carryforwards that may be applied against future taxable income expire as follows:
The Company has filed income tax returns in the US. The years ended December 31, 2011, through 2014 are open for examination.
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset at December 31, 2014 and 2013 are summarized below.
The valuation allowance increased by $36,083 in the current year from $4,361,907 for the year ended December 31, 2013.
The income tax provision differs from the amount of income tax determined by applying the blended U.S. federal income tax and Utah state tax rate of 37.30% to pretax income from continuing operations for the years ended December 31, 2014 and 2013 due to the following:
The Company has evaluated for uncertain tax positions and determined that any required adjustments would not have a material impact on the Company’s balance sheets, statements of operations, or cash flows.
The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense. For all prior tax years, the Company did not recognize any interest or penalties, nor did it have any interest or penalties accrued as of December 31, 2014 or 2013 related to unrecognized benefits.
Note 8 - Stock-based Compensation
The Company reserved for issuance an aggregate of 400,000 shares of common stock under the 2004 Stock Incentive Plan (“the Plan”) that was adopted in April of 2005. The 400,000 shares under the Plan were reserved for issuance as stock options to employees of the Company. On December 21, 2010, 300,000 stock options were granted to key employees under the Plan with an exercise price of $0.01 per share.
The fair value of each option granted under the Plan is estimated on the date of grant, using the Black-Scholes option pricing model. The risk-free interest rate is based upon the U.S. Treasury yield curve at the time of grant for the respective expected term of the option. The expected term (estimated period of time outstanding) of options was estimated using the simplified method for each option under ASC 718-10-S99-1 with the expected term equal to the weighted average of the vesting period and the expiration period. The Company was unable to rely on historical exercise data due to insufficient historical exercise data. The simplified method was applied to all options for all periods presented. The expected volatility of the Company’s options was calculated using historical data of comparable companies in the Company’s industry since the Company has no or limited data from which to derive its historical volatility. Expected dividend yield was not considered in the option pricing formula since the Company does not pay dividends and has no plans to do so in the future. If actual periods of time outstanding and rate of forfeitures differs from the expected rates, the Company may be required to make additional adjustments to compensation expense in future periods.
Stock based compensation expense related to stock options was $600 for the year ended December 31, 2014 and 2013, respectively. The total unrecognized compensation cost related to stock options expected to vest was $600 as of December 31, 2014, which is expected to be recognized during 2015.
A summary of the status of the Company’s stock option plans as of December 31, 2014 and 2013 and the changes during the period are presented below:
The following table summarizes information about the stock options as of December 31, 2014:
Aggregate intrinsic value represents the fair market value of the Company’s common stock price at December 31, 2014 in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable.
Note 9 - Fair Value of Financial Instruments
ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, accounts receivable, accounts payable, accrued expenses and note payables, approximate their fair market value based on the short-term maturity of these instruments.
The Company had no assets or liabilities measured at fair value on a recurring or nonrecurring basis as of December 31, 2014.
Note 10 - Preferred Stock
The Company is authorized to issue 500,000 shares of Series A preferred stock with no par value and 200,000 shares of Series B preferred stock with no par value. As of December 31, 2014 and December 31, 2013 there were 200,119 shares of Series A preferred stock issued and outstanding and no shares of Series B preferred stock issued or outstanding.
On November 26, 1996, The Company issued 500,000 shares of Series A preferred stock having no par value, for gross proceeds of $500,000. On September 24, 1999, the Company issued 183,951 shares of Series B preferred stock having no par value, for gross proceeds of $3,500,000. On February 2, 2005, the Company purchased 299,881 and 183,951 shares of Series A preferred stock and Series B preferred stock, respectively, in conjunction with the repurchase of shares held by a former investor for gross proceeds of $1.00 and retired the shares. The shares have the following rights:
Voting rights: The holder of each share of preferred stock shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock and shall be entitled to vote together with the holders of common stock (in a single voting group) with respect to any question upon which holders of common stock have the right to vote. The holders of preferred stock shall be entitled to designate directors of the Corporation.
Liquidation: Upon any liquidation, holders of preferred stock are entitled to distribution or payment before any other class of stock. The per share liquidation value on any date is equal to $1.30 per share with respect to the Series A preferred stock, plus declared but unpaid dividends.
Dividends: The holders are entitled to receive dividends at a rate of $.10 per share per annum and $1.90 per share per annum for Series A preferred stock and Series B preferred stock, respectively, payable quarterly only when and if declared by the Board of Directors. Dividends are non-cumulative.
