UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2007
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
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WEB2 CORP.
(Exact name of registrant as specified in its charter)
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Delaware | 000-29462 | 13-4127624 |
(State or Other Jurisdiction | (Commission | (I.R.S. Employer |
of Incorporation or Organization) | File Number) | Identification No.) |
100 West Lucerne Circle, Suite 601, Orlando, Florida 32801
(Address of Principal Executive Office) (Zip Code)
(407) 540-0452
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
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Securities registered pursuant to Section 12(b) of the Act: None |
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Securities registered pursuant to Section 12(g) of the Act: |
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Common Stock Par Value $.001 |
| (Title of Class) | |
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Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.¨
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
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. Yesý No¨
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.ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Noý
State issuer’s revenues for its most recent fiscal year. $396,412
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold was approximately $358,475 based upon the average bid and asked price of $0.01 as reported by the OTC Bulletin Board as of May 14, 2008.
The Company had 90,772,414 shares of common stock outstanding as of May 14, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check one): Yes¨ Noý
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
When used in this Annual Report on Form 10-KSB, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “intend,” “plans,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding events, conditions and financial trends which may affect the Company's future plans of operations, business strategy, operating results and financial position. Such statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors include, among others: (i) the Company’s ability to obtain additional sources of capital to fund continuing operations; i n the event it is unable to timely generate revenues (ii) the Company's ability to obtain additional patent protection for its technology; and (iii) other economic, competitive and governmental factors affecting the Company's operations, market, products and services. Additional factors are described in “Risk Factors” below and in the Company’s other public reports and filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.
ITEM 1. BUSINESS
Overview
Web2 Corp. designs, develops and sells technology products to its customers utilizing both products it has previously developed as well as products it develops or combines to meet customer specific requirements. Its current emphasis is to build technology for specific business entities to facilitate the ease in which the business entity can communicate and conduct transactions with specific groups of users and to facilitate the ability of those users to utilize the internet to communicate with and conduct transactions with the business entity. Web2 Corp. seeks to create and implement internet technology products which reduce the level of user technical skill required and which reduces the time and cost of the process.
The company is headquartered in Orlando, Florida. It is publicly traded on the OTCBB under the symbol WBTO.
Corporate History
We were originally organized as a Colorado corporation and our name was Medical Management Systems, Inc. in 1987. In August 2000, we reincorporated in Delaware and changed our name to Dominix, Inc.
In January 2001 we acquired International Controllers, Inc. (“ICON”). We became a shell corporation as a result of the sale of ICON in April 2002. On December 5, 2003, we completed the acquisition of Jade Entertainment Group, Inc. (“Jade”) by way of merger through the Company's wholly owned subsidiary, Jade Acquisition Corp. by issuing 743,750 shares of common stock and 82,167 shares of its Series B Convertible Preferred Stock, which was converted into 6,834,631 shares of our common stock on June 4, 2004, together representing 36% of the Company. This transaction wasaccounted for as a reverse merger with Jade the acquirer of the Company. The reverse merger was accounted for as a recapitalization and the stockholder's equity was retroactively restated to the inception of Jade, July 5, 2001. On March 30, 2004, Jade entered into a database license agreement with MarketShare Recovery, Inc.
On December 5, 2004, we acquired the database assets of Web1000.com. Pursuant to the Agreement, we acquired a website known as Web1000.com along with the customer list related to that website. The purchase price for the assets was $400,000. On July 12, 2005, we entered into a two-year management services agreement with Global Portals Online, Inc. (formerly known as Personal Portals Online, Inc.) (“Global Portals”), which we subsequently acquired. Under the agreement, Global Portals was given primary responsibility for the management, redesign and redevelopment of our web traffic operations and technology, finance and accounting in exchange for our issuing 200,000 shares of common stock to Global Portals and agreeing to pay a fee of 5% of our net monthly revenues.
On December 22, 2005, we completed the acquisition of Global Portals pursuant to an Agreement and Plan of Share Exchange dated as of December 1, 2005. At the effective time of the share exchange, all of the shares of Global Portals were exchanged for an aggregate of 11,442,446 shares of our common stock on the basis of 2.54 shares of Global Portals for one share of our common stock. The 11,442,446 shares of common stock issued to the Global Portals shareholders represent approximately 85% of our common stock outstanding after the exchange.
In July 2006, we changed our name to Web2 Corp. As a result of the foregoing, our operations are conducted by Web2 Corp., as the parent company, through various subsidiaries, including Global Portals.
When used herein the terms “Company,” “we,” “us” and “our” each refers to the combined business entity of Web2 Corp. and its subsidiaries, unless the context otherwise indicates.
Going Concern
Our 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. Our independent auditor has expressed substantial doubt as to our ability to continue as a going concern. As shown in the financial statements, for the year ended December 31, 2007, we had net sales of $396,412, as compared to net sales of $527,043 for the year ended December 31, 2006. For the year ended December 31, 2007, we incurred a net loss of $3,060,855, as compared to a net loss of $2,617,973 for the year ended December 31, 2006.
At December 31, 2007, we had a stockholders’ deficit of $814,090. At December 31 2007, we had current assets of $4,484 and current liabilities of $1,131,275, resulting in a working capital deficit of $1,126,791.
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Any shortfall in our cash flow requirements may be met through private placements of our common stock and incurring debt. No assurances can be given that financing will be available or be sufficient to meet our capital needs. During 2007, we were unable to secure any new equity investments of cash in the Company. If we are unable to generate profits or are unable to obtain financing to meet our working capital requirements, then we may be required to modify our operations, including curtailing our business significantly or ceasing operations altogether. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to retain our current financ ing, to obtain additional financing, if necessary, and ultimately to become profitable. Should any of these events not occur, our financial statements will be adversely affected and our business may not survive.
Our Mission
Our mission is the innovative, rapid adaptation of Internet technologies to solve problems and simplify Internet usage. Our goal is to capitalize on the popular software applications that we have developed by reselling this technology in custom configurations to corporate clients and brand conglomerates with existing niche communities of users and achieve the following:
Target
market gaps and areas of frustration or friction in the marketplace
Simplify
reduce the level of product complexity and the required technical prowess of users
Leverage
the latest technology, imagination and common sense
Integrate
intuitive technologies, functions, features and benefits
Advance
leapfrog established incumbents, deliver desired products/services
Profit
sell products and services that people desire at a solid margin
We believe these provide a straightforward strategic guide for sustaining a strong competitive position.
Our Value to Corporate Clients and their Customers/Users
Web2 Corp. makes the Internet easier to use for a large group of non-technical people. We produce products to overcome the frustrations of average users promoting beneficial value as provided by our corporate client resellers.
Some of the key benefits we offer to our clients’ consumer users include:
Small Business Customers. Web2 Corp makes it easier for small businesses to use the internet. We do this by creating products that are straightforward and easy to use at a low price. Small business users face common problems and challenges that Web2 Corp. products are engineered to solve.
We reduce the technical proficiency required for conducting business on the Internet by packaging pre-engineered solutions that our customers may modify via simple controls to deliver professional results. We believe there is a substantial market of small business owners/operators that tend to have limited technical abilities and available technical resources. Creation of a basic website is beyond the capability of this audience. Few can produce a site with shopping and payment processing capabilities. Small business owners do not generally possess the requisite skills to utilize industry-standard tools to launch and maintain a well-designed site.
We reduce the time required to begin conducting business on the Internet by providing intuitive, easy-to-use tools and simple guided processes that enables immediate productivity. In order to embrace the web, small operators either enter a steep learning curve to learn the technology of the Internet, or they must engage third-party providers. The time to learn graphics design, web design, coding, security, integration of e-commerce payment processing, and web marketing is significant. Web2 Corp. eliminates this requirement to substantially shorten the time for a business to get online.
We produce a quality Internet presence with a variety of options that rival large custom-developed sites. The quality of traditional web development vendors is uneven and resultant product is often poorly designed, technically flawed, and weakly documented. Web2 Corp. provides fully functioning, professionally designed frameworks that are easy for customers to modify and customize to reflect their business. We provide a selection of sophisticated modules with advanced functions that customers can deploy, depending upon their needs, to engage their audience. The ability to maintain integrity of the site, including its look, feel and functionality are simplified and the power is placed in the hands of the business owner who can focus on content rather than coding, mechanics and layout.
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We integrate marketing tools to help customers attract an online audience. Search engines drive a significant proportion of traffic to websites. In order to tap this resource a business must be proficient at optimizing its web pages to be listed at the top of relevant search results for keywords associated with its products or services. Search engines utilize algorithms that must be monitored and reverse-optimized on a constant basis. Violation of search engine rules can severely penalize a well-intentioned web marketer. Email is also a specialized field that must be mastered to yield results without running afoul of anti-spam rules. Affiliate programs are a powerful tool for creating networks of vendors for a product. These demand research, money and a dedicated devotion of time to generate results. Web2 Corp. integrates the fundamental tools of these promotional arts into its products and offer s advanced features to customers on a paid basis.
We offer timely products that keep our customers trend-right. Internet trends move very fast from early adopters to mainstream audiences. Web2 Corp. believes it can identify market trends early and rapidly develop improved products to present useful solutions to our customers. For non-technical operators, this is a valuable benefit that improves their competitive position on the Internet.
We provide online auction users a migration path to an e-commerce solution they can own at comparable cost. It is our belief that many users of popular online auction systems seek a more flexible, customizable method of conducting Internet commerce that they can own. Our systems enable the operator to tailor their online persona with fewer restrictions on what they can and cannot do to present their products and services. Users are able to directly market via targeted keyword purchases and optimization on search engines to bring prospective customers to their own websites as opposed to bringing them to the online auction site where numerous competitors are readily accessed by consumers.
General Internet Users. We provide tools that simplify the Web for Internet users of all demographic, geographic and social profiles. We do this by aggregating and consolidating a myriad of free services into logical tools that allow them to find relevant information, communicate with their peers, link to their community, generally express themselves to a broad audience, and conduct the transactions of their life.
We simplify web usage by bringing together commonly used tools in one place. It is our observation that most users utilize a fraction of the features provided by competing applications. Many competing products add a glut of features that only serve to complicate processes and frustrate users. Web2 Corp. targets this frustration by bringing the core functionality of multiple competing products into one place with one common set of controls to learn. We provide simpler versions of the most used applications in one easy-to-use product.
We focus on localization of the Internet to improve its relevance in our user’s everyday life. We believe there is a gap in productivity of the Internet as it applies to local markets. The Internet in its first iteration has served to connect the global community. Many products and services have evolved to more efficiently organize a global audience and global information, but few products have successfully levered Internet capabilities to address local markets where people conduct their lives, learning, transactions and communications. Web2 Corp. strives to address this audience by creating localized centers of aggregation and tools that invert the process of trying to locate information. Traditional online search, auctions and other listings try to accumulate the entirety of the universe of information and then let consumers sift it down to their “needle in a haystack.” We reverse the process and start with a local p ile of needles, expanding the scope of the search geographically to reach further into the world if the user so desires. This eliminates the “20 out of 2,347,986 results” that current processes produce which makes us faster and more relevant for the majority of users.
We migrate emerging online services and products from the U.S. to other geographical markets in their local languages. We intend to adapt proven products to meet the social and language needs of these large audiences. This rapid follow-on strategy gives the latest products to online customers in foreign markets and secures an early market position for Web2 Corp.
Corporations and Specialized Organizations. The Internet changes everything for companies, charities, political parties and other cultural organizations. These groups face incremental new challenges in communicating with their customers and constituents in the Internet 2.0 world. Increasingly the online population has a substantial amount of information at their fingertips. They can assess situations, opportunities, products and services for themselves as opposed to relying on “experts” that provided such insight in the past. Companies that fail to acknowledge the new real-time realities of the Internet do so at their own risk. Blogs, online social communities, and negative websites can accelerate dispersion and expansion of sensitive information, irrespective of factual accuracy, to a global audience. Web2 Corp. services this customer base by providing easily implemented, cost effective solutions to actively harness the new community of online consumers.
We provide a new set of tools for companies and organizations to actively embrace their constituents. Proactive companies and groups seek tools such as those offered by Web2 Corp. to try to channel and capitalize on both good and bad communications with customers, supporters, and the public at-large. Each customer touch point is an opportunity to expand sales and the depth of customer relationships. The best run companies utilize this new capability of real-time customer relationships as a competitive advantage to stay abreast of the market and their product position therein.
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These products address any opportunity where groups of people aggregate around common interests. Golf, motorcycles, crafts, charities, political candidates, political issues and a universe of other special interest opportunities exist where a client has already begun to build the audience. Web2 Corp. products simply deepen the level of audience interaction.
Products and Services
Our product development philosophy is built upon rapid and continuous innovation, with frequent releases of early stage products that we seek to improve with every iteration of the development cycle. Our current principal products and services are described below.
Products (“Modules” used individually or in combination to create a Client product)
Social Network Community Module(like: MySpace, Facebook)
Features:
- Fully-featured social network—friends, comments, communication, community and more, all in one package
Friends:
- Find and meet new friends with our Friend Finder tool
- Online Dating optional functionality with picture ratings (HotOrNot), personality profiling, etc.
SocialHub:
- Create and manage interest groups, schedule events, and communicate easily.
