UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 2005
-------------------------
( ) Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ____________
Commission file number _______________________________________
Catcher Holdings, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 62-0201385
- ----------------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
39526 Charlestown Pike Hamilton, Va 20158-3322
- ----------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(540) 882-3087
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(Issuer's Telephone Number, Including Area Code)
U.S. Telesis Holdings, Inc.
1165 Via Vera Cruz
San Marcos, CA 92078
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days:
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at September 30, 2005
----- ---------------------------------
Common Stock, $.001 par value per share 12,500,390
Series A Preferred Stock 1
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
TABLE OF CONTENTS
PAGE
PART I. Financial Information .....................................................................................3
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations for the three months and nine months
ended September 30, 2005 and 2004 and Period from Inception (March 31, 2004) to
September 30, 2005 (Unaudited) .......................................................................3
Consolidated Balance Sheets as of September 30, 2005 (Unaudited) and
December 31, 2004.....................................................................................4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2005
and 2004 and Period from Inception (March 31, 2004) to September 30, 2005 (Unaudited)..................5
Consolidated Statements of Stockholders' Equity (Deficit) for the nine months ended September 30, 2005...6
Notes to Consolidated Financial Statements ..............................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............13
Item 3. Controls and Procedures..............................................................................29
PART II............................................................................................................31
Item 1. Legal Proceedings....................................................................................31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........................................31
Item 4. Submission of Matters to a Vote of Security Holders..................................................31
Item 6. Exhibits.............................................................................................31
SIGNATURES.........................................................................................................33
CERTIFICATIONS AND EXHIBITS........................................................................................34
PART I. FINANCIAL INFORMATION
ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
CATCHER HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
PERIOD FROM
INCEPTION
(MARCH 31,
THREE MONTHS ENDED NINE MONTHS ENDED 2004) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER
2005 2004 2005 2004 30, 2005
------------ ------------ ------------ ------------ ------------
Net revenue $ -- $ -- $ -- $ -- $ --
Operating expenses:
Research and development expenses 785,613 63,294 1,461,474 311,172 2,108,947
Selling, general and administrative expenses 832,590 12,685 1,416,728 89,633 1,517,622
Acquired research & development -- -- 2,028,129 -- 2,028,129
Non-cash compensation(1) -- -- 3,523,131 -- 3,523,131
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (1,618,203) (75,979) (8,429,462) (400,805) (9,177,829)
Interest income (expense) 8,906 -- 15,504 -- 15,504
Other (expense) income, net -- -- -- -- --
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS BEFORE INCOME
TAXES (1,609,297) (75,979) (8,413,958) (400,805) (9,162,325)
Income taxes -- -- (800) -- (800)
------------ ------------ ------------ ------------ ------------
NET LOSS $ (1,609,297) $ (75,979) $ (8,414,758) $ (400,805) $ (9,163,125)
------------ ------------ ------------ ------------ ------------
LOSS PER SHARE:
Basic & Diluted $ (0.13) $ (75,979) $ (1.47) $ (400,805) $ (3.19)
------------ ------------ ------------ ------------ ------------
Weighted-average number of shares
outstanding - Basic and Diluted: (Note 5) 12,500,390 -- 5,742,982 -- 2,871,491
(1) The following summarizes the allocation of
stock based compensation
Research and development expenses $ -- $ -- $ 268,647 $ -- $ 268,647
Selling, general and administrative expenses -- -- 3,254,484 -- 3,254,484
------------ ------------ ------------ ------------ ------------
Total -- -- 3,523,131 -- 3,523,131
See Notes to Consolidated Financial Statements.
3
CATCHER HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005 DECEMBER 31, 2004
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,242,569 $ 364
Prepaid expenses and other current assets
20 --
----------- -----------
Total current assets 1,242,589 364
Property, plant and equipment, net 8,062 --
TOTAL ASSETS $ 1,250,651 $ 364
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 81,876 718,730
Notes Payable -- 30,000
Accrued and other current liabilities
486,932 --
----------- -----------
Total current liabilities 568,808 748,730
TOTAL LIABILITIES 568,808 748,730
Shareholders' Equity (Deficit):
Common shares, $0.001 value, 50,000,000 shares authorized; 12,500,390 and
46,640 shares outstanding, respectively 12,500 47
Preferred shares, $0.001 par value, 1 million shares authorized; 1 and 0
shares outstanding, respectively -- --
Additional paid in capital 9,832,468 (47)
Accumulated deficit (9,163,125) (748,366)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 681,843 (748,366)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 1,250,651 $ 364
=========== ===========
See Notes to Consolidated Financial Statements.
4
CATCHER HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
PERIOD FROM
INCEPTION
(MARCH 31,
NINE MONTHS ENDED 2004) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,414,758) $ (400,805) $(9,163,125)
Adjustments to reconcile net cash provided by operating activities:
Depreciation 366 366
Acquired research and development 2,028,129 2,028,129
Non-cash stock-based compensation expense 3,523,131 -- 3,523,131
Changes in assets and liabilities, net of the effects of
acquisitions and divestitures:
Accounts payable (636,854) 372,102 81,877
Accrued and other liabilities 486,932 -- 486,932
Other (20) -- (20)
----------- ----------- -----------
Net cash provided by operating activities (3,013,074) (28,703) (3,042,710)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (8,428) -- (8,428)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (Repayment) of short-term debt (30,000) 30,000 --
Proceeds from issuance of common stock 4,293,707 -- 4,293,707
----------- ----------- -----------
Net cash provided by financing activities 4,263,707 30,000 4,293,707
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,242,205 1,297 1,242,569
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 364 -- --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,242,569 $ 1,297 $ 1,242,569
----------- ----------- -----------
See Notes to Consolidated Financial Statements.
5
CATCHER HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
PERIOD FROM INCEPTION (MARCH 31, 2004) TO SEPTEMBER 30, 2005
PREFERRED COMMON
NUMBER OF NUMBER OF SHARES SHARES ADDITIONAL
PREFERRED COMMON $0.001 PAR $0.001 PAR PAID IN DEFICIT
SHARES SHARES VALUE VALUE CAPITAL ACCUMULATED TOTAL
BALANCE AT INCEPTION -- -- -- $ -- $ -- $ -- $ --
Issuance of common stock
on December 31,2004 -- 46,640 -- 47 (47) -- --
BALANCE AT DECEMBER 31, 2004 -- 46,640 $ -- $ 47 $ (47) $ -- $ --
Issuance of Convertible preferred
stock on April 21, 2005 733,778 -- 734 -- 5,223,301 -- 5,224,035
Issuance of common stock on
April 21, 2005 -- 301,875 302 309,877 -- 310,179
Issuance of common stock to
private investors on May 4, 2005 -- 4,500,386 -- 4,500 4,289,207 -- 4,293,707
Issuance of common stock to
U.S. Telesis Holdings, Inc.
shareholders on May 4, 2005 -- 1,781,252 -- 1,781 (1,764) -- 17
Conversion of Convertible
preferred stock into common
stock per share on June 23, 2005 (733,777) 5,870,237 (734) 5,870 (5,136) -- --
Issuance of warrants to consultants -- -- -- -- 17,030 -- 17,030
Net loss -- -- -- -- -- (9,163,125) (9,163,125)
BALANCE AT SEPTEMBER 30, 2005 1 12,500,390 $ -- $ 12,500 $ 9,832,468 $(9,163,125) $ 681,843
See Notes to Consolidated Financial Statements.
CATCHER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Catcher Holdings, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Company's
financial statements and notes thereto for the year ended December 31, 2004 as
filed on Form 8-K/A with the SEC on July 15, 2005. The accompanying consolidated
financial statements reflect all adjustments (consisting of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented. The results of
operations for the three and nine month periods ended September 30, 2005 are not
necessarily indicative of the results to be expected for the full fiscal year.
(2) NATURE OF BUSINESS
U.S. Telesis Holdings, Inc. ("UST") was originally organized to provide
diverse telecommunications products and services to the small and medium
business community in the southeastern United States and to develop a niche
market strategy of reselling long distance services to the electrical
cooperative community. As a result of the dramatic decline in the
telecommunications industry, UST abandoned the business objective to provide
such telecommunications products and services, and instead intended to identify
and complete a
6
merger or acquisition primarily in consideration of the issuance of shares of
the UST's capital stock with a private entity whose business presents an
opportunity for UST's stockholders.
On May 4, 2005, the Company acquired 100% of the outstanding stock of
Catcher, Inc. ("Catcher") in exchange for 4,848,875 shares of the Company's
Common Stock and 733,778 shares of its Series A preferred stock which are
convertible into 5,872,224 shares of the Company's Common Stock (the
"Acquisition"). On June 23, 2005, all but one share of the issued and
outstanding Series A Preferred Stock was automatically converted to Common Stock
simultaneously with the effectiveness of the filing of an amended and restated
certificate of incorporation changing the Company's name to Catcher Holdings,
Inc. and providing for a 1 for 7.2 reverse stock split in respect of the
Company's issued and outstanding Common Stock. In addition, on May 4, 2005, the
Company assumed Catcher Inc.'s obligations under its issued and outstanding
warrants to purchase an aggregate of 4,500,386 shares of Common Stock.
