SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 3
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 30, 2007
DIGITALPOST INTERACTIVE, INC.
(Exact Name of Registrant as Specified in Charter)
NEVADA 333-124405 98-0434357
(State or Other Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
3240 EL CAMINO REAL, SUITE 230, IRVINE, CA 92602
(Address of Principal Executive Offices)(Zip Code)
(714) 824-3000
Registrant's Telephone Number
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
FORWARD LOOKING STATEMENTS
This current report on Form 8-K contains, in addition to historical
information, forward-looking statements. We may, in some cases, use words such
as "project," "believe," "anticipate," "plan," "expect," "estimate," "intend,"
"continue," "should," "would," "could," "potentially," "will," or "may," or
other similar words and expressions that convey uncertainty of future events or
outcomes to identify these forward-looking statements. Forward-looking
statements in this prospectus include statements about:
o our financial performance, including our net revenues, cost of
revenues, operating expenses and ability to sustain profitability;
o our planned capital expenditures;
o our liquidity and working capital requirements;
o our ability to expand our customer base;
o our ability to expand our product and service offerings;
o our efforts to make our business more vertically integrated;
o our ability to develop additional adjacent lines of business;
o our ability to grow and diversify the Company through merger or
acquisition;
o our international expansion plans;
o our ability to secure adequate facility space;
o our ability to retain and hire necessary employees and
appropriately staff our operations;
o our ability to remediate the material weaknesses and significant
deficiencies in our internal control over financial reporting;
o our ability to stay abreast of modified or new laws applying to our
business.
The outcome of the events described in these forward-looking statements
is subject to known and unknown risks, uncertainties and other factors that
could cause actual results to differ materially from the results anticipated by
these forward-looking statements. These important risks, uncertainties and
factors include those factors we discuss in this Form 8-K under the caption
"Risk Factors." You should read these factors and the other cautionary
statements made herein as being applicable to all related forward-looking
statements wherever they appear herein. These risk factors are not exhaustive
and other sections of this Form 8-K may include additional factors which could
harm our business and financial performance.
The forward-looking statements made in this document relate only to
events as of the date on which the statements are made. We undertake no
obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by
law.
This document also contains statistical data that we obtained from
industry publications and reports. Although we have not independently verified
the data contained in these industry publications and reports, based on our
industry experience, we believe that the publications are reliable and the
conclusions contained in the publications and reports are reasonable.
EXPLANATORY NOTE
As previously disclosed on a Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 1, 2007 (the "Initial 8-K") as
amended, on January 30, 2007, Homassist Corporation (subsequently renamed to
DigitalPost Interactive, Inc.) completed its acquisition by merger of The Family
Post, Inc. pursuant to an agreement and plan of merger as discussed below. As a
result of the merger, The Family Post, Inc. became the operating wholly-owned
subsidiary of DigitalPost Interactive, Inc. This amendment is being filed to
amend and supplement the Initial 8-K, to include the audited financial
statements required by Item 9.01 thereto. Subsequent to this Current Report, all
future filings made with the SEC shall reflect historical and ongoing operations
of The Family Post, Inc. and DigitalPost Interactive, Inc., and not of Homassist
Corporation.
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ITEM 1.01--ENTRY INTO DEFINITIVE MATERIAL AGREEMENTS
In connection with the election of Michael Sawtell as Sole Director and
Chief Executive Officer, and Steven Dong as Chief Financial Officer of
DigitalPost Interactive, Inc, (the Company) entered into two executive
employment agreements, as discussed further below in Item 2.01. As such,
reference is made to the disclosure set forth under Item 2.01 of this current
report on Form 8-K, which disclosure is incorporated herein by reference.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
THE MERGER
Prior to January 25, 2007, we were known as HomAssist Corporation, a
Nevada corporation ("HomAssist"). On January 30, 2007, we acquired The Family
Post, Inc, a privately held California corporation ("Old TFP"), pursuant to an
agreement and plan of merger, dated as of January 16, 2007, as amended (the
"Merger Agreement"), by and among us, Old TFP and our wholly-owned subsidiary
("Merger Sub"), providing for the merger of Merger Sub and Old TFP, with the
Merger Sub being the surviving corporation as our wholly-owned subsidiary (the
"Merger"). Immediately following the Merger, we changed our name to DigitalPost
Interactive, Inc. ("DPI" or the "Company"), the Merger Sub changed its name to
The Family Post, Inc. ("New TFP"), and we began operating New TFPs business of
Internet content sharing.
Effective upon the closing of the Merger, the directors elected at the
special meeting, who comprise all of the then current HomAssist directors
resigned and the sole director of Old TFP became the new sole director of DPI.
Prior to the Merger, HomAssist had 15,600,000 shares of common stock
issued and outstanding. As part of the Merger, the Company issued 37,173,385
shares of our common stock to the former stockholders of Old TFP in exchange for
all of the issued and outstanding shares of common stock of Old TFP (16,478,175
shares). As part of the Merger, HomAssist also adopted the existing stock option
agreements of Old TFP ("Old TFP Option Agreements") outstanding under which
options to purchase 7,724,850 shares of common stock of Old TFP outstanding
prior to the Merger were converted into options to purchase 17,426,615 shares of
common stock of DPI.
Following the Merger, there were 52,833,385 shares of DPI common stock
outstanding, of which the pre-Merger stockholders of HomAssist owned
approximately 29.6% and the pre-Merger stockholders of Old TFP owned
approximately 70.4%. As a result, Old TFP has been treated as the acquiring
company for accounting purposes. The Merger has been accounted for as a reverse
acquisition in accordance with generally accepted accounting principles in the
United States of America, or "U.S. GAAP." Reported results of operations of the
combined group issued after completion of the transaction will reflect Old TFP's
operations.
Unless otherwise indicated or the context otherwise requires, the terms
"Company," "DPI," "we," "us," and "our" refer to DigitalPost Interactive, Inc.
(formerly known as HomAssist Corporation) and its affiliates, including its
subsidiary New TFP, after giving effect to the Merger. Unless otherwise
indicated or the context otherwise requires, the term "our business" refers to
internet content business of Old TFP as continued by New TFP after the Merger.
This current report contains summaries of the material terms of various
agreements executed in connection with the transactions described herein. The
summaries of these agreements are subject to, and qualified in their entirety
by, reference to these agreements, all of which are incorporated herein by
reference.
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1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
From our incorporation in California in July 2005 through 2006, we
operated, under the name of The Family Post, Inc., as an Internet company
specializing in the platform and technology of interactive, immersive websites
for families. After the Merger, we operate as DPI, a Nevada corporation, with
The Family Post, Inc. owned as our wholly owned subsidiary.
Our principal office is located at 3240 El Camino Real, Suite 230,
Irvine, CA 92602 and our telephone number is (888) 881-1011. We maintain
Internet websites at www.DigitalPostInteractive.com and www.TheFamilyPost.com.
These websites, and the information contained therein, are not a part of this
current report.
BUSINESS OF THE ISSUER
DigitalPost Interactive, Inc. is a pioneer in the rapidly expanding Web
2.0 (user generated content) market. We create new, interactive platforms for
many vertical markets for use within this new web space. Our platforms and tools
enable consumers to share and preserve their memories. Consumers use our tools
and platform to stay connected to their friends, family and associates. Our
vision is to powerfully connect people online with immersive and engaging
platforms and technology. Our mission is to build the Web 2.0 space's most
advanced user content generating tools for uploading content and digital media
within a very easy user interface.
We produce high-end family destination websites that allow users to
securely share calendars, photos, videos, message boards and history. Our
proprietary website administration system, Qwik-Post(TM), and online video
uploading system, Video-Post allow even the novice PC user to easily manage
their content. With our immersive and engaging platforms and technology, users
go beyond simply sharing their user-generated content to having a permanent
destination to display photo and video memories, discussions, and history for
years to come.
We earn revenue primarily from subscriptions generated from monthly
subscriptions for Website hosting services. The typical subscription agreement
includes the usage of a personalized website and hosting services. Since
beginning in July 2005, we developed our product, began operations and generated
our first revenues. To date, we have generated 801 subscribers, have 1,523
users, and have transferred more than 163 Gigabytes of consumer digital media
across our systems. However, our revenues are minimal and not sufficient to
cover our operating costs and expenses. For the year ended December 31, 2006, we
incurred a net loss of $743,013 and had accumulated deficit of $949,725.
Since we incorporated in July 2005 and earned our first revenues in
late 2005, we are only in the beginning stages of our revenue generating
activities and intend to market our product more aggressively upon completion of
additional debt or equity financing. Since inception to date, we have operated
on cash proceeds generated from equity financings and we will need to raise
additional funds through such financings. As such, part of our plan is to have
entered into the Merger (see discussion above on the Merger) to assist us in
raising additional proceeds. Furthermore, we expect to secure such financing and
in turn, utilize the proceeds raised to more aggressively market our products
and services, and thereby increase our revenue generating activities.
INDUSTRY OVERVIEW AND ADDRESSABLE MARKET
Creating Keepsakes Magazine estimates consumers annually spend $18
billion on greeting cards, scrapbooks and photos in physical/digital form. The
U.S. Census Bureau projects 57 million U.S. family households in 2006. DPI
represents a multi-million dollar opportunity as Internet users move their
user-generated content online and will have a need for the elegant presentation
and secured lifetime storage of these precious memories in multiple vertical
markets.
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Internet and image-based technology today enables consumers to create
an abundance of content that includes photos and video requiring highly
functional, immersive online destinations that can present, protect and preserve
this content. This is the new web, also known as Web 2.0. We believe that the
key forces driving the expansion of this segment of the Web 2.0 market are:
o The proliferation of digital cameras and camcorders to a broader
base of consumers.
o The strong consumer desire for secure sharing digital content on
the Internet
o The growing consumer desire to find an easy, single location for
storing their user-generated digital content
o The increasing participation by consumers in online communities
o The increasing penetration of high-speed connectivity to a broader
base of consumers.
The addressable market for our platform and tools includes the vast
population of users who create Internet content in text, and by digital
photographic devices such as cameras and camcorders. We currently address
several adjacent markets related to consumers' desire to create and share
content, including:
o The photo studio market
o The wedding industry
o The baby industry
o The scrapbooking industry
o The military
o Consumer ISPs / Hosting & Domain Services
Our platforms are highly scalable to a variety of additional vertical
markets. Our tools fit well in sectors and industries where simplified and
powerful sharing of content, images, and video effectively brings groups of
people together in an interactive online environment. As the new web rushes
forward, we will attempt to expand our market penetration to include:
o The sports industry
o The education sector
o The travel industry
o The religious sector
o The newborn sector
o And others...
COMPETITION
The user-generated content industry is competitive, and we expect
competition to increase in the future. These competitors include My Family,
JotSpot, Amiglia, Family Lobby, My Great Big Family, EasySite and Connected
Family.
THE DPI COMPETITIVE ADVANTAGE
We have developed platforms and tools that allow us to offer consumers
a better way to enjoy, share and preserve their user-generated content. We
believe that our business model is supported by the following characteristics:
VIRAL NETWORK EFFECT. Our customers create a viral network of new users
and customers in a number of ways. They generate most of the content on our
service by uploading their photos. They share their photos electronically with
their friends and families, extending and endorsing our brand and creating a
sense of community.
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LOYAL CUSTOMER BASE. Our high-quality products and services, together
with our focus on continuous innovation, have allowed us to establish high
customer loyalty. Our conversion of users within the free two weekday trial is
74%. Post-trial, we enjoy a high subscription retention rate of over 90%. As
users populate their websites with content, photos, and videos, they remain as
active subscribers, adding monthly revenue until the consumer cancels their
service.
PREMIUM PRICING POWER. We believe that we are able to maintain premium
pricing for our services as a result of our brand equity, the high-quality of
our platform and tools, and the loyal customer base we have created.
DEEP CUSTOMER UNDERSTANDING. Customer insights are an important source
of new product and service innovation for us, and we continually strive to
understand our customers' needs in order to improve customer satisfaction. We
invest significant time and resources to understand and address the needs of our
customers through market research, focus groups, customer surveys, usability
testing, customer response to promotions and customer service interactions.
TRUSTED PREMIUM BRAND. Our focus on ease of use, website quality,
secure storage, continual product advancement and attentive customer service has
established DPI as a trusted premium brand.
CUSTOMER-FOCUSED APPROACH. The entire DPI customer experience --
including free trial, the ability to upload, edit, store and share content in a
dynamic website environment and the fact that a single subscription can host an
unlimited number of users -- reflects our customer-focused approach.
With DPI at the forefront of the Web 2.0 space, we face competition
from a dozens of established Internet companies.
OUR GROWTH STRATEGY
Our goal is to grow our suite of Internet services into a premium
lifestyle brand and become the potentially leading platform for highly
functional, interactive website destinations dedicated to improving the sharing,
protection and preservation of user-generated content. In addition to the strong
market trends supporting our business, we believe our growth will be supported
by the following initiatives:
PROMOTION OF BRAND AWARENESS. We intend to promote the DPI brand
through a marketing campaign. We will leverage new and existing channels, which
include word-of-mouth marketing, print and online advertising, affiliate and
referral programs, search engine marketing and complementary strategic alliances
to generate high visibility to the DPI brand.
EXPANSION OF CUSTOMER BASE. To quickly and cost-effectively introduce
DPI to the Web 2.0 marketplace, we intend to give basic, limited storage and
functionality DPI websites away for free. Utilizing this "freemium" marketing
strategy we expect to obtain thousands of users in a relatively short period of
time. We believe that when people discover and adopt our remarkable online
platform, they will tell their friends, families, and business associates about
it, who, in turn, will tell others through word of mouth or email
communications. Several other successful web-based technology product launches
including Skype, Firefox, MySpace, Friendster, Hotmail, and others have
successfully used this marketing and distribution strategy, obtaining millions
of members in a very short period of time.
EXPANSION PRODUCTS AND SERVICES OFFERINGS. We will continue to develop
our technology to include forward-thinking functionality and benchmarks
increasing the widespread adoption of our platform and tools.
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EXPANSION OF VERTICAL INTEGRATION. We will continue to introduce our
platform and tools into additional verticals through strategic partnerships and
acquisitions.