- Chat and instant message your friends
Comments and Communications:
- Internal e-mail, instant messaging, shoutbox, comments, and ratings on the Social Network Community Module allows for a complete communication package.
- Dynamic AJAX shoutbox updates live to show all of your visitors what's being discussed on your site right now.
- Users can set their profile to pull e-mails from their Yahoo, Gmail, Hotmail, AOL, and many other e-mail applications in one place, organizing their online communications on your site!
- Online classified listing services lets your community trade or sell items to each other in a trusted environment.
- Complete blogging platform included.
Community:
- Support for thousands of users online simultaneously with the default hosting package gives your site plenty of room to grow.
- Make groups, message boards, forums, events, personal calendars, invitations, and more.
- Search the entire community for groups, people, and events.
- All the features of popular social networks rolled into one powerful site that can be up and running, making it easy for your target audience to meet and form a community instantly.
Video Community Module (like: YouTube, MetaCafe)
Features:
- Rate video, post comments, add to user favorites, or flag video as “featured” or “inappropriate”.
- Upload videos in .avi, .mpeg, .mov, .wmf, or many other video formats
- Adult content flag that requires user verification before continuing.
- META tags
- User groups and private user messaging system
- Member user stats
- Subscription to channels or users
- Every video gets an automatic permalink unique URL
Built-in Audio Community Module: Listen to streaming audio uploads with all of the social networking features of the Video Community Module built in—at no extra cost.
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Free E-Mail Module (like: Gmail, Hotmail)
Features:
- Multilingual capability (ANSI character set)
- MIME and HTML e-mail
- Attachments, forwarding, address book—all the functionality users are accustomed to from a webmail service.
- Rich Text composing
- Message filters and rules
- Completely customizable interface
Free Website Module (like: Freewebs, Geocities)
Features:
- Customized Do-it-Yourself Website Builder
- Own subdomain
- Search Engine Submission
- Professional 24 x 7 Hosting
- Directory Listing
- Information Design Help Center
- Pre-selected Tools, Forms and Templates
Shopping Cart Module(like: Amazon, EcommerceTemplate.com)
Features:
- Inventory tracking with back order
- Unlimited categories and subcategories
- Automated drop shipping capability
- Integrated shipment tracking
- Product coupons and store-wide discounts
- Related products for cross-selling
- Wish lists
- Cart thumbnails with attribute
- Coupon code tracking
- Search page filters
- Clearance pricing
- Merchant-defined bundles
- Customer service representative order form
Auction Platform Bundle(like: Ebay, Woot.com)
Features:
- Reserve price
- Buy it Now
- Standard, Lot & Dutch auctions
- Item & Auction watch
- Fixed-price sales (gift certificates, etc)
- Support for unlimited numbers of auctions simultaneously
- Embed images into auctions
- Complete admin panel allows administration across different auction sites with one master login
- Easy & customizable user registration
- Bid Retraction
- PayPal Integration
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Photo Communities Module(like: Flickr, Kodakonline)
Features:
- Re-arrangement of pictures in categories and albums
- Upload pictures with web interface or ftp (and admin can batch-add to database)
- Full multimedia support
- Automatic creation of thumbnails and intermediate size pics
- Search feature, last added, random picture
- User management (private galleries, groups)
- Caption, title, description and user defined fields for each picture (searchable)
- User comments on pictures
- E-card feature
- Slide show viewer
- Template system for customized photo galleries
- User membership in multiple groups
- Upload approval notice for admin
- EXIF/IPTC support
- Image rotation
- Multi-pic upload
- Password-protected albums
- Picture-resize on upload
- Advanced search (boolean operators)
Advertising and Affiliate Network Module(like: Google AdWords, Overture, Commission Junction, DoubleClick)
Features:
-Powerful and simple: easy ad prioritization, click tracking, statistics, and report generation
- Integrated with Google Adsense and Yahoo! Publisher Network
- Click tracking with transparent pixel GIF's and Flash ads
- Easy targeting by site, keyword, or IP address
- In-depth flexible reporting, automatically generated at pre-set times
- Track visitor behavior from click-through to transaction finish
- Flexible, scalable, dynamically changeable advertising programs
Blog Community Module (like: Blogger, Wordpress)
Features:
-Quick and easy registration to comment or start a blog.
- Infinitely customizable. Select from hundreds of templates or design your own!
- Tag posts with META information to make it easier for users to find posts.
- Stat tracking: see who's reading what blogs.
- Spell check option on all blog posts.
- Preview available to make sure that posts look right when they're published.
- Autosave feature to keep users from losing their work
- Embed photos and videos
- Integrated powerful blog comment spam protection from Akismet, the industry leader.
- Privacy options to limit who may read blog posts
- Complete admin tools allows for easy administration of all blogs.
Online Classifieds Module (like: Craigslist)
Features:
-Price setting for different types of classifieds—charge for real estate but not for job postings (or any other category you'd like)
- Personal User account pages to let users keep track of posted ads
- Easy user registration
- User E-mail Notifications—set the classified program to notify users when a particular item is posted on the board.
- Attach photos or video to your ads!
- Admin messaging system—get the word out to users quickly
- Limit listings by geographic area.
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Private Labeled SearchModule (like: Google, Yahoo, MSN)
Features:
- Fully-featured search module, complete with: Crawler, Link-graph database, HTML, .doc, .pdf, .ppt, .rss, .mp3 and .zip parser
- Supports quotes, nested, wildcard, truncated, and some boolean searches.
- Customize your relevance algorithm to help pull the best results for your searches.
- If you have a large body of information that you need indexed, the Private Labeled Search
- - Module is a quick and easy way to make all that information available to your users.
Existing Commercial Web Portals Owned and Operated by Web2 Corp
Due to a loss of funding source in 2007, Web2 Corp. revised its business strategy to have an emphasis on building technology for a customer specific requirement. With this change in the business came a fundamental change in our financial and staffing needs. Instead of managing the risk associated with larger investments when developing, marketing, branding, and operating consumer portals, which are very costly to distribute/operate, we reduced our exposure in a conservative manner by offering our innovative software solutions (modules) to corporate clients from whom we can generate income directly. With this transition, came the decision to operate the companies existing web portals at a reduced capacity until they can be sold or partnered. Web2 Corp. has four key products that is still believes are well positioned for success due to known market gaps and are operated in a limited capacity as they are for sale or available for partnering.
Systems Technology
Our business relies on our software and hardware infrastructure, which provides substantial computing resources at low cost. We currently use a combination of off-the-shelf and custom software running on clusters of commodity computers. Our considerable investment in developing this infrastructure has produced several key benefits. It simplifies the storage and processing of large amounts of data, eases the deployment and operation of large-scale global products and services and automates much of the administration of large-scale clusters of computers.
Although most of this infrastructure is not directly visible to our users, we believe it is important for providing a high-quality user experience. We regularly evaluate new hardware alternatives and software techniques and network locations can help to further reduce our operational costs.
Sales and Support
We utilize direct sales, direct response media and third-party channels to promote and sell products to corporate clients. Sales processing channels for these products include Internet orders through multiple owned sites under various brands and operations via a contracted service provider.
Our global support organization, live-websupport.com, provides customer service for all Web2 Corp products. We strive to build products with intuitive user experiences and reliability to reduce customer service and support traffic by design. When the customer still has support needs they have self-help, email, Instant Message, and phone support available in resolving their difficulty.
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Marketing
Our early marketing efforts focus on creating direct outreach to clients which are identified as “technology needy”, submitting bids and proposals in various publications/sites online and using public relations efforts to accelerate it. Over time we will migrate to broader traditional media to create broad-based client awareness.
Competition
We face well positioned competition in every aspect of our business, and particularly from other companies that seek to connect people with information on the web and provide them with relevant advertising. Currently, we consider our primary competitors to be Google, Microsoft and Yahoo as providers and aggregators of “web services”; however, we are unaware of any one company which provides a majority of the popular web elements in module format to major national companies and/or brands.
We also face competition from other web search providers, including companies that are not yet known to us. We compete with Internet advertising companies, particularly in the areas of pay-for-performance and keyword-targeted Internet advertising. We may compete with companies that sell products and services online because these companies, like us, are trying to attract users to their web products and services. In addition to Internet companies, we face competition from companies that offer traditional media advertising opportunities.
We compete to attract and retain relationships with users, advertisers and web sites. The bases on which we compete differ among the groups.
Users. We compete to attract and retain users of our website builder, search and community products and services. Many of the products and services we offer to users are free. For those that are fee based, we intend to pursue a price leadership strategy to disrupt the value delivered by incumbent competitors to customers. In all cases we target underserved customers, identified pools of Internet user frustration, or opportunities to expand the addressable market for a product category by simplifying and reducing product cost to users.
Advertisers. We compete to attract and retain advertisers. We compete in this area principally on the basis of the return on investment realized by advertisers using our advertising inventory, particularly targeting the underserved local business, or targeted Indian population. We also compete based on the quality of customer service, features and product ease of use.
Website Owners. We compete to attract and retain website owners that utilize our products to build their online presence. We compete by delivering superior ease of use, better resulting sites, and disruptive pricing for value delivered.
We believe that we compete favorably on the factors described above. However, our industry is evolving rapidly and is becoming increasingly competitive. Larger, more established companies than us are increasingly focusing on businesses that directly compete with us.
Intellectual Property
We rely on a combination of trademark, copyright and trade secret laws in the U.S. and other jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary technology and our brand. We also enter into confidentiality and invention assignment agreements with our employees and consultants and confidentiality agreements with other third parties, and we rigorously control access to proprietary technology.
Web2 Corp., Chamber of E-Commerce, and ByIndia are trademarks under application in the U.S. Our unregistered trademarks include: Web1000, SickSpot, HotHomePages (protected under common law through first use in commerce since 2000), MyDigitalSpot, WebsiteSuperstore, WebsiteOwner, TemplateSuperstore, and ZeroBrand.
Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.
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Companies in the Internet, technology and media industries own large numbers of patents, copyrights and trademarks and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition, the possibility of intellectual property claims against us grows. Our technologies may not be able to withstand any third-party claims or rights against their use.
Government Regulation
We are subject to a number of foreign and domestic laws that affect companies conducting business on the Internet. In addition, because of the increasing popularity of the Internet and the growth of online services, laws relating to user privacy, freedom of expression, content, advertising, information security and intellectual property rights are being debated and considered for adoption by many countries throughout the world.
In the U.S., laws relating to the liability of providers of online services for activities of their users are currently being tested by a number of claims, which include actions for defamation, libel, invasion of privacy and other data protection claims, tort, unlawful activity, copyright or trademark infringement, or other theories based on the nature and content of the materials searched and the ads posted or the content generated by users. Likewise, other federal laws could have an impact on our business. For example, the Digital Millennium Copyright Act has provisions that limit, but do not eliminate, our liability for listing or linking to third-party web sites that include materials that infringe copyrights or other rights, so long as we comply with the statutory requirements of this act. The Children’s Online Protection Act and the Children’s Online Privacy Protection Act restrict the distribution of materials considered harmful to children and i mpose additional restrictions on the ability of online services to collect information from minors. In addition, the Protection of Children from Sexual Predators Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances.
In addition, the application of existing laws regulating or requiring licenses for certain businesses of our advertisers, including, for example, distribution of pharmaceuticals, adult content, financial services, alcohol or firearms, can be unclear. Application of these laws in an unanticipated manner could expose us to substantial liability and restrict our ability to deliver services to our users. For example, some French courts have interpreted French trademark laws in ways that would, if upheld, limit the ability of competitors to advertise on generic keywords.
We also face risks from legislation that could be passed in the future.
We also face risks due to failure to enforce or legislate, particularly in the area of network neutrality, where governments might fail to protect the Internet’s basic neutrality as to the services and sites that users can access through the network. Such a failure could limit our ability to innovate and deliver new features and services, which could harm our business.
We are also subject to international laws associated with data protection in Europe and elsewhere, and the interpretation and application of data protection laws is still uncertain and in flux. In addition, because our services are accessible worldwide, foreign jurisdictions may claim that we are required to comply with their laws.
Culture and Employees
We take great pride in our company culture and embrace it as one of our fundamental strengths. We remain steadfast in our commitment to constantly improve the technology we offer to our users and advertisers and to our website owners. We have assembled what we believe is a highly talented group of employees and dedicated contractors. Our culture encourages the iteration of ideas to address complex technical challenges. In addition, we embrace individual thinking and creativity.
We constantly seek to maintain a small-company feel that promotes interaction and the exchange of ideas among employees. We try to minimize corporate hierarchy to facilitate meaningful communication among employees at all levels and across departments, and we have developed software to help us in this effort. We believe that considering multiple viewpoints is critical to developing effective solutions, and we attempt to build consensus in making decisions. While teamwork is one of our core values, we also significantly reward individual accomplishments that contribute to our overall success. As we grow, we expect to continue to provide compensation structures that are more similar to those offered by start-ups than established companies. We will focus on very significant rewards for individuals and teams that build amazing things that provide significant value to us and our users.
At April 11, 2008, we had three employees and four independent contractors performing services for us.
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RISK FACTORS
Risks Related to Our Business and Industry
We have a history of losses and we may not become profitable.
