SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-KSB/A
| T | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended July 31, 2008
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
for the transaction period from to
Commission File Number 0-02555
(Name of Small Business Issuer in its charter)
| Nevada | 88-0456274 |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
| 2121 Sage Road, Suite 200, Houston, Texas | 77056 |
| (Address of principal executive offices) | (Zip code) |
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
(Title of class)
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 T No o
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No T
State issuer’s revenues for its most recent fiscal year. $0.
State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. The aggregate market value of the common stock held by non-affiliates of the registrant was $20,929,094.56, based on the closing price on the OTCBB market on November 10, 2008.
As of November 10, 2008, 401,878,548 shares of the registrant's common stock were outstanding.
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EXOBOX TECHNOLOGIES CORP.
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EXPLANATORY NOTE
This amendment to the Annual Report on Form 10-K for the year ended July 31, 2008, filed by Exobox Technologies Corp., a Nevada corporation (the “Registrant”), with the United States Securities and Exchange Commission (the “Commission”) on November 12, 2008 (the “Annual Report”), is filed for the purposes of amending the Annual Report to (i) delete references to the Litigation Reform Act in “Forward Looking Statements”, (ii) expand disclosure in Item 5, “Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities – Recent Sales of Securities”, (iii) expand disclosure in Item 9, “Directors and Executive Officers of the Registrant – Directors and Executive Officers”, (iv) the inclusion of the auditor’s consent as an exhibit to this Annual Report, (v) a revision to the certifications set forth as an exhibit to this Annual Report, and (vi) revision of the signature blocks on the signature page of this Annual Report.
FORWARD LOOKING STATEMENTS
This Form 10K-SB/Acontains forward-looking statements. These statements relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause Exobox Technologies Corp. (“Exobox,” “Company,” “our” or “we”) or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or the negative of these terms or other comparable terminology. Such statements include, without limitation, all statements as to expectation or belief and statements as to our future results of operations, the progress of any research, product development and clinical programs, the need for, and timing of, additional capital and capital expenditures, partnering prospects, the protection of and the need for additional intellectual property rights, effects of regulations, the need for additional facilities and potential market opportunities. The Company’ actual results may vary materially from those contained in such forward-looking statements because of risks to which the Company is subject, such as lack of available funding, competition from third parties, intellectual property rights of third parties, regulatory constraints, litigation and other risks to which the Company is subject. These statements are only predictions. Actual events or results may differ materially.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company is under no duty to update any of the forward-looking statements after the date of this report to conform its prior statements to actual results.
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Exobox was established a network and data security development company to capitalize upon the growing need for a modern, reliable, efficient, effective and proactive network and data security solution. Keeping computers, networks and data safe continues to be a pressing problem and traditional solutions have been ineffective in providing a strong platform for protection. We believe the products we are developing products that will provide proactive solutions that assist IT users in managing and protecting their infrastructure assets and data.
Over time we intend to deliver a comprehensive and diverse set of security products and services to large enterprises, governments, small and medium-sized businesses, and consumers on a worldwide basis. We plan to develop a product delivery ecosystem for our products that includes direct, inside, and channel sales resources, as well as various relationships with original equipment manufacturers, or OEMs
Key drivers of our product development include the ever-increasing quantity of data being collected, and the need for that data to be protected, recoverable, and accessible at all times. Other factors driving demand for our solutions include the increasing number of Internet users, PDA’s, computing devices, and companies conducting business online, and the increasing importance of document retention and regulatory compliance solutions.
Over the last three years, we have developed proprietary, patented and patent-pending software technologies that we believe meet this need by providing computers and data such protection while differentiating ourselves from our competitors.
History
We were originally incorporated in December 1999 in the State of Nevada and we changed our name to Exobox Technologies Corp. in September 2005. On September 15, 2005, TMI Acquisition Corp., a newly formed, wholly-owned subsidiary of Exobox Nevada, merged into Exobox Technologies Corp., a Delaware corporation, and the shareholders of Exobox Delaware received 3,513,845 shares of Exobox Nevada convertible preferred stock.
During August, September and October 2007, substantially all of the holders of the all of our Class A Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock converted into shares of our common stock. Due to the conversions we exchanged (i) 9,939,101 shares of common stock for 9,939,101 shares of our Class A Common Stock, (ii) 187,062,449 shares of our common stock for 2,031,986 shares of Series A Preferred Stock, (iii) 58,041,041shares of our common stock for 660,132 shares of Series B Preferred Stock and (iv) 14,013,930 shares of our common stock for 104,992 shares of Series D Preferred Stock. Therefore, as of January 7, 2008, there are no longer any shares of Class A Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock.
Effective September 10, 2007, we entered into a settlement agreement and mutual release with Manillo Investments, Ltd (“Manillo Settlement”), pursuant to which we agreed to issue Manillo Investment, Ltd a new promissory note in the principal amount of $500,000 with principal and accrued interest due in five years in exchange for Manillo Investment, Ltd. (i) cancelling a convertible note with an outstanding balance as of July 31, 2007 of $105,000, (ii) terminating the securities purchase agreement issued in connection with the convertible note, and (iii) assigning the Series C Preferred Stock owned by Manillo Investment, Ltd. to us. Therefore as a result of the Manillo Settlement, there is no Series C Preferred Stock outstanding. On June 12, 2008 we paid off the $500,000 Manillo promissory note for $100,000 in cash.
The Industry and Markets
Keeping data and computer networks safe continues to be a pressing problem for individuals, banks, government institutions and millions of businesses. One security compromise alone can wipe out thousands of dollars worth of vital transactions or destroy costly equipment. One stolen or lost laptop can result in thousands or millions of personal information records reaching the wrong hands. While some large companies have worked to strengthen network security, most have accepted data loss and security compromises as the cost of doing business in the information age.
Securing a network and its data and complying with policies and regulations has been a difficult and expensive process. Most security approaches are difficult to deploy and maintain or lack effectiveness. Unfortunately, hackers are proving they can stay ahead of the curve and are too often capable of defeating current defenses. The modern enterprise needs a modern approach for protection. Our information-dependent society, with its expanding e-commerce economy needs a real solution to this serious and ever-increasing threat.
Historically, traditional enterprise, network security market (ENP) and endpoint computer security market (EPP), have been historically characterized by endpoint antivirus, personal firewall (PFW) and other related software and appliances. This simplified security framework has been eclipsed by a broader suite of related security technologies. Basic component technologies in EPP suites include antivirus, antispyware, host-based intrusion prevention (HIPS) and a PFW. These have become tools in a broader toolkit of an enterprise’s complete security solutions suite. Advanced ENP and EPP suites now include more targeted security functionalities such as network access control (NAC) and data protection technologies, such as DLP and full disk encryption. By combining multiple technologies into a single management framework, advanced ENPs and EPPs will provide lower costs and broader scope as they expand their reach into both network security and data security.
Due to the fundamental architecture of our technology, our goal is to develop variations which will result in several different products reaching across the spectrum of EPP, including, but not limited to:
| · | Enterprise & endpoint security |
| · | Data leak/loss prevention |
| · | Data access & change control |
| · | Data retention & recovery |
| · | Data auditing & reporting |
| · | Data and environment mobility |
| · | Software piracy protection |
The market for security technology continues to experience attractive growth as global use of the Internet becomes more ubiquitous and governmental regulation relating to data security becomes increasingly stringent. Consider the following market statistics:
| · | According to Internet World Stats, 1.407 billion people used the internet as of June 30, 2008 and it is expected to grow to approximately 1.650 billion by 2010. |
| · | According to Gartner, Inc., worldwide spending on security technology was $35 billion in 2007 of which: |
| o | Network security equipment represented 16% |
| o | Security software represented 27%, and |
| o | Security services represented 57%. |
| · | Also according to Gartner, Inc., worldwide security software sales were $7.4 billion in 2005, projected to be $10.5 billion in 2008, and reach $13 billion in 2012. |
| · | Based on market research, the market for our first product, Exobox DLP, has experienced a compound annual growth rate exceeding 270% over the last 3 years, and is estimated by us to soon grow to greater that $2.5billion annually. |
Products Under Development
The Exobox SECURE™ Solutions Suite (f.k.a. SUEZ) is a proactive, complete, data protection solution currently under development. Our first product of this suite is focused on data loss prevention (“DLP”). We expect to have this product to market in the first half of 2009.
Exobox DLP (f.k.a. IP Tracking Module) – Our DLP product, the first application of our information lifecycle management suite, is designed to control who can look at or alter any data accessible by endpoint users and other applications providing an essential layer of security for an enterprises’ sensitive and confidential data. We believe this will provide users with the tools necessary for an enterprise to protect its intellectual property (“IP”), as well as meet the requirements of regulatory compliance relating to sensitive and confidential data control, privacy, and protection. Due to the fundamental architecture of our technology, our goal is to develop variations which will result in several different products reaching across the spectrum of Enterprise Network Protection (“ENP”) and Endpoint Protection (“EPP”).
Current market penetration levels of DLP type solutions within the medium to large enterprise segment is below five percent. If our anticipation is correct, market penetration levels will increase to close to 100% as regulations enforce proactive DLP as mandatory for compliance.
Exobox Confidential Data Discovery & Identification –Exobox / Data Discovery automatically scans the enterprise in search for critical data enabling to discover where critical data exists in an enterprise. Sources of data can be flat files, databases, structured or unstructured sources of data, emails and any data created on the network (printed documents, memory sticks, email attachments, etc.) on literally any device that connects with the network. Classification is done by scanning data segments inside of files that match confidential data patterns. Once data has been identified as critical, it is centrally monitored enabling continuous tracking similar to the way packages are tracked by FedEx or UPS. Auditors can see at any time where confidential data is, where it was, who accessed it and what its intended life cycle is.
Exobox Data Audit & Reporting (f.k.a. Policy Enforcement Module) –This product provides information needed for compliance reviews by providing businesses concrete evidence of who accessed or changed corporate data and IT administrators help in identifying the where-abouts of (sensitive) data. Functionally, it logs every access to a file, every movement of sensitive data, stores information on a central server and contains standard presentation interfaces with a dashboard UI and reporting features. This products falls under the data life cycle management security segment and plays with compliance standards such as GLBA, HIPAA, SOX, among others.
Exobox Data Access & Change Control (formerly part of SUEZ Policy Enforcement) – This product controls who can look at or alter any data accessible by an endpoint such as users or other applications. Based on out-of-the box policies that meet the vast majority of regulatory compliance standards enforcement, this application functionally performs file request evaluation at end user nodes, and based on policy, indicates whether the requestor can access or change the requested file. If a potential breach occurs, the application will log the event, stop the request, prompt the user, and perform any other activities defined by the policy. Unless specified by other Identity Management and Access Control systems the enterprise may have in place, default policy states that applications can only change data under that application. It also states that the application can only look at its own data, other than operating system executables. This product falls under the anti-virus segment and assists in complying with regulation standards – HIPAA, SOX, FISMA, GLBA, PCI. Virtually all industries are candidates for this product.
Exobox Data Retention & Recovery (f.k.a. Disaster Recovery Module) – This product controls how data will be phased out of use. Policy defines what happens to data after absolute or relative times, or use-based metrics such as aggregate, archive, back up, delete, expectations related to accessing the data after archive, incremental change-based backups, web relationship backups, etc. This product falls under the data life cycle management business segment and plays with compliance standards such as GBLA, SOX, HIPAA, among many others.
Exobox Desktop Mobility (f.k.a. Data Stick) – This product allows users to transfer his/her desktop/workspace as well as all data to any compatible computer that can run the same OS. By plugging the Exobox Data Stick into any compatible computer, the user causes that computer to replicate the user’s original computing environment, including clock cycles, memory, operating system, as well as the user’s wallpaper, URL history, documents, Outlook contacts and any other unique settings the user chooses. All data changes done during the session(s) will be saved only to the Exobox Data Stick. Upon completion of working on the hosting computer, all traces of the mobile user will be erased. This product falls under the Mobile User segment and plays an important role in enabling true security and data protection for the Mobile user.
Key technology functionalities
| · | Endpoint interception technology |
| o | All file I/O requests |
| o | Major applications: MS-Office |
| · | Content Recognition |
| o | Ability to take defined confidential data patterns and recognize data with matches |
| · | Encryption |
| o | High powered encryption protected by advanced key system |
| o | Primary method of ensuring total data security |
| · | Centralized Encryption Key Management |
| o | Totally controls the keys to the kingdom, while still allowing for needed (internal and external) business to take place |
| · | Allowance for portable data access |
| o | Temporary keys with time or access expiration |
| o | Other authentication mechanisms used with local keys |
| o | Local only version of key server access |
Business Model and Growth Strategy
The global market for such software is expanding rapidly as more enterprises search for proactive, effective solutions to ever increasing threats and the demands of increasing regulatory compliance. We intend to structure our business on a business-to-business licensing model. In doing so, we plan to build an efficient eco-system by identifying the key providers in certain industries, geographic territories and market segments – including Internet service providers, banks and financial institutions, government agencies, software makers, computer hardware manufacturers, home PC users, business PC users, educational institutions, and e-commerce companies – and license the software for use by those institutions. We believe this model will eliminate significant expenses for inventory control, distribution, end user tech support and payroll.
Furthermore, our business strategy is to license our technology on a selective and worldwide basis to OEM, computer and software development and services companies which design and implement software and network systems for end users. Such companies include, but are not limited to IBM, Accenture, Bearingpoint, HP/EDS, CSC Computer Sciences Corp. and Perot Systems. OEMs may include companies such as Dell, HP, Apple, and Seagate, among many others. To date, we have not entered into any arrangement or agreement with any of the above referenced companies.
Key elements of the business model we intend to implement include:
Target Leading Systems Companies in Multiple Large Markets. We intend to target systems companies in markets that we believe represent the greatest potential for sales of our products. We believe that by targeting these market leaders, we will place competitive pressure on other industry participants to license our core technology. We intend to actively participate with our licensees in their marketing and selling efforts to systems companies, develop applications, notes and other technical material to promote and support our technology in the marketplace, and provide technical support to licensees which have adopted our products.
Leverage Business Model by Sharing Research and Development Efforts with Licensees. We believe that cooperative development efforts with our licensees will allow us to improve our technology and bring additional products and variations of our technology to market faster, cheaper and with broader support than would be possible if we were to attempt to develop, manufacture or sell our products on our own. While all the development of the fundamental technology and much of the specific process implementation will be done by us, we envision that a significant portion of the specific process implementation will be accomplished by the partner licensees. By spreading the cost of developing add-ons to our technology among all our licensees, which we will consider to be our partners in development, we believe our business model will permit us to maintain a relatively low cost structure and devote a relatively large portion of our resources to further research and development efforts which are directly related to our fundamental technology.
Generate Revenue through a Combination of Licensing Fees and Royalties. We anticipate that in addition to gross royalties, licensees will generally pay a license fee to us. Part of these fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by us.
Royalties, which are generally a percentage of the gross revenues that will be received by licensees on sales of their products based on our technology, will normally be payable by a licensee on sales occurring during the license term. For a typical systems application of our technology, we anticipate that we will receive royalties from the sale as they are shipped by our licensees. We currently anticipate that gross sales royalty rates will range from approximately 3% to 7%, to 50% to 70% depending on the product and volume and in some cases may decline based on the passage of time or on the total volume. The exact rate and structure of a royalty arrangement with a particular licensee may depend on a number of negotiated factors, including the amount of the license fee to be paid by the licensee and the marketing and engineering commitment made by the licensee.
Maintain Technology Leadership. We believe that we are developing advanced products for the protection of data and computer and network security and we are committed to continuing research and development efforts, both internally and in conjunction with our future partner licensees, to further improve our products and technologies. We plan to continue our emphasis on research and development by assigning significant portions of our current and future engineering staff to developing future generations of our fundamental technology.
Marketing and Sales
Consistent with our business model, we will focus our sales and marketing activities on two parallel paths, Direct and Indirect.
The Direct sales path is intended to establish the bridgehead of implemented references and show case customers. Brand awareness campaigns and activities will compliment the Direct sales force efforts, leveraging the show case successes. Some of our sales efforts may be targeted to senior executives and IT department personnel who are responsible for managing a company’s IT initiatives. We will be vertically focused on well known, IT Security thirsty companies especially those that have a strong need for regulation compliancy and confidential mission critical businesses.
The Indirect path is Exobox’s longer term strategy. Our objective is to streamline our business through a broad eco-system of collaborated partnerships, which include value-added resellers, or VARs, large account resellers, or LARs, distributors, system integrators, or SIs, and OEMs, that rely on and strengthen each other, ultimately delivering solid added business value turn-key IT security solutions. We’re building relationships with a variety of companies, such as integrators, value added resellers, security consultants and technology alliances. Ultimately, the Exobox customer will have a turn key solution from definition to deployment from this eco-system. Building this eco-system requires a significant efforts, and therefore needs a longer runway for take off. We will always need our in-house direct sales force to feed the channel with qualified leads and hand hold the channel during sales efforts as necessary.
The combination of Direct and Indirect sales efforts will ensure fast market penetration while in parallel building and strengthening our long term strategy of an Indirect channel model.
Hand in hand with the sales strategy, we are building a strong awareness and lead generation engine to feed the channel and sales organization. Our approach is to capitalize on traditional marketing activities such as industry trade shows, webinar and seminar series, and the likes in parallel to aggressive eMarketing initiatives, meaning SEO (Search Engine Optimization) and SEM (Search Engine Marketing) efforts. We are building our eMarketing foundation on a Web2.0 architecture with tailored landing pages guiding the visitor through a personalized visit, hand holding the visitor all the way through to the purchasing of a solution/product. Exobox’s team of Security experts will be recognized bloggers, known for their subject matter expertise, establishing Exobox in the market as the people that innovate and deliver solutions that work and help companies.
Our objective in our awareness campaign is to communicate the message that Exobox Technologies is an innovative and evangelist company in the IT Security market, building and delivering IT Security solutions that help our customers safely do business, grow and thrive without having to feel the pain of eFraud and modern IT Security threats.
Research and Development
Our research and development efforts over the last three years have resulted in the filing of more than twenty-two patent applications for our technology with additional patent applications forthcoming. We intend to focus our programming efforts on creating new applications from our current and new technologies. Currently, we have identified several different applications which we intend to build, if we obtain needed capital.
Competition
The markets for the products we plan to build are intensely competitive and are subject to rapid changes in technology. We expect competition to continue to increase in the future. We believe that the principal competitive factors affecting these markets include, but are not limited to performance, functionality, quality, customer support, breadth of product group, frequency of upgrades and updates, integration of products, manageability of products, brand name recognition, reputation, global reach and price.
Most of the companies we will be competing against have longer operating histories, greater name recognition, stronger relationships with channel partners, larger technical staffs, established relationships with hardware vendors and/or greater financial, technical and marketing resources, all things that we do not have at this time. These factors may provide our competitors with an advantage in penetrating markets with their network security and management products.
Data Leak/Loss Prevention. Current market penetration levels of Data Loss Prevention (DLP)-type solutions within the medium to large enterprise segment are below 5%. If our anticipation is correct, penetration levels will increase to close to 100% as the continued tightening and strengthening of regulations enforce proactive DLP as mandatory for compliance.
The competitive landscape within the DLP segment includes large and small vendors. The currently low penetration level of DLP solutions is one important indicator that the available products are not good enough to address customer demands. The products are difficult to implement, interfere with workflow within a business and are expensive to own. We see this as an attractive opportunity to design and develop a product based on our technology, that addresses the proactive DLP challenge as well as addresses the short falls currently available products have.
Anti-Virus. Our principal competitors in the anti-virus market are Symantec, McAfee and Computer Associates. Trend Micro remains the strongest competitor in the Asian anti-virus market. Sophos, F-secure, Panda Security, and Dr. Ahn’s are also showing growth in their respective markets. As a result of its GeCAD Software acquisition, at some point we may also compete directly against Microsoft in the consumer market, although an OEM relationship is also a possibility.
Network Security and Intrusion Detection and Protection. Our principal competitors in the security market vary by product type. For intrusion detection and prevention products, we compete with Cisco Systems, Computer Associates, Fortinet, Internet Security Systems, NetScreen, Sourcefire, Symantec and TippingPoint Technologies. The markets for encryption and virtual private network, or VPN, products are highly fragmented with numerous small and large vendors. VPN competitors include hardware and software vendors, including telecommunications companies and traditional networking suppliers.
Other Competitors. In addition to competition from large technology companies such as HP, IBM, Intel, Microsoft, and Novell that may offer network and system protection products as enhancements to their operating systems, we also face competition from smaller companies and shareware authors that may develop competing products.
Protection of Intellectual Property
We have filed twenty-two patent application and fifteen trademark application protecting our intellectual property. We attempt to protect our software technology by relying on a combination of copyright, patent, trade secret and trademark laws, restrictions on disclosure and other methods. In particular, we have a number of registered trademarks and currently hold patents in the United States, as well as patent holdings in other countries, relating to our technology and trade names. We have regularly filed other applications for patents and trademarks in order to protect proprietary intellectual property that we believe are important to our business.
As we develop products and begin to market them, we may face a number of risks relating to our intellectual property, including unauthorized use and unauthorized copying, or piracy of our software solutions. Litigation may be necessary to enforce our intellectual property rights, to protect trade secrets or trademarks, or to determine the validity and scope of the proprietary rights of others. Furthermore, any patents that have been issued to us could be determined to be invalid and may not be enforceable against competitive products in every jurisdiction. Moreover, other parties have asserted and may, in the future, assert infringement claims against us. These claims and any litigation may result in invalidation of our proprietary rights. Litigation, even if not meritorious, could result in substantial costs and diversion of resources and management attention. In addition, third party licenses may not continue to be available to us on commercially acceptable terms, or at all.
To mitigate these risks, we intend to implement worldwide strategies on multiple intellectual property fronts. As part of this comprehensive strategy, we intend to initiate plans for our SOS (Secure Operating System, a foundational element of our technology) technology in respect to both domestic and foreign filings. With regard to the foreign filings, patent applications covering the SOS technology have been submitted in eleven different foreign countries.
Employees
We presently have seven employees.
Legal Proceedings
We have no legal proceedings at this time and are unaware of any legal proceedings that may be pending against us.
Facilities
Our current headquarters are located at 2121 Sage Rd, Suite 200, Houston, Texas 77056.
Other Information
Our Internet address is www.exobox.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC. Other than the information expressly set forth in this annual report, the information contained, or referred to, on our website is not part of this annual report.
The public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC.
Risk Factors
We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
We have incurred annual operating losses since our inception. As a result, at July 31, 2008, we had an accumulated deficit of $9,952,921. We had no gross revenues for the year ended July 31, 2008, and a loss from operations of $3,217,597. As we pursue our business plan, we expect our operating expenses to increase significantly, especially in the areas of sales and marketing. As a result we expect continued losses in fiscal 2009 and thereafter.
We will not be able to continue our business operations unless we raise additional financing.
We are a development stage company and as such have generated no revenues or profits to date. Our success will depend on the ability to attract external financing for our working capital needs and to develop our patent rights in connection with our software solutions. As of the date hereof, we do not have sufficient funding to satisfy our working capital needs or to develop the full line of products and, the failure to obtain sufficient funding, will preclude us from conducting meaningful business operations. We have historically financed our operations through best efforts private equity and debt financings. We do not have any commitments for equity or debt funding at this time, and additional funding may not be available to us on favorable terms, if at all.
We may not be able to meet our current and future liabilities and remain in operation until we receive additional capital.
As of July 31, 2008, we have current assets of $851,938 and current liabilities of $482,668. In connection with the Manillo Settlement, the $105,000 convertible note has been replaced with a long term note with an original principal amount of $500,000. In June of 2008, the $500,000 note was paid in full. Additionally, as a result of the Manillo Settlement, in which the Series C Preferred Stock was returned to us, the derivative liability of $2,025,042 was reversed in the quarter ending October 31, 2007 and is no longer reflected on our balance sheet on that date. Our current liquidity position only allows us to meet nominal working capital needs. We will need $6,000,000 to meet our working capital needs through fiscal 2009. Any failure to obtain such financing could force us to abandon or curtail our operations.
We will need to raise additional funds to fund product development and acquisitions.
Our cash does not afford us adequate liquidity to fund our product development. In order to fund our full product development, including marketing and testing, we will need to raise at least $9,000,000. We may also issue additional shares of common stock to finance future acquisitions. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. There is no assurance that we can raise additional capital from external sources, the failure of which could cause us to sell assets or curtail operations.
Ours auditor has substantial doubts as to our ability to continue as a going concern.
Our auditor's report on our July 31, 2008 financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business. Because we do not have sufficient capital, we may be required to suspend or cease the implementation of our business plans within 12 months. Because we have been issued an opinion by its auditors that substantial doubt exists as to whether we can continue as a going concern it may be more difficult for us to attract investors. Our future is dependent upon our ability to obtain financing and upon future profitable operations from the sale of our products.
Additional capital may dilute current stockholders.
In order to provide capital for the operation of our business we may enter into additional financing arrangements. These arrangements may involve the issuance of new common stock, preferred stock that is convertible into common stock, debt securities that are convertible into common stock or warrants for the purchase of common stock. Any of these items could result in a material increase in the number of shares of common stock outstanding which would in turn result in a dilution of the ownership interest of existing common shareholders. In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing common stock.
The market price of our common stock is very volatile and the value of your investment may be subject to sudden decreases.
The trading price for our common stock has been, and we expect it to continue to be, volatile. For example, the price of our stock has fluctuated between $1.15 per share and $0.03 per share since January 1, 2007. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results, and general market and economic conditions, which are beyond our control. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations. These broad market fluctuations may lower the market price of our common stock. Moreover, during periods of stock market price volatility, share prices of many companies have often fluctuated in a manner not necessarily related to their operating performance. Accordingly, our common stock may be subject to greater price volatility than the stock market as a whole.
We lack an operating history which you can use to evaluate us, making any investment in us risky.
We lack an operating history which investors can use to evaluate our previous earnings. This makes it harder for you as an investor to predict how we may do in the future. Therefore, an investment in us is risky because we have no business history and it is hard to predict what kind of return our stock will have in the future, if at all.
There can be no assurance that we will successfully commercialize any products or services.
There can be no assurance that we will successfully commercialize any products and services based on our technology or manage the related manufacturing, marketing, sales, licensing and customer support operations in a profitable manner. In particular, our prospects must be considered in light of the problems, delays, expenses and difficulties encountered by any company in the startup stage, many of which may be beyond our control. These problems, delays, expenses and difficulties include unanticipated problems relating to product development and formulation, testing, quality control, production, inventory management, sales and marketing and additional costs and competition, any of which could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that our products and services can be successfully marketed or that it will ever achieve significant revenues or profitable operations.
There can be no assurance that we will ever be profitable.
To be profitable, we must successfully commercialize our technologies. We are in the early stages of development and will require significant further research, development and testing, and are subject to the risks of failure inherent in the development of products based on innovative or novel technologies.
Our industry changes rapidly due to evolving technology standards and our future success will depend on our ability to adapt to market change.
Our future success will depend on our ability to address the increasingly sophisticated needs of the market. We will have to keep pace with technological developments, evolving industry standards and changing customer requirements. We expect that we will have to respond quickly to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render our contemplated products obsolete. We may not have sufficient resources to make the necessary investments, which could have a material adverse effect on our business.
We depend upon our intellectual property and our failure to protect existing intellectual property or secure and enforce such rights for new proprietary technology could adversely affect our future growth and success.
Our ability to successfully protect our proprietary technology is essential to our success. We have filed trademark and patent applications to protect intellectual property rights for technology that we have developed. Our future success also may depend upon our ability to obtain additional licenses for other intellectual properties. We may not be successful in acquiring additional intellectual property rights with significant commercial value on acceptable terms. Even if we are successful in acquiring such rights, it can provide no assurance that we will be successful in adapting or deploying them as to the timing or cost of such development efforts or as to the commercial success of the resulting products or services.
Our competitors may develop non-infringing products or technologies that adversely affect our future growth and revenues.
It is possible that our competitors will produce proprietary technologies similar to ours without infringing on our intellectual property rights. We also rely on unpatented proprietary technologies. It is possible that others will independently develop the same or similar technologies or otherwise obtain access to the unpatented technologies upon which we rely for future growth and revenues. Failure to meaningfully protect our trade secrets, know-how or other proprietary information could adversely affect our future growth and revenues.
Our success is dependent upon our ability to protect our proprietary technologies.
Our success is substantially dependent upon our proprietary technologies and our ability to protect our intellectual property rights. Exobox received a formal “Notice of Allowance” from the United States Patent and Trademark Office (USPTO) for its second patent, Application No. 11/591,112, issued on August 9, 2007. We currently have filed for 22 patent applications with the U.S. Patent Office and other foreign patent offices that relate to software security solutions. We rely upon our patent applications and trade secret laws, non-disclosure agreements with our employees, consultants and third parties to protect our intellectual property rights. The complexity of patent and common law, combined with our limited resources, create risk that our efforts to protect our proprietary technologies may not be successful. We cannot assure you that our patent applications will be upheld or that third parties will not invalidate our patent rights. In the event our intellectual property rights are not upheld, such an event would have a material adverse effect on us. In addition, there is a risk that third parties may independently develop substantially equivalent or superior technologies.
Any litigation to protect our intellectual property or any third party claims to invalidate our patents could have a material adverse effect on our business.
Our success depends on our ability to protect our intellectual property rights. In the future, it may be necessary for us to commence patent litigation against third parties whom we believe require a license to our patents. In addition, we may be subject to third-party claims seeking to invalidate our patents. These types of claims, with or without merit, may subject us to costly litigation and diversion of management’s focus. In addition, based on our limited financial resources, we may not be able to pursue litigation as aggressively as competitors with substantially greater financial resources. Based on our limited financial resources, it may be necessary for us to engage third party professionals on a contingency basis pursuant to which such parties would be entitled to share in the proceeds of any successful enforcement of our intellectual property rights. If third parties making claims against us seeking to invalidate our patent are successful, they may be able to obtain injunctive or other equitable relief, which effectively could block our ability to license or otherwise capitalize on our proprietary technologies. Successful litigation against us resulting in a determination that our patent applications are invalid would have a material adverse effect on us.
We may be unable to successfully compete against companies with resources greater than ours, if we are unable to protect our patent rights and trade secrets, or if we infringe on the proprietary rights of third parties.
We will need to obtain additional patents on our technology to protect our rights to our technology. To obtain a patent on an invention, one must be the first to invent it or the first to file a patent application for it. We cannot be sure that the inventors of subject matter covered by patents and patent applications that we own or may license in the future were the first to invent, or the first to file patent applications for, those inventions. Furthermore, patents we own or may license in the future may be challenged, infringed upon, invalidated, found to be unenforceable, or circumvented by others, and our rights under any issued patents may not provide sufficient protection against competing software or otherwise cover commercially valuable software or processes.
We seek to protect trade secrets and other un-patented proprietary information, in part by means of confidentiality agreements with our collaborators, employees, and consultants. If any of these agreements is breached, we may be without adequate remedies. Also, our trade secrets may become known or be independently developed by competitors.
Our industry is competitive and as such competitive pressures could prevent us from obtaining profits, forcing us to abandon or curtail our business plan and possibly liquidate our assets.
One of the main factors in determining in whether we will be able to realize any profits and/or be able to continue its business plan will be whether or not we are able to successfully compete in the software industry. The virus protection software industry is highly competitive and we may be competing against companies with greater resources and more experience in the industry. If we are unable to compete in the marketplace and fail to generate any profits, we may be forced to liquidate its assets and any investment in us could be lost.
We rely upon key personnel and if any one leaves us our business plan and our business operations could be adversely effected.
We rely on our executives for our success. Their experience and inputs create the foundation for our business and they are responsible for the implementation and control over our development activities. We currently have five employment contracts and we do not hold “key man” insurance on any of these people. Moving forward, should they be lost for any reason, we will incur costs associated with recruiting replacement personnel and could face potential delays in operations. If we are unable to replace any one of them with other suitably trained individuals, we may be forced to scale back or curtail our business plan. As a result of this, your securities in us could become devalued.
Investors may face significant restrictions on the resale of our common stock due to federal regulations of penny stocks.
Our common stock is listed on the OTC Bulletin Board, however, it will be subject to the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act of 1934 (“Exchange Act”), as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on Nasdaq that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
ITEM 2. DESCRIPTION OF PROPERTY
During 2008 we leased approximately 6,178 square feet of office space in a building located at 2121 Sage Road, Suite 200, Houston, Texas 77056. The premises are leased from an arms-length third party, pursuant to a lease agreement at the rate of $9,781.83 per month.
ITEM 3. LEGAL PROCEEDINGS
In November 2006, we received a subpoena from the United States Securities & Exchange Commission requesting the production of documents from January 1, 2000 until present and testimony; this formal inquiry following up an informal inquiry commenced in September 2006. Documents requested included, without limitation, formation documents, minutes, records relating to payments or services rendered in exchange for as well as offering documents utilized in connection with the issuance of shares of capital stock, any correspondence with various current and former shareholders, vendors and other third parties, documentation surrounding the 2005 reverse triangular merger, as well as documentation relating to our business.
On July 29, 2008, Stephen Webster, Assistant Director in the Fort Worth office of the United States Securities Exchange Commission (“Commission”), provided a letter to Exobox indicating that the Commission’s formal investigation of the Company and its management commenced in 2006 has been terminated (“Termination Letter”). The Termination Letter, addressed to Thomas Pritchard of Brewer & Pritchard, P.C. and Jason Lewis of Locke Lord Bissell & Liddell LLP, the Company’s outside securities counsel, states that the Commission’s investigation of the Company styled, In the Matter of Exobox Technologies Corp. (FW – 3056), “has been completed as to Exobox Technologies Corp., its Chief Executive Officer, Robert Dillon and its other officers and directors, against whom we do not intend to recommend any enforcement action by the Commission.”
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been traded under the stock symbol “EXBX” on the over-the-counter Pink Sheets market. The chart below breaks down the high and the low prices for our last two fiscal years which quotations reflect inter-dealer price, without retail mark-up, mark-down or commission, and may not reflect actual transactions. The trading price for our common stock has been, and we expect it to continue to be, volatile. During 2008, 2007 and 2006, the high and low prices were as follows:
| Quarter Ended | High | Low | ||||||
| July 31, 2008 | $ | 0.30 | $ | 0.078 | ||||
| April 30, 2008 | $ | 0.48 | $ | 0.20 | ||||
| January 31, 2008 | $ | 0.30 | $ | 0.03 | ||||
| October 31, 2007 | $ | 0.45 | $ | 0.20 | ||||
| July 31, 2007 | $ | 0.55 | $ | 0.35 | ||||
| April 30, 2007 | $ | 1.15 | $ | 0.15 | ||||
| January 31, 2007 | $ | 0.55 | $ | 0.35 | ||||
| October 31, 2006 | $ | 0.60 | $ | 0.25 | ||||
On November 10, 2008 the last sales price of our common stock was $0.11 per share.
Holders
The approximate number of holders of record of our common stock is 2,148.
Dividends
We have not paid any cash dividends on our equity security and our board of directors has no present intention of declaring any cash dividends.
Recent Sales of Securities
Set forth below is certain information concerning issuances of common stock that were not registered under the Securities Act of 1933 (“Securities Act”) that occurred in the fourth quarter of fiscal 2008, as well as during fiscal 2008.
On September 28, 2007, two unaffiliated third parties exercised warrants to purchase an aggregate of 45,000 shares of our common stock at $0.20 per share.
On October 5, 2007, an unaffiliated third party exercised warrants to purchase an aggregate of 22,500 shares of our common stock at $0.20 per share.
On December 20, 2007, two unaffiliated third parties acquired 750,000 shares of our common stock and four-year warrants to purchase 150,000 shares of common stock at an exercise price of $1.00 in consideration of $75,000.
On January 10, 2008, two unaffiliated third parties acquired 500,000 shares of our common stock and four-year warrants to purchase 100,000 shares of common stock at an exercise price of $1.00 in consideration of $50,000.
On January 14, 2008, an unaffiliated third party acquired 250,000 shares of our common stock and four-year warrants to purchase 50,000 shares of common stock at an exercise price of $1.00 in consideration of $25,000.
On January 16, 2008, three unaffiliated third parties acquired 750,000 shares of our common stock and four-year warrants to purchase 150,000 shares of common stock at an exercise price of $1.00 in consideration of $75,000.
On January 18, 2008, three unaffiliated third parties acquired 750,000 shares of our common stock and four-year warrants to purchase 150,000 shares of common stock at an exercise price of $1.00 in consideration of $75,000.
On January 22, 2008, six unaffiliated third parties acquired 2,000,000 shares of our common stock and four-year warrants to purchase 400,000 shares of common stock at an exercise price of $1.00 in consideration of $200,000.
On January 23, 2008, two unaffiliated third parties acquired 500,000 shares of our common stock and four-year warrants to purchase 100,000 shares of common stock at an exercise price of $1.00 in consideration of $50,000.
On January 25, 2008, four unaffiliated third parties acquired 1,000,000 shares of our common stock and four-year warrants to purchase 200,000 shares of common stock at an exercise price of $1.00 in consideration of $100,000.
On January 30, 2008, three unaffiliated third parties acquired 3,500,000 shares of our common stock and four-year warrants to purchase 700,000 shares of common stock at an exercise price of $1.00 in consideration of $350,000.
On January 31, 2008, two unaffiliated third parties acquired 750,000 shares of our common stock and four-year warrants to purchase 150,000 shares of common stock at an exercise price of $1.00 in consideration of $75,000.
On February 1, 2008, 18 unaffiliated third parties acquired 5,250,000 shares of our common stock and four-year warrants to purchase 1,050,000 shares of common stock at an exercise price of $1.00 in consideration of $525,000.
On February 6, 2008, 10 unaffiliated third parties acquired 4,500,000 shares of our common stock and four-year warrants to purchase 900,000 shares of common stock at an exercise price of $1.00 in consideration of $450,000.
On February 7, 2008, 5 unaffiliated third parties acquired 1,500,000 shares of our common stock and four-year warrants to purchase 300,000 shares of common stock at an exercise price of $1.00 in consideration of $150,000.
On February 8, 2008, 5 unaffiliated third parties acquired 6,250,000 shares of our common stock and four-year warrants to purchase 1,250,000 shares of common stock at an exercise price of $1.00 in consideration of $625,000.
On February 12, 2008, 2 unaffiliated third parties acquired 500,000 shares of our common stock and four-year warrants to purchase 100,000 shares of common stock at an exercise price of $1.00 in consideration of $50,000.
On February 14, 2008, an unaffiliated third party acquired 250,000 shares of our common stock and four-year warrants to purchase 50,000 shares of common stock at an exercise price of $1.00 in consideration of $25,000.
During August, September and October 2007, most of the holders of the Company’s Class A Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock converted into shares of the Company’s common stock. Due to the conversions the Company exchanged (i) 9,939,101 shares of common stock for 9,939,101 shares of our Class A Common Stock, (ii) 186,475,319 shares of our common stock for 2,025,608 shares of Series A Preferred Stock, (iii) 59,153,752 shares of our common stock for 642,564 shares of Series B Preferred Stock and (iv) 14,013,939 shares of our common stock for 104,992 shares of Series D Preferred Stock. Therefore, as of October 17, there are no longer any shares of Class A Common Stock and Series D Preferred Stock.
The issuances referenced above were consummated pursuant to Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that such transactions did not involve a public offering and the offerees were sophisticated, accredited investors with access to the kind of information that registration would provide. The recipients of these securities represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. No sales commissions were paid to register brokers in connection with these issuances listed above.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information, as of July 31, 2008, concerning securities authorized for issuance under the 2007 Stock Option Plan and other outstanding options, warrants and rights:
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants & Rights (a) | Weighted Averaged Exercise Price of Outstanding Options, Warrants & Rights (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a) (c) | ||||||||||
| Equity compensation plans approved by security holders: | ||||||||||||
| None | -- | -- | -- | |||||||||
| Equity compensations plans not approved by security holders: | ||||||||||||
| 2007 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan | 8,885,000 | (1) | $ | .30 | 11,115,000 | |||||||
| Total | 8,885,000 | $ | .30 | 11,115,000 | ||||||||
______________
(1) The Company has issued an aggregate of 6,935,000 shares to consultants during the fiscal year ended July 31, 2008 and 450,000 in total shares in prior years. 1,500,000 shares were granted under a warrant to a consultant during the fiscal year ended July 31, 2008. No options or other rights were issued during this period.
