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| COSN.PK > SEC Filings for COSN.PK > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially. When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this Quarterly Report. We undertake no obligation to publicly release any revisions to the forward-looking statements after the date of this document. You should carefully review the risk factors described in other documents we file from time to time with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K/A for our fiscal year ended December 31, 2008 and our other Quarterly Reports on Form 10-Q filed by us in our fiscal year 2009.
OVERVIEW
Our strategy is to enhance stockholder value by pursuing opportunities to redeploy our assets through an acquisition of one or more operating businesses with existing or prospective taxable earnings that can be offset by use of our net operating loss carry-forwards ("NOLs"). No assurance can be given that we will find suitable candidates, and if we do, that we will be able to utilize our existing NOLs.
We were a provider of carrier network equipment products and services until the fourth quarter of fiscal year 2004 during which time we discontinued our product lines, took actions to lay off most of our employees, terminated contract manufacturing arrangements, contractor and consulting arrangements and various facility leases, and sold, scrapped or wrote-off our inventory, property and equipment. In July 2005, our board of directors approved our strategy of redeploying our existing resources to identify and acquire new business operations. In 2006, we sold the remaining assets of our carrier network products business with the sale of our patent portfolio and the rights to the related intellectual property. During 2006, we also completed the wrap-up of our carrier services business, providing customer support services for our discontinued products through December 31, 2006, at which time we terminated all customer support offerings. Effective July 1, 2007, we engaged SP Corporate Services LLC to provide all of our executive, financial and administrative support service, rent and personnel requirements and, as a result, no longer have any employees.
DUE TO THE ADOPTION OF OUR REDEPLOYMENT STRATEGY, THE INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, MAY NOT BE INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIODS. THE NINE MONTHS ENDED SEPTEMBER 30, 2009 PRIMARILY REFLECT, AND FUTURE PERIODS PRIOR TO A REDEPLOYMENT OF OUR ASSETS ARE EXPECTED TO PRIMARILY REFLECT, GENERAL AND ADMINISTRATIVE EXPENSES AND TRANSACTION EXPENSES ASSOCIATED WITH THE CONTINUING ADMINISTRATION OF THE COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to equity issuances. Additionally, the audit committee of our board of directors reviews these critical accounting estimates at least annually. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for certain judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The following accounting policies are significantly affected by the judgments and estimates we use in the preparation of our financial statements.
Impact of Equity Issuances on Operating Results
Equity issuances have historically had a material impact on our operating results. The equity issuances that have historically affected operating results to date include warrants granted to customers and suppliers, stock options granted to employees and consultants, stock issued in lieu of cash compensation to suppliers and re-priced stock options.
Our cost of revenue, operating expenses and interest expense were affected in prior years by charges related to warrants and options issued for services. Furthermore, some of our employee stock option transactions had resulted in deferred compensation, which was presented as a reduction of stockholders' equity on our balance sheet and was amortized over the vesting period of the applicable options using the graded vesting method.
Some of the stock options granted to our employees had resulted in deferred compensation as a result of stock options having an exercise price below their estimated fair value. Deferred compensation is presented as a reduction to stockholders' equity on the balance sheet and is then amortized using an accelerated method over the vesting period of the applicable options. When an employee terminates, an expense credit is recorded for any amortization that has been previously recorded as an expense in excess of vesting.
Revenue
Effective December 31, 2006, we ceased all customer service operations. Accordingly, there were no revenues recognized for the three and nine months ended September 30, 2009 and 2008, respectively.
Non-Cash Charges Related to Equity Issuances
During the nine months ended September 30, 2009 and 2008, we recorded $26,000
and $25,000, respectively, of non-cash charges related to equity
issuances. Such costs were $9,000 and $9,000 for the three month period ended
September 30, 2009 and 2008 respectively. The charges relate to the adoption of
ASC 718.
Cost of Revenue
There was no cost of revenue for the three and nine months ended September 30, 2009 and 2008 as we closed our customer service business effective December 31, 2006.
Research and Development Expenses
There were no research and development expenses for the three and nine months ended September 30, 2009 and 2008 as we discontinued all research and development in connection with our announcement in September 2004 that we were terminating all employees and discontinuing our products. We do not expect to incur research and development costs unless and until we acquire new operating businesses.