For the year ended December 31, 2007, we had net sales of $396,412, as compared to net sales of $527,043 for the year ended December 31, 2006. For the year ended December 31, 2007, we incurred a net loss of $3,060,855, as compared to a net loss of $2,617,973 for the year ended December 31, 2006. At December 31, 2007, we had a stockholders’ deficit of $814,090 and a working capital deficit of $1,126,791. We expect to sustain a loss for 2008.
As a result, we will need to generate significant additional sales in order to become and maintain profitability. We cannot assure our shareholders that we will achieve significant additional sales, or that we will be profitable and, if so, that we can sustain profitability into the future. It is possible that we may encounter unexpected expenses. We need to obtain additional working capital. There can be no assurance that we will be able to successfully complete any such financing arrangements or that the amounts raised would meet our cash flow needs. We cannot assure our shareholders that additional capital will be available to us in the future on favorable terms, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our business activities essential to operate profitably would be significantly limited.
Our available cash is limited. We may need to raise additional capital.
At December 31, 2007, we had a stockholders’ deficit of $814,090. At December 31 2007, we had current assets of $4,484 and current liabilities of $1,131,275, resulting in a working capital deficit of $1,126,791. It is not likely that we will generate sufficient operating capital through operations to meet our debt service requirements and to maintain our business at its present level. If we fail for any reason to repay any of our loans on a timely basis, then we may have to curtail our business sharply or cease our operations altogether.
Similarly, there can be no assurance that sales will continue to increase or even maintain current levels. We will need to obtain capital through equity and/or debt financing. If additional funds are obtained by issuing equity securities and/or debt securities convertible into equity, dilution to existing shareholders will result, and future investors may be granted rights superior to those of existing shareholders. There can be no assurances, however, that additional financing will be available when needed, or if available, on acceptable terms. There are no current agreements, arrangements, or understandings for any equity and/or debt financing. The failure of the Company to obtain any such financing as required or otherwise desired will have a material adverse effect upon the Company, its business and operations.
Our financial statements are subject to a “going concern” qualification.
Our financial statements appearing elsewhere in this report have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Management realizes that we must generate capital and revenue resources to enable us to return to profitable operations. The realization of assets and satisfaction of liabilities in the normal course of business is dependent upon our making additional sales and ultimately returning to profitable operations. No assurances can be made that we will be successful in these activities. Should any of these events not occur, our financial statements will be materially and adversely affected.
We face significant competition from Microsoft, Google, Yahoo and other companies.
We face formidable competition in every aspect of our business, and particularly from other companies that seek to connect people with information on the web and provide them with relevant advertising. Currently, we consider our primary competitors to be Microsoft Corporation, Google, Inc. and Yahoo! Inc. Microsoft has announced plans to develop features that make web search a more integrated part of its Windows operating system or other desktop software products. We expect that Microsoft will increasingly use its financial and engineering resources to compete with us. All of these competitors have more employees than we do. All have significantly more cash resources than we do. These companies also have longer operating histories and more established relationships with customers and end users. They can use their experience and resources against us in a variety of competitive ways, including by making acquisitions, investing more aggressiv ely in research and development and competing more aggressively for advertisers and web sites. They also may have a greater ability to attract and retain users than we do because they operate Internet portals with a broad range of content products and services. If they are successful in providing similar or better products compared to ours or leverage their platforms or products to make their products and services easier to access than ours, we could experience a significant decline in user traffic. Any such decline in traffic could negatively affect our revenues.
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We face competition from other Internet companies, including web search providers, Internet access providers, Internet advertising companies and destination web sites that may also bundle their services with Internet access.
In addition to Microsoft, Google and Yahoo, we face competition from other web search providers, including companies that are not yet known to us. We compete with Internet advertising companies, particularly in the areas of pay-for-performance and keyword-targeted Internet advertising. Also, we may compete with companies that sell products and services online because these companies, like us, are trying to attract users to an array of commercial products and services.
We also compete with destination web sites that seek to increase their product and revenue base. These destination web sites may include those operated by Internet access providers, such as cable and DSL service providers. Because our users need to access our services through Internet access providers, they have direct relationships with these providers. If an access provider or a computer or computing device manufacturer offers online services that compete with ours, the user may find it more convenient to use the services of the access provider or manufacturer. In addition, the access provider or manufacturer may make it hard to access our services by not listing them in the access provider’s or manufacturer’s own menu of offerings, or may charge users to access our websites or the websites of our customers. Also, because the access provider gathers information from the user in connection with the establishment of a billing relationship, t he access provider may be more effective than we are in tailoring services and advertisements to the specific tastes of the user.
There has been a trend toward industry consolidation among our competitors, and so smaller competitors today may become larger competitors in the future. If our competitors are more successful than we are at generating a customer base, our revenues may decline.
We face competition from traditional media companies, and we may not be included in the advertising budgets of large advertisers, which could harm our operating results.
In addition to Internet companies, we face competition from companies that offer traditional media advertising opportunities. Most large advertisers have set advertising budgets, a very small portion of which is allocated to Internet advertising. We expect that large advertisers will continue to focus most of their advertising efforts on traditional media. If we fail to convince these companies to spend a portion of their advertising budgets with us, or if our existing advertisers reduce the amount they spend on our programs, our operating results would be harmed.
Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly and annual expenses as a percentage of our revenues may be significantly different from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause our stock price to fall. Each of the risk factors listed and the following factors, may affect our operating results:
Our ability to continue to attract users to ours / client’s web sites and products.
Our ability to monetize or generate revenue from through our product offerings.
Our ability to attract advertisers to ours / client’s web sites and products.
The mix in our revenues between our various products and services.
The amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses, operations and infrastructure.
Our focus on long term goals over short term results.
The results of our investments in risky projects.
Payments made in connection with the resolution of litigation matters.
General economic conditions and those economic conditions specific to the Internet and Internet advertising.
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Our ability to keep our web sites operational at a reasonable cost and without service interruptions.
Our ability to forecast revenue from agreements under which we guarantee minimum payments.
Geopolitical events such as war, threat of war or terrorist actions.
Because our business is changing and evolving, our historical operating results may not be useful to you in predicting our future operating results. In addition, advertising spending has historically been cyclical in nature, reflecting overall economic conditions as well as budgeting and buying patterns. For example, in 1999, advertisers spent heavily on Internet advertising. This was followed by a lengthy downturn in ad spending on the web. Also, user traffic tends to be seasonal. Our rapid growth may mask the cyclicality and seasonality of our business. As our growth rate has slows, the cyclicality and seasonality in our business may become more pronounced and may cause our operating results to fluctuate.
If we do not continue to innovate and provide products and services that are useful to users, we may not remain competitive, and our revenues and operating results could suffer.
Our success depends on providing products and services that people use for a high quality Internet experience. Our competitors are constantly developing innovations in web search, online advertising and providing information to people. As a result, we must continue to invest significant resources in research and development in order to enhance our web search technology and our existing products and services and introduce new high-quality products and services that people can easily and effectively use. If we are unable to ensure that our users and customers have a high quality experience with our products and services, then they may become dissatisfied and move to competitors’ products and services. In addition, if we are unable to predict user preferences or industry changes, or if we are unable to modify our products and services on a timely basis, we may lose users, advertisers and website builder customers. Our operating results would a lso suffer if our innovations are not responsive to the needs of our users, advertisers and website builder customers are not appropriately timed with market opportunity or are not effectively brought to market. As search technology continues to develop, our competitors may be able to offer products that are, or that are perceived to be, substantially similar or better than those offered by Web2. This may force us to compete in different ways with our competitors and to expend significant resources in order to remain competitive.
Our business and operations may experience rapid growth. If we fail to effectively manage our growth, our business and operating results could be harmed and we may have to incur significant expenditures to address the additional operational and control requirements of this growth.
We may experience rapid growth in our headcount and operations, which has placed, and will continue to place, significant demands on our management, operational and financial infrastructure. If we do not effectively manage our growth, the quality of our products and services could suffer, which could negatively affect our brand and operating results. Our expansion and growth in international markets heightens these risks as a result of the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. To effectively manage this growth, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. These systems enhancements and improvements will require significant capital expenditures and allocation of valuable management resou rces. If the improvements are not implemented successfully, our ability to manage our growth will be impaired and we may have to make significant additional expenditures to address these issues, which could harm our financial position. The required improvements include:
Enhancing our information and communication systems to ensure that our offices around the world are well coordinated and that we can effectively communicate with our growing base of users, advertisers and business products customers.
Enhancing systems of internal controls to ensure timely and accurate reporting of all of our operations.
Ensuring enhancements to our systems of internal controls are scalable to our anticipated growth in headcount and operations.
Standardizing systems of internal controls and ensuring they are consistently applied at each of our operations around the world.
Improving our information technology infrastructure to maintain the effectiveness of our marketing, sales and customer fulfillment functions.
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Proprietary document formats may limit the effectiveness of our search technology by preventing our technology from accessing the content of documents in such formats which could limit the effectiveness of our products and services.
A large amount of information on the Internet is provided in proprietary document formats such as Microsoft Word. The providers of the software application used to create these documents could engineer the document format to prevent or interfere with our ability to access the document contents with our search technology. This would mean that the document contents would not be included in our search results even if the contents were directly relevant to a search. These types of activities could assist our competitors or diminish the value of our search results. The software providers may also seek to require us to pay them royalties in exchange for giving us the ability to search documents in their format. If the software provider also competes with us in the search business, they may give their search technology a preferential ability to search documents in their proprietary format. Any of these results could harm our brand and our operating results.
New technologies could block our ads, which would harm our business.
Technologies may be developed that can block the display of our ads. Much of our revenue is derived from fees paid to us by advertisers in connection with the display of ads on web pages. As a result, ad-blocking technology could, in the future, adversely affect our operating results.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, and our business may be harmed.
We believe that a critical contributor to our success has been our corporate culture, which we believe fosters innovation, creativity and teamwork. As our organization grows, and we are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the beneficial aspects of our entrepreneurial culture. This could negatively impact our future success. In addition, equity ownership in our company may create disparities in wealth among employees, which may adversely impact relations among employees and our corporate culture in general.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.
Our trademarks, trade secrets, copyrights and all of our other intellectual property rights are important assets for us. There are events that are outside of our control that pose a threat to our intellectual property rights as well as to our products and services. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed or made available through the Internet. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.
Although we may seek to obtain patent protection for our innovations, it is possible we may not be able to protect some of these innovations. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important. Furthermore, there is always the possibility, despite our efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable. Finally, third parties increasingly have and will continue to allege that our products and services infringe their patent rights.
We also face risks associated with our trademarks. Third parties may infringe on our trademarks and frequently enter into litigation based on allegations of infringement or other violations of trademark rights. As we face increasing competition and become increasingly high profile, the possibility of intellectual property rights claims against us grows. Our trademarks may not be able to withstand any third-party claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle and could divert resources and attention. An adverse determination also could prevent us from offering our products and services to customers under identities we have carefully fostered and may require that we procure substitute trademarks for our businesses at great expense.
We are, and may in the future be, subject to intellectual property rights claims, which are costly to defend, could require us to pay damages and could limit our ability to use certain technologies in the future.
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Companies in the Internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition and become increasingly high profile, the possibility of intellectual property rights claims against us grows. Our technologies may not be able to withstand any third-party claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle and could divert resources and attention. An adverse determination also could prevent us from offering our products and services to others and may require that we procure substitute products or services for these members.
With respect to any intellectual property rights claim, we may have to pay damages or discontinue the practices found to be in violation of a third party’s rights. We may have to seek a license to continue such practices, which may not be available on reasonable terms and may significantly increase our operating expenses. A license to continue such practices may not be available to us at all. As a result, we may also be required to develop alternative non-infringing technology or practices or discontinue the practices. The development of alternative non-infringing technology or practices could require significant effort and expense. If we cannot obtain a license to continue such practices or develop alternative technology or practices for the infringing aspects of our business, we may be forced to limit our product and service offerings and may be unable to compete effectively. Any of these results could harm our brand and opera ting results.
From time to time, we receive notice letters from patent holders alleging that certain of our products and services infringe their patent rights. Some of these may result in litigation against us. Companies may also file trademark infringement and related claims against us over the display of ads in response to user queries that include trademark terms.
Our business may be adversely affected by malicious third-party applications that interfere with, or exploit security flaws in, our products and services.
Our business may be adversely affected by malicious applications that make changes to our users’ computers and interferes with our product experiences. These applications may attempt, to change our users’ Internet experience, including hijacking queries to our sites, altering or replacing search results, or otherwise interfering with our ability to connect with our users. The interference often occurs without disclosure to or consent from users, resulting in a negative experience that users may associate with our brands. These applications may be difficult or impossible to uninstall or disable, may reinstall themselves and may circumvent other applications’ efforts to block or remove them. In addition, we offer a number of products and services that our users download to their computers or that they rely on to store information and transmit information to others over the Internet. These products and services are subject to a ttack by viruses, worms and other malicious software programs, which could jeopardize the security of information stored in a user’s computer or in our computer systems and networks. The ability to reach users and provide them with a superior experience is critical to our success. If our efforts to combat these malicious applications are unsuccessful, or if our products and services have actual or perceived vulnerabilities, our reputation may be harmed and our user traffic could decline, which would damage our business.
Index spammers could harm the integrity of our web search results, which could damage our reputation and cause our users to be dissatisfied with our products and services.
