Washington, D.C. 20549
MyECheck, Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of “large accelerated filer and accelerated filer” in Rule 12b-2 of the Exchange Act).
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
The number of outstanding shares of the Registrant’s Common Stock, on November 13, 2009, were _70,714,772________ shares.
MYECHECK, INC. AND SUBSIDIARY
MYECHECK, INC.
MYECHECK, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited)
Contents
| | Page |
| | |
Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and
December 31, 2008 (Audited) | 1 |
| | |
Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and 2008 (Unaudited) | 2 |
| | |
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2009 and 2008 (Unaudited) | 3 |
| | |
| Notes to Consolidated Financial Statements (Unaudited) | 4 - 21 |
Consolidated Balance Sheets
| | | September 30, 2009 | | | December 31,2008 | |
| | | (Unaudited) | | | (Audited) | |
| | | | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 67,841 | | | $ | 23,999 | |
| Accounts receivable | | | 7,470 | | | | 13,253 | |
| Prepaid expenses | | | 10,661 | | | | - | |
| Debt issue costs - net | | | 2,071 | | | | - | |
| Total Current Assets | | | 88,043 | | | | 37,252 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Deposit | | | 12,864 | | | | 12,864 | |
| | | | | | | | | |
| Total Assets | | $ | 100,907 | | | $ | 50,116 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 190,442 | | | $ | 184,532 | |
| Accrued compensation - related parties | | | 175,810 | | | | 96,485 | |
| Loans payable - related party | | | 43,864 | | | | 38,864 | |
| Loans payable - other | | | 46,694 | | | | 46,694 | |
| Derivative liabilities | | | 143,962 | | | | - | |
| Redeemable convertible note payable - net | | | 9,205 | | | | - | |
| Total Current Liabilities | | | 609,977 | | | | 366,575 | |
| | | | | | | | | |
| Commitments and Contingencies (See note 8) | | | | | | | | |
| | | | | | | | | |
| Stockholders' Deficit | | | | | | | | |
| Common stock, $0.001 par value, 200,000,000 shares authorized 70,714,772 and 69,937,501 shares issued and outstanding | | | 70,715 | | | | 69,938 | |
| Additional paid in capital | | | 2,471,995 | | | | 1,983,923 | |
| Accumulated deficit | | | (3,051,780 | ) | | | (2,370,320 | ) |
| Total Stockholders' Deficit | | | (509,070 | ) | | | (316,459 | ) |
| | | | | | | | | |
| Total Liabilities and Stockholders' Deficit | | $ | 100,907 | | | $ | 50,116 | |
See accompanying notes to unaudited financial statements
MyECheck, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Processing Revenues | | $ | 238,608 | | | $ | 156,174 | | | | 627,434 | | | $ | 325,892 | |
| | | | | | | | | | | | | | | | | |
| General and administrative | | | 350,922 | | | | 278,736 | | | | 1,189,230 | | | | 923,629 | |
| | | | | | | | | | | | | | | | | |
| Loss from Operations | | | (112,314 | ) | | | (122,562 | ) | | | (561,796 | ) | | | (597,737 | ) |
| | | | | | | | | | | | | | | | | |
| Other (Income)/Expense | | | | | | | | | | | | | | | | |
| Derivative expense | | | - | | | | - | | | | 79,044 | | | | - | |
| Change in fair value of derivative liabilities | | | 23,498 | | | | - | | | | 29,918 | | | | - | |
| Interest expense | | | 10,256 | | | | - | | | | 10,702 | | | | - | |
| Other income | | | - | | | | (1,475 | ) | | | - | | | | (1,475 | ) |
| Total Other (Income)/Expense | | | 33,754 | | | | (1,475 | ) | | | 119,664 | | | | (1,475 | ) |
| | | | | | | | | | | | | | | | | |
| Net Loss | | $ | (146,068 | ) | | $ | (121,087 | ) | | | (681,460 | ) | | $ | (596,262 | ) |
| | | | | | | | | | | | | | | | | |
| Net Loss Per Share - Basic and Diluted | | $ | (0.00 | ) | | $ | (0.00 | ) | | | (0.01 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average number of shares outstanding during the period - basic and diluted | | | 70,714,722 | | | | 68,894,022 | | | | 70,251,769 | | | | 56,245,439 | |
See accompanying notes to unaudited financial statements
Consolidated Statements of Cash Flows
(Unaudited)
| | | For the Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | |
| Cash Flows from Operating Activities: | | | | | | |
| Net loss | | $ | (681,460 | ) | | $ | (596,262 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Amortization | | | 9,934 | | | | - | |
| Loss on settlement of accounts payable | | | 52,818 | | | | - | |