Catcher was organized in Delaware on April 20, 2005 principally to
acquire the assets of LCM Technologies, Inc. and to operate the business of
developing, manufacturing and distributing a portable, ruggedized, wireless
handheld security device (the "CATCHER(TM) device"). LCM Technologies, Inc. was
organized in Delaware on March 31, 2004. Pursuant to an asset purchase agreement
between the Company and LCM Technologies, Inc. ("LCM"), Catcher purchased
certain assets and assumed certain liabilities (such assets and liabilities as
acquired by Catcher, Inc. herein referred to as LCM Holdings) of LCM and its
founder, Ira Tabankin, relating to the CATCHER(TM) device and the business of
LCM (See Note 5 for description of asset purchase).
The Acquisition has been accounted for as a reverse merger. Therefore,
the stock retained by the stockholders of UST has been adjusted to reflect a
financing transaction with the proceeds equal to the net asset value of UST
immediately prior to the Acquisition and the equity of Catcher has been adjusted
to reflect a recapitalization whereby the prior retained earnings of UST were
eliminated. This resulted in an adjustment to retained earnings of $1,800,471
and an adjustment to Common Stock and additional paid in capital of $1,800,488
to arrive at the net asset value of UST of $17. This amount has been reflected
in the accompanying statement of stockholder's equity as an issuance of stock to
the stockholders' of UST. The historical financial statements of Catcher have
become the historical financial statements of the Company. Immediately prior to
the Acquisition, Catcher closed an asset purchase with LCM Technologies, Inc.
("LCM") (See Note 5) in which Catcher acquired substantially all of the assets
and certain liabilities of LCM. This transaction was accounted for as a reverse
merger with the historical financial statements of the acquired business
becoming the historical financial statements of Catcher
The Company's stockholders approved an amendment to the Company's
certificate of incorporation to change the Company's name to Catcher Holdings,
Inc. and effectuate a 1 for 7.2 reverse split, which was effective on June 23,
2005. All share and per share data included in these statements and notes
thereto have been adjusted to reflect the reverse split.
The Company is a developmental stage company which has designed a
portable, ruggedized wireless, hand-held GPS-based command control device
through multiple years of research and development effort. Utilizing proprietary
operating software, the CATCHER(TM) device offers critical real-time wireless
communications through the convergence of voice,
7
video, data and biometric capabilities. Currently, the device is in the final
development stage and the Company expects to begin production during the first
quarter of 2006.
(3) GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Subsequent to the acquisition
of Catcher, the Company has continued to develop the technology acquired with a
goal of developing a device that is ready for sale. The Company's ability to
continue as a going concern depends on a number of factors, including but not
limited to, the ability to get its product to market and the ability to raise
additional capital if required. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company intends to
continue to seek the additional financing it needs to fund its operations. There
can be no assurance that such financing will be available on terms acceptable to
the Company, or at all.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET INCOME PER COMMON SHARE
Basic earnings per share is computed by dividing net loss for
the period by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing
net income by the weighted average number of common shares plus the
dilutive effect of outstanding warrants. Approximately 4,775,094 and 0
outstanding shares to be issued upon conversion of warrants and
exercise of options were excluded from the calculation of diluted
earnings per share for three and nine months ended September 30, 2005
and 2004, respectively, because they were anti-dilutive.
INCOME TAXES
The Company accounts for income taxes using the asset and
liability method, as provided by Statement of Financial Accounting
Standards 109, Accounting for Income Taxes (SFAS 109) which requires
the recognition of different tax assets and liabilities for the future
tax consequences of temporary differences between the financial
statement and tax basis carrying amounts of assets and liabilities. No
income taxes were provided since the Company incurred losses from its
inception. Due to the uncertainty of future taxable income, no future
tax benefits have been recognized.
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation for
employees under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. The Company had elected the
disclosure only treatment of the fair value recognition provisions of
Financial Accounting Standards Board Statement ("FAS") No. 123,
Accounting for Stock-Based Compensation, as amended by FAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure to
stock-based employee compensation. In December 2004, the FASB issued
SFAS No.
8
123(R) Share-Based Payment. SFAS No. 123(R) amends SFAS No. 123. The
Company will be required to adopt FAS 123(R) in the first fiscal
quarter of 2006 and does not expect it to have a material impact on its
future results of operations.
Effective as of June 24, 2005, the Company granted to Jeff Gilford, the
Company's Chief Financial Officer, an option to purchase 918,000 shares
of the Company's Common Stock at an exercise price of $3.74 per share.
This option was granted pursuant to the terms of a Notice of Stock
Option Award (including a Stock Option Agreement) outside of any stock
incentive plan of the Company. In addition to the other terms set forth
in the Notice of Stock Option Award, the "First Tranche" of the Mr.
Gilford's option represents the right to purchase 580,000 shares, 25%
of the shares subject to the First Tranche vested on June 16, 2005 (the
"Vesting Commencement Date"), and 1/36 of the remaining shares subject
to the First Tranche vest on each monthly anniversary of the Vesting
Commencement Date, such that the shares subject to the First Tranche
will be fully vested three years after the Vesting Commencement Date.
The "Second Tranche" of the option represents the right to purchase
193,000 shares, 25% of the shares subject to the Second Tranche vest 12
months after the Vesting Commencement Date and 1/36 of the remaining
shares subject to the Second Tranche vest on each monthly anniversary
of the Vesting Commencement Date thereafter, such that the shares
subject to the Second Tranche will be fully vested four years after the
Vesting Commencement Date. The "Third Tranche" of the option represents
the right to purchase 145,000 shares, 25% of the shares subject to the
Third Tranche vest 24 months after the Vesting Commencement Date and
1/36 of the remaining shares subject to the Third Tranche vest on each
monthly anniversary of the Vesting Commencement Date thereafter, such
that the shares subject to the Third Tranche will be fully vested five
years after the Vesting Commencement Date. The vesting of the shares
underlying the option accelerates in certain circumstances relating to
the termination of Mr. Gilford's service to the Company or a change in
control of the Company. If approved, 187,110 options would have vested
as of September 30, 2005.
On October 24, 2005, the Board approved the form of option agreement
evidencing the grant to Mr. Gilford of an option to purchase 918,000
shares of the Company's Common Stock at an exercise price of $3.74 per
share, outside of any stock incentive plan of the Company. The Board
had previously approved the option grant to Mr. Gilford on June 24,
2005, but the form of option agreement was not finalized and approved
by the Board until October 24, 2005. The Board also clarified on
October 24, 2005 that the grant was not subject to stockholder
approval. The Company has determined that the measurement date occurred
on October 24, 2005, and will record any required compensation expense
in accordance with Financial Accounting Standards Board Interpretation
No. 44.
(5) ASSET PURCHASE
Pursuant to an asset purchase agreement, dated April 21, 2005, between Catcher
and LCM Technologies, Inc. ("LCM"), Catcher acquired certain assets in exchange
for the assumption of $836,000 in accounts payable and notes payable of LCM and
its founder, and sole stockholder, Ira Tabankin, relating to the CATCHER(TM)
device and the business of LCM. Mar. Tabankin was involved in the formation of
Catcher and as of the date of the asset purchase owned approximately 36% of
Catcher, Inc. The transaction was accounted for as a reverse merger, and
9
as such, the historical statements of the acquired business became the
historical statements of Catcher. The Company assumed approximately $836,000 in
accounts payable and notes payable. Certain patent rights held by creditors of
the Company were exchanged for shares in Catcher Inc. (See Note 6).
(6) EQUITY TRANSACTIONS
Prior to the Acquisition, Catcher sold the equivalent of 6,218,739
shares of Common Stock to certain founders for $0.001 per share and to certain
founders in exchange for property and future services of the founders. The
difference between the fair value of the shares of $0.89 and the price paid has
been expensed during the three and nine months ended September 30, 2005.
On May 4, 2005, Catcher sold in a private placement 4,500,386 shares of
Common Stock and warrants to purchase an additional 4,500,386 shares of Common
Stock to private investors for net proceeds of $4,293,691 (the "Private
Placement"). The warrants vested immediately and expire in May of 2015. The
warrants have exercise prices ranging from $1.00 to $1.50. The warrants are
callable at the exercise price by the Company upon completing certain milestones
defined in the agreement. The warrants were assumed by the Company in the
Acquisition.
In connection with the Private Placement, the Company entered into a
Registration Rights Agreement which provided that the Company would incur
penalties if it failed to file a registration statement within 90 days of the
Private Placement (the "Filing Deadline"). The Company may also incur penalties
in the event that, due to the fault of the Company, its registration statement
is not deemed effective by the Securities and Exchange Commission within 180
days of the Private Placement. Prior to the Filing Deadline, the Company filed
the registration statement on August 1, 2005. The registration statement has not
yet been declared effective by the Securities and Exchange Commission, and the
Company is working diligently to address comments received from the staff of the
Securities and Exchange Commission.