INTERNATIONAL EXPANSION. We intend to develop additional business
opportunities through international expansion, targeting consumers in key
geographic areas where user-generated content is high and where Internet usage
is widespread.
PRODUCT OVERVIEW
THE DPI PLATFORM
The DPI platform provides user content generating tools for uploading
content and digital media within a very easy user interface. Our platform is
highly scalable to a variety of market verticals, effectively bringing groups of
people together in an attractive and interactive online environment. The DPI
platform includes the following key features:
SECURITY/ DISASTER RECOVERY - Our member's information is safe and
secure in our data center and further backed-up weekly to IRON MOUNTAIN, the
industry standard 3rd party data vault.
EASE OF USE - DPI uses a browser based interface providing easy-to-use,
intuitive management of the customer sites.
POWERFUL APPLICATION INSTALL - The DPI Management Interface, Qwik-Post,
comes with the Aurigma Image Uploader giving users the ability to upload any
number of files at one time. In addition, it also provides file compression
before uploading, thereby greatly reducing the time needed to upload media.
WEB BASED - Because DPI is web-based, the application is accessed
through the internet and resides on servers at our data center. All standard
browsers are 100% compliant with the DPI Platform.
SAFE ACCESS - Our members can securely access their website and
Qwik-Post administration panel at anytime, from wherever they are, from any
computer connected to the internet.
UNLIMITED MEMBERS - Our members may grant website access into their
accounts to as many other users as they like.
COMPATIBILITY - Our members can access their DPI websites and QwikPost
using Internet Explorer, Firefox, Safari, Netscape and Opera Browsers.
SUPPORT - Our customer service team is available by email or phone,
seven days a week.
IMMEDIACY - Members can have their website up and running in minutes.
AFFORDABILITY - Due to the highly-refined automation of the DPI engine,
pricing can be tiered to accommodate all service levels and budgets.
THE DPI QWIK-POST APPLICATION
Qwik-Post is the proprietary application that enables the user to
administer all DPI functionality. Qwik-Post allows users to add content to their
websites within seconds and upload hundreds of pictures and videos in minutes.
Accessible anywhere in the world, yet password-protected at the choice of the
user, our interactive technology enables extended user bases to simultaneously
upload and manage their digital media. With Qwik-Post, managing a website or a
digital platform is made easy for users of all ages and levels of technical
computer understanding. The DPI Qwik-Post application includes the following key
functionality:
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PHOTO ALBUMS - The Qwik-Post Photo Album feature enables users to
gather their digital photos and post them quickly to their site. Users simply
upload their images, then organize them in any order they like using our
simplified drag and drop interface. In a matter of minutes users have created a
professional quality multimedia slide show to share with friends and family over
the internet.
VIDEOS - The Video-Post upload engine enables users to quickly upload
video directly to their websites regardless of the digital file format. Within
three clicks, users can securely share their self-generated content with other
users over the internet.
MESSAGE BOARDS - Our variety of Chat Rooms and Message Boards feature
real time delivery of content for conversation over the internet. These
interfaces are password protected and are enabled to be monitored through
Qwik-Post. DPI provides a safe platform for children and families of all ages to
communicate.
SITE CALENDAR - Coordinating schedules, planning get-togethers and
celebrations can involve endless phone calls and emails. DPI's simple-to-use
calendar makes event planning efficient as important dates such as meetings,
birthdays, games, or anniversaries are all recorded in one place.
MANY MORE FEATURES - Including eMail and eMail Blast, News, History,
Kids' Pages, Directory, and Blogs.
ADDITIONAL PRODUCT ENHANCEMENTS
Our mission is to build the Web 2.0 space's most advanced user content
generating tools for uploading content and digital media within a very easy user
interface. In pursuit of that mission, we intend to rapidly respond to ongoing
customer feedback and feature requests. Below are some items on our product
roadmap:
Tiered security settings: Tiered read/write access for family & friends
o DPI API: integration of outsourced printing, memorabilia (mugs,
calendars, hard-copy photo albums, etc.)
o Calendar Enhancements
1. Calendar Shortcut: Enables users to update their calendar
page in fewer than 3 clicks
2. Calendar Evites: Calendar reminders systematically sent using
eCards
o eCards & Newsletters
1. User-generation of themed electronic postcards/newsletters
2. Upon Creation of new photo album, system sends eCards to
users, directly linking them to the photo album
o Auto-generation of alternate user names: Reconciliation of
duplicate user names
o Enhanced message board
1. Larger and standardized across templates
2. Ability to add links into text for enhanced messaging
o Multiple kids pages: Enables user uploading of multiple subjects
per child
o Basic on-line photo editing
o Family Tree: Allows user generation of relationships between family
members in a visual and interactive format
o Website Counter: Enables notification of website changes and visits
o Additional themes
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INTELLECTUAL PROPERTY
We have applied for certain trademarks and service marks and have a
portfolio of intellectual property. When necessary, we intend to enforce our
intellectual property rights by, among other things, searching the Internet to
detect unauthorized use of our intellectual property, identifying products that
feature unauthorized use of our intellectual property and seeking restraining
orders and/or damages in court against individuals or entities infringing upon
our intellectual property rights. Our failure to thwart piracy, infringement or
other unauthorized use of our intellectual property rights effectively could
adversely affect our operating results.
EMPLOYEES
As of April 27, 2007, we had 10 full-time employees, several
independent contractors and consultants. Our employees are located in Irvine,
California. We believe that our relationships with our employees are generally
good. None of our employees is represented by a union.
1A. RISK FACTORS
AN INVESTMENT IN DPI INVOLVES A HIGH DEGREE OF RISK. INVESTORS SHOULD
CAREFULLY CONSIDER THE RISKS BELOW BEFORE MAKING AN INVESTMENT DECISION. OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED BY ANY OF THESE RISKS. IN SUCH CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND INVESTORS COULD LOSE ALL OR PART OF THEIR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE EXPERIENCED CONTINUED LOSSES AND EXPECT TO INCUR SUBSTANTIAL
NET LOSSES IN THE FUTURE. IF WE DO NOT ACHIEVE PROFITABILITY, OUR FINANCIAL
CONDITION AND STOCK PRICE COULD SUFFER.
Since the inception of our business in 2005, we have incurred
significant losses and only began generating revenue during the second quarter
of 2005. For the year ended December 31, 2006 and for the period from inception
July 14, 2005 to December 31, 2005, we had incurred net losses of $743,013 and
$206,712, respectively. As of December 31, 2006, we had an accumulated deficit
of $949,725.
We expect operating losses and negative cash flow from operations to
continue for the foreseeable future. We anticipate that our losses will increase
significantly from current levels because we expect to incur additional costs
and expenses related to being a public company, brand development, advertising,
marketing and promotional activities, as well as the employment of additional
personnel as our business expands.
Our ability to become profitable depends on our ability to generate new
revenue and sustain substantially higher revenue while maintaining reasonable
expense levels. In particular, although we intend to increase significantly our
spending on marketing and promotional activities, these efforts may not be
effective in growing our brand, increasing our subscriber base or generating new
revenues. If we do not achieve profitability, we may not be able to continue our
operations.
OUR REVENUES FROM OPERATIONS ARE NOT EXPECTED TO BE SUFFICIENT TO MEET
OUR CAPITAL NEEDS IN THE NEAR FUTURE, AND WE WILL NEED TO RAISE ADDITIONAL
FUNDS, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS, IF AT ALL, THEREBY
POTENTIALLY DISRUPTING THE GROWTH OF OUR BUSINESS AND ABILITY TO GENERATE
REVENUES.
Since inception, we have incurred losses, and have had capital and
accumulated deficits, and limited cash to fund operations. We believe that
revenues from operations will continue to be insufficient to meet our working
capital needs while we execute our operating strategy. We estimate that we will
require a significant amount of additional capital, before our revenues and cash
flows from operations are sufficient to meet our cash outlays and sustain our
operations.
In order to fund our cash requirements, we will need to raise
additional capital through equity or debt financings in the near future. We
cannot be certain that such capital will be available to us or, if it is
available, whether such capital will be available on terms that are acceptable
to us. Such financing likely would be substantially dilutive to our existing
stockholders and could result in significant financial and operating covenants
that would negatively impact our business. If we are unable to raise sufficient
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additional capital on acceptable terms, we will likely have liquidity problems
which will disrupt our planned growth and would have a material adverse effect
on our financial condition or business prospects. The holders of new securities
may also have rights, preferences or privileges which are senior to those of
existing holders of common stock. If new sources of financing are insufficient
or unavailable, we will be required to modify our current operations and planned
marketing and revenue generating activities to the extent of available funding,
which would harm our ability to grow or even sustain our business.
This current report is not an offer to sell, or a solicitation of an
offer to buy, any of our securities.
THERE IS NO ASSURANCE OF COMPLETION OF THE ENTIRE $4 MILLION PRIVATE
PLACEMENT.
On April 3, 2007, we agreed to a $4 million private placement for the
issuance of up to 2.5 million restricted common shares of DPI or $1.57 per
share. As of April 27, 2007, we have received $500,000 of the $4 million private
placement and we expect to complete the private placement during the second
quarter of 2007, although we have no assurance that such financing will be
completed. If we do not complete and raise the entire $4 million private
placement or raise alternative capital, we will have insufficient funds to
operate our business and continue our operations.
OUR 2006 AUDITORS REPORT ON OUR AUDITED FINANCIAL STATEMENTS CONTAIN,
AND OUR FUTURE AUDITOR REPORTS ARE LIKELY TO CONTAIN, AN EXPLANATORY PARAGRAPH
EXPRESSING SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
THE INCLUSION OF THIS PARAGRAPH MAY MAKE IT MORE DIFFICULT FOR US TO RAISE
ADDITIONAL CAPITAL ON ACCEPTABLE TERMS.
The report of the independent registered public accounting firm
accompanying the audit of our financial statements for the year ended December
31, 2006 and for the period from inception July 14, 2005 through December 31,
2005, contains an explanatory paragraph expressing substantial doubt about our
ability to continue as a going concern because of our operating losses and our
need for additional capital. Such doubt could make it more difficult for us to
raise additional capital and may materially and adversely affect the terms of
any financing that we may obtain.
THERE IS NO ASSURANCE OF SUCCESSFUL DPI MARKETING.
We have not launched our platform and tools into the new market
verticals and there can be no assurance that our product will be accepted by the
marketplace. If the marketplace finds any or DPI's entire product unacceptable,
we will be required to make potentially time consuming and costly changes to our
technology, which may further delay the general rollout of the service. Such
delays would deplete our financial resources and would have a material adverse
effect on our business, results of operations and financial condition.
WE FACE COMPETITION FROM OTHER INTERNET COMPANIES, INCLUDING WEB SEARCH
PROVIDERS, INTERNET ADVERTISING COMPANIES AND DESTINATION WEB SITES THAT MAY
ALSO BUNDLE THEIR SERVICES WITH INTERNET ACCESS.
We face competition from other user-generated content service
providers, including companies that are not yet known to our management. We
compete with Internet companies, particularly in the areas of website design,
and we may also compete with companies that sell platforms and tools online
because these companies are attempting to attract users to their web sites to
search for information about platforms and tools. Some of our competitors have
more employees and cash reserves than we have. Many of our competitors also have
longer operating histories and more established relationships with customers and
can use their experience and resources in a variety of competitive ways against
us, including by making acquisitions, investing more aggressively in research
and development and competing more aggressively for advertisers and web sites.
Some of our competitors may have a greater ability to attract and retain users
than we do due to their broader range of content, platforms and tools. If our
competitors are successful in providing a similar or better website application
compared to our application or are able to leverage their platforms to make
their services easier to access, we could experience a significant decline in
user base. Any such decline in users could materially and adversely affect our
revenues and potential profitability.
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IF WE DO NOT CONTINUE TO INNOVATE AND PROVIDE PLATFORMS AND TOOLS THAT
ARE USEFUL TO USERS, WE MAY NOT REMAIN COMPETITIVE AND OUR REVENUES AND
OPERATING RESULTS COULD SUFFER.
Our future success depends on providing platforms and tools that people
use for a high quality Internet experience in the Web 2.0 space. As a result, we
must continue to invest significant resources in research and development in
order to enhance our Web 2.0 technology and our existing platforms and tools.
Additionally, we will have to consistently introduce new high quality platforms
and tools that people can easily and effectively use. If we are unable to ensure
that users and customers have a high quality experience with our platforms and
tools, then these customers may become dissatisfied and move to competitors'
products. Moreover, if we are unable to predict user preferences or industry
changes, or if we are unable to modify our platforms and tools on a timely
basis, we may lose users, with any resulting decline in traffic potentially
having a material and adverse affect on our revenues and profitability.
Our future operating results may also suffer if innovations are not
responsive to the needs of our users, are not appropriately timed with market
opportunity or are not effectively brought to market. As website technology
continues to develop, our competitors may be able to offer results that are, or
that are perceived to be, substantially similar or better than those generated
by our services. This may force us to expend significant resources in order to
remain competitive.
WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR ANTICIPATED GROWTH.
If we are unable to effectively manage our anticipated growth, our
business and operating results could be harmed and we may have to incur
significant expenditures to address the additional operational and control
requirements of this growth.
We may also experience rapid growth in our headcount and operations,
which may place significant demands on our management and operational and
financial infrastructure. If we do not effectively manage our growth, the
quality of our platforms and tools could suffer, which could negatively affect
our brand image and operating results. To effectively manage this growth, we
will need to continue to improve our operational, financial and management
controls and our reporting systems and procedures. These systems enhancements
and improvements will require significant capital expenditures and allocation of
valuable management resources. If the improvements are not implemented
successfully, our ability to manage our growth will be impaired and we may have
to make significant additional expenditures to address these issues. Our failure
to manage growth effectively could have a material adverse effect on our
business, results of operations and financial condition.
OUR BUSINESS PROSPECTS DEPEND ON OUR ABILITY TO DEVELOP A STRONG BRAND
IMAGE AND IDENTITY.
We believe that the creation of a brand identity will significantly
contribute to the success of our business. We also believe that maintaining and
enhancing the DPI brand are critical to expanding our base of members.