| Derivative expense | | | 79,044 | | | | - | |
| Change in fair value of derivative liability | | | 29,918 | | | | - | |
| Stock issued for services | | | 68,000 | | | | - | |
| Stock based compensation - employees | | | 283,609 | | | | - | |
| Stock based compensation - consultants | | | 50,468 | | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| (Increase) Decrease in: | | | | | | | | |
| Accounts receivable | | | 5,783 | | | | - | |
| Prepaid expenses | | | (10,661 | ) | | | - | |
| Increase (Decrease) in: | | | | | | | | |
| Accounts payable and accrued expenses | | | 39,864 | | | | 124,716 | |
| Accrued compensation - related parties | | | 79,325 | | | | - | |
| Net Cash Provided by (Used in) Operating Activities | | | 6,642 | | | | (471,546 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities: | | | | | | | | |
| Cash acquired in reverse acquisition | | | - | | | | 259 | |
| Net Cash Provided by Investing Activities | | | - | | | | 259 | |
| | | | | | | | | |
| Cash Flows from Financing Activities: | | | | | | | | |
| Cash overdraft | | | - | | | | 1,531 | |
| Cash paid as debt issue costs | | | (2,800 | ) | | | - | |
| Proceeds from loan payable - related party | | | 10,000 | | | | 12,000 | |
| Repayments of loans payable - related parties | | | (5,000 | ) | | | (22,000 | ) |
| Proceeds from loans payable - other | | | - | | | | 1,300 | |
| Repayments of loans payable - other | | | - | | | | (335 | ) |
| Proceeds from convertible note payable | | | 35,000 | | | | - | |
| Proceeds from capital stock subscribed | | | - | | | | 400,000 | |
| Net Cash Provided by Financing Activities | | | 37,200 | | | | 392,496 | |
| | | | | | | | | |
| Net Increase (Decrease) in Cash | | | 43,842 | | | | (78,791 | ) |
| | | | | | | | | |
| Cash at Beginning of Period | | | 23,999 | | | | 98,732 | |
| | | | | | | | | |
| Cash at End of Period | | $ | 67,841 | | | $ | 19,941 | |
| | | | | | | | | |
| Supplemental Disclosure of Cash Flow Information | | | | | | | | |
| Cash Paid for: | | | | | | | | |
| Taxes | | $ | - | | | $ | 851 | |
| Interest | | $ | - | | | $ | - | |
| | | | | | | | | |
| Supplemental Disclosure of Non Cash Investing and Financing Activities | | | | | | | | |
| | | | | | | | | |
| Derivative liability and debt discount arising in connection with issuance of convertible note | | $ | 35,000 | | | $ | - | |
| Issuance of stock for future services | | $ | 68,000 | | | $ | - | |
| Stock issued to settle accounts payable | | $ | 86,772 | | | $ | - | |
| Issuance of common stock for prior common stock payable | | $ | - | | | $ | 1,200,000 | |
| Stock issued for subscription receivable | | $ | - | | | $ | 400,000 | |
See accompanying notes to unaudited financial statements
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Note 1 Basis of Presentation, Organization and Nature of Operations
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the full year.
The unaudited interim financial statements should be read in conjunction with the Company’s Form 10-K, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the years ended December 31, 2008 and 2007. The interim results for the period ended September 30, 2009 are not necessarily indicative of the results for the full fiscal year.
Organization
MyECheck, Inc. (“MEC”) was incorporated in the state of Delaware on October 29, 2004.
Sekoya Holdings, Ltd. (“Sekoya”) was incorporated in Nevada on May 19, 2005, and was in the process of developing an online payment system for use in the Chinese online community. Sekoya never achieved revenues and was a development stage company. See discussion of reverse acquisition and recapitalization.
Reverse Acquisition and Recapitalization
On March 14, 2008, Sekoya, a then shell corporation, merged with MEC and MEC became the surviving corporation. This transaction was accounted for as a reverse acquisition. Sekoya did not have any operations and majority-voting control was transferred to MEC. The transaction also requires a recapitalization of MEC. Since MEC acquired a controlling voting interest, it was deemed the accounting acquirer, while Sekoya was deemed the legal acquirer. The historical financial statements of the Company are those of MEC, and of the consolidated entities from the date of Merger and subsequent.
Since the transaction was considered a reverse acquisition and recapitalization, the guidance for purposes of presenting pro-forma financial information is not required.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Pursuant to the Merger, Sekoya’s majority stockholder cancelled 125,000,000 shares of common stock and the Company concurrently issues 39,562,501 shares of common stock to MEC. Upon the closing of the reverse acquisition, MEC stockholders held 60% of the issued and outstanding shares of common stock.
In connection with the reverse acquisition and recapitalization, all share and per share amounts were retroactively restated.
Nature of Operations
The Company provides the following services:
(A) Electronic Check Processing
Provided to merchants who transact business over the internet allowing them to process checks electronically from their customers.
(B) Financial Verification
Provided to merchants to check the status of their customer’s bank account in order to greater provide assurance that the check will clear.
(C) Guarantee Services
Guarantee services provide the merchant with guaranteed payment on any returned items for a fee on all items processed as a means to insure guaranteed payment for products sold or services rendered.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of MEC and Sekoya (collectively, the “Company”). All intercompany accounts have been eliminated in consolidation.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and rapid technological change and is in a state of fluctuation as a result of the credit crisis occurring in the United States. The Company's operations are subject to significant risk and uncertainties including financial, operational, technological, and regulatory risks including the potential risk of business failure.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Also see Note 3 regarding going concern matters.
Use of Estimates
The preparation of financial statements in conformity with U. S. generally accepted accounting principles 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At September 30, 2009 and December 31, 2008, the Company had no cash equivalents.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At September 30, 2009 and December 31, 2008, there were no balances that exceeded the federally insured limit.
Accounts Receivable
Accounts receivable represents obligations from customers that are subject to normal collection terms. The Company periodically evaluates the collectability of its accounts receivable and considers the need to adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates.
Concentrations
At September 30, 2009, the Company had a concentration of accounts receivable with one customer of 88%. At December 31, 2008, the Company had a concentration of accounts receivable with one customer of 97%.
During the nine months ended September 30, 2009, the Company earned 81% and 16%, respectively, of its revenues from two customers. During the nine months ended September 30, 2008, the Company earned 97% of its revenues from one customer.
Fair Value of Financial Instruments
The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable and accrued expenses, accrued compensation – related parties, loans payable – related party, loans payable – other, derivative liabilities and convertible note payable, approximate fair value due to the relatively short period to maturity for these instruments.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Debt Issue Cost
The Company has paid debt issue costs in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense (see Note 4).
Beneficial Conversion Feature
If the Company were to record a beneficial conversion feature, the relative fair value of the beneficial conversion feature would be recorded as a discount from the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt.
Derivative Financial Instruments
The Company reviews all convertible debt instruments for the existence of an embedded conversion option, which may require bifurcation, fair value accounting and a related mark to market adjustment at each reporting period end date. In addition, the Company may be required to classify certain stock equivalents issued in connection with the underlying debt instrument as derivative liabilities.
In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing convertible debt instruments, management first reviews to determine if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring a fair value measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as potential derivative financial instruments.
Once determined that these are derivative financial instruments, the Company records these instruments as derivative liabilities. The fair value of these instruments are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.
Finally, if necessary, the Company would apply the related guidance in determining the existence of liquidated damage provisions. Liquidated damage provisions are not marked to market, but evaluated based upon the probability that a related liability should be recorded. The Company did not have any liquidated damage clauses for any of their financing transactions as of September 30, 2009.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Revenue Recognition
The Company records revenue when all of the following have occurred; (1) persuasive evidence of an arrangement exists, (2) product delivery has occurred, (3) the sales price to the customer is fixed or determinable, and (4) collectibility is reasonably assured.
The Company earns revenue from services, which has included the following: electronic check processing, financial verification, identity verification and check guarantee services. The services are performed pursuant to a contract with a customer, which states the services to be utilized and the terms and fixed price for all services under contract. The price of these services may be a fixed fee per transaction and/or a percentage of the transaction processed depending on the service.
Revenue from electronic check processing is derived from fees collected from merchants to convert merchant customer check data into an electronic image of a paper draft, which allows the Company to deposit the funds to the merchant’s bank through check 21 image clearing with the Federal Reserve on behalf of the bank. The Company recognizes the revenue related to electronic check processing fees when the services are performed.
Revenue from financial verification is derived from fees collected from merchants to process requests to validate financial verifications to an outside service provider under contract with the Company. This revenue is recognized when the transaction is processed, since the Company has no further obligations.