(7) EMPLOYMENT AGREEMENTS
Catcher entered into employment agreements with its Chief Executive
Officer, Chief Technology Officer and Chairman, Chief Financial Officer and Vice
President - Engineering. The employment agreements expire at various times
through 2008. In conjunction with agreements the Company paid an aggregate of
$55,000 in signing bonuses. The agreements provide for aggregate salaries of
$816,000 per year.
(8) CONSULTING AGREEMENTS
Catcher entered into a Consulting Agreement with Hayden Communications,
Inc. dated as of May 1, 2005 for a period of twelve (12) months at a fee of
$5,000 per month plus reimbursement of certain expenses. Immediately following
the Acquisition, a fee totaling $160,000 was paid to Hayden Communications, Inc.
for capital markets consulting and marketing material creation and production
services. The agreement may be terminated by either party at the six-month
anniversary. Hayden Communications, Inc. was a stockholder of Catcher whose
shares were exchanged by the Company in the Acquisition.
10
Catcher entered into a Consulting Agreement with The Del Mar Consulting
Group, Inc. ("DCG") for a period of twelve (12) months effective as of April 21,
2005 at a fee of $5,000 per month plus reimbursement of certain expenses. DCG
was a stockholder of Catcher whose shares were exchanged by the Company in the
Acquisition.
Catcher entered into a Consulting Agreement with Kai Hansen for a
period of twelve (12) months effective as of April 21, 2005 at a fee of $5,000
per month plus reimbursement of certain expenses. Mr. Hansen was a stockholder
of Catcher whose shares were exchanged by the Company in the Acquisition.
Catcher entered into a Services Agreement with BlackFord Partners,
Inc., dated as of May 6, 2005, whereby BlackFord Partners, Inc. agreed to
provide financial and accounting advisory services to Catcher and us at a rate
of $75 to $125 per hour depending on the type of services rendered. Pursuant to
an Amendment to the Services Agreement, dated as of June 24, 2005, warrants to
purchase 85,000 shares of the Company's Common Stock at an exercise price of
$3.74 were issued by the Company to the principals of BlackFord Partners, Inc.
Jeff Gilford, the Company's Chief Financial Officer, is one of the principals of
Blackford Partners, Inc. The Company has valued the warrants at $17,030 using
the binomial option pricing model and the following assumptions; Stock Price
$0.89, Volatility, 80%, Risk Fee Interest Rate 3.37%, Dividends 0%. The value of
the warrant is included in selling, general and administrative expense for the
three and nine months ended September 30, 2005.
(9) SEGMENT AND GEOGRAPHIC INFORMATION
To date, the Company has viewed its operations and manages its business
as principally one segment. As a result, the financial information disclosed
herein represents all of the material financial information related to the
Company's principal operating segment in accordance with SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The Company
has not had any sales to date nor has it conducted any operations outside of the
United States.
(10) SUBSEQUENT EVENTS
ADOPTION OF 2005 STOCK INCENTIVE PLAN AND TERMINATION OF PRIOR PLANS
On October 24, 2005, the Company's Board of Directors (the "Board")
approved the Company's 2005 Stock Incentive Plan (the "2005 Stock Incentive
Plan"). The Company has reserved 2,219,000 shares of the Company's Common Stock
for issuance under the 2005 Stock Incentive Plan, subject to adjustment for a
stock split, or any future stock dividend or other similar change in the
Company's Common Stock or capital structure. No awards have yet been granted
under the 2005 Stock Incentive Plan and therefore 2,219,000 shares of the
Company's Common Stock remain available for grant. The continuance of the 2005
Stock Incentive Plan is subject to approval of the plan by the Company's
stockholders which must be obtained within 12 months of Board approval date of
the 2005 Stock Incentive Plan.
In addition, on October 24, 2005, the Board terminated the Employee
Stock Plan and Director Stock Plan that the Board previously had approved on
June 24, 2005 (the "Prior Plans"). The Prior Plans had been approved subject to
stockholder approval. The Prior Plans never became effective and no awards were
granted under the Prior Plans prior to their termination.
11
The 2005 Stock Incentive Plan provides for the grant of stock options,
restricted stock, restricted stock units, stock appreciation rights and dividend
equivalent rights, collectively referred to as "awards." Stock options granted
under the 2005 Stock Incentive Plan may be either incentive stock options under
the provisions of Section 422 of the Internal Revenue Code, or non-qualified
stock options. Incentive stock options may be granted only to employees. Awards
other than incentive stock options may be granted to employees, directors and
consultants.
The Board or a committee designated by the Board, referred to as the
"plan administrator," will administer the 2005 Stock Incentive Plan, including
selecting the participants, determining the number of shares to be subject to
each award, determining the exercise or purchase price of each award and
determining the vesting and exercise periods of each award.
Unless terminated sooner, the 2005 Stock Incentive Plan will
automatically terminate in 2015. The Board will have authority to amend or
terminate the 2005 Stock Incentive Plan. No amendment or termination of the 2005
Stock Incentive Plan shall adversely affect any rights under awards already
granted to a participant unless agreed to by the affected participant. To the
extent necessary to comply with applicable provisions of federal securities
laws, state corporate and securities laws, the Internal Revenue Code, the rules
of any applicable stock exchange or national market system, and the rules of any
non-U.S. jurisdiction applicable to awards granted to residents therein, the
Company will obtain stockholder approval of any such amendment to the 2005 Stock
Incentive Plan in such a manner and to such a degree as required.
APPROVAL OF NON-EMPLOYEE DIRECTOR CASH COMPENSATION TERMS
On October 24, 2005, the Board approved the following non-employee
director cash compensation terms: Non-employee directors will be paid a total of
$1,500 per day for each day their services are required, including such parts of
a day required for traveling to any meeting, event, etc. for which their
participation has been requested on behalf of the Company, and additionally be
reimbursed for all reasonable travel expenses incurred as a result of their
participation. Non-employee directors also will be paid $500 for conference call
participation.
ISSUANCE OF SHARES UPON EXERCISE OF SERIES A WARRANTS
From October 21 through October 27, 2005, a total of 22 investors
holding Series A warrants to purchase shares of the Company's Common Stock made
a partial exercise of such Series A warrants, purchasing an aggregate of
approximately 1,108,000 shares of the Company's Common Stock in exchange for
aggregate proceeds to the Company of approximately $1.66 million. A description
of the Series A warrants is contained in the Form 8-K/A that the Company filed
on July 15, 2005.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the Unaudited Condensed Consolidated Financial Statements and related Notes
to Condensed Consolidated Financial Statements included in Item 1 of Part I of
this Quarterly Report on Form 10-Q.
We have included in this Quarterly Report certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning our business, operations and financial condition.
"Forward-looking statements" consist of all non-historical information, and the
analysis of historical information, including the references in this Quarterly
Report to future revenue growth, future expense growth, future profitability,
anticipated cash resources, anticipated capital expenditures, capital
requirements and our plans for future periods. In addition, the words "could,"
"expects," "anticipates," "objective," "plan," "may affect," "may depend,"
"believes," "estimates," "projects" and similar words and phrases are also
intended to identify such forward-looking statements.
There are various factors - many beyond our control - that could cause
our actual results or the occurrence or timing of expected events to differ
materially from those anticipated in our forward-looking statements. Such
factors may also cause substantial volatility in the market price of our Common
Stock. We have included below under "Risk Factors" a description of the known
risks that we believe to be material. All forward-looking statements include in
this Quarterly Report are current only as of the date of this Quarterly Report.
We do not undertake any obligation to publicly update any forward-looking
statement to reflect events or circumstances after the date on which any such
statement is made or to reflect the occurrence of unanticipated events.
OVERVIEW
OUR ACQUISITION OF CATCHER, INC.
We were incorporated under the laws of the state of Delaware on August
25, 1998. On May 20, 1999, we merged with Woodland Communications Group, Inc. On
June 3, 1999, Woodland Communications Group, Inc. changed its name to U.S.
Telesis Holdings, Inc. ("UST"). On May 4, 2005, we acquired all of the
outstanding capital stock of Catcher, Inc. ("Catcher") and Catcher became our
wholly-owned subsidiary. On June 23, 2005, we changed our name to Catcher
Holdings, Inc. Our principal business became the ownership of Catcher, which
acts as our operating subsidiary.
Catcher is a development stage company originally formed during April
2005, principally to operate the business of developing, manufacturing and
distributing the CATCHER(TM) device, a portable, ruggedized, wireless handheld
computing and communications device. Pursuant to an asset purchase agreement
between Catcher and LCM Technologies, Inc. ("LCM"), Catcher purchased certain
assets and assumed certain liabilities of LCM and its founder, Ira Tabankin,
relating to the CATCHER(TM) device and the business of LCM.