Maintaining and enhancing the brand may require us to make substantial
investments and these investments may not be successful. If we are unsuccessful
in our efforts to initially obtain, then promote and maintain the DPI brand, or
if we incur excessive expenses in this effort, our business, operating results
and financial condition may be materially and adversely affected. We anticipate
that, as the market for user-generated content platforms becomes increasingly
competitive, maintaining and enhancing our brand may become increasingly
difficult and expensive. Maintaining and enhancing our brand will depend largely
on our ability to be a technology leader and to continue to provide high quality
platforms and tools, which we may not do successfully.
OUR INTELLECTUAL PROPERTY RIGHTS ARE VALUABLE AND ANY INABILITY TO
PROTECT THEM COULD REDUCE THE VALUE OF OUR PRODUCTS, SERVICES AND BRAND.
Our trademarks, trade secrets, and other intellectual property rights
are important assets of the Company. There can be no assurance that these
protections will be adequate to prevent our competitors from misappropriating
our technology or that our competitors will not independently develop
technologies that are substantially equivalent or superior to our technology.
There are events that are outside of our control that could pose a threat to our
intellectual property rights. For example, effective intellectual property
10
protection may not be available in every country in which our platforms and
tools are distributed or made available through the Internet. Also, the efforts
we have undertaken to protect our proprietary rights may not be sufficient or
effective. Any significant impairment of our intellectual property rights could
harm our business or our ability to successfully compete. Additionally,
protecting our intellectual property rights is costly and time consuming. Any
increase in the unauthorized use of our intellectual property could make it more
expensive to do business and harm our operating results.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY RIGHTS CLAIMS IN THE FUTURE,
WHICH MAY BE COSTLY TO DEFEND, COULD REQUIRE THE PAYMENT OF DAMAGES AND COULD
LIMIT OUR ABILITY TO USE CERTAIN TECHNOLOGIES IN THE FUTURE.
Companies in the Internet, technology and media industries own large
numbers of patents, copyrights, trademarks and trade secrets and frequently
enter into litigation based on allegations of infringement or other violations
of intellectual property rights. As we face increasing competition, the
possibility of intellectual property rights claims increases. Our technologies
may not be able to withstand any third-party claims or rights against their use.
Any intellectual property claims, with or without merit, could be time
consuming, expensive to litigate or settle and could divert management resources
and attention. An adverse determination also could prevent us from offering our
platforms and tools to others and may require that we procure substitute
products or services for these members.
With respect to any intellectual property rights claim, we may have to
pay damages or stop using technology found to be in violation of a third party's
rights. We may have to seek a license for the technology, which may not be
available on reasonable terms and may significantly increase our operating
expenses. The technology also may not be available for license to us at all. As
a result, we may also be required to develop alternative non-infringing
technology, which could require significant effort and expense. If we cannot
license or develop technology for the infringing aspects of our business, we may
be forced to limit our product and service offerings and may be unable to
compete effectively. Any of these results could harm our brand and operating
results.
EXPANSION INTO INTERNATIONAL MARKETS IS POTENTIALLY IMPORTANT TO
ACHIEVING OUR LONG-TERM FINANCIAL AND OPERATIONAL GOALS AND WE DO NOT HAVE
EXPERIENCE OPERATING IN FOREIGN JURISDICTIONS.
Expansion into international markets requires management attention and
resources. In addition, we face the following risks associated with our
potential expansion outside the United States:
o Challenges caused by distance, language and cultural differences
o Longer payment cycles in some countries
o Credit risk and higher levels of payment fraud
o Legal and regulatory restrictions
o Currency exchange rate fluctuations
o Foreign exchange controls that might prevent us from repatriating
cash earned in countries outside the United States
o Political and economic instability
o Potentially adverse tax consequences
o Higher costs associated with doing business internationally
These risks could harm our international expansion efforts, which could
adversely affect our business prospects and operating results.
11
WE MAY HAVE DIFFICULTY SCALING AND ADAPTING OUR INFRASTRUCTURE TO
ACCOMMODATE INCREASED TRAFFIC AND TECHNOLOGY ADVANCES OR CHANGING BUSINESS
REQUIREMENTS, WHICH COULD LEAD TO THE LOSS OF SUBSCRIBERS AND CAUSE US TO INCUR
EXPENSES TO IMPLEMENT INFRASTRUCTURE CHANGES.
To be successful, our network infrastructure has to perform well and be
reliable. The greater the user traffic and the greater the complexity of our
platforms and tools, the more computing power we will need. We expect to spend
substantial amounts to purchase and/or lease data centers and equipment and to
upgrade our technology and network infrastructure to handle traffic and to roll
out new platforms and tools. If this expansion is not successfully implemented,
or if we experience inefficiencies and operational failures during the
implementation, the quality of our platforms and tools and our users' experience
could decline. Resulting cost increases, loss of subscribers and/or failure to
accommodate new technologies or changing business requirements could have a
material adverse affect on our operating results and financial condition.
WE RELY ON BANDWIDTH PROVIDERS, DATA CENTERS AND OTHER THIRD PARTIES
FOR KEY ELEMENTS OF PROVIDING USERS WITH OUR PLATFORMS AND TOOLS AND ANY FAILURE
OR INTERRUPTION IN THE SERVICES AND PRODUCTS PROVIDED BY THESE THIRD PARTIES
COULD HARM OUR ABILITY TO OPERATE OUR BUSINESS AND DAMAGE OUR REPUTATION.
We rely on third-party vendors, including data center and bandwidth
providers. Any disruption in the network access or co-location services provided
by these third-party providers or any failure of these third-party providers to
handle current or higher volumes of use could adversely impact our business. Any
errors, failures, interruptions or delays experienced in connection with these
third-party technologies and information services could negatively impact our
relationship with users and adversely affect our business operations and could
expose us to liabilities to third parties.
OUR SYSTEMS ARE ALSO HEAVILY RELIANT ON THE AVAILABILITY OF
ELECTRICITY, WHICH ALSO COMES FROM THIRD-PARTY PROVIDERS.
Interruption or failure of our information technology and
communications systems could impair our ability to effectively provide our
platforms and tools. Any damage to or failure of our systems could result in
interruptions in service. Interruptions in service could reduce our revenues and
profits, and our brand could be damaged. Our systems are vulnerable to damage or
interruption from earthquakes, terrorist attacks, floods, fires, power loss,
telecommunications failures, computer viruses, computer denial of service
attacks and similar events. Our data center is located in an area with a high
risk of major earthquakes. Our data center is also subject to break-ins,
sabotage and intentional acts of vandalism and to potential disruptions if the
operators of these facilities have financial difficulties. Some of our systems
are not fully redundant and our disaster recovery planning cannot account for
all eventualities. The occurrence of a natural disaster, a decision to close a
facility we are using without adequate notice or other unanticipated problems at
our data centers could result in lengthy interruptions in our service.
WE MAY UTILIZE INSURANCE TO MITIGATE CERTAIN RISKS AND, TO THE EXTENT
THE COST OF INSURANCE INCREASES AND/OR CHANGES IN COVERAGE OCCUR, OUR OPERATING
RESULTS MAY BE NEGATIVELY AFFECTED.
We may utilize insurance to cover certain potential risks and
liabilities. In the current environment, insurance companies are increasingly
specific about what they will and will not insure. It is possible that we may
not be able to secure sufficient insurance to meet our needs, may have to pay
higher than anticipated prices for the coverage or we may not be able to acquire
any insurance for certain types of business risk. Additionally, we may elect to
decline insurance coverage in certain instances and this could leave us exposed
to potential claims. If we were found liable for a significant claim in the
future, our operating results could be negatively impacted.
OUR BUSINESS DEPENDS ON INCREASING USE OF THE INTERNET BY USERS SHARING
INFORMATION AND CONTENT.
Our future success is partially dependent on the continued growth and
maintenance of the Internet infrastructure. This includes maintenance of a
reliable network backbone with the necessary speed, data capacity and security
for providing reliable Internet services. Internet infrastructure may be unable
12
to support the demands placed on it if the number of Internet users continues to
increase or if existing or future Internet users access the Internet more often
or increase their bandwidth requirements. In addition, viruses, worms and
similar programs may harm the performance of the Internet. The Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and it could face outages and delays in the
future. These outages and delays could reduce the level of Internet usage as
well as our ability to provide our platforms and tools.
OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE, WHICH MAY LEAD TO
VOLATILITY IN OUR STOCK PRICE.
Our future revenues and operating results may vary significantly from
quarter-to-quarter due to a number of factors, many of which are outside of our
control. Factors that could cause our quarterly operating results to fluctuate
include:
o demand for our platforms and tools;
o our pricing and marketing strategies and those of our competitors;
o our ability to attract users to our free trail and convert those
users into paying customers;
o our ability to retain customers and generate new revenues through
new subscriptions;
o our ability to sustain our profit margins;
o the costs of customer acquisition;
o our ability to manage our production and customer service
operations;
o the costs of expanding or enhancing our website technology;
o a significant increase in subscriber cancellations for customers
who are not satisfied with our products;
o volatility in our stock price, which may lead to higher stock-based
compensation expense under newly adopted accounting standards.
Based on the factors cited above, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is possible that in one or more future quarters, our operating
results may be below the expectations of public market analysts, if any and
investors. In that event, the trading price of our common stock may decline.
RECENT ACCOUNTING CHANGES MAY MAKE IT MORE DIFFICULT FOR US TO ACHIEVE
PROFITABILITY.
As a publicly-traded company, we will be subject to the Sarbanes-Oxley
Act of 2002, including the requirement that our internal controls and procedures
be compliant with Section 404 of the Sarbanes-Oxley Act, which we expect to be
costly and could impact our results of operations in future periods.
In addition, the Financial Accounting Standards Board now requires us
to follow Statement No. 123 (revised 2004), "Share Based Payment," or SFAS No.
123R. Under SFAS No. 123R, companies must calculate and record in their
statement of operations the cost of equity instruments, such as stock options or
restricted stock, awarded to employees for services received beginning in the
13
first quarter of their 2006 fiscal year. SFAS No. 123R adversely impacted our
operating results for year ended December 31, 2006 in the amount of
approximately $48,000 and we expect an adverse impact from the stock options in
future periods in an aggregate amount of approximately $700,000 . This, together
with the impact on net income of any additional options we grant in the future,
could make it difficult for us to achieve profitability.
WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS AND PROSPECTS.
Our company was formed in July 2005, and we have only a limited
operating history on which investors can base an evaluation of our business and
prospects. As an Internet company in the early stage of development, we face
increased risks, uncertainties, expenses and difficulties. To address these
risks and uncertainties, we must do the following:
o maintain and increase our number of customers;
o maintain and enhance our brand;
o maintain and grow our website properties and customer operations;
o enhance and expand our platforms and tools;
o successfully execute our business and marketing strategy;
o continue to develop and upgrade our technology and information
processing systems;
o continue to enhance our service to meet the needs of a changing
market;
o provide superior customer service;
o respond to competitive developments; and
o attract, integrate, retain and motivate qualified personnel.
We may be unable to accomplish one or more of these things, which could
cause our business to suffer. In addition, accomplishing one or more of these
things might be very expensive, which could harm our financial results.
WE MAY HAVE DIFFICULTY MANAGING OUR OPERATING GROWTH AND EXPANDING OUR
OPERATIONS SUCCESSFULLY.
We have grown from 3 employees as of December 31, 2005 to 10 employees
as of April 27, 2007. Our growth has placed, and will continue to place, a
strain on our administrative and operational infrastructure. Our ability to
manage our operations and growth will require us to continue to refine our
operational, financial and management controls, human resource policies and
reporting systems.
If we are unable to manage future expansion, we may not be able to
implement improvements to our controls, policies and systems in an efficient or
timely manner and may discover deficiencies in existing systems and controls.
Our ability to provide a high-quality customer experience could be compromised,
which would damage our reputation and brand and substantially harm our business
and results of operations
14
COMPETITIVE PRICING PRESSURES MAY HARM OUR BUSINESS AND RESULTS OF
OPERATIONS.
Demand for our platforms and tools is sensitive to price. Many external
factors, including our production and personnel costs and our competitors'
pricing and marketing strategies, can significantly impact our pricing
strategies. If we fail to meet our customers' price expectations, we could lose
customers, which would harm our business and results of operations. Changes in
our pricing strategies have had, and may continue to have, a significant impact
on our net revenues and net income. As we generate the majority of our net
revenues from recurring subscription prices. In the event that competitive
pressures require us to offer discounted subscription prices, our net revenues
and results of operations would be negatively impacted.
WE FACE INTENSE COMPETITION FROM A RANGE OF COMPETITORS AND MAY BE
UNSUCCESSFUL IN COMPETING AGAINST CURRENT AND FUTURE COMPETITORS.
The user-generated content industry is intensely competitive, and we
expect competition to increase in the future. Competition may result in pricing
pressures, reduced profit margins or loss of market share, any of which could
substantially harm our business and results of operations. We face intense
competition from some companies which have significantly longer operating
histories, larger and broader customer bases, greater brand recognition and
greater financial, research and development and distribution resources than we
do. These competitors include:
o My Family
o JotSpot
o Amiglia
o Family Lobby
o My Great Big Family
o EasySite
o Connected Family
The numerous choices for user-generated content website services can
cause confusion for consumers, and may cause them to choose to use one of our
competitors, some of whom may have greater name recognition than we do. In
addition, some of our competitors who are seeking to establish an online
presence may be able to devote substantially more resources to website and
systems development. Also, larger, more established and better capitalized
entities may acquire, invest in or partner with other online competitors. We may
also face competition from new entrants that are well funded and that may choose
to prioritize growing their market share and brand awareness instead of
profitability. Competitors and new entrants in the user-generated content
industry may also seek to develop new products, technologies or capabilities
that could render obsolete or less competitive many of the platforms and
technology that we offer, which could harm our business and results of
operations.
IF WE ARE UNABLE TO ADEQUATELY CONTROL THE COSTS ASSOCIATED WITH
OPERATING OUR BUSINESS, OUR RESULTS OF OPERATIONS WILL SUFFER.