(2) Calculated based on the fair market price of our common stock on the date of issuance.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CRITICAL ACCOUNTING POLICIES
In December 2001, the Securities and Exchange Commission requested that all registrants discuss their "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 that is both important to the portrayal of the company's financial condition and results and that requires management's most difficult, subjective or complex judgments. Such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain. While Exobox’s significant accounting policies are more fully described in Note 1 to its financial statements included elsewhere in this annual report Exobox currently believes the following accounting policies to be critical:
Development Stage Company
Exobox is considered to be in the development stage as defined in Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting and Reporting by Development Stage Enterprises." Exobox has devoted substantially all of its efforts to business planning, raising capital, research and development, recruiting management and technical staff, and acquiring operating assets. We have experienced a loss since inception.
Start-up Costs
In accordance with the American Institute of Certified Public Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up Activities", Exobox expenses all costs incurred in connection with its start-up and organization.
Research and Development
Research and development costs are related primarily to Exobox developing early prototypes. Research and development costs are expensed as incurred.
Income Taxes
The income tax benefit is computed on the pre-tax loss based on the current tax law. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates. No benefit is reflected for the fiscal year ended July 31, 2008.
Valuation of the Embedded and Warrant Derivatives
The valuation of our embedded derivatives and warrant derivatives are determined primarily by the Black-Scholes option pricing model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs). In accordance with FASB Statement No. 133, as amended, Accounting for Derivative Instruments and Hedging Activities, these embedded derivatives are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. A warrant derivative liability is determined in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). Based on EITF 00-19, warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. The practical effect of this has been that when our stock price increases so does our derivative liability, resulting in a non-cash loss charge that reduces our earnings and earnings per share. When our stock price declines, we record a non-cash gain, increasing our earnings and earnings per share.
To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.
Property and Equipment and Other Identifiable Intangibles
Property and Equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the least term, ranging from three to five years. Significant improvements and betterments are capitalized. Routine repairs and maintenance are expensed when incurred. When property and equipment is sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
Exobox reviews property, plant, and equipment and certain identifiable intangibles, excluding goodwill, for impairment in accordance with Statement of Financial Accounts Standard (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets” and for “Long-Lived Assets to Be Disposed Of”. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amount to future undiscounted cash flows the assets are expected to generate. If property, plant, and equipment and certain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value. The Company did not record any impairments during 2008 and 2007.
Stock-based Compensation
Exobox adopted SFAS No. 123(R), in 2007 using the modified prospective method. SFAS 123(R) requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. For stock-based awards granted on or after January 1, 2006, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. We account for non-employee share-based awards in accordance with EITF No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquisition, or in Conjunction with Selling, Goods or Services.”
RESULTS OF OPERATIONS THE TWELVE MONTHS ENDED JULY 31, 2008 COMPARED TO JULY 31, 2007
Net Sales. The Company has no sales since inception.
Research and Development Expenses. The Company had no research and development expenses for the year ended July 31, 2008 and July 31, 2007. The Company has incurred $288,259 in research and development expenses since inception but prior to the fiscal year ending July 31, 2006.
General and Administrative Expense ("G&A"). The Company's G&A expenses for the years ended July 31, 2007 and 2008 increased from $245,776 to $324,179. The increase was primarily due to the increased rent expense due to change in leases and increased travel.
Loss/Gain on Derivatives. The derivative liability is in connection with the convertible notes issued in September 2006, which resulted in a loss of $1,925,042 for the year ended July 31, 2007. The derivative liability was extinguished by July 31, 2008 resulting in a gain of $2,025,042.
Professional Fees. The Company’s professional fees for the years ended increased from $200,202 to $2,176,970. The increase was primarily due to stock and warrants issued for services.
Payroll Expenses. The Company’s payroll expenses for the years ended increased from $1,168,629 to $2,646,755. The increase was primarily due to stock issuance.
Net Loss. The Company’s net loss for the years ended decreased from $3,668,877 to $3,217,597. The decrease was primarily due to the gain on derivatives.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2008, we have current assets of $851,938, mainly consisting of $767,338 of cash and cash equivalents and current liabilities of $482,668, of which $429,217 is for accrued liabilities. We have property and equipment and other intangible assets which total $274,764 and no long-term liabilities.
We had working capital of $369,270 and a total deficit accumulated during the development stage of $9,707,346 as of July 31, 2008.
We had $1,642,996 of net cash used in operating activities for the year ended July 31, 2008, which was mainly due to $3,217,597 of net loss for the year offset by a gain on derivatives of $2,025,042. We had $216,759 of net cash used in investing activities for the year ended July 31, 2008, which was mainly due to the acquisition of property and equipment. We had $2,618,700 of net cash provided by financing activities for the year ended July 31, 2008, which was mainly due to proceeds from sale of stock of $2,900,000.
Our current liquidity position only allows us to meet nominal working capital needs. We will need $6,000,000 to meet our working capital needs through fiscal 2009. In order to fund our full product development, including marketing and testing, we will need to raise at least an additional $9,000,000.
Our inability to obtain immediate financing from third parties will negatively impact our ability to fund operations and execute our business plan. Any failure to obtain such financing could force us to abandon or curtail our operations. There is no assurance that we can raise additional capital from external sources, the failure of which could cause us to sell assets or curtail operations. We have no credit facilities in place or commitments to provide any financing and we have historically relied on best efforts debt and equity funding. Our auditors have issued a going concern opinion for our financial statements due to the substantial doubt about our ability to continue as a going concern.
Preferred Stock Conversions
During August, September and October 2007, most of the holders of the Company’s Class A Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock converted into shares of the Company’s common stock. Due to the conversions the Company exchanged (i) 9,939,101 shares of common stock for 9,939,101 shares of our Class A Common Stock, (ii) 186,475,319 shares of our common stock for 2,025,608 shares of Series A Preferred Stock, (iii) 59,153,752 shares of our common stock for 642,564 shares of Series B Preferred Stock and (iv) 14,013,939 shares of our common stock for 104,992 shares of Series D Preferred Stock. Therefore, as of October 17, there are no longer any shares of Class A Common Stock and Series D Preferred Stock. As a result of this conversion, an aggregate of 269,582,111shares of common stock were issued. Management determined to effect this conversion in order to simplify its capital structure in anticipation of the Company’s private placement effected February 2008.
Off Balance Sheet Arrangements
None.
Contractual Commitments
None
ITEM 7. FINANCIAL STATEMENTS AND RELATED FOOTNOTES
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Exobox Technologies Corp.
(a development stage company)
Houston, Texas
We have audited the accompanying balance sheets of Exobox Technologies Corp. (the “Company”) as of July 31, 2008 and 2007 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and for the period from October 21, 2002 (inception) through July 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Exobox Technologies Corp., as of July 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended and for the period from October 21, 2002 (inception) through July 31, 2008 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that Exobox Technologies Corp. will continue as a going concern. As discussed in Note 2 to the financial statements, Exobox Technologies Corp. has suffered recurring losses from operations, has negative cash flow from operations, and has an accumulated deficit, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
November 10, 2008
EXOBOX TECHNOLOGIES CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
July 31, 2008 and July 31, 2007
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 767,338 | $ | 8,363 | ||||
| Other Current Assets | 61,972 | 14,000 | ||||||
| Prepaid Insurance | 22,628 | - | ||||||
| Total Current Assets | 851,938 | 22,363 | ||||||
| Property and equipment, net | 213,223 | 12,164 | ||||||
| Other Assets: | ||||||||
| Patents, net | 53,590 | 67,233 | ||||||
| Intangibles, net | 7,951 | 3,290 | ||||||
| TOTAL ASSETS | $ | 1,126,702 | $ | 105,050 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable | $ | 53,451 | $ | 46,148 | ||||
| Accounts Payable-Stockholders | - | 4,461 | ||||||
| Accrued Liabilities | 429,217 | 1,391,853 | ||||||
| Advances from Stockholders | - | 194,800 | ||||||
| Convertible Note Payable | - | 105,000 | ||||||
| Derivative Liability | - | 2,025,042 | ||||||
| Total Current Liabilities | 482,668 | 3,767,304 | ||||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Preferred stock: | ||||||||
| Series A convertible preferred stock, $0.001 par, 2,500,000 shares authorized, 6,378 and 2,031,986 shares issued and outstanding as of July 31, 2008 and 2007, respectively | 6 | 2,032 | ||||||
| Series B convertible preferred stock, $0.001 par, 2,000,000 shares authorized, 17,568 and 660,132 shares issued and outstanding at July 31, 2008 and 2007, respectively | 18 | 661 | ||||||
| Series C convertible preferred stock, $0.001 par, 20,000 authorized, 0 and 19,400 shares outstanding at July 31, 2008 and 2007, respectively | - | 19 | ||||||
| Series D convertible preferred stock, $0.001 par, 110,150 shares authorized, 0 and 104,992 shares outstanding at July 31, 2008 and 2007, respectively | - | 105 | ||||||
| Class A Common stock, $0.001 par value, 9,939,101 shares authorized, 0 and 9,939,101 shares outstanding at July 31, 2008 and 2007, respectively | - | 9,939 | ||||||
| Common stock, $0.001 par value, 500,000,000 shares authorized, 398,435,250 and 78,172,639 shares issued and outstanding at July 31, 2008 and 2007, respectively | 398,435 | 78,173 | ||||||
| Additional paid-in capital | 9,952,921 | 2,736,566 | ||||||
| Deficit accumulated during development stage | (9,707,346 | ) | (6,489,749 | ) | ||||
| Total stockholders' equity (deficit) | 644,034 | (3,662,254 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 1,126,702 | $ | 105,050 | ||||
See accompanying notes to the financial statements
EXOBOX TECHNOLOGIES CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Years Ended July 31, 2008 and 2007,
and October 21, 2002 (Inception) to July 31, 2008
| Year Ended July 31, | Year Ended July 31, | October 21, 2002 (Inception) To July 31, | ||||||||||
| 2008 | 2007 | 2008 | ||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
| General & administrative | 324,179 | 245,776 | 883,788 | |||||||||
| Depreciation and amortization | 24,680 | 8,671 | 38,323 | |||||||||
| Professional fees | 2,176,970 | 200,202 | 3,416,223 | |||||||||
| Payroll expenses | 2,646,755 | 1,168,629 | 4,543,991 | |||||||||
| Software development expense | 75,000 | 243 | 521,393 | |||||||||
| Research and development | - | - | 288,259 | |||||||||
| Total Operating Expenses | 5,247,584 | 1,623,521 | 9,691,977 | |||||||||
| Loss from Operations | 5,247,584 | 1,623,521 | 9,691,977 | |||||||||
| Other Income (Expenses) | ||||||||||||
| (Loss) Gain on derivatives | 2,025,042 | (1,925,042) | 100,000 | |||||||||
| Gain on extinguishment of note | 7,137 | - | 7,137 | |||||||||
| Interest income | 2,089 | - | 2,089 | |||||||||
| Interest expense | (4,281 | ) | (120,314) | (124,595 | ) | |||||||
| Total Other Income (Expenses) | 2,029,987 | (2,045,356) | (15,369) | |||||||||
| Loss Before Income Taxes | 3,217,597 | 3,668,877 | 9,707,346 | |||||||||
| Provision for Income Taxes | - | - | - | |||||||||
| Net Loss | $ | (3,217,597 | ) | $ | (3,668,877 | ) | $ | (9,707,346 | ) | |||
| Basic and diluted | ||||||||||||
| Net loss per common share-basic and diluted | $ | (0.01 | ) | $ | (0.11 | ) | n/a | |||||
| Weighted average shares outstanding-basic and diluted | 313,297,790 | 34,275,475 | n/a | |||||||||
See accompanying notes to the financial statements
EXOBOX TECHNOLOGIES CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Years Ended July 31, 2008 and 2007,
and October 21, 2002 (Inception) to July 31, 2008
| Year Ended July 31, | Year Ended July 31, | October 21, 2002 (Inception) to July 31, | ||||||||||
| 2008 | 2007 | 2008 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net Loss | $ | (3,217,597 | ) | $ | (3,668,877 | ) | $ | (9,707,346 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Share-based compensation | 1,552,800 | - | 2,302,800 | |||||||||
| Warrant issued for consulting services | 434,165 | - | 446,660 | |||||||||
| Stock issued for services | 1,193,767 | 173,000 | 1,366,768 | |||||||||
| Depreciation and amortization | 24,680 | 8,671 | 38,323 | |||||||||
| (Gain) Loss on derivative | (2,025,042) | 2,030,042 | 5,000 | |||||||||
| (Gain) Loss on debt extinguishment | (7,137) | - | (7,137) | |||||||||
| Changes in operating assets and liabilities | ||||||||||||
| Prepaid and other current assets | (70,600) | (14,000) | (84,600 | ) | ||||||||
| Accounts payable | 7,306 | (37,305) | 53,453 | |||||||||
| Accrued expenses | 469,153 | 1,081,852 | 1,861,734 | |||||||||
| Accounts payables to stockholders | (4,461) | 4,461 | 0 | |||||||||
| NET CASH USED IN OPERATING ACTIVITIES | (1,642,966 | ) | (422,156 | ) | (3,724,345 | ) | ||||||
| CASH FLOW FROM INVESTING ACTIVITIES | ||||||||||||
| Investment in patents | - | - | (67,233 | ) | ||||||||
| Investment in intangible assets | (8,300) | - | (16,000 | ) | ||||||||
| Investment in property and equipment | (208,459) | - | (229,856 | ) | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (216,759) | - | (313,089 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds from sale of stock | 2,900,000 | - | 4,774,000 | |||||||||
| Advances from stockholders | 133,990 | 260,262 | 400,702 | |||||||||
| Proceeds from warrants exercised | 13,500 | 18,000 | 31,500 | |||||||||
| Repayment of advances from stockholders | (328,790 | ) | (65,462) | (401,430 | ) | |||||||