ORGANIZATIONAL HISTORY OF UST
UST was originally organized to provide diverse telecommunications
products and
13
services to the small and medium business community in the southeastern United
States and to develop a niche market strategy of reselling long distance
services to the electrical cooperative community. As a result of the dramatic
decline in the telecommunications industry, UST abandoned its business objective
to provide such telecommunications products and services.
On March 1, 2001, the State of Delaware revoked the UST's charter for
failure to file its annual report with the State of Delaware for the years 1999
and 2000 and to pay its franchise tax for those years. On May 29, 2003, UST
filed a Form 10SB with the SEC to become a reporting company under the
Securities Exchange Act of 1934 (the "Exchange Act"). UST amended the Form 10-SB
in July, 2003. UST's charter in the State of Delaware was revived on March 31,
2005 and franchise taxes due were paid with penalties and interest.
UST's plan was to identify and complete a merger or acquisition
primarily in consideration of the issuance of shares of its capital stock with a
private entity whose business presented an opportunity for UST's stockholders.
Consistent with that plan, UST acquired Catcher on May 4, 2005, as described
above.
PLAN OF OPERATIONS
From inception to date, Catcher has been primarily involved in
organizational activity, negotiating vendor and personnel contracts, making
arrangements for the commercial use and deployment of the CATCHER(TM) technology
and preliminary development of its initial customer base. Catcher intends to
negotiate value added reseller ("VAR") and original equipment manufacturer
("OEM") contracts with potential customers. Catcher's VARs and OEMs will
purchase or license the CATCHER(TM) devices directly from Catcher. To date, no
VAR or OEM agreements have been executed.
We are in the early stage of operation and, as such, the relationships
between revenue, cost of revenue and operating expenses reflected in the
financial information included herein do not represent future expected financial
results. Accordingly, at the current stage of our operations, we do not believe
that period to period comparisons of our results of operations are meaningful.
We expect that our operating expenses will increase as we increase our
research and development activities, sales and marketing activities and
transaction volumes. However, we anticipate that, over the next 12 months, our
operating expenses will increase at a slower rate than the increase in our
revenues.
Our costs associated with production of units of the CATCHER(TM) device
will be variable based on the units that we decide to have manufactured.
Management currently does not anticipate that Catcher will operate its own
production facilities. Instead, we intend to outsource production to a third
party manufacturer. We have not yet entered into any manufacturing agreements
for the production of the CATCHER(TM) device. However, on October 25, 2005 we
paid $289,450 to Key Tronic Corporation ("Key Tronic") in order for Key Tronic
to set up an initial production line for the CATCHER(TM) device. The $289,450
payment consisted of $204,950 for Key Tronic to purchase equipment on Catcher's
behalf to set up the production line and $84,500 charge for engineering services
to be performed by Key Tronic in connection with setting up the production line.
In addition to costs associated with production of units of the
CATCHER(TM) device (which, as noted above, will vary based on the number of
units that we decide to have
14
manufactured), we anticipate that our most significant costs during the next 12
months will be the following items:
o Research and development expenses, including salaries and
associated employee benefits and travel, engineering and
design services, and testing and certification for FCC Type
and Military 810F, are currently anticipated to total
approximately $5.8 million;
o Sales and marketing expenses, which consist primarily of
salaries, associated employee benefits, travel expenses of
sales and marketing personnel, promotional expenses and the
costs of programs aimed at increasing revenue such as
advertising, trade shows, public relations and other market
development programs, are currently anticipated to total
approximately $1.8 million; and
o General and administrative expenses, which consist of salaries
of our management, finance and administrative staff, and
associated employee benefits and travel; facilities costs;
information systems costs; legal, accounting and other
professional fees; and other corporate costs, are currently
anticipated to total approximately $3.0 million.
Catcher completed the initial prototype of the CATCHER(TM) device
during August 2005 and expects to complete development and begin production
during the first quarter of 2006. We expect to complete the FCC testing and
Military 810F certification as part of this process, and again at the time of
any revision or new version of the product. We anticipate developing new product
versions with improved functionality or additional features which will require
retesting and recertification, although no specific schedule exists or has been
presently committed to for future development versions other than the initial
unit.
COST OF SALES
Cost of sales will consist primarily of direct costs of the
manufactured units, wages of operational employees and cost of training. Many
factors are anticipated to affect Catcher's gross margin, including, but not
limited to, market conditions, competition, production order volumes and
supplier pricing. As noted above, management currently does not anticipate that
Catcher will operate its own production facilities, as it intends to outsource
production to a third party manufacturer.
EXPENSES AND CAPITAL EXPENDITURES
Catcher's principal expenditures have resulted primarily from research
and development expenses and general and administrative expenses. Research and
development expenses incurred in the design, development and testing of our
product include compensation and benefits for management and staff, engineering
and consulting services, electronic parts, testing, and other miscellaneous
expenses. General and administrative expenses include all corporate and
administrative functions that serve to support Catcher's current and future
operations and provide an infrastructure to support future growth. Major items
in this category include compensation and benefits for management and staff,
travel related expenses, professional services, and other miscellaneous
expenses.
15
For the year to date through September 30, 2005, we have incurred
operating expenses totaling approximately $8,429,000, of which approximately
$1,461,000 was incurred for research and development, approximately $69,000 for
sales and marketing, and approximately $1,348,000 for general and
administrative. In addition, Catcher has recognized approximately $5,551,000 of
non-cash related expenses in the form of acquired research and development and
non-cash compensation expense. These non-cash expenses resulted from the
6,218,739 shares of Common Stock that Catcher sold before we acquired Catcher,
in exchange for property and services from the founders for $0.001 per share.
The difference between the fair value of the shares of $0.89 and the price paid
resulted in these non-cash related expenses during the three and nine months
ended September 30, 2005.
For the year to date through September 30, 2005, we have incurred
approximately $8,428 in capital expenditures. Future requirements will include
computers, office equipment, software, etc. We do not anticipate significant
capital expenditure spending in the future for capital equipment or machinery.
CRITICAL ACCOUNTING PRINCIPLES
Below is a brief description of key accounting principles which the
Company has adopted in determining its recognition of revenues and expenses.
REVENUE RECOGNITION
Sales revenue will be recognized as products are delivered to the
Company's customers. The Company may also collect license fees for the right to
sell the CATCHER(TM) device. Rates for such licenses are yet to be established.
The Company is in its development phase and has no existing customers or
revenue.
The Company intends to recognize revenue in accordance with the SEC
(SEC) Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements" as updated by SEC Staff Accounting Bulletin No. 104, "Revenue
Recognition". Under these guidelines, revenue is recognized when persuasive
evidence of an arrangement exists, shipment has occurred or services rendered,
the price is fixed or determinable and payment is reasonably assured. Under
these requirements, when the terms of sale include customer acceptance
provisions, and compliance with those provisions have not been previously
demonstrated, revenues are recognized upon acceptance.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method, as
provided by Statement of Financial Accounting Standards 109, Accounting for
Income Taxes (SFAS 109) which requires the recognition of different tax assets
and liabilities for the future tax consequences of temporary differences between
the financial statement and tax basis carrying amounts of assets and
liabilities. No income taxes were provided since the Company incurred losses
from its inception. Due to the uncertainty of future taxable income, no future
tax benefits have been recognized.
16
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is the $4.5 million in proceeds
generated from the private offering of shares of Catcher's stock and Series A
and Series B Warrants immediately prior to our acquisition of Catcher. Our
principal uses of cash have been for research and development and general and
administrative expenses.
From October 21 through October 27, 2005, a total of 22 investors
holding Series A Warrants made a partial exercise of such Series A Warrants,
purchasing an aggregate of approximately 1,108,000 shares of our common stock in
exchange for aggregate proceeds to us of approximately $1.66 million.
We currently have outstanding Series A warrants and Series B warrants
to purchase an aggregate of 3,392,360 shares of our common stock (the
"Warrants"). There are 1,142,167 Series A Warrants outstanding. Each Series A
Warrant will entitle the holder to purchase one share of our common stock at
$1.50 per share (the "Series A Exercise Price"), exercisable for a period of
five years. Once the common stock issuable upon exercise of the Series A
Warrants is registered with the SEC, we may call the Series A Warrants upon
notice to the warrant holder from time to time at any time that the common stock
closes at or above $2.50 per share for ten (10) consecutive trading days at an
average volume of 40,000 shares per day during the ten-day trading period,
PROVIDED THAT, within twenty (20) business days after the date of such notice,
the warrant holder will have the right to exercise, under the terms and
conditions of the Series A Warrants, all or a part (but not less than 25%) of
the Series A Warrants held at the Series A Exercise Price. From and after the
expiration of such twenty (20) business day notice, we may repurchase all Series
A Warrants then held for a purchase price of $0.01 per Series A Warrant unless
and to the extent that the Series A Warrant holder first exercises Series A
Warrants at the Series A Exercise Price.
