As filed with the Securities and Exchange Commission on May 5, 2005
Registration Statement No. 333-_________
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
SOURCE DIRECT HOLDINGS, INC.
(Name of issuer in its charter)
---------------
Nevada 2842 20-0858264
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
4323 COMMERCE CIRCLE
IDAHO FALLS, IDAHO 83401
(208) 529-4114
(Address and telephone number of registrant's principal executive offices
and principal place of business)
----------------
DEREN SMITH
4323 COMMERCE CIRCLE
IDAHO FALLS, IDAHO 83401
(208) 529-4114
(Name, Address and telephone number of agent for service)
----------------
Copies to:
C. PARKINSON LLOYD, ESQ.
DURHAM JONES & PINEGAR
111 EAST BROADWAY, SUITE 900
SALT LAKE CITY, UTAH 84111
(801) 415-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following boxes and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following boxes and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Proposed Proposed
Maximum Maximum
Amount Aggregate Aggregate Amount of
Title of Class of Securities To be Price Offering Registration
to be Registered Registered (1) Per Share Price Fee
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, 38,261,126 shares (2) $0.25(3) $ 9,565,282 (3) $ 1,126 (3)
no par value per share
------------------- -------------- ---------
Totals 38,261,126 shares $ 9,565,282 $ 1,126
=================== ============== =========
- -------------------------------------------------------------------------------------------------------------------------
(1) All shares offered for resale by the Selling Shareholders.
(2) Consisting of (i) 18,360,000 shares of common stock held by the Selling
Shareholders; and (ii) 19,901,126 shares underlying warrants held by
nine of the Selling Shareholders.
(3) The fee was estimated pursuant to Rule 457(c) under the Act on the
basis of the average of the bid and asked price of the common stock of
Source Direct Holdings, Inc. as reported on the OTC Bulletin Board on
April 26, 2005.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SOURCE DIRECT HOLDINGS, INC.
A Nevada Corporation
38,261,126 Shares of Common Stock
no par value per share
This prospectus relates to the resale of up to 38,261,126 shares (the "Shares")
of common stock of Source Direct Holdings, Inc., a Nevada corporation. Thirty of
our shareholders, listed in the section "Summary of the offering" (the "Selling
Shareholders") are offering all of the Shares covered by this prospectus. We are
not selling any shares under this prospectus. The Selling Shareholders will
receive all of the proceeds from the sale of the Shares and we will receive none
of those proceeds.
-------------------------
Investment in the Shares involves a high degree of risk. You should
consider carefully the risk factors beginning on page 5 of this prospectus
before purchasing any of the Shares offered by this prospectus.
-------------------------
Source Direct Holdings, Inc., common stock is quoted on the OTC
Bulletin Board and trades under the symbol "SDRT." The last reported sale price
of our common stock on the OTC Bulletin Board on April 26, 2005, was
approximately $0.25 per share. Nevertheless, the Selling Shareholders do not
have to sell the Shares in transactions reported on the OTC Bulletin Board, and
may offer their Shares through any type of public or private transactions.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------------
May __, 2005
1
SOURCE DIRECT HOLDINGS, INC. ("SOURCE DIRECT"), HAS NOT REGISTERED THE
SHARES FOR SALE BY THE SELLING SHAREHOLDERS UNDER THE SECURITIES LAWS OF ANY
STATE. BROKERS OR DEALERS EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM
THAT THE SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES LAWS OF THE STATE OR
STATES IN WHICH SALES OF THE SHARES OCCUR AS OF THE TIME OF SUCH SALES, OR THAT
THERE IS AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES LAWS OF SUCH STATES.
THIS PROSPECTUS IS NOT AN OFFER TO SELL ANY SECURITIES OTHER THAN THE
SHARES. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH AN OFFER IS UNLAWFUL.
SOURCE DIRECT HAS NOT AUTHORIZED ANYONE, INCLUDING ANY SALESPERSON OR
BROKER, TO GIVE ORAL OR WRITTEN INFORMATION ABOUT THIS OFFERING, SOURCE DIRECT,
OR THE SHARES THAT IS DIFFERENT FROM THE INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS, OR ANY SUPPLEMENT TO THIS PROSPECTUS, IS ACCURATE AT ANY DATE OTHER
THAN THE DATE INDICATED ON THE COVER PAGE OF THIS PROSPECTUS OR ANY SUPPLEMENT
TO IT. IN THIS PROSPECTUS, REFERENCES TO "SOURCE DIRECT," "THE COMPANY," "WE,"
"US," AND "OUR," REFER TO SOURCE DIRECT HOLDINGS, INC., AND ITS SUBSIDIARIES.
TABLE OF CONTENTS
Summary about Source Direct and this offering.................................2
Risk factors..................................................................5
Use of proceeds...............................................................7
Determination of offering price...............................................7
Selling Shareholders..........................................................7
Plan of distribution.........................................................10
Regulation M.................................................................11
Legal Proceedings............................................................11
Directors, executive officers, promoters and control persons.................12
Security ownership of certain beneficial owners and management...............13
Description of common stock..................................................13
Commission's position on indemnification for Securities Act liabilities......14
Certain relationships and related transactions...............................14
Description of business......................................................15
Recent Developments..........................................................20
Management's discussion and analysis or plan of operation....................20
Forward-looking statements...................................................23
Description of Property......................................................23
Market for common equity and related stockholder matters.....................23
Executive compensation.......................................................25
Index to financial statements ...............................................25
Changes in and disagreements with accountants on accounting and
financial disclosure.........................................................26
Summary about Source Direct and this offering
Source Direct
Source Direct, Inc. ("SDI"), was incorporated under the laws of the State
of Idaho on July 8, 2002. Since its inception, SDI has been in the business of
promoting and marketing cleaning products and supplies, and
2
developing new products.
On October 14, 2003, SDI, the predecessor of the Company, merged with a
wholly owned subsidiary of Global Tech Capital Corp. ("GTCC"), a publicly traded
Nevada corporation which was incorporated on July 21, 1998. As a result of the
merger, SDI was the surviving entity, and became a wholly owned subsidiary of
GTCC. GTCC's name was then changed to Source Direct Holdings, Inc.
References in these financial statements to the "Company" refer to
Source Direct Holdings, Inc., and its subsidiary, Source Direct, Inc., unless
otherwise stated.
Summary of Our Business
We are an emerging company, which has acquired the formulas for two
cleaning products. These products are Simply Wow(R) and Stain Pen(TM). The
formulas for these products were developed by Deren Z. Smith, the President of
Source Direct and one of its directors. Kevin Arave, the Secretary/Treasurer of
Source Direct and a director, also assisted in the funding for the development
of the formulas. Any and all rights and interests of these parties in and to the
formulas or the trademarks were transferred to the Company for 11,500,000 shares
each of the Subsidiary. These shares converted into 17,250,000 of the parent
company as a result of the Merger. In addition to these two products we have
developed a new product called Prompt(TM) that was introduced in August 2004.
We own the trademarks to all three of our products but have not made
application for any patents. Management believes it would be difficult, if not
impossible, to duplicate the formulas for the Company's products. We maintain
confidentiality agreements with all parties who have access to the formulas.
Nevertheless, there is no assurance that someone could not duplicate the
formulas and directly compete with the company. The cost of litigating the issue
of illegal competition may preclude us from being able to protect the secrecy of
the formulas.
Our address is 4323 Commerce Circle, Idaho Falls, Idaho, 83401, and our
telephone number is (208) 529-4114.
Additional information about Source Direct and our products can be
found below in the Section "Description of Business."
Summary of the offering
This prospectus, and the registration statement of which it is a part,
register the resale of up to 37,720,000 shares (the "Shares") by twenty-five of
our shareholders (the "Selling Shareholders"). All of the selling shareholders
owned shares of our common stock as of the filing of this registration
statement, and twenty-four of the Selling Shareholders also held warrants (the
"Warrants") to purchase shares of our common stock. This prospectus and the
registration statement of which it is a part registers the resale of both the
shares held by the Selling Shareholders, as well as the shares underlying the
Warrants. The ownership of shares and warrants is as follows:
3
Name Number of Shares Number of Warrants Total Shares
and Warrants
International Mkt, Group 2,000,000 0 2,000,000
NCP Enterprises 2,950,000 1,891,126 4,841,126
Mark Miller 500,000 500,000 1,000,000
Darnell Browning 500,000 500,000 1,000,000
Integritas 1,000,000 1,500,000 2,500,000
Asset Growth Strategies 1,500,000 2,000,000 3,500,000
Reyna Enterprises Inc. 500,000 500,000 1,000,000
Jonquil International Inc. 500,000 500,000 1,000,000
Robert Neises 1,000,000 1,000,000 2,000,000
Darnell Motorsports 500,000 500,000 1,000,000
Amy Gardels 50,000 50,000 100,000
Ray Peterson 100,000 100,000 200,000
Kent Lott 200,000 200,000 400,000
Kerry Howell 100,000 100,000 200,000
Merlin Waddups 70,000 70,000 140,000
Dale Huftaker 50,000 50,000 100,000
Randy Trane 50,000 50,000 100,000
Brian Long 50,000 50,000 100,000
Tim Hooten 50,000 50,000 100,000
Southwest Ventures 100,000 100,000 200,000
Don Price 1,630,000 1,630,000 3,260,000
Lloyed Bradshaw 100,000 100,000 200,000
Nyle Randall 160,000 160,000 320,000
Sussex Ave Partners 500,000 500,000 1,000,000
Corporate Capital 2,000,000 0 2,000,000
OmniCap Inc. 1,000,000 0 1,000,000
Confederated Capital Co. 300,000 300,000 600,000
Gordon Sage 750,000 0 750,000
Rick Lyons 150,000 0 150,000
Benper S.A. de C.V. 0 7,500,000 7,500,000
Totals 18,360,000 19,901,126 38,261,126
The individuals and entities named above are the Selling Shareholders
who will be selling the shares covered by this prospectus and the registration
statement of which it is a part. The Selling Shareholders may sell the shares of
common stock in the public market or through privately negotiated transactions
or otherwise, as described in the section entitled "Plan of Distribution."
Additional information regarding each of the selling shareholders can be found
below in the Section entitled "Selling shareholders."
Brokers or dealers effecting transactions in the shares being
registered in this offering should confirm that the shares are registered under
applicable state law or that an exemption from registration is available.
4
Risk Factors
In addition to the other information in this prospectus, the following risk
factors should be considered carefully in evaluating our business before
purchasing any of our shares of common stock. A purchase of our common stock is
speculative and involves significant and substantial risks. Any person who is
not in a position to lose the entire amount of his investment should forego
purchasing our common stock.
The financial statements of the Company include a "going concern" limitation,
and there is no guarantee that we will be able to continue to operate our
business or generate revenues.
The financial statements of the Company have been prepared based upon
the assumption that it will achieve a level of profitable operations and/or
obtain additional financing. We have not yet established a source of revenues
sufficient to cover our operating costs and allow us to continue as a going
concern. Since inception and through December 31, 2004, we have had accumulated
losses totaling approximately $353,796. Also, as of December 31, 2004, we had
limited operating history. If we are unable to generate revenues or obtain
additional financing prior to the use of our current cash resources, we may be
required to cease operations.
We have a limited operating history and may require additional funding, which
could result in dilution of the interests of investors who purchase shares in
connection with this offering.
We have only recently commenced our principal business operations and
therefore have only a limited operating history. We have experienced significant
losses since inception and have generated only limited revenues. There is no
assurance that we will ever achieve full operations or that we will ever be
profitable. Further, there is no assurance that our cash funds will be
sufficient to continue operations or to meet our cash requirements for the
remainder of the next fiscal year. We likely will require further funding. We
presently have no agreements or arrangements for such additional funding. If we
are unable to obtain such funding, or are unable to obtain funding on terms that
are satisfactory, we could be required to severely cut back or cease operations.
Additionally, such funding could involve our issuing additional shares
of our common stock or debt instruments that are convertible into shares of our
common stock. Any issuances of additional shares will result in dilution of the
interests of our shareholders, including any investors who purchase shares in
connection with this offering.
We have not applied for a patent on our products, and as such, we do not have
the protection that the patent laws afford to patented products.
We have not made application for a patent on either of our products.
Presently, our management believes it would be difficult, if not impossible, to
duplicate the formulas for our products. We maintain confidentiality agreements
with all parties who have access to our formulas and other trade secrets.
Nevertheless, there is no assurance that someone could not duplicate the
formulas and directly compete with us. The cost of litigating the issue of
illegal competition may preclude us from being able to protect the secrecy of
our formulas or other trade secrets. Public disclosure or availability of our
formulas could have a material adverse impact on our operations and our ability
to sell our products.
The loss of the services of current management would have a material negative
impact on our business and operations.
We will be dependent on our current management, which includes the
developer of the formulas, for the foreseeable future. The loss of the services
of any member of this management group could have a material adverse effect on
our operations and prospects. At present, we do not have employment agreements
or other agreements with management which would prevent them from leaving and
competing with us. We have not obtained "key man" insurance policies on any
member of management. As such, the loss of the services of any of our current
management could have material adverse impact on our operations and our
business.
5
We will be in competition with a number of other companies, which may be better
financed than we are.