Sales and Marketing Expenses
There were no sales and marketing expenses for the three and nine months ended September 30, 2009 and 2008, respectively. With our announcement in September 2004 that we were terminating all employees and were discontinuing our products, we have ceased essentially all ongoing sales and marketing efforts. We do not expect to incur sales and marketing costs unless and until we acquire new operating businesses.
General and Administrative Expenses
General and administrative expenses were $583,000 and $492,000 for the nine months ended September 30, 2009 and 2008, respectively. Such costs were $170,000 and $169,000 for the three months ended September 30, 2009 and 2008 respectively. The increases from September 30, 2008 to 2009 are due to primarily to increased legal costs. With our announcement in September 2004 that we were terminating all employees and discontinuing our products, our general and administrative efforts have been focused on activities related to identifying and acquiring profitable business operations. General and administrative costs for the nine months ended September 30, 2009 and 2008 consisted of costs of our contractors, legal and accounting services, insurance and office expenses. General and administrative expenses should remain at approximately the levels reported in the three months ended September 30, 2009 for the quarter ending December 31, 2009.
Interest and Other Income (Expense)
For the nine months ended September 30, 2009 and 2008, interest and other income was $139,000 and $568,000, respectively. For the three months ended September 30, 2009 and 2008, interest and other income was $31,000 and $171,000 respectively. The decreases during the three and nine month periods ended September 30, 2008 to September 30, 2009 are due to lower interest rates during 2009 as compared to 2008.
Income Tax Provision
Provisions for income taxes were nil for the three and nine months ended September 30, 2009 and 2008, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have adopted a strategy of seeking to enhance stockholder value by pursuing opportunities to redeploy our assets through an acquisition of one or more operating business with existing or prospective taxable earnings that can be offset by use of our net operating loss carry-forwards ("NOLs"). We believe that we possess sufficient liquidity and capital resources to fund our operations and working capital requirements for at least the next 12 months. However, our redeployment of assets strategy raises substantial doubt as to our ability to continue as a going concern.
We will continue to prepare our financial statements on the assumption that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As such, the financial statements do not include any adjustments to reflect possible future effects of the recoverability and classification of assets or the amounts and classification of liabilities that may result from any decisions made with respect to an assessment of our strategic alternatives. If at some point we were to decide to pursue alternative plans, we may be required to present the financial statements on a different basis. As an example, if we were to decide to pursue a liquidation and return of capital, it would be appropriate to prepare and present financial statements on the liquidation basis of accounting, whereby assets are valued at their estimated net realizable values and liabilities are stated at their estimated settlement amounts.
Cash, Cash Equivalents and Short-Term Investments
Cash, cash equivalents and short-term investments were $22.7 million and $23.2 million at September 30, 2009 and December 31, 2008, respectively.
Operating Activities
We used $385,000 in cash from operations for the nine months ended September 30, 2009 as compared to generating $20,000 in cash from operations for the nine months ended September 30, 2008. The increase in cash usage in 2009 is due primarily to the net loss incurred for the nine months ended September 30, 2009 as compared to the net income for the nine months ended September 30, 2008.
Investing Activities
We generated $13.9 million in cash in the nine months ended September 30, 2009 as compared to utilizing cash of $7.2 million during the nine months ended September 30, 2008 due to a decrease in purchases of short term investments for the nine months period ended September 30, 2009. There were no capital expenditures in the nine months ended September 30, 2009 or 2008, respectively.
Financing Activities
There were no significant financing activities in the nine months ended September 30, 2009, or 2008 respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material affect.
Our board of directors, on completion of a comprehensive review of strategic alternatives, approved a plan to redeploy our existing resources to identify and acquire one or more new business operations. Our redeployment strategy will involve the acquisition of one or more operating businesses with existing or prospective taxable earnings that can be offset by use of our NOLs. No assurance can be given that we will find suitable candidates, and if we do, that we will be able to utilize our existing NOLs.
At September 30, 2009, we had $22.7 million in cash and cash equivalents. We believe we possess sufficient liquidity and capital resources to fund our operations and working capital requirements for at least the next 12 months.
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