The primary costs in operating our business are related to product
research and development, acquiring customers, compensating our personnel, and
hosting. If we are unable to keep these costs aligned with the level of expected
future revenues that we may generate, our results of operations could be harmed.
The challenge in controlling our business costs is made more difficult by the
fact that many of the factors that impact these costs are beyond our control.
For example, the costs of online advertising and keyword search could increase
significantly due to increased competition, which would increase our customer
acquisition costs.
15
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER, KEY PERSONNEL, AN INABILITY TO
ATTRACT AND RETAIN ADDITIONAL PERSONNEL OR DIFFICULTIES IN THE INTEGRATION OF
NEW MEMBERS OF OUR MANAGEMENT TEAM INTO OUR COMPANY COULD AFFECT OUR ABILITY TO
SUCCESSFULLY GROW OUR BUSINESS.
We are highly dependent upon the continued service and performance of
Mr. Michael Sawtell, our Chief Executive Officer, President and Sole Director.
Mr. Sawtell is also our principal shareholder and founder. The loss of Mr.
Sawtell may significantly delay or prevent the achievement of our business
objectives. Further, we are highly dependent upon the continued service and
performance of key technical, marketing and production personnel. The loss of
these key employees, each of whom is "at will"could terminate his or her
employment relationship with us at any time, which may significantly delay or
prevent the achievement of our business objectives.
We believe that our future success will also depend in on our continued
ability to identify, hire, train and motivate qualified personnel. We face
intense competition for qualified individuals from numerous technology,
marketing, financial services, manufacturing and e-commerce companies. In
addition, competition for qualified personnel is particularly intense in the
Irvine, California area, where our headquarters are located. We may be unable to
attract and retain suitably qualified individuals who are capable of meeting our
growing operational and managerial requirements, or may be required to pay
increased compensation in order to do so, and our failure to attract and retain
qualified personnel could impair our ability to implement our business plan.
WE MAY NOT SUCCEED IN PROMOTING, STRENGTHENING AND CONTINUING TO
ESTABLISH THE DPI BRAND, WHICH WOULD PREVENT US FROM ACQUIRING NEW CUSTOMERS AND
INCREASING REVENUES.
A component of our business strategy is the continued promotion and
strengthening of the DPI brand. Due to the competitive nature of the
user-generated content markets, if we are unable to successfully promote the DPI
brand, we may fail to achieve any substantial revenues. Customer awareness of,
and the perceived value of, our brand will depend largely on the success of our
marketing efforts and our ability to provide a consistent, high-quality customer
experience. To promote our brand, we have incurred, and will continue to incur,
substantial expense related to advertising and other marketing efforts.
Our ability to provide a high-quality customer experience also depends,
in large part, on external factors over which we may have little or no control,
including the reliability and performance of our suppliers and third-party
Internet and communication infrastructure providers. Our failure to provide
customers with high-quality services for any reason could substantially harm our
reputation and our efforts to develop DPI as a trusted brand. The failure of our
brand promotion activities could adversely affect our ability to attract new
customers and maintain customer relationships, and, as a result, substantially
harm our business and results of operations.
THE SUCCESS OF OUR BUSINESS DEPENDS ON CONTINUED PRODUCTION OF
USER-GENERATED CONTENT DIGITAL IMAGES, AND VIDEOS.
Our growth is highly dependent upon the continued trend by consumers to
generate their own content, digital images, and videos. The user-generated
content market is rapidly evolving, characterized by changing technologies,
intense price competition, additional competitors, evolving industry standards,
frequent new service announcements and changing consumer demands and behaviors.
To the extent that user-generation of their own content, digital images, and
videos does not continue to grow as expected, our anticipated revenue growth
would likely suffer. Moreover, we face significant risks that, if the
user-generated content evolves in ways that we are not able to address due to
changing technologies or consumer behaviors, pricing pressures, or otherwise,
our current platforms and tools may become unattractive, which would likely
result in the loss of customers and a decline in net revenues and/or increased
expenses.
IF AFFORDABLE BROADBAND ACCESS DOES NOT BECOME WIDELY AVAILABLE TO
CONSUMERS, OUR REVENUE GROWTH WILL LIKELY SUFFER.
Because our business currently involves consumers accessing
memory-heavy websites and uploading large data files, we are highly dependent
upon the availability of affordable broadband access to consumers. Many areas of
the country still do not have broadband access, and the cost of broadband access
may be too expensive for many potential customers. To the extent that broadband
access is not available or not adopted by consumers due to cost, our revenue
growth would likely suffer.
16
INTERRUPTIONS TO OUR WEBSITE SERVERS, INFORMATION TECHNOLOGY SYSTEMS,
OR CUSTOMER SERVICE OPERATIONS COULD DAMAGE OUR REPUTATION AND BRAND AND
SUBSTANTIALLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
The satisfactory performance, reliability and availability of our
website servers, information technology systems and customer service operations
are critical to our reputation, and our ability to attract and retain customers
and to maintain adequate customer satisfaction. Any interruptions that result in
the unavailability of our website or reduced service performance or customer
service could result in negative publicity, damage our reputation and brand and
cause our business and results of operations to suffer.
Because we depend in part on third parties for the implementation and
maintenance of certain aspects of our service hosting, and because many of the
causes of system interruptions or interruptions in the production process may be
outside of our control, we may not be able to remedy such interruptions in a
timely manner, or at all.
CAPACITY CONSTRAINTS AND SYSTEM FAILURES COULD PREVENT ACCESS TO OUR
WEBSITE SERVERS, WHICH COULD HARM OUR REPUTATION AND NEGATIVELY AFFECT OUR NET
REVENUES.
Our business requires that we have adequate capacity in our computer
systems to cope with the high volume of visits to our user websites. As our
operations are anticipated to grow in size and scope, we will need to improve
and upgrade our computer systems and network infrastructure in the ordinary
course of business to offer customers enhanced and new products, services,
capacity, features and functionality. The expansion of our systems and
infrastructure may require us to commit substantial financial, operational and
technical resources before the volume of our business increases, with no
assurance that our anticipated net revenues will increase.
Our ability to provide high-quality products and service depends on
the efficient and uninterrupted operation of our computer and communications
systems. If our systems cannot be expanded in a timely manner to cope with
increased website traffic, we could experience disruptions in service, slower
response times, lower customer satisfaction, and delays in the introduction of
new platforms and tools. Any of these problems could harm our reputation and
cause us not to achieve any revenues.
IF WE ARE NOT ABLE TO RELIABLY MEET OUR DATA STORAGE AND MANAGEMENT
REQUIREMENTS, CUSTOMER SATISFACTION AND OUR REPUTATION COULD BE HARMED.
As a part of our current business model, we offer our customers free
trial websites and sharing of their user-generated content and, as a result,
must store and manage hundreds of gigabytes of data. These results in immense
system requirements and substantial ongoing technological challenges, both of
which are expected to continue to increase over time. If we are not able to
reliably meet these data storage and management requirements, we could have
disruptions in services which could impair customer satisfaction and our
reputation and lead to reduced net revenues and increased expenses. Moreover, if
the cost of meeting these data storage and management requirements increases,
our results of operations would be harmed.
OUR TECHNOLOGY, INFRASTRUCTURE AND PROCESSES MAY CONTAIN UNDETECTED
ERRORS OR DESIGN FAULTS THAT COULD RESULT IN DECREASED PRODUCTION, LIMITED
CAPACITY OR REDUCED DEMAND.
Our technology, infrastructure and processes may contain undetected
errors or design faults. These errors or design faults may cause our website
technology to fail and result in loss of, or delay in, market acceptance of our
platforms and tools. If we experience a delay in a product release that results
in customer dissatisfaction during the period required to correct errors and
design faults, we would lose revenue or not achieve any new revenue. In the
future, we may encounter scalability limitations, in current or future product
releases, infrastructure and processes that could seriously harm our business.
17
IF WE ARE UNABLE TO DEVELOP, MARKET AND SELL NEW PLATFORMS AND TOOLS TO
ADDITIONAL MARKET VERTICALS, OUR RESULTS OF OPERATIONS MAY SUFFER.
Although historically we have focused our business on consumer markets
for families, we intend to address, and demand may shift to, expanding our
platforms and tools into new verticals. We may not successfully expand our
existing services or create new platforms and tools for new market segments or
develop a significantly broader customer base. Any failure to address additional
market opportunities could result in loss of market share, which would harm our
business, financial condition, and results of operations.
WE MAY UNDERTAKE ACQUISITIONS TO EXPAND OUR BUSINESS, WHICH MAY POSE
RISKS TO OUR BUSINESS AND DILUTE THE OWNERSHIP OF OUR EXISTING STOCKHOLDERS.
A key component of our business strategy includes the selective pursuit
of businesses acquisitions, technologies or services. Integrating any newly
acquired businesses, technologies or services is likely to be expensive and time
consuming. To finance any acquisitions, it may be necessary for us to raise
additional funds through public or private financings. Additional funds may not
be available on terms that are favorable to us, and, in the case of equity
financings, would result in dilution to our stockholders. If we do complete any
acquisitions, we may be unable to operate the acquired businesses profitably or
otherwise implement our strategy successfully. If we are unable to integrate any
newly acquired entities, technologies or services effectively, our business and
results of operations will suffer. The time and expense associated with finding
suitable and compatible businesses, technologies or services could also disrupt
our ongoing business and divert our management's attention. Future acquisitions
by us could also result in large and immediate write-offs or assumptions of debt
and contingent liabilities, any of which could substantially harm our business
and results of operations. We have no agreements or commitments with respect to
any future acquisitions.
THE INABILITY TO ACQUIRE OR MAINTAIN DOMAIN NAMES FOR OUR WEBSITE COULD
SUBSTANTIALLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
We currently are the registrant of the "DPI" mark in numerous
jurisdictions and of the Internet domain name for our website,
digitalpostinteractive.com, as well as various related domain names. Domain
names generally are regulated by Internet regulatory bodies and are controlled
also by trademark and other related laws. If we lose the ability to use our DPI
mark in a particular country or our domain name, we could be forced to either
incur significant additional expenses to market our products within that
country, including the development of a new brand and the creation of new
promotional materials and packaging, or elect not to sell products in that
country. Either result could substantially harm our business and results of
operations.
Furthermore, the regulations governing domain names and laws protecting
trademarks and similar proprietary rights could change in ways that block or
interfere with our ability to use relevant domains or our current brand. Also,
we might not be able to prevent third parties from registering or retaining
domain names that interfere with our consumer communications or infringe or
otherwise decrease the value of our trademarks and other proprietary rights.
Regulatory bodies also may establish additional generic or country-code
top-level domains or modify the requirements for holding domain names. As a
result, we might not be able to acquire or maintain the domain names that
utilize the name DPI in all of the countries in which we currently or intend to
conduct business.
WE MAY BE NEGATIVELY AFFECTED IF WE ARE REQUIRED TO CHARGE SALES TAXES
IN ADDITIONAL JURISDICTIONS OR OTHER TAXES ON PURCHASES.
We do not collect or have imposed upon us sales or other taxes related
to the platforms and tools we sell, except for certain corporate level taxes and
sales tax in California. However, additional states or one or more countries may
seek to impose sales or other tax collection obligations on us in the future. A
successful assertion by any country or state in which we do business that we
should be collecting sales or other taxes on the sale of our products could
result in substantial tax liabilities for past or future sales, if any,
discourage customers from purchasing products from us, decrease our ability to
compete with traditional retailers or otherwise substantially harm our business
and results of operations.
18
Currently, decisions of the U.S. Supreme Court restrict the imposition
of obligations to collect state and local sales and use taxes with respect to
sales made over the Internet. However, implementation of the restrictions
imposed by these Supreme Court decisions is subject to interpretation by state
and local taxing authorities. While we believe that these Supreme Court
decisions currently restrict state and local taxing authorities in the United
States from requiring us to collect sales and use taxes from purchasers located
within their jurisdictions, taxing authorities could disagree with our
interpretation of these decisions. Moreover, a number of states in the United
States, as well as the U.S. Congress, have been considering various initiatives
that could limit or supersede the Supreme Court's position regarding sales and
use taxes on Internet sales. If any state or local taxing jurisdiction were to
disagree with our interpretation of the Supreme Court's current position
regarding state and local taxation of Internet sales, or if any of these
initiatives were to address the Supreme Court's constitutional concerns and
result in a reversal of its current position, we could be required to collect
additional sales and use taxes from purchasers. The imposition by state and
local governments of various taxes upon Internet commerce could create
administrative burdens for us and could decrease our future net sales.
GOVERNMENT REGULATION OF THE INTERNET AND E-COMMERCE IS EVOLVING, AND
UNFAVORABLE CHANGES OR FAILURE BY US TO COMPLY WITH THESE REGULATIONS COULD
SUBSTANTIALLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS.
We are subject to general business regulations and laws as well as
regulations and laws specifically governing the Internet and e-commerce.
Existing and future laws and regulations may impede the growth of the Internet
or other online services. These regulations and laws may cover taxation,
restrictions on imports and exports, customs, tariffs, user privacy, data
protection, pricing, content, copyrights, distribution, electronic contracts and
other communications, consumer protection, the provision of online payment
services, broadband residential Internet access and the characteristics and
quality of platforms and tools. It is not clear how existing laws governing
issues such as property ownership, sales and other taxes, libel and personal
privacy apply to the Internet and e-commerce as the vast majority of these laws
were adopted prior to the advent of the Internet and do not contemplate or
address the unique issues raised by the Internet or e-commerce. Those laws that
do reference the Internet are only beginning to be interpreted by the courts and
their applicability and reach are therefore uncertain.
OUR PRACTICE OF OFFERING FREE PLATFORMS AND TOOLS COULD BE SUBJECT TO
JUDICIAL OR REGULATORY CHALLENGE.
We regularly offer free trials as an inducement for customers to try
our products. Although we believe that we conspicuously and clearly communicate
all details and conditions of these offers, we may be subject to claims from
individuals or governmental regulators that our free offers are misleading or do
not comply with applicable legislation, which claims may be expensive to defend
and could divert management's time and attention. If we become subject to such
claims in the future, or are required or elect to curtail or eliminate our use
of free offers, our results of operations may be harmed.