The market for cleaning products is intensely competitive, and
historically has been dominated by a small number of large, well-established,
and well-financed companies. Many of these companies compete directly with us
and our products, and have longer operating histories and greater financial,
technical, sales and marketing resources than we do. In addition, we also face
competition from potential new entrants into the market who may develop new
cleaning products. There can be no that we will be able to compete successfully
against current and future competitors or that competitive pressures will not
result in price reductions, reduced operating margins and loss of market share,
any one of which could seriously harm our business. Additionally, there can be
no guarantee that the life cycle of any of our products will be sufficient for
us to realize profitability.
There is little active public market for our common stock, which may make an
investment in our common stock illiquid, and difficult to sell or transfer.
Although our common stock is quoted on the OTC Bulletin Board under the
ticker symbol SDRT.OB, there is currently little active trading of the stock and
no assurance that trading volume will increase in the future. Therefore, the
nature of our common stock is extremely illiquid. The shares of our common stock
offered in connection with this offering are appropriate only for an investor
who has no need for liquidity in the shares and who has adequate means of
providing for his or her current needs and contingencies, even if the receipt of
such shares results in a total loss to the shareholder.
Because of the historical market price of our shares, our common stock is
designated as penny stock.
Our shares are designated as "penny stock" and thus may be more
illiquid. The SEC has adopted certain rules (Rules 15g-2 through l5g-6 of the
Exchange Act) which regulate broker-dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are any non-NASDAQ equity
securities with a price of less than $5.00, subject to certain exceptions. The
penny stock rules require a broker-dealer to deliver a standardized risk
disclosure document prepared by the SEC, to provide the customer with current
bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, monthly account statements
showing the market value of each penny stock held in the customers account, to
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity, if any, in the secondary market for a stock that
is subject to the penny stock rules. Because shares of our common stock are
subject to the penny stock rules, persons holding or receiving such shares may
find it more difficult to sell their shares. The market liquidity for the shares
could be severely and adversely affected by limiting the ability of
broker-dealers to sell the shares and the ability of shareholders to sell their
stock in any secondary market.
The market for the Company's shares is volatile, and there can be no guarantee
as to price performance of the shares.
The over-the-counter market for securities, such as the one on which
our common stock is quoted, has historically experienced extreme price and
volume fluctuations during certain periods. These broad market fluctuations as
well as other factors, such as market acceptance of our products, and trends in
the cleaning products industry, and the investment markets generally, as well as
economic conditions and quarterly variations in its results of operations, may
adversely affect the market price of our common stock.
Future issuances of stock could adversely affect holders of the Company's common
stock.
Our Board of Directors is authorized by our articles of incorporation
and our bylaws to issue up to 100,000,000 shares of common stock, of which
74,231,400 shares were outstanding as of April 25, 2005, which can be issued
without shareholder approval. Additional common stock may be issued or reserved
for issuance on terms and at prices as may be determined by the Board of
Directors. Among other things, such authority may make it more difficult for a
person to acquire or take over the Company. In turn, this may make it less
likely that holders of
6
common stock will receive a premium price for their shares in any attempted
take-over transaction.
There may be additional unknown risks which could have a negative effect on us
and our business.
The risks and uncertainties described in this section are not the only
ones facing Source Direct. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of the foregoing risks actually occur, our business,
financial condition, or results of operations could be materially adversely
affected. In such case, the trading price of our common stock could decline.
Use of Proceeds
Any of the Shares sold under this prospectus are being offered and sold
by the Selling Shareholders or their pledgees, donnees, transferees, or other
successors in interest. We will not sell any shares under this prospectus or
receive any proceeds from sales by the Selling Shareholders.
We used the proceeds of the sales of certain of the Shares to the
Selling Shareholders for general corporate purposes, including working capital,
purchase of inventory and materials, property improvements, repayment of
outstanding obligations, marketing activities, and product development.
Determination of Offering Price
The Selling Shareholders may sell our common stock at prices then
prevailing or related to the then current market price, or at negotiated prices.
The offering price may have no relationship to any established criteria or
value, such as book value or earnings per share. Additionally, because we have a
limited operating history, the price of our common stock may not be based on
past earnings, nor is the price of the shares of our common stock indicative of
current market value for the assets we own. No valuation or appraisal has been
prepared for our business or possible business expansion.
Selling shareholders
Ten of our investors are the Selling Shareholders in connection with
this prospectus and the registration statement of which it is a part. This
prospectus, and the registration statement of which it is a part, cover the
shares issued to the Selling Shareholders, as well as shares underlying the
Warrants issued to certain of the Selling Shareholders. Details of when each of
the Selling Shareholders received his or her shares are as follows:
Investors purchasing in private offering
We conducted a private offering (the "Private Offering") of shares of
our common stock and warrants from September 2004 through February 2005. The
purchase price of the shares was $0.10 per share, and the Warrants each have an
exercise price of $0.125 per share. The Warrants are exercisable at any time
through three years from the date of purchase. The following Selling
Shareholders obtained the Shares and Warrants in the Private Offering: NCP
Enterprises; Mark Miller; Darnell Browning; Robert Nieses; Amy Gardels; Ray
Peterson; Kent Lott; Kerry Howell; Merlin Waddups; Dale Huffaker; Randy Trane;
Brian Long; Tim Hooten; Don Price; Southwest Ventures; Asset Growth Strategies;
Lloyed Bradshaw; and Confederated Capital Co.
Other issuances
The following shareholders obtained their shares and Warrants in other
private transactions, separate and apart from the Private Offering:
International Mkt. Group; Integritas; Asset Growth Strategies; Reyna
Enterprises; Jonquil International; Darnell Motorsports; Nyle Randall; Sussex
Ave. Partners; Corporate Capital; OmniCap, Inc.; Gordon Sage; Benper S.A. de
C.V., and Rick Lyons.
To the best of our knowledge, none of the Selling Shareholders owns
shares of our common stock other than those described in the table below.
7
The following table provides information about the actual and potential
ownership of shares of our common stock by the Selling Shareholders and the
number of our shares registered for sale in this prospectus. This prospectus and
the registration statement of which it is a part covers the resale of up to
13,780,000 shares of our common stock.
The following information is not determinative of the Selling
Shareholder's beneficial ownership of our common stock pursuant to Rule 13d-3 or
any other provision under the Securities Exchange Act of 1934, as amended.
Percentage of Number of Number of Percentage of
Shares of Common Stock Shares of Shares of Common Stock
Name of Selling Common Stock Owned by Common Stock Common Stock Beneficially
Shareholder Offered Selling Registered Owned After Owned After the
Hereunder Shareholder (1) Hereunder (2) Offering (3) Offering (3)
- --------------------- ----------------- ---------------- ------------------ ----------------- --------------------
NCP Enterprises 4,841,126 (4) 6.52% 4,841,126 (4) 0 0%
Darnell Browning 1,000,000 (5) 1.35% 1,000,000 (5) 0 0%
Mark Miller 1,000,000 (6) 1.35% 1,000,000 (6) 0 0%
Integritas 2,500,000 (7) 3.37% 2,500,000 (7) 0 0%
Reyna Enterprises 1,000,000 (8) 1.35% 1,000,000 (8) 0 0%
Jonquil International 1,000,000 (9) 1.35% 1,000,000 (9) 0 0%
Asset Growth Strategies 3,500,000 (10) 4.72% 3,500,000 (10) 0 0%
Gordon Sage 750,000 (11) 1.01% 750,000 (11) 0 0%
Nyle Randall 320,000 (12) 0.43% 320,000 (12) 0 0%
Rick Lyons 150,000 (13) 0.20% 150,000 (13) 0 0%
Robert H. Neises 2,000,000 (14) 2.69% 2,000,000 (14) 0 0%
Darnell Motorsports 1,000,000 (15) 1.35% 1,000,000 (15) 0 0%
Amy Gardels 100,000 (16) 0.13% 100,000 0 0%
Ray Peterson 200,000 (17) 0.27% 200,000 0 0%
Kent Lott 400,000 (18) 0.54% 400,000 0 0%
Kerry Howell 200,000 (19) 0.27% 200,000 0 0%
Merlin Waddups 140,000 (20) 0.19% 140,000 0 0%
Dale Huffaker 100,000 (21) 0.13% 100,000 0 0%
Randy Trane 100,000 (22) 0.13% 100,000 0 0%
Timothy Hooten 100,000 (23) 0.13% 100,000 0 0%
Brian Long 100,000 (24) 0.13% 100,000 0 0%
Southwest Ventures 200,000 (25) 0.27% 200,000 0 0%
Don Price 3,260,000 (26) 4.39% 3,260,000 0 0%
Lloyed Bradshaw 200,000 (27) 0.27% 200,000 0 0%
Sussex Ave. Partners 1,000,000 (28) 1.35% 1,000,000 0 0%
8
Sussex Ave. Partners 1,000,000 (28) 1.35% 1,000,000 0 0%
Confederated Capital Co. 600,000 (29) 0.81% 600,000 0 0%
Intenational Mkt. Group 2,000,000 (30) 2.69% 2,000,000 0 0%
Corporate Capital 2,000,000 (31) 2.69% 2,000,000 0 0%
OmniCap, Inc. 1,000,000 (32) 1.35% 1,000,000 0 0%
Benper S.A. de C.V. 7,500,000 (33) 10.10% 7,500,000 0 0%
- ---------------------
(1) The percentages set forth are not determinative of the Selling
Shareholder's beneficial ownership of our common stock pursuant to Rule 13d-3 or
any other provision under the Securities Exchange Act of 1934, as amended.
(2) The registration statement of which this prospectus is a part covers
the resale of up to 15,780,000 shares of common stock issued or issuable upon
exercise of the Warrants by the Selling Shareholders.
(3) Assumes the resale of all of the shares, including shares underlying
the Warrants, issued to each Selling Shareholder. There is no assurance that the
any of the Selling Shareholders will sell any or all of the shares offered
hereby. This number and percentage may change based on the Selling Shareholders'
decision to sell or hold the shares.
(4) Consisting of 2,950,000 shares and 1,891,126 shares underlying Warrants
which are presently exercisable.
(5) Consisting of 500,000 shares and 500,000 shares underlying Warrants
which are presently exercisable.
(6) Consisting of 500,000 shares and 500,000 shares underlying Warrants
which are presently exercisable.
(7) Consisting of 1,500,000 shares and 1,500,000 shares underlying Warrants
which are presently exercisable.
(8) Consisting of 500,000 shares and 500,000 shares underlying Warrants
which are presently exercisable.
(9) Consisting of 500,000 shares and 500,000 shares underlying Warrants
which are presently exercisable.
(10) Consisting of 1,500,000 shares and 2,000,000 shares underlying
Warrants which are presently exercisable.
(11) Consisting of 750,000 shares.
(12) Consisting of 160,000 shares and 160,000 shares underlying Warrants
which are presently exercisable.
(13) Consisting of 150,000 shares.
(14) Consisting of 1,000,000 shares and 1,000,000 shares underlying
Warrants which are presently exercisable.
9
(15) Consisting of 250,000 shares and 250,000 shares underlying Warrants
which are presently exercisable.
(16) Consisting of 50,000 shares and 50,000 shares underlying Warrants
which are presently exercisable.
(17) Consisting of 100,000 shares and 100,000 shares underlying Warrants
which are presently exercisable.
(18) Consisting of 200,000 shares and 200,000 shares underlying Warrants
which are presently exercisable.
(19) Consisting of 100,000 shares and 100,000 shares underlying Warrants
which are presently exercisable.
(20) Consisting of 70,000 shares and 70,000 shares underlying Warrants
which are presently exercisable.
(21) Consisting of 50,000 shares and 50,000 shares underlying Warrants
which are presently exercisable.
(22) Consisting of 50,000 shares and 50,000 shares underlying Warrants
which are presently exercisable.
(23) Consisting of 50,000 shares and 50,000 shares underlying Warrants
which are presently exercisable.
(24) Consisting of 50,000 shares and 50,000 shares underlying Warrants
which are presently exercisable.
(25) Consisting of 100,000 shares and 100,000 shares underlying Warrants
which are presently exercisable.
(26) Consisting of 1,630,000 shares and 1,630,000 shares underlying
Warrants which are presently exercisable.
(27) Consisting of 100,000 shares and 100,000 shares underlying Warrants
which are presently exercisable.
(28) Consisting of 500,000 shares and 500,000 shares underlying Warrants
which are presently exercisable.
(29) Consisting of 300,000 shares and 300,000 shares underlying Warrants
which are presently exercisable.
(30) Consisting of 2,000,000 shares.
(31) Consisting of 2,000,000 shares.
(32) Consisting of 1,000,000 shares.
(33) Consisting of 7,500,000 shares underlying Warrants which are presently
exercisable.
10
For the Selling Shareholders who are not natural persons, the
individuals with voting or investment control are as follows:
Selling Shareholder Name of Natural Person(s)
NCP Enterprises Dale Phillips
Integritas Phil Flynn
Reyna Enterprises Brian Neary
Jonquil International Jennifer Wolter
Asset Growth Strategies James Hunter
Darnell Motorsports Bay Darnell
Southwest Ventures Larry Kohler
Sussex Ave. Partners Barry R. Clark
Confederated Capital Co. Robert J. Palcowski
International Marketing Group John King
Corporate Capital Nancy Lake
OmniCap, Inc. Vicky Hunter
Benper S.A. de C.V. Louis Salinas
Plan of Distribution
Once the registration statement of which this prospectus is part
becomes effective with the Commission, the Shares covered by this prospectus may
be offered and sold from time to time by the Selling Shareholders or their
pledgees, donees, transferees or successors in interest. Such sales may be made
on the OTC Bulletin Board, in the over-the-counter market or otherwise, at
prices and under terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold by any means
permitted under law, including one or more of the following:
o a block trade in which a broker-dealer engaged by a Selling
Shareholder will attempt to sell the Shares as agent, but may position
and resell a portion of the block as principal to facilitate the
transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account under this prospectus;
o an over-the-counter distribution in accordance with the rules of the
OTC Bulletin Board;
o ordinary brokerage transactions in which the broker solicits
purchasers; and
o privately negotiated transactions.