Conversion: The shares of preferred stock are convertible at any time, at the option of the holder, into shares of common stock at a price equal to $1.20 per share with respect to the Series A preferred stock and $19.03 per share with respect to the Series B preferred stock. Each share shall automatically convert immediately upon the earlier of the effective date of a registration statement under the Securities Act of 1933, for a firmly underwritten public offering (initial public offering) with a per share price of at least $7.00 and gross proceeds of a least $10 million or more. The holder of each share of preferred stock shall have the right to one vote for each share of Common Stock into which such preferred stock could then be converted.
Redemption: The Company may redeem any or all of the then outstanding shares of Series A and Series B preferred stock at the original purchase price, plus declared and unpaid dividends, and including a redemption premium equal to 10% of the initial purchase price per annum accrued daily from the initial purchase date to the redemption date.
The Company has neither declared nor paid dividends during the periods ended December 31, 2014 and 2013.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the year ended December 31, 2014, covered by this Form 10-K. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for the preparation of the financial statements and related financial information appearing in this Annual Report on Form 10-K. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The management of the Company is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company's internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
▪
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
▪
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the Company; and
▪
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Management, including the Chief Executive Officer and Chief Financial officer, does not expect that the Company's disclosure controls and internal controls will prevent all error and all fraud. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Further, over time, control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
With the participation of the Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2014, based upon the 2013 framework in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management has concluded that, as of December 31, 2014, the Company had material weaknesses in its internal control over financial reporting. Specifically, management identified the following material weaknesses at December 31, 2014:
1.
Lack of oversight by independent directors in the establishment and monitoring of required internal controls and procedures;
2.
Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
3.
Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting and to allow for proper monitoring controls over accounting;
4.
Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.
To remediate our internal control weaknesses, management intends to implement the following measures:
▪
The Company will add sufficient number of independent directors to the board and appoint an audit committee.
▪
The Company will add sufficient knowledgeable accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements.
▪
Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures.
The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt for its continued operational activities and corporate expenses. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
We understand that remediation of material weaknesses and deficiencies in internal controls are a continuing work in progress due to the issuance of new standards and promulgations. However, remediation of any known deficiency is among our highest priorities. Our management will periodically assess the progress and sufficiency of our ongoing initiatives and make adjustments as and when necessary.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant rules of the SEC that permit us to provide only management’s report in this annual report. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Included in the Act is a provision that permanently exempts smaller public companies that qualify as either a Non-Accelerated Filer or Smaller Reporting Company from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The directors and executive officers of the Company are:
David Fuhrman, CEO and Chairman of the Board of Directors, has over 25 years of experience in the analysis, design, and implementation of software systems and solutions. He has demonstrated effective leadership in all phases of Software Development Cycle methodologies. Mr. Fuhrman has vast and diverse experience in creating software products, software systems integrations, and solutions in Genomics, Proteomics, Clinical Diagnostics, Clinical Research Informatics, Laser Optics, and Finance.
Before starting Cimarron, he was a key member of the informatics research team at the University of Utah Human Genome Center, providing leadership and technical insight in database design and software tools that were integrated into the high-throughput DNA Sequencing and Genotyping technologies developed at the Genome Center. Mr. Fuhrman also previously served in positions at TMA Technologies, Unisys Corp., and Wasatch Security Research.
Rob Sargent, Director, also has over 26 years of experience in the analysis, design, and implementation of software systems and solutions in the biotechnology space. Before founding Cimarron with Mr. Fuhrman in 1995, he was a member of a development team at the University of Utah Human Genome Center which developed data models and transformed and implemented several key information systems. From 2008-2009, Mr. Sargent was a Senior Software Developer at Infopia, Inc., and from 2009 to the present, he has been a Staff Developer at Amerisys, Inc., a biotech company in Salt Lake City, Utah. Mr. Sargent graduated from the University of British Columbia with a degree in Biology (Genetics option) in 1980.
None of our directors qualify as “independent” as that term is defined under the applicable rules and regulations of the SEC, meaning that our directors may have business interests in the Company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. We believe that the members of our executive team are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We believe that retaining an independent director who would qualify as an "audit committee financial expert" would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material income to date. In addition, we currently do not have nominating, compensation or audit committees or committees performing similar functions nor do we have a written nominating, compensation or audit committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes the functions of such committees can be adequately performed by our board of directors. Further, we are not a "listed company" under SEC rules and thus we are not required to have a compensation committee or a nominating committee.
We do not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. Our board of directors believes that, given the current stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the election of nominees to our board of directors and we do not have any specific process or procedure for evaluating such nominees. Our board of directors assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.
Term of Office
Our directors are appointed to hold office until removed from office or until his successor has been elected and qualified in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors. Officers are appointed annually by our Board of Directors and each Executive Officer serves at the discretion of our Board of Directors. We do not have any standing committees. Our Board of Directors may in the future determine to pay Directors’ fees and reimburse Directors for expenses related to their activities.
None of our Officers and/or Directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.