There is an ongoing and increasing effort by “index spammers” to develop ways to manipulate our web search results. For example, because our web search technology ranks a web page’s relevance based in part on the importance of the web sites that link to it, people have attempted to link a group of web sites together to manipulate web search results. We take this problem very seriously because providing relevant information to users is critical to our success. If our efforts to combat these and other types of index spamming are unsuccessful, our reputation for delivering relevant information could be diminished. This could result in a decline in user traffic, which would damage our business.
Privacy concerns relating to our technology could damage our reputation and deter current and potential users from using our products and services.
From time to time, concerns may be expressed about whether our products and services compromise the privacy of users and others. Concerns about our practices with regard to the collection, use, disclosure or security of personal information or other privacy-related matters, even if unfounded, could damage our reputation and operating results. While we strive to comply with all applicable data protection laws and regulations, as well as our own posted privacy policies, any failure or perceived failure to comply may result in proceedings or actions against us by government entities or others, which could potentially have an adverse affect on our business. Laws related to data protection continue to evolve. It is possible that certain jurisdictions may enact laws or regulations that impact our ability to offer our products and services in those jurisdictions, which could harm our business.
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Our business is subject to a variety of U.S. and foreign laws that could subject us to claims or other remedies based on the nature and content of the information searched or displayed by our products and services, and could limit our ability to provide information regarding regulated industries and products.
The laws relating to the liability of providers of online services for activities of their users are currently unsettled both within the U.S. and abroad. It is possible that we could be held liable for misinformation provided over the web when that information appears in our web search results. If one of these complaints results in liability to us, it could be potentially costly, encourage similar lawsuits, distract management and harm our reputation and possibly our business. In addition, increased attention focused on these issues and legislative proposals could harm our reputation or otherwise affect the growth of our business.
The application to us of existing laws regulating or requiring licenses for certain businesses of our advertisers, including, for example, distribution of pharmaceuticals, adult content, financial services, alcohol or firearms, can be unclear. Existing or new legislation could expose us to substantial liability, restrict our ability to deliver services to our users, limit our ability to grow and cause us to incur significant expenses in order to comply with such laws and regulations.
Several other federal laws could have an impact on our business. Compliance with these laws and regulations is complex and may impose significant additional costs on us. For example, the Digital Millennium Copyright Act has provisions that limit, but do not eliminate, our liability for listing or linking to third-party web sites that include materials that infringe copyrights or other rights, so long as we comply with the statutory requirements of this act. The Children’s Online Protection Act and the Children’s Online Privacy Protection Act restrict the distribution of materials considered harmful to children and impose additional restrictions on the ability of online services to collect information from minors. In addition, the Protection of Children from Sexual Predators Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. Any failure on our part to comply with these regulations may subject us to additional liabilities.
We also face risks associated with international data protection. The interpretation and application of data protection laws in Europe and elsewhere are still uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which in turn could have a material effect on our business.
We also face risks from legislation that could be passed in the future.
We also face risks due to failure to enforce or legislate, particularly in the area of network neutrality, where governments might fail to protect the Internet’s basic neutrality as to the services and sites that users can access through the network. Such a failure could limit Web2 Corp.’s ability to innovate and deliver new features and services, which could harm our business.
If we were to lose the services of our senior management team, we may not be able to execute our business strategy.
Our future success depends in a large part upon the continued service of key members of our senior management team. In particular, our Chairman and Chief Executive Officer, William A. Mobley, Jr., and our President and Chief Operating Officer, Andre L. Forde, are critical to the overall management of Web2 Corp., as well as the development of our technology, our culture and our strategic direction. All of our executive officers and key employees are at-will employees, and we do not maintain any key-person life insurance policies. The loss of any of our management or key personnel could seriously harm our business.
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense, and we are aware that certain of our competitors have directly targeted our employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
As we grow, our hiring process may prevent us from hiring the personnel we need in a timely manner. In addition, as we become a more mature company, we may find our recruiting efforts more challenging. The incentives to attract, retain and motivate employees provided by our option grants may not be as effective as in the past and our current and future compensation arrangements, which include cash bonuses, may not be successful in attracting new employees and retaining and motivating our existing employees. If we do not succeed in attracting excellent personnel or retaining or motivating existing personnel, we may be unable to grow effectively.
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We have a short operating history and a relatively new business model in an emerging and rapidly evolving market. This makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to be successful.
We have very little operating history for you to evaluate in assessing our future prospects. Also, we derive nearly all of our revenues from online advertising website building products, and sale of other Internet services, which are immature industries that have undergone rapid and dramatic changes in its short history. You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company in a new and rapidly evolving market. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.
We may have difficulty scaling and adapting our existing architecture to accommodate increased traffic and technology advances or changing business requirements, which could lead to the loss of users, advertisers and business product customers, and cause us to incur expenses to make architectural changes.
To be successful, our network infrastructure has to perform well and be reliable. The greater the user traffic and the greater the complexity of our products and services, the more computing power we will need. We expect spending to continue as we purchase or lease data centers and equipment and upgrade our technology and network infrastructure to handle increased traffic on our web sites and to roll out new products and services. This expansion is expensive and complex and could result in inefficiencies or operational failures. If we do not implement this expansion successfully, or if we experience inefficiencies and operational failures during the implementation, the quality of our products and services and our users’ experience could decline. This could damage our reputation and lead us to lose current and potential customers and advertisers. The costs associated with these adjustments to our architecture could harm our operating r esults. Cost increases, loss of traffic or failure to accommodate new technologies or changing business requirements could harm our operating results and financial condition.
We rely on bandwidth providers, data centers or other third parties for key aspects of the process of providing products and services to our users, and any failure or interruption in the services and products provided by these third parties could harm our ability to operate our business and damage our reputation.
We rely on third-party vendors, including data center and bandwidth providers. Any disruption in the network access or co-location services provided by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We license technology and related databases from third parties to facilitate aspects of our data center and connectivity operations including, among others, Internet traffic management services. We have experienced and expect to continue to experience interruptions and delays in service and availability for such elements. Any errors, failures, interrup tions or delays experienced in connection with these third-party technologies and information services could negatively impact our relationship with users and adversely affect our brand and our business and could expose us to liabilities to third parties.
Our systems are also heavily reliant on the availability of electricity, which also comes from third-party providers. If we were to experience a major power outage, we would have to rely on back-up generators. These back-up generators may not operate properly through a major power outage and their fuel supply could also be inadequate during a major power outage. This could result in a disruption of our business.
Interruption or failure of our information technology and communications systems could impair our ability to effectively provide our products and services, which could damage our reputation and harm our operating results.
Our provision of our products and services depends on the continuing operation of our information technology and communications systems. Any damage to or failure of our systems could result in interruptions in our service. Interruptions in our service could reduce our revenues and profits, and our brand could be damaged if people believe our system is unreliable. Our systems are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our systems, and similar events. Some of our data centers are located in areas with a high risk of major earthquakes. Our data centers are also subject to break-ins, sabotage and intentional acts of vandalism, and to potential disruptions if the operators of these facilities have financial difficulties. Some of our systems are not fully redundant, and our disa ster recovery planning cannot account for all eventualities. The occurrence of a natural disaster, a decision to close a facility we are using without adequate notice for financial reasons or other unanticipated problems at our data centers could result in lengthy interruptions in our service.
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Any unscheduled interruption in our service puts a burden on our entire organization and would result in an immediate loss of revenue. If we experience frequent or persistent system failures on our web sites, our reputation and brand could be permanently harmed. The steps we have taken to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and may not be successful in reducing the frequency or duration of unscheduled downtime.
More individuals are using non-PC devices to access the Internet, and versions of our web search technology developed for these devices may not be widely adopted by users of these devices.
The number of people who access the Internet through devices other than personal computers, including mobile telephones, hand-held calendaring and email assistants, and television set-top devices, has increased dramatically in the past few years. The lower resolution, functionality and memory associated with alternative devices make the use of our products and services through such devices difficult. If we are unable to attract and retain a substantial number of alternative device users to our web search services or if we are slow to develop products and technologies that are more compatible with non-PC communications devices, we will fail to capture a significant share of an increasingly important portion of the market for online services.
We rely on insurance to mitigate some risks and, to the extent the cost of insurance increases or we are unable or choose not to maintain sufficient insurance to mitigate the risks facing our business, our operating results may be diminished.
We contract for insurance to cover certain potential risks and liabilities. In the current environment, insurance companies are increasingly specific about what they will and will not insure. It is possible that we may not be able to get enough insurance to meet our needs, may have to pay very high prices for the coverage we do get or may not be able to acquire any insurance for certain types of business risk. In addition, we have in the past and may in the future choose not to obtain insurance for certain risks facing our business. This could leave us exposed to potential claims. If we were found liable for a significant claim in the future, our operating results could be negatively impacted. Also, to the extent the cost of maintaining insurance increases, our operating results will be negatively affected.
We occasionally become subject to commercial disputes that could harm our business by distracting our management from the operation of our business, by increasing our expenses and, if we do not prevail, by subjecting us to potential monetary damages and other remedies.
From time to time we may be engaged in disputes regarding our commercial transactions. These disputes could result in monetary damages or other remedies that could adversely impact our financial position or operations. Even if we prevail in these disputes, they may distract our management from operating our business and the cost of defending these disputes would reduce our operating results.
We have to keep up with rapid technological change to remain competitive in our rapidly evolving industry.
Our future success will depend on our ability to adapt to rapidly changing technologies, to adapt our services to evolving industry standards and to improve the performance and reliability of our services. Our failure to adapt to such changes would harm our business. New technologies and advertising media could adversely affect us. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our services or infrastructure.
Our business depends on increasing use of the Internet by users searching for information, advertisers marketing products and services and web sites seeking to earn revenue to support their web content. If the Internet infrastructure does not grow and is not maintained to support these activities, our business will be harmed.
Our success will depend on the continued growth and maintenance of the Internet infrastructure. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable Internet services. Internet infrastructure may be unable to support the demands placed on it if the number of Internet users continues to increase, or if existing or future Internet users access the Internet more often or increase their bandwidth requirements. In addition, viruses, worms and similar programs may harm the performance of the Internet. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as our ability to provide our solutions.
We have incurred and will continue to incur increased costs as a result of being a public company.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. We will continue to incur costs associated with our public company reporting requirements.
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Risks Related to Ownership of our Common Stock
The trading price for our common stock has been and may continue to be volatile.
The trading price of our common stock has been volatile and will likely continue to be volatile. The trading price of our common stock may fluctuate widely in response to various factors, some of which are beyond our control. These factors include:
Quarterly variations in our results of operations or those of our competitors.
Announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments.
Disruption to our operations or our data centers.
The emergence of new sales channels in which we are unable to compete effectively.
Our ability to develop and market new and enhanced products on a timely basis.
Commencement of, or our involvement in, litigation.
Any major change in our board or management.
Changes in governmental regulations or in the status of our regulatory approvals.
Recommendations by securities analysts or changes in earnings estimate.
Announcements about our earnings that are not in line with analyst expectations, the likelihood of which is enhanced because it is our policy not to give guidance on earnings.
Announcements by our competitors of their earnings that are not in line with analyst expectations.
The volume of shares of common stock available for public sale.
Sales of stock by us or by our stockholders.
Short sales, hedging and other derivative transactions on shares of our common stock.
General economic conditions and slow or negative growth of related markets.
In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
Sales of substantial amounts of our common stock, or the availability of those shares for future sale, could adversely affect our stock price and limit our ability to raise capital.
We are unable to predict the effect, if any, that future sales of common stock or the potential for such sales may have on the market price of the common stock prevailing from time to time. The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market or the perception that substantial sales could occur. These sales also may make it more difficult for us to sell common stock in the future to raise capital.
20
We have not paid cash dividends and do not expect to in the foreseeable future, which means that the value of our shares cannot be realized except through sale.
We have never declared or paid cash dividends. We currently expect to retain earnings for our business and do not anticipate paying cash dividends on our common stock at any time in the foreseeable future. Because we do not anticipate paying cash dividends in the future, it is likely that the only opportunity to realize the value of our common stock will be through a sale of those shares. The decision whether to pay cash dividends on common stock will be made by the Board of Directors from time to time in the exercise of its business judgment. Furthermore, we may be restricted from paying dividends by the terms of any credit facility we may enter into in the future.
The ownership of our common stock is concentrated in the hands of our existing directors and executive officers. As a result, you may not be able to exert meaningful influence on significant corporate decisions.
Our directors and executive officers beneficially own, in the aggregate, approximately 60.4% of our outstanding shares of common stock. These persons, acting together, will be able to exercise significant influence over all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, acting together, have the ability to control the management and affairs of our company. This concentration of ownership may harm the market price of our common stock by delaying or preventing a change in control of our company at a premium price even if beneficial to our other stockholders.
Our Board of Directors may issue and fix the terms of shares of our preferred stock without stockholder approval, which could adversely affect the voting power of holders of our common stock or any change in control of our company.
Our certificate of incorporation authorizes the issuance of up to 10,000,000 shares of “blank check” preferred stock, with such designation rights and preferences as may be determined from time to time by the Board of Directors. Our Board of Directors is empowered, without shareholder approval, to issue additional shares of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock. In the event of such issuances, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company.