In effecting sales, broker-dealers engaged by the Selling Shareholders
may arrange for other broker-dealers to participate in the resales.
In connection with distributions of the Shares or otherwise, a Selling
Shareholder may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares covered by this prospectus in the course of hedging the positions
they assume with the Selling Shareholder. A Selling Shareholder may also sell
the Shares short and redeliver the Shares to close out such short positions. A
Selling Shareholder may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares,
which the broker-dealer may resell or otherwise transfer under this prospectus.
A Selling Shareholder may also loan or pledge the Shares registered hereunder to
a broker-dealer and the broker-dealer may sell the shares so loaned or upon a
default the broker-dealer may effect sales of the pledged shares pursuant to
this prospectus.
11
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Shareholder in amounts to
be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers are deemed to be "underwriters" within the meaning
of the Securities Act, in connection with such sales and any such commission,
discount or concession may be deemed to be underwriting discounts or commissions
under the Securities Act.
We have advised the Selling Shareholders that the anti-manipulation
rules under the Securities Exchange Act of 1934 may apply to sales of shares in
the market and to the activities of the Selling Shareholders and their
affiliates. In addition, we will make copies of this prospectus available to the
Selling Shareholders and have informed them of the need for delivery of copies
of this prospectus to purchasers at or prior to the time of any sale of the
Shares offered hereby.
All costs, expenses and fees in connection with the registration of the
Shares will be borne by us. Commissions and discounts, if any, attributable to
the sales of the Shares will be borne by the appropriate Selling Shareholder. A
Selling Shareholder may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the Shares against certain
liabilities, including liabilities arising under the Securities Act of 1933. We
will not receive any proceeds from the sale of the Shares.
We have agreed with the Selling Shareholders to keep the registration
statement of which this prospectus constitutes a part effective for a period of
2 years from the date of the last advance under the Second Equity Line
Agreement. Trading of any unsold shares after the expiration of such period will
be subject to compliance with all applicable securities laws, including Rule
144.
The Selling Shareholders are not obligated to sell any or all of the
Shares covered by this prospectus.
In order to comply with the securities laws of certain states, the
Shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, the sale and issuance of Shares may be subject
to the notice filing requirements of certain states.
Regulation M
We have informed the Selling Shareholders that Regulation M promulgated
under the Securities Exchange Act of 1934 may be applicable to them with respect
to any purchase or sale of our common stock. In general, Rule 102 under
Regulation M prohibits any person connected with a distribution of our common
stock from directly or indirectly bidding for, or purchasing for any account in
which it has a beneficial interest, any of the Shares or any right to purchase
the Shares, for a period of one business day before and after completion of its
participation in the distribution.
During any distribution period, Regulation M prohibits the Selling
Shareholders and any other persons engaged in the distribution from engaging in
any stabilizing bid or purchasing our common stock except for the purpose of
preventing or retarding a decline in the open market price of the common stock.
None of these persons may effect any stabilizing transaction to facilitate any
offering at the market. As the Selling Shareholders will be offering and selling
our common stock at the market, Regulation M will prohibit them from effecting
any stabilizing transaction in contravention of Regulation M with respect to the
Shares.
We also have advised the Selling Shareholders that they should be aware
that the anti-manipulation provisions of Regulation M under the Exchange Act
will apply to purchases and sales of shares of common stock by the Selling
Shareholders, and that there are restrictions on market-making activities by
persons engaged in the distribution of the shares. Under Regulation M, the
Selling Shareholders or their agents may not bid for, purchase, or attempt to
induce any person to bid for or purchase, shares of our common stock while such
Selling Shareholders are distributing shares covered by this prospectus.
Regulation M may prohibit the Selling Shareholders from covering short sales by
purchasing shares while the distribution is taking place. We have advised the
Selling Shareholders that they should consult with their own legal counsel to
ensure compliance with Regulation M.
12
Legal Proceedings
None.
Directors, Executive Officers, Promoters and Control Persons
Directors and Officers
The following table sets forth information concerning the directors and
officers of Source Direct and their ages and positions. Each director holds
office until the next annual stockholders' meeting and thereafter until the
individual's successor is elected and qualified. Officers serve at the pleasure
of the board of directors.
NAME AGE POSITION
Deren Z. Smith 34 President and Director
Kevin Arave 46 Secretary/Treasurer and Director
Gordon Sage 63 Vice-President of Sales
Deren Z. Smith became the President of Source Direct Holdings, Inc., in
connection with the merger in October 2003, and has been employed as the
President of the Subsidiary since July 2002. From 1994 until 1996 he was
employed by Holland Chemical Inc. From 1996 until 2001 Mr. Smith was employed by
Car Wash Detergent Manufacturers. Mr. Smith filed for personal bankruptcy
protection in 1999 under Chapter 7 in the US Bankruptcy Court for the District
of Colorado and was discharged in 2000.
Kevin Arave became the Secretary/Treasurer of Source Direct Holdings,
Inc., in connection with the merger in October 2003, and has been employed as
Secretary and as director of logistics of the Subsidiary since July 2002. From
February 2000 until June 2003 he was employed as manager for Safety &
Environmental Products, a distributor of gloves and safety items. From 1996
until 2003 he was the owner of Intermountain Health & Safety, a distributor of
gloves and safety equipment. Mr. Arave filed for personal bankruptcy protection
under Chapter 7 in 2000 in the US Bankruptcy Court for the District of Idaho and
was discharged that same year.
Gordon Sage was appointed as Vice-President of Sales of Source Direct
Holdings, Inc. Mr. Sage has been a consultant to our company to secure the
placement of the company's products in retail accounts, including private
labeling of our products since October 2003. He has also been involved in
establishing a pricing list and product information. He has been responsible for
hiring brokers and consultants to market our products. Since October 2003 he has
devoted approximately 90% of his time to the business of our subsidiary Source
Direct, Inc. Since June 1995 he has also been a regional sales manager for
LifeSmart Nutrition Inc., a vitamin marketing company.
During the last five years, no officers or directors (except as noted
above) have been involved in any legal proceedings, bankruptcy proceedings,
criminal proceedings or violated any federal or state securities or commodities
laws or engaged in any activity that would limit their involvement in any type
of business, securities or banking activities.
Indemnification
Nevada law provides, among other things, that we may indemnify our
officers or directors so that they are not personally liable to us or to our
stockholders for damages arising from the officer or director's functioning as
an officer or director of the Company, except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional misconduct,
fraud, or a knowing violation of law, or (b) breach of fiduciary duty. We
anticipate we will enter into indemnification agreements with each of our
executive officers and directors pursuant to which we will agree to indemnify
each such person for all expenses and liabilities incurred by such person in
connection with any civil or criminal action brought against such person by
reason of their being an officer or director of the Company. In order to be
entitled to such indemnification, such person must have acted in good faith
13
and in a manner reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to criminal actions, such person must
have had no reasonable cause to believe that his conduct was unlawful.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 25, 2005, the name and shareholdings
of each person who owns of record, or was known by us to own beneficially,* 5%
or more of the shares of the common stock currently issued and outstanding; the
name and shareholdings, including options to acquire the common stock, of each
director; and the shareholdings of all executive officers and directors as a
group. Unless otherwise noted, The person's business address is c/o Source
Direct Holdings, Inc., 4323 Commerce Circle, Idaho Falls, Idaho, 83401.
Name of Person Number of Shares Owned Percentage of Ownership
- --------------
Deren Smith 17,167,000 23.13%
Kevin Arave 16,250,000 21.89%
Officers and Directors as a Group 33,417,000 45.02%
(2 persons)
* Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
issuable upon the exercise of options or warrants currently exercisable
or convertible within 60 days, are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants but
are not deemed outstanding for computing the percentage ownership of
any other person.
Description of Common Stock
We are authorized to issue 100,000,000 shares of our common stock, no
par value per share. As of April 25, 2005, we had outstanding 74,231,400 shares
of common stock.
Each holder of our common stock is entitled to a pro rata share of cash
distributions made to shareholders, including dividend payments, and are
entitled to one vote for each share of record on all matters to be voted on by
shareholders. There is no cumulative voting with respect to the election of our
directors or any other matter. Therefore, the holders of more than 50% of the
shares voted for the election of directors can elect all of the directors. The
holders of our common stock are entitled to receive dividends when, as and if
declared by our board of directors, in its sole discretion, from funds legally
available for such use. In the event of our liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of our liabilities
and after provision has been made for each class of stock, if any, having any
preference in relation to our common stock. Holders of our common stock have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to our common stock.
We have never declared or paid a cash dividend on our capital stock,
nor do we expect to pay cash dividends on our common stock in the foreseeable
future. We currently intend to retain our earnings, if any, for use in our
business. Any dividends declared in the future will be at the discretion of our
board of directors and subject to any restrictions that may be imposed by our
lenders.
We have elected not to be governed by the terms and provisions of the
Nevada Private Corporations Law that are designed to delay, defer or prevent a
change in control of the Company.
Penny Stock Rules
14
Because of the market price at the time this prospectus was filed, our
shares of common stock are subject to the "penny stock" rules of the Securities
Exchange Act of 1934 and various rules under this Act. In general terms, "penny
stock" is defined as any equity security that has a market price less than $5.00
per share, subject to certain exceptions. The rules provide that any equity
security is considered to be a penny stock unless that security is registered
and traded on a national securities exchange meeting specified criteria set by
the SEC, authorized for quotation from the NASDAQ stock market, issued by a
registered investment company, and excluded from the definition on the basis of
price (at least $5.00 per share), or based on the issuer's net tangible assets
or revenues. In the last case, the issuer's net tangible assets must exceed
$3,000,000 if in continuous operation for at least three years or $5,000,000 if
in operation for less than three years, or the issuer's average revenues for
each of the past three years must exceed $6,000,000.
Trading in shares of penny stock is subject to additional sales
practice requirements for broker-dealers who sell penny stocks to persons other
than established customers and accredited investors. Accredited investors, in
general, include individuals with assets in excess of $1,000,000 or annual
income exceeding $200,000 (or $300,000 together with their spouse), and certain
institutional investors. For transactions covered by these rules, broker-dealers
must make a special suitability determination for the purchase of the security
and must have received the purchaser's written consent to the transaction prior
to the purchase. Additionally, for any transaction involving a penny stock, the
rules require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock. A broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
and current quotations for the security. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks. These rules may
restrict the ability of broker-dealers to trade or maintain a market in our
common stock, to the extent it is penny stock, and may affect the ability of
shareholders to sell their shares.
Commission's Position on Indemnification for Securities Act Liabilities
Nevada law provides, among other things, that we may indemnify our
officers or directors so that they are not personally liable to us or to our
stockholders for damages arising from the officer or director's functioning as
an officer or director of the Company, except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional misconduct,
fraud, or a knowing violation of law, or (b) breach of fiduciary duty. We
anticipate we will enter into indemnification agreements with each of our
executive officers and directors pursuant to which we will agree to indemnify
each such person for all expenses and liabilities incurred by such person in
connection with any civil or criminal action brought against such person by
reason of their being an officer or director of the Company. In order to be
entitled to such indemnification, such person must have acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to criminal actions, such person must have had no
reasonable cause to believe that his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers or controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Certain Relationships and Related Transactions
Deren Smith and Kevin Arave, directors and officers of the Parent
Company and the Subsidiary, received 11,500,000 and 10,833,333 shares,
respectively, for transferring to the Subsidiary the formulas and related rights
used by the Subsidiary. These shares were converted into 17,250,000 and
16,250,000 shares, respectively, of the common stock of the parent upon
consummation of the Merger. The transfer of these assets was not transacted at
arm's length because both parties were the only directors of the Subsidiary at
the time of the transaction. Messrs. Smith and Arave are both founders of the
Subsidiary.
Management believed at the time of each of these transactions and
continues to believe that each of these transactions were as fair to the Company
as could have been made with unaffiliated third parties.
15
DESCRIPTION OF BUSINESS
We are an emerging company, which has acquired the formulas for two
cleaning products. These products are Simply Wow(R) and Stain Pen(TM). The
formulas for these products were developed by Deren Z. Smith, the President of
Source Direct and one of its directors. Kevin Arave, the Secretary/Treasurer of
Source Direct and a director, also assisted in the funding for the development
of the formulas. Any and all rights and interests of these parties in and to the
formulas or the trademarks were transferred to the Company for 11,500,000 shares
each of the Subsidiary. These shares converted into 17,250,000 of the parent
company as a result of the Merger. In addition to these two products we have
developed a new product called Prompt(TM) that was introduced in August 2004.