OUR FAILURE TO PROTECT THE CONFIDENTIAL INFORMATION OF OUR CUSTOMERS
AND NETWORKS AGAINST SECURITY BREACHES AND THE RISKS ASSOCIATED WITH CREDIT CARD
FRAUD COULD DAMAGE OUR REPUTATION AND BRAND AND SUBSTANTIALLY HARM OUR BUSINESS
AND RESULTS OF OPERATIONS.
A significant prerequisite to online commerce and communications is the
secure transmission of confidential information over public networks. Our
failure to prevent security breaches could damage our reputation and brand and
substantially harm our business and results of operations. For example, a
majority of our sales are billed to our customers' credit card accounts directly
and customers log on using their e-mail address. We rely on encryption and
authentication technology licensed from third parties to effect the secure
19
transmission of confidential information, including credit card numbers.
Advances in computer capabilities, new discoveries in the field of cryptography
or other developments may result in a compromise or breach of the technology
used by us to protect customer transaction data. In addition, any party who is
able to illicitly obtain a user's password could access the user's transaction
data or personal information. Any compromise of our security could damage our
reputation and brand and expose us to a risk of loss or litigation and possible
liability which would substantially harm our business and results of operations.
In addition, anyone who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
We may need to devote significant resources to protect against security breaches
or to address problems caused by breaches.
In addition, under current credit card practices, we are liable for
fraudulent credit card transactions because we do not obtain a cardholder's
signature. We do not currently carry insurance against this risk. To date, we
have experienced minimal losses from credit card fraud, but we continue to face
the risk of significant losses from this type of fraud. Our failure to
adequately control fraudulent credit card transactions could damage our
reputation and brand and substantially harm our business and results of
operations.
CHANGES IN REGULATIONS OR USER CONCERNS REGARDING PRIVACY AND
PROTECTION OF USER DATA COULD HARM OUR BUSINESS.
Federal, state and international laws and regulations may govern the
collection, use, sharing and security of data that we receive from our
customers. In addition, we have and post on our website our own privacy policies
and practices concerning the collection, use and disclosure of customer data.
Any failure, or perceived failure, by us to comply with our posted privacy
policies or with any data-related consent orders, Federal Trade Commission
requirements or other federal, state or international privacy-related laws and
regulations could result in proceedings or actions against us by governmental
entities or others, which could potentially harm our business. Further, failure
or perceived failure to comply with our policies or applicable requirements
related to the collection, use or security of personal information or other
privacy-related matters could damage our reputation and result in a loss of
customers.
RISKS RELATED TO OWNING OUR STOCK.
THERE HAS BEEN LOW VOLUME AND THEREFORE LITTLE PRIOR MARKET FOR OUR
COMMON STOCK, OUR STOCK PRICE MAY BE VOLATILE OR MAY DECLINE REGARDLESS OF OUR
OPERATING PERFORMANCE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE
YOUR STOCK PURCHASE PRICE.
If you purchase shares of our common stock, you may not be able to
resell those shares at or above your original purchase price. An active or
liquid market in our common stock may not develop or, if it does develop, it may
not be sustainable. The market price of our common stock may fluctuate
significantly in response to numerous factors, many of which are beyond our
control, including:
o price and volume fluctuations in the overall stock market;
o changes in operating performance and stock market valuations of
other technology companies generally, or those in our industry in
particular;
o actual or anticipated fluctuations in our operating results;
o the financial projections we may provide to the public, any changes
in these projections or our failure to meet these projections;
o changes in financial estimates by any securities analysts who
follow our company, if any, our failure to meet these estimates or
failure of those analysts to initiate or maintain coverage of our
stock;
20
o ratings downgrades by any securities analysts who follow our
company, if any;
o the public's response to our press releases or other public
announcements, including our filings with the SEC;
o announcements by us or our competitors of significant technical
innovations, acquisitions, strategic partnerships, joint ventures
or capital commitments;
o introduction of technologies or product enhancements that reduce
the need for our products;
o market conditions or trends in our industry or the economy as a
whole;
o the loss of key personnel;
o lawsuits threatened or filed against us;
o future sales of our common stock by our executive officers,
directors and significant stockholders; and
o other events or factors, including those resulting from war,
incidents of terrorism or responses to these events.
In addition, the stock markets, and in particular the OTC Bulletin
Board market (OTCBB), have experienced extreme price and volume fluctuations
that have affected and continue to affect the market prices of equity securities
of many technology companies. Stock prices of many technology companies have
fluctuated in a manner unrelated or disproportionate to the operating
performance of those companies. In the past, stockholders have instituted
securities class action litigation following periods of market volatility. If we
were involved in securities litigation, it could have substantial costs and
divert resources and the attention of management from our business.
PURCHASERS OF OUR STOCK MAY SUFFER DILUTION.
If you purchase shares of our common stock, the value of your shares
based on our actual book value may become less than the price you paid due to
our planned equity financing. Since inception, our operations have incurred
losses, and we have funded these operating deficits through equity financings or
issuance of our common stock. We plan to issue additional common stock to raise
additional cash to fund our operating deficits, as such, future issuance of our
common stock may cause immediate dilution to your holdings or investment. More
over, if previously granted options are exercised, additional dilution will
occur.
A SIGNIFICANT PORTION OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED
FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. IF
THERE ARE SUBSTANTIAL SALES OF SHARES OF OUR COMMON STOCK, THE PRICE OF OUR
COMMON STOCK COULD DECLINE.
The price of our common stock could decline if there are substantial
sales of our common stock and if there is a large number of shares of our common
stock available for sale. As of January 30, 2007, we had 52,833,385 outstanding
shares of our common stock, of which 37,173,385 are unregistered and restricted
and 15,600,000 shares of our common stock have been previously registered under
Form SB-2/A filed on or about December 27, 2005, and therefore are freely sold
in the public market.
21
Also , we may register the issuance of all shares of common stock that
we have issued related to the Merger and may issue under our employee equity
incentive plans. Once we register the issuance of these shares, they can be
freely sold in the public market upon issuance.
The market price of the shares of our common stock could decline due to
sales of a substantial number of our shares in the public market or the
perception in the market that the holders of a large number of shares intend to
sell their shares.
OUR DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS HAVE
SUBSTANTIAL CONTROL OVER DPI AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE
CONTROL.
As of January 30, 2007, our directors, executive officers and holders
of more than 5% of our common stock, together with their affiliates, will
beneficially own, in the aggregate, approximately 51% of our outstanding common
stock. As a result, these stockholders, if acting together, may have the ability
to determine the outcome of matters submitted to our stockholders for approval,
including the election of directors and any merger, consolidation or sale of all
or substantially all of our assets. In addition, these persons, acting together,
may have the ability to control the management and affairs of our company.
Accordingly, this concentration of ownership may harm the market price of our
common stock by:
o delaying, deferring or preventing a change in control of our
company;
o impeding a merger, consolidation, takeover or other business
combination involving our company; or
o discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company.
MAINTAINING AND IMPROVING OUR FINANCIAL CONTROLS AND THE REQUIREMENTS
OF BEING A PUBLIC COMPANY MAY STRAIN OUR RESOURCES, DIVERT MANAGEMENT'S
ATTENTION AND AFFECT OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED BOARD MEMBERS.
As a public company, we will be subject to the reporting requirements
of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the
rules and regulations of the OTCBB. The requirements of these rules and
regulations will increase our legal, accounting and financial compliance costs,
make some activities more difficult, time-consuming or costly and may also place
undue strain on our personnel, systems and resources.
The Sarbanes-Oxley Act will require, among other things, that we
maintain effective disclosure controls and procedures and internal control over
financial reporting. This can be difficult to do. In order to maintain and
improve the effectiveness of our disclosure controls and procedures and internal
control over financial reporting, significant resources and management oversight
will be required. We have a substantial effort ahead of us to implement
appropriate processes, document the system of internal control over relevant
processes, assess their design, remediate any deficiencies identified, and test
their operation. As a result, management's attention may be diverted from other
business concerns, which could harm our business, financial condition and
results of operations. These efforts will also involve substantial accounting
related costs. In addition, if we are unable to continue to meet these
requirements, we may not be able to remain listed on the OTCBB market.
Under the Sarbanes-Oxley Act and the rules and regulations of the OTCBB
market, we are not required to maintain a board of directors with a majority of
independent directors. To the extent we become required to do so, we expect that
these rules and regulations may make it more difficult and more expensive for us
to maintain directors' and officers' liability insurance, and we may be required
to accept reduced coverage or incur substantially higher costs to maintain
coverage. If we are unable to maintain adequate directors' and officers'
insurance, our ability to recruit and retain qualified directors, especially
those directors who may be considered independent and officers will be
significantly curtailed.
22
WE ARE NOT REQUIRED TO MEET OR MAINTAIN ANY LISTING STANDARDS FOR OUR
COMMON STOCK TO BE QUOTED ON THE OTC BULLETIN BOARD, WHICH COULD AFFECT OUR
STOCKHOLDERS' ABILITY TO ACCESS TRADING INFORMATION ABOUT OUR COMMON STOCK.
OTCBB market is separate and distinct from the Nasdaq Stock Market and
any national stock exchange, such as the New York Stock Exchange or the American
Stock Exchange. Although the OTC Bulletin Board is a regulated quotation service
operated by the National Association of Securities Dealers ("NASD"), that
displays real-time quotes, last sale prices, and volume information in
over-the-counter ("OTC") equity securities like our common stock, we are not
required to meet or maintain any qualitative or quantitative standards for our
common stock to be quoted on the OTCBB. Our common stock does not presently meet
the minimum listing standards for listing on the Nasdaq Stock Market or any
national securities exchange, which could affect our stockholders' ability to
access trading information about our common stock. Additionally, we are required
to satisfy the reporting requirements under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). If we fail to do so, our shares may no longer
be quoted on the OTCBB.
WE DO NOT INTEND TO PAY DIVIDENDS; YOU WILL NOT RECEIVE FUNDS WITHOUT
SELLING SHARES.
We have never declared or paid any cash dividends on our capital stock
and do not intend to pay dividends in the foreseeable future. We intend to
invest our future earnings, if any, to fund our growth. Therefore, you will not
receive any funds without selling your shares.
OUR COMMON STOCK MAY BE SUBJECT TO PENNY STOCK RULES, WHICH MAY MAKE IT
MORE DIFFICULT FOR OUR STOCKHOLDERS TO SELL THEIR COMMON STOCK.
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission ("SEC"). Penny stocks generally are equity securities with a
price of less than $5.00 per share. The penny stock rules require a
broker-dealer, prior to a purchase or sale of a penny stock not otherwise exempt
from the rules, to deliver to the customer a standardized risk disclosure
document that provides information about penny stocks and the risks in the penny
stock market. The broker-dealer also must 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, and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules generally require that prior to a transaction in
a penny stock the broker-dealer 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 in the secondary
market for a stock that becomes subject to the penny stock rules.
2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
You should read the data set forth below in conjunction with our
financial statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operation," and other financial information
appearing elsewhere in this current report.
23
We derived the statement of operations data for the year ended December
31, 2006 and for the period from July 14, 2005 (date of inception) to December
31, 2005, and the balance sheet data as of December 31, 2006 and 2005 from the
audited financial statements of Old TFP, which were prepared in accordance with
generally accepted accounting principles, included elsewhere in this current
report.
JULY 14, 2005
FOR THE (DATE OF
TWELVE MONTHS INCEPTION)
ENDED TO
DECEMBER 31, DECEMBER 31,
2006 2005
------------ ------------
(AUDITED) (AUDITED)
STATEMENT OF OPERATIONS DATA:
REVENUES
SUBSCRIPTIONS $ 13,881 $ 4,450
------------ ------------
TOTAL REVENUES 13,881 4,450
------------ ------------
COST OF REVENUES
SUBSCRIPTIONS 10,547 2,158
------------ ------------
TOTAL COST OF REVENUES 10,547 2,158
------------ ------------
Gross Profit 3,334 2,292
SALES AND MARKETING 171,702 36,506
GENERAL AND ADMINISTRATIVE EXPENSES 574,321 164,546
------------ ------------
TOTAL OPERATING EXPENSES 746,023 201,052
OPERATING LOSS (742,689) (198,760)
OTHER EXPENSE (324) (7,952)
------------ ------------
NET LOSS $ (743,013) $ (206,712)
============ ============
NET LOSS PER COMMON SHARE--BASIC AND DILUTED: $ (.028)* $ (.022)*
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC AND DILUTED 26,846,871 * 9,289,362 *
* Per share data of Old TFP on a post Merger basis.
AS OF AS OF
DECEMBER 31, 2006 DECEMBER 31, 2005
-------- ---------
(AUDITED) (AUDITED)
BALANCE SHEET DATA:
Cash and Cash Equivalents $337,012 $ 37,741
Website development 88,184 81,868
Total Assets 447,997 145,730
Total current liabilities 162,804 74,442
Stockholders equity 285,193 71,288
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Effective January 30, 2007, our capital structure and control had
changed as a result of the Merger, as discussed previously in ITEM 2.01.
COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. Since Old TFP is considered
to be the accounting acquirer and surviving operating entity, the discussion
held with in this section of MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS only includes the activity of Old TFP.
OVERVIEW
We produce high-end family destination websites that allow families to
securely share calendars, photos, videos, message boards and history. Our
proprietary website administration system, Qwik-Post(TM), and online video
uploading system, Video-PostSM allow PC users to easily manage these "virtual
family rooms" and provides a permanent destination to display photo and video
memories, discussions, and history.
We earn revenue primarily from subscriptions generated from monthly
subscriptions for Website hosting services. The typical subscription agreement
includes the usage of a personalized website and hosting services. Since
beginning in July 2005, we developed our product, began operations and generated
our first revenues. To date, we have generated 801 subscribers, have 1,523
users, and have transferred more than 163 Gigabytes of consumer digital media
across our systems. However, our revenues are minimal and not sufficient to
cover our operating costs and expenses. During the year ended December 31, 2006
and for the period from inception July 14, 2005 through December 31, 2005, our
revenues were $13,881 and $4,450, respectively. We are in the early phases of
revenue generating activities and intend to market our product more aggressively
upon completion of additional debt or equity financing. We have entered into the
Merger further described in ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION
OF ASSETS, to assist us in raising additional working capital through equity or
debt financing.
Since the inception of our business in 2005, we have incurred
significant losses. We had incurred net losses of $743,013 and $206,712 for year
ended December 31, 2006 and for the period from inception July 14, 2005 through
December 31, 2005, respectively. As of December 31, 2006, we had an accumulated
deficit of approximately $949,725. We expect operating losses and negative cash
flow to continue for the foreseeable future. We anticipate that our losses will
increase significantly from current levels because we expect to incur
significant additional costs and expenses related to being a public company,
brand development, advertising, marketing and promotional activities, as well as
the employment of additional personnel as our business expands. Our ability to
become profitable depends on our ability to generate new revenue and sustain
substantially higher revenue while maintaining reasonable expense levels. In
particular, although we intend to increase significantly our spending on
marketing and promotional activities, these efforts may not be effective in
growing our brand, increasing our subscriber base or generating new revenues. If
we do not achieve profitability, we may not be able to continue our operations.
25
Since inception, we have operated and sustained ourselves primarily
from cash generated through equity financings. During the period from inception
July 14, 2005 through December 31, 2005, we received working capital from our
founder and CEO in the amount of $168,000 and completed additional capital
raising in the amount of $100,000 from the sale of common stock to an unrelated
stockholder. Subsequent to December 31, 2005 through January 30, 2007, we have
completed additional capital raising activities in the amount of $895,000 from
further issuances of our common stock as well as receiving a cash advance form
our CEO in the amount of $50,000. Since January 30, 2007 through April 27, 2007,
we have received $500,000 as part of a $4 million private placement (discussed
further below). We intend to conduct additional capital raising activities
subsequent to the Merger including the completion of our $4 million private
placement and issuance of our common stock to increase the marketing of our
product and increase revenue generating activities.
On April 3, 2007, we agreed to a $4 million private placement for the
issuance of up to 2.5 million restricted common shares of the Company or $1.57
per share. As of April 27, 2007, we have received $500,000 of the $4 million
private placement and we expect to complete the private placement during the
second quarter of 2007, although we have no assurance that such financing will
be completed.
GOING CONCERN
We have not established sufficient sources of revenue to cover our
operating costs, and as such, we have incurred operating losses since inception.
Further, as of December 31, 2006, our cash resources were insufficient to meet
our current working capital needs and on going business plan. These and other
factors raise substantial doubt about our ability to continue as a going
concern.The report of the independent registered public accounting firm
accompanying the audit of our financial statements for the year ended December
31, 2006, and for the period from inception, July 14, 2005 through December 31,
2005, contains an explanatory paragraph expressing substantial doubt about our
ability to continue as a going concern because of our operating losses, negative
cash flows from operations since our inception and limited working capital. Such
doubt could make it more difficult for us to raise additional capital and may
materially and adversely affect the terms of any financing that we may obtain.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
possible inability of us to continue as a going concern.
RESULTS OF OPERATIONS
From inception to December 31, 2006, we have incurred costs and
expenses significantly in excess of revenues. As we pursue our goals, we expect
to increase revenues and related costs and maximize value to existing
stockholders, though we expect to incur additional losses.
We incorporated on July 14, 2005, and had mostly initial start up
related activities during most of the 2005 period with minimal revenues
beginning in December 2005. Accordingly, there are no meaningful comparative
data upon which prior period comparisons can be made.
YEAR ENDED DECEMBER 31, 2006
During the year ended December 31, 2006, we incurred a net loss of
$743,013.
Revenue for the year ended December 31, 2006 was $13,881, respectively,
all of which was mostly derived from subscriptions sales. During the year ended
December 31, 2006, costs of revenues were $10,547, which consist mostly of
hosting cost and initial subscription website setup costs.
26
During the year ended December 31, 2006, general and administrative
expenses were $574,321, the primary components of which, were salary and wages
of $314,835, and professional fees of $48,314. Non-cash stock based compensation
expense of $86,963 was incurred during the year ended December 31, 2006, which
relates primarily to the granting of options to purchase our common stock and
are included in general and administrative expense. Our implementation of
Statement of Financial Accounting Statements No. 123R on January 1, 2006,
resulted in an increase to our non-cash stock based compensation of
approximately $48,000.
Sales and marketing expenses of $171,702 were recorded during the year
ended December 31, 2006, are attributable to initial sales and marketing
activities of our online products.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2006, our cash and cash equivalents were $337,012, an
increase of $299,271 from the end of the prior year. During the year ended
December 31, 2006, we issued 4.8 million shares common stock of Old TFP, of
which approximately $895,000 was received in cash and used approximately
$527,000 for operating activities.
Since inception, we have incurred losses and have had capital and
stockholders' deficits and limited cash to fund our operations. Since inception
through April 27, 2007, we have raised approximately $1.6 million through equity
financing and have no other source of cash, except for an advance from
shareholder of $50,000 obtained in November 2006 and an unused unsecured line of
credit in the amount of $20,000 obtained in December 2006. Although we expect to
grow our revenues, they are not a significant source of cash at this time.
Because we expect that revenues from operations will continue to be insufficient
to meet our working capital needs, we likely will need to raise additional
capital through equity or debt financings in the near future. We cannot be
certain that such capital will be available to us or whether such capital will
be available on terms that are acceptable to us. Such financing likely would be
dilutive to existing stockholders and could result in significant financial and
operating covenants that would negatively impact our business. If we are unable
complete our $4 million private placement (discussed above) or to raise
sufficient additional capital on acceptable terms, we will have insufficient
funds to operate our business or pursue our planned growth.
This current report is not an offer to sell, or a solicitation of an
offer to buy, any of our securities.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2006, we had no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
USE OF ESTIMATES--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS--Amounts reported include cash on deposit in
overnight deposit accounts and investments in money market accounts.
PROPERTY AND EQUIPMENT--Property and equipment is stated at historical
cost less accumulated depreciation and amortization. Depreciation and
amortization is computed on a straight-line basis over the estimated useful
lives of the assets, varying from 3 to 5 years or, when applicable, the life of
the lease, whichever is shorter.
27
INTERNAL WEB SITE DEVELOPMENT COSTS--Under Emerging Issues Taskforce
Statement 00-2, ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS ("EITF 00-2"), costs
and expenses incurred during the planning and operating stages of the Company's
web site are expensed as incurred. Under EITF 00-2, costs incurred in the web
site application and infrastructure development stages are capitalized by the
Company and amortized to expense over the web site's estimated useful life or
period of benefit.
RESEARCH AND DEVELOPMENT COSTS--We expense research and development
costs as incurred.
INCOME TAXES--Old TFP elected to be taxed as a Sub-Chapter S
Corporation and was not subject to federal income taxes. However, Old TFP, was
subject to a California state franchise tax of $800 per year, plus fees based
upon annual gross receipts. The taxable income or loss of Old TFP was included
in the individual tax returns of its members.
REVENUE RECOGNITION--Substantially all of our subscription revenue is
generated from monthly subscriptions for Website hosting services. The typical
subscription agreement includes the usage of a personalized website and hosting
services. The individual deliverables are not independent of each other and are
not sold or priced on a standalone basis. Costs to complete the Website and
ready it for the end customer are minimal and are expensed to cost of revenue as
incurred. Upon the completion of a customers signup and initial hosting of the
Website, the subscription is offered free of charge for a 30-day trial period
during which the customer can cancel at anytime. In accordance with Staff
Accounting Bulletin (SAB) No. 104, after the 30-day trial period has ended,
revenue is recognized when all of the following conditions are satisfied: (1)
there is persuasive evidence of an arrangement; (2) the service has been
provided to the customer; (3) the amount of fees to be paid by the customer is
fixed or determinable; and (4) the collection of our fees is probable. These
criteria are met monthly as our service is provided on a month-to-month basis
and collections are generally made in advance of the services. There is no
provision for refunds as of December 31, 2006, as the Company's historical
refund experience has been minimal.
Customers signup and agree to purchase the website service on a monthly
or annual basis, at the customer's option. The monthly customers pay monthly in
advance of the services and as the services are performed we recognize
subscription revenue on a monthly basis.
For annual customers, upon payment of a full year's subscription
service, the subscription revenue is recorded as deferred revenue in the
accompanying balance sheet. As services are performed, we recognize subscription
revenue ratably on a monthly basis.
STOCK-BASED COMPENSATION--Accounting for stock options issued to
employees follows the provisions of SFAS No. 123R, SHARE-BASED PAYMENT. This
statement requires an entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award. That cost will be recognized over the period during which an
employee is required to provide service in exchange for the reward.We use the
Black-Scholes option pricing model to measure the fair value of options granted
to employees.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of our assets and
liabilities that qualify as financial instruments under SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, approximate their
carrying amounts.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2006, the FASB issued SFAS No. 156, "ACCOUNTING FOR SERVICING
OF FINANCIAL ASSETS," ("SFAS No. 156"), which amends SFAS No. 140," ACCOUNTING
FOR TRANSFERS AND SRVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES." In a significant change to current guidance, SFAS No. 156 permits
an entity to choose either of the following subsequent measurement methods for
each class of separately recognized servicing assets and servicing liabilities:
(1) Amortization Method or (2) Fair Value Measurement Method. SFAS No. 156 is
effective as of the beginning of an entity's first fiscal year that begins after
September 15, 2006. We are currently reviewing the effect, if any, that this new
pronouncement will have on our financial statements.
28
In June 2006, the FASB issued SFAS Board Interpretation No. 48,
"ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB
STATEMENT NO. 109" ("FIN 48"), which clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with FASB No. 109. The interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. FIN 48
is effective for fiscal years beginning after December 15, 2006. We are
currently reviewing the effect, if any, that this new guidance will have on our
financial statements.
In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE
MEASUREMENTS." This statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosure about fair value measurements. This statement applies under other
accounting pronouncements that require or permit fair value measurement, the
FASB having previously concluded in those accounting pronouncement that fair
value is the relevant measurement attribute. This statement does not require any
new fair value measurements. However, for some entities, the application of the
statement will change current practice. This statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. We are currently reviewing the
effect, if any, that this new pronouncement will have on our financial
statements.
In September 2006, the FASB issued SFAS No. 158, "EMPLOYERS' ACCOUNTING
FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS - AN AMENDMENT OF
FASB STATEMENTS NO. 87, 88, 106 AND 123(R)." This statement improves financial
reporting by requiring an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a multi-employer
plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in unrestricted net
assets for a not-for-profit organization. This statement also improves financial
reporting by requiring an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. We do not expect the adoption of this pronouncement to have a
material impact on our financial statements.
In February 2007, the FASB issued SFAS No. 159, "THE FAIR VALUE OPTION
FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES--INCLUDING AN AMENDMENT OF SFAS
NO.115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES", which
applies to all entities with available-for-sale and trading securities. This
Statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement is
effective as of the beginning of an entity's first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FASB Statement No. 157, Fair Value Measurements. We
plan to adopt SFAS No. 159 effective January 1, 2008. We are in the process of
determining the effect, if any, the adoption of SFAS No. 159 will have on our
Financial Statements.
RELATED PARTY TRANSACTIONS
We entered into several related party transactions, including
transactions with our CEO and consulting CFO since July 14, 2005, the date of
our inception. These transactions are further discussed below in Section 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE TO
THIS ITEM 2.01 and is incorporated by reference herein.
29
3. PROPERTIES
Our principal office is located in Irvine, California where we lease
approximately 2,900 square feet of office space pursuant to a lease that expires
in March 2009. If we require additional space, we believe that we will be able
to obtain such space on commercially reasonable terms.
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table set forth information regarding the beneficial
ownership of our common stock after consummation of the forward stock split and
the Merger, except as noted in the footnotes below, by:
o each person known to be the beneficial owner of 5% or more of our
outstanding common stock;
o each of our executive officers;
o each of our directors; and
o all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC and is calculated based on 52,833,385 shares of our common stock issued and
outstanding on January 30, 2007. In computing the number of shares beneficially
owned by a person and the percentage of ownership of that person, shares of
common stock subject to options held by that person that are currently
exercisable, as appropriate, or will become exercisable within 60 days of the
reporting date are deemed outstanding, even if they have not actually been
exercised. Those shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
Unless otherwise indicated in the table, the persons and entities named
in the table have sole voting and sole investment power with respect to the
shares set forth opposite the stockholder's name. The address of each
stockholder is listed in the table.
BENEFICIALLY OWNED
FOLLOWING THE PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER TRANSACTIONS OF CLASS
- -------------------------------------------------------------------------------------
Mike Sawtell, CEO and Sole Director (1) 26,168,630(3) 46.55%
Steve Pavlick (2) 3,317,524 6.28%
Steven Dong, CFO (1) 3,019,434(4) 5.66%
All executive officers and directors as a
group (2 persons) 29,188,064(3)(4) 51.47%
_______________
(1) 3240 El Camino Real, Suite 230, Irvine, CA 92602.
(2) c/o The Family Post, Inc., 3240 El Camino Real, Suite 230, Irvine, CA 92602.
(3) Includes 3,383,875 shares issuable to Mr. Sawtell pursuant to options to
purchase shares of our common stock within 60 days.
(4) Includes 490,493 shares issuable to Mr. Dong pursuant to options to purchase
shares of our common stock within 60 days.
30
5. DIRECTORS AND EXECUTIVE OFFICERS
CHANGES IN DIRECTORS AND EXECUTIVE OFFICERS
On January 30, 2007, as part of the Merger, the then existing directors of
HomAssist, Ms. Irene Braham, Mr. Ernest Cheung and Mr. Danny Hon resigned and
Mike Sawtell, Old TFP's single existing director was appointed as our new sole
director of DPI. Also, on January 30, 2007, as part of the Merger, Irene Braham,
President and Chief Executive Officer and Ernest Cheung, Chief Executive Officer
resigned as the executive officers of HomAssist and were replaced by Mike
Sawtell and Steven Dong who were appointed as our new President and Chief
Executive Officer and Chief Financial Officer, respectively, of DPI.
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our executive officers and directors, and
hold the offices set forth opposite their names:
NAME AGE POSITION
- ------------------- ----- ----------------------------------------------------
Michael Sawtell 48 Chairman and Sole Director of the Board of
Directors, Chief Executive Officer and President
Steven Dong 40 Chief Financial Officer
Michael Sawtell is our founder and Chief Executive Officer since July 2005.
Prior to then, he was President and Chief Operating Office of Interchange
Corporation, a publicly-held Internet advertising and local search company from
March of 2000 to April of 2005. From 1993 to 2000, Mr. Sawtell was the Chief
Operating Officer and the Vice President of Sales for Informative Research, one
of the largest mortgage services firms in the United States. From 1986 to 1993,
Mr. Sawtell worked as a director of operations on the B-2 Stealth Bomber program
for Northrop Grumman Corporation, a global defense company. He has also held key
operational positions at General Dynamics, another global defense company.
Steven Dong, has been our Chief Financial Officer since January 30 2007. From
March 2006, he served as our consulting CFO under a consulting agreement with
Irvine CPA Group, PC, which is owned by Mr. Dong. Prior thereto, from 1999 to
2002, Mr. Dong served as Chief Financial Officer of Taitron Components, Inc., a
publicly-held semi-conductor company. From 1995 to 1999, Mr. Dong served as a
financial consultant specializing in assisting publicly held companies by
serving as their interim Chief Financial Officer. From 1988 to 1995, Mr. Dong
was employed by PriceWaterhouseCoopers, LLP, (fka: Coopers & Lybrand, LLP). Mr.
Dong is a Certified Public Accountant and a member in good standing with the
American Institute of Certified Public Accountants and California State Board of
Accountancy.
FAMILY RELATIONSHIPS
There are no family relationships among the individuals comprising our
board of directors, management and other key personnel.
BOARD COMMITTEES
The Board intends to appoint such persons and form such committees as
are required to meet the corporate governance requirements imposed by the
national securities exchanges. Therefore, we intend that a majority of our
directors will eventually be independent directors and at least one director
will qualify as an "audit committee financial expert." Additionally, the Board
is expected to appoint an audit committee, nominating committee and compensation
committee, and to adopt charters relative to each such committee. Until further
determination by the Board, the full Board will undertake the duties of the
audit committee, compensation committee and nominating committee.
31
CODE OF ETHICS
We have formally adopted a written code of ethics that applies to our
board of directors, principal executive officer, principal financial officer and
employees.
6. EXECUTIVE COMPENSATION
Following the Merger on January 30, 2007, Mr. Sawtell became the Chairman and
Sole Director of our board of directors and our Chief Executive Officer and
President. Also following the Merger, Mr. Dong was appointed the Chief Financial
Officer. All references below in this section to our shares of common stock are
made on a post-Merger basis:
COMPENSATION DISCUSSION AND ANALYSIS
With respect to our executive compensation policies, the board of
directors had determined that until a business combination or other strategic
transaction was completed, we would continue to compensate our executive officer
on a basis commensurate with cash compensation and benefit levels suitable with
our cash position as a new company.
The following discussion and analysis reflects the compensation
arrangements that we had with our executive officers. After the Merger, and upon
additional financing, if any, we expect to round out our management team, our
board of directors intends to review and modify, as necessary, our executive
compensation policies in light of our current status as a new operating company
and working capital (deficit) positions. This review will be conducted with the
goal of compensating our executives so as to maximize their, as well as our,
performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Sawtell has served as our Chief Executive Officer and our Sole
Director from July 2005. From July 2005 through December 31, 2006, Mr Sawtell
did not have any employment agreement with us and received an annual salary of
$75,000 prior to the Merger (SEE ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR Independence). Effective January 30, 2007, we entered
into an employment agreement with Mr. Sawtell (SEE EXECUTIVE EMPLOYMENT
CONTRACTS BELOW).
COMPENSATION OF OTHER EXECUTIVE OFFICERS
Mr. Dong has served as our Consulting Chief Financial Officer from
March 2006 under a contract with a financial consulting firm owned by Mr. Dong
(SEE ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE). Effective January 30, 2007, we entered into an employment
agreement with Mr. Dong (SEE EXECUTIVE EMPLOYMENT CONTRACTS BELOW).
STOCK OPTIONS
Stock options generally have been granted to our executive officer at
the time of hire and at such other times as the board of directors has deemed
appropriate, such as in connection with a promotion or upon nearing full vesting
of prior options. In determining option grants, the board of directors has
considered the same industry survey data as used in its analysis of base
salaries and bonuses, and has strived to make awards that are in line with its
competitors. In general, the number of shares of common stock underlying the
stock options granted to each executive has reflected the significance of that
executive's current and anticipated contributions to us.
32
In addition, the stock option grants made by the board of directors are
designed to align the interests of management with those of the stockholders. In
order to maintain the incentive and retention aspects of these grants, the board
of directors has determined that a significant percentage of any officer's stock
options should be unvested option shares.
The value that may be realized from exercisable options depends on
whether the price of the common stock at any particular point in time accurately
reflects our performance. However, each individual option holder, and not the
board of directors, makes the determination as to whether to exercise options
that have vested in any particular year.
During 2005, Mr. Sawtell was granted an option to purchase 4,511,833
shares of our common stock and during 2006, Mr. Sawtell was granted an option to
purchase 6,767,749 shares of our common stock. These options were partially
cancelled, as discussed further below in ITEM 7. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
In March 2006, options to purchase 902,367 shares of our commons stock
was granted to a financial consulting firm owned by Mr. Dong and in November
2006, he was granted an option to purchase 225,592 shares of our common stock.
These options were partially cancelled, as discussed further below in ITEM 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a public company for compensation over $1 million paid to its Chief
Executive Officer and its four other most highly compensated executive officers.
However, if certain performance-based requirements are met, qualifying
compensation will not be subject to this deduction limit. Although the
limitations of Section 162(m) generally have not been of concern to us while we
were a shell corporation, we intend to consider the requirements of Section
162(m) in developing our compensation policies now that we are an operating
company.
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information as to
our Chief Executive Officer who was our executive officer (the "Named Executive
Officer"), for each of the years ended December 31, 2006 and 2005; no other
executive officers had compensation of more than $100,000 annually for 2005 and
2006:
SUMMARY COMPENSATION TABLE
CHANGE IN
PENSION VALUE
AND
NON-EQUITY NONQUALIFIED
STOCK OPTION INCENTIVE PLAN DEFERRED ALL OTHER
SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) EARNINGS($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Sawtell 2006 75,000 -- -- 14,727(2) -- -- 15,000 104,727
President and Chief 2005(1) 35,000 -- -- 6,750(2) -- -- 6,000 47,750
Executive Officer
(1) Old TFP incorporated on July 14, 2005 and the 2005 salary is from
the period July 14, 2005 through December 31, 2005
(2) The value of option awards granted to our named executive officer
has been estimated pursuant to SFAS 123R using the Black-Scholes
option pricing model with the following weighted average
assumptions: expected life: 4.5 years; volatility: 45%; risk free
interest rate: 4.69%; and dividend yield: none.
33
GRANTS OF PLAN-BASED AWARDS
The following table provides information regarding grants of plan-based
awards that we granted to the Named Executive Officer during the fiscal year
ended December 31, 2006. All options were granted at the fair market value of
our common stock on the date of grant, as determined by our board of directors.
Each option represents the right to purchase one share of our common stock.
Generally, none of the shares subject to options are vested at the time of grant
and 25% of the shares subject to such option grants vest on the date which is
nine months from the date of grant. The remainder of the shares vests in equal
nine month installments over the remaining 27 months thereafter.
2006 PLAN-BASED AWARDS TABLE
ALL OTHER STOCK EXERCISE OR GRANT DATE
AWARDS: NUMBER OF BASE PRICE OF FAIR VALUE OF
SHARES OF STOCK OR OPTION AWARDS STOCK AND
NAME GRANT DATE UNITS(#) ($/SH) OPTION AWARDS
- ------------------- ---------- ------------------ ------------- -------------
Mike Sawtell, CEO 11/13/2006 6,767,749 $0.09 660,000
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table provides information regarding exercisable and
unexercisable stock options held by the Named Executive Officer as of December
31, 2006. All references below in this section to our shares of common stock are
made on a post-Merger basis:
NUMBER OF
SECURITIES NUMBER OF
UNDERLYING SECURITIES
UNEXERCISED UNDERLYING
OPTIONS UNEXERCISED OPTIONS OPTION EXERCISE
(#) (#) PRICE OPTION EXPIRATION
NAME EXERCISABLE UNEXERCISABLE ($) DATE
- --------------------- --------------- ------------------- ---------------- ------------------
Mike Sawtell, CEO -- 6,767,749 $ 0.09 11/13/2007
-- 2,255,916 $ 0.04 7/14/2010
2,255,916 $ 0.04 7/14/2010
COMPENSATION OF DIRECTORS
There are presently no arrangements providing for payments to directors
for director or consulting services. We expect to establish these arrangements
shortly upon increased business activities.
34
EXECUTIVE EMPLOYMENT CONTRACT
EMPLOYMENT AGREEMENT WITH MICHAEL SAWTELL
We entered into an employment agreement with Mr. Sawtell, our Chief
Executive Officer on January 30, 2007. The employment agreement has a term of
five years and automatically renews for additional one year terms unless either
party terminates it with at least 30 days notice to the other party.
The material terms of the agreement are: (i) base annual salary of
$210,000; (ii) participation in our standard employee benefit plans; (iii)
initial one time bonus of $50,000 for successful closing of Merger; (iv)
reimbursable expenses customarily given to Executives; (v) other bonuses at the
discretion of the board of directors and (vi) severance arrangements described
below.
If we terminate Mr. Sawtell's employment agreement without cause, or if
Mr. Sawtell resigns for good reason, each as defined in the agreement, we are
obligated to pay Mr. Sawtell the greater of his annual salary for the remaining
term of the agreement or three years of his annual salary rate at the time of
termination without cause or resignation for good reason, benefits for 24 months
following the date of termination, and the right for 24 months from the date of
termination to exercise all vested options granted to him prior to that time;
provided that in the event the termination occurs within 120 days of the
execution of an agreement which results in a change of control, as described
below, vesting of all options will be accelerated and in the event the
termination occurs outside of such 120 day period, all unvested options that
would have vested had Mr. Sawtell's employment agreement remained in force
through the end of the initial term will be fully vested immediately prior to
such termination.
EMPLOYMENT AGREEMENT WITH STEVEN DONG
We entered into an employment agreement with Mr. Dong, our Chief Financial
Officer on January 30, 2007. The employment agreement has a term of two years
and automatically renews for additional one year terms unless either party
terminates it with at least 30 days notice to the other party.
The material terms of the agreement are: (i) base annual salary of
$175,000; (ii) participation in our standard employee benefit plans; (iii)
initial one time bonus of $30,000 for successful closing of Merger (iv)
reimbursable expenses customarily given to Executives; (v) various bonuses
related to performance metrics; (vi) other bonuses at the discretion of the
board of directors and (vii) severance arrangements described below.
If we terminate Mr. Dong's employment agreement without cause, or if Mr.
Dong terminates the agreement with good reason, each as defined in the
agreement, we are obligated to pay Mr. Dong: (i) his annual salary and other
benefits earned prior to termination, (ii) the greater of his annual salary for
the remaining term of the agreement or his annual salary payable over one year,
(iii) benefits for 12 months following the date of termination, and (iv) the
right for 12 months from the date of termination to exercise all vested options
granted to him prior to that time; provided that in the event the termination
occurs within 120 days of the execution of an agreement which results in a
change of control, as described below, vesting of all options will be
accelerated and in the event the termination occurs outside of such 120 day
period, all unvested options that would have vested had Mr. Dong's employment
agreement remained in force through the end of the initial term will be fully
vested immediately prior to such termination.
Each of the employment agreements discussed above provide for the
immediate vesting of stock options granted pursuant thereto upon (i) a change in
control of us or (ii) a termination of the executive's employment without cause
or for good reason within 120 days prior to the execution and delivery of an
agreement which results in a change in control. Additionally, a change in
control constitutes "good reason" under the terms of each of the agreements,
thus permitting each of Mr. Sawtell and Mr. Dong to terminate his respective
employment and receive the severance benefits discussed above. Under the terms
35
of each employment agreement, a change in control is deemed to have occurred if,
as a result of a tender offer, other acquisition, merger, consolidation or sale
or transfer of assets, any person(s) (as used in Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934) becomes the beneficial owner (as defined in
regulations promulgated under the Exchange Act) of a total of fifty percent
(50%) or more of either our outstanding common stock or our assets; provided,
however, that a change of control is not deemed to have occurred if a person who
beneficially owned fifty percent (50%) or more of our common stock as of the
effective date of the respective employment agreement continued to do so during
the term the employment agreement.
The employment agreements with Mr. Sawtell and Mr. Dong also contain
standard confidentiality provisions that apply indefinitely and non-solicitation
provisions that will apply during the term of the employment agreements and for
a 12-month period thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2006, we did not have a compensation committee or another
committee of the board of directors performing equivalent functions. Instead the
entire board of directors performed the function of compensation committee. As a
sole member of the board of directors, Mr. Sawtell, our chief executive officer
and sole board of director, approved the executive compensation, however, there
were no deliberations relating to executive officer compensation during 2006.
STOCK OPTION AGREEMENTS
SUMMARY OF STOCK OPTION AGREEMENTS
As January 30, 2007, we had granted stock options under certain stock
option agreements as approved, amended and administered by its Board of
Directors which permitted the granting of options for the purchase of up to
7,724,850 shares of Old TFP common stock.
As part of the Merger, in exchange for options to purchase 7,724,850
shares of Old TFP common stock, we issued to the holders thereof options to
purchase an aggregate of 17,426,615 shares of DPI common stock under the terms
and conditions of the Company's 2007 Incentive and Nonstatutory Stock Option
Plan. As part of the terms and conditions of the Old TFP Option Agreements, 50%
of the options granted and oustanding just prior to the Merger fully vested and
became exercisable as a result of the Merger transaction itself. As a result,
8,713,308 of the 17,426,615 options issued are fully vested and exercisable.
Stock options granted under those certain stock option agreements were
granted at prices no less than the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however, that
(i) the exercise price of an Incentive Stock Option ("ISO") and Nonstatutory
Stock Options ("NSO") shall not be less than 100% of the estimated fair value of
the shares on the date of grant, respectively; and (ii) the exercise price of an
ISO and NSO granted to a 10% stockholder shall not be less than 110% of the
estimated fair value of the shares on the date of grant, respectively. ISO and
NSO stock options generally vest every nine months, over a three year period.
2007 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
On January 30, 2007, the Board of Directors approved and a majority of
the Company's stockholders ratified by consent the Company's 2007 Incentive and
Nonstatutory Stock Option Plan ("Plan"). The 17,426,615 options to purchase DPI
common stock issued under the terms of the Merger (discussed above) have been
issued pursuant to the Plan.
36
SUMMARY OF THE PLAN
The Plan is intended to further the growth and financial success of DPI
by providing additional incentives to selected employees, directors, and
consultants to DPI and its subsidiary corporations, as those terms are defined
in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended
(the "Code") (such subsidiary corporations hereinafter collectively referred to
as "Affiliates") so that such employees and consultants may acquire or increase
their proprietary interest in DPI. Stock options granted under the Plan
(hereinafter "Options") may be either "Incentive Stock Options," as defined in
Section 422A of the Code and any regulations promulgated under said Section, or
"Nonstatutory Options" at the discretion of the Board of Directors of the
Company (the "Board") and as reflected in the respective written stock option
agreements granted pursuant hereto.
The Plan reserves twenty five million (25,000,000) shares of the
Company's Common Stock.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the
Company; provided however, that the Board may delegate such administration to a
committee of not fewer than three (3) members (the "Committee"), at least two
(2) of whom are members of the Board and all of whom are disinterested
administrators, as contemplated by Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"); and provided further, that the
foregoing requirement for disinterested administrators shall not apply prior to
the date of the first registration of any of the securities of the Company under
the Securities Act of 1933, as amended.
ELIGIBILITY
The persons who shall be eligible to receive Options shall be
employees, directors, or consultants of the Company or any of its Affiliates
("Optionees"). The term consultant shall mean any person who is engaged by the
Company to render services and is compensated for such services, and any
director of the Company whether or not compensated for such services; provided
that, if the Company registers any of its securities pursuant to the Securities
Act of 1933, as amended (the "Act"), the term consultant shall thereafter not
include directors who are not compensated for their services or are paid only a
director fee by the Company.
The Plan authorizes the granting of both incentive stock options, as
defined under Section 422 of the Internal Revenue Code of 1986 ("ISO"), and
non-statutory stock options ("NQO") to purchase Common Stock. All employees of
the Company and its affiliates are eligible to participate in the Plan. The Plan
also authorizes the granting of NQO's to non-employee Directors and others
performing services to the Company.
Any Option granted to a person who at the time the Option is granted
owns stock possessing more than ten percent (10%) of the total combined voting
power of value of all classes of stock of the Company, or of any Affiliate,
("Ten Percent Holder") shall have an Option Price of no less than one hundred
ten percent (110%) of the fair market value of the common stock as of the date
of grant. Incentive Stock Options granted to a person who at the time the Option
is granted is not a Ten Percent Holder shall have an Option price of no less
than one hundred percent (100%) of the fair market value of the common stock as
of the date of grant. Nonstatutory Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an Option Price
determined by the Board as of the date of grant.
No option granted pursuant to the Plan is transferable otherwise than
by will or the laws of descent and distribution. If there is a stock split,
stock dividend, or other relevant change affecting the Company's shares,
appropriate adjustments would be made in the number of shares that could be
issued in the future and in the number of shares and price under all outstanding
grants made before the event. Future options may also cover such shares as may
cease to be under option by reason of total or partial expiration, termination
or voluntary surrender of an option.
37
The aggregate fair market value (determined at the time an option is
granted) of the Common Stock with respect to which ISO's are exercisable for the
first time by any person during any calendar year under the Plan shall not
exceed $300,000. Any Option granted to an Employee of the Company shall become
exercisable over a period of no longer than five (5) years, and no less than
twenty percent (20%) of the shares covered thereby shall become exercisable
annually. No Option shall be exercisable, in whole or in part, prior to one (1)
year from the date it is granted unless the Board shall specifically determine
otherwise, as provided herein. In no event shall any Option be exercisable after
the expiration of five (5) years from the date it is granted. Unless otherwise
specified by the Board or the Committee in the resolution authorizing such
option, the date of grant of an Option shall be deemed to be the date upon which
the Board or the Committee authorizes the granting of such Option.
FEDERAL INCOME TAX CONSEQUENCES
The holder of an ISO does not realize taxable income upon the grant or
upon the exercise of the option (although the option spread is an item of tax
preference income potentially subject to the alternative minimum tax). If the
stock acquired upon exercise of the options sold or otherwise disposed of within
two (2) years from the option grant date or within one year from the exercise
date then, in general, gain realized on the sale is treated as ordinary income
to the extent of the option spread at the exercise date, and the Company
receives a corresponding deduction. Any remaining gain is treated as capital
gain. If the stock is held for at least two (2) years from the grant date and
one year from the exercise date, then gain or loss realized upon the sale will
be capital gain or loss and the Company will not be entitled to a deduction. A
special basis adjustment applies to reduce the gain for alternative minimum tax
purposes.
An optionee does not realize taxable income upon the grant of an NQO.
In general, the holder of a NQO realizes ordinary income in an amount equal to
the difference between the exercise price and the market value on the date of
exercise. The Company is entitled to an expense deduction at the same time and
in a corresponding amount.
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
There are no material relationships between us and our current
directors and executive officers other than the transactions and relationships
described below. All references to shares of our common stock in this section
are on a post-Merger basis.
TRANSACTIONS WITH DIRECTORS, OFFICERS, STOCKHOLDERS AND AFFILIATED PARTIES
On July 14, 2005, we granted an option to purchase 112,796 shares of
our common stock to a person who is the Chief Executive Officer's brother for
consulting services rendered to us. The options vest every nine months over a
three year period are exercisable at $0.044 per share.
As of December 31, 2006, $101,477 was due to Chief Executive Officer
and principal stockholder. The amount due to the officer was partially generated
from the officer's deferred salary. During the period ended December 31, 2005
and the month of January 2006, we did not pay the officer salary, which amounted
to $37,500 and $6,250, respectively. In November 2006, the officer also made an
advance to us for $50,000 cash which bears interest at 10% and is due December
8, 2007. We also owe the officer for purchases of computer equipment made on our
behalf in the amount of $17,345. During the year ended December 31, 2006, no
amounts were paid to the officer for his deferred salary or $50,000 advance and
$10,035 was paid as reimbursement for computer equipment purchased on our
behalf.
On March 15, 2006, we entered into an employment agreement with our
Vice President of Stategic Alliances including an option to purchase 902,637
shares of our common stock. In April 2006, the same employee and sister of the
employee invested an aggregate of $50,000 cash for 663,239 shares of our common
stock. On November 29, 2006, the employee was terminated.
38
A shareholder also served as a Consulting Chief Financial Officer from
March 2006 under a consulting agreement with a consulting firm owned by the
shareholder. The consulting agreement paid the consulting firm an hourly rate of
$100 per hour, payable partially in stock and exercised stock options. The
consulting agreement granted the firm an option to purchase 902,367 shares of
our common stock. In November 2006, the consultant received an additional option
grant to purchase 225,592 shares of our common stock. From March 2006 through
May 2006, for consulting services rendered, the consulting firm received $1,770
cash proceeds, 33,162 shares of our common stock valued at $2,940 and 88,432
exercised options valued at $3,920. Effective July 2006, the hourly rate was
changed to $65 per hour. From July 2006 to December 2006, for consulting
services rendered, the consulting firm received $8,504 cash proceeds and 58,543
exercised options valued at $2,950. The consulting agreement provided for cash
finder fees of 10% of any gross proceeds raised through an introduction made by
consultant, and has been amended to provide for cash finders fees of 7.5% in the
future.
During October, 2006, we applied for and obtained an unsecured line of
credit from a financial institution in the amount of $20,000, which incurs
interest at 14% annually. The line of credit is personally guaranteed by our
Chief Executive Officer and principal stockholder and his spouse. As of December
31, 2006, no amount was owed under the line of credit.
During November 2006, the Chief Executive Officer and principal
shareholder advanced the Company $50,000 cash and was recorded as advance due to
shareholder. As of December 31, 2006, the $50,000 advance had not been repaid
and remains outstanding.
During January 2007, we re-priced all common stock investor rounds made
since July 14, 2005, the date of our inception and cancelled related stock
options issued with the investment. As a result, we issued an additional
4,419,979 of common stock to our investors and cancelled options to purchase
7,162,534 shares of our common stock. As part of the 4,419,979 new shares
issued, 3,383,875 shares of the common stock were issued to the Chief Executive
Officer and as part of the 7,162,534 options cancelled, 4,511,833 of which were
held by the Chief Executive Officer and were cancelled as part of this
transaction. As part of the 4,419,979 new shares issued, 132,702 shares were
returned back to us by the Consulting Chief Financial Officer and as part of the
7,162,534 options cancelled, 225,592 options were held by the Consulting Chief
Financial Officer and were cancelled as part of the this transaction.
REVIEW, APPROVAL AND RATIFICATION OF RELATED PARTY TRANSACTIONS
Given our small size and limited financial resources, we had not
adopted formal policies and procedures for the review, approval or ratification
of transactions, such as those described above, with its executive officers,
directors and significant stockholders. Yet, all such transactions were approved
and ratified by our sole director. Since the Merger, we intend to establish such
policies and procedures so that such transactions will, on a going-forward
basis, be subject to the review, approval or ratification of our board of
directors, or an appropriate committee thereof.
DIRECTOR INDEPENDENCE
Presently, we are not required to comply with the director independence
requirements of any securities exchange. In determining whether our directors
are independent, however, we intend to comply with the rules of the American
Stock Exchange LLC, or the AMEX. The board of directors also will consult with
counsel to ensure that the board of director's determinations are consistent
with those rules and all relevant securities and other laws and regulations
regarding the independence of directors, including those adopted under the
Sarbanes-Oxley Act of 2002 with respect to the independence of audit committee
members. The AMEX listing standards define an "independent director" generally
as a person, other than an officer of a company, who does not have a
relationship with the company that would interfere with the director's exercise
of independent judgment.
Currently we do not satisfy the "independent director" requirements of
the American Stock Exchange, which requires that a majority of a company's
directors be independent. Our board of directors intends to appoint additional
members, each of whom will satisfy such independence requirements.
39
8. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. We are not aware
of any pending or threatened legal proceeding that, if determined in a manner
adverse to us, could have a material adverse effect on our business and
operations.
9. MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our shares of common stock, par value $0.001 per share, are quoted on
the OTC Bulletin Board under the symbol "DGLP." Prior to January 26, 2007, our
common stock was quoted on the OTC Bulletin Board under the symbol "HMAS."
Effective January 26, 2007, our stock quote symbol was changed to DGLP and
remains quoted on the OTC Bulletin Board. The following table sets forth the
range of high and low closing sale prices for the common stock as reported by
the OTC Bulletin Board for the periods indicted below.
HIGH LOW
-------------- --------------
2006
Fourth Quarter $ 1.50 $ 1.13
Third Quarter $ 1.20 $ 1.10
Second Quarter $ -- $ --
First Quarter $ -- $ --
2005
Fourth Quarter $ -- $ --
Third Quarter $ -- $ --
Second Quarter $ -- $ --
First Quarter $ -- $ --
The closing sale prices in the table above reflect inter-dealer prices,
without retail mark-up or commissions and may not represent actual transactions.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock. We intend
to retain earnings, if any, to support the development of our business and
therefore do not anticipate paying cash dividends for the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including current financial
condition, operating results and current and anticipated cash needs.
40
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information as of January 30, 2007 with
respect to the stock options issued under our 2007 Incentive and Nonstatutory
Stock Option Plan, for which our common stock is authorized for issuance.
NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE EXERCISE PRICE OF REMAINING AVAILABLE
OF OUTSTANDING OPTIONS OUTSTANDING OPTIONS FOR FUTURE ISSUANCE
----------------------- ------------------ -------------------
Equity compensation plans or stock option 17,426,615 $ .08 7,573,385
agreements approved by security holders
Equity compensation plans or stock option
agreements not approved by security holders -- -- --
===================== =================== ===================
Total 17,426,615 $ .08 7,573,285
===================== =================== ===================
The data in the table above, reflects the effect of the Merger: As part
of the Merger, in exchange for options to purchase 7,724,850 shares of Old TFP
common stock, we issued to the holders thereof options to purchase an aggregate
of 17,426,615 shares of our common stock under the same terms and conditions as
the Old TFP Option Agreements.
10. RECENT SALES OF UNREGISTERED SECURITIES
SHARES ISSUED IN CONNECTION WITH THE MERGER
As part of the Merger, we issued 37,173,385 shares of our common stock
to the former stockholders of Old TFP in exchange for all of the issued and
outstanding shares of common stock of Old TFP. As part of the Merger, in
exchange for options to purchase 7,724,850 shares of Old TFP common stock, we
issued to the holders thereof options to purchase an aggregate of 17,426,615
shares of our common stock under the same terms and conditions as the Old TFP
Option Agreements. As a result of the Merger, the former stockholders of Old TFP
became holders of DPI common stock, and holders of Old TFP options became
holders of options to acquire shares of DPI common stock.
Following the Merger, there were 52,833,385 shares of DPI common stock
outstanding, of which the pre-Merger stockholders of HomAssist owned
approximately 29.6% and the pre-Merger stockholders of Old TFP owned
approximately 70.4%.
None of the above transactions involved a public offering, and we
believe that each transaction was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) of the Securities Act and Rule 506
of Regulation D as promulgated by the SEC.
SHARES ