This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting management’s current expectations. Examples of such forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals or that any potential transactions herein described will be realized or consummated. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievementsachievem ents expressed or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of our company. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The important factors discussed under Item 1A, Risk Factors, among other factors, could cause actual results to differ materially from those indicated by forward-looking statements made herein and represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. We assume no obligation to update the forward-looking informationin formation to reflect actual results or changes in the factors affecting such forward-looking information.

 

 

As previously reported, on September 18, 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly-owned subsidiary thereof pursuant to which the Company and DPI agreed to sell substantially all of their intellectual property assets. A special stockholders meeting was called for January 24, 2007 to approve sale of assets and to authorize the dissolution of the Company. Proxies were mailed on or about December 1, 2006. The Board adjourned the meeting without a final vote in for reasons it believed to be in the best interest of the stockholders. The meeting was reconvened on February 21, 2007. The vote required to approve the asset sale and dissolution was a majority of the shares outstanding on the record date. The dissolution proposal was contingent upon approval of the asset sale. A total of 1,533,452 shares voted on the asset sale proposal, of which 1,440,708 shares were voted in favor, 82,318 shares voted against and 10,424 votes abstained. Although the votes cast on the proposal to sell the assets was overwhelmingly in favor thereof, the requisite vote was not obtained. As a result, the proposal regarding dissolution was not presented to a vote of stockholders.

 

On April 25, 2007, pursuant to a Common Stock Purchase Agreement dated April 25, 2007, the Company sold to a group of investors, in a private transaction, an aggregate of 1,623,661 shares for an aggregate purchase price of $422,152, of which $259,786 was placed into escrow and was released ten days after the closing of the sale of assets to DTS.

 

The Company re-solicited a vote on the sale of assets to DTS in the second quarter of 2007. The Asset Purchase Agreement and the transactions contemplated therein were approved by the stockholders of the Company at a special meeting on June 15, 2007. The Asset Purchase Agreement was consummated with DTS on July 2, 2007. Upon the conclusion of a nine month indemnification period, the Company distributed $0.21/share, substantially all of its remaining cash assets, to its stockholders, after satisfying its liabilities and leaving an approximate $100,000 cash residual.  The Company has no plans to dissolve.

 

The company effectuated a 1 for 10 reverse split during the fiscal year 2008, resulting in 6,500,000 outstanding shares vs. 65,000,000 at the end of fiscal 2007.

 

Our financial statements contain information relating to our revenues, loss and total assets for the fiscal year ended December 31, 2008.2009.

We ceased all licensing activities in 2007 and all material license agreements were sold to DTS, Inc. on July 2, 2007.

As of July 2, 2007, the date of the asset sale, our technology had been incorporated in products offered by more than 105 separate OEM Licensees and customers on various economic and business terms. Some of these OEM Licenses required a license issuance fee and/or a separate per unit royalty, while others were licensed under the Logo Usage Agreement (“LUA”) or were authorized customers under bundled royalty licenses.

In 2007, two major customers, Sharp and Samsung, presented in no particular order of importance, each accounted for 10% or more of our total royalty revenues. One OEM accounted for 83% and one accounted for 12% of our royalty revenues during 2007. All other OEMs accounted for less than 5% of royalty revenues individually.

We generated revenues in our audio business from royalties pursuant to our OEM and other licenses, and from non-recurring engineering fees to port our technologies to specific licensees’ applications. Our royalty revenues, which totaled $750,000 in 2007, were derived entirely from Foundry and OEM license fees and royalties.

 

Historically, we sought to maximize return on our intellectual property base by concentrating our efforts in higher margin licensing and software products and eliminating our hardware product operations. Licensing operations have been managed internally by our personnel and through use of an international sales representative force.

 

In 2007, revenues increased as compared with the prior year due to a one time extension of an existing license agreement in which the initial authorized usage had been exhausted and replenishment was necessary.   With the sale of assets described above, revenues declined to $0.

 

Our principal competitors in the field of virtual audio were SRS Labs, Inc. and Dolby Laboratories, Inc. In addition, some DSP foundries and OEMs have proprietary virtual audio technologies that they regularly offer to OEMs at no cost. These companies had substantially greater resources than us to devote to further technologies and new product developments.