We own the trademarks to all three of our products but have not made
application for any patents. Management believes it would be difficult, if not
impossible, to duplicate the formulas for the Company's products. We maintain
confidentiality agreements with all parties who have access to the formulas.
Nevertheless, there is no assurance that someone could not duplicate the
formulas and directly compete with the company. The cost of litigating the issue
of illegal competition may preclude us from being able to protect the secrecy of
the formulas.
PRODUCTS
Simply Wow(R)
Simply Wow(R) is an all-purpose cleaner that safely and effectively
cleans any washable surface. Simply Wow(R) is developed with nonionic
surfactants that contain penetrating and suspending agents that dissolve the
toughest grease, protein, dirt, and oil stains. The product is a water-based,
multipurpose, biodegradable, nontoxic degreaser with a pleasant lemon fragrance
that effectively replaces flammable or combustible solvent cleaners. It contains
no hazardous solvents or acidic-type chemicals, and its formulation safely
accomplishes the cleaning that previously required solvent or acid cleaners,
which exposed the user and the environment to the inherent hazards of such
chemicals. The following are what we believe to be specific advantages of using
Simply Wow(R):
1. It is designed with nonionic surfactants and wetting,
penetrating, and suspending agents to dissolve the toughest
grease, protein, dirt and oil stains.
2. It replaces most or all cleaners in a person's home and can be
used to clean stains on walls, cars, etc.
3. It will keep carpets cleaner longer by removing previously
uncleanable spots.
4. It is biodegradable and nontoxic making this product
environmentally safe and friendly.
5. It removes all types of spots and stains including ink,
permanent marker, fingernail polish, scuff marks, crayon,
coke, coffee, tea, grease, oil, mildew, pet stains and food
stains from materials ranging from clothing to upholstery.
Stain Pen(TM)
Stain Pen(TM) is an on-the-spot stain remover. The convenient size
makes it easy to keep at home, in the car, or at the office. This product has a
proprietary formula that safely removes food stains, oil paint (wet or dry),
makeup, wine, blood, grass stains, grease, coffee and tea stains and copy
machine stains with no harmful fumes or large quantities of liquid to spill.
Stain Pen(TM) works simply by applying a small amount of stain pen solution to
the stain and apply a damp cloth.
Prompt(TM)
In August 2004 we introduced a new product called Prompt(TM). Prompt(TM) is
a multi-purpose, low foaming, non-toxic, biodegradable industrial strength
cleaner for multiple commercial and industrial cleaning applications. It
16
is a non-hazardous, user friendly, VOC (Volatile Organic Compounds) compliant
and is highly effective in many commercial cleaning applications. Prompt's
proprietary formulation encapsulates dirt and oil in many industrial
applications that include: floors, walls, metal fabricating equipment, smoke and
fire damage as well as equipment restoration.
Prompt is currently available in 32 oz spray, 5 gallon bucket, and 15-,
30-, and 55-gallon drums for immediate distribution to wholesale and some retail
customers.
Future Products
We have also completed development of formulas for other proprietary
cleaning products, which we intend to introduce to the market in the future
under private label. These products include an automotive vinyl protector and
cleaner, an all-purpose automotive wheel cleaner, an automotive engine cleaner,
and a liquid laundry product.
PRODUCT TESTING
In addition to internal testing of the products, management has
submitted Simply Wow(R) and the automotive vinyl protector for independent
testing. The first test was conducted on Simply Wow(R) and we received a test
report dated August 12, 2003. The testing facility evaluated and rated Simply
Wow(R) both as a carpet cleaner and as an all- purpose cleaner.
Carpet Cleaning. For carpet cleaning tests, Simply Wow(R) was compared
to Resolve(R), Woolite(R) Foam Carpet Cleaner Heavy Traffic, and Spot Shot(R).
The report stated: "The Simply Wow(R) product compared favorably to Resolve(R),
Woolite(R) and Spot Shot(R)." The testing facility conducted its tests by
placing a small amount of transmission fluid, red wine, and nail polish on
separate squares of light-colored carpet and visually reviewing the results of
cleaning. Each product was applied three times to each stain and compared as to
its ability to remove the stain.
After its third application, Simply Wow(R) was able to remove 70% of
the transmission fluid stain, as compared to 85% by Woolite(R) and Resolve(R),
and 80% by Spot Shot(R).
After the second application of Simply Wow(R) on the red wine stain, it
was able to remove 100% of the stain. After second applications, Woolite(R) and
Resolve(R) removed 95% of the stain and removed 99% of the stain after the third
application. Spot Shot(R) removed 99% of the stain on the second application and
100% on the third application.
After the third application of Simply Wow(R) on the nail polish stain,
it removed 65% of the stain, compared to Woolite(R) which removed 10%,
Resolve(R) which removed 5%, and Spot Shot(R) which removed 40% of the stain.
All Purpose Cleaning. For the all-purpose cleaner performance tests,
Simply Wow(R) was compared to Orange Clean(R), Fantastik(R), and Formula 409(R).
The test was limited to the ability of these products to remove Bic(R) pen,
marker, and red crayon and grease from a painted wall. The report stated: "The
Simply Wow(R) product was more effective on all of the stains compared to the
Orange Clean(R), Fantastik(R) and Formula 409(R) products. No damage was noted
on the painted wall." Simply Wow(R) was also compared to these products for the
ability to remove cooked-on grease from an enamel stovetop. The report stated:
"All four products were equally effective in removing the baked-on grease. No
streaking was noted with any of the products."
Automotive Vinyl Cleaning Product. The second independent test was
conducted on our private label automotive vinyl cleaner and we received a test
report dated October 2, 2003. The testing facility evaluated our product
compared to Armor All(R) on the basis of appearance, pH, percent of solids, and
performance. Testing of the performance of the two products was completed by
spraying each product on vinyl and rubber, allowing the sample to soak in for
ten minutes, and then wiping the remaining liquid off with a paper towel. While
both products produce foam after shaking, the foam in our product remained long
after shaking as compared to the foam in Armor All(R), which dispersed quickly.
The pH and percentage of solids in our product was lower than in Armor All(R),
and
17
both products adequately cleaned and shined vinyl and rubber. The report
concluded that aside from the physical differences in the products, our brand
compared to Armor All(R) in performance.
While we believe that our products compare favorably in performance
with other products, the level of independent testing performed to date has been
limited in scope, primarily because of our limited funding. Also, our products
may not outperform all other products in each instance. For example, Simply
Wow(R) did not outperform the other products in removal of transmission fluid
and was found only equally effective in removing baked-on grease. Likewise the
automotive vinyl cleaner was equal to, but did not outperform, Armor All(R).
Our products are subject to the risk that additional independent
testing would not be favorable if our products were compared to other products
on other stains or on other surfaces. As an example, prior to the development of
the Stain Pen(TM), Simply Wow(R) was tested by an independent facility at the
request of a prospective client for use as a laundry cleaner. The tests
concluded that Simply Wow(R), when diluted to meet testing requirements, did not
work as well as other laundry cleaners, which lead to the development by us of
the Stain Pen(TM) to remove stains from laundry. Thie Stain Pen has only been
tested in-house. We have also conducted in-house testing on all of our products
on many types of stains and on other surfaces, but presently do not intend to
seek further independent testing of its existing products. We believe the
products are safe and effective when used as directed. However, the in-house
testing of our products should not be deemed indicative or conclusive that our
products would compare favorably if additional tests were conducted by
independent facilities or that independent testing facilities would reach the
same results as our in-house tests.
We are also subject to risk that existing or new manufacturers could
develop new or better products than the ones offered by us. While we devote a
portion of our funds to on-going research and development, the amount of our
funding in this area is extremely limited when compared to the manufacturers of
products, which compete with ours. We believe that most other companies in the
household cleaning industry are significantly better funded than are we and
devote significantly more funds to developing new, or improving existing,
products which compete with ours.
PRODUCT PRODUCTION
We do not currently produce our products in-house except for Stain
Pen(TM), which is produced in our facility. We believe that the production
facility, which has agreed to manufacture our other products, would be adequate
to produce our products in sufficient quantities to meet any anticipated future
needs. We also believe other production facilities are available upon similar
terms if for any reason the current facility could not meet demand for
production. We also believe sufficient quantities of raw materials for our
products are reasonably available such that production would not be unreasonably
delayed, although we do not have any contracts for production of these raw
materials. We have not secured any form of financing for significant production
of our products. We will attempt to secure funding either from private sources
or through a bank loan or factoring arrangement. There is no assurance that we
will be able to obtain any of these sources of financing, or that if we could
obtain it that the financing terms would be favorable to the company.
PRODUCT DISTRIBUTION
The most critical phase of our operations at this point is the marketing of
our products. Presently, we have few firm commitments for our products. We
market our products using both current management personnel and outside
independent marketing companies. We currently have three outside marketing
arrangements, which we consider significant. They are with Marden Distribution,
Inc., Integritas, Inc., and Media Corp Worldwide.
Outside Marketing Arrangements
Marden Distribution, Inc. We have entered into a Distribution Agreement
dated March 17, 2004, with Marden Distributing, Inc. ("Marden"), an Arkansas
corporation with an approved vendor status with Wal-Mart(R), Sam's Club(R), and
ACE Hardware(R). Although the agreement grants to Marden the exclusive right to
distribute our products to these retail outlets, there is no assurance that
Marden will be able to obtain sufficient purchase orders for our products from
these sources. We believe that the value of the agreement with Marden is in
Marden's ability to
18
present our products to these retailers quicker and at less expense than we
could directly. We have learned that national retailing chains typically will
not consider selling products unless the products are furnished by an approved
vendor and that the process of obtaining an approved vendor status with national
retail chains such as Wal-Mart(R), Sam's Club(R), and ACE Hardware(R) requires
substantial time and expense. We believe that the ability of Marden as an
approved vendor to present our products to these national chains will reduce the
cost to the company to otherwise present its products to the persons at these
retail chains who could decide whether to order our products for sale in their
stores.
Management, through Marden, is actively pursuing meetings with
representatives of Wal-Mart(R) and ACE Hardware(R) to present our products for
distribution by them. As a result of our agreement with Marden, we have had
initial contact with representatives of ACE Hardware(R) and have been able to
schedule meetings with representatives of Wal-Mart(R) for our SimplyWow and
Stain Pen products. We are scheduled to furnish samples of our automotive
products to Wal-Mart(R) for evaluation. However, there is no assurance that as a
result of these meetings either Wal-Mart(R) or ACE Hardware(R) will place
purchase orders for our products. There is also no assurance that our products,
if accepted, would be sold through all stores nation-wide or limited to regions
or certain stores. Our negotiations with these stores are in the early stages
and should not be viewed as indicative of being able to reach final agreements
with these retailers. We have not received any purchase orders for our products
from these retail outlets and presently have no firm commitment or understanding
with these retail companies.
Our agreement with Marden is exclusive in the sense that no one else
can market Simply Wow(R), Stain Pen(TM), and derivatives of these products such
as our engine cleaner, upholstery cleaner, and wheel cleaner, to Wal- Mart(R),
Sam's Club(R), and ACE Hardware(R). The initial period of exclusivity expires
September 13, 2004, and we anticipate that we will extend the agreement for
another six months from that date, although we had not finalized such extension
as of the date of this prospectus. Thereafter, continued exclusivity will be
based upon negotiated quarterly goals set by us and Marden based upon prior
sales and market penetration, if any, of our products into these retail outlets
and existing commercial standards at the time the goals are set.
The agreement is for an initial term of three years and is
automatically renewable for another three years unless canceled prior to the
expiration of the initial period. Thereafter the agreement is renewable from
year-to-year and is cancelable upon sixty days' notice. We have agreed to pay
Marden a flat percentage fee based on the gross "sell-in" price to each retailer
based on the wholesale cost of the goods sold to the retailer plus the flat
percentage amount. Marden has agreed to pay all of the costs and expenses
associated with the marketing and distribution of the products to the retailers.
We have agreed to maintain product liability insurance, which we currently have
in place, and to hold Marden harmless from any liability associated with the use
of our products.
Integritas, Inc. We have entered into an arrangement with Integritas,
Inc. to provide product distribution, customer relations and investor relations
services.
MediaCorp Worldwide. The company has entered into an exclusive direct
response "As Seen on TV" commercial marketing agreement with Media Corp
Worldwide ("MediaCorp") to create an infomercial advertising Source Direct's
proprietary cleaning products, and to further market its proprietary product
lines Simply Wow(R) and Stain Pen(TM) on television only.
MediaCorp is a multifaceted firm specializing in product manufacturing,
marketing and distribution by implementing a proven strategic formula for
building consumer awareness as well as leading provider of direct response
television. The "As Seen on TV" marketing approach offers the consumer the
opportunity to become educated about a product prior to purchasing.
MediaCorp has agreed to promote our household cleaning products through
a direct response, "As Seen on TV" infomercial. In August 2004 Media Corp
Worldwide completed the final scheduling and began airing its exclusive, direct
response "As Seen on TV" commercial for Simply Wow(R) and Stain Pen(TM).
MediaCorp started testing the One Minute "As Seen on TV" Infomercial on
Friday, August 8, 2004, and continued airing through Tuesday, August 17th 2004
between the hours of 6:00 a.m. and 12:00 a.m. on cable
19
channels HGTV and the WE channel. The promotional package advertised includes:
two 22oz Simply Wow(R) all purpose cleaners, one 4oz Simply Wow(R) all purpose
cleaner, and two proprietary color safe Stain Pen(TM) for an introductory price
of $19.95 plus shipping and handling.
