UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,2007
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 000-25977
L Q CORPORATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0421089
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
888 Seventh Ave., 17TH floor, New York, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 974-5730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filler and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The number of shares outstanding of the registrant's common stock as of May 10,
2007 was 3,214,408.
L Q CORPORATION, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION 1
ITEM 1. FINANCIAL STATEMENTS 1
Condensed Consolidated Balance Sheets as of
March 31, 2007 (unaudited) and December 31, 2006
Condensed Consolidated Statements of Operations for
the three months ended March 31, 2007 (unaudited)
and 2006 (unaudited)
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2007 (unaudited)
and 2006 (unaudited)
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 27
ITEM 4. CONTROLS AND PROCEDURES 27
PART II. OTHER INFORMATION 28
ITEM 1. LEGAL PROCEEDINGS 28
ITEM 6. EXHIBITS 28
SIGNATURES 29
ITEM 1. FINANCIAL STATEMENTS
L Q CORPORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31,
2007 December 31,
(unaudited) 2006
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,671 $ 1,950
Accounts receivable, net of allowance for doubtful
accounts of $30 and $35, respectively 1,204 1,335
Inventories, net 689 703
Other current assets 103 125
--------- ---------
Total current assets 3,667 4,113
Fixed assets, net 217 237
Goodwill 464 464
Proprietary Technologies, net 379 393
Customer Relationships, net 66 67
Security deposit 22 22
--------- ---------
Total assets $ 4,815 $ 5,296
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,015 $ 1,103
Accrued expenses and other current liabilities 230 388
Obligations under capital lease 25 27
--------- ---------
Total current liabilities 1,270 1,518
Long-term liabilities:
Obligations under capital lease 37 41
Commitments and Contingencies
Stockholders' equity:
Common stock, $0.001 par value; 30,000,000 shares authorized; 3,214,408 shares
issued and outstanding at March 31, 2007 and December 31, 2006 3 3
Additional paid-in capital 146,006 146,006
Accumulated deficit (142,410) (142,181)
Accumulated other comprehensive loss (91) (91)
--------- ---------
Total stockholders' equity 3,508 3,737
--------- ---------
Total liabilities and stockholders' equity $ 4,815 $ 5,296
========= =========
See accompanying notes to condensed consolidated financial statements.
1
L Q CORPORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
Three Months Ended
March 31,
------------------
2007 2006
------- -------
Revenues $ 1,574 $ 1,533
Cost of goods sold 817 856
------- -------
Gross profit 757 677
------- -------
Operating expenses:
Selling, general and administrative expenses 722 908
Technical and engineering expenses 276 312
------- -------
Total operating expenses 998 1,220
Loss from operations (241) (543)
Other income (expense), net 12 27
------- -------
Net loss $ (229) $ (516)
======= =======
Net loss per share:
Basic and diluted $ (0.07) $ (0.16)
======= =======
Weighted average shares 3,214 3,214
======= =======
See accompanying notes to condensed consolidated financial statements.
2
L Q CORPORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Three Months Ended
March 31,
---------------------
2007 2006
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (229) $ (516)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 41 1
Provision for doubtful accounts (5) 37
Stock-based compensation 5 12
Change in cash attributable to changes in operating assets and liabilities:
Accounts receivable 136 (149)
Inventories 14 140
Other current assets 22 (50)
Accounts payable (88) 578
Accrued expenses and other current liabilities (163) (336)
------- -------
Net cash used in operating activities (267) (283)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (6) (130)
Payment of security deposit -- (22)
Acquisition of ACPG -- (2,581)
Net cash used in investing activities (6) (2,733)
------- -------
NET CASH USED IN FINANCING ACTIVITIES:
Principal payments on capital lease (6) --
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (279) (3,016)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,950 5,746
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,671 $ 2,730
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Reduction in the estimated fair value of fixed assets acquired $ -- $ (14)
======= =======
Decrease in Goodwill due to the adjustment of the estimated fair value
of fixed assets acquired $ -- $ 14
======= =======
See accompanying notes to condensed consolidated financial statements.
3
L Q CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
OVERVIEW
L Q Corporation, Inc. ("we" or the "Company") was incorporated in California as
"Liquid Audio, Inc." in January 1996 and reincorporated in Delaware in April
1999. In July 1999, we completed our initial public offering of common stock.
Our name was formally changed to "L Q Corporation, Inc." on January 7, 2004. Our
principal executive offices are located at 888 Seventh Avenue, 17th Floor, New
York, NY 10019 and our telephone number is (212) 974-5730.
Through January 2003, we provided an open platform that enabled the digital
delivery of media over the Internet.
From January 2003 until December 30, 2005, we did not operate any business and
were settling our remaining claims and liabilities while reviewing alternatives
for the use or disposition of our remaining assets.
Checkpoint Acquisition
On January 6, 2006, the newly formed wholly-owned subsidiary of the Company,
Sielox completed the acquisition from Checkpoint Systems, Inc. ("Checkpoint") of
substantially all of the net assets of Checkpoint's Access Control Products
Group ("ACPG") division, effective as of the close of business on December 30,
2005.
The ACPG business, which operates as Sielox(TM) under the Company's management,
develops, designs and distributes open architecture access control software,
programmable controllers (electronic circuit boards) and related accessories
such as readers and ID cards, which can be configured to monitor, manage and
control physical access to building perimeters and interior locations.
SES Resources, Ltd. Acquisition
On January 6, 2006, the Company's newly formed majority owned subsidiary, SES
Resources International, Inc. ("SES"), completed the acquisition of
substantially all of the assets of SES Resources, Ltd., a start up consulting
venture, effective as of December 30, 2005. The assets of SES Resources, Ltd.
consisted primarily of various trademarks. It was determined that these
trademarks had a fair value of zero. Consideration given in exchange for these
assets was a 19.5% ownership interest in SES. The newly formed business unit
specializes in delivering critical strategic security and business protection
solutions based on best practices developed by accomplished retired law
enforcement agents and in association with an advisory panel comprised of senior
executive service level government risk assessment and law enforcement
professionals ("Advisory Panel"). SES's primary areas of specialization are
expected to include: corporate investigations (e.g. know your customer, know
your employee, know your vendor reviews ), due diligence reviews, forensic
accounting, anti-money laundering investigatory services consistent with the
requirements of the Patriot Act, anti-counterfeiting and intellectual property
protection, corporate health and wellness consultancy, emergency preparedness
and contingency planning; executive staffing solutions; and education and
government training services.
The Advisory Panel will provide SES with strategic and operational advice,
identify expert talent throughout the United States and internationally, and
manage and staff client assignments. The Advisory Panel is in the process of
being formed and currently includes Michael J. Thomas, a senior executive
service level agent from the U.S. Internal Revenue Service, the former Chief of
Police of Boca Raton, Florida and David Edelson MD, FACP, a medical doctor who
is presently Assistant Clinical Professor at Albert Einstein College of
Medicine. The Advisory Panel is chaired by one of the owners/founders of SES
Resources Ltd. and vice chaired by one of the owners/founders of SES Resources
Ltd. and by Sebastian Cassetta, the President and Chief Executive officer of the
Company. Mr. Cassetta is the former Vice President and Director of Brinks, Inc.
SES is in the process of adding additional members to the Advisory Panel from
various law enforcement agencies.
4
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT:
Our common stock is reported currently on the Over-the-Counter Bulletin Board.
Our common stock was traded on the NASDAQ National Market, but was delisted on
June 5, 2003. The market price of our common stock as of May 10, 2007 was $1.03
per share. The market price of our common stock as of December 31, 2006 was
$1.13 per share.
Please see our audited consolidated financial statements and the accompanying
notes for information regarding our revenues, net profits or losses and total
assets for each of the last three years.
RECENT DEVELOPMENTS
On January 5, 2007, we entered into an agreement and plan of merger (the "Merger
Agreement") with Dynabazaar, Inc., a Delaware corporation ("Dynabazaar") and LQ
Merger Corp., a Delaware corporation and a wholly-owned subsidiary of Dynabazaar
("LMC"). On February 26, 2007, we entered into an amended and restated agreement
and plan of merger (the "Amended and Restated Merger Agreement") with Dynabazaar
and LMC, which amended and restated the Merger Agreement. The Amended and
Restated Merger Agreement provides that, upon the terms and subject to the
conditions set forth in such agreement, LMC will merge with and into the Company
with the Company continuing as the surviving corporation and a wholly-owned
subsidiary of Dynabazaar.
Under the terms of the Amended and Restated Merger Agreement, our stockholders
will receive 3.68 shares of Dynabazaar common stock for each share of our common
stock they hold. Upon completion of the merger, our stockholders will own
approximately 34% of the combined company and Dynabazaar stockholders will own
approximately 66% of the combined company on a fully-diluted basis. It is
anticipated that the combined company's shares will continue to trade on the
Over-The-Counter Bulletin Board.
The Boards of Directors of both Dynabazaar and the Company approved the Amended
and Restated Merger Agreement in accordance with the recommendation of the
special committees of independent directors formed by the Boards of Directors of
each company to evaluate the transaction.
The transaction is subject to stockholder approval and other customary
conditions and is expected to be completed during the second half of 2007. A
special meeting of stockholders of the Company will be announced in the near
future to obtain stockholder approval of the transaction.
LIQUIDITY ($ IN THOUSANDS)
The Company has incurred losses and negative cash flows from operations every
year since inception. For the three months ended March 31, 2007, the Company
incurred a net loss of $229 and negative cash flows from operations of $267. As
of March 31, 2007, the Company had an accumulated deficit of approximately
$142,000. The Company feels its existing cash and cash equivalents are
sufficient to fund the Company's current operations and satisfy its other
obligations for at least the next twelve months. The Company believes these
other obligations will primarily relate to costs associated with the
satisfaction of any potential legal judgments or settlements, investments in
software development and engineering related to the operations of Sielox and
other expenses related to the operations of SES. Such operational related
expenses are expected to require the use of the Company's liquidity.
5
L Q CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of the Company for
the three months ended March 31, 2007 (unaudited) and March 31, 2006 (unaudited)
have been prepared on a basis consistent with our audited consolidated financial
statements for the year ended December 31, 2006. The condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. Consequently, these
statements do not include all disclosures normally required by generally
accepted accounting principles for annual financial statements. These condensed
consolidated interim financial statements should be read in conjunction with our
audited consolidated financial statements for the year ended December 31, 2006,
which are contained in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission ("SEC") on April 2, 2007 and the amended 10-K that was
filed on April 30, 2007. The condensed consolidated interim financial
statements, in the opinion of management, reflect all adjustments (including all
normal recurring accruals) necessary to present fairly the Company's financial
position, results of operations and cash flows for the interim periods ended
March 31, 2007 and 2006. The results of operations for the interim periods are
not necessarily indicative of the results of operations to be expected for the
fiscal year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries Sielox and SES, respectively.
Significant intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS ($ IN THOUSANDS)
The Company considers all highly-liquid debt instruments with original
maturities of three months or less to be cash equivalents, including highly
rated money market funds with daily liquidity. At March 31, 2007, and throughout
the three month period, balances of cash at financial institutions exceeded the
federally insured limit. The Company has not experienced any losses in such
accounts and believes it is not subject to any significant credit risk on cash
and cash equivalents. The following schedule summarizes the estimated fair value
of the Company's cash and cash equivalents:
March 31, December 31,
2007 (unaudited) 2006
---------------- ------------
Cash and cash equivalents:
Cash $ 27 $ 46
Money market funds 1,644 1,904
------ ------
$1,671 $1,950
====== ======
CONCENTRATION OF CREDIT RISK ($ IN THOUSANDS)
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short term investments and accounts receivable. Substantially all of the
Company's cash and cash equivalents are invested in a highly liquid money market
fund.
6
L Q CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT:
FAIR VALUE OF FINANCIAL INSTRUMENTS ($ IN THOUSANDS)
The Company's financial instruments, including cash and cash equivalents,
accounts receivable and accrued expenses payable are carried at cost. The
Company's financial instruments approximate fair value due to their relatively
short maturities. The Company does not hold or issue financial instruments for
trading purposes.
INCOME TAXES
Effective January 1, 2007, the Company adopted the provisions of the Financial
Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"). There were no unrecognized tax benefits as of January 1, 2007 and as of
March 31, 2007. FIN 48 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement of tax
positions taken or expected to be taken in a tax return. For those benefits to
be recognized, a tax position must be more-likely-than-not to be sustained upon
examination by taxing authorities. The Company recognizes accrued interest and
penalties related to unrecognized tax benefits as income tax expense. No amounts
were accrued for the payment of interest and penalties at January 1, 2007. There
was no change to this balance at March 31, 2007. Management is currently unaware
of any issues under review that could result in significant payments, accruals
or material deviations from its position. The adoption of the provisions of FIN
48 did not have a material impact on the Company's financial position, results
of operations and cash flows.
STOCK-BASED COMPENSATION ($ IN THOUSANDS)
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123(R), "Accounting for Stock-Based Compensation
(Revised)." This statement requires companies to record compensation expense for
share-based awards issued to employees and directors in exchange for services
provided. The amount of compensation expense is based on the estimated fair
value of the awards on their grant dates and is recognized, on a straight line
basis, over the applicable vesting period. In addition, SFAS No. 123(R) requires
forfeitures of share-based awards to be estimated at the time of grant and
revised, if necessary, in subsequent periods if those estimates change based on
the actual amount of forfeitures. In the pro-forma information required under
SFAS No. 123 for periods prior to January 1, 2006, the Company accounted for
forfeitures as they occurred.
The fair value of stock options is determined using an option-pricing model that
takes into account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the underlying stock and the
expected dividends on it, and the risk free interest rate over the expected life
of the option.
In the three months ended March 31, 2007 and 2006, the Company recognized
compensation expense of $5 and $12, respectively, in the Company's condensed
consolidated financial statements, all of which was for stock options. This
amount includes compensation expense for stock options which were granted prior
to January 1, 2006 but were not yet vested as of that date. Such compensation
expense was estimated in accordance with the provisions of SFAS No. 123(R). The
compensation expense also includes the expense recognized for stock options
granted subsequent to January 1, 2006. Such compensation expense was estimated
based on the grant date fair value in accordance with provisions of SFAS No.
123(R). Compensation expense increased by $1 and $8 during the three months
ended March 31, 2007 and 2006, respectively, as a result of implementing SFAS
No. 123(R).
On January 6, 2006, in conjunction with the completion of the purchase of the
ACPG division of Checkpoint and SES Resources, Ltd., the Company awarded 123,000
stock option grants. These options were granted to employees of Sielox and SES,
together with members of the Advisory panel and executive officers. Due to the
resignation of former CEO William Fox, 40,000 of those options were forfeited.
In addition, approximately 66,000 previously outstanding options were forfeited
as a result of Mr. Fox's resignation. Due to the resignation of former director
and Chairman of the Board James A. Mitarotonda, approximately 160,000 previously
outstanding options were forfeited.
7
L Q CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - BALANCE SHEET COMPONENTS:
INVENTORIES, NET
The components of inventories are as follows ($ in thousands):
March 31, December 31,
2007 (unaudited) 2006
---------------- ------------
Finished goods $527 $541
Raw materials 162 162
---- ----
$689 $703
==== ====
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The components of accrued expenses and other current liabilities are as follows
($ in thousands):
March 31, December 31,
2007 (unaudited) 2006
---------------- ------------
Accrued Expenses and Other Current Liabilities
Consulting and professional services $120 $182
Royalties 10 29
Commissions 59 78
Warranty reserve -- 10
Other 41 89
---- ----
$230 $388
==== ====
8
L Q CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - GOODWILL AND INTANGIBLE ASSETS, NET: ( $ in thousands)
The intangible assets acquired as a result of the ACPG acquisition have been
adjusted in the prior year as a result of the completion of an independent
appraisal, adjustments to the estimated fair values of the assets acquired and
post closing adjustments to the purchase price. The components of intangible
assets acquired as a result of the ACPG acquisition are as follows:
March 31,
2007 December 31,
(unaudited) 2006
------------------------------- ----------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------------- ----------- -------------- -----------
Amortized intangible assets
Proprietary Technology $449 $ 70 $449 $ 56
Existing Customer Relationships 72 6 72 5
---- ---- ---- ----
Total 521 $ 76 521 $ 61
====
Unamortized intangible assets
Goodwill 464 464
---- ----
Total $985 $985
==== ====
Amortization expense for the three months ended March 31, 2007 was $15.
Estimated amortization expense applicable to amortizable intangible assets for
each of the next 5 years is $61.
All intangible assets of the Company are attributable to the Sielox, LLC
reporting segment and the weighted average amortization for the Company's
intangible assets is 9 years. The estimated useful life for Proprietary
Technology and Existing Relationships is 8 and 15 years, respectively.
NOTE 4 - NET LOSS PER SHARE:
Basic and diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common shares outstanding during
the period. The calculation of diluted net loss per share excludes potential
common shares if the effect is anti-dilutive. Potential common shares consist of
unvested restricted common stock and incremental common shares issuable upon the
exercise of stock options. The Company had a total of 184,000 and 596,000 of
such options outstanding at March 31, 2007 and 2006, respectively.
NOTE 5 - SEGMENT REPORTING ($ IN THOUSANDS):
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the method in which companies report information
about operating segments in financial statements. SFAS No. 131 focuses on the
internal organization that is used by management for making operating decisions
and assessing performance as the source of the Company's reportable segments.
SFAS No. 131 also requires disclosures about products and services, geographic
areas and major customers. The Company has determined that it operated in two
operating segments at March 31, 2007 and 2006, respectively. The following
information related to revenues, net losses and total assets are the only
measures used by chief operating decision makers of the Company to evaluate
segment performance. Substantially all of the Company's assets and revenues are
located in, and derived from, the United States.
The following table represents total net revenues of each of the Company's
reporting segments for the three months ended March 31, 2007 and 2006:
9
NOTE 5 - SEGMENT REPORTING ($ IN THOUSANDS) CONT:
Three months ended March 31,
(unaudited)
----------------------------
2007 2006
------ ------
Sielox, LLC $1,563 $1,533
SES International Resources, Inc. 11 --
------ ------
Total $1,574 $1,533
====== ======
The following table represents the total loss of each of the Company's reporting
segments for the three months ended March 31, 2007 and 2006:
Three months ended March 31,
(unaudited)
----------------------------
2007 2006
------ -----
Sielox, LLC $ (60) $(267)
SES International Resources, Inc. (18) (43)
General Corporate (151) (206)
----- -----
Total $(229) $(516)
===== =====
The following table represents the total assets of each of the Company's
reporting segments at March 31, 2007 and December 31, 2006, respectively:
March 31, 2007
(unaudited) December 31, 2006
-------------- -----------------
Sielox, LLC $3,120 $3,295
SES International Resources, Inc. 5 5
General Corporate 1,690 1,996
------ ------
Total $4,815 $5,296
====== ======
NOTE 6 - MAJOR SUPPLIERS:
For the quarter ended March 31, 2007, the Company had two major suppliers that
accounted for approximately 42% of total purchases. These two major suppliers
were owed approximately 51% of total payables at the end of the quarter.
10
L Q CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
Legal proceedings
We are a defendant in certain purported class action lawsuits filed by
individual shareholders in the U.S. District Court for the Southern District of
New York against certain of our former officers and directors, and various of
the underwriters in our initial public offering ("IPO") and secondary offering.
The lawsuits have been filed by individual shareholders who purport to seek
class action status on behalf of all other similarly situated persons who
purchased our common stock between July 8, 1999 and December 6, 2000. A
consolidated amended class action complaint was filed on April 19, 2002. The
complaint alleges that certain underwriters of the IPO solicited and received
excessive and undisclosed fees and commissions in connection with that offering.
The complaint further alleges that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with our IPO which failed to accurately disclose the amount and nature of the
commissions and fees paid to the underwriter defendants. On or about October 8,
2002, the Court entered an Order dismissing the claims asserted against certain
individual defendants in the consolidated actions without any payment from these
individuals or us. On or about February 19, 2003, the Court entered an Order
dismissing with prejudice the claims asserted against us under Section 10(b) of
the Exchange Act. As a result, the only claims that remain against us are those
arising under Section 11 of the Securities Act. The parties have negotiated and
executed a definitive settlement agreement. The proposed settlement provides
that the class members in the class action cases brought against the
participating issuer defendants will be guaranteed a recovery of $1 billion by
insurers of the participating issuer defendants. If recoveries totaling $1
billion or more are obtained by the class members from the underwriter
defendants, however, the monetary obligations to the class members under the
proposed settlement will be satisfied. In addition, we and any other
participating issuer defendants will be required to assign to the class members
certain claims that they may have against the underwriters of their IPOs. The
proposed settlement contemplates that any amounts necessary to fund the
settlement or settlement-related expenses would come from participating issuers'
directors and officers' liability insurance policy proceeds as opposed to funds
of the participating issuer defendants themselves. A participating issuer
defendant could be required to contribute to the costs of the settlement if that
issuer's insurance coverage were insufficient to pay that issuer's allocable
share of the settlement costs. If ultimately approved by the Court, the proposed
settlement would result in the dismissal, with prejudice, of all claims in the
litigation against us and all of the other issuer defendants who have elected to
participate in the proposed settlement, together with the current or former
officers and directors of participating issuers who were named as individual
defendants. The proposed settlement does not provide for the resolution of any
claims against the underwriter defendants, and the litigation as against those
defendants is continuing. Consummation of the proposed settlement remains
conditioned upon obtaining approval by the Court. By order entered on September
1, 2005, the Court granted preliminarily approval of the proposed settlement and
directed that notice of the terms of the proposed settlement be provided to
class members. Thereafter, the court held a fairness hearing, on April 24, 2006,
at which objections to the proposed settlement were heard. The Court has yet to
issue a ruling on the motion for final approval. On December 5, 2006, the Court
of Appeals for the Second Circuit reversed the Court's order certifying a class
in six test cases that were selected by the underwriter defendants and
plaintiffs in the coordinated proceeding. On April 6, 2007, the Court of Appeals
denied the plaintiffs' petition for rehearing of the Court's December 5, 2006
ruling but noted that the plaintiffs remain free to ask the District Court to
certify a different class which might meet the standards for class certification
that the Court of Appeals articulated in its December 5, 2006 decision. Because
our proposed settlement with the plaintiffs involves the certification of the
case against us as a class action for settlement purposes, it is unclear what
impact, if any, the Second Circuit's class certification ruling will have on our
case or the viability of the proposed settlement. In the event the settlement is
not finalized, the Company believes that it has meritorious defenses to
plaintiffs' claims and intends to defend the actions vigorously.
The expense of defending this litigation may be significant. The amount of time
to resolve these lawsuits is unpredictable and defending us may divert
management's attention from the day-to-day operations of our business, which
could adversely affect our business, results of operations and cash flows. In
addition, an unfavorable outcome in such litigation could have a material
adverse affect on our business, results of operations and cash flows.
Contingencies
On January 6, 2006, the Company's wholly-owned subsidiary, Sielox, acquired
Checkpoint's ACPG division. The acquisition had an effective date of December
30, 2005. The total cash consideration given to Checkpoint for the transaction
was approximately $2.6 million, of which approximately $2.5 million was paid
directly to Checkpoint and $100,000 was paid to an escrow agent on January 6,
2006.
This cash is held by the escrow agent and will be delivered by the agent to
Checkpoint after a period of 18 months subsequent to the acquisition date
assuming no claims for indemnification are made against Checkpoint.
11
NOTE 7 - COMMITMENTS AND CONTINGENCIES CONT:
Commitment
The Company is committed to make purchases of approximately $1,398,000 from a
vendor within an 18 month period starting July 1, 2007 and ending December 31,
2008. The commitment was entered into in order to obtain more favorable pricing
for the Company's inventory.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act, of
1934 as amended (the "Exchange Act"). Forward-looking statements can often be
identified by the use of terminology such as "believe," "expect," "anticipate,"
"intend," "estimate," "assume" and other similar expressions which predict or
indicate future events and trends and which do not relate to historical matters.
The forward-looking statements contained in this Form 10-Q are generally located
in the material set forth under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" but may be found in
other locations as well. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, some of which are beyond our control.
Our actual results could differ materially from those set forth in the
forward-looking statements.
Some of the factors that might cause these differences include those set forth
under the heading "Item 1A - Risk Factors" in our Annual Report on Form 10-K for
the year ended December 31, 2006, which is incorporated herein by reference.
Additional information regarding risks and uncertainties and other factors that
could cause actual results to differ materially from those contemplated in
forward-looking statements is included from time to time in our filings with the
SEC. Forward-looking statements herein are based on information, plans and
estimates at the date of this Form 10-Q, and we do not promise to update any
forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes.
While we believe that the discussion and analysis in this report is adequate for
a fair presentation of the information, we recommend that you read this
discussion and analysis in conjunction with the "Management's Discussion and
Analysis" included in our Annual Report on Form 10-K for the year ended December
31, 2006 filed with the SEC.
OVERVIEW
L Q Corporation, Inc. ("we" or the "Company") was incorporated in California as
"Liquid Audio, Inc." in January 1996 and reincorporated in Delaware in April
1999. In July 1999, we completed our initial public offering of common stock.
Our name was formally changed to "L Q Corporation, Inc." on January 7, 2004. Our
principal executive offices are located at 888 Seventh Avenue, 17th Floor, New
York, NY 10019 and our telephone number is (212) 974-5730.
Through January 2003, we provided an open platform that enabled the digital
delivery of media over the Internet.
From January 2003 until December 30, 2005, we did not operate any business and
were settling our remaining claims and liabilities while reviewing alternatives
for the use or disposition of our remaining assets.
Our common stock is reported currently on the Over-the-Counter Bulletin Board.
Our common stock was traded on the NASDAQ National Market, but was delisted on
June 5, 2003. The market price of our common stock as of May 10, 2007 was $1.03
per share. The market price of our common stock as of December 31, 2006 was
$1.13 per share.
FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act, of
1934 as amended (the "Exchange Act"). Forward-looking statements can often be
identified by the use of terminology such as "believe," "expect," "anticipate,"
"intend," "estimate," "assume" and other similar expressions which predict or
indicate future events and trends and which do not relate to historical matters.
The forward-looking statements contained in this Form 10-Q are generally located
in the material set forth under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" but may be found in
other locations as well. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, some of which are beyond our control.
Our actual results could differ materially from those set forth in the
forward-looking statements.
Some of the factors that might cause these differences include those set forth
under the heading "Item 1A - Risk Factors" in our Annual Report on Form 10-K for
the year ended December 31, 2006, which is incorporated herein by reference.
Additional information regarding risks and uncertainties and other factors that
could cause actual results to differ materially from those contemplated in
forward-looking statements is included from time to time in our filings with the
SEC. Forward-looking statements herein are based on information, plans and
estimates at the date of this Form 10-Q, and we do not promise to update any
forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes.
Checkpoint Acquisition
On January 6, 2006, the newly formed wholly-owned subsidiary of the Company,
Sielox completed the acquisition from Checkpoint Systems, Inc. ("Checkpoint") of
substantially all of the net assets of Checkpoint's Access Control Products
Group ("ACPG") division, effective as of the close of business on December 30,
2005.
The ACPG business, which operates as Sielox(TM) under the Company's management,
develops, designs and distributes open architecture access control software,
programmable controllers (electronic circuit boards) and related accessories
such as readers and ID cards, which can be configured to monitor, manage and
control physical access to building perimeters and interior locations.
13
The Advisory Panel will provide SES with strategic and operational advice,
identify expert talent throughout the United States and internationally, and
manage and staff client assignments. The Advisory Panel is in the process of
being formed and currently includes Michael J. Thomas, a senior executive
service level agent from the U.S. Internal Revenue Service, the former Chief of
Police of Boca Raton, Florida and David Edelson MD, FACP, a medical doctor who
is presently Assistant Clinical Professor at Albert Einstein College of
Medicine. The Advisory Panel is chaired by one of the owners/founders of SES
Resources Ltd. and vice chaired by one of the owners/founders of SES Resources
Ltd. and Sebastian Cassetta, the President and Chief Executive officer of the
Company. Mr. Cassetta is the former Vice President and Director of Brinks Inc.
SES is in the process of adding additional members to the Advisory Panel from
various law enforcement agencies.
Please see our audited consolidated financial statements and the accompanying
notes for information regarding our revenues, net profits or losses and total
assets for each of the last three years.
Business
Access Control Products Group
The ACPG business was originally acquired by Checkpoint when Checkpoint acquired
Sielox Systems, Inc. of Sunnyvale, California in 1986. At that time, the ACPG
business distributed, developed and manufactured System Five and System Ten
access control systems for automated access to buildings and areas within
buildings. In the late eighties, ACPG introduced the Threshold series for use on
DOS and QNX operating systems and in the mid-nineties developed a series of
applications for use on the Windows operating systems. In March 2003, the ACPG
business introduced Pinnacle, the next generation in access control software
solutions. Today ACPG develops, designs and distributes a complete line of open
architecture access control software, including both Pinnacle and the legacy
Enterprise Threshold, programmable controllers (electronic circuit boards), and
related accessories such as readers and ID cards which can be configured to
monitor, manage and control physical access to building perimeters and interior
locations. ACPG generally does not experience seasonality in its business and
there is no single customer which constitutes 10% or more of its revenue.
SES Resources International
The newly formed business unit specializes in delivering critical strategic
security and business protection solutions based on best practices developed by
accomplished retired law enforcement agents and in association with an advisory
panel comprised of senior executive service level government risk assessment and
law enforcement professionals (the "Advisory Panel"). SES' primary areas of
specialization include: corporate investigations (e.g. know your customer, know
your employee, know your vendor reviews); due diligence reviews; forensic
accounting; anti-money laundering investigatory services consistent with the
requirements of the Patriot Act; anti-counterfeiting and intellectual property
protection; corporate health and wellness consultancy; emergency preparedness
and contingency planning; executive staffing solutions; and education and
government security training services.
Industry
Access Control Products Group
As security concerns continue to mount around the world, security access systems
are an important component to a company's or Government Agency's complete
security solution. Organizations continue to invest and upgrade such solutions
and place increased reliance upon such systems. The trend towards integrating
all security solutions including access control, CCTV, burglar and fire alarms
into one system continues to expand.
14
SES Resources International
Companies and governments are faced with a variety of security concerns and risk
assessment challenges including terrorism, fraud, litigation, compliance,
intellectual property protection, cyber attacks, industrial espionage,
regulatory issues, crisis management and executive security staffing. The
security consulting industry is highly fragmented with various established firms
and a large number of independent organizations with various specializations and
capabilities throughout the United States and around the world.
Strategy
Access Control Products Group
The primary strategy of ACPG is to continue to invest in the Pinnacle software
solution through added features and interfaces with other value added providers
in order to provide enhanced physical access security and event management
systems. ACPG will also continue to provide technical service and training to
ACPG's dealer base and end users and where necessary upgrade its technical
services.
SES Resources International
SES is distinguishing its services and positioning by its diverse services
offering. SES is in the process of identifying Senior Executive Service level
retired law enforcement officers and federal agents with specialization and
experience related to each service offering. SES expects to utilize the
relationships and advice of its Advisory Panel in connection with identifying
such resources. Each resource is expected to participate in SES projects as an
independent contractor on a project by project basis in an effort to match
expert talent with each specific project.
Products
Access Control Products Group
ACPG develops, designs and distributes a complete line of open architecture
access control software, programmable controllers (electronic circuit boards),
and related accessories such as readers and ID cards which can be configured to
monitor, manage and control physical access to building perimeters and interior
locations.
ACPG supports both the Pinnacle software solution, introduced in March 2003 and
the Threshold Enterprise solution introduced in 1997. The Pinnacle based system
runs on both Windows Server 2003 and XP Professional. The system is an access
control and event management system with unlimited scalability. The Threshold
Enterprise runs on a Windows NT or 2000 access control platform.
15
The Pinnacle access control system is extremely flexible and compatible and
offers added functionality including badging utility for use in the design and
production of professional quality badges. The Pinnacle system also has a DVR
interface with video and event management linking. In addition, an interface
with the OASIS mapping utility offers graphical mapping with icon links to over
75 systems from 30 vendors. Other Pinnacle utilities include standalone
applications using the SDK, ever expanding libraries including n-man rule,
report scheduler, door control, EventLink and Administrative Management. The
newly introduced visitor management system allows for integration with
STOPware's lobby visitor management system.
ACPG designs and distributes a complete line of intelligent controllers. This
state of the art technology is available as 16-bit or 32-bit controllers capable
of supporting from 2 to 8 door configurations. In addition, these controllers
support from 4 to 60 alarm monitored inputs and/or controlled outputs and are
configurable to meet any customer requirements. The 32-bit 1200 series
controller can be used in a traditional hardwired environment or LAN/WAN
environment with static IP or DHCP. In addition, ACPG currently offers several
readers that are all compatible with both its Pinnacle and Threshold Enterprise
software solutions. Such readers include the Performa (and Legacy Mirage)
readers, a 13.56 MHz reader manufactured by Checkpoint Systems, Inc., a complete
line of HID's 125 KHz Prox and 13.56 MHz iClass readers and cards, AWID's long
range Prox readers, BioScrypt's biometric fingerprint, and Panasonic's Iris Scan
Readers.
SES Resources International
SES specializes in delivering critical strategic security and business
protection solutions including corporate investigations (e.g. know your
customer, know your employee, know your vendor reviews); due diligence reviews;
forensic accounting; anti-money laundering investigatory services consistent
with the requirements of the Patriot Act; anti-counterfeiting and intellectual
property protection; corporate health and wellness consultancy; emergency
preparedness and contingency planning; executive staffing solutions; and
education and government security training services.
Intellectual Property
ACPG is entitled to the exclusive use of certain patents and to the
non-exclusive use of certain patents which were acquired in the acquisition from
Checkpoint. Such patents and other intellectual property are utilized in the
Performa and Mirage ID card readers. ACPG also acquired identified trademarks as
well as licenses for specific intellectual properties which consist of critical
components to the Pinnacle and Threshold Enterprise operating systems. ACPG also
licenses two badging programs which it sells to third parties. ACPG pays
royalties on these licensing contracts. SES does not own or use any patents or
other material intellectual property in connection with its business.
Registrant has registered domain names for its key businesses including
SESresources.com and Sielox.com.
Technology and Product Development
ACPG's software engineers develop proprietary code for product functionality
features. Certain product features have been acquired from third parties for
which ACPG pays royalties relative to the feature set embedded within certain
software products.
ACPG expended approximately $ 1.3 million, $1 million and $1.7 million in
product development activities during 2006, 2005 and 2004, respectively. The
emphasis of these activities is the continued broadening of the product lines
offered by ACPG, cost reductions of the current product lines, and an expansion
of the markets and applications for ACPG's products. ACPG's future growth in
revenues will be dependent, in part, on the products and technologies resulting
from these efforts. Registrant expects to continue to invest at comparable
levels in such activities in 2007 (and thereafter) in order to provide
additional functionality to ACPG's offerings to meet the needs of ACPG's
customer base.
16
Marketing Efforts
ACPG and SES use a combination of internal and subcontract marketing and public
relations agencies. ACPG and SES currently retain LRG Inc. as their public
relations firm focused on the security market. ACPG typically attends two trade
shows a year, ISCW and ASIS International. SES typically attends the Anti-Money
Laundering Conference trade show. ACPG and SES's marketing initiatives include
trade advertising and company websites - www.sielox.com; www.sesresources.com.
In addition, ACPG and SES distribute data sheets, marketing bulletins and
brochures, and launch packages to their current and prospective clients, dealers
and end-users, as appropriate for their respective businesses.
Components
ACPG purchases components from outside suppliers and assembles the electronic
components for legacy controllers and proximity readers at Checkpoint's
facilities in the Dominican Republic and Puerto Rico. The 32-bit controllers are
manufactured to specified designs by a third party. Select readers are also
manufactured in Thailand. As part of the acquisition, ACPG has entered into a
manufacturing agreement with Checkpoint. For non-proximity electronic access
control components, ACPG subcontracts manufacturing activities. On January 27,
2006, we signed a five year lease on 8,900 square feet located at 170 Ninth
Avenue, Runnemede, New Jersey. Occupancy at this facility began on April 1,
2006. Accordingly, all electronic control final system assembly and testing was
relocated to the Runnemede facility.
Distribution
The sales personnel of the ACPG market electronic access control products to
approximately 200 independent dealers, some of whom are national dealers,
primarily located in the U.S. ACPG employs regional salespeople who are
compensated by salary plus commissions. Under the independent dealer program,
the dealer takes title to our products and sells them to the end-user customer.
The dealer installs the systems and provides ongoing service to the end-user
customer. The ACPG requires its dealers to be certified in our products and
requires them to attend training classes on our various product offerings.
Competition
ACPG competes with other manufacturers of electronic access control systems as
well as with conventional security systems. Major competitors are GE (the Casi
Rusco and Infographics divisions), Honeywell (the NexWatch and Northern
divisions), United Technologies (the Lenel Systems division), and Tyco (the
Software House and Kantech divisions), as well as many other comparable sized
companies such as MDI and International Electronics.
SES provides services that compete with the services provided by a highly
fragmented market of many firms of various sizes, including investigatory firms
and full service accounting and legal services firms, which provide such
services as part of a broad range of services. Some of the well recognized firms
include Kroll Worldwide, a division of Marsh & McLennan Companies, Inc., and
Giuliani Associates.
Employees
ACPG currently employs 22 people and SES currently employs 1 person. All
employees are located in the United States and none are represented by a union
or labor group.
Facilities
The Company's headquarters are located in New York City, in an office maintained
by Barington.
ACPG's primary facilities are located in Runnemede, New Jersey and SES's primary
facilities are located in Jericho, New York. Both facilities are leased.
17
RECENT DEVELOPMENTS
On January 5, 2007, we entered into an agreement and plan of merger (the "Merger
Agreement") with Dynabazaar, Inc., a Delaware corporation ("Dynabazaar") and LQ
Merger Corp., a Delaware corporation and a wholly-owned subsidiary of Dynabazaar
("LMC"). On February 26, 2007, we entered into an amended and restated agreement
and plan of merger (the "Amended and Restated Merger Agreement") with Dynabazaar
and LMC, which amended and restated the Merger Agreement. The Amended and
Restated Merger Agreement provides that, upon the terms and subject to the
conditions set forth in such agreement, LMC will merge with and into the Company
with the Company continuing as the surviving corporation and a wholly-owned
subsidiary of Dynabazaar.
Under the terms of the Amended and Restated Merger Agreement, our stockholders
will receive 3.68 shares of Dynabazaar common stock for each share of our common
stock they hold. Upon completion of the merger, our stockholders will own
approximately 34% of the combined company and Dynabazaar stockholders will own
approximately 66% of the combined company on a fully-diluted basis. It is
anticipated that the combined company's shares will continue to trade on the
Over-The-Counter Bulletin Board.
The Boards of Directors of both Dynabazaar and the Company approved the Amended
and Restated Merger Agreement in accordance with the recommendation of the
special committees of independent directors formed by the Boards of Directors of
each company to evaluate the transaction.
The transaction is subject to stockholder approval and other customary
conditions and is expected to be completed during the second half of 2007. A
special meeting of stockholders of the Company will be announced in the near
future to obtain stockholder approval of the transaction.
Barington Capital Group, L.P. ("Barington") and certain of its affiliates which
have joined with Barington in the filing of a statement on Schedule 13D,
collectively own greater than 10% of the outstanding common stock of both
Dynabazaar and the Company. Pursuant to a letter agreement dated February 26,
2007, Barington agreed to vote, and to cause its affiliates to vote, all of our
shares now owned or hereafter acquired by Barington and its affiliates in favor
of the transactions contemplated by the Amended and Restated Merger Agreement,
in proportion to the votes of our other stockholders.
18
James A. Mitarotonda, who serves as a director of Dynabazaar, is Chairman,
President and Chief Executive Officer of a corporation that is the general
partner of Barington. Sebastian E. Cassetta, who serves as a director, President
and Chief Executive Officer of the Company, is a Senior Managing Director and
the Chief Operating Officer of Barington. Mr. Cassetta is also the Chief
Executive Officer of Dynabazaar. Since April 20, 2007 and serves as the Chief
Executive Officer of Costar Video Systems, LLC, a subsidiary of Dynabazaar.
Dianne K. McKeever, a research analyst at Barington, serves as a director of the
Company, and Michael McManus, a director of the Company, holds an equity
interest in certain affiliates of Barington. Barington is a party to separate
administrative services agreements with us and Dynabazaar, pursuant to which
Barington performs certain administrative, accounting and other services on
behalf of each company. Our and Dynabazaar's principal executive offices are
maintained by Barington.
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Our
significant accounting policies are more fully described in Note 1, "The Company
and Summary of Significant Accounting Policies", to our consolidated financial
statements included in our Annual Report on Form 10-K and the amended 10-K that
was filed on April 20, 2007, for the year ended December 31, 2006. No changes to
these critical polices have taken place during the quarter ended March 31, 2007.
19
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007 AND 2006 ($ IN THOUSANDS)
Total Revenues
Revenue for the three month period ending March 31, 2007 was $1,574 compared to
$1,533 for the three month period ended March 31, 2006. Revenue for the three
month period ended March 31, 2007 is entirely due to the activities of our
subsidiaries Sielox and SES. Revenue for Sielox was $1,563 and for SES $11
compared to $1,533 and $0 respectively for the period ending March 31, 2006.
Operating Expenses
Selling, General and Administrative, Selling, general and administrative
expenses decreased approximately 21% to $722 for the three months ended March
31, 2007 from $908 in the comparable period of 2006. Substantially all of the
decrease can be attributed to a reduction in expenses relating to the business
and operations of our subsidiaries Sielox and SES. Selling, general and
administrative expenses consist primarily of compensation for personnel, selling
commissions, marketing expenses and payments to outside contractors for general
corporate functions, including finance, information systems, human resources,
facilities, legal management and professional service fees, bad debt expense,
occupancy and other overhead.
Technical and Engineering. Technical and engineering expenses were $276 for the
three months ended March 31, 2007, compared to $312 for the three months ended
March 31, 2006. Technical and engineering expenses consist of expenses relating
to personnel costs and other expenses for software and hardware engineers and
applications.
Other Income (Expense), Net. Substantially all other income is from interest
received from investments in highly-liquid money market funds. Other income was
$12 for the three months ended March 31, 2007 compared to $27 for the three
months ended March 31, 2006. The decrease in other income is directly
attributable to a decline in the cash balances available for investment after we
purchased the ACPG division of Checkpoint. This purchase was completed on
January 6, 2006 with an effective date of December 30, 2005.
20
LIQUIDITY AND CAPITAL RESOURCES ($ IN THOUSANDS)
As of March 31, 2007, we had approximately $1,671 of cash and cash equivalents.
Net cash used in operating activities was approximately $267 and approximately
$283 for the three months ended March 31, 2007 and 2006, respectively.
Substantially all of the decrease is attributable to the improved operations of
our subsidiaries, Sielox and SES. The net loss accounted for $229, accounts
payable and accrued expenses and other current liabilities used $88 and $163
respectively. This decrease in cash used was reduced by an increase in
inventories and accounts receivable of $14 and $136 respectively.
Net cash used in investing activities was approximately $6 and $2,700 for the
three months ended March 31, 2007 and 2006, respectively. Cash used for
investing activities primarily relates to the purchase of fixed assets for 2007.
Cash used for March 31, 2006 primarily relates to cash paid to Checkpoint for
the acquisition of ACPG.
Net cash used in financing activities was approximately $6 and $0 for the three
months ended March 31, 2007 and 2006, respectively. Cash used for financing
activities primarily relates to principal payments on a capital lease.
We also, as permitted under Delaware law and in accordance with our Bylaws,
indemnify our officers and directors for certain events or occurrences, subject
to certain limits, while the officer or director is or was serving at our
request in such capacity. The term of the indemnification period is for the
officer's or director's lifetime. The maximum amount of potential future
indemnification is unlimited; however, we have a Director and Officer Insurance
Policy that limits our exposure and enables us to recover a portion of any
future amounts paid. As a result of our insurance policy coverage, we believe
the fair value of these indemnification agreements is minimal.
We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures in
the near future.
RISK FACTORS
WE MUST OVERCOME PRICING COMPETITION WITH RESPECT TO OUR ACCESS CONTROL PRODUCTS
GROUP PRODUCTS. COMPETITIVE PRICING PRESSURES CAN CAUSE PROFIT EROSION.
ACPG products compete against products sold by an increasing number of
competitors on the basis of several factors including price. In order to compete
in the marketplace, ACPG's products must provide superior technology at
competitive prices. Failure to produce cost-effective products could adversely
affect customer demand and adversely affect our results of operations. In
addition, the competitive business arena could create pricing pressure for the
ACPG products. A reduction in pricing of ACPG's products due to competitive
pressures could have an adverse effect on our revenues, operating income and
results of operations.
WE MUST DEVELOP NEW PRODUCTS AND ENHANCEMENTS TO EXISTING PRODUCTS TO REMAIN
COMPETITIVE. IF WE FAIL TO DEVELOP NEW PRODUCTS AND PRODUCT ENHANCEMENTS ON A
TIMELY BASIS, WE MAY LOSE MARKET SHARE. OUR INVESTMENT IN THE PINNACLE SOFTWARE
SOLUTION MAY NOT REALIZE A RETURN ON INVESTMENT.
The market for ACPG's Pinnacle software solution is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. Accordingly, our future success
will depend to a substantial extent on our ability to:
o invest significantly in research and product development;
o develop, introduce and support new products and enhancements on a
timely basis; and
o gain and consecutively increase market acceptance of our products.
21
Our ACPG division is currently developing new products and enhancements to its
existing products. We may not be able to successfully complete the development
and market introduction of new products or product enhancements. If we fail to
develop and deploy new products and product enhancements on a timely basis, or
if we fail to gain market acceptance of our new products, revenues will decline
and we may lose market share to our competitors. There is no assurance that we
will be successful in marketing and selling our Pinnacle software solution or
other new products, that the revenues from the sales of the Pinnacle software
solution or other new products will justify the investment, or that the sales of
Pinnacle will continue to increase.
THE AVAILABILITY AND PRICING OF COMPONENT PARTS MAY ADVERSELY AFFECT PRODUCTION
AND PROFITABILITY.
Our ability to grow earnings will be affected by increases in the cost of
component parts, including electronic components and circuit boards. We may not
be able to offset fully the effects of higher component parts through price
increases, productivity improvements or cost reduction programs.
FUTURE ACQUISITIONS MAY NOT BE FOUND OR MAY NOT BE SUCCESSFULLY INTEGRATED INTO
OUR BUSINESS AND COULD ADVERSELY AFFECT OUR BUSINESS.
We have pursued, and will continue to pursue, growth opportunities through
attempted acquisition of complementary businesses, products and technologies. We
are unable to predict whether or when any other prospective acquisition will be
completed, if at all. The process of integrating an acquired business may be
prolonged due to unforeseen difficulties and may require a disproportionate
amount of our resources and management's attention. There can be no assurances
that management will be able to successfully identify suitable acquisition
candidates, complete acquisitions, integrate acquired businesses into existing
operations, or expand into new markets. Further, once integrated, acquisitions
may not achieve levels of revenues, profitability or productivity comparable to
our existing business or otherwise perform as expected. The occurrence of any of
these events could harm our business, financial condition or results of
operations.
In addition, future acquisitions may require substantial capital resources,
which may require us to seek additional debt or equity financing. Future
acquisitions could result in the following, any of which could seriously harm
our results of operations or the price of our stock:
o issuance of equity securities that would dilute current
stockholders' percentages of ownership;
o large one-time write-offs;
o the incurrence of debt and contingent liabilities;
o difficulties in the assimilation and integration of operations,
personnel, technologies, products and information systems of the
acquired companies;
o diversion of management's attention from other business concerns;
o contractual disputes;
o risks of entering geographic and business markets in which we have
no or only limited prior experience; and
o potential loss of key employees of acquired organizations.
THE ACPG BUSINESS HAS INCURRED NET LOSSES. THERE IS NO ASSURANCE THAT IT WILL
TURN PROFITABLE IN THE FUTURE.
We (including the ACPG operations) have incurred losses in the past and may
incur losses in the future. The ACPG business incurred net losses of $0.9
million, $1.0 million and $1.4 million in 2006, 2005 and 2004, respectively.
Continued or increased net losses could have a material adverse effect on our
business, financial condition and results of operations and the value and market
price of our common stock.
22
WE RELY ON LICENSES WITH THIRD PARTIES TO LICENSE SOFTWARE CODE THAT IS AN
INTEGRAL PART OF THE ACPG BUSINESS'S PINNACLE SOFTWARE SOLUTION AND IF WE WOULD
NEED TO SEEK ALTERNATE LICENSES, OUR RESULTS OF OPERATIONS COULD BE ADVERSELY
AFFECTED.
We license certain software code that is an integral part of ACPG's Pinnacle
software solution from third parties. In particular, we obtain from third party
licensors certain software code included in the Pinnacle software solution, and
the software for its badging products. We would need to seek alternative
licensors for the software code if any of the third party licensors terminate or
decides not to renew a license. If any of these third party licensors become
unable to or refuses to license its code, it could interrupt and delay the
development, design and delivery of the Pinnacle software solution and related
products. Any such disruption could adversely affect our results of operations.
CYCLICAL INDUSTRY AND ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Our operating results may be affected adversely by the general cyclical pattern
of the industries in which we operate. For example, demand for ACPG products and
services is significantly affected by levels of commercial construction and
consumer and business discretionary spending. The demand patterns of these
markets could impact the revenues and margins in this business.
SES RESOURCES INTERNATIONAL, INC. IS A NEWLY FORMED BUSINESS.
As a newly formed organization, our subsidiary, SES Resources International,
Inc., or SES, has no independent record of performance in the following service
categories in which it is expected to specialize:
o corporate investigations (e.g. know your customer, know your
employee, know your vendor reviews);
o due diligence reviews;
o forensic accounting; anti-money laundering investigatory services
consistent with the requirements of the Patriot Act;
o anti-counterfeiting and intellectual property protection;
o corporate health and wellness consultancy;
o emergency preparedness and contingency planning; executive staffing
solutions; and
o education and government security training services
As a new business, SES may not be successful in being engaged by prospective
clients, which would have an adverse affect on revenues and results of
operations.
OUR SUCCESS IN THE SES BUSINESS DEPENDS ON OUR ABILITY TO EXPAND THE SES
ADVISORY PANEL.
SES intends to deliver critical strategic security and business protection
solutions based on best practices developed by accomplished retired law
enforcement agents and in association with an Advisory Panel comprised of senior
executive service level government risk assessment and law enforcement
professionals. We may not be able to identify additional senior executive
service law enforcement agents who are able to serve as Advisors on the Advisory
Panel. Such inability would harm the development of the SES business in general,
and prevent us from distinguishing ourselves in the marketplace in particular,
which could adversely affect revenues and results of operations.
23
SOME OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE HAVE, WHICH MAY LIMIT OUR
ABILITY TO EFFECTIVELY COMPETE WITH THEM.
Some of our competitors have greater financial, personnel and other resources
than we have, which may limit our ability to effectively compete with them. For
example, our main competitors in the ACPG business include Tyco International
Ltd. and Honeywell International Inc. These and other large competitors may be
able to:
o respond more quickly to new or emerging technologies or changes in
customer requirements;
o benefit from greater economies of scale;
o offer more aggressive pricing; and/or
o devote greater resources to the promotion of their products.
24
WE ARE DEPENDENT ON OUR KEY PERSONNEL, THE LOSS OF WHOM COULD NEGATIVELY AFFECT
BUSINESS.
We are dependent on our key personnel, including general management, software
and hardware engineers, technical support and sales executives, who have
significant industry experience, knowledge and know how. The loss of these key
personnel could negatively affect business and results of operations.
OUR COMMON STOCK HAS BEEN DELISTED FROM NASDAQ, WHICH LIMITS THE MARKET FOR OUR
COMMON STOCK AND COULD ADVERSELY AFFECT THE ABILITY OF OUR STOCKHOLDERS TO
RESELL OUR COMMON STOCK.
Our common stock was delisted from the NASDAQ National Market for failure to
maintain certain listing requirements and a significantly reduced market price
of common stock. The stock may be less liquid and more volatile as a result, and
it may be more difficult to raise new operating funds in the public market. The
common stock is presently quoted only on the Over-the-Counter Bulletin Board
under the ticker symbol "LQCI.OB" and the ability of our stockholders to obtain
liquidity and consistent market prices for our shares has been significantly
impaired.
In addition, our common stock may constitute "penny stock" (as defined in Rule
3a51-1 promulgated under the Exchange Act) if it fails to meet certain criteria
set forth in such Rule. Various practice requirements are imposed on
broker-dealers who sell "penny stocks" to persons other than established
customers and accredited investors. For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transactions prior to
sale. Consequently, the Rule may deter broker-dealers from recommending or
selling our common stock, which could further affect the liquidity of the common
stock.
OUR BUSINESS IS SUBJECT TO INCREASINGLY COMPLEX CORPORATE GOVERNANCE, PUBLIC
DISCLOSURE, ACCOUNTING, AND TAX REQUIREMENTS THAT HAVE INCREASED BOTH COSTS AND
THE RISK OF NONCOMPLIANCE.
We are subject to rules and regulations of federal and state government as well
as the service on which our common stock is quoted. These entities, including
the Public Company Accounting Oversight Board, or PCAOB, the SEC, the Internal
Revenue Service and NASD, have issued a significant number of new and
increasingly complex requirements and regulations over the course of the last
several years and continue to develop additional regulations and requirements in
response to laws enacted by Congress, most notably the Sarbanes-Oxley Act of
2002. Our efforts to comply with these requirements have resulted in, and are
likely to continue to result in, significant legal, accounting and other
expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. In addition, we incur
additional costs associated with our public company reporting requirements.
These rules and regulations also may make it more difficult and more expensive
for us to obtain director and officer liability insurance, and we may be
required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage.
We are subject to periodic audits or other reviews by such governmental
agencies. The SEC periodically reviews our public company filings. Any such
examination or review frequently requires management's time and diversion of
internal resources and, in the event of an unfavorable outcome, may result in
additional liabilities or adjustments to our historical financial results.
RECENT CHANGES IN ACCOUNTING RULES, INCLUDING THE EXPENSING OF STOCK OPTIONS
GRANTED TO OUR EMPLOYEES, COULD HAVE A MATERIAL IMPACT ON OUR REPORTED BUSINESS
AND FINANCIAL RESULTS.
The U.S. generally accepted accounting principles are subject to interpretation
by the Financial Accounting Standards Board, or FASB, the American Institute of
Certified Public Accountants, the PCAOB, the SEC, and various bodies formed to
promulgate and interpret appropriate accounting principles. A change in these
principles or interpretations could have a significant effect on our reported
financial results.
On December 15, 2004, the FASB issued SFAS 123R, Share-Based Payment, which
requires us to measure compensation expense for employee stock options using the
fair value method beginning the first quarter of fiscal year 2006, which is the
quarter ended March 31, 2006. SFAS 123R applies to all outstanding stock options
that are not vested at the effective date and grants of new stock options made
subsequent to the effective date. As a result of SFAS 123R, we recorded higher
levels of stock based compensation due to differences between the valuation
25
methods of SFAS 123R and Accounting Principles Board Opinion No. 25, or APB No.
25. In prior periods, we recorded any compensation expense associated with stock
option grants to employees using the intrinsic value method in accordance with
APB 25.
WE HAVE BEEN NAMED AS A PARTY IN CERTAIN CLASS ACTION LAWSUITS WHICH COULD
REQUIRE SIGNIFICANT MANAGEMENT TIME AND ATTENTION AND RESULT IN SIGNIFICANT
LEGAL EXPENSES AND MAY RESULT IN AN UNFAVORABLE OUTCOME WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND CASH FLOWS.
We are a defendant in certain purported class action lawsuits filed by
individual shareholders in the U.S. District Court for the Southern District of
New York against certain of our former officers and directors, and various of
the underwriters in our initial public offering ("IPO") and secondary offering.
The lawsuits have been filed by individual shareholders who purport to seek
class action status on behalf of all other similarly situated persons who
purchased our common stock between July 8, 1999 and December 6, 2000. A
consolidated amended class action complaint was filed on April 19, 2002. The
complaint alleges that certain underwriters of the IPO solicited and received
excessive and undisclosed fees and commissions in connection with that offering.
The complaint further alleges that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with our IPO which failed to accurately disclose the amount and nature of the
commissions and fees paid to the underwriter defendants. On or about October 8,
2002, the Court entered an Order dismissing the claims asserted against certain
individual defendants in the consolidated actions without any payment from these
individuals or us. On or about February 19, 2003, the Court entered an Order
dismissing with prejudice the claims asserted against us under Section 10(b) of
the Exchange Act. As a result, the only claims that remain against us are those
arising under Section 11 of the Securities Act. The parties have negotiated and
executed a definitive settlement agreement. The proposed settlement provides
that the class members in the class action cases brought against the
participating issuer defendants will be guaranteed a recovery of $1 billion by
insurers of the participating issuer defendants. If recoveries totaling $1
billion or more are obtained by the class members from the underwriter
defendants, however, the monetary obligations to the class members under the
proposed settlement will be satisfied. In addition, we and any other
participating issuer defendants will be required to assign to the class members
certain claims that they may have against the underwriters of their IPOs. The
proposed settlement contemplates that any amounts necessary to fund the
settlement or settlement-related expenses would come from participating issuers'
directors and officers' liability insurance policy proceeds as opposed to funds
of the participating issuer defendants themselves. A participating issuer
defendant could be required to contribute to the costs of the settlement if that
issuer's insurance coverage were insufficient to pay that issuer's allocable
share of the settlement costs. If ultimately approved by the Court, the proposed
settlement would result in the dismissal, with prejudice, of all claims in the
litigation against us and all of the other issuer defendants who have elected to
participate in the proposed settlement, together with the current or former
officers and directors of participating issuers who were named as individual
defendants. The proposed settlement does not provide for the resolution of any
claims against the underwriter defendants, and the litigation as against those
defendants is continuing. Consummation of the proposed settlement remains
conditioned upon obtaining approval by the Court. By order entered on September
1, 2005, the Court granted preliminarily approval of the proposed settlement and
directed that notice of the terms of the proposed settlement be provided to
class members. Thereafter, the court held a fairness hearing, on April 24, 2006,
at which objections to the proposed settlement were heard. The Court has yet to
issue a ruling on the motion for final approval. On December 5, 2006, the Court
of Appeals for the Second Circuit reversed the Court's order certifying a class
in six test cases that were selected by the underwriter defendants and
plaintiffs in the coordinated proceeding. On April 6, 2007, the Court of Appeals
denied the plaintiffs' petition for rehearing of the Court's December 5, 2006
ruling but noted that the plaintiffs remain free to ask the District Court to
certify a different class which might meet the standards for class certification
that the Court of Appeals articulated in its December 5, 2006 decision. Because
our proposed settlement with the plaintiffs involves the certification of the
case against us as a class action for settlement purposes, it is unclear what
impact, if any, the Second Circuit's class certification ruling will have on our
case or the viability of the proposed settlement. In the event the settlement is
not finalized, the Company believes that it has meritorious defenses to
plaintiffs' claims and intends to defend the action vigorously.
The expense of defending this litigation may be significant. The amount of time
to resolve these lawsuits is unpredictable and defending us may divert
management's attention from the day-to-day operations of our business, which
could adversely affect our business, results of operations and cash flows. In
addition, an unfavorable outcome in such litigation could have a material
adverse effect on our business, results of operations and cash flows.
26
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL AND MAY REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
Provisions of our certificate of incorporation and bylaws may discourage, delay
or prevent a merger, acquisition or other business combination that a
stockholder may consider favorable. These provisions include:
o authorizing the issuance of preferred stock without stockholder
approval;
o limiting the persons who may call special meetings of stockholders;
o prohibiting stockholder actions by written consent;
o prohibiting cumulative voting for the election of directors or any
other matter submitted to a vote of stockholders unless required by
the California General Corporation Law; and
o requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws.
We are incorporated in Delaware and certain provisions of Delaware law may also
discourage, delay or prevent someone from acquiring or merging with it, which
may cause the market price of its common stock to decline.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
No material changes exist to the market risk our investment portfolio of cash
and money market funds faced during the three months ended March 31, 2007.
ITEM 4. CONTROLS AND PROCEDURES
Based on the evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act by
our management, with the participation of our chief executive officer and our
chief financial officer, as of end of the period covered by this report, our
chief executive officer and our chief financial officer have concluded that our
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms.
No change in our internal control over financial reporting occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a defendant in certain purported class action lawsuits filed by
individual shareholders in the U.S. District Court for the Southern District of
New York against certain of our former officers and directors, and various of
the underwriters in our initial public offering ("IPO") and secondary offering.
The lawsuits have been filed by individual shareholders who purport to seek
class action status on behalf of all other similarly situated persons who
purchased our common stock between July 8, 1999 and December 6, 2000. A
consolidated amended class action complaint was filed on April 19, 2002. The
complaint alleges that certain underwriters of the IPO solicited and received
excessive and undisclosed fees and commissions in connection with that offering.
The complaint further alleges that the defendants violated the federal
securities laws by issuing a registration statement and prospectus in connection
with our IPO which failed to accurately disclose the amount and nature of the
commissions and fees paid to the underwriter defendants. On or about October 8,
2002, the Court entered an Order dismissing the claims asserted against certain
individual defendants in the consolidated actions without any payment from these
individuals or us. On or about February 19, 2003, the Court entered an Order
dismissing with prejudice the claims asserted against us under Section 10(b) of
the Exchange Act. As a result, the only claims that remain against us are those
arising under Section 11 of the Securities Act. The parties have negotiated and
executed a definitive settlement agreement. The proposed settlement provides
that the class members in the class action cases brought against the
participating issuer defendants will be guaranteed a recovery of $1 billion by
insurers of the participating issuer defendants. If recoveries totaling $1
billion or more are obtained by the class members from the underwriter
defendants, however, the monetary obligations to the class members under the
proposed settlement will be satisfied. In addition, we and any other
participating issuer defendants will be required to assign to the class members
certain claims that they may have against the underwriters of their IPO's. The
proposed settlement contemplates that any amounts necessary to fund the
settlement or settlement-related expenses would come from participating issuers'
directors and officers' liability insurance policy proceeds as opposed to funds
of the participating issuer defendants themselves. A participating issuer
defendant could be required to contribute to the costs of the settlement if that
issuer's insurance coverage were insufficient to pay that issuer's allocable
share of the settlement costs. If ultimately approved by the Court, the proposed
settlement would result in the dismissal, with prejudice, of all claims in the
litigation against us and all of the other issuer defendants who have elected to
participate in the proposed settlement, together with the current or former
officers and directors of participating issuers who were named as individual
defendants. The proposed settlement does not provide for the resolution of any
claims against the underwriter defendants, and the litigation as against those
defendants is continuing. Consummation of the proposed settlement remains
conditioned upon obtaining approval by the Court. By order entered on September
1, 2005, the Court granted preliminarily approval of the proposed settlement and
directed that notice of the terms of the proposed settlement be provided to
class members. Thereafter, the court held a fairness hearing, on April 24, 2006,
at which objections to the proposed settlement were heard. The Court has yet to
issue a ruling on the motion for final approval. On December 5, 2006, the Court
of Appeals for the Second Circuit reversed the Court's order certifying a class
in six test cases that were selected by the underwriter defendants and
plaintiffs in the coordinated proceeding. On April 6, 2007, the Court of Appeals
denied the plaintiffs' petition for rehearing of the Court's December 5, 2006
ruling but noted that the plaintiffs remain free to ask the District Court to
certify a different class which might meet the standards for class certification
that the Court of Appeals articulated in its December 5, 2006 decision. Because
our proposed settlement with the plaintiffs involves the certification of the
case against us as a class action for settlement purposes, it is unclear what
impact, if any, the Second Circuit's class certification ruling will have on our
case or the viability of the proposed settlement. In the event the settlement is
not finalized, the Company believes that it has meritorious defenses to
plaintiffs' claims and intends to defend the action vigorously.
The expense of defending this litigation may be significant. The amount of time
to resolve these lawsuits is unpredictable and defending us may divert
management's attention from the day-to-day operations of our business, which
could adversely affect our business, results of operations and cash flows. In
addition, an unfavorable outcome in such litigation could have a material
adverse effect on our business, results of operations and cash flows.
ITEM 6 EXHIBITS
2.1 Agreement and Plan of Merger with Dynabazaar, Inc. and LQ Merger Corp.
dated as of January 5, 2007 (1)
2.2 Letter Agreement dated January 5, 2007 (1)
2.3 Amended and Restated Agreement and Plan of Merger with Dynabazaar, Inc.
and LQ Merger Corp. dated as of February 26, 2007 (2)
28
2.4 Letter Agreement dated February 26, 2007 (2)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002*
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002*
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002*
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002*
* Filed herewith.
----------
(1) Incorporated by reference to the Form 8-K filed with the Securities and
Exchange Commission on January 5, 2007.
(2) Incorporated by reference to the Form 8-K filed with the Securities and
Exchange Commission on February 27, 2007.
L Q CORPORATION, INC.
SIGNATURES
Pursuant to the requirements 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.
DATE: May 15, 2007 L Q CORPORATION, INC.
By: /s/ Sebastian E. Cassetta
------------------------------------
Sebastian E. Cassetta
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Melvyn Brunt
------------------------------------
DATE: May 15, 2007 Melvyn Brunt
Chief Financial Officer
(Principal Financial and
Accounting Officer)
29