There are 2,250,193 Series B Warrants outstanding. Each Series B
Warrant entitles the holder to purchase one share of common stock at $2.00 per
share (the "Series B Exercise Price"), exercisable for a period of five years.
Once the common stock issuable upon exercise of the Series B Warrants is
registered with the SEC, we may call the Series B Warrants upon notice to the
warrant holder from time to time at any time that the common stock closes at or
above $3.33 per share, for ten (10) consecutive trading days at an average
volume of 40,000 shares per day during the ten-day trading period; PROVIDED
THAT, within twenty (20) business days after the date of such notice, the
warrant holder will have the right to exercise, under the terms and conditions
of the Series B Warrants, all or a part (but not less than 25%) of the Series B
Warrants held at the Series B Exercise Price. From and after the expiration of
such twenty (20) business day notice, we may repurchase all Series B Warrants
then held for a purchase price of $0.01 per Series B Warrant unless and to the
extent that the Series B Warrant holder first exercises Series B Warrants at the
at the Series B Exercise Price.
We also have outstanding a warrant to purchase 65,000 shares of our
common stock issued to Jeff Gilford, our Chief Financial Officer, for an
exercise price of $3.74 per share and a warrant to purchase 20,000 shares of its
common stock to Stanley Blackburn for an exercise price of $3.74 per share, each
of which was issued in connection with accounting and advisory services rendered
by Blackford Partners.
17
Based on our current operating plan, we anticipate that we will require
approximately a range of $10 million to $15 million of additional capital over
the next 12 months. Our most significant anticipated costs during the next 12
months are described above under "Plan of Operations." We anticipate that the
additional capital will come principally from the proceeds from exercise of some
or all of the outstanding warrants described above, customer deposits, working
capital generated from unit sales, debt financing, vendor credit terms, or sale
of securities.
We will require substantial additional capital in order to complete the
future development of our business, implement our business plan and reach the
point where the cash flow generated from our operations will be sufficient to
satisfy our liquidity and capital requirements. Other than as described above,
we may seek to arrange other forms of financing to fulfill these capital needs,
in the event that the cash generated by our operations is insufficient to fund
the future development of our business. The other forms of business financing
that may be obtained through third parties may include various combinations of
equity, debt and bank financing.
In light of the limited stockholders' equity as well as our lack of
operating history, there can be no assurance that we will be able to obtain the
necessary additional capital on a timely basis or on acceptable terms, if at
all, to fund the development of our business. In any of such events, the growth
of our business and prospects would be materially and adversely affected. As a
result of any such financing, the holders of the common stock may experience
substantial dilution, if available.
Since inception, we have not generated revenue and there can be no
assurance that we will generate revenue in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Increases in interest rates will affect the cost of financing and may
affect our ability to obtain favorable financing terms in order to grow as
anticipated.
OFF BALANCE SHEET FINANCING ARRANGEMENTS
We do not have any off balance sheet financing arrangements.
IMPACT OF INFLATION
We believe that our results of operations are not dependent upon
moderate changes in inflation rates because we expect that we will be able to
pass along component price increases to our customers.
SEASONALITY
We do not expect any material seasonality in sales fluctuations in the
market for our products.
18
RECENTLY ISSUED ACCOUNTING STANDARDS AND CRITICAL ACCOUNTING POLICIES
In May 2005, the FASB issued FASB Statement No. 154, Accounting Changes
and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement
No. 3 (SFAS No. 154). Previously, APB No. 20, Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial Statements required the
inclusion of the cumulative effect of changes in accounting principle in net
income of the period of the change. SFAS No. 154 requires companies to recognize
a change in accounting principle, including a change required by a new
accounting pronouncement when the pronouncement does not include specific
transition provisions, retrospectively to prior periods' financial statements.
We will assess the impact of a retrospective application of a change in
accounting principle in accordance with SFAS No. 154 when such a change arises
after the effective date of January 1, 2006.
In December 2004, the FASB issued SFAS No. 123(R), SHARE-BASED PAYMENT.
SFAS No. 123(R) amends SFAS No. 123 to require that companies record as expense
the effect of equity-based compensation, including stock options over the
applicable vesting period. We currently disclose the effect on income that stock
options would have were they recorded as expense. SFAS No. 123(R) also requires
more extensive disclosures concerning stock options than required under current
standards. The new rule applies to option grants made after a company's adoption
of the standard, as well as options that are not vested at the date of adoption.
SFAS No. 123(R) becomes effective in our case not later than the beginning of
the fiscal year that begins after December 15, 2005. We do not currently expect
to elect early adoption of this standard and have not determined whether we will
apply this new standard prospectively in the first quarter of 2006,
retroactively from the beginning of 2006, or on a restated basis for all prior
periods on a comparable basis. We do not expect that the adoption of SFAS No.
123(R) will have a material impact on our future results of operations.
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS QUARTERLY REPORT AND OUR OTHER SEC FILINGS
BEFORE YOU DECIDE WHETHER TO BUY OUR COMMON STOCK. FURTHERMORE, ADDITIONAL RISKS
AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL
MAY ALSO IMPAIR OUR OPERATIONS. THE OCCURRENCE OF ANY OF THESE RISKS COULD HARM
OUR BUSINESS. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE,
AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS SPECIFIC TO US
CATCHER IS NEWLY FORMED AND HAS NO OPERATING HISTORY. THEREFORE, THERE IS NO
HISTORICAL OR CURRENT OPERATING INFORMATION UPON WHICH AN INVESTOR CAN BASE ITS
INVESTMENT DECISION.
Catcher has no operating history on which to base an evaluation of its
business and prospects. To date, Catcher has engaged primarily in finalizing its
business plan, securing rights to essential technology, research and
development, and making arrangements necessary to begin operations. Catcher has
not yet initiated discussions with prospective customers or strategic business
partners, other than preliminary discussions with potential value-added
resellers ("VARs") and third-party manufacturers. Our prospects must be
considered in light of the risks frequently encountered by a start-up technology
company formed to engage in a relatively new, potentially highly competitive
industry.
19
Moreover, as a start-up business, Catcher has no prior experience in
implementing and managing its planned business in an operational setting.
Accordingly, there can be no assurance that Catcher will be able to successfully
implement its business plans.
We cannot provide any assurance that we will be successful in
addressing the risks which we may encounter, and our failure to do so could have
a material adverse effect on our business, prospects, financial condition and
results of operations.
WE MAY NEVER ACHIEVE REVENUES OR PROFITABILITY.
While we believe that our CATCHER(TM) device is a highly distinctive
concept, its distinctiveness adds to the speculative nature of our business
because we are not aware of any comparable products that we can look to in order
to access the marketability and demand for our product. We can provide no
assurance that we will ever achieve any revenues or profitable operations from
our planned operations.
IF CATCHER IS UNABLE TO OBTAIN AND MAINTAIN PATENT AND OTHER INTELLECTUAL
PROPERTY OWNERSHIP RIGHTS RELATING TO THE CATCHER(TM) DEVICE IT MAY NOT BE ABLE
TO SELL THE CATCHER(TM) DEVICE.
Catcher owns all of the right, title and interest in and to the patent
application on the CATCHER(TM) device, Patent Application No. 10/885,515
(Portable Handheld Security Device) (the "Patent"). If the Patent issues it will
be presumed valid, but there is no assurance that it will not be successfully
challenged or circumvented by competitors or others. Catcher has no assurance
that the United States Patent and Trademark Office will issue the Patent or that
the scope of any claims granted in an issued Patent will provide broad
protection or a competitive advantage to Catcher. If the Patent fails to issue
in sufficient scope or at all, or if the Patent issues but Catcher fails to
maintain and enforce its rights in the issued patent, or if Catcher fails to
maintain and protect its rights in its other intellectual property, including
its know-how, trade secrets and trademarks, such failures, individually and in
the aggregate, could have a material adverse effect upon our business prospects,
financial condition and results of operations. In addition, we have and we
intend from time-to-time, to file additional patent applications directed to
enhancements to the CATCHER(TM) technology. Such applications may include new
applications, continuations and continuations in part of existing applications,
and foreign applications corresponding to any or all of these. If such patents
issue, they will be presumed valid, but there is no assurance that they will not
be successfully challenged or circumvented by competitors or others.
Moreover, although it is not aware of any existing impediments, Catcher
has no assurance that it will be able to operate without infringing upon the
proprietary rights of third parties.
Catcher may have to alter its products or processes, pay licensing
fees, defend an infringement action or challenge the validity of the patents in
court, or cease activities altogether because of patent rights or other
intellectual property rights of third parties resulting in a material adverse
effect upon our financial condition, results of operations and future prospects.
In particular, we have become aware of a continuing patent application
published on March 17, 2005 in the name of Tony Verna of ScanZ Communications,
Inc. (the "Verna
20
Application") that includes various prospective claims. If the Verna Application
issues as a patent, the claims may cover one or more aspects of the CATCHER(TM)
device. We cannot predict whether the Verna Application will ever issue as a
patent, and if so, the scope and content of any such patent.