 

We were unable to compete in this market, even though we offered a single source, complete suite of patented and proprietary 3D Stereo, interactive positional, virtual surround sound, headphone and speaker virtualization technologies. We lacked sufficient financial resources to compete, our customers were too strong, we were closely dependent on third party licensee marketing plans which generally presented a longer or uncertain revenue stream than our cash resources could support and found the market less receptive to our value proposition than we had expected. This resulted in an inhospitable market for our products and we could not compete.

Our research and development expenditures in 2008, 2007 and 2006 were approximately 0%, 0% and 23% of total operating expenses, respectively. These expenses consisted of salaries and related costs of employees and consultants engaged in ongoing research, design and development activities and costs for engineering materials and supplies.

 

From May 2006 onward, we had no employees in our R&D group, based on our board of directors’ decision to offer our assets for sale. We discontinued our technology development in December 2005 and support efforts in May 2006 when the sole engineer resigned. As a result, there were no such expenditures in 2007 or 2008.

We relied on a variety of intellectual property protections for our products and services, including patent, copyright, trademark and trade secret laws, and contractual obligations. All of our intellectual property was sold to DTS, Inc. on July 2, 2007.

We began 20082009 with no full time employees and onetwo part time employee and ended 20082009 with no full time employees and three part time employees.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting management’s current expectations. Examples of such forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals or any transactions described herein will be realized. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by suchs uch forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of our company. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption “Factors That May Affect Future Results” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, herein, among others, would cause actual results to differ materially from those indicated by forward-looking statements made herein and represent management’s current expectations and are inherently uncertain. Investors are warned that actualact ual results may differ from management’s expectations. We assume no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

 

Our business environment was very competitive, which impacted us in various ways, namely to cease operations and sell the assets of the Company and those of Desper Products, Inc. As a result of the consummation of that asset sale, the following risk factors became more relevant:

We have no source of revenue. After the contractual nine month indemnification period relating to the sale of assets on July 2, 2007, we distributed the remaining cash assets of the company, other than an approximate $100,000 cash residual, in April 2008. This cash balance has been further diminished during the remainder of 2008 and 2009 by general and administrative expenses.

Upon distribution of the cash assets, each of Messrs. Mandell and Civelli resigned from the Board of Directors and the new investor group involved in the April 25, 2007 stock offering took control of the management of the Company. Although there is no assurance thereof, theThe new investors in the Company  may bringhave not yet brought forth their own plan in the future regarding the direction of the Company. Should management believe it is in the Company’s and stockholders’ best interests to raise additional financing to pursue new business opportunities, new financing is likely to dilute existing stockholders. Stockholders at the special meeting held on June 15, 2007 approved amending the Company’s charter and gave the Board of Directors authority to affect a substantial reverse stock split at the time of its choosing and to increase the number of authorized common and preferred shares. While a new financing and new business model, if effected, could be successful, there is no assurance this will occur or, if it occurs, that it would be successful.

On March 6, 2009,29, 2010, the closing price reported by the OTC Bulletin Board was U.S. $0.08$0.01 per share. Stockholders are urged to obtain current market prices for our Common Stock. Corporate Stock Transfer is our transfer agent and registrar.  The Company had a 1 for 10 reverse split of its stock on November 21, 2008, which split is reflected in the above table. Likewise, share and per share data disclosed in the remainder of this report have been restated to reflect the results of this split, unless otherwise noted.

To our knowledge, because most shares are held in street name, there were approximately 200 holders of record of the stock of the Company as of March 25, 2009.18, 2010. Our transfer agent has indicated that beneficial ownership is believed to be in excess of 2,000 stockholders.

Other than the $0.21 cash distribution in April 2008, we have not paid any cash dividends on our Common Stock and have no present intention of paying any dividends. Our current policy is to retain earnings, if any, for operations in connection with selling the Company as a shell corporation, maintain our status as a reporting company and/or merge the Company successfully into a new operating business.  Our future dividend policy will be determined from time to time by the Board of Directors.

The Company did not repurchase any of its equity securities during the fourth quarter of the fiscal year ended December 31, 2008.2009.

Not AppricableApplicable

There was no revenue for the year ended December 31, 20082009 compared to $751,000$0 for the year ended December 31, 2007 (due to a one time extension of a then existing licensing agreement as described above in “Customers, Revenues and Expenses”).2008 As we sold all of our operating assets in 2007, we have no means to generate new revenues.