Revenue from check guarantee services is derived from fees collected from merchants to process transaction to an outside service provider under contract with the Company. This revenue is recognized when the transaction is processed, since the Company has no further obligations.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
For the nine months ended September 30, 2009, the Company had 7,300,000 options, and for the nine months ended September 30, 2008, the Company had no common stock equivalents outstanding. These common stock equivalents in 2009 were issued in connection with the Company’s stock option grants to employees and consultants; however since the Company reflected a net loss in 2009, the effect of considering any common stock equivalents, if outstanding, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Advertising
Advertising is charged to operations as incurred. Advertising expense for the nine months ended September 30, 2009 and 2008, respectively, was $3,691 and $7,939.
Stock-Based Compensation
All share-based payments to employees are recorded and expensed in the statement of operations. Measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including grants of employee stock options are based on estimated fair values. The Company has used the Black-Scholes option-pricing model to estimate grant date fair value for all option grants.
Share-based compensation expense is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the year, less expected forfeitures. Forfeitures should be estimated at the time of grant and revised, if necessary in subsequent periods if actual forfeitures differ from those estimates.
Non-Employee Stock Based Compensation
Stock-based compensation awards issued to non-employees for services is recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable
Recent Accounting Pronouncements
Effective July 1, 2009, the Company adopted The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC 105). This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became nonauthoritative. The Company began using the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2009. As the Codification was not intended to change or alter existing GAAP, it did not have a material impact on the Company’s financial statements.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Effective June 30, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (OTTI) for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have a material impact on the Company’s financial statements.
Effective June 30, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of the date through which subsequent events have been evaluated. The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have a material impact on the Company’s financial statements.
Effective January 1, 2009, the Company adopted an accounting standard update regarding the determination of the useful life of intangible assets. As codified in ASC 350-30-35, this update amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (as currently codified under ASC 850). The update also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have a material impact on the Company’s financial statements.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
In February 2008, the FASB issued an accounting standard update that delayed the effective date of fair value measurements accounting for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. These include goodwill and other non-amortizable intangible assets. The Company adopted this accounting standard update effective January 1, 2009. The adoption of this update to non-financial assets and liabilities, as codified in ASC 820-10, did not have a material impact on the Company’s financial statements.
Effective January 1, 2009, the Company adopted a new accounting standard update regarding business combinations. As codified under ASC 805, this update requires an entity to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. The adoption did not have a material impact on the Company’s financial statements.
In September 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its financial statements.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.
Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.
Note 3 Going Concern
As reflected in the accompanying financial statements, the Company has a net loss of $681,460 for the nine months ended September 30, 2009; and had a working capital deficit of $521,934, an accumulated deficit of $3,051,780 and a stockholders’ deficit of $509,070 at September 30, 2009.
The ability of the Company to continue as a going concern is dependent on Management's plans, which include the raising of capital through debt and/or equity markets. The Company will require additional funding during the next twelve months to finance the growth of its current and expected operations and achieve strategic objectives. Additionally, the Company will need to continually generate revenues through its current business operations in order to generate enough cash flow to fund operations through 2009. The Company is also dependent on maintaining their positive approval status with the Federal Reserve. If the Company were to lose this approval, their ability to provide services would be affected negatively.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
The Company believes its current available cash, along with anticipated revenues, may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 Convertible Debt, Debt Discount. Debt Issue Costs and Fair Value Measurement of Derivative Financial Instruments
Terms
On June 26, 2009, the Company issued redeemable convertible debt totaling $35,000. The Company paid $2,800 in debt issue costs and received net proceeds of $32,200. The note has a term of one year and bears interest at 8%.
Conversion
| (1) | The debt is convertible based upon 60% of the average of the three lowest closing bid prices within the prior fifteen trading day period. The conversion option may be exercised in the event of default or in whole or part at the option of the holder of the note prior to the debt’s maturity. If any portion of the principal and/or interest are not paid within 10 days of when it is due (beginning June 26, 2010), the discount multiplier used to determine the conversion price decreases 1% for each period of 10 business days that any portion of the amount due remains unpaid by the Company for all conversions thereafter. |
| (2) | If the average price per share (as computed above based upon a 60% discount) of the Company’s stock is below $0.10, the Company has the right to prepay the portion of the Debenture that the Holder elected to convert, plus any unpaid interest, at 150% of such amount. The Company has the option with written notice to the Holder to prepay the note at 150% of the principal amount and accrued interest to the date of payment. |
| (3) | If conversion is held up by a third party or the company cannot convert the note into common stock, all amounts are accelerated for payment and redeemable in cash at a price of 175% of principal plus all unpaid accrued interest to date. |
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
| (4) | If the note goes into default, the holder may elect to cancel any outstanding conversion notice and declare all amounts due and payable in cash at a price of 150% of principal plus all unpaid accrued interest to date. |
On or before the 4th business day following the receipt of debt proceeds, June 30, 2009, the Company was required to file a Form 8-K announcing this debt transaction. Since the Company did not file an 8-K within this time period, the discount multiplier used to determine the conversion price decreases by 1% for each period of 5 business days that the 8-K is not filed by the Company following the June 30th due date. The Company did not file an 8-K by June 30, 2009 and is seeking a waiver from the Holder for this penalty. The financial impact for the additional 1% discount penalty as of September 30, 2009 was 13%. On November 9, 2009, the debt holder waived the condition to file the 8-K. At the next reporting period, the Company will remeasure the derivative financial instrument using a fixed discount multiplier of 60%.
Derivative Financial Instruments
The $35,000 convertible debt instrument was determined to have three separate derivative liability instruments requiring bifurcation and the computation of fair value. These features are:
| (1) | Variability of the conversion price at 60% discount. |
| (2) | Debt is redeemable in cash at 175% of face amount, due to clause allowing for acceleration of payment. Since there is a contingent put option (exercisable by the holder in event of default), then the put option is not clearly and closely related to the debt host contract. Additionally, the contingent put option was indexed to an extraneous factor, the event of default, rather than interest rates or credit risk. |
| (3) | In the event of default, holder can cancel any outstanding conversion notice and redeem outstanding amount at 150%. |
The Company has computed the commitment date fair value based upon the following management assumptions:
| Expected dividends | | | 0 | % |
| Expected volatility | | | 247.45 | % |
| Expected term | | 1 year | |
| Risk free interest rate | | | 0.45 | % |
The fair value of these three embedded conversion options at the commitment date was $114,044. Of the total, $35,000 was assigned to debt discount and $79,044 was recorded as a derivative expense.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Debt Discount
In connection with the issuance of the secured convertible note, the Company recorded a debt discount of $35,000. These debt issue costs are being amortized to interest expense through June 26, 2010. For the three and nine months ended September 30, 2009, the Company recorded amortization of $8,892 and $9,205, respectively. At September 30, 2009, debt discount is presented net totaling $25,795. At September 30, 2009, redeemable convertible debt, net of debt discount is $9,205.
Mark to Market Adjustment
The Company has marked to market these derivative financial instruments at September 30, 2009, based upon the following management assumptions:
| Expected dividends | | | 0 | % |
| Expected volatility | | | 284.72 | % |
| Expected term | | 0.74 years | |
| Risk free interest rate | | | 0.40 | % |
Debt Issue Costs
In connection with the issuance of the secured convertible note, the Company paid debt-offering costs of $2,800. These debt issue costs are being amortized to interest expense through June 26, 2010. For the three and nine months ended September 30, 2009, the Company recorded amortization of $698 and $729, respectively. Debt issue costs are presented net totaling $2,071.
Note 5 Loans Payable - Related Party
During 2009, the Company received an advance from its Chief Executive Officer of $10,000. This advance is non-interest bearing, unsecured and due on demand.
During 2009, the Company repaid $5,000 to the Company’s Chief Technical Officer.
During 2008, the Company received an advance from its Chief Executive Officer of $12,000.
During 2008, the Company repaid $22,000 in advances to its Chief Executive Officer and Chief Technical Officer.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Note 6 Capital Stock Subscribed and Related Stock Issuance
In connection with the March 14, 2008 Merger, the Company had agreed to sell 4,000,000 units of common stock at $0.50/unit for $2,000,000 to third parties. Each unit consists of one share of common stock and one warrant. The Company will issue 2,000,000 warrants exercisable at $2/share and 2,000,000 warrants exercisable at $4/share. The warrants expire two years from the grant date. The shares and warrants will not be issued until the entire $2,000,000 has been received from these third parties. During the nine months ended September 30, 2008, the Company received $400,000. At September 30, 2009, the warrants have not been issued.
Note 7 Stockholders’ Deficit
On April 7, 2009 the Company adopted the 2009 Equity Incentive Plan (the “Plan”) covering 10,000,000 stock rights including options, restricted stock and stock appreciation rights. Under the Plan, employees, and consultants receive initial grants of options, which vest immediately, and the remaining unvested portion of a grant vests ratably over a three-year period.
(A) Stock Issuance
On May 22, 2009, the Company issued 400,000 shares of common stock to a consultant for future services through August 22, 2009, having a fair value of $68,000 ($0.17/share), based upon the quoted closing trading price. The Company expensed $68,000 during the three and nine months ended September 30, 2009.