Catcher also relies upon trade secrets and other unpatented proprietary
technology. No assurance can be given that Catcher can meaningfully protect its
rights with regard to such unpatented proprietary technology or that competitors
will not duplicate or independently develop substantially equivalent technology.
WE MAY BE SUBJECT TO POTENTIAL LITIGATION RELATING TO OWNERSHIP OF THE PATENT,
WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Messrs. Ira Tabankin and Charles Sander were former employees of Scanz
Communications, Inc. ("Scanz"), and Mr. Tabankin also served as a consultant to
Scanz, during which time Scanz had under development a handheld portable device
that might be used for security purposes as well as in a sports-event setting,
which was Scanz' principal business focus and the principal focus of its product
development. The Scanz employment agreements with Messrs. Tabankin and Sander
provided that Scanz would own intellectual property conceived or first reduced
to practice during employment. The consultancy agreement between Mr. Tabankin
and Scanz provided that intellectual property rights that may be claimed by
Scanz in connection with a development by Mr. Tabankin during or before the
consultancy would be the property of Scanz. Scanz or its licensees may claim
that the CATCHER(TM) device was conceived or first reduced to practice during
the employment of Messrs. Tabankin and/or Sander or that the intellectual
property comprising the CATCHER(TM) device could be claimed by Scanz. If Scanz
or its licensee made any such claims, we believe that, as Catcher was the
assignee of the intellectual property rights in the CATCHER(TM) device, it would
have strong defenses to any such claims for numerous reasons, including that the
intellectual property constituting the CATCHER(TM) device is distinguishable
from the developments made during the aforesaid employments and consultancy.
However, if Scanz or its licensee were to prevail in such a claim, such event
could have a material adverse effect upon our financial condition, results of
operations and future prospects. Furthermore, even if we were to prevail,
litigation could result in substantial costs and divert management's attention
and resources from our business.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE THE DEVELOPMENT OF THE CATCHER(TM)
DEVICE, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our business plan is based on the successful completion of the
development of the CATCHER(TM) device aND the eventual sale of such device. If
we are unable to successfully complete the development of the CATCHER(TM) device
we will have to abandon our business plan which would have a material adverse
affect on our financial condition, results of operations and future prospects.
CATCHER MAY BE UNABLE TO ADAPT TECHNOLOGY TRENDS OR EVOLVING INDUSTRY STANDARDS
WHICH WOULD IMPEDE CATCHER'S ABILITY TO SUCCESSFULLY DEVELOP AND SELL NEW
PRODUCTS.
The CATCHER(TM) device is essentially a composite of many different
technologies from various industrieS, including the consumer electronics and
communications industries. Catcher will need to adapt to competitively
significant changes in component technology in these industries as well as to
advanced technology used by its competitors. New products based on
21
new technologies or new industry standards expose Catcher to risks of technical
or product obsolescence. Catcher may not be successful in using new technologies
effectively, developing new product iterations or enhancing existing products in
a timely manner. If Catcher is unable to adapt to technology trends and evolving
industry standards, our financial condition, results of operations and future
prospects will be materially adversely affected.
Our future is entirely dependent on Catcher's successful development of
its technology, products and services. The CATCHER(TM) device is still in the
development stage. There is no assurance that when we complete development of
the CATCHER(TM) device it will perform as expected or that it will be accepted
in our target market.
IF WE ARE UNABLE TO SUCCESSFULLY RESOLVE OUR DISAGREEMENT WITH PROJECT
PERFORMANCE CORP. ("PPC"), OUR FINANCIAL RESULTS COULD BE MATERIALLY AND
ADVERSELY IMPACTED.
LCM had previously discussed with PPC limiting the scope of the teaming
arrangement between LCM and PPC to cooperation on the development of a proposal
for the Technical Support Working Group ("TSWG"), and LCM's principal believed
they he had signed such an agreement with PPC. After the formation of Catcher,
PPC was asked to prepare a duplicate of the teaming agreement it had previously
entered into with LCM, and to submit it to us for execution. PPC provided a form
agreement to us which, according to its terms, conferred on PPC the right to act
as the "exclusive reseller, systems integrator and program manager in connection
with all sales of the CATCHER(TM) device (including any modifications and/or
improvements thereto and any derivations thereof) to any governmental agency or
entity (including, without limitation, any federal, state, local and
quasi-governmental agency) or to any other company or entity that provides
transportation, telecommunications and/or security-related services." Believing
that the agreement presented to us by PPC was identical to what was believed to
be the non-exclusive agreement between LCM and PPC relating solely to TSWG, we
signed the agreement provided by PPC, which contains the exclusivity provisions
quoted above. A search for the agreement between LCM and PPC revealed an
unsigned version of the TSWG-specific agreement, which reinforced the belief
that PPC had submitted to us a contract with exclusivity provisions instead of
what was believed to be the narrowly focused agreement that PPC had with LCM.
When PPC claimed to have exclusive rights, we objected, based on our
belief that PPC's rights were limited in scope to development activity in
connection with TSWG. In the course of negotiations with PPC, PPC produced what
it represented to be a signed copy of the agreement it had with LCM containing
exclusivity provisions that are identical to those contained in the signed
agreement between PPC and us. We have reached an agreement in principle with PPC
to resolve the dispute by declaring null and void all prior agreements and
purported agreements between Catcher and PPC in exchange for the payment by
Catcher to PPC of $50,000, payable over a period of time to be determined with
reference to the achievement by Catcher of certain production milestones, with
an outside final payment date of not later than September 30, 2006. Catcher is
optimistic that its differences with PPC will be resolved in this manner within
the near term. If that does not occur, we believe that Catcher may be entitled
to terminate the purported existing agreement with PPC pursuant to its own
terms, which entitle Catcher to terminate the agreement on 60 days' notice if
Catcher determines in good faith that it is not receiving the benefits it
expected to receive in connection with the Agreement.
If PPC were to prevail in any attempt to enforce the teaming agreement with
exclusivity provisions, and if Catcher's exercise of its termination rights were
found to be legally ineffective,
22
PPC's continued involvement would be required in order for us to sell our
products directly or indirectly to a significant part of our potential customer
base. This result would materially increase our cost structure and would likely
have a material adverse effect on our financial condition, results of operations
and future prospects.
WE PLAN TO RELY ON THIRD PARTY MANUFACTURERS, WHICH MAY HAVE A MATERIAL ADVERSE
EFFECT ON OUR ABILITY TO MANUFACTURE AND SELL OUR PRODUCTS.
We do not intend to create facilities to manufacture the CATCHER(TM)
device and therefore we will be dependent upon third parties to do so. Our
reliance on third parties for the manufacture of our products creates a
dependency that could negatively impact our sales and marketing efforts if the
sources of such supply prove to be unreliable or unavailable. If the contracted
manufacturing source is unreliable or unavailable, we may not be able to replace
such manufacturer and could not go forward and our entire business plan could
fail. In addition, agreements with such third parties may not be at the most
cost effective terms and therefore we may incur high costs.
IF WE ARE UNABLE TO RETAIN KEY PERSONNEL, CONSULTANTS AND INDUSTRY PARTNERS, WE
MAY BE UNABLE TO ACHIEVE OUR GOALS.
Our success is heavily dependent on the continued active participation
of our current executive officers, consultants and strategic partners. The loss
of the services of one or more of these managers, consultants or strategic
partners could have a material adverse effect upon our business, financial
condition and results of operations. Further, our success and achievement of our
growth plans depend on our ability to recruit, hire, train and retain other
highly qualified technical and managerial personnel. Competition for qualified
employees among companies with products in the security market, and those that
are potential entrants to the security market, is intense, and the loss of any
such persons, or an inability to attract, retain and motivate additional highly
skilled employees, technical and managerial personnel and consultants and
advisors required for the development and expansion of our activities, could
have a materially adverse effect on our financial condition, results of
operations and future prospects.
Catcher has entered into agreements with its executive officers
containing non-disclosure and non-competition provisions. The non-competition
agreements are limited in duration and are not effective under certain
circumstances, such as the improper termination of the executive or the
termination by the executive for good cause. Regardless of the non-competition
agreements executed with executives, there can be no assurance that executives
will remain associated with us or that they will not compete, directly or
indirectly, with it. Moreover, the enforceability and scope of non-competition
agreements are often litigated and there is no assurance that such provisions
will be enforceable as written.
OUR MANAGEMENT TEAM HAS LIMITED EXPERIENCE IN OPERATING A BUSINESS AND THERE IS
NO ASSURANCE THAT THEY WILL BE ABLE TO SUCCESSFULLY OPERATE A BUSINESS.
None of our or Catcher's current management team has had substantial
operational experience running a business such as contemplated by our plans and
there is no assurance that they will be able to do so.
WE ARE CONTROLLED BY OUR OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS, WHICH
COULD DELAY, DEFER OR PREVENT US FROM TAKING AN ACTION WHICH OUR STOCKHOLDERS
MAY OTHERWISE VIEW FAVORABLY AND WHICH MAY DECREASE THE PRICE OF OUR COMMON
STOCK.