| Payments to third party | (100,000) | - | (100,000) | |||||||||
| Convertible note proceeds | - | 100,000 | 100,000 | |||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,618,700 | 312,800 | 4,804,772 | |||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 758,975 | (109,356) | 767,338 | |||||||||
| Cash and cash equivalents at beginning of period | 8,363 | 117,719 | - | |||||||||
| Cash and cash equivalents at end of period | $ | 767,338 | $ | 8,363 | $ | 767,338 | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||||||
| Cash paid for interest | $ | 4,281 | $ | 108,462 | ||||||||
| Cash paid for income taxes | - | - | ||||||||||
| NON-CASH TRANSACTIONS | ||||||||||||
| Conversion of Preferred shares to Common Shares | $ | 259,643 | 76,654 | |||||||||
| Series C cancelled | 11,853 | - | ||||||||||
See accompanying notes to the financial statements
EXOBOX TECHNOLOGIES CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS’ DEFICIT
October 21, 2002, (inception) to July 31, 2008
| Members' | Series A | Series B | Series C | Series D | Additional | Accumulated Deficit during | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital | Common Stock | Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Paid in | Development | |||||||||||||||||||||||||||||||||||||||||||||||||
Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stage | Total | |||||||||||||||||||||||||||||||||||||||||||
| October 21, 2002 (LLC inception) | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | -- | |||||||||||||||||||||||||||||||||
| Capital Contribution by Members | 234,000 | $ | 234,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (167,747 | ) | 2,393 | (167,747 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, July 31, 2003 | 66,253 | 66,253 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Contribution by Members | 140,000 | 140,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 28, 2004 (corporation inception) | (206,253 | ) | 10,867,500 | 10,868 | 2,392,915 | 2,393 | 1,120,930 | 1,121 | 359,618 | (167,747 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (152,855 | ) | (152,855 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance July 31, 2004 | 10,867,500 | 10,868 | 2,392,915 | 2,393 | 1,120,930 | 1,121 | 359,618 | (320,602 | ) | 53,398 | ||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (11,939 | ) | (11,939 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance July 31, 2005 | 10,867,500 | 10,868 | 2,392,915 | 2,393 | 1,120,930 | 1,121 | 359,618 | (332,541 | ) | 41,459 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of capital stock series B in private placement for cash | 110,150 | 110 | 999,890 | 1,000,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for consulting services | 50,000 | 50 | 749,950 | 750,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of capital stock series C for cash under Security Purchase Agreement w/ Manillo Investors, Ltd. | 20,000 | 20 | 499,980 | 500,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrant Issued for consulting services | 12,495 | 12,495 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (2,488,331 | ) | (2,488,331 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance July 31, 2006 (restated) | 10,917,500 | 10,918 | 2,392,915 | 2,393 | 1,231,080 | 1,231 | 20,000 | 20 | 2,621,933 | (2,820,872 | ) | (184,377 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B to Series D | (110,150 | ) | (110 | ) | 110,150 | 110 | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred to Common Stock | 76,654,240 | 76,654 | (360,929 | ) | (361 | ) | (460,798 | ) | (460 | ) | (600 | ) | (1 | ) | (5,158 | ) | (5 | ) | (75,827 | ) | - | |||||||||||||||||||||||||||||||||||
| Stock issued for services | 450,000 | 450 | 172,550 | 173,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued under exercise of warrants | 90,000 | 90 | 17,910 | 18,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (3,668,877 | ) | (3,668,877 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance July 31, 2007 | - | 88,111,740 | 88,112 | 2,031,986 | 2,032 | 660,132 | 661 | 19,400 | 19 | 104,992 | 105 | 2,736,566 | (6,489,749 | ) | (3,662,254 | ) | ||||||||||||||||||||||||||||||||||||||||
| Manillo Investors Settlement | (19,400 | ) | (19 | ) | 11,872 | 11,853 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issued to Employees | 14,678,000 | 14,678 | 2,955,922 | 2,970,600 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred Stock to Common | 259,643,010 | 259,643 | (2,025,608 | ) | (2,026 | ) | (642,564 | ) | (643 | ) | (104,992 | ) | (105 | ) | (256,869 | ) | - | |||||||||||||||||||||||||||||||||||||||
| Stock Issued through Private Placement | 29,000,000 | 29,000 | 2,043,453 | 2,072,453 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued in relation to PPM | 827,547 | 827,547 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Issued under exercise of Warrant | 67,500 | 67 | 13,433 | 13,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants Granted | 434,165 | 434,165 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Issued for Consulting Services | 6,935,000 | 6,935 | 1,186,832 | 1,193,767 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | �� | (3,217,597 | ) | (3,217,597 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance July 31, 2008 | 398,435,250 | $ | 398,435 | 6,378 | $ | 6 | 17,568 | $ | 18 | - | $ | - | - | $ | - | $ | 9,952,921 | $ | (9,707,346 | ) | $ | 644,034 | ||||||||||||||||||||||||||||||||||
See accompanying notes to the financial statements
EXOBOX TECHNOLOGIES CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Nature of Business. Exobox Technologies Corp. (formerly known as Exobox Technologies LLC), referred to as “Exobox” or the “Company”, was incorporated in Delaware on June 28, 2004 to patent and market proprietary internet security technology. Exobox Technologies LLC was incorporated in Texas on October 21, 2002 (inception) and legally dissolved with the formation of Exobox Technologies Corp. Kilis, Inc. was originally incorporated in Nevada on December 8, 1999. On June 22, 2005, Kilis, Inc. changed its name to JinPin, Inc. On September 14, 2005, JinPin, Inc. changed its name to Exobox Technologies Corp. On September 15, 2005, Exobox (Nevada) acquired Exobox Technologies Corp., a Delaware corporation (Exobox) in exchange for 3,513,845 shares of Exobox (Nevada) convertible preferred stock (2,392,915 shares of Series A convertible preferred stock and 1,120,930 shares of Series B convertible preferred stock). On the effective date, all of the issued and outstanding shares of common stock of Exobox (Nevada) were converted into the 3,513,845 shares of preferred stock of Exobox (Nevada) with the Exobox shareholders owning 100% of Exobox’s outstanding shares of preferred stock and constituted a change in control.
Exobox was established as an enterprise and home user network and data security development company to capitalize upon the growing need for a modern, reliable, efficient, effective and proactive network and data security solution.
Reclassifications. Certain prior year amounts have been reclassified to conform with the current year presentation.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Development Stage Company. Exobox follows the presentation and disclosure requirements of SFAS No. 7 “Accounting and Reporting by Development Stage Enterprises” as we are in the development stage therein defined as of and for the year ended July 31, 2008.
Property and Equipment. Property and Equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the least term, ranging from three to five years. Significant improvements and betterments are capitalized. Routine repairs and maintenance are expensed when incurred. When property and equipment is sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
The Company reviews property, plant, and equipment and certain identifiable intangibles, excluding goodwill, for impairment in accordance with Statement of Financial Accounts Standard (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets” and for “Long-Lived Assets to Be Disposed Of”. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amount to future undiscounted cash flows the assets are expected to generate. If property, plant, and equipment and certain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value. The Company did not record any impairments during 2008 and 2007.
Income Taxes. In accordance with SFAS No. 109, “Accounting for Income Taxes”, the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Earnings Per Share. Basic and diluted earnings or loss per share (EPS) amounts in the financial statements are computed in accordance with SFAS No. 128, "Earnings Per Share." Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income/loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Weighted average number of shares used to calculate basic and diluted loss per share is considered the same as the effect of dilutive shares is anti-dilutive.
Fair Value of Financial Instruments. Fair value is described as the amount at which the instrument could be exchanged in a current transaction between informed willing parties, other than a forced liquidation. Cash and cash equivalents, accounts payable, accrued expenses and other current liabilities are reported on the balance sheet at carrying value which approximates fair value due to the short-term maturities of these instruments. Exobox does not have any off balance sheet financial instruments.
Derivatives. The valuation of our embedded derivatives and warrant derivatives are determined primarily by the Black-Scholes option pricing model. An embedded derivative is a derivative instrument that is embedded within another contract, which under the convertible note (the host contract) includes the right to convert the note by the holder, certain default redemption right premiums and a change of control premium (payable in cash if a fundamental change occurs). In accordance with FASB Statement No. 133, as amended, Accounting for Derivative Instruments and Hedging Activities, these embedded derivatives are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. A warrant derivative liability is determined in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). Based on EITF 00-19, warrants which are determined to be classified as derivative liabilities are marked-to-market each reporting period, with a corresponding non-cash gain or loss charged to the current period. The practical effect of this has been that when our stock price increases so does our derivative liability, resulting in a non-cash loss charge that reduces our earnings and earnings per share. When our stock price declines, we record a non-cash gain, increasing our earnings and earnings per share.
To determine the fair value of our embedded derivatives, management evaluates assumptions regarding the probability of certain future events. Other factors used to determine fair value include our period end stock price, historical stock volatility, risk free interest rate and derivative term. The fair value recorded for the derivative liability varies from period to period. This variability may result in the actual derivative liability for a period either above or below the estimates recorded on our consolidated financial statements, resulting in significant fluctuations in other income (expense) because of the corresponding non-cash gain or loss recorded.
Research and Product Development. Research and product development includes all research and development expenses and software development costs. We expense all research and development expenses as incurred. We expense all software development costs associated with establishing technological feasibility, which we define as completion of beta testing. Because of the insignificant amount of costs incurred between completion of beta testing and general customer release, we have not capitalized any software development costs in the accompanying financial statements.
Stock-based Compensation. Exobox adopted SFAS No. 123(R), in 2007 using the modified prospective method. SFAS 123(R) requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. For stock-based awards granted on or after January 1, 2006, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. We account for non-employee share-based awards in accordance with EITF No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquisition, or in Conjunction with Selling, Goods or Services.” There were no stock options granted during the fiscal year 2008 and 2007. There were warrants granted for services and in relation to PPM in fiscal year 2008, but none in 2007.
During year ended July 31, 2008 and 2007, the fair value of each warrant award was determined as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Assumption: | 2008 | 2007 | |||
| Expected Volatility | 263.77 - 273.25% | n/a | |||
| Expected term (years) | 2.0 - 2.5 | n/a | |||
| Risk-free interest rate | 1.93 - 4.14% | n/a | |||
| Expected dividend yield | - | n/a |
Expected volatility is based solely on historical volatility of our common stock over the period that approximates the expected term. We rely solely on historical volatility as we do not have traded options . The expected term calculation is based on the simplified method. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term. The dividend yield of zero is based on the fact that we have never paid cash dividends on our common stock, and we have no present intention to pay cash dividends.
Recent Accounting Pronouncements.
Exobox does not expect the adoption of any recently issued accounting pronouncements to have a significant impact on their financial position, results of operations or cash flows.
NOTE 2 - GOING CONCERN
From Inception to July 31, 2008, Exobox has accumulated losses of $9,707,346. The ability of Exobox to emerge from the development stage with respect to any planned principal business activity is dependent upon its success in raising additional equity financing and/or attaining profitable operations. Management has plans to seek additional capital if it feels the $2.9 million that has been raised isn’t sufficient to continue its coding of its software and introduce the resulting product to market. There is no guarantee that Exobox will be able to complete any of the above objectives. These factors raise substantial doubt regarding Exobox's ability to continue as a going concern.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at July 31, 2008:
| Description | Life | Amount | ||||
| Furniture and fixtures | 5 years | $ | 98,338 | |||
| Leashold improvements | 5 years | 59,016 | ||||
| Computers | 3 years | 49,172 | ||||
| Telephone system | 5 years | 19,042 | ||||
| Copier | 5 years | 4,286 | ||||
| 229,854 | ||||||
| Less: accumulated depreciation | (16,631 | ) | ||||
| $ | 213,223 | |||||
Depreciation expense totaled $ 7,398 and $ 6,151 in fiscal 2008 and 2007, respectively.
NOTE 4 – PATENTS
Exobox has two technological inventions with patents pending in United States and throughout the world. The rights and interest include, among other things, (i) the patent applications and any changes or amendments thereto, (ii) the invention, (iii) the technical information, trade secrets, identities of customers, studies, plans, drawings, blueprints and specifications, production methods, (iv) the embodiment of any claim described and claimed in any valid claim of the patent application, (v) right to file foreign patent applications, and (vi) any all patents resulting from current patent applications.
Patents are mainly comprised of legal services paid to a shareholder and patent application fees. Exobox began amortizing these costs since the patents have been granted. Amortization totaled $13,643 and $0 in fiscal 2008 and 2007, respectively.
NOTE 5 - INCOME TAXES
Exobox has incurred net losses since inception and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $6 million at July 31, 2008, and will expire in the years 2026 through 2028.