Our common stock may be subject to the SEC’s penny stock sales rules.
The SEC has adopted regulations which generally define penny stocks to be equity securities that have a market price of less than $5.00 per share. Such designation imposes additional sale practice requirements on broker-dealers which sell such securities to persons other than established customers and institutional accredited investors.
For transactions covered by these regulations, a broker-dealer must make a special suitability determination for the purchaser. A broker-dealer must obtain from the potential purchaser information concerning the person’s financial situation, investment experience and investment objectives and, based upon that and other information available to it, make a determination that transactions in penny stocks are suitable for the purchaser and that the purchaser has sufficient knowledge and experience in financial matters so that the purchaser reasonably may be expected to be capable of evaluating the risks of transactions in penny stocks. A broker-dealer must also receive the purchaser’s written consent to the transaction prior to sale.
These penny stock rules may restrict the ability of brokers, dealers and investors to sell our common stock to the extent our common stock may be subject to such rules.
21
ITEM 2. DESCRIPTION OF PROPERTY
Through March 31, 2008, the Company leased 1,851 square feet of office space located at 100 Lucerne Circle, Suite 600, Orlando Florida at a monthly rental of $4,141. Commencing on April 1, 2008,the Company is subletting 1,245 square feet of office space located at 100 West Lucerne Circle, Suite 601, Orlando, Florida at a monthly rental of $2,700 on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's security holders for a vote during the fourth quarter of 2007.
22
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITTIES
Our common stock presently trades on the Over-the-Counter Bulletin Board or OTCBB and trades under the symbol “WBTO.” From October 15, 2005 to July 31, 2006 our common stock traded under the symbol “ONTN.” Prior to that time, our common stock traded under the symbol “OTEN.” The last reported sale price of our common stock was $0.01 per share on May 14, 2008.
The following table sets forth certain information with respect to the high and low bid prices of the Company's common stock for the fiscal years ended December 31, 2006 and 2005, all adjusted to reflect a 200 for 1 reverse stock split effective June 4, 2004, a .75 for 1 stock dividend effective July 16, 2004 and a 15 for 1 reverse stock split effective October 4, 2005.
| | | | |
| Quarter Ended | | High Bid | Low Bid |
| | | | |
| March 31, 2006 | | 1.65 | 1.01 |
| June 30, 2006 | | 1.62 | .95 |
| September 30, 2006 | | 1.80 | 1.08 |
| December 31, 2006 | | 2.48 | .90 |
| | | | |
| March 31, 2007 | | 2.21 | .95 |
| June 30, 2007 | | 1.32 | .22 |
| September 30, 2007 | | .35 | .10 |
| December 31, 2007 | | .185 | .02 |
The quotations reflect interdealer prices without retail markup, markdown, or a commission, and may not necessarily represent actual transactions.
As of March 31, 2008, there were 90,772,414 shares of issued and outstanding common stock, and 312 registered holders of our shares of common stock.
We have not paid any dividends on our common stock since inception. We do not anticipate declaration or payment of any dividends at any time in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
On December 22, 2005, the Company reorganized by entering into a stock purchase agreement with Global Portals Online, Inc. (“Global”) whereby the Company issued 11,442,446 shares of its common stock in exchange for all of the outstanding common stock of Global. Immediately prior to executing the stock purchase agreement the Company had 1,961,399 shares of common stock and 438,000 shares of Series AA preferred stock issued and outstanding. The reorganization was accounted for as a recapitalization of Global because the shareholders of Global controlled the Company immediately after the acquisition. Therefore, Global is treated as the acquiring entity. Accordingly there was no adjustment to the carrying value of the assets or liabilities of Global. The Company is the acquiring entity for legal purposes and Global is the surviving entity for accounting purposes. Effective July 26, 2006, the company’s name was changed to Web2 Co rp. Effective July 31, 2006, the Company’s symbol for listing on the Over the Counter bulletin board was changed to WBTO.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. A summary of those accounting policies can be found in the footnotes to the consolidated financial statements included elsewhere in this report. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial condition and results of operations and require judgments on the part of management about matters that are uncertain. We have identified the following accounting policies that are important to the presentation of our financial condition and results of operations.
23
Revenue Recognition
Revenue recognized through December 31, 2007 represents revenue from its redirect traffic, web development and other media entertainment. The Company receives a fee for revenue generated under the sale of other media entertainment that is recognized upon shipment of the merchandise. Sales generated from list services are recognized upon completion of services. Revenues generated from Web1000.com site consists of monthly fees paid to the Company for redirect traffic. Revenues generated from web development are recognized when services are performed.
Comparison of Years Ended December 31, 2007 and 2006
The following discussion relates to the historical financial statements of Web2 Corp. and its subsidiaries and should be read in conjunction with the consolidated financial statements and related notes.
Revenues were $396,412 for the year ended December 31, 2007, as compared to $527,043 for the year ended December 31, 2006. This reduction in revenues was a result of substantially reduced marketing on the part of the Company. The Company was forced to reduce its marketing efforts due to severe cash restraints.
Cost of revenue was $260,911 for the year ended December 31, 2007, as compared to $421,439 for the year ended December 31, 2006. This reduction is primarily attributable to the reduction in revenue.
Bad debt expense was $247,094 for the year ended December 31, 2007, as compared to $123,281 for the year ended December 31, 2006. This increase in bad debt expense resulted from the write-off, as of December 31, 2007, of all accounts receivable deemed to be uncollectible by management.
Depreciation and amortization expense was $201,683 for the year ended December 31, 2007, as compared to $232,938 for the year ended December 31, 2006. The reduction is due to some assets having become fully depreciated and other assets having been previously depreciated on an accelerated basis.
Selling administrative expenses were $2,197,109 for the year ended December 31, 2007, as compared to $1,909,889 for the year ended December 31, 2006. The increase is due to increased development and marketing expenses during the first half of 2007 for the ByIndia and You Get It products.
Interest expense was $299,370 for the year ended December 31, 2007, as compared to $459,937 for the year ended December 31, 2006. The decreasein interest expense results primarily from the conversion of convertible debt to equity during 2007.
During 2007, the Company incurred an unrealized loss on non-marketable securities of $251,900, which contributed to its net loss for the year.
As a result of all of the foregoing, the Company’s net loss for the year ended December 31, 2007 was $3,060,855, as compared to a net loss for the year ended December 31, 2006 of $2,617,973.
Liquidity and Capital Resources
We are experiencing substantial cash flow difficulties and we anticipate that we will continue to experience cash flow difficulties for some time. As a result, we have no present plans to make any material capital expenditures. At December 31, 2007, we had a stockholders’ deficit of $814,090. At December 31 2007, we had current assets of $4,484 and current liabilities of $1,131,275, resulting in a working capital deficit of $1,126,791. As a result, we reduced our business activities during the second half of 2007.
We need to obtain capital through equity and/or debt financing. If we cannot obtain any necessary capital, then we may be forced to cease or further curtail our operations.
No assurance can be given that, if we attempt to secure equity and/or debt financing, such financing will be available, and, if available, whether it will take the form of debt or equity. Should we secure such financing, such financing could have a negative impact on our financial condition and our shareholders. The sale of debt would, among other things, adversely impact our balance sheet, increase our expenses and increase our cash flow requirements. The sale of equity would, among other things, result in dilution to our shareholders.
24
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to income tax and marketing related agreements with our affiliates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may d iffer from these estimates under different assumptions or conditions.
Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 159”). SFAS No. 159 permits an entity to choose to measure many financial instruments and certain items at fair value. The objective of this standard is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. Entities will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent rep orting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted. We are currently evaluating the impact that the adoption of SFAS No. 159 will have on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces SFAS No. 141, “Business Combinations”, but retains the requirement that the purchase method of accounting for acquisitions be used for all business combinations. SFAS 141(R) expands on the disclosures previously required by SFAS 141, better defines the acquirer and the acquisition date in a business combination, and establishes principles for recognizing and measuring the assets acquired (including goodwill), the liabilities assumed and any non-controlling interests in the acquired business. SFAS 141(R) also requires an acquirer to record an adjustment to income tax expense for changes in valuation allowances or uncertain tax positions related to acquired businesses. SFAS 141(R) is effective for all business combinations with an acquisition date in the first annual period following December 15, 2008; early adoption is not permit ted. The impact of SFAS 141(R) will have on our consolidated financial statements will depend on the nature and size of acquisitions we may complete after we adopt SFAS 141(R).
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51” (SFAS 160). SFAS 160 requires that non-controlling (or minority) interests in subsidiaries be reported in the equity section of the company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement. SFAS 160 also establishes guidelines for accounting for changes in ownership percentages and for deconsolidation. SFAS 160 is effective for financial statements for fiscal years beginning on or after December 1, 2008 and interim periods within those years; early adoption is not permitted. The adoption of SFAS 160 is not expected to have a material impact on our financial position, results of operations or cash flows.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
25
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet at December 31, 2007
Consolidated Statements of Operations for the years ended December 31, 2007 and December 31, 2006
Consolidated Statements of Stockholders’ Deficiency for the years ended December 31, 2007 and December 31, 2006
Consolidated Statements of Cash Flows for the years ended December 31, 2007 and December 31, 2006
Notes to the Consolidated Financial Statements
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Web2 Corp. and Subsidiaries
Orlando, Florida
We have audited the accompanying consolidated balance sheet of Web2 Corp. and Subsidiaries as of December 31, 2007 and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the years ended December 31, 2007 and 2006. These consolidated 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 the 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 consolidated financial statements are free of material misstatement. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Web2 Corp. and Subsidiaries as of December 31, 2007 and the consolidated results of their operations and their cash flows for the years ended December 31, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the consolidated financial statements, the Company has a working capital deficit, negative cash flows from operations, and losses from inception which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 10. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Bouwhuis, Morrill & Company, LLC
Bouwhuis, Morrill & Company, LLC
Layton, Utah
April 11, 2008
27
WEB2 CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
| | | |
| | December 31,
2007 |
ASSETS | |
CURRENT ASSETS | | | |
Cash and cash equivalents | | $ | 4,484 |
| | | |
Total Current Assets | | | 4,484 |
| | | |
PROPERTY AND EQUIPMENT, Net | | | 305,661 |
| | | |
Other assets | | | 7,040 |
TOTAL ASSETS | | $ | 317,185 |
| | | |
LIABILITIES AND STOCKHOLDERS' DEFICIENCY | | | |
CURRENT LIABILITIES | | | |
| | | |
Accounts payable and accrued expenses | | $ | 655,896 |
Convertible debentures | | | 397,000 |
Due to stockholders and affiliates | | | 78,379 |
| | | |
TOTAL CURRENT LIABILITIES | | | 1,131,275 |
| | | |
COMMITMENTS AND CONTINGENCIES (Note 8) | | | |
| | | |
STOCKHOLDERS' DEFICIENCY | | | |
Common stock - $0.001 par value; 100,000,000 shares | | | |
authorized; 90,772,414 shares issued and outstanding | | | 90,772 |
Treasury Stock (33,333 shares @$1.05) | | | (35,000) |
Additional paid-in capital | | | 13,075,289 |
Receivables from Related Party | | | (2,135) |
Accumulated Deficit | | | (13,943,016) |
TOTAL STOCKHOLDERS' DEFICIENCY | | | (814,090) |
| | | |
TOTAL LIABILITIES AND | | | |
STOCKHOLDERS' DEFICIENCY | | $ | 317,185 |
| | | |
The Accompanying Notes Are An Integral Part Of These Consolidated Financials Statements
28
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | |
| | For the Years Ended |
| | December 31, |
| | | | |
REVENUE | | $ | 396,412 | | $ | 527,043 |
| | | | | | |
COSTS AND EXPENSES | | | | | | |
Cost of revenue | | | 260,111 | | | 421,439 |
Bad debt expense | | | 247,094 | | | 123,281 |
Depreciation and amortization | | | 201,683 | | | 232,938 |
Selling and administrative expenses | | | 2,197,109 | | | 1,909,889 |
| | | | | | |
TOTAL COSTS AND EXPENSES | | | 2,905,997 | | | 2,687,547 |
| | | | | | |
Interest | | | (299,370) | | | (459,937) |
Preferred Series AA dividend | | | - | | | (24,809) |
Unrealized loss on non-marketable securities (Note 2) | | | (251,900) | | | - |
Gain on settlement of debt | | | - | | | 27,277 |
| | | | | | |
TOTAL OTHER INCOME (EXPENSES) | | | (551,270) | | | (457,469) |
| | | | | | |
NET LOSS | | $ | (3,060,855) | | $ | (2,617,973) |
| | | | | | |
| | | | | | |
Basic Net Loss Per Share | | $ | (0.07) | | $ | (0.16) |
| | | | | | |
Weighted Average Number of Common | | | | | | |
Shares Outstanding | | | 40,820,820 | | | 16,018,426 |
| | | | | | |
The Accompanying Notes Are An Integral Part Of These Consolidated Financials Statements
29
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
For The Years Ended December 31, 2007 and 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preferred Series AA Stock | | Common Stock | | Treasury | | Additional | | Stock | | Unearned | | Accumulated |
Paid-in | Subscriptions |
| | | | | | | | | | | | | | | | | | |