On June 25, 2009, the Company issued 377,271 shares of common stock in settlement of accounts payable totaling $33,954. The fair value of the shares issued was $86,772, based upon the quoted closing trading price ($0.23/share). The Company recorded a loss on settlement of $52,818 for the three and nine months ended September 30, 2009.
(B) Stock Option Grants
On May 11, 2009, the Company granted 7,300,000 non-qualified stock options to employees and non-employee consultants for services to be rendered. The options are exercisable over a 5 - 10 year term at $0.13 per share and vest 25% immediately while the remaining 75% vests monthly in equal increments over a three-year period. These options had a fair value of $871,828 using the Black-Scholes option-pricing model.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
The fair value of these options was estimated on the date of grant using the following management weighted average assumptions:
| Risk-free interest rate | | | 1.44 | % |
| Expected dividend yield | | | 0 | % |
| Expected volatility | | | 223.25 | % |
| Expected life | | 5-10 years | |
| Expected forfeitures | | | 0 | % |
For the nine months ended September 30, 2009, the Company recognized $302,327 in stock based compensation expense related to 7,300,000 options granted during 2009.
The following is a summary of the Company’s stock option activity:
| | | Options | | | Weighted Average Exercise Price | |
| Outstanding – December 31, 2007 | | | | | | |
| Granted | | | - | | | $ | - | |
| Exercised | | | - | | | $ | - | |
| Forfeited | | | - | | | $ | - | |
| Outstanding – December 31, 2008 | | | - | | | $ | - | |
| Granted | | | 7,300,000 | | | $ | 0.13 | |
| Exercised | | | - | | | $ | - | |
| Forfeited | | | - | | | $ | - | |
| Outstanding – September 30, 2009 | | | 7,300,000 | | | $ | 0.13 | |
| Exercisable – September 30, 2009 | | | 2,585,417 | | | $ | 0.13 | |
| | | | | | | | | |
Weighted average fair value of options granted during the period ended September 30, 2009 | | $ | 871,828 | | | $ | 0.12 | |
| | | | | | | | | |
Weighted average fair value of options exercisable at September 30, 2009 | | $ | 308,772 | | | $ | 0.12 | |
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
| Options Outstanding | |
Range of exercise price | | Number Outstanding | | Weighted Average Remaining Contractual Life (in years) | | Weighted Average Exercise Price | |
| $0.13 | | | 7,300,000 | | 8.90 years | | $ | 0.13 | |
| Options Exercisable | |
Range of exercise price | | Number Exercisable | | Weighted Average Remaining Contractual Life (in years) | | Weighted Average Exercise Price | |
| $0.13 | | | 2,585,417 | | 8.90 years | | $ | 0.13 | |
At September 30, 2009, the total intrinsic value of options outstanding and exercisable was $146,000 and $51,708, respectively.
The following summarizes the activity of the Company’s stock options that have not vested for the nine months ended September 30, 2009:
| | | Options | | | Weighted Average Grant Date Fair Value | |
| Outstanding – December 31, 2007 | | | | | | |
| Granted | | | - | | | | - | |
| Vested | | | - | | | | - | |
| Cancelled or forfeited | | | - | | | | - | |
| Outstanding – December 31, 2008 | | | - | | | | - | |
| Granted | | | 7,300,000 | | | $ | 0.12 | |
| Vested | | | (2,585,417 | ) | | | 0.12 | |
| Cancelled or forfeited | | | - | | | | - | |
| Outstanding – September 30, 2009 | | | 4,714,583 | | | $ | 0.12 | |
Total unrecognized share-based compensation expense from non-vested stock options at September 30, 2009 was $563,055 which is expected to be recognized over a weighted average period of approximately of 2.61 years.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
Note 8 Commitments and Contingencies
(A) Litigations, claims and assessments
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings or claims, other than disclosed below; that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.
During 2005, a lawsuit against the Company was filed in the State of California. The plaintiffs claimed the Company was using the technology created by the plaintiff company. The Company was defending these claims based on its position that the technology was different and the parties entered into a settlement agreement regarding the investment when the relationship with the plaintiffs had ended.
On January 13, 2009, the parties involved in the litigation entered into and filed with the court a conditional settlement agreement. The Plaintiffs had until April 16, 2009 to accept or reject the terms of the settlement. The Plaintiffs failed to show up at the hearing on April 16, 2009, and the case was dismissed. Plaintiffs had until May 24, 2009 to show cause. The Plaintiffs failed to appear at the May 24, 2009 hearing but were later granted a hearing in July 2009.