On September 27, 2004, we entered into two additional agreements with
MediaCorp, both dated as of September 17, 2004. Under the first, we granted to
MediaCorp the exclusive right to sell Simply Wow(R) and Stain Pen(TM) (the
"Products") to the QVC Home Shopping Network. The QVC agreement has an initial
term of 6 months, but if MediaCorp secures an order for the Products during the
initial term, the agreement will extend for the life of the order from QVC.
Under the second agreement, we granted to Mediacorp the exclusive right to sell
the Products to mail order catalog companies in the United States. The catalog
agreement has an initial term of six months, but if MediaCorp secures an order
from a catalog company during the initial term, the agreement automatically
extends for a period of two years, or until the order is terminated by the
catalog company.
Direct Marketing Distribution.
In June 2004, through our internal marketing efforts we have received
our vendor number and purchase orders from Albertsons(R), Inc.
As of June 30, 2004, we had received purchase orders from each of three
divisions, representing distribution centers in Denver, Phoenix and Salt Lake
City. We have begun the shipping of our proprietary line of cleaners, including
Simply Wow(R) and Stain Pen(TM) to the three distribution centers in June 2004.
In August 2004 Albertsons(R) approved 4 additional divisions, totaling
more than 850 additional stores, to the current ongoing distribution effort for
our products. This expanded retail distribution will include: approximately 310
Albertsons(R) stores in the Southern California Division, approximately 210
stores in the Northern California Division, approximately 190 stores in the
Dallas Ft. Worth, Division, and approximately 140 Acme(R) stores in
Albertsons(R) Eastern Division.
Since inception, we have spent approximately $57,500 on research and
development of the business, our products, and our marketing strategy.
Significant Customers
Through June 30, 2004, we received the majority of our revenues through
sales of our products by three divisions of Albertsons: the Salt Lake division,
the Denver division, and the Phoenix division. We believe that we have a good
relationship with these divisions, two of which have continued to order and
purchase products from us. Additionally, subsequent to June 30, 2004, we have
received purchase orders from additional divisions of Albertsons. Also, we have
received orders in excess of $40,000 from ATA Retail Services. Further, we have
received orders from Marden Inc., for distribution into the new Wal-Mart
Motorcycle Modular. We continue to develop many different outlets for our unique
line of products.
Principal Suppliers
The principal suppliers of the raw materials we use to manufacture our
products include Michelman Incorporated, Norman Fox & Co., Chemcentral Inc., and
VoPak USA. We believe that we have good relationships with our suppliers.
COMPETITION
The market for cleaning products is intensely competitive and dominated
by a small number of large, well- established and well-financed companies. All
of the competitors have longer operating histories and greater financial,
technical, sales and marketing resources than does the Company. In addition, we
also face competition from potential new entrants into the market who may
develop new cleaning products. We cannot guarantee that the Company will be able
to compete successfully against current and future competitors or that
competitive pressures
20
will not result in price reductions, reduced operating margins and loss of
market share, any one of which could seriously harm our business. We also cannot
guarantee that the life cycle of the products of the Company will be sufficient
for it to realize profitability.
Employees/Consultants
We currently have five full time employees. A majority of our marketing
and distribution efforts are handled through the distribution agreements noted
above. Our production efforts are also mostly outsourced through our
manufacturing arrangement.
In July 2003 we entered into a one-year consulting agreement with
Ageless Enterprises LLC, a Utah limited liability company. In the agreement,
Ageless agreed to update our web site, design product literature and artwork,
develop investor and sales packages, assist in investor relations, develop a
pricing structure for our products, and assist in recruiting a product broker
for our products. As consideration for these services, our subsidiary issued
2,500,000 shares of common stock to Ageless, which were converted into 3,750,000
shares of our common stock in the merger transaction with our company, which
closed in October 2003. In addition, pursuant to the terms of the agreement, our
Company paid Ageless $66,000 for the product marketing efforts set forth in the
agreement. The Consultant agreed to pay for any expenses incurred in the
development of the marketing program.
Subsequent to June 30, 2004, we canceled the shares of common stock
that we had issued to Ageless Enterprises.
Websites
The Company's website can be found at the URL address:
www.simplywow.com. The Company holds trademarks on the names Simply Wow(R)
,Stain Pen(TM) and Prompt(TM). The Company has also secured the Internet URLs
www.simplywow.com, www.stainpen.com, www.allpurposecleaner.com,
www.laundrystain.com, and www.laundrystains.com. We anticipate that over the
next three to six months, each of these sites will be developed further.
Recent Developments
The offices of Source Direct recently relocated to 4323 Commerce
Circle, Idaho Falls, Idaho. The property consists of approximately 3,780 square
feet of office space, and approximately 10,000 square feet of warehouse and
manufacturing space. The Company anticipates that the new facilities will be
suitable, appropriate, and adequate for its needs for the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by us with the Securities and Exchange Commission. Words or
phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project or projected," or similar expressions are
intended to identify "forward-looking statements." Such statements are qualified
in their entirety by reference to and are accompanied by the below discussion of
certain important factors that could cause actual results to differ materially
from such forward-looking statements.
Management is currently unaware of any trends or conditions other than
those mentioned in this management's discussion and analysis that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible
21
inability to attract investors for its equity securities or otherwise raise
adequate funds from any source should the Company seek to do so, (iii) increased
governmental regulation, (iv) increased competition, (v) unfavorable outcomes to
litigation involving the Company or to which the Company may become a party in
the future (vi) a very competitive and rapidly changing operating environment,
(vii) changes in business strategy, (viii) market acceptance of our products
and, (ix) a failure to successfully market our products.
The risks identified here are not all inclusive. New risk factors
emerge from time to time and it is not possible for management to predict all of
such risk factors, nor can it assess the impact of all such risk factors on the
Company's business or the extent to which any factor or combination of factors
may cause actual results to differ materially from those contained in any
forward-looking statements. Accordingly, forward-looking statements should not
be relied upon as a prediction of actual results.
The financial information set forth in the following discussion should
be read with the financial statements of Source Direct included elsewhere
herein.
Financial Condition and Changes in Financial Condition
Overall Operating Results:
We generated our first revenues during the quarter ended June 30, 2004.
These revenues were generated from purchase orders from various Albertson's(R)
stores and totaled $21,734 for the year ended June 30, 2004. We anticipate
receiving additional orders from this source as well as from the other
distribution agreements that are in place, but we can give no assurance that
such sales will occur. Our cost of goods sold for these sales totaled $11,200,
which resulted in a gross profit margin of $10,534 or 48.5% of sales.
Operating expenses for the year ended June 30, 2004 totaled $549,104.
Compensation related expenses were $160,770. Consulting fees associated with
marketing, customer relations and public relations totaled $191,506. These
expenses were incurred as a result of our efforts to gain market recognition and
acceptance of our products. Other marketing related expenses were $26,281.
Travel expenses incurred for product promotion and general business activities
totaled $28,963. We incurred $40,802 in legal and accounting related expenses
primarily as a result of the merger agreement preparations and related audits of
the merger participants. The remaining expenses were incurred for general
business purposes. We believe we will continue to incur substantial expenses for
the near term as we increase our marketing efforts to introduce our products to
the market.
Operating expenses for the prior year ended June 30, 2003, totaled
$23,235. All of the expenses relate to the business of the prior operations
before the October 2003 merger, and we do not believe they have any significance
on our current business operations or our future plans.
We generated revenues from sales of our cleaning products of $35,908
during the quarter ended December 31, 2004. Our cost of goods sold for these
sales totaled $15,656, which resulted in a gross profit margin of $20,252 or
56.4% of sales. Revenue for the six-month period ended December 31, 2004 was
$69,406 with a gross margin of $35,630.
Operating expenses for the quarter ended December 31, 2004, totaled
$211,178. Compensation related expenses were $53,959. Travel expenses incurred
for product promotion and general business activities totaled $14,247. We
incurred $18,780 in legal and accounting related expenses primarily as a result
of the various marketing agreements and expenses related to fulfilling our
filing requirements with the SEC. Research and development expenses totaled
$5,490 for the quarter. The remaining expenses were incurred for general
business purposes.
Operating expenses for the six-month period ended December 31, 2004,
totaled $389,426. Compensation related expenses were $145,308. Travel expenses
incurred totaled $24,393. We incurred $55,915 in legal and accounting related
expenses primarily as a result of the various marketing agreement preparations
and fulfilling our SEC reporting requirements. Research and development expenses
totaled $11,491. The remaining expenses were
22
incurred for general business purposes. We believe we will continue to incur
substantial expenses for the near term as we increase our marketing efforts to
introduce our products to the market.
Operating expenses for the prior year quarter and six month period
ended December 31, 2003, totaled $157,902 and $326,730 respectively. All of the
expenses relate to the business of the prior operations before the October 2003
merger, and we do not believe they have any significance on our current business
operations or our future plans.
Liquidity and Capital Resources:
Since inception to December 31, 2004, we have funded our operations
from the sale of securities and loans from shareholders.
Source Direct, Incorporated, our operating subsidiary, conducted a
non-public offering of its stock prior to the merger. The offering provided for
the sale of up to 4,000,000 shares at $.075 per share for gross proceeds of
$300,000. At the close of the offering, $300,000 in gross proceeds was received.
We have utilized these funds for our various marketing and promotion efforts and
general business activities as noted above.
On or about March 22, 2004, we sold 1,600,000 shares of the parent
company's restricted common stock at $0.094 per share to Mark E. Miller and
Dennis N. Miller for gross proceeds of $150,000. The purchasers own Marden,
Inc., an entity with whom we have an existing product distribution agreement.
Since inception to December 31, 2004, we have funded our operations
from the sale of securities and loans from shareholders.
During the quarter ended December 31, 2004, we sold 3,005,000 shares of
our common stock for total proceeds of $305,000. We utilized these funds for our
various marketing and promotion efforts and general business purposes and
activities.
During the months of January and February 2005, we issued 4,860,000
shares of our common stock and warrants to purchase up to an additional 960,000
shares for services rendered and as part of the downpayment on the purchase of
our property. The services provided included investor relation services. We also
sold 950,000 shares of common stock for a purchase price of $95,000. The sale
included warrants to purchase up to an additional 950,000 shares of common stock
at an exercise price of $0.125 per share.
At December 31, 2004, we had cash balances of $61,726, and net working
capital of $301,053. In addition, we had current account receivables of $16,443,
which was generated from the various purchase orders for our products. Inventory
of cleaning products amounted to $254,596. Our cash requirements for the next
twelve months will depend significantly on the number of purchase orders we
receive for our products and our ability to secure financing for these orders.
We anticipate that we will be able to secure either a business loan or a
factoring arrangement for any purchase order that exceeds our current ability to
fund internally. However, we have no current agreements or arrangements, which
would provide such funding. We have also not negotiated the terms of such
funding and cannot provide any assurance that the terms will be favorable for
the company. We are also unable to predict the number of orders for our
products, or if we receive additional orders, the amount of operating profit
such orders would generate. Therefore, we are unable to predict our future cash
requirements until we secure additional purchase orders.
On January 13, 2005, the Company entered into agreements to purchase a
new headquarters building (the "Property"). The purchase price for the Property
was $800,000. Pursuant to the terms of a promissory note (the "Note"), the
Company is required to pay $5,882.19 on or before March 3, 2005, and the same
amount on or before the third of each month thereafter. The Note bears interest
at a rate of 8.5%, and matures and comes due on January 13, 2006. The Property
consists of approximately 3,780 square feet of office space, and approximately
10,000 square feet of warehouse and manufacturing space. The Company anticipates
that the new facilities will be suitable, appropriate, and adequate for its
needs for the foreseeable future.
23
We continue to perform research and development to improve our existing
cleaning products and to provide new cleaning products. We anticipate that we
will continue to spend funds for research and development during the next twelve
months, but we are unable to predict or anticipate the total amount of these
future research and development expenses. In many instances, new products are
developed as a result of interest expressed by a potential retail client in
similar or ancillary products to the ones initially presented. This may occur
especially in our private label products. Many retail outlets require a set of
related private label cleaning products before ordering any cleaning products.
Such was the case in our automotive cleaning products. Our wheel cleaning and
tire cleaning products were developed as a result of responses from potential
clients for our automotive vinyl-cleaning product who required a set of
automotive cleaning products rather than the single vinyl-cleaning product.
Because we are in our startup phase, we believe we will need additional
funding. We are assessing the possibilities for financing our business plan and
trying to determine what sources of financing we might explore to raise the
needed capital. We have no outside sources for funding our business plan at this
time. We will need additional capital for any current or future expansion of our
operations we might undertake. If we do not obtain funding, we will have to
discontinue our current business plan. We do not believe traditional sources of
funding such as bank loans would be available for these expenses, and therefore
anticipate that if additional funding is required, such funding would be in the
form of private lending arrangements or equity investment in the company.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Plan of Operation
The operating subsidiary has embarked on a two-fold growth program,
which includes the following strategies and plans:
Our plan of operation includes the implementation of a multi-pronged
marketing strategy to distributors, retail stores, and cleaning professionals,
and direct to consumers to position the Company to become a major supplier in
the U.S. all-purpose cleaning solution market. Management's business model is to
position the Company as an authority in this area, based on (i) its potential as
a market innovator and future leader, (ii) careful attention to product quality,
(iii) the Company's tested and proven products, (iv) its ethical business
practices, and (v) the confidence of a large number of loyal consumers.