At July 31, 2008, deferred tax assets consisted of the following:
| Deferred tax assets | $ | 2,158,704 | ||
| Valuation allowance | (2,158,704 | ) | ||
| Net deferred taxes | $ | 0 |
NOTE 6 – RELATED PARTIES
Accounts payable to stockholders represent amounts owed to stockholders primarily for reimbursement of general and administrative costs paid on behalf of Exobox. Accounts payable to stockholders totaled $0 at July 31, 2008 and $4,461 at July 31, 2007.
Certain of Exobox’s stockholders have advanced cash to the company for working capital purposes. The advances are payable upon demand and do not accrue interest. Advances totaled $0 at July 31, 2008 and $194,800 at July 31, 2007.
NOTE 7 – COMMITMENTS
Leases
Beginning in September 2004, Exobox leased an office in Houston, Texas through a verbal agreement from a third party for $500 per month. The lease is on a month-to-month basis. The lease was terminated in April 2008.
Beginning in April 2007, Exobox leased residential facilities in Houston, Texas from a third party for $2,045 per month for the first six months and $2,093 per month for the second six months. The lease is now on a month-to-month basis.
Beginning in November 2007, Exobox leased offices in Houston, Texas from a third party for $3,911 per month. The lease is on a month-to-month basis. The lease was terminated in April 2008.
In 2008, Exobox leased 6,178 square feet of office space in Houston, Texas from a third party for $9,781.83 per month. The lease is for a five (5) year term.
Rent expense totaled approximately $60,000 for the year ended July 31, 2008 and $29,000 for the year ended July 31, 2007.
Future minimum lease payments under a non-cancelable operating lease is as follows:
| Year Ending July 31, | ||||
| 2009 | $ | 118,462 | ||
| 2010 | 118,462 | |||
| 2011 | 118,462 | |||
| 2012 | 118,462 | |||
| 2013 | 49,359 | |||
| After 2013 | 0 | |||
Contingencies
In the normal course of business, Exobox may become subject to lawsuits and other claims and proceedings. Such matters are subject to uncertainty and outcomes are not predictable with assurance. Management is not aware of any pending or threatened lawsuits or proceedings which would have a material effect on Exobox’s financial position, liquidity, or results of operations.
NOTE 8 – DEBT
On September 14, 2006, Exobox received $100,000 cash from a Preferred Shareholder in exchange for a 10% Convertible Promissory Note for $100,000 due on January 1, 2007. The conversion option of this note was determined to be a derivative which established a Derivative Liability as of July 31, 2007 of $2,025,042. The note payable was in default at July 31, 2007. Effective September 10, 2007, we entered into a settlement agreement and mutual release with Manillo Investments, Ltd (“Manillo Settlement”), pursuant to which we agreed to issue Manillo Investment, Ltd a new promissory note in the principal amount of $500,000 with principal and accrued interest due within five years in exchange for Manillo Investment, Ltd. (i) cancelling a convertible note with an outstanding balance as of July 31, 2007 of $105,000, (ii) terminating the securities purchase agreement issued in connection with the convertible note, and (iii) assigning the Series C Preferred Stock to us. Exobox evaluated the modification under EITF 96-19 and concluded that this modification is an extinguishment of the original debt.
Therefore as a result of the Manillo Settlement, there are no Series C Preferred Stock outstanding, the difference in the principal amounts resulted in a Loss on Extinguishment of Debt of $395,000, and the derivative liability was extinguished which resulted in a Gain on Derivative of $2,025,042 during fiscal 2008.
The $500,000 promissory note gave Exobox the right to prepay in full the principal and all accrued interest prior to the date of maturity without penalty as follows:
| · | If paid within one year of the note issuance date, the prepayment price is $100,000 |
| · | If paid within two years of the note issuance date, the prepayment price is $200,000 |
| · | If paid within three years of the note issuance date, the prepayment price is $300,000 |
| · | If paid within four years of the note issuance date, the prepayment price is $400,000 |
In June of 2008, the $500,000 note was paid in full at the prepayment price of $100,000. Since the prepayment was made within one year of the issuance date, this payment eliminated the note in full which created a Gain on Extinguishment of Debt of $400,000 and Exobox recognized the accrued interest as a Gain on Extinguishment of Debt of $2,137.
NOTE 9 – STOCKHOLDERS’ EQUITY
Exobox is authorized to issue 500,000,000 shares of Class A common stock and undesignated common stock, $.001 par value, and 4,630,150 shares of preferred stock, $.001 par value, of which 2,500,000 shares have been designated Series A convertible preferred stock, 2,000,000 shares have been designated Series B convertible preferred stock, 20,000 shares have been designated Series C convertible preferred stock and 110,150 shares have been designated Series D convertible preferred stock.
Common Stock
Holders of common stock are entitled to one vote per share on all matters to be voted upon by the shareholders. Except as otherwise provided by law, the holders of shares of common stock vote as one class.
Each share of common stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all our other shares of common stock.
Preferred Stock
Exobox is authorized to issue 4,630,150 shares of preferred stock in one or more series.
Series A Convertible Preferred Stock. Exobox designated 2,500,000 shares as “Series A convertible preferred stock." The shares of the Series A preferred stock rank prior to the common stock, and prior to any class or series of capital stock now outstanding or hereafter created. No dividends shall be payable to the holder of shares of Series A preferred stock, except dividends in liquidation. Each share of Series A preferred stock has the number of votes equal to the number authorized by the shares of Class A common stock into which such share of Series A preferred stock is then convertible. Except as otherwise required by law, the holders of shares of common stock and Series A preferred stock shall vote together and not as separate classes.
Series A preferred stock is convertible 12 months after issue into common stock. The shares of Series A preferred, along with the shares of Series B preferred, are convertible into 92% of the total outstanding common before the issuance of any shares of Series C preferred stock. The holders of Series A preferred vote on an as converted basis.
Series B Preferred Stock. Exobox has designated 2,000,000 shares as Series B convertible preferred stock. The shares of the Series B preferred stock rank prior to the common stock; and prior to any class or series of capital stock now outstanding or hereafter created. No dividends shall be payable to the holder of shares of Series B preferred stock, except dividends in liquidation. Each share of outstanding Series B preferred stock has the number of votes equal to the number of shares of common stock into which such share of Series B preferred stock is then convertible. Except as otherwise required by law or by the Articles, the holders of shares of common stock and Series B preferred stock shall vote together and not as separate classes.
Series B preferred stock is convertible 12 months after issue into common stock. The shares of Series B preferred, along with the shares of Series A preferred, are convertible into 92% of the total outstanding common before the issuance of any shares of Series C preferred stock. The holders of Series B preferred vote on an as converted basis.
Series C Preferred Stock. Exobox has designated 20,000 shares as Series C convertible preferred stock each in the face amount of $25. No dividends shall be payable to the holders of shares of Series C preferred stock.
The Shares of Series C preferred stock are collectively convertible into five (5%) percent of the total number of outstanding shares of all classes of common stock immediately after conversion of all outstanding shares of Series A and Series B preferred stock.
Series D Preferred Stock. Exobox has designated 110,150 shares as Series D convertible preferred stock each in the face amount of $0.001. No dividends shall be payable to the holders of shares of Series D preferred stock.
The Shares of Series D preferred stock are collectively convertible into 4.00064800% of the total number of outstanding shares of all classes of common stock immediately after conversion of all outstanding shares of Series A, Series B, and Series C preferred stock.
During August, September and October 2007, all of the holders of Exobox’s Class A Common Stock and Series D Preferred Stock and most of the Series A and B Preferred Stock converted into shares of Exobox’s common stock. Due to the conversions, Exobox exchanged (i) 9,939,101 shares of common stock for 9,939,101 shares of our Class A Common Stock, (ii) 186,475,319 shares of our common stock for 2,025,608 shares of Series A Preferred Stock, (iii) 59,153,752 shares of our common stock for 642,564 shares of Series B Preferred Stock and (iv) 14,013,939 shares of our common stock for 104,992 shares of Series D Preferred Stock. Therefore, there are no longer any shares of Class A Common Stock and Series D Preferred Stock.
Stock Option, Stock Warrant and Stock Award Plan
On September 15, 2005, Exobox adopted a stock option, stock warrant and stock award plan for officers, directors, consultants and key employees of Exobox. Exobox reserved 1,630,125 shares of common stock, warrants, options, preferred stock or any combination thereof for the plan.
On June 18, 2007 Exobox filed with the SEC an S-8 registration statement registering 20,000,000 shares reserved for officers, directors, consultants and key employees of Exobox.
WARRANTS
At July 31, 2008, Exobox had outstanding and exercisable warrants to purchase an aggregate of 11,692,500 shares of
common stock. The weighted average remaining life is 2.98 years and the weighted average price per share is $0.61 per share.
The status of the warrants as of July 31, 2008, is as follows:
| Warrants Outstanding and Exercisable | Warrants | Weighted Average Exercise Price | ||||||
| OUTSTANDING, July 31, 2006 | 4,550,000 | $ | 0.20 | |||||
| Granted | - | - | ||||||
| Expired | - | - | ||||||
| Exercised | (90,000 | ) | 0.20 | |||||
| OUTSTANDING, July 31, 2007 | 4,460,000 | $ | 0.20 | |||||
| Granted | 7,300,000 | 0.86 | ||||||
| Expired | - | - | ||||||
| Exercised | (67,500) | 0.20 | ||||||
| OUTSTANDING, July 31, 2008 | 11,692,500 | $ | 0.61 | |||||
Following is the details of warrants outstanding as of July 31, 2008:
| Number of Common Stock Equivalents | Expiration Date | Remaining Contracted Life (Years) | Exercise Price | ||||||||
| 4,342,500 | 10/31/2010 | 2.25 | $ | 0.20 | |||||||
| 1,500,000 | 9/24/2012 | 4.17 | $ | 0.30 | |||||||
| 50,000 | 7/31/2011 | 3.00 | $ | 0.25 | |||||||
| 5,800,000 | 12/31/2011 | 3.52 | $ | 1.00 | |||||||
For the year ended July 31, 2008, 67,500 warrants were exercised at an exercise price of $0.20 per share for total proceeds of $13,500.
For the year ended July 31, 2008, 7,300,000 warrants were granted as follows:
| · | 1,500,000 to Kevin P Regan on September 24, 2007 for consulting services. Exercise price is $.30 per share, and Regan has 5 years to exercise. These warrants vested immediately, therefore, Exobox recognized $434,165 of expense. |
| · | 5,800,000 to various PPM holders in conjunction with stock issued for cash. Exercise price is $1.00 per share, and holders have until December 31, 2011 to exercise. The value of these warants was applied to the fair value of the PPM which resulted in $827,547 of additional paid-in-capital. |
Assumption: | 2008 | 2007 | |||
| Expected Volatility | 263.77 - 273.25% | n/a | |||
| Expected term (years) | 2.0 - 2.5 | n/a | |||
| Risk-free interest rate | 1.93 - 4.14% | n/a | |||
| Expected dividend yield | - | n/a |
Expected volatility is based solely on historical volatility of our common stock over the period that approximates the expected term. We rely solely on historical volatility as we do not have traded options . The expected term calculation is based on the simplified method. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term. The dividend yield of zero is based on the fact that we have never paid cash dividends on our common stock, and we have no present intention to pay cash dividends.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 8A. CONTROLS AND PROCEDURES
We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (the "CEO") and our Chief Financial Officer (the "CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Act")) as of the end of the fiscal quarter covered by this report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are not effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Specifically, our independent auditor identified weaknesses in our disclosure controls related to valuing and accounting for share based payments, derivative financial instruments and accrued expenses. We plan to remediate this deficiency in disclosure controls by increasing the supervision and training of accounting employees.
There has been no change in our internal control over financial reporting during the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Principal Accounting Officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Annual Report on Form10-KSB, our management, with the participation of our Chief Executive Officer and our Principal Accounting Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of July 31, 2008, as required by Rule 13a-15 of the Exchange Act. Based on the evaluation described above, our management, including our principal executive officer and principal accounting officer, have concluded that, as of July 31, 2008, our disclosure controls and procedures were not effective.
Notwithstanding the existence of the material weaknesses described below, we concluded that the consolidated financial statements in this Annual Report on Form 10-KSB present fairly, in all material respects, the Company's financial condition, results of its operations and cash flows for the year ended July 31, 2008, in conformity with U.S. generally accepted accounting principles ("GAAP").
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2008, based on the criteria framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
As a result of the material weaknesses described below, management concluded that as of July 31, 2008, we did not maintain effective internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework, issued by COSO.
A material weakness in internal controls is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected on a timely basis by the Company. While our control deficiencies have not resulted in any material misstatements of account balances or disclosures that we are aware of, they could result in misstatements or disclosures which could cause a material misstatement of annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that these control deficiencies constitute a material weakness. An evaluation of entity level and process level controls was completed during the year. In connection with management's evaluation of our internal control over financial reporting, we identified the following material weaknesses in our internal control over financial reporting as of July 31, 2008, that had not been fully remedied:
| 1. | Deficiency in the Company’s Entity Level Controls. The Company’s entity level controls environment did not sufficiently promote effective internal controls over financial reporting throughout the organization. This material weakness exists as a result of a deficiency to attract a “financial expert” to the Audit Committee. The Principal Accounting Officer is actively involved in the preparation and approval of financial schedules and journal entries, and therefore cannot provide an independent review and quality assurance function within the accounting and financial reporting group. The limited number of accounting personnel and a lack of a “financial expert” on the Audit Committee results in an inability to have independent review and of financial accounting entries and the financial statements and related footnotes. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, due to insufficient financial expert oversight. |
| 2. | Deficiency in Segregation of Duties. There is a lack of segregation of duties between the custody of assets and the recording of transactions. Specifically, the Principal Accounting Officer signs checks, receives and reviews unopened bank statements and cancelled checks and performs bank reconciliations. This condition could provide an opportunity for misappropriation of funds and concealment of such activity. There is a risk for fraud or management override due to the lack of segregation of duties between the custody of assets and the recording of transactions. |
Remediation Initiatives
During fiscal 2009, we plan to implement a number of remediation measures to address the material weaknesses described above. These organizational and process changes will improve our internal controls environment. The changes made through the date of this annual report includes our retention of an outside consulting firm to assist us in the evaluation and testing of our internal control system and to identify improvement opportunities related to our accounting and financial reporting processes in order to streamline and improve the effectiveness of these processes. The Company's remediation plans include complete implementation and execution of controls and procedures identified in management's assessment of the entity level, financial reporting and other process level controls.
Management recognizes that many of these enhancements require continual monitoring and evaluation for effectiveness. The development of these actions is an iterative process and will evolve as the Company continues to evaluate and improve our internal controls over financial reporting. The results of management's assessment were reviewed with our Board of Directors.
Management will review progress on these activities on a consistent and ongoing basis at the Chief Executive Officer and senior management level in conjunction with our Board of Directors. We also plan to take additional steps to elevate Company awareness about, and communication of, these important issues through formal channels such as Company meetings, departmental meetings, and training.
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.
ITEM 8B OTHER INFORMATION
There is no information required to be disclosed in a report Form 8-K during the fourth quarter of the year covered by this Form 10-KSB, but not reported on a Form 8-K.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers.
The position(s) held by each of our executive officers and Directors as of July 31, 2008 are shown in the following table. Biographical information for each is set forth following the table. Each Director serves until a successor is elected and has qualified.
| Name | Age | Position |
| Robert B. Dillon | 58 | President, Chief Executive Officer and Chairman of the Board |
| Scott Copeland | 42 | Executive Vice President of Research & Development and Director |
| Marc Pernia | 41 | Chief Product Development Administrator and Director |
| Michael G. Wirtz | 48 | Vice President-Chief Financial Officer |
| Richard A. Evans, M.D. | 64 | Director |
| Michael S. Studdard | 58 | Director |
Robert B. Dillon, a 1971 graduate of the University of Texas and a 1974 graduate of the University of Texas School of Law, is a practicing attorney and seasoned executive with thirty (30) years of litigation and transactional experience. Mr. Dillon has served as CEO, President and Chairman of the Board since April 2004. Prior thereto, Mr. Dillon was engaged in the private practice of law.
Scott Copeland, a co-founder of Exobox and co-inventor of its technology, is an expert programmer with world-wide experience in internet security gained during his employment with Compaq, Gateway, Matrix and Axis Host. Mr. Copeland has served as vice president and director since 2002. Prior to that time, Mr. Copeland was a self-employed computer consultant.
Marc Pernia has served as chief product development administrator and director since July 2003. From 1999 to 2002, Mr. Pernia was a Senior Unix Systems Administrator with Electronic Arts. Mr. Pernia is a Senior Unix Systems Administrator with an A.S. degree in Computer Science from Foothill College in 1994 and Computer Science studies at Stanford University, has extensive computer systems program development and administrative experience in the industry over the last 10 years for such Silicon Valley entities as Electronic Arts, Mind Source, the SETI Institute and the NASA Ames Research Center, as well as considerable experience in the configuration and maintenance of such software applications as Veritas, Weblogic, Netscape, iPlanet, Marimba, LDAP and *SQL, Tomcat, Apache and WebX.
Michael G. Wirtz has served as vice president and chief financial officer since 2005. Prior to working with the Company, Mr. Wirtz was self employed. Mr. Wirtz is a 1984 MBA graduate of Texas Tech University who also earned a B.S. degree in Accounting from the University of Mary. He is a financial professional with experience as a corporate comptroller for a group of marine companies and previously managed another public corporation.
Richard A. Evans, M.D. has served as a director since 2005. Mr. Evans is self employed and has been a practicing physician for the last 5 years . Mr. Evans received his Bachelor of Arts degree from Rice University in Houston, and his Doctor of Medicine and Master of Science (physiology and immunology) degrees from Tulane University School of Medicine in New Orleans. He pursued specialty training in general surgery at the University of California, School of Medicine, San Francisco and at Stanford University School of Medicine in Palo Alto. Dr. Evans completed his general surgery training at St. Joseph Hospital in Houston. This included training at the University of Texas M. D. Anderson Cancer Center and a one year fellowship in surgical oncology working under world renowned cancer specialist, Dr. John S. Stehlin, Jr. Dr. Evans maintains a private practice in oncology and alternative medicine in Houston, Texas. He founded the Texas Cancer Center, a 501(c)(3) nonprofit organization in 1998.
Michael S. Studdard was appointed to the Exobox board on April 4, 2008. Mr. Studdard has served since July 2006 as president and a director of Wentworth Energy, Inc., a publicly-traded oil and gas exploration and development company based in Palestine, Texas, for which he successfully arranged $32.35 million in financing. Mr. Studdard served from 1992 until July 2006 as an independent landman with Michael S. Studdard & Associates, a private company specializing in seismic permitting and exploration ventures. Mr. Studdard has more than 25 years experience in operating several diversified companies in the oil and gas industry and brings strong, independent general business skills to the Exobox Board of Directors.
On November 6, 2008, Jonathan Kim was elected to serve as a member of the Board of Directors, filling the 6th Board seat. Mr. Kim served as senior vice president of operations for Gringo’s Mexican Kitchen since 2000, overseeing the 8 Gringo’s restaurants along with their new restaurant concept, Bullrito’s. Gringo’s is a full-service chain of Tex-Mex restaurants that has been in business for more than 15 years, with eight Gringo’s locations all over the greater Houston area and in San Antonio. Mr. Kim brings to Exobox his considerable general business operations expertise and is a substantial shareholder in the Company.
The Board considers Mr. Kim not to be an independent director, as defined in Section 10A-3(b) of the Securities Exchange Act of 1934. As a non-management member of the Board, Mr. Kim will receive the same standard compensation paid to other non-management directors for service on the Board and its committees.
There are no arrangements or understandings between Mr. Kim and any other person pursuant to which he was selected as a director, and there have been no transactions since the beginning of the Company’s last fiscal year, or are currently proposed, regarding Mr. Kim that are required to be disclosed by Item 404(a) of Regulation S-K.
Code of Ethics for the CEO, CFO and Senior Financial Officers
In 2005, in accordance with SEC rules, the Board of Directors adopted the Code of Business Conduct and Ethics. The Board of Directors believes that each officer, director and employee must set an exemplary standard of conduct, particularly in the areas of accounting, internal accounting control, auditing and finance. This code sets forth ethical standards to which the designated officers must adhere and other aspects of accounting, auditing and financial compliance. The Code of Ethics may be found on the Company’s website at www.exobox.com
Audit Committee and Audit Committee Financial Expert; Nominating Directors
Other than Dr. Evans and Mr. Studdard, none of the directors are independent as defined by Rule 10A-3 of the Exchange Act. The Company’s Audit Committee is comprised of Mr. Studdard (Chairman of the Audit Committee), Dr. Evans, Mr. Dillon and Mr. Copeland. The Company does not have an “Audit Committee Financial Expert” as a member of its audit committee. The Company does not have available any person with the requisite background and experience, nor has the Company been able to attract anyone to its Board with the requisite background. We have not adopted any procedures regarding security holders’ nominating directors.
Compliance with Section 16(a) of The Exchange Act
To our knowledge, based solely on a review of the copies of the reports furnished to us and written representations that no other reports were required, during the year ended July 31, 2008, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with and no reports or transactions were filed late except for the following: Reginald Goodman failed to timely report a transaction on Form 4 for a July 30, 2007, sale, which was subsequently reported on a Form 4 on August 2, 2007, transactions on Form 4 for a October 10, 2007, sales, which were subsequently reported on a Form 4 on October 15, 2007, a transaction on Form 4 for a October 2, 2007, conversion of stock, which was subsequently reported on a Form 4 on October 26, 2007, a transaction on Form 4 for a November 20, 2007, acquisition, which was subsequently reported on a Form 4 on November 23, 2007, a transaction on Form 4 for a January 11, 2008, sal, which was subsequently reported on a Form 4 on January 15, 2008, and a transaction on Form 4 for a May 16, 2008, gift, which was subsequently reported on a Form 4 on May 19, 2008; Michael C. Wittenburg failed to timely report transactions on Form 4 for August 9, 2007 and August 10, 2007, sales, which were subsequently reported on a Form 4 on August 14, 2007, transactions on Form 4 for August 13, 2007 and August 15, 2007, sales, which were subsequently reported on a Form 4 on August 20, 2007, transaction on Form 4 for October 2, 2007, sale, which was subsequently reported on a Form 4 on October 10, 2007, transaction on Form 4 for October 16, 2007, conversion of stock, which was subsequently reported on a Form 4 on October 29, 2007, a transaction on Form 4 for a November 20, 2007, acquisition, which was subsequently reported on a Form 4 on November 26, 2007, transaction on Form 4 for November 29, 2007, sale, which was subsequently reported on a Form 4 on December 4, 2007, transactions on Form 4 for January 5 and 30, 2008, sales, which were subsequently reported on a Form 4 on February 8, 2008, and transactions on Form 4 for May 23, 24 and 25, 2007, sales, which were subsequently reported on a Form 4 on May 20, 2008; Scott R. Copeland failed to timely report transactions on Form 4 for August 14, 17, 20 and 21, 2007, sales, which were subsequently reported on a Form 4 on August 24, 2007, transactions on Form 4 for September 11 and 12, 2007, sales, which were subsequently reported on a Form 4 on September 18, 2007, transaction on Form 4 for a October 5, 2007, sale, which was subsequently reported on a Form 4 on October 10, 2007, transactions on Form 4 for October 12, 15, 16 and 17, 2007, sales, which were subsequently reported on a Form 4 on October 23, 2007, transaction on Form 4 for a October 16, 2007, conversion of stock, which was subsequently reported on a Form 4 on October 26, 2007, transactions on Form 4 for October 19 and 23, 2007, sales, which were subsequently reported on a Form 4 on October 26, 2007, transaction on Form 4 for a November 20, 2007, acquisition, which was subsequently reported on a Form 4 on November 26, 2007, transaction on Form 4 for a February 4, 2008, sale, which was subsequently reported on a Form 4 on February 8, 2008, transactions on Form 4 for May 5 and 6, 2008, sales, which were subsequently reported on a Form 4 on May 9, 2008, transactions on Form 4 for May 8 and 9, 2008, sales, which were subsequently reported on a Form 4 on May 12, 2008, transaction on Form 4 for a May 13, 2008, sale, which was subsequently reported on a Form 4 on May 19, 2008, transaction on Form 4 for a May 16, 2008, gift, which was subsequently reported on a Form 4 on May 19, 2008, transactions on Form 4 for May 28 and 29, 2008, sales, which were subsequently reported on a Form 4 on June 2, 2008, and transactions on Form 4 for June 12 and 13, 2008, sales, which were subsequently reported on a Form 4 on June 17, 2008; Michael G. Wirtz failed to timely report a transaction on Form 4 for October 2, 2007, conversions of stock, which were subsequently reported on a Form 4 on October 25, 2007, transaction on Form 4 for a November 20, 2007, acquisition, which was subsequently reported on a Form 4 on November 26, 2007, and transaction on Form 4 for a May 16, 2008, gift, which was subsequently reported on a Form 4 on May 19, 2008; Marcos B. Pernia failed to timely report transactions on Form 4 for May 1, 4 and 15, 2007, August 6, 9 and 10, 2007, sales, which were subsequently reported on a Form 4 on October 25, 2007, transactions on Form 4 for September 24, 25 and 26, 2007 and October 5, 2007, which were subsequently reported on a Form 4 on October 30, 2007, a transaction on Form 4 for a November 20, 2007, acquisition, which was subsequently reported on a Form 4 on November 30, 2007, and a transaction on Form 4 for a May 16, 2008, gift, which was subsequently reported on a Form 4 on May 20, 2008; and Robert B. Dillon failed to timely report transactions on Form 4 for August 24 and 29, 2007, September 6, 7, 10 and 13, 2007, sales, which were subsequently reported on a Form 4 on September 18, 2007, transactions on Form 4 for September 18, 19, 24, 26 and 28, 2007and October 1, 2, 3 and 4, 2007, sales, which were subsequently reported on a Form 4 on October 10, 2007, a transaction on Form 4 for a October 16, 2007, conversion, which was subsequently reported on a Form 4 on October 25, 2007, a transaction on Form 4 for a November 20, 2007, acquisition, which was subsequently reported on a Form 4 on November 26, 2007, transactions on Form 4 for November 20, 21, 23, 26 and 28, 2007 and January 16, 18 and 22, 2008, sales, which were subsequently reported on a Form 4 on February 1, 2008, and transactions on Form 4 for April 10, 11, 18,21 & 30, 2008 and May 2, 5, 8, 9, 12, & 15, 2008, sales, which were subsequently reported on a Form 4 on May 19, 2008.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Management
The following table sets forth the compensation paid to our Chief Executive Officer or such other officer who fulfilled the duties of the Chief Executive Officer for the periods indicated. Except for the individuals named, no executive officers had a total annual salary and bonus of $100,000 or more.