23
Our directors and executive officers and their affiliates beneficially
own approximately 36% of the outstanding shares of our capital stock. In the
normal course, our executive officers and directors and their affiliates, viewed
as a group, would likely have the ability to substantially influence all matters
submitted to stockholders for approval, including: (1) election of our board of
directors; (2) removal of any director; and (3) amendment of our certificate of
incorporation or bylaws. Furthermore, until June 2009, our Chairman and Chief
Technology Officer, Ira Tabankin, will hold one share of our Series A Preferred
Stock giving him the right to appoint one member of our board of directors. Mr.
Tabankin may appoint himself or another person. Moreover, together, the
management stockholders will have substantial influence over our management and
affairs. Our other stockholders will likely have no practical ability to remove
our management or affect our operations or business.
WE DID NOT REPORT IN ANY REQUIRED FILING WITH THE SEC THAT OUR CHARTER WAS
REVOKED BY THE STATE OF DELAWARE FOR FAILING TO FILE ANNUAL REPORTS AND PAY
ANNUAL STATE FRANCHISE TAXES AND WE MAY FACE PENALTIES OR BE SUBJECT TO AN
ENFORCEMENT ACTION BY THE SEC WHICH COULD HAVE AN ADVERSE EFFECT ON THE PRICE OF
OUR COMMON STOCK.
On March 1, 2001, the State of Delaware revoked our charter for failure
to file our annual report with the State of Delaware for the years 1999 and 2000
and failure to pay our franchise tax for those years. On May 29, 2003, we filed
a Form 10-SB with the SEC to become a reporting company. We amended the Form
10-SB in July 2003. Our charter in the State of Delaware was revived on March
31, 2005 after payment of franchise taxes due with penalties and interest in an
amount equal to $592.40. During the period since becoming a reporting company
until we filed our amended 8-K on July 15, 2005 (the "Omission Period"), we had
not reported the fact of such revocation on any report or Form that we have
filed or are required to be filed with the SEC, including quarterly and annual
reports (including the annual report that was filed by us on March 31, 2005) and
the Form S-8 filed by us in connection with our registration of certain of our
shares on May 6, 2004. We may be subject to potential liability to stockholders
who purchased securities from us during the Omission Period. The omission may
also subject us to possible liability for violation of the regulations of the
SEC under the Securities Act and the Securities Exchange Act. While we have
obtained written waivers of liability from our stockholders who purchased our
securities during the Omission Period, we offer no opinion on the effect of such
waivers or whether or not the SEC would exercise its enforcement discretion and
if it did, what action, if any, it would take.
WE WILL INCUR LOSSES ONCE WE BEGIN OPERATIONS WHICH WILL CONTINUE FOR THE
FORESEEABLE FUTURE. WE WILL REQUIRE ADDITIONAL CAPITAL FINANCING IN CONNECTION
WITH OUR PLANNED EXPANSION OF OPERATIONS AND MAY HAVE DIFFICULTY OBTAINING SUCH
ADDITIONAL CAPITAL ON ACCEPTABLE TERMS OR AT ALL. IF ADEQUATE FUNDS ARE NOT
AVAILABLE, WE MAY BE REQUIRED TO CURTAIL OUR OPERATIONS, OR OBTAIN FUNDS ON
UNFAVORABLE TERMS.
Our available resources will not be sufficient, without additional financing, to
achieve commercial operation. We expect to incur operating losses until we have
completed development and testing of our products, negotiated a number of
customer contracts on favorable terms and successfully served such customer
accounts. If revenues from operations are insufficient to support our planned
expanded operations, we will need access to debt and/or equity capital. If
public or private financing is not available when needed or is not available on
terms acceptable to us, our growth and revenue-generating plans may be
materially impaired. Such results could have a material adverse effect on our
financial condition, results of operations and future prospects.
24
As described above under "Liquidity and Capital Resources," we have
issued and outstanding warrants to purchase the common stock. Under certain
circumstances certain of those warrants are callable by us. There can be no
assurance that our right to call the warrants will be triggered or that the
holders of such warrants will exercise the warrants.
RISKS RELATED TO OUR INDUSTRY.
THE SECURITY MARKET IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO COMPETE
EFFECTIVELY.
The security market is diverse and highly competitive and is
characterized by relatively low entry barriers. Moreover, it is subject to
constant technological change and intense marketing by providers who may be
capable in a short period of time to introduce similar products to the
CATCHER(TM) device. We expect that new competitors are likely to join the
security market with an initial entry into the air transportation submarket, the
same market entry strategy employed by us. Many of our potential competitors are
significantly larger and have substantially greater market presence as well as
greater financial, technical, operational, sales, marketing and other resources
and experience, including more established relationships with vendors,
distributors and partners, than we have. In the event that such a competitor
expends significant sales and marketing resources in one or several of the
security market segments where we compete, we may not be able to continue to
compete successfully in such markets. We believe that there will be significant
competition in the security market for products having similar functionality to
the CATCHER(TM) device. Such competition will exert downward pressure on prices.
In addition, the pace of technological change could make it impossible for us to
keep pace with such competitors in such an environment. If our competitors were
to provide better product at better prices, our financial condition, results of
operations and future prospects will be materially adversely affected.
COMPETITION FROM A MYRIAD OF SOURCES COULD ADVERSELY AFFECT US.
Many of the aspects of our business are currently and potentially
highly competitive. We will compete with numerous other companies in different
segments of the security market with the financial and technological ability to
compete with us. Moreover, it is possible that the Patent, if it issues, will
not provide Catcher with adequate protection from companies capable of
circumventing it. In addition, the Patent is not based on technological
innovation in any particular function of the CATCHER(TM) device, but rather on
its total functional concept. This concept could be copied or improved upon by
competitors over a period of time that may be short. Many of these potential
competitors have substantially greater capital and other resources than we do
and many are better situated to attract experienced technical and other
personnel. Our current competitive edge in large part depends upon the extensive
knowledge of Catcher's management team in creating and thus far developing the
CATCHER(TM) device and in its relationships with the Catcher's strategic
partners and potential customer base. While we believe that this is a
significant competitive advantage, it is not one that depends upon any resource
that is unique to us. If we were to lose this competitive advantage, such loss
would have a material adverse effect on our business prospects, financial
condition and results from operations.
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RISKS RELATED TO THE SECURITIES MARKETS AND INVESTMENTS IN OUR COMMON STOCK
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH MAY LIMIT OUR ABILITY TO
RAISE CAPITAL IN THE FUTURE OR CAUSE INVESTMENT LOSSES FOR OUR STOCKHOLDERS.
The trading price of our common stock may fluctuate substantially for
many reasons, some of which are beyond our control and may not be related to our
operating performance. These fluctuations could cause you to lose part or all of
your investment in our common stock. Those factors that could cause fluctuations
include, but are not limited to, the following:
o price and volume fluctuations in the overall stock market from
time to time;
o fluctuations in stock market prices and trading volumes of
similar companies;
o actual or anticipated changes in our earnings or fluctuations
in our operating results or in the expectations of securities
analysts;
o general economic conditions and trends;
o major catastrophic events;
o sales of large blocks of our stock;
o departures of key personnel;
o events affecting any strategic partners or collaborators;
o announcements of new products or technologies, commercial
relationships or other events by us or our competitors;
o regulatory developments in the United States and other
countries;
o failure of our common stock to be quoted on the OTC Bulletin
Board or listed on the Nasdaq Small Cap Market, American Stock
Exchange, or other national securities market or exchange;
o changes in accounting principles; and
o discussion of us or our stock price by the financial and
scientific press and in online investor communities.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been brought
against that company. Due to the potential volatility of our stock price, we may
be the target of securities litigation in the future. Securities litigation
could result in substantial costs and divert management's attention and
resources from our business.
OUR COMMON STOCK IS CONSIDERED TO BE "PENNY STOCK."
Our common stock may be deemed to be "penny stock" as that term is
defined in Rule 3a51-1, promulgated under the Securities and Exchange Act of
1934, as amended (the "Exchange Act"). Section 15(g) of the Exchange Act and
Rule 15g-2 promulgated thereunder require broker-dealers dealing in penny stocks
to provide potential investors with a document
26
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a "penny
stock" for the investor's account. We urge potential investors to obtain and
read this disclosure carefully before purchasing any shares that are deemed to
be "penny stock."
Rule 15g-9 promulgated under the Exchange Act requires
broker-dealers in penny stocks to approve the account of any investor for
transactions in such stocks before selling any "penny stock" to that investor.
This procedure requires the broker-dealer to:
o obtain from the investor information about his or her
financial situation, investment experience and investment
objectives;
o reasonably determine, based on that information, that
transactions in penny stocks are suitable for the investor and
that the investor has enough knowledge and experience to be
able to evaluate the risks of "penny stock" transactions;
o provide the investor with a written statement setting forth
the basis on which the broker-dealer made his or her
determination; and
o receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the
investor's financial situation, investment experience and
investment objectives.