We also intend to seek acquisitions of small, under-capitalized
suppliers of cleaning products whose products would compliment or extend our
product line, and which could be acquired readily to support the corporate
objectives. We intend to acquire only companies whose market presence, product
mix, and profitability meet certain acquisition criteria, and to incorporate
their products into the existing product line or into lines of supporting or
related products.
In order to achieve the planned level of growth in both sales and
profitability, we anticipate the need for a substantial amount of external
capital, either from the sale of securities or incurring of debt, to permit us
to execute the next stages of our business plan. We have no firm commitments or
arrangements for this funding and there is no assurance that we will be able to
secure the funding necessary to implement the business plan. Without adequate
capital, we will have to curtail our operations, and will not be able to
implement our business plan.
New Accounting Pronouncements
Source Direct does not expect the adoption of recently issued
accounting pronouncements to have a significant impact on Source Direct's
results of operations, financial position, or cash flow.
24
Forward-looking statements
All statements made in this prospectus, other than statements of
historical fact, which address activities, actions, goals, prospects, or new
developments that we expect or anticipate will or may occur in the future,
including such things as expansion and growth of operations and other such
matters are forward-looking statements. Any one or a combination of factors
could materially affect our operations and financial condition. These factors
include competitive pressures, success or failure of marketing programs, changes
in pricing and availability of parts inventory, creditor actions, and conditions
in the capital markets. Forward-looking statements made by us are based on
knowledge of our business and the environment in which we currently operate.
Because of the factors listed above, as well as other factors beyond our
control, actual results may differ from those in the forward-looking statements.
Description of Property
The offices of Source Direct are located at 4323 Commerce Circle, Idaho
Falls, Idaho, 83401.
On January 13, 2005, we purchased this location, which includes office
space, as well as manufacturing and storage space.
The Company entered into agreements with Nyle and Joann Randall (the
"Randalls") for the purchase of the parcel of land located at 4323 Commerce
Circle, Idaho Falls, Idaho, and the building located thereon (the "Property").
The purchase price for the Property was $800,000.
The Company entered into a Note Secured by Deed of Trust (the "Note")
and a Deed of Trust with the Randalls for payment of the purchase price.
Pursuant to the terms of the Note, the Company is required to pay $5,882.19 on
or before March 3, 2005, and the same amount on or before the third of each
month thereafter. Any payment not made within 15 days of the due date will be
assessed a late charge in the amount of $294.11. If no payment is made after a
grace period of 15 days, the Randalls are required to give written notice to the
Company of the deficiency, and the Company will then have 60 days to cure the
deficiency.
The Note bears interest at a rate of 8.5%, and matures and comes due on
January 13, 2006.
The Property consists of approximately 3,780 square feet of office
space, and approximately 10,000 square feet of warehouse and manufacturing
space. The Company anticipates that the new facilities will be suitable,
appropriate, and adequate for its needs for the foreseeable future.
We do not anticipate manufacturing our products in-house except for
Stain Pen(TM). We have made arrangements with a facility to produce our other
products and believe this facility well meet our production needs during the
next twelve months. Therefore, we do not anticipate purchasing any plant or
significant equipment at this time.
Market for Common Equity and Related Stockholder Matters
MERGER AGREEMENT
On October 14, 2003, the closing of the Agreement and Plan of Merger
dated September 29, 2003, (the "Merger Agreement") with Global-Tech Capital
Corp. ("GTCC") and Source Direct, Incorporated, an Idaho corporation, ("SDI")
was held. As a result of the closing, a newly created and wholly owned
subsidiary of GTCC was merged into SDI, and the shareholders of SDI received 1.5
shares of GTCC common stock for each outstanding share of SDI. Also as a result
of the closing, George Polyhronopoulos and David Mallo resigned as directors and
officers of GTCC; Deren Z. Smith was appointed a director and president of GTCC
and Kevin Arave was appointed a director and secretary/treasurer of GTCC. The
appointment of Mr. Smith and Mr. Arave as directors was designated by SDI as
provided in the Agreement. As a result of the merger, the shareholders of SDI
exchanged all of the outstanding shares of SDI for 63,030,000 shares, or
approximately 84%, of the stock of GTCC. Immediately
25
prior to closing, GTCC had 12,151,400 shares outstanding. As a result of the
closing, and the issuance of the shares to the shareholders of SDI, of the
Company's common stock had 75,181,400 common shares outstanding. In connection
with the merger, GTCC's name was changed to Source Direct Holdings, Inc. SDI is
a wholly owned subsidiary of Source Direct Holdings, Inc. As of June 30, 2004
there were 69,281,400 shares of the company's common stock outstanding of which
12,151,400 are free trading shares.
MARKET FOR COMMON STOCK
The common stock is traded in the over-the-counter market and quoted on
the OTC EBB under the symbol "SDRT" and quoted in the pink sheets published by
the National Quotations Bureau.
Our common shares are designated as "penny stock" and thus may be more
illiquid. The SEC has adopted rules (Rules 15g-2 through l5g-6 of the Exchange
Act), which regulate broker-dealer practices in connection with transactions in
"penny stocks." Penny stocks generally are any non-NASDAQ equity securities with
a price of less than $5.00, subject to certain exceptions. The penny stock rules
require a broker-dealer to deliver a standardized risk disclosure document
prepared by the SEC, to provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, monthly account statements showing the market
value of each penny stock held in the customers account, to make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity, if any, in the secondary market for a stock that is subject to
the penny stock rules. Since our common shares are subject to the penny stock
rules, persons holding or receiving such shares may find it more difficult to
sell their shares. The market liquidity for the shares could be severely and
adversely affected by limiting the ability of broker-dealers to sell the shares
and the ability of shareholders to sell their stock in any secondary market.
The trading volume in the Common Stock has been and is extremely
limited. The limited nature of the trading market can create the potential for
significant changes in the trading price for the Common Stock as a result of
relatively minor changes in the supply and demand for Common Stock and perhaps
without regard to our business activities. Because of the lack of specific
transaction information and our belief that quotations are particularly
sensitive to actual or anticipated volume of supply and demand, we do not
believe that such quotations are reliable indicators of a trading market for the
Common Stock.
The market price of our common stock may be subject to significant
fluctuations in response to numerous factors, including: variations in our
annual or quarterly financial results or those of our competitors; conditions in
the economy in general; announcements of key developments by competitors; loss
of key personnel; unfavorable publicity affecting our industry or us; adverse
legal events affecting us; and sales of our common stock by existing
stockholders.
Subject to the above limitations, we believe that during the four
fiscal quarters preceding the date of this filing, the high and low sales prices
for the Common Stock during each quarter are as set forth in the table below
(such prices are without retail mark-up, mark-down, or commissions).
QUARTER ENDED HIGH LOW
September 30, 2003 1.08 0.25
December 31, 2003 0.99 0.16
March 31, 2004 0.37 0.07
June 30, 2004 0.23 0.08
September 30, 2004 0.20 0.14
December 31, 2004 0.16 0.11
March 31, 2005 0.17 0.09
Note: There were no trades in our common stock prior to August 2003.
26
On April 25, 2005, there were approximately 87 stockholders of record
of the Company's Common Stock.
We have not paid any dividends to date. We can make no assurance that
our proposed operations will result in sufficient revenues to enable profitable
operations or to generate positive cash flow. For the foreseeable future, we
anticipate that we will use any funds available to finance the growth of our
operations and that we will not pay cash dividends to stockholders. The payment
of dividends, if any, in the future is within the discretion of the Board of
Directors and will depend on our earnings, capital requirements, restrictions
imposed by lenders and financial condition and other relevant factors.
Executive Compensation
The following table reflects compensation paid to our officers and
directors for the fiscal year ended June 30, 2004.
Annual Compensation Long Term Compensation Awards
Securities
Restricted Underlying
Name and Stock Options/ LTIP All Other
Principal Year Salary Bonus Other Awards SARS Payouts Compensation
Position (1) ($) ($) ($) ($) (#) ($) ($)
- --------------- ------- --------- ----------- --------- ---------- ------------- -------- --------------
Deren Smith, 2004 $4,000 $93,200 - $0 - - -
President &
Director
Kevin Arave, 2004 $7,500 $45,250 - $0 - - -
Secretary/
Treasurer &
Director
(1) For the fiscal year ended June 30, 2004. There was no compensation for
these officers for the fiscal year ended June 30, 2003.
COMPENSATION OF DIRECTORS
Persons who are directors and employees will not be additionally
compensated for their services as a director. There is no plan in place for
compensation of persons who are directors who are not employees, but it is
expected that in the future we will create a remuneration and expense
reimbursement plan. It is anticipated that such a plan would be primarily based
on stock issuances or stock options.
OTHER COMPENSATION ARRANGEMENTS
We currently do not have any other compensation arrangements. We may
implement some form of compensation plan in the future for the purpose of
compensating employees or consultants.
Employment Agreements
We do not presently have employment agreements with any of our
executive officers.
27
Index to Financial Statements
PAGE
Report of Mantyla McReynolds independent accountants F-2
Balance Sheet for the year ended June 30, 2004 F-3
Consolidated Statements of Operations for the years ended June 30,
2004 and June 30, 2003 and inception to June 30, 2004 F-4
Consolidated Statements of Stockholders' Equity for period from
(Inception) through June 30, 2004 F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2004
and June 30, 2003 and inception to June 30, 2004 F-6
Notes to Financial Statements F-7
Balance Sheet for the quarter ended December 31, 2004 Q-2
Consolidated Statements of Operations for the three and six months ended
December 31, 2004 and 2003 Q-3
Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 2004 Q-5
Notes to Quarterly Financial Statements Q-6
Changes in and disagreements with accountants
on accounting and financial disclosure
On October 16, 2003, we filed a Form 8-K with the Securities and
Exchange Commission reporting that we changed our Independent Accountants as of
October 14, 2003. The following information was filed in that current report:
(a)(i) On October 14, 2003, Source Direct Holdings, Inc., formerly
Global Tech Capital Corp. (the "Parent Company"), dismissed Richard M. Prinzi,
Jr. as its independent accountant.
(ii) The reports of Richard M. Prinzi, Jr. on the Parent Company's
financial statements for the fiscal years ended June 30, 2003 and 2002 contained
no adverse opinion or disclaimer of opinion and were not modified as to
uncertainty, audit scope, or accounting principles, except for the "going
concern" paragraph included in the report of the independent accountant dated
September 15, 2003.
(iii) The Board of Directors approved the dismissal on October 14,
2003. The Parent Company has no audit or similar committee.
(iv) In connection with the Parent Company's audits for its two most
recent fiscal years, and for the period up to the date of dismissal, the Parent
Company has had no disagreements with Richard M. Prinzi, Jr. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Richard M. Prinzi, Jr. would have caused him to make reference thereto in his
report on the financial statements of the Company for such years.
(v) The Parent Company requested that Richard M. Prinzi, Jr. furnish it
with a letter addressed to the Securities and Exchange Commission stating
whether it agrees with the above statements. Such letter has been furnished and
filed with the SEC.
28
(b)(i) The Parent Company engaged Mantyla McReynolds as its new
independent accountant effective October 14, 2003.
During the Parent Company's two most recent fiscal years and through
the date of our annual report for the fiscal year ended June 30, 2004, neither
the Parent Company, nor anyone on its behalf, has consulted with Mantyla
McReynolds regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Parent Company's financial statements, and
neither a written report nor oral advice was provided to the Parent Company that
Mantyla McReynolds concluded was an important factor considered by the Parent
Company in reaching a decision as to the accounting, auditing, or financial
reporting issue; or (ii) any matter that was the subject of a disagreement, as
that term is defined in Item 304(a)(1)(iv) of Regulation S-B.
29
Table of Contents
Summary about Source Direct
and this offering 2
Risk factors 5
Use of proceeds 7
Determination of offering price 7
Selling Shareholders 7
Plan of distribution 10
Regulation M 11
Legal Proceedings 11
Directors, executive officers, promoters and
control persons 12
Security ownership of certain beneficial
owners and management 13
Description of common stock 13
Commission's position on indemnification
for Securities Act liabilities 14
Certain relationships and related
transactions 14
Description of business 15
Recent Developments 20
Management's discussion and analysis
or plan of operation 20
Forward-looking statements 23
Description of Property 23
Market for common equity and related
stockholder matters 23
Executive compensation 25
Index to financial statements 25
Changes in and disagreements with
accountants on accounting
and financial disclosure 26
--------------------
Dealer Prospectus Delivery Obligation. Until [a date which is 90 days from the
effective date of this prospectus], all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
Source Direct Holdings, Inc.