Balance, December 31, 2005 | | | 438,000 | | $ | 438,000 | | | 14,269,199 | | $ | 14,269 | | $ | (35,000) | | $ | 5,584,593 | | $ | (106,000) | | $ | (187,500) | | $ | (8,264,188) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for conversion of debt | | | - | | | - | | | 3,401,933 | | | 3,402 | | | - | | | 542,581 | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for services | | | - | | | - | | | 75,000 | | | 75 | | | - | | | 89,175 | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued per ByIndia agreement | | | - | | | - | | | 100,000 | | | 100 | | | - | | | 114,900 | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for conversion of preferred shares to common | | | (438,000) | | | (438,000) | | | 3,306,862 | | | 3,307 | | | - | | | 492,717 | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjustment to unearned compensation | | | - | | | - | | | - | | | - | | | - | | | - | | | �� - | | | 187,500 | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2006 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | (2,617,973) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2006 | | | - | | | - | | | 21,152,994 | | | 21,153 | | | (35,000) | | | 6,823,966 | | | (106,000) | | | - | | | (10,882,161) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for conversion of debt | | | - | | | - | | | 69,259,420 | | | 69,259 | | | - | | | 6,087,509 | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued for services | | | - | | | - | | | 210,000 | | | 210 | | | - | | | 129,464 | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock issued per ByIndia agreement | | | - | | | - | | | 150,000 | | | 150 | | | - | | | 34,350 | | | - | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss for the year ended December 31, 2007 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | (3,060,855) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2007 | | | - | | $ | - | | | 90,772,414 | | $ | 90,772 | | $ | (35,000) | | $ | 13,075,289 | | $ | (106,000) | | $ | - | | $ | (13,943,016) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Accompanying Notes Are An Integral Part Of These Consolidated Financials Statements |
30
| | | | | | |
| | December 31, |
| | 2007 | | 2006 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
Net loss | | $ | (3,060,855) | | $ | (2,617,973) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Common stock issued for services | | | 129,674 | | | 89,250 |
Realization of deferred compensation | | | — | | | 187,500 |
Depreciation and amortization | | | 201,683 | | | 232,938 |
Bad debt provision | | | — | | | 123,281 |
Unrealized Loss on Investment | | | 251,900 | | | — |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | | (46,017) | | | (320,999) |
Accounts payable and accrued expenses | | | (56,137) | | | 918,762 |
NET CASH USED IN OPERATING ACTIVITIES | | | (2,579,752) | | | (1,387,241) |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
Purchase of property and equipment | | | (53,557) | | | (96,606) |
| | | | | | |
NET CASH USED IN INVESTING ACTIVITIES | | | (53,557) | | | (96,606) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
Proceeds from subscriptions receivable | | | — | | | 106,000 |
Proceeds of loans from stockholders and affiliates | | | 2,701,524 | | | 910,788 |
Proceeds from convertible debt, net | | | 87,000 | | | 356,500 |
Debt financing costs | | | — | | | 18,500 |
Repayment of principal on debt | | | (165,000) | | | (35,436) |
| | | | | | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | | $ | 2,623,524 | | $ | 1,356,352 |
| | | | | | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | | $ | (9,785) | | $ | (127,495) |
| | | | | | |
CASH AND CASH EQUIVALENTS - Beginning | | | 14,269 | | | 141,764 |
| | | | | | |
CASH AND CASH EQUIVALENTS - Ending | | $ | 4,484 | | $ | 14,269 |
| | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | | |
Cash paid during the years for: | | | | | | |
Interest | | $ | - | | $ | - |
Taxes | | $ | - | | $ | 311 |
| | | | | | |
Non-cash investing and financing activities: | | | | | | |
Repayment of Debt and related interest through issuance of common stock | | $ | 5,835,447 | | $ | - |
Common stock issued for conversion of preferred stock and related interest | | $ | - | | $ | 496,024 |
Common stock issued for website | | $ | 34,500 | | $ | 115,000 |
Common stock issued for services rendered | | $ | 129,674 | | $ | 89,250 |
| | | | | | |
The Accompanying Notes Are An Integral Part Of These Consolidated Financials Statements
31
WEB2 CORP AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
NOTE 1 -
ORGANIZATION AND DESCRIPTION OF BUSINESS
Web2 Corp. was originally incorporated under the laws of the State of Colorado in 1987 as Medical Management Systems, Inc. In August 2000, Medical Management Systems, Inc. reincorporated in the State of Delaware and changed its name to Dominix, Inc. In June 2004 Dominix, Inc. changed its name to 110 Media Group, Inc. In July 2006, 110 Media Group, Inc. changed its name to Web2 Corp. (the “Company” or “WEB2”).
Global Portals Online, Inc. (“GPO”) was originally incorporated in January 2001, under the laws of the State of Delaware. On December 22, 2005, GPO was acquired by WEB2, for 11,442,446 pre-split shares of WEB2 common stock (the “Exchange”). The Exchange was completed pursuant to the Agreement and Plan of Reorganization between GPO and WEB2. The Exchange has been accounted for as a reverse acquisition under the purchase method for business combinations. The reorganization was accounted for as a recapitalization of GPO because the shareholders of GPO controlled the Company immediately after the acquisition. WEB2 is the acquiring entity for legal purposes and GPO is the acquiring entity for accounting purposes. Accordingly there were no adjustments to the carrying value of the assets or liabilities of GPO.
WEB2 is headquartered in Orlando, Florida. WEB2 designs, develops and sells technology products to its customers utilizing both products it has previously developed as well as products it develops of combines to meet customer specific requirements. Its current emphasis is to build technology for specific business entities to facilitate the ease in which the business entity can communicate and conduct transactions with specific groups of users and to facilitate the ability of those users to utilize the internet to communicate with and conduct transactions with the business entity. WEB2 seeks to create and implement internet technology products which reduce the level of user technical skill required and which reduces the time and cost of the process.
Other Subsidiaries
The Company incorporated two new subsidiaries during 2007 and 2006. Both subsidiaries are owned 100% by the Company.
Web1000, Inc. (“WEB”) was incorporated under the laws of the State of Florida on May 12, 2006, for the purpose of holding certain internet assets of the Company.
ByIndia, Inc. (“BII”) was incorporated under the laws of the State of Florida on July 11, 2006, for the purpose of holding certain internet assets of the Company.
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. The following policies are considered to be significant:
a.
Accounting Method
The Company recognizes income and expenses based on the accrual method of accounting. Accordingly, revenues are recognized when earned and expenses are recognized when incurred. The Company has elected a December 31 year-end.
b.
Cash and Cash Equivalents
Cash equivalents are generally comprised of certain highly liquid investments with original maturities of less than three months.
32
WEB2 CORP AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
c.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with 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.
d.
Revenue Recognition Policy
Revenue is recognized upon completion of services provided where the sales price is fixed or determinable and collectibility is reasonably assured. Advance customer payments are recorded as deferred revenue until such time as they are recognized. Returns and discounts, if any, are netted against gross revenues. For the years ended December 31, 2007 and 2006, sales are recorded net of the allowance for returns and discounts of $-0-.
e.
Allowance for Doubtful Accounts
Accounts receivable are recorded net of the allowance for doubtful accounts. The Company generally offers 30-day credit terms on sales to its customers and requires no collateral. The Company maintains an allowance for doubtful accounts which is determined based on a number of factors, including each customer’s financial condition, general economic trends and management judgment. As of December 31, 2007, the allowance for doubtful accounts was $-0-. Bad debt expense was $247,094 and $123,281 for the years ended December 31, 2007 and 2006, respectively.
f.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When assets are disposed of, the cost and accumulated depreciation (net book value of the assets) are eliminated and any resultant gain or loss reflected accordingly. Betterments and improvements are capitalized over their estimated useful lives whereas repairs and maintenance expenditures on the assets are charged to expense as incurred.
| | | | |
| Life | | | 2007 |
Computer and Office Equipment | 3-7 Years | | $ | 1,045,270 |
Less - Accumulated Depreciation | | | | |
Net Property and Equipment | | | $ | 305,661 |
Depreciation expense for the years ended December 31, 2007 and 2006 was $201,683 and $232,938, respectively.
g.
Basic Net Loss per Share of Common Stock
In accordance with Financial Accounting Standards No. 128, “Earnings per Share,” basic net loss per common share is based on the weighted average number of shares outstanding during the periods presented. Diluted earnings per share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Dilutive instruments have not been included and calculated for the year end computations as their effect is antidilutive.
| | | | | |
| December 31 | | December 31 |
| 2007 | | 2006 |
Net loss (numerator) | $ | (3,060,855) | | $ | (2,617,973) |
Weighted average shares outstanding (denominator) | | 40,820,820 | | | 16,018,426 |
Loss per share amount | $ | (0.07) | | $ | (0.16) |
33
WEB2 CORP AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
h.
Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 159”). SFAS No. 159 permits an entity to choose to measure many financial instruments and certain items at fair value. The objective of this standard is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. Entities will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent re porting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted. We are currently evaluating the impact that the adoption of SFAS No. 159 will have on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces SFAS No. 141, “Business Combinations”, but retains the requirement that the purchase method of accounting for acquisitions be used for all business combinations. SFAS 141(R) expands on the disclosures previously required by SFAS 141, better defines the acquirer and the acquisition date in a business combination, and establishes principles for recognizing and measuring the assets acquired (including goodwill), the liabilities assumed and any non-controlling interests in the acquired business. SFAS 141(R) also requires an acquirer to record an adjustment to income tax expense for changes in valuation allowances or uncertain tax positions related to acquired businesses. SFAS 141(R) is effective for all business combinations with an acquisition date in the first annual period following December 15, 2008; early adoption is not permi tted. The impact of SFAS 141(R) will have on our consolidated financial statements will depend on the nature and size of acquisitions we may complete after we adopt SFAS 141(R).
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51” (SFAS 160). SFAS 160 requires that non-controlling (or minority) interests in subsidiaries be reported in the equity section of the company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company’s income statement. SFAS 160 also establishes guidelines for accounting for changes in ownership percentages and for deconsolidation. SFAS 160 is effective for financial statements for fiscal years beginning on or after December 1, 2008 and interim periods within those years; early adoption is not permitted. The adoption of SFAS 160 is not expected to have a material impact on our financial position, results of operations or cash flows.
i.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards Board (SFAS) No. 109, “Accounting for Income Taxes.” Under this method, deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. In accordance with the provisions of SFAS No. 109, a valuation allowance would be established to reduce deferred tax assets if it were more likely than not that all or some portion of such deferred tax assets would not be realized. A full allowance against deferred tax assets was provided as of December 31, 2007.
At December 31, 2007, the Company had net operating loss carryforwards of approximately $5,800,000 that may be offset against future taxable income through 2027. No tax benefits have been reported in the consolidated financial statements because the potential tax benefits of the net operating loss carry forwards are offset by a valuation allowance of the same amount.
34
WEB2 CORP AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (Continued)
i.
Income Taxes (Continued)
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to its future use by the Company.
j.
Reclassifications
Certain amounts in the accompanying comparative consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications have no material affect on the consolidated financial statements.
k.
Principles of Consolidation
The consolidated financial statements include the accounts of Web2 Corp. and its wholly-owned subsidiaries Global Portals Online, Inc., Web1000, Inc., and ByIndia, Inc. All significant intercompany accounts and transactions have been eliminated in the consolidation.
l.
Checks Written in Excess of Cash in Bank
Under the Company’s cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes. Additionally, at times banks may temporarily lend funds to the Company by paying out more funds than are in the Company’s account. These overdrafts are included as a current liability in the balance sheet.
m.
Unrealized Loss on Non-marketable Securities
During 2007 the Company accepted 5,038,000 shares of common stock of You Get It, Inc. (“YGI”), a related party, in exchange for and satisfaction of $251,900 of accounts receivable recorded for service rendered to YGI. YGI has no active primary or secondary markets for their common stock. Also, YGI has no significant operations and therefore the value of the shares is deemed to be impaired. A full write-down of $251,900 has been recorded as an operating expense during 2007.
NOTE 3 -
RELATED PARTY TRANSACTIONS
At December 31, 2007, the Company had a related party payable of $86,442. This amount includes $8,063 in accrued interest.
NOTE 4 -
EQUITY TRANSACTIONS
During the year ended December 31, 2007, the Company issued 210,000 shares of common stock to officers, directors and an attorney for services rendered. The shares were valued at the market price on the date the shares were authorized for issuance and range from $0.28 to $0.99 per share. In connection with these issuances, the Company recorded stock-based compensation of $129,674 during the year ended December 31, 2007.
During the year ended December 31, 2007, the Company issued 69,259,420 shares of common stock for payment of debt and related accrued interest. The shares were valued at the market price on the date the shares were authorized for issuance and range from $0.07 to $1.20 per share. In connection with these issuances, the Company converted debt, including accrued interest, to equity in the amount of $6,156,768 during the year ended December 31, 2007.
During the year ended December 31, 2007, the Company issued 150,000 shares of common stock pursuant to its agreement with ByIndia to complete the purchase of its Indian internet property. The shares were valued at the market price on the date the shares were authorized for issuance of $0.23 per share or $34,500.
35
WEB2 CORP AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
NOTE 5 -
FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value of financial instruments held by the Company. SFAS 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate fair value:
The carrying amount of cash equivalents and accounts payable approximate fair value due to their short-term nature.