Summary Compensation Table
Name Principal Position | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | ||||||||||||||||||||||
| Robert B. Dillon | 7/31/2008 | $ | 290,000 | - | - | - | - | - | $ | 290,000 | |||||||||||||||||||
| Chairman, CEO, Pres. & Director | 7/31/2007 | $ | 240,000 | - | - | - | - | - | $ | 240,000 | |||||||||||||||||||
| 7/31/2006 | $ | 132,250 | $ | 10,000 | - | - | - | - | $ | 142,250 | |||||||||||||||||||
| Scott Copeland | 7/31/2008 | $ | 215,000 | - | - | - | - | - | $ | 215,000 | |||||||||||||||||||
| Vice President-Operations & Director | 7/31/2007 | $ | 242,900 | - | - | - | - | - | $ | 242,900 | |||||||||||||||||||
| 7/31/2006 | $ | 131,857 | $ | 10,000 | - | - | - | - | $ | 141,857 | |||||||||||||||||||
| Marc Pernia | 7/31/2008 | $ | 200,000 | - | - | - | - | - | $ | 200,000 | |||||||||||||||||||
| Chief Product Development Admin. & Director | 7/31/2007 | $ | 244,000 | - | - | - | - | - | $ | 244,000 | |||||||||||||||||||
| 7/31/2006 | $ | 131,923 | $ | 10,000 | - | - | - | - | $ | 141,923 | |||||||||||||||||||
| Michael G. Wirtz | 7/31/2008 | $ | 174,000 | - | - | - | - | - | $ | 174,000 | |||||||||||||||||||
| Vice Pres. & CFO | 7/31/2007 | $ | 133,500 | - | - | - | - | - | $ | 133,500 | |||||||||||||||||||
| 7/31/2006 | $ | 79,750 | $ | 10,000 | - | - | - | - | $ | 89,750 | |||||||||||||||||||
Executive Employment Agreements
Mr. Dillon’s employment agreement provides for an annual salary of $300,000, is effective through March 1 2010, and automatically renews for successive one-year terms unless terminated. In addition, Mr. Dillon is eligible to receive an annual bonus based on performance criteria as determined by the compensation committee of the board of directors. Mr. Dillon receives customary fringe benefits.
Mr. Copeland’s employment agreement provides for an annual salary of $150,000, is effective through March 1 2010, and automatically renews for successive one-year terms unless terminated. In addition, Mr. Copeland is eligible to receive an annual bonus based on performance criteria as determined by the compensation committee of the board of directors. Mr. Copeland receives customary fringe benefits.
Mr. Pernia’s employment agreement provides for an annual salary of 120,000, is effective through March 1 2010, and automatically renews for successive one-year terms unless terminated. In addition, Mr. Pernia is eligible to receive an annual bonus based on performance criteria as determined by the compensation committee of the board of directors. Mr. Pernia receives customary fringe benefits.
Mr. Wirtz’s employment agreement provides for an annual salary of $180,000, is effective through March 1 2010, and automatically renews for successive one-year terms unless terminated. In addition, Mr. Wirtz is eligible to receive an annual bonus based on performance criteria as determined by the compensation committee of the board of directors. Mr. Wirtz receives customary fringe benefits.
Business Protection, Severance and Non-Compete Agreements. Pursuant to the terms of each employment agreement with the executives listed above, each executive is subject to business protection, non-solicitation and non-compete covenants. These agreements contain restrictive covenants including a confidentiality provision and non-solicitation of employees and customers provisions that apply for one year after termination of employment. The non-compete provisions generally provides that the executive will not compete with us for a period ranging from one year after termination of employment, and in the event that termination is by us without cause, we are obligated to pay the executive his salary for such period.
Change in Control Agreements. Included in the employment agreements of each of the officers identified above are change of control provisions. The agreements have a term equal to the term of each employment agreement (subject to extension in our sole discretion) and provide certain benefits to the executive in the event the executive is terminated without cause or if the executive terminates his employment for good reason (as defined in the agreement). Upon a termination as a result of the change of control provision, we are obligated to pay an amount equal to 24 months of the executives then-current base salary, and all the rights and benefits the executive may have under all employee benefit, bonus and/or stock option plans and programs of or agreements with us.
Outstanding Equity Awards at Fiscal Year End
The Company did not grant compensation in the form of stock options to the chief executive officer or the other executive officers listed within the Summary Compensation Table during fiscal year ended July 31, 2008. The Company has no outstanding exercised or unexercised stock options granted for compensation to any executive officer and as such has no aggregated option exercises in the last fiscal year or fiscal year end stock option value to report related to compensation. The Company did not provide compensation awards under any long-term incentive plan in fiscal year ended July 31, 2008.
Director Compensation
Directors receive $2,500 in compensation for personally attending Board of Directors meetings. All directors are reimbursed for ordinary and necessary expenses incurred in attending any meeting of the board of directors or any board committee or otherwise incurred in their capacities as directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 17, 2008, information regarding the beneficial ownership of shares of common stock by each person known by us to own five percent or more of the outstanding shares of common stock, and by each of the named executive officers, directors, and all officers and directors as a group.
| NAME AND ADDRESS OF BENEFICAL OWNER | SHARES OF COMMON STOCK BENEFICIALLY OWNED | |||||||
| NUMBER | % | |||||||
| Scott Copeland(1) | 80,435,933 | 20.19 | % | |||||
| Marc Pernia | 23,886,200 | 6.00 | % | |||||
| First Brampton Corporation (2) | 17,974,847 | 4.51 | % | |||||
| Robert B. Dillon (3) | - | - | ||||||
| Michael G. Wirtz | 4,699,427 | 1.18 | % | |||||
| Richard Evans(4) (5) | 7,931,407 | 1.99 | % | |||||
| Michael S. Studdard | - | - | ||||||
| Reginald Goodman | 76,686,238 | 19.25 | % | |||||
| Officer and Directors (6 persons) | 134,927,814 | 33.86 | % | |||||
Beneficial ownership has been determined in accordance with Rule 13d-3 of the Exchange Act. Under this rule, shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option) within 60 days of the date of this table. In computing the percentage ownership of any person, the amount of shares includes the amount of shares beneficially owned by the person by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person does not necessarily reflect the person’s actual voting power.
To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Unless otherwise indicated, the business address of the individuals listed is 2121 Sage Road, Suite 200, Houston, Texas 77056.
| (1) | Mr Copeland’s address is 1710 Effie Lane, Pasadena, Texas 77501. |
| (2) | Mr. Dillon has investment and voting control for First Brampton Corporation. |
| (3) | Mr. Dillon does not own any shares of record but is deemed to be the beneficial owner of the shares owned of record by First Brampton Corporation. |
| (4) | Dr Evans’ address is 1709 Haver, Houston, Texas 77006. |
| (5) | This includes a warrant to purchase 90,000 shares of our common stock at $0.20 per share. |
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTORS INDEPENDENCE
Mr. Dillon advanced an aggregate principal amount of $0 to us during the fiscal year ended July 31, 2008, and the loans do not bear interest. We repaid principal of $1,800 on all of the advances during the most recent fiscal year and the principal amount outstanding on July 31, 2008 was $0.
First Brampton Corporation, a corporation owned by the Robert B. Dillon 2005 Trust, advanced an aggregate principal amount of $500 to us during the fiscal year ended July 31, 2008, and the loans do not bear interest. We repaid principal of $83,500 on all of the advances during the most recent fiscal year and the principal amount outstanding on July 31, 2008 was $0.
Mr. Wittenburg advanced an aggregate principal amount of $13,000 to us during the fiscal year ended July 31, 2008, and the loans do not bear interest. We repaid principal of $28,000 on all of the advances during the most recent fiscal year and the principal amount outstanding on July 31, 2008 was $0.
Mr. Pernia advanced an aggregate principal amount of $0 to us during the fiscal year ended July 31, 2008, and the loans do not bear interest. We repaid principal of $50,000 during the most recent fiscal year and the principal amount outstanding on July 31, 2008 was $0.
Mr. Wirtz advanced an aggregate principal amount of $14,490 to us during the fiscal year ended July 31, 2008, and the loans do not bear interest. We repaid principal of $39,490 on all of the advances during the most recent fiscal year and the principal amount outstanding on July 31, 2008 was $0.
Mr. Goodman advanced an aggregate principal amount of $44,000 to us during the fiscal year ended July 31, 2008, and the loans do not bear interest. We repaid principal of $64,000 on all of the advances during the most recent fiscal year and the principal amount outstanding on July 31, 2008 was $0.
In October 2007, First Brampton Corporation, an entity owned by Mr. Dillon, converted 196,028 shares of Series A Preferred Stock into 18,046,127 shares of Class A Common Stock, which were subsequently converted into an aggregate 18,046,127 shares of our common stock.
In October 2007, Mr. Copeland converted 783,161 shares of Series A Preferred Stock into 72,096,961 shares of Class A Common Stock, which were subsequently converted into an aggregate 72,096,961 shares of our common stock.
In October 2007, Mr. Wittenburg converted 184,339 shares of Series A Preferred Stock into 16,970,050 shares of Class A Common Stock, which were subsequently converted into an aggregate 16,970,050 shares of our common stock.
In October 2007, Mr. Wirtz converted 8,784 shares of Series A Preferred Stock and 24,319 shares of Series B Preferred Stock into an aggregate 3,047,427 shares of our common stock.
In October 2007, Mr. Goodman converted 844,492 shares of Series A Preferred Stock into 77,743,027 shares of our common stock.
In October 2007, Mr. Evans converted 2,203 shares of Series D Preferred Stock into 294,048 shares of our common stock.
Other than Dr. Evans and Mr. Studdard, none of the directors are independent as defined by Rule 10A-3 of the Exchange Act.
ITEM 13. EXHIBITS
EXHIBIT NUMBER | DESCRIPTION OF EXHIBIT | |
| 3.1 | Amended and Restated Articles of Incorporation Exobox Technologies Corp. (1) | |
| 3.2 | Bylaws of Exobox Technologies Corp. (1) | |
| 3.3 | Certificate of Amendment to Articles of Incorporation (3) | |
| 4.1 | Designation of Class A Common Stock (included in Exhibit 3.1) (1) | |
| 4.2 | Designation of Series A Convertible Preferred Stock (included in Exhibit 3.1) (1) | |
| 4.3 | Designation of Series B Convertible Preferred Stock (included in Exhibit 3.1) (1) | |
| 4.4 | Designation of Series C Convertible Preferred Stock (included in Exhibit 3.1) (1) | |
| 4.5 | Designation of Series D Convertible Preferred Stock (included in Exhibit 3.1) (1) | |
| 4.6 | Form of Warrants to purchase shares of common stock (1) | |
| 10.1* | 2007 Stock Option Plan (2) | |
| 10.2* | Employment Agreement between Exobox Technologies Corp. and Robert B. Dillon (3) | |
| 10.3* | Employment Agreement between Exobox Technologies Corp. and Michael C. Wittenburg (3) | |
| 10.4* | Employment Agreement between Exobox Technologies Corp. and Michael G. Wirtz (3) | |
| 10.5* | Employment Agreement between Exobox Technologies Corp. and Marcos Pernia (3) | |
| 10.6* | Employment Agreement between Exobox Technologies Corp. and Reginald Goodman (3) | |
| 10.7* | Employment Agreement between Exobox Technologies Corp. and Scott Copeland (3) | |
| 10.8 | Securities Purchase Agreement covering Series C Convertible Preferred Stock (1) | |
| 14.1 | Code of Business Conduct and Ethics (1) | |
| 21.1 | Subsidiaries of the Registrant(1) | |
| 23.1 | Consent of auditors for Registrants Form S-8 (2) | |
| Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* Management contract or compensatory plan or arrangement.
(1) Incorporated herein by reference to the Registrant’s Form 10-SB12, filed on December 21, 2005.
(2) Incorporated herein by reference to the Registrant’s Form S-8, filed on June 29, 2007.
(3) Incorporated herein by reference to the Registrant’s Form 10-SB12G/A, filed on February 3, 2006.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During 2007 and 2008 the Company’s principal accountants have been and remain Malone & Bailey, PC. They have been the company’s principal accountant since the Company’s triangular merger in September, 2005.
AUDIT FEES
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company’s principal accountants for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s 10-KSB and 10-QSB filings were approximately: 2008 $60,000 and 2007 $30,000.
AUDIT RELATED FEES
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company’s principal accountants for audit related fees: 2008 $ 0 and 2007 $ 0.
TAX FEES
Services have been provided to date under this caption for the fiscal years of 2005, 2006, 2007 or 2008. The Company will retain its principal accountants to prepare its annual tax return for the year ending July 31, 2008.
ALL OTHER FEES
No other fees were billed in either 2008 or 2007 by the Company’s principal accountants.
EXOBOX TECHNOLOGIES CORP.
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 of the undersigned thereunto duly authorized.
EXOBOX TECHNOLOGIES CORP.
| Dated: April 13, 2009 | By: /s/ Robert B. Dillon | |
| Robert B. Dillon | ||
| Chief Executive Officer and Director | ||
| (Principal Executive Officer) |
| Dated: April 13, 2009 | By: /s/ Michael G. Wirtz | |
| Michael G. Wirtz | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| Dated: April 13, 2009 | By: /s/ Scott Copeland | |
| Scott Copeland | ||
| Director | ||
| Dated: April 13, 2009 | By: /s/ Michael S. Studdard | |
| Michael S. Studdard | ||
| Director | ||
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