Compliance with these requirements may make it harder for investors in
our common stock to resell their shares to third parties. Accordingly, our
common stock should only be purchased by investors who understand that such
investment is a long-term and illiquid investment, and are capable of and
prepared to bear the risk of holding the common stock for an indefinite period
of time.
WE MAY INCUR INCREASED COSTS AS A RESULT OF RECENTLY ENACTED AND PROPOSED
CHANGES IN LAWS AND REGULATIONS RELATING TO CORPORATE GOVERNANCE MATTERS WHICH
MAY CAUSE US TO REALLOCATE OUR SOURCES, WHICH COULD ADVERSELY AFFECT OUR
BUSINESS.
Recently enacted and proposed changes in the laws and regulations
affecting public companies, including the provisions of the Sarbanes-Oxley Act
of 2002 and rules adopted or proposed by the SEC and by the Nasdaq Stock Market,
will result in increased costs to us as we evaluate the implications of these
laws and regulations and respond to their requirements. These laws and
regulations could make it more difficult or more costly for us to obtain certain
types of insurance, including director and officer liability insurance, and we
may be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. The impact of
these events could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors, our board committees or as
executive officers. We are presently evaluating and monitoring developments with
respect to these laws and regulations and cannot predict or estimate the amount
or timing of additional costs we may incur to respond to their requirements.
A LIMITED PUBLIC TRADING MARKET MAY CAUSE VOLATILITY IN THE PRICE OF OUR COMMON
STOCK.
Our common stock is currently quoted on the OTC Bulletin Board. The
quotation of our common stock on the OTC Bulletin Board does not assure that a
meaningful, consistent and liquid trading market currently exists, and in recent
years such market has experience extreme price
27
and volume fluctuations that have particularly affected the market prices of
many smaller companies like us. Our common stock is thus subject to this
volatility. Sales of substantial amounts of common stock, or the perception that
such sales might occur, could adversely affect prevailing market prices of our
common stock and our stock price may decline substantially in a short time and
our stockholders could suffer losses or be unable to liquidate their holdings.
WE MAY NOT BE ABLE TO ACHIEVE SECONDARY TRADING OF OUR STOCK IN CERTAIN STATES
BECAUSE OUR COMMON STOCK IS NOT NATIONALLY TRADED.
Because our common stock is not approved for trading on the Nasdaq
National Market or listed for trading on a national securities exchange, our
common stock is subject to the securities laws of the various states and
jurisdictions of the United States in addition to federal securities law. This
regulation covers any primary offering we might attempt and all secondary
trading by our stockholders. While we may register our common stock or qualify
for exemptions for our common stock in one of more states, if we fail to do so
the investors in those states where we have not taken such steps may not be
allowed to purchase our stock or those who presently hold our stock may not be
able to resell their shares without substantial effort and expense. These
restrictions and potential costs could be significant burdens on our
stockholders.
WE ARE ABLE TO ISSUE SHARES OF PREFERRED STOCK WITH RIGHTS SUPERIOR TO THOSE OF
HOLDERS OF OUR COMMON STOCK WHICH MAY ADVERSELY AFFECT OUR COMMON STOCK.
Our Certificate of Incorporation provides for the authorization of
999,999 shares of "blank check" preferred stock. Pursuant to our Certificate of
Incorporation, our board of directors is authorized to issue such "blank check"
preferred stock with rights that are superior to the rights of holders of our
common stock. The issuance of such preferred stock may adversely impact the
rights of holders of our common stock.
IF WE ISSUE ADDITIONAL SHARES OF STOCK, SUCH ISSUANCES CAN DILUTE THE TANGIBLE
NET BOOK VALUE OF SHARES OF OUR OUTSTANDING STOCK.
We may issue shares of stock at a purchase price that is substantially
lower than the market price of shares of our common stock, without stockholder
approval. If we issue such shares of stock, then the tangible net book value of
shares of our outstanding stock will be diluted.
ADDITIONAL AUTHORIZED SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE MAY
ADVERSELY AFFECT THE MARKET FOR OUR COMMON STOCK AND DILUTE THE INTERESTS OF OUR
STOCKHOLDERS.
We are authorized to issue 50,000,000 shares of our common stock. As of
September 30, 2005, we had 12,500,369 shares of our common stock issued and
outstanding, excluding shares issuable upon exercise of our outstanding warrants
and options. To the extent the shares of common stock are issued or options and
warrants are exercised, holders of our common stock will experience dilution. In
addition, in the event of any future financing of equity securities or
securities convertible into or exchangeable for, common stock, holders of our
common stock may experience dilution. Additionally, sales of substantial amounts
of the common stock in the public market by these holders or perceptions that
such sales may take place may lower the common stock market price.
28
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
From time to time, certain of our stockholders may be eligible to sell
all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144 ("Rule 144") promulgated
under the Securities Act of 1933, as amended (the "Securities Act of 1933"),
subject to certain limitations. In general, pursuant to Rule 144, a stockholder
(or stockholders whose shares are aggregated) who has satisfied a one-year
holding period may, under certain circumstances, sell within any three-month
period a number of securities which does not exceed the greater of 1% of the
then outstanding shares of common stock or the average weekly trading volume of
the class during the four calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of securities, without any
limitations, by a non-affiliate of our company who has satisfied a two-year
holding period. Any substantial sale of our common stock pursuant to Rule 144 or
pursuant to any resale prospectus may have an adverse effect on the market price
of our securities.
An aggregate of 15,490,404 shares of common stock are being registered
with the SEC pursuant to a registration statement that we originally filed with
the SEC on August 1, 2005. A portion of these shares may otherwise be eligible
for future sale under Rule 144 after passage of the minimum one year holding
period for holders who are not our officers, directors or affiliates. The
registration and subsequent sales of such shares of common stock will likely
have an adverse effect on the market price of our common stock when it commences
to trade.
IT IS UNCERTAIN WHETHER WE WILL EVER PAY DIVIDENDS OR EVER PROVIDE AN
OPPORTUNITY FOR ANY RETURN ON INVESTMENT. OUR SECURITIES SHOULD NOT BE PURCHASED
BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
It is uncertain whether we will ever pay dividends on our common stock.
Moreover, under Delaware General Corporation Law, dividends can only be paid
from surplus or, if no surplus, out of net profits for the then current or next
preceding fiscal year and there is no assurance that any such surplus or profit
will be generated. Our securities should not be purchased by persons who cannot
afford the loss of their entire investment.
ITEM 3. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. We maintain
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports pursuant to the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Securities Exchange of 1934, as
amended, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the quarter
29
covered by this report. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective at the reasonable assurance level.
(b) CHANGES IN INTERNAL CONTROLS. There was no change in our internal
control over financial reporting during the quarter ended September 30, 2005
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
30
PART II
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
(a) Exhibits
3.1. Certified copy of the Amended and Restated Certificate of Incorporation
of the Company incorporated by reference to Exhibit 3.1 to the Form 8-K
filed with the Securities and Exchange Commission (the "SEC") on June
28, 2005.
3.2 Bylaws of the Registrant incorporated by reference to Exhibit 2.2 of
the Form 10-SB filed with the SEC on May 29, 2003, as amended by
Amendment No. 1 to the Bylaws of the Company incorporated by reference
to Exhibit 3.2 to the Form 8-K filed with the SEC on August 1, 2005.
4.1 Form of Series A Warrant issued to investors incorporated by reference
to Exhibit 4.1 to the Form 8-K/A filed with the SEC on July 15, 2005.
4.2 Form of Series B Warrant issued to investors incorporated by reference
to Exhibit 4.2 to the Form 8-K/A filed with the SEC on July 15, 2005.
4.3 Form of Warrant issued to Stan Blackburn incorporated by reference to
Exhibit 4.1 to the Form 8-K filed with the SEC on June 28, 2005.
4.4 Form of Warrant issued to Jeff Gilford incorporated by reference to
Exhibit 4.2 to the Form 8-K filed with the SEC on June 28, 2005.
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10.1 Employment Agreement Amendment Letter dated July 29, 2005 with Ira
Tabankin incorporated by reference to Exhibit 10.1 to the Form 8-K
filed with the SEC on August 1, 2005.
10.2 Employment Agreement Amendment Letter dated July 29, 2005 with Charles
Sander incorporated by reference to Exhibit 10.2 to the Form 8-K filed
with the SEC on August 1, 2005.
10.3 Employment Agreement Amendment Letter dated July 29, 2005 with John
Sutton incorporated by reference to Exhibit 10.3 to the Form 8-K filed
with the SEC on August 1, 2005.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CATCHER HOLDINGS, INC.
Date: November 9, 2005 By: /s/ Charles Sander
--------------------------------------------
Name: Charles Sander
Title: Chief Executive Officer
(Principal Executive Officer)
Date: November 9, 2005 By: /s/ Jeff Gilford
--------------------------------------------
Name: Jeff Gilford
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
33