Net loss was $59,000 for the year ended December 31, 2009 compared to net loss was $144,000 for the year ended December 31, 2008 compared to net income of $807,000 for the year ended December 31, 2007.2008.

At December 31, 2008,2009, we had $67,000$2,000 in cash and cash equivalents, as compared to $582,000$67,000 at December 31, 2007.2008. We had working capital of  ($10,000) at December 31, 2009 as compared with working capital of $48,000 at December 31, 2008 as compared with working capital of $1,557,000 at December 31, 2007.

Our current policy is to retain earnings, if any, for operations in connection with selling the Company as a shell corporation, maintain our status as a reporting company and/or merge the Company successfully into a new operating business.

The purpose of MD&A is to provide our shareholders and other interested parties with information necessary to gain an understanding of our financial condition, changes in financial condition and results of operations. As such, we seek to satisfy three principal objectives:

This discussion and analysis of our financial condition and results of operations are based upon our consolidated statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. In consultation with our board of directors and Audit Committee, we identified three accounting policies that we believe have historically been critical to an understanding of our financial statements. These important accounting policies require management’s most difficult, subjective judgments. While these policies become much less relevant in the absence of revenue generating assets, they remain relevant in the review of prior period financial statements in this report and in understanding the residual revenue in the current period.

 

The Company’s financial statements, including the Consolidated Balance Sheets, the Consolidated Statements of Operations, the Consolidated Statements of Cash Flows and the Consolidated Statements of Stockholders’ Equity, should be read in conjunction with the Notes thereto included elsewhere in this report. MD&A explains the key components of each of these financial statements, key trends and reasons for reporting period-to-period fluctuations.

 

The Consolidated Statement of Operations tells the reader whether the Company had a profit or loss. It shows key sources of revenue and major expense categories. It is important to note period-to-period comparisons of each line item of this statement, reasons for any fluctuation and how costs are managed in relation to the overall revenue trend of the business. These statements are prepared using accrual accounting under generally accepted accounting standards in the United States. This is addressed further in MD&A under Revenues and Expenses.

 

 

The following discussion and analysis relates to our results of operations for the year ended December 31, 2008 compared to the year ended December 31, 2007, and the year ended December 31, 2007 compared to the year ended December 31, 2006. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this report.

There were no revenues for the yearyears ended December 31, 20082009 and  no revenues from continuing operationsDecember 31, 2008.

The net loss  from continuing operations was $59,000 for the year ended December 31, 2009, compared to a net loss of $144,000 for the year ended December 31, 2008, compared to a loss of $172,000 for the year ended December 31, 2007.

At December 31, 2008,2009, we had $66,800$1,800 in cash and cash equivalents as compared to $582,000$66,800 at December 31, 2007. The decrease in cash primarily resulted from the distribution2008.. We had working capital of $1,365,000 or $0.21/share during 2008. We had($10,000) at December 31, 2009 as compared with working capital of $48,000 at December 31, 2008 as compared with working capital of $1,557,000 at December 31, 2007.2008.

 

As previously disclosed, pursuant to an Asset Purchase Agreement, we sold substantially all of our assets and those of our wholly-owned subsidiary, DPI (excluding certain assets, such as cash), to a wholly-owned subsidiary of DTS, Inc. This transaction was approved by the stockholders on June 15, 2007, and was closed on July 2, 2007.

 

There is no current source of future cash flow for the Company as we sold substantially all of our audio assets and those of our wholly-owned subsidiary, Desper Products, Inc., on July 2, 2007.

 

In September 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly owned subsidiary thereof pursuant to which we agreed to sell substantially all of our assets (other than certain excluded assets, such as cash). The consummation of the asset sale was subject to approval of holders of a majority of the outstanding shares of the Common Stock of the Company. In April 2007, the Company sold an aggregate of 16,236,615 shares (1,623,662 shares after the 1-for-10 reverse stock split effected in December, 2008) of its Common Stock to certain investors.

 

The Company held a special meeting of stockholders on June 15, 2007 to vote on the asset sale transaction but not with respect to the dissolution of the Company. The asset sale transaction was approved. The asset sale transaction closed on July 2, 2007.  $0.21/share, or $1,365,000, was distributed to shareholders in April 2008 upon completion of a 270 day escrow period.

 

Our current policy is to retain earnings, if any, for operations in connection with selling the Company as a shell corporation, maintain our status as a reporting company and/or merge the Company successfully into a new operating business.