Audit Committee
We do not have an audit committee of the Board of Directors. Management has determined not to establish an audit committee at present because of our limited resources and limited operating activities do not warrant the formation of an audit committee or the expense of doing so. We do not have a financial expert serving on the Board of Directors or employed as an officer based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial expert under Section 407 of the Sarbanes-Oxley Act of 2002 and Item 407(d) of Regulation S-K is beyond our limited financial resources at this stage of our development.
Certain Legal Proceedings
No director, nominee for director, or executive officer has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.
Compliance with Section 16(A) Of the Exchange Act.
During fiscal 2014, we filed a Form 8-A registration statement under Section 12 of the Securities Exchange Act of 1934, as amended. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file.
Code of Ethics
The Board of Directors has established a written code of ethics that applies to the Company’s officers. A copy of the Code of Ethics has previously been filed and is incorporated by reference herein.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long-term compensation awarded to, earned by, or paid to the named executive officer for all services rendered in all capacities to our company for the years ended December 31, 2014, 2013, and 2012:
(1) In 2014, the Company paid Mr. Fuhrman’s health insurance in the amount of $14,588, dental insurance in the amount $1,475, and contributed $3,000 to a health savings account for his benefit.
(2) In 2013, the Company paid Mr. Fuhrman’s health insurance in the amount of $14,798, dental insurance in the amount $1,412, and contributed $3,000 to a health savings account for his benefit.
(3) In 2012, the Company paid Mr. Fuhrman’s health insurance in the amount of $14,867, dental insurance in the amount $1,391, and contributed $3,000 to a health savings account for his benefit.
Employment Agreements
The Company has no formal employment agreements.
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity during the last three years.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial ownership of our Common Stock as of December 31, 20141, for:
·
each of our executive officers and directors;
·
all of our executive officers and directors as a group; and
·
any other beneficial owner of more than 5% of our outstanding Common Stock.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include ordinary shares issuable upon the exercise of stock options that are immediately exercisable or exercisable within 60 days. Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. The information is not necessarily indicative of beneficial ownership for any other purpose.
(1) Subsequent to the year ended December 31, 2014, David Fuhrman, our CEO and director, and Rob Sargent (through his entity Rare Principle, L.C.), our director, purchased 100% of the 200,119 issued and outstanding shares of Series A Preferred Stock through private transactions outside of the Company, which is reflected in the table above in the interest of disclosure.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
As of December 31, 2014 and 2013, the Company has related party notes totaling $567,472 and $567,472, respectively, due to original founders David Fuhrman and Robert Sargent for additional services performed on behalf of the Company. Interest expenses on the outstanding related party notes payable accrues at a rate of six percent per annum and was $33,977 and $34,076 for the years ended December 31, 2014 and 2013, respectively. The interest on the related party notes was recorded as an increase to equity, since the interest amounts are not expected to be paid out, but are being contributed to the Company by primary shareholders.
A customer of the Company, Data in Motion LLC, is also a related party as our president, David Fuhrman, has a 33% ownership stake in it. The Company recorded revenues from this related party of $1,208,359 (approximately 89% of total revenue) for the year ending December 31, 2014, and $673,900 (approximately 69% of total revenue) for the year ending December 31, 2013. In addition, the Company had related party accounts receivable for consulting services provided to this entity valued at $208,843 and $314,403 as of December 31, 2014 and December 31, 2013, respectively. The Company also has a related party note receivable for consulting services provided to this entity valued at $0 and $124,720 as of December 31, 2014 and 2013, respectively. This note bears interest at 6% per annum. The Company recorded $4,002 and $18,411 of interest income related to this note for years ending December 31, 2014 and 2013, respectively.
In 2010, the Company entered into an agreement with an entity which is owned by a relative of the president of the Company to provide financial management consulting services. That entity is Haxton Management, LLC, and it is owned by Steven Fuhrman, the brother of our president. The agreement states that for each hour of services billed to the Company, the associated fee shall be contributed to the Company. For the years ended December 31, 2014 and 2013, the Company recognized contributions of $0 and $31,800, respectively, which were recorded as contributed services and recorded to paid in capital. Additionally, the Company recognized services contributed by the president of the Company in the amounts of $0 and $48,500 for a total of $0 and $80,300 of contributed services for the years ended December 31, 2014 and 2013, respectively.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed by our principal independent accountants, Mantyla McReynolds LLC, for each of our last two fiscal years for the categories of services indicated.
Audit fees. Consists of fees billed for the audit of our annual financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.
Tax fees. Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
Other fees. Other services provided by our accountants.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 30, 2015
By:
/s/ David Fuhrman
David Fuhrman, Chief Executive Officer, Chief Financial Officer, and Director
Date: March 30, 2015
By:
/s/ Rob Sargent
Rob Sargent, Director