38,261,126
SHARES
COMMON STOCK
--------------------
PROSPECTUS
-------------------
May ___, 2005
30
PART II. Information Not Required in the Prospectus
Item 24. Indemnification of Directors and Officers
Nevada law provides, among other things, that we may indemnify our
officers or directors so that they are not personally liable to us or to our
stockholders for damages arising from the officer or director's functioning as
an officer or director of the Company, except for damages for breach of such
duty resulting from (a) acts or omissions which involve intentional misconduct,
fraud, or a knowing violation of law, or (b) breach of fiduciary duty. We
anticipate we will enter into indemnification agreements with each of our
executive officers and directors pursuant to which we will agree to indemnify
each such person for all expenses and liabilities incurred by such person in
connection with any civil or criminal action brought against such person by
reason of their being an officer or director of the Company. In order to be
entitled to such indemnification, such person must have acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to criminal actions, such person must have had no
reasonable cause to believe that his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers or controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Item 25. Other Expenses of Issuance And Distribution
We will pay all expenses in connection with the registration and sale
of the common stock by the selling shareholders. The estimated expenses of
issuance and distribution are set forth below.
Registration Fees $ 1,126.00
Transfer Agent Fees 1,000.00
Costs of Printing and Engraving 5,000.00
Legal Fees 10,000.00
Accounting Fees 10,000.00
------------
Total Estimated Costs of Offering $ 27,126.00
Item 26. Recent Sales of Unregistered Securities
In April 2005, we issued to Benper S.A. de C.V., warrants to purchase
up to 7,500,000 shares of our common stock, in connection with an agreement
pursuant to which Benper would act as our distributor in Mexico and Central
America. The warrants were issued without registration under the Securities Act
by reason of the exemption from registration afforded by the provisions of
Section 4(6) and Section 4(2) thereof, and Rule 506 promulgated there under, as
a transaction by an issuer not involving any public offering, and pursuant to
Regulation S.
On or about March 22, 2004, we issued 1,600,000 shares of common stock
to Mark E. Miller for gross proceeds of $150,000. These shares were issued
without registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(6) and Section 4(2)
thereof, and Rule 506 promulgated there under, as a transaction by an issuer not
involving any public offering. Mr. Miller is the owner of Marden Distribution,
Inc., an entity with which we have entered into a marketing agreement for our
products in certain retail outlets.
In July 2004, we issued 1,500,000 shares of our common stock to NCP
Enterprises, for gross proceeds of $150,000. These shares were issued without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 506
promulgated thereunder, as a transaction by an issuer not involving a public
offering.
31
In August 2004, we issued an aggregate of 5,000,000 shares to six
outside consultants in exchange for consulting services provided to the Company.
Additionally, we issued warrants to purchase up to an additional 4,000,000
shares to four of the consultants. The shares and warrants were issued without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 504
promulgated thereunder, as a transaction by an issuer not involving a public
offering.
In August 2004, we issued an aggregate of 1,000,000 shares and warrants
to purchase up to an additional 1,000,000 shares of our common stock to two
individuals for gross proceeds of $100,000. These shares and warrants were
issued without registration under the Securities Act by reason of the exemption
from registration afforded by the provisions of Section 4(2) thereof, and Rule
506 promulgated thereunder, as a transaction by an issuer not involving a public
offering.
In September 2004, we issued an aggregate of 2,000,000 shares and
warrants to purchase up to an additional 2,000,000 shares of our common stock to
two individuals for gross proceeds of $200,000. These shares and warrants were
issued without registration under the Securities Act by reason of the exemption
from registration afforded by the provisions of Section 4(2) thereof, and Rule
506 promulgated thereunder, as a transaction by an issuer not involving a public
offering.
In October 2004, we issued an aggregate of 50,000 shares and warrants
to purchase up to an additional 50,000 shares of our common stock to an
individual for gross proceeds of $5,000. These shares and warrants were issued
without registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 506
promulgated thereunder, as a transaction by an issuer not involving a public
offering.
In November 2004, we issued an aggregate of 620,000 shares and warrants
to purchase up to an additional 620,000 shares of our common stock to seven
individuals for gross proceeds of $62,000. These shares and warrants were issued
without registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 506
promulgated thereunder, as a transaction by an issuer not involving a public
offering.
In December 2004, we issued an aggregate of 2,380,000 shares and
warrants to purchase up to an additional 2,380,000 shares of our common stock to
two individuals for gross proceeds of $238,000. These shares and warrants were
issued without registration under the Securities Act by reason of the exemption
from registration afforded by the provisions of Section 4(2) thereof, and Rule
506 promulgated thereunder, as a transaction by an issuer not involving a public
offering.
In January 2005, we issued an aggregate of 4,860,000 shares and
warrants to purchase up to an additional 960,000 shares of our common stock to
seven individuals for gross proceeds of $30,000, services rendered, and other
consideration. These shares and warrants were issued without registration under
the Securities Act by reason of the exemption from registration afforded by the
provisions of Section 4(2) thereof, as a transaction by an issuer not involving
a public offering.
Item 27. Exhibits
Copies of the following documents are filed with this registration statement as
exhibits:
Exhibit No. Document
5.1 Opinion of Durham Jones & Pinegar, P.C.
23.1 Consent of Mantyla McReynolds
23.2 Consent of Counsel (included in Exhibit 5 Opinion Letter)
32
24. Power of Attorney (Included on Signature Page of Registration Statement)
Item 28. Undertakings
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the provisions described above, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
We hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To specify in the prospectus any facts or events arising after the
effective date of the registration statement (or most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b)
(Section 230.4242(b) of Regulation S-B) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
33
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, we certify that we have reasonable grounds to believe that we meet all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, in the city of Idaho
Falls, Idaho, on May 5, 2005.
SOURCE DIRECT HOLDINGS, INC.
A Nevada Corporation
By: /s/ Deren Smith
-------------------------------------
Deren Smith
Its: President and Director
POWER OF ATTORNEY
The person whose signature appears below constitutes and appoints and
hereby authorizes Deren Smith, with the full power of substitution, as
attorney-in-fact, to sign in such person's behalf, individually and in his
capacity as a director, and to file any amendments, including post-effective
amendments to this Registration Statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following person in the capacity and on
the date stated.
/s/ Kevin Arave May 5, 2005
- ---------------------------------------------
Kevin Arave
Secretary/Treasurer and Director
34
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
Report of Independent Registered Public Accounting Firm F-2
Balance Sheet - June 30, 2004 F-3
Statements of Operations for the years ended June 30, 2004
and for the period from Inception (July 8, 2002) through
June 30, 2004 F-4
Statement of Stockholders' Equity for the period from Inception
(July 8, 2002) through June 30, 2004 F-5
Statements of Cash Flows for the years ended June 30, 2004
and 2003 and for the period from Inception (July 8, 2002)
through June 30, 2004 F-6
Notes to Financial Statements F-7
F-1
Source Direct Holdings, Inc.
[A Development Stage Company]
Notes to Financial Statements
June 30, 2004
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Source Direct Holdings, Inc.
Idaho Falls, Idaho
We have audited the accompanying balance sheet of Source Direct Holdings, Inc.
[a development stage company] as of June 30, 2004, and the related statements of
operations, stockholders' equity/(deficit), and cash flows for the period from
inception [July 8, 2002] through June 30, 2004. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Source Direct Holdings, Inc. as
of June 30, 2004, and the results of operations and cash flows for the period
from inception [July 8, 2002] through June 30, 2004, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that Source
Direct Holdings, Inc. will continue as a going concern. As discussed in Note D
to the financial statements, the Company has accumulated losses and has not had
significant operations since inception. These issues raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note D. The financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
Mantyla McReynolds
August 31, 2004
Salt Lake City, Utah
F-2
Source Direct Holdings, Inc.
Balance Sheet
June 30, 2004
ASSETS
Current assets:
Cash and cash equivalents $ 955
Accounts receivable 20,245
Inventory 72,847
---------
Total current assets 94,047
Property & equipment, net - Notes A & D 47,497
Other assets:
Intangible Assets, net of amortization - Note D 110,528
---------
Total other assets 110,528
---------
TOTAL ASSETS $ 252,072
=========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Equipment Loans $ 15,602
Accrued expenses 23,302
Shareholder loans - Note G 36,563
---------
Total current liabilities 75,467
---------
Total liabilities 75,467
Stockholders' equity:
Equity - Note B
Common stock, par value $0.001 per share; 200,000,000
shares authorized; 69,281,400 issued and outstanding 69,281
Additional Paid in Capital 669,219
Deficit accumulated during the development stage (561,895)
---------
Total stockholders' equity 176,605
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 252,072
=========
See accompanying notes to financial statements.
F-3
Source Direct Holdings, Inc.
Statements of Operations
For the years ended June 30, 2004 and 2003 and for the period
from inception [July 8, 2002] through June 30, 2004
From Inception
[7/8/02] through
2004 2003 June 30, 2004
---------------- ---------------- ----------------
Revenue $ 21,734 $ -- $ 21,734
Cost of sales 11,200 -- 11,200
---------------- ---------------- ----------------
Gross operating profit 10,534 -- 10,534
General and administrative expenses 549,104 23,235 572,339
---------------- ---------------- ----------------
Income (loss) from operations (538,570) (23,235)
(561,805)
Other income (expense):
Interest income -- -- --
Interest expense -- -- --
---------------- ---------------- ----------------
Total other income (expense) -- -- --
---------------- ---------------- ----------------
Loss from continuing operations before income taxes (538,570) (23,235)
(561,805)
Provision for income taxes 60 30 90
---------------- ---------------- ----------------
Loss from continuing operations (538,630) (23,265)
(561,895)
---------------- ---------------- ----------------
Net loss $ (538,630) $ (23,265) $
(561,895)
================ ================ ================
Loss per share basic and diluted:
Net loss per share-basic and diluted $ (0.01) $ (0.01) $
(0.01)
================ ================ ================
Weighted average number of common shares
outstanding-basic and diluted 50,822,329 38,020,000 41,948,368
================ ================ ================
See accompanying notes to financial statements.
F-4
Source Direct Holdings, Inc.
Statements of Stockholders' Equity
For the period from Inception [July 8, 2002]
through July 30, 2004
Deficit
Accumulated Total
Number of Additional During Stockholders'
Common Common Paid in Development Equity
Shares Stock Capital Stage (Deficit)
------------ ------------ ------------ ------------ ------------
Balance July 8, 2002 -- $ -- $ -- $ -- $ --
Issued stock at $1.00 per share 2,000 2,000 -- -- 2,000
Net Loss for period -- -- -- (23,265) (23,265)
------------ ------------ ------------ ------------ ------------
Balance June 30, 2003 2,000 2,000 -- (23,265) (21,265)
============ ============ ============ ============ ============
Recall Source Direct shares from 2003 (2,000) (2,000) -- -- (2,000)
Recapitalization at Merger with
Global-Tech Capital Corp 67,681,400 67,681 520,819 -- 588,500
Issued shares at $.09375 per share 1,600,000 1,600 148,400 -- 150,000
Net Loss for period -- -- -- (538,630) (538,630)
------------ ------------ ------------ ------------ ------------
Balance June 30, 2004 69,281,400 $ 69,281 $ 669,219 $ (561,895) $ 176,605
============ ============ ============ ============ ============
See accompanying notes to financial statements.
F-5
Source Direct Holdings, Inc.
Consolidated Statements of Cash Flows For the years ended
June 30, 2004 and 2003 and for the period
from inception [July 8, 2002] through June 30, 2004
From
Inception
[7/8/02]
through
2004 2003 6/30/04
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $(538,630) $ (23,265) $(561,895)
Adjustments to reconcile net loss to net
cash used in continuing operations:
Depreciation and amortization 8,006 -- 8,006
Changes in operating assets and liabilities
Increase in income taxes payable 30 30 60
Increase in shareholder loan 35,245 1,318 36,563
(Increase) in accounts receivable (20,246) -- (20,246)
(Increase) in inventory (72,847) -- (72,847)
Increase in equipment loans 15,601 -- 15,601
Increase in payroll liabilities 23,241 -- 23,241
--------- --------- ---------
Net cash used in operating activities (549,599) (21,917) (571,516)
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchase (51,030) -- (51,030)
Acquisition of intangible assets (115,000) -- (115,000)
--------- --------- ---------
Net cash used in investing activities (166,030) -- (166,030)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Stock 736,500 2,000 738,500
Net borrowing (payments) on long-term debt (20,000) 20,000 --
--------- --------- ---------
Net cash provided by financing activities 716,500 22,000 738,500
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 871 83 955
CASH AT BEGINNING OF YEAR 84 -- --
--------- --------- ---------
CASH AT END OF YEAR $ 955 $ 83 $ 955
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ -- $ -- $ --
Cash paid for income taxes $ -- $ -- $ --
See accompanying notes to financial statements.
F-6
Source Direct Holdings, Inc.
[A Development Stage Company]
Notes to Financial Statements
June 30, 2004
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Background
Source Direct, Inc. ("SDI"), was incorporated under the laws of the
State of Idaho on July 8, 2002. Since its inception, SDI was in the
business of promoting and marketing cleaning products and supplies,
and developing new products. Since its inception, SDI has been a
development stage company.
On October 14, 2003, SDI, the predecessor of the Company, merged with
a wholly owned subsidiary of Global Tech Capital Corp. ("GTCC"), a
publicly traded Nevada corporation which was incorporated on July 21,
1998. As a result of the merger, SDI was the surviving entity, and
became a wholly owned subsidiary of GTCC. GTCC's name was then changed
to Source Direct Holdings, Inc.
References in these financial statements to the "Company" refer to
Source Direct Holdings, Inc., and its subsidiary, Source Direct, Inc.,
unless otherwise stated.
Statement of Cash Flows
Cash is comprised of cash on hand and on deposit with banks. The
Company has $955 as of June 30, 2004.
Income Taxes
The Company applies Statement of Financial Accounting Standard
("SFAS") No. 109, "Accounting For Income Taxes," which requires the
asset and liability method of accounting for income taxes. The asset
and liability method requires that the current or deferred tax
consequences of all events recognized in the financial statements are
measured by applying the provisions of enacted tax laws to determine
the amount of taxes payable or refundable currently or in future
years. (See Note C below.)
Inventory
Inventory is valued at the lower of cost or market (net realizable
value) using the first-in, first-out (FIFO) method. The major
categories of inventory are as follows.
Current Value
-------------
Raw Materials $ 46,863
Work in Process 2,051
Finished Goods 23,933
-------------
Total Inventory $ 72,847
=============
F-7
Source Direct Holdings, Inc.
[A Development Stage Company]
Notes to Financial Statements
June 30, 2004
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
Net Loss Per Common Share
In accordance with Financial Accounting Standard No. 128, "Earnings
Per Share," basic loss per common share is computed using the weighted
average number of common shares outstanding. Diluted earnings per
share is computed using weighted average number of common shares plus
dilutive common share equivalents outstanding during the period using
the treasury stock method. During the years ended June 30, 2004 and
2003, there were no common share equivalents outstanding.
Revenue Recognition
The Company recognizes revenues in accordance with the Securities and
Exchange Commission, Staff Accounting Bulletin No. 101 ("SAB 101",
"Revenue Recognition in Financial Statements." SAB 101 clarifies
application of U. S. generally accepted accounting principles to
revenue transactions. Revenue from product sales is recognized when
goods are delivered to the customer. Revenue from promotional and
marketing services is recognized when earned. The Company records
accounts receivable for sales which have been completed but for which
money has not been collected. The balance uncollected as of June 30,
2004 was $20,246. The Company has had no bad debt recorded to date
therefore they do not recognize an allowance for doubtful accounts.
For customer purchases paid in advance, the Company records a
liability until products are shipped. There was no unearned revenue as
of June 30, 2004.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with U. S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Property and equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred. Property
and equipment are depreciated as follows:
Depreciation Estimated
Asset Method useful life
------------------- --------------- ---------------
Furniture Straight-line 7 years
Equipment Straight-line 7 years
Office Equipment Straight-line 5 years
F-8
Source Direct Holdings, Inc.
[A Development Stage Company]
Notes to Financial Statements
June 30, 2004
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
Intangible assets
The Company adopted SFAS No. 142 "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses the accounting and reporting for
acquired goodwill and other intangible assets. The Company's
intangible assets consist of formulas, trademarks and trade names. The
intangible assets are being amortized over their useful life of 15
years. Amortization expense for the years ended June 30, 2004 and
2003, were approximately $4,472 and $0, respectively. Amortization
expense for the next five years is expected to be $7,667 each year.
NOTE B ISSUANCE OF COMMON SHARES
On October 14, 2003, a reverse merger transaction occurred with
Global-Tech Capital Corp., and 67,681,400 shares of common stock were
issued. Of those shares of common stock 12,151,400 were the beginning
shares of GTCC., and 55,530,000 shares of common stock were issued to
shareholders of Source Direct, Inc. at a rate of 1.5 shares of GTCC
stock for each share of Source Direct, Inc.
On March 31, 2004, the Company issued 1,600,000 shares of common stock
to private investors for $150,000 or $.09375 per share.
NOTE C ACCOUNTING FOR INCOME TAXES
No provision has been made in the financial statements for income
taxes because the Company has accumulated losses from operations since
inception. Any deferred tax benefit arising from the operating loss
carried forward is offset entirely by a valuation allowance because it
is currently not likely that the Company will be sufficiently
profitable in the near future to take advantage of the losses.
Deferred tax assets Balance Tax Rate
----------------------------------------------- -------- --------- ----
Federal Loss carryforward (expires through 2023) $561,895 $84,284 15%
State Loss carryforward (expires through 2018) 561,895 42,704 7.6%
Valuation allowance (126,988)
--------
Deferred tax asset $ 0
========
The allowance has increased $121,732 from $5,256 from June 30, 2003.
The amount shown on the balance sheet for taxes payable represents the
annual minimum franchise amount due to the State of Idaho.
F-9
Source Direct Holdings, Inc.
[A Development Stage Company]
Notes to Financial Statements
June 30, 2004
NOTE D PROPERTY AND EQUIPMENT
The major categories of property and equipment are as follows:
Accumulated
Depreciation/
Total Amortization June 30, 2004
------------ ------------ -------------
Office Equipment $ 18,043 $ 2,164 $ 15,879
Furniture & Fixtures 450 49 401
Equipment 32,537 1,321 31,216
Intangibles 115,000 4,472 110,528
------------ ------------ -------------
Net property and equipment $ 166,030 $ 8,006 $ 158,024
============ ============ =============
Depreciation expense was $3,534 in 2004, and $0 in 2003. Amortization
expense was $4,472 in 2004, and $0 in 2003.
NOTE E GOING CONCERN
The Company has accumulated losses since inception totaling $561,895
and is still developing operations as of June 30, 2004. Financing for
the Company's limited activities to date has been provided primarily
by the issuance of stock, by advances from stockholders (see NOTE F)
and by borrowing funds(see NOTE E). The Company's ability to achieve a
level of profitable operations and/or additional financing impacts the
Company's ability to continue as it is presently organized. Management
continues to develop its planned principal operations. Should
management be unsuccessful in its operating activities, the Company
may experience material adverse effects.
NOTE F NOTES PAYABLE
The Company has borrowed funds, for operating purposes, from an
individual. The terms of the note include 10 payments of $1,000 at 0%
interest until March 1, 2005. The loan is secured by a Symbiosis
packing machine which is used during the production of the cleaning
solution.
The Company has borrowed funds, for operating purposes, from an
individual. The loan is secured by a label applicator, due on demand
and non-interest bearing. The Company paid cash for this machine in
August of 2004.
F-10
Source Direct Holdings, Inc.
[A Development Stage Company]
Notes to Financial Statements
June 30, 2004
NOTE G RELATED PARTY TRANSACTION
During the period ended June 30, 2004, Company stockholders used
personal funds to pay Company expenses. These stockholder loans are
considered to be short-term and are non-interest bearing. The net
amount owed to the stockholders by the Company, as of June 30, 2004,
was $36,563.
NOTE H SUBSEQUENT EVENTS
Subsequent to the Company's fiscal year end June 30, 2004, the Company
entered into agreements with consultants to whom they had issued
shares of common stock for services. Pursuant to these agreements, the
Company rescinded the grants of certain shares issued and canceled an
aggregate of 9,000,000 shares of common stock which had been issued in
connection with the merger with GTCC and for services to be rendered
subsequent to the merger. The grants were rescinded and the shares
were canceled because management felt that the shares had been issued
in amounts that were inconsistent with the value of the services
provided.
F-11
[QUARTERLY FINANCIALS AND NOTES]
SOURCE DIRECT HOLDINGS, INC.
Consolidated Balance Sheets
December 31, 2004
ASSETS
(Unaudited)
December
31, 2004
Current Assets
Cash $ 61,726
Trade Receivables 16,443
Inventory 254,596
Employee Advance 5,437
-----------------------
Total Current Assets 338,202
Property and Equipment
Property and equipment 78,496
Less: Accumulated Depreciation (8,434)
-----------------------
Net Property and Equipment 70,062
Other Assets
Formula, Trademark, Trade-name 115,000
Accumulated Amortization (8,306)
-----------------------
Net Other Assets 106,694
-----------------------
TOTAL ASSETS $ 514,958
=======================
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable $ 10,085
Equipment Loans (current) 3,000
Payroll Liabilities 24,064
Taxes Payable -
-----------------------
Total Current Liabilities 37,149
Long-Term Liabilities
Payable to Shareholders -
-----------------------
Total Long-Term Liabilities -
Total Liabilities
Stockholders' Deficit
Common Stock -- $.001 par value; 200,000,000
shares authorized; 71,036,400
issued and outstanding at December 31, 2004 71,036
Additional paid-in capital 1,322,464
Accumulated deficit (915,691)
-----------------------
Total Stockholders' Deficit 477,809
-----------------------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 514,958
=======================
3
SOURCE DIRECT HOLDINGS, INC.
Consolidated Statement of Operations
(Unaudited)
For the Three For the Three
Months Ended Months Ended
December 31, 2004 December 31, 2003
----------------------- -----------------------
Revenues $ 35,908 $ -
Cost of Goods Sold 15,656 -
Gross Profit 20,252 -
General and admin. Expense 211,178 157,902
----------------------- -----------------------
Operating Loss (190,926) (157,902)
Interest income - -
Interest expense - -
Gain/(loss) on asset sales - -
Income taxes - -
----------------------- -----------------------
Net Loss before extraordinary (190,926) (157,902)
Extraordinary gain, net - -
----------------------- -----------------------
Net Loss $ (190,926) $ (157,902)
======================= =======================
Net Loss per share $ (0.01) $ (0.01)
Weighted Average Number
of shares outstanding 69,275,259 12,151,400
4
SOURCE DIRECT HOLDINGS, INC.
Consolidated Statement of Operations
(Unaudited)
For the six For the six
Months Ended Months Ended
December 31, 2004 December 31, 2003
----------------------- -----------------------
Revenues $ 69,406 $ -
Cost of Goods Sold 33,776 -
----------------------- -----------------------
Gross Profit 35,630 -
General and admin. Expense 389,426 326,730
----------------------- -----------------------
Operating Loss (353,796) (326,730)
Interest income - -
Interest expense - -
Gain/(loss) on asset sales - -
Income taxes - -
----------------------- -----------------------
Net Loss before extraordinary (353,796) (326,730)
Extraordinary gain, net - -
----------------------- -----------------------
Net Loss $ (353,796) $ (326,730)
======================= =======================
Net Loss per share $ (0.01) $ (0.01)
Weighted Average Number
of shares outstanding 69,275,259 12,151,400
5
SOURCE DIRECT HOLDINGS, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
For the Six
Months Ended
December 31, 2004
---------------------------
Cash Flow Used for Operating Activities
Net Loss $ (353,796)
Adjustments to Reconcile net loss to
to net cash used for operating activities:
Depreciation 4,900
Amortization Expense 3,834
Decrease in Trade Receivables 3,802
Increase in Inventory (181,750)
Increase in employee advance (5,437)
Increase in accounts payable 10,085
Decrease in equipment loans (12,602)
Increase/(Decrease) in payroll Liabilities 822
(Decrease) in income taxes payable (60)
-
---------------------------
Net Cash Flows Used for Operating Activities (530,202)
Cash Flows used for Investing Activities
Purchase equipment (27,465)
Acquisition of Intangible Assets -
---------------------------
Net Cash Flows Used for Investing Activities (27,465)
Cash Flows used for Financing Activities
Decrease in Shareholder Loans (36,563)
Decrease in Note Payable -
Issued stock for cash 655,000
---------------------------
Net Cash Flows Used for Financing Activities 618,437
Net Increase / (Decrease in cash 60,770
Beginning Cash Balance 955
Ending Cash Balance $ 61,725
===========================
6
SOURCE DIRECT HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Source Direct
Holdings, Inc. ("Source Direct") have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission ("SEC"), and should be read in
conjunction with the audited financial statements and notes thereto contained in
Source Direct's Annual Report filed with the SEC on Form 10-KSB. In the opinion
of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the financial statements
which would substantially duplicate the disclosure contained in the audited
financial statements for June 30, 2004, as reported in the form 10-KSB have been
omitted.
NOTE 2 - COMMON STOCK
During the quarter ended December 31, 2004, the Company issued the following
shares of its common stock:
During November and December 2004, the Company sold 3,005,000 shares of common
stock for a purchase price of $305,000. The sale included warrants to purchase
up to an additional 3,005,000 shares of common stock at an exercise price of
$0.125 per share.
In October 2004 the Company issued 250,000 shares of common stock for services.
The issuance included warrants to purchase up to an additional 250,000 shares of
common stock at an exercise price of $0.125 per share.
During the quarter ended September 30, 2004, the Company issued the following
shares of its common stock:
In August 2004 the Company sold 500,000 shares of common stock for a purchase
price of $50,000. The sell included warrants to purchase up to an additional
500,000 shares of common stock at an exercise price of $0.125 per share.
In July 2004 the Company sold 1,500,000 shares of common stock for gross
proceeds of $150,000. The sell included warrants to purchase up to 1,500,000
additional shares of common stock at an exercise price of $0.125 per share.
In August 2004, the Company sold 1,500,000 shares and warrants to purchase
another 1,500,000 shares, at an exercise price of $0.125 per share, to two
accredited investors for a purchase price of $150,000.
In August 2004, the Company issued an aggregate of 5,000,000 shares to outside
consultants in exchange for consulting services provided to the Company.
Additionally, the Company issued warrants to purchase up to an additional
4,000,000 shares to the consultants.
NOTE 3 - COMMON STOCK - SUBSEQUENT EVENT
During the months of January and February 2005, the Company issued 660,000 of
its common stock for services rendered. The services included warrants to
purchase up to an additional 660,000 shares of its common stock. The Company
also sold 950,000 shares of common stock for a purchase price of $95,000. The
sale included warrants to purchase up to an additional 950,000 shares of common
stock at an exercise price of $0.125 per share.