NOTE 6 -
NOTES AND LOANS PAYABLE – RELATED PARTY
The Company has loans payable due to related parties consisting of the following:
As of December 31, 2007, the Chairman of the Board advanced the Company $78,379. Interest at 18% per annum and due on demand.
As of December 31, 2007 a stockholder advanced the Company $8,750. Interest at 12% per annum and due on demand.
Accrued interest as of December 31, 2007 on these notes amounted to $8,063 and is included in accrued expenses.
NOTE 7 -
CONVERTIBLE DEBENTURES
| | | |
Convertible debentures consist of the following: | | | December 31, |
| | | 2007 |
| | | |
On September 30, 2000 the Company entered into a convertible debt agreement, due on demand, bearing interest at 8% per annum. The debenture contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a conversion price equal to 70% of the average closing bid price per share of common stock for the five-day period prior to such conversion. The related beneficial conversion feature has been fully charged to interest expense in prior years. | | $ | 100,000 |
| | | |
On July 18, 2006 the Company entered into a convertible debt agreement with a financial company, due one year from closing, bearing interest at 15% per annum. The debentures contain a provision for conversion, at the holder’s option including accrued interest at a conversion price 50% of the price of the shares sold in a secondary offering. The convertible includes a warrant in the event they have not converted in the secondary offering, or if no such offering shall have been completed, to purchase one dollars’ worth of common stock for every two dollars of debenture principal purchased by them in the Offering, at an exercise price of 120% of the closing bid price of shares of common stock on the date hereof. | | $ | 210,000 |
| | | |
On December 20, 2007 the Company entered into a convertible debt agreement with an individual, due one year from closing, bearing interest at 18% per annum, unsecured. The debenture contains a provision for conversion at the holder's option after six months, into the Company's common stock at a conversion price of $0.02 per share. | | $ | 87,000 |
| | $ | 397,000 |
Total Convertible Debentures | | | (397,000) |
Less: Current Portion | | | |
Long-Term Convertible Debentures Debt | | $ | - |
| | | |
Accrued interest as of December 31, 2007 on these notes amounted to $96,762 and is included in accrued expenses.
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NOTE 8 -
COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under an agreement for the lease of its office space for a monthly payment of approximately $9,654 at December 31, 2007. Subsequently the lease terminated by its terms on March 31, 2008 and is now on a month-to-month basis for a monthly payment of approximately $4,141.
Rent expense for the years ended December 31, 2007 and 2006 was $74378 and $57,119, respectively.
Employment Agreements
On December 22, 2005 the Company entered into an employment agreement with William Mobley. The term of the agreement is for five (5) years commencing on December 22, 2005. Mr. Mobley will serve as the Company's Chairman of the Board. During the term of the agreement, the Company shall pay Mr. Mobley an annual salary as determined by the Board of Directors with adjustments governed by the Consumer Price Index. For the year ended December 31, 2007 Mr. Mobley’s salary was $175,000. Mr. Mobley shall also be entitled to a performance bonus to be determined by the Board of Directors.
On December 22, 2005 the Company entered into an employment agreement with Andre Forde. The term of the agreement is for five (5) years commencing on December 22, 2005. Mr. Ford will serve as the Company's President. During the term of the agreement,
the Company shall pay Mr. Forde an annual salary as determined by the Board of Directors with adjustments governed by the Consumer Price Index. For the year ended December 31, 2007 Mr. Forde’s salary was $175,000. Mr. Forde shall also be entitled to a performance bonus to be determined by the Board of Directors.
NOTE 9 -
CONCENTRATIONS OF RISK
Major Customers
For the year ended December 31, 2007, three customers’ generated revenues in excess of 10% of the Company's total consolidated revenues. Revenues from these customers totaled $206,300 $84,000 and $57,000, or 52%, 21% and 14%, respectively. At December 31, 2007, there were no accounts receivable from these three customers. These customers are related parties to the Company.
NOTE 10 -
GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements have been prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As reported in the consolidated financial statements, the Company has incurred losses of approximately $5,800,000 from inception of the Company through December 31, 2007. The Company’s stockholders’ deficit at December 31, 2007 was $814,090, its current liabilities exceeded its current assets by $1,126,791, and it has negative cash flows from operations. These factors combined, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address and alleviate these concerns are as follows:
The Company’s management continues to develop a strategy of exploring all options available to it so that it can develop successful operations and have sufficient funds, therefore, as to be able to operate over the next twelve months. As a part of this plan, management is currently in negotiations with their target industries’ key players. In addition, management is exploring options in order to raise additional operating capital through debt and/or equity financing. No assurance can be given that funds will be available, or, if available, that it will be on terms deemed satisfactory to management.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On February 16, 2006, based upon the recommendation of and approval by our board of directors, we dismissed Wolinetz & Lafazan & Co. (“W&L”) as our independent auditor and engaged Bouwhuis, Morrill & Company to serve as our independent auditor beginning with the fiscal year ending December 31, 2005.
We hired W&L on April 18, 2005 to be our auditors for the fiscal year ending December 31, 2005, but as a result of the acquisition on December 22, 2005 of Global Portals Online, Inc. and the resulting change of control, our new board decided to utilize the services of Bouwhuis Morrill & Company to serve as our auditors beginning with the fiscal year ending December 31 2005. Accordingly, W&L never reported on our financial statements, but did review our unaudited statements included in our Form 10-QSB filed during the time of their engagement.
From April 18, 2005 through February 16, 2006, there were no disagreements with W&L on any matter of accounting principal or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to W&L’s satisfaction would have caused them to make references to the subject matter in connection with their report. In addition, we believe there were no reportable events as defined in Item 304(a)(1)(iv)(B) of Regulation S-B except for material weaknesses in our system of internal controls communicated to us by our previous auditors as disclosed in Item 8A of our 2004 10-KSB filed on April 15, 2005.
Item 8A(T).
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon this review, management concluded that our disclosure controls and procedures are effective.
There have been no significant changes in internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) that occurred during the fiscal period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-5(f) under the Securities Exchange Act of 1934). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, our management usedthe criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2007, our internal control over financial reporting is effective based on these criteria.
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 independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Limitations of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls or internal control over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can als o be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or
38
procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
39
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Each director shall be elected or the term of one year and until his successor is elected and qualified, or until his earlier resignation, death, or removal. Officers of the Company serve at the discretion of the Board of Directors. Our executive officers and directors are as follows:
| | | |
Name | Age | Position | Appointed |
| | | |
William A. Mobley, Jr. | 45 | Director, Chairman, and
Chief Executive Officer; Chief Financial Officer | December 22, 2005 November 8, 2007 |
| | | |
Andre L. Ford | 38 | President and Chief Operating Officer | December 22, 2005 |
| | | |
Aaron Stein | 54 | Director | February 21, 2007 |
| | | |
William Eric Siedel | 44 | Director | February 21, 2007 |
William A. Mobley, Jr., our Chairman of the Board and Chief Executive Officer, has an extensive background in technology leadership for Nextelligence, Inc., MegaMedia Networks, Inc., and World Commerce Online, Inc. World Commerce Online pioneered the e-commerce business-to-business sector from 1994-2000. Mr. Mobley became our Chief Financial Officer in November 2007.
Andre L. Forde, our President and Chief Operating Officer, also has an extensive background in technology, specifically do-it-yourself web site builders. Mr. Forde was the founder of ImageCafe.com, which was acquired by Network Solutions, Inc. in November 1999.
Aaron Stein currently manages his own CPA firm with over 25 years of experience working with a diversity of clients including providing audit and review and consulting services for small public companies, tax support for law firms involved in class action settlements funds, tax and consulting services for clients in real estate, manufacturing, consulting and various other businesses. Mr. Stein attended C.W. Post Campus of Long Island University where he earned a Bachelor of Science Degree in Accounting.
William Eric Seidel currently serves as Vice Chairmen of eAutoclaims, Inc (OTC/BB: EACC). Prior to becoming Vice Chairmen of that company, he served as its President/CEO since 2000. During the period of time the company grew from $1,700,000 a year in revenues to over $13,000,000 in revenues in 2006. Mr. Seidel is considered a pioneer in the online insurance claims processing industry and eAutoclaims is recognized as a leader in the industry. Mr. Seidel also serves as a City Councilman in the City of Oldsmar Florida.
Code of Ethics
In December 2003, the Company adopted a written Code of Business Conduct and Ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer and controller and any persons performing similar functions. A copy of our Code of Ethics is attached as Exhibit 14.1 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003. The Company will provide a copy of its Code of Business Conduct and Ethics to any person without charge upon written request addressed to Web2 Corp., 100 West Lucerne Circle, Suite 601, Orlando, Florida 32801, Attention: Chief Financial Officer.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholder are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company, during the fiscal year ended December 31, 2007, all Section 16(a) filings requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with, except that Steven A. Horowitz doe not appear to have filed any reports.
40
No Committees
Our Board of Directors does not, at present, have an audit, compensation or nominating committee, or any committee or committees performing similar functions. All of these functions are, at present, performed by the Board of Directors as a whole.
ITEM 10. EXECUTIVE COMPENSATION
The Summary Compensation Table shows certain compensation information for services rendered in all capacities for the fiscal years ended December 31, 2007 and 2006.
SUMMARY COMPENSATION TABLE
| | | | |
Name and Principal Position |
Year | Salary ($) | Bonus ($) |
Total ($) |
| | | | |
William A. Mobley, Jr. (1) | 2007 | 175,000 | 15,337 | 190,337 |
Chairman and Chief Executive Officer | 2006 | 120,000 | 55,000 | 175,000 |
| | | | |
Darren Cioffi (2) | 2007 | 50,000 | 0 | 50,000 |
Chief Financial Officer | 2006 | 120,000 | 30,000 | 150,000 |
| | | | |
Andre L. Forde (3) | 2007 | 175,000 | 15,337 | 190,337 |
President and Chief Operating Officer | 2006 | 120,000 | 55,000 | 175,000 |
| | | | |
(1) Mr. Mobley became the Company’s Chairman of the Board and Chief Executive Officer on December 22, 2005.
(2) Mr. Cioffi resigned as the Company’s Chief Financial Officer on November 6, 2007.
(3) Mr. Forde became the Company’s President and Chief Operating Officer on December 22, 2005.
Employment Agreements
On December 22, 2005 the Company entered into an employment agreement with William A. Mobley, Jr. The term of the agreement is for five years commencing on December 22, 2005. Mr. Mobley serves as the Company’s Chairman of the Board and Chief Executive Officer. During the term of the agreement, the Company will pay Mr. Mobley an annual salary, as determined by the Board of Directors, with adjustments governed by the Consumer Price Index. For the year ended December 31, 2007, Mr. Mobley’s salary was $175,000. Mr. Mobley may also receive an annual performance bonus to be determined by the Board of Directors.
On December 22, 2005 the Company entered into an employment agreement with Andre L. Forde. The term of the agreement is for five years commencing on December 22, 2005. Mr. Forde serves as the Company’s President and Chief Operating Officer. During the term of the agreement, the Company will pay Mr. Mobley an annual salary as determined by the Board of Directors, with adjustments governed by the Consumer Price Index. For the year ended December 31, 2007, Mr. Forde’s salary was $175,000. Mr. Forde may also receive an annual performance bonus to be determined by the Board of Directors.
Directors’ Compensation
In general, we do not pay fees to directors who attend a regularly scheduled or special board meeting; however, we may reimburse directors for their cost of travel and lodging to attend such a meeting. Upon their becoming directors, we issued to each of Mr. Stein and Mr. Seidel 50,000 shares of Common Stock of the Company.
DIRECTOR COMPENSATION
| | |
Name | Stock Awards ($) | Total ($) |
| | |
Aaron Stein | 49,500 | 49,500 |
William Eric Seidel | 49,500 | 49,500 |
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock and percentage owned beneficially as of March 31, 2008 by each of the Company’s directors and executive officers and by each person known to the Company to own more than five percent of such Common Stock.
| | |
Name and Address | Number of Shares | Percentage (1) |
Nextelligence, Inc. 100 West Lucerne Circle Suite 601 Orlando, Florida 32801 | 7,610,092 (2) | 8.38 |
William A. Mobley, Jr. 100 West Lucerne Circle Suite 601 Orlando, Florida 32801 | 47,311,991 (2) (3) | 52.12 |
Andre L. Forde 100 West Lucerne Circle Suite 601 Orlando, Florida 32801 | 24,543,958 (3 | 27.04 |
Steven A. Horowitz 400 Garden City Plaza Suite 202 Garden City, New York 11530 | 17,450,135 (4) | 19.22 |
Aaron Stein 100 West Lucerne Circle Suite 601 Orlando, Florida 32801 | 50,000 | (5) |
William Eric Seidel 100 West Lucerne Circle Suite 601 Orlando, Florida 32801 | 50,000 | (5) |
All directors and officers as a group (4 persons) | 54,924,964 | 60.51 |
(1)
Based upon 90,772,414 shares of Common Stock issued and outstanding on March 31, 2008.
(2)
William A. Mobley, Jr. is the Chairman of the Board and Chief Executive Officer of Nextelligence, Inc. and, in such capacities, has the sole authority to the vote all of the shares of Common Stock legally or beneficially owned by Nextelligence, Inc.
(3)
Includes 2,355,220 shares of Common Stock jointly owned by William A. Mobley, Jr. and his wife and 17,030,985 shares of Common Stock beneficially owned by Steven A. Horowitz as to which William A. Mobley and Andre L. Forde hold the power to vote.
(4)
Includes 17,030,985 shares of Common Stock as to which Steven A. Horowitz has granted the power to vote to William A. Mobley, Jr. and Andre L. Forde.
(5)
Less than 1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Nextelligence, Inc. William A. Mobley, Jr., the Chairman of the Board and Chief Executive Officer of the Company, and the founder, Chairman of the Board and Chief Executive Officer of Global Portals Online, Inc. (“Global Portals”), a wholly-owned subsidiary of the Company, is also the founder, Chairman of the Board and Chief Executive Officer of Nextelligence, Inc. (“Nextelligence”). Nextelligence is the beneficial owner of 7,610,092 shares of Common Stock, constituting approximately 8.38% of the total number of issued and outstanding shares of Common Stock.
At September 30, 2005, Global Portals, a wholly-owned subsidiary of the Company, was indebted to Nextelligence in the amount of $900,000.00. On that date, Global Portals issued and sold to Nextelligence, Inc. 7,282,720 shares of common stock of Global Portals in exchange for the cancellation of $655,444.80 of such $900,000 of indebtedness of Global Portals. In connection with the completion of the transactions contemplated by the Agreement and Plan of Share Exchange, these 7,282,720 shares of common stock of Global Portals were exchanged for 2,858,734 shares of Common Stock.
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At December 31, 2006, Global Portals was indebted to Nextelligence in the amount of $244,556 (not including accrued interest). This indebtedness bore interest at the rate of 6% per annum, and was secured by a security interest on all of the assets of Global Portals. This indebtedness, together with all interest accrued thereon, was due and payable on January 2, 2007.
On August 15, 2005, Global Portals and Nextelligence entered into a Web Hosting and Reseller Agreement. Pursuant to this agreement, Nextelligence markets and sells certain services provided by Global Portals. During 2007 and 2006, nothing was paid by Global Portals to Nextelligence in commissions for the services marketed and sold by Nextelligence.
During 2006, Nextelligence provided certain administrative services to the Company in the amount of $105,000. During 2007, Nextelligence provided certain administrative services to the Company in the amount of $235,000. Management believes that the fees charged for these administrative services are comparable to what we would have been charged by an unrelated party.
As of December 19, 2007, Web2 Corp. issued to Nextelligence 4,751,358 shares of Common Stock of Web2 Corp. in full and complete satisfaction and cancellation of all of the indebtedness of Web2 Corp. to Nextelligence.
William A. Mobley, Jr. At December 31, 2006, Global Portals was indebted to William A. Mobley, Jr. in the amount of $744,006 (not including accrued interest). This indebtedness bore interest at the rate of 6% per annum, and was secured by a security interest on all of the assets of Global Portals. This indebtedness, together with all interest accrued thereon, was due and payable on January 2, 2007.
As of December 19, 2007, Web2 Corp. issued to Mr. Mobley 20,260,694 shares of common stock of Web2 Corp. in full and complete satisfaction and cancellation of all of the indebtedness of Web2 Corp. and Global Portals to Mr. Mobley.
Andre L. Forde. At December 31, 2006, Global Portals was indebted to Andre L. Forde in the amount of $263,503 (not including accrued interest). This indebtedness bore interest at the rate of 6% per annum, and was secured by a security interest on all of the assets of Global Portals. This indebtedness, together with all interest accrued thereon, was due and payable on January 2, 2007.
As of December 19, 2007, Web2 Corp. issued to Mr. Forde 6,476,631 shares of Common Stock of Web2 Corp. in full and complete satisfaction and cancellation of all of the indebtedness of Web2 Corp. and Global Portals to Mr. Forde.
GlobalQuest Media, LLC. William A. Mobley, Jr., the Chairman of the Board and Chief Executive Officer of the Company and Global Portals, and Andre L. Forde, the President and Chief Operating Officer of the Company and Global Portals, are the founders, controlling equity holders and managers of GlobalQuest Medial, LLC.
On August 15, 2005, Global Portals and GlobalQuest Media, LLC entered into a Web Hosting and Reseller Agreement. Pursuant to this agreement, GlobalQuest Media, LLC markets and sells certain services provided by Global Portals. During 2007 and 2006, nothing was paid to GlobalQuest Media, LLC by Global Portals in commissions for the services marketed and sold by GlobalQuest Media, LLC.
You Get It, Inc. William A. Mobley, Jr. is the Chairman of the Board and Chief Executive Officer of the Company, and the founder, Chairman of the Board and Chief Executive Officer of You Get It, Inc. Andre L. Forde is the President and Chief Operating Officer of the Company, and the founder, President and Chief Operating Officer of You Get It, Inc. Steven A. Horowitz, a significant investor in the Company, is a significant investor in You Get It, Inc.
During 2006 Web2 Corp. provided development services to You Get It, Inc. and collected revenues from You Get It.com in the amount of $156,000. During 2007, Web2 Corp. provided development services to You Get It, Inc. and recorded revenues from You Get It, Inc. in the amount of $206,300. Management believes that the fees charged for these development services are comparable to what would have been charged by an unrelated party.
At April 30, 2007, You Get It, Inc. was indebted to Web2 Corp. in the amount of $251,900. As of May 10, 2007, You Get It, Inc. issued to Web2 Corp. 5,038,000 shares of Common Stock of You Get It, Inc. in full and complete satisfaction and cancellation of all of the indebtedness of You Get It, Inc. to Web2 Corp.
Broadcast Bid LLC. William A. Mobley, Jr. is the Chairman of the Board and Chief Executive Officer of the Company, and the founder and Chairman of the Board of BroadCast Bid Inc.
During 2006 the Company provided development services to BroadCast Bid and collected revenues from Broadcast Bid in the amount of $106,000. During 2007, Web2 Corp. provided development services to BroadCast Bid, Inc. and recorded revenues from BroadCast Bid, Inc. in the amount of $57,000. Management believes that the fees charged for these development services are comparable to what would have been charged by an unrelated party.
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ChargeKard LLC. William A. Mobley, Jr. is the Chairman of the Board and Chief Executive Officer of Web2 Corp., and the founder, Chairman of the Board and Chief Executive Officer of ChargeKard LLC.
During 2006 the Company provided development services to ChargeKard LLC and collected revenues from ChargeKard LLC in the amount of $107,000. During 2007 the Company provided development services to ChargeKard LLC and recorded revenues from ChargeKard LLC in the amount of $84,000. Management believes that the fees charged for these development services are comparable to what would have been charged by an unrelated party.
Steven A. Horowitz. Steven A. Horowitz has from time to time loaned funds to Web2 Corp. As of December 19, 2007, Web2 Corp. issued to Mr. Horowitz 17,030,985 shares of Common Stock of Web2 Corp. in full and complete satisfaction and cancellation of all of the indebtedness of Web2 Corp. to Mr. Horowitz. Mr. Horowitz granted to Messrs. Mobley and Forde a proxy to vote such shares of Common Stock for a period of three years.
ITEM 13. EXHIBITS
The following exhibits are filed as part of this report:
2.1
Stock Purchase Agreement, dated as of August 19, 2005 by and between the Company and Raymond Barton and Timothy Schmidt (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated August 19, 2005).
2.2
Assignment and Assumption dated August 19, 2005 by and between the Company, Jade Entertainment Group, Inc., Timothy Schmidt and Raymond Barton (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K dated August 19, 2005).
2.3
Agreement and Plan of Share Exchange dated as of December 1, 2005 by and between the Company and Global Portals Online, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated December 22, 2005).
3.1
Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on September 21, 2005 (incorporated by reference to the Company’s Form 10-KSB for the fiscal year ended December 31, 2005).
4.1
Form of Warrant Amendment (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-KSB for the fiscal year ended December 31, 2003).
4.2
Certificate of Designations, Preferences and Rights of Series AA Preferred Stock as filed with the Secretary of State of Delaware on December 1, 2004 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K dated December 2, 2004).
10.1
Consulting Agreement dated September 16, 2004 between the Company and Cioffi Business Management Services (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K dated September 12, 2004).
10.2
Employment Agreement dated October 5, 2004 between the Company and Mark Figula (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K dated October 5, 2004).
10.3
Asset Purchase Agreement dated December 5, 2004 between the Company and Global Reach, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated December 5, 2004).
10.4
Promissory Note in the principal amount of $50,000 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated December 5, 2004).
10.5
Promissory Note in the principal amount of $100,000 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated December 5, 2004).
10.6
Consulting Agreement dated February 8, 2005 between the Company and Cioffi Business Management Services (incorporated by reference to Exhibit 10.13 to the Compay’s Form 10-KSB for the fiscal year ended December 31, 2004).
10.7
Amendment to $100,000 6% Promissory Note issued to Global Reach, Inc. dated April 13, 2005 (incorporated by reference to Exhibit 10.14 to the Company’s Form 10-KSB for the fiscal year ended December 31, 2004).
10.8
Management Services Agreement between the Company and Global Portals Online, Inc. (formerly Personal Portals Online, Inc.) dated as of July 1, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 12, 2005).
10.9
Severance Agreement and Release of Raymond Barton dated August 19, 2005 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated August 19, 2005).
10.10
Severance Agreement and Release of Timothy Schmidt dated August 19, 2005 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated August 19, 2005).
10.11
Severance Agreement and Release of Michael Barton dated August 19, 2005 (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K dated August 19, 2005).
10.12
Employment Agreement dated December 20, 2005 by and between the Company and William A. Mobley, Jr. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated December 22, 2005).
10.13
Employment Agreement dated December 20, 2005 by and the Company and Andre L. Forde (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated December 22, 2005).
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10.14
Purchase Agreement dated as of July 25, 2006 by and among T. K. Balaji, K. Saravan Kumar and T. K. Shivaji Rao; Securenext Softwares Private Limited; the Company; and ByIndia, Inc. (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K dated October 11, 2006).
10.15
Amended and Restated Debt Conversion Agreement dated as of November 1, 2006 by and between the Company and Steven A. Horowitz (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K dated December 21, 2006).
10.16
Stock Purchase Agreement dated as of December 19, 2007 by and among the Company, William A. Mobley, Jr., Andre L. Forde, Marjorie A. Lieberman, Steven A. Horowitz, Nextelligence, Inc., Walter Web, Jr., Century Group, Inc., Broadcast Bid, Inc., and Daniel Bordui (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated December 21, 2007).
10.17
Proxy dated as of December 19, 2007 granted by Steven A. Horowitz to William A. Mobley, Jr. and Andre L. Forde (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated December 21, 2007).
14.1
Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-KSB for the fiscal year ended December 31, 2003).
14.2
Code of Ethics for Financial Executives (incorporated by reference to Exhibit 14.2 to the Company’s Form 10-KSB for the fiscal year ended December 31, 2003).
16.1
Letter from Marcum & Kliegman LLP to the Securities and Exchange Commission dated April 25, 2005 (incorporated by reference to Exhibit 16.1 to the Company's Form 8-K dated April 18, 2004).
16.2
Letter from Wolinetz & Lafazan & Co. to the Securities and Exchange Commission dated March 31, 2006 (incorporated by reference to Exhibit 16.1 to the Company's Form 8-K dated March 29, 2006).
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Subsidiaries of the Registrant (filed herewith).
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14a and Rule 15d-14(a) (filed herewith).
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14a and Rule 15d-14(a) (filed herewith).
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
For the fiscal years ended December 31, 2007 and December 31, 2006, the aggregate fees billed for professional services rendered by Bouwhuis, Morrill & Company, the Company’s independent auditors, for the audit of the Company’s annual financial statements and the reviews of its quarterly financial statements included in the Company’s quarterly reports and filings under the Securities Exchange Act of 1934 totaled $55,000 and $53,000, respectively.
Audit Related Fees
For the fiscal years ended December 31, 2007 and December 31, 2006, no fees were billed for professional services rendered by Bouwhuis, Morrill & Company for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not disclosed under “Audit Fees” above.
Tax Fees
For the fiscal years ended December 31, 2007 and December 31, 2006, no fees were billed by Bouwhuis, Morrill & Company for tax compliance, tax advice or tax planning.
All Other Fees
For the fiscal years ended December 31, 2007 and December 31, 2006, no fees were billed by Bouwhuis, Morrill & Company for any products or services not disclosed above.
Pre-Approval Policies and Procedures
The Company did not have an audit committee during 2007 or 2006 and, therefore, had no pre-approval policies or procedures.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 2008
| | |
| WEB2 CORP. |
| | |
| | |
| By: | /s/ William A. Mobley, Jr. |
| | William A. Mobley, Jr. |
| | Chairman and Chief Executive Officer (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ William A. Mobley, Jr. | | Chairman of the Board and Director | | May 14, 2008 |
William A. Mobley, Jr. | | | | |
| | | | |
/s/ Aaron Stein | | Director | | May 14, 2008 |
Aaron Stein | | | | |
| | | | |
/s/ William Eric Seidel | | Director | | May 14, 2008 |
William Eric Seidel | | | | |
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