Counsel representing the Company appeared on July 30, 2009 in Department 9 of the El Dorado Superior Court. The matter was continued to October 22, 2009. At the October 22, 2009 hearing, Counsel representing the Company requested and received a 90 day extension. Next hearing date is set for January 21, 2010.
At September 30, 2009, it was not possible to provide an assessment as to the likelihood of an unfavorable outcome; therefore, no estimate of the range of potential loss is possible.
(B) Employment Agreement
On January 1, 2007, the Company executed a three-year employment agreement with its Chief Executive Officer. Compensation is $240,000 per year. At September 30, 2009, the company had accrued compensation of $96,057 to the Chief Executive Officer.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
(C) Investor Relations Agreement
On August 3, 2009, the Company entered into a consulting agreement with a third party to provide investor relations services over a six month period. The consultant will be paid $10,000 per month and will receive three tranches of three year, 250,000 cashless warrants on September 3, 2009, October 3, 2009 and November 2, 2009 with exercise prices of $0.25, $0.35 and $0.45, respectively.
On September 3, 2009 the Company applied the Black-Scholes model to determine the fair value of the first tranche of warrants. The Company has used the following weighted average assumptions to compute the fair value of these warrants:
| Expected dividends | | | 0 | % |
| Expected volatility | | | 275.10 | % |
| Expected term – warrants | | 3 years | |
| Risk free interest rate | | | 1.42 | % |
| Expected forfeiture | | | 0 | % |
On October 3, 2009 the Company applied the Black-Scholes model to determine the fair value of the second tranche of warrants. The Company has used the following weighted average assumptions to compute the fair value of these warrants:
| Expected dividends | | | 0 | % |
| Expected volatility | | | 284.72 | % |
| Expected term – warrants | | 3 years | |
| Risk free interest rate | | | 1.38 | % |
| Expected forfeiture | | | 0 | % |
On November 2, 2009 the Company applied the Black-Scholes model to determine the fair value of the third tranche of warrants. The Company has used the following weighted average assumptions to compute the fair value of these warrants:
| Expected dividends | | | 0 | % |
| Expected volatility | | | 290.19 | % |
| Expected term – warrants | | 3 years | |
| Risk free interest rate | | | 1.44 | % |
| Expected forfeiture | | | 0 | % |
The Company recognized the grant date fair value of these warrants with a corresponding expense of $31,750, $36,750 and $36,750 on September 3, 2009, October 3, 2009 and November 2, 2009, respectively.
MyECheck, Inc. And Subsidiary
Notes to Consolidated Financial Statements
September 30, 2009
(Unaudited)
The Company is disputing the delivery of all three tranches of warrants due to nonperformance. The Company intends to pursue all remedies in resolving this matter.
Note 9 Subsequent Events
The Company has evaluated for subsequent events between the balance sheet date of September 30, 2009 and November 13, 2009, the date the financial statements were issued.
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “intends,” “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those set forth below under “Certain Risk Factors.” The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Form 10-Q and the audited financial statements of the Company, included in our Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission and management’s discussion and analysis contained therein. We assume no obligation to revise or update any forward-looking statements for any reason, except as require by law.
In December 2001, the SEC requested that all registrants discuss their most “critical accounting policies” in management’s discussion and analysis of financial condition and results of operations. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
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 certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
See note 2 “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements and our current report on Form 10-Q for the period ended September 30, 2009, for discussion of significant accounting policies, recent accounting pronouncements and their effect, if any, on the Company.
Three and Nine Months Ended September 30, 2009 and 2008.
MyECheck currently has limited revenues. The Company will rely on outside investment capital to supply cash until the time, if any, that its operations are profitable and cash flow positive. There can be no assurance that MyECheck will generate positive cash flow and there can be no assurances as to the level of revenues, if any, MyECheck may actually achieve from its operations.
The Company commenced revenue generating operations with clients since September 30, 2007. The Company believes that its revenue generating operations will continue and expand during 2009.
There are trends in sales that would have a material affect on MyECheck. In recent months there has been a marked increase in the number of applications and inquiry for MyECheck’s services. Management expects this trend to continue throughout 2009, however there can be no assurances that the current trend will continue.
In 2009 the Company’s revenue increases over the prior year is attributed to increased volume from additional merchant customers.
The general and administrative expenses associated with the Company’s operations increased primarily due to non-cash expenses related to stock based compensation of $344,077, common stock issued for services of $68,000 and loss incurred by the issuance of common stock for the settlement of accounts payable of $52,818. Other non-cash expenses were attributed to recognition of derivative expense of $79,044 and the change in fair value of derivative liabilities of $29,918. In addition, legal fees have decreased in 2009 because of the current disposition of legal proceedings described in Part II: Other Information, Item 1: Legal Proceedings.
Research and development costs for 2009 were slightly lower than 2008 as the Company continues to enhance its information technology systems and operations.
As of September 30, 2009, MyECheck had cash on hand amounting to $67,841. MyECheck is currently operating cash flow positive and reflects a net gain. Management believes that the combination of revenue from operations and the proceeds from outside investment will be sufficient to fund operations, however there can be no assurance that revenues will be earned or that the expected investments will materialize.
Net cash provided by financing activities was $37,200 for the nine months ended September 30, 2009, compared to $392,496 of net cash provided by financing activities for the nine months ended September 30, 2008. The net cash provided by financing activities for the nine months ended September 30, 2009, resulted from proceeds from a $35,000 convertible note, cash paid for debt issue costs of $2,800, proceeds from a loan payable from a related party of $10,000 and a repayment of a loan payable to a related party of $5,000. The net cash provided by financing activities for the nine months ended September 30, 2008 resulted from $400,000 for stock subscriptions from outside investors, $1,300 from proceeds from loans payable from a third party and a $10,000 repayment of a loan payable from a related party, repayment of a loan payable of $335 and a cash overdraft of $1,531.
There are currently no commitments for capital expenditures.
There are currently no guarantees or other off balance sheet arrangements.
Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. We will continue to fund operations from cash on hand and through revenues previously described. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs long term.
We had a net loss of $681,460 for the nine months ended September 30, 2009. In addition, we have an accumulated deficit of $3,051,780 as of September 30, 2009. At September 30, 2009, due to numerous negative indicators such as a loss from operations, and an accumulated deficit, there are concerns regarding our ability to continue as a going concern. Our financial statements included in this report, and the audited financial statements included in our Annual Report for the year ended December 31, 2008, contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
(a) Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
(b) There has been no change in our internal control over financial reporting during the nine months ended September 30, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
MyECheck may from time to time be involved in various claims, lawsuits, and disputes with third parties, actions involving allegations of discrimination, intellectual property infringement, or breach of contract actions incidental to the operation of its business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. MyECheck is currently not aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.
Item 1A. Risk Factors
An investment in our securities is highly speculative and involves a high degree of risk. Therefore, in evaluating us and our business you should carefully consider the risks set forth below, which are only a few of the risks associated with our business and our common stock. You should be in a position to risk the loss of your entire investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 26, 2009, we entered into an 8% Convertible Debenture to obtain $35,000 in gross proceeds from a non-affiliated party (the "Lender"). The Maturity Date of the Debenture is June 26, 2010.
At the option of the Holder, the Debenture may be converted, either in whole or in part, up to the full Principal Amount hereof into shares of our Common Stock (calculated as to each such conversion to the nearest 1/100th of a share), at any time and from time to time until the outstanding balance is paid.
The number of Common Shares into which this Debenture may be converted is equal to the dollar amount of the Debenture being converted divided by the Conversion Price. The “Conversion Price” is equal to 60% of the average of the 3 lowest Volume Weighted Average Prices during the fifteen Trading Days prior to Holder’s election to convert (the percentage figure being a “Discount Multiplier”). The “Volume Weighted Average Price” per Common Share means the volume weighted average price of the Common Shares during any Trading Day.
The Registration Rights Agreement requires the Company to register the resale of the Securities within certain time limits and to be subject to certain penalties in the event the Company fails to timely file the Registration Statement, fails to obtain an effective Registration Statement or, once effective, to maintain an effective Registration Statement until the Securities are saleable pursuant to Rule 144 without volume restriction or other limitations on sale.
The Debenture was issued pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act’).
On December 1, 2007, we entered in an agreement with an unrelated non-affiliate to provide us with investor relations services. This company was not to be and has not been engaged in fund raising for us. By December 11, 2008, we were indebted to this company in the amount of $33,954. Earlier, in March of 2008, it was agreed that we would issue stock (shares of our Common Stock) to this company in lieu of cash, and on June 6, 2009, it was determined that this Balance Due would be satisfied by the issuance of 377,271 Shares of our Common Stock.
Those shares of our Common Stock were issued pursuant to the exemption from registration contained in Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other information.
Not Applicable.
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. November 13, 2009.
