Investment in Limited Liability Company

9 Months Ended

Sep. 30, 2011

8.	Investment in Limited Liability Company

On May 12, 2010, the Company entered into a limited liability company agreement with Hughes Telematics, Inc. and Qualcomm Incorporated to design, develop, finance and operate a mobile PERS system. The Company invested $4,000,000 and incurred $150,336 in professional fees to acquire a minority interest (approximately 10%) in the new company, Lifecomm, LLC (“Lifecomm”). As part of this transaction, the Company borrowed $2,000,000 from its bank to partially finance this transaction. In addition, pursuant to the limited liability company agreement, the Company has agreed to fund its share ($200,000) of a stand-by equity commitment for Lifecomm’s benefit, if required. As of September 30, 2011, the Company’s exposure to loss is limited to the recorded equity investment balance of $1,474,157 and its share ($200,000) of a stand-by equity commitment, if required.

Hughes Telematics, Inc. (“HTI”), parent of Lifecomm and the party who has a controlling financial interest in Lifecomm, has determined that Lifecomm is a variable interest entity and that HTI is the primary beneficiary.

Lifecomm is a development stage company that has yet to generate any revenue, and has generated a pre-tax net loss of $6,595,242 and $2,282,762 during the nine and three months ended September 30, 2011 ($10,217,134 during the period from inception, May 12, 2010 to September 30, 2011). Lifecomm will continue to generate losses until the next generation mobile PERS is completed and commercialized, which is anticipated to be in early 2012.

In accordance with the limited liability company agreement, profits are generally allocated to members in the amount of and in proportion to their ownership of the outstanding membership units. Losses are generally allocated to members in the amount of and in proportion to their unreturned capital contributions, which for the purposes of determining the allocation of losses is defined as the aggregate of (i) cash contributions, (ii) the fair value of other contributed assets and (iii) the value of in-kind services contributed by the members through the date of determination, less (iv) the fair value of any assets distributed to the members; provided, however, that any losses generated through May 12, 2012 will be generally allocated to the members first in the amount of and in proportion to the unreturned capital contributions attributable to only the cash contributions and the value of in-kind services contributed by the members through the date of determination and then in the amount of and in proportion to the unreturned capital contributions attributable to the fair value of other contributed assets.

During the nine and three months ended September 30, 2011, the Company recorded a pre-tax net loss of $1,496,053 and $424,141, respectively ($2,676,179 during the period from inception, May 12, 2010 to September 30, 2011) for its share of losses from the equity investment in Lifecomm. The equity loss primarily relates to research and development costs as well as other selling, general and administrative expenses incurred for the development of the next generation mobile PERS. As the development continues to progress, the Company expects that its share of equity loss will continue throughout 2011 until the next generation mobile PERS is completed and commercialized, which is anticipated to be in early 2012.

In connection with the formation of Lifecomm, the Company entered into a Value Added Reseller Agreement (“VAR Agreement”) with Lifecomm. Under the VAR Agreement, the Company will be a reseller of the Mobile PERS Solution in the United States, as well as a preferred provider of the emergency assistance call center (“EACC”) component of the Mobile PERS Solution provided by Lifecomm to customers. The Company will be the sole provider of the EACC to the customers to whom it resells the Mobile PERS Solution. The term of the VAR Agreement is perpetual, subject to termination as set forth therein. The VAR Agreement contains standard indemnification provisions for agreements of this nature.

- Definition

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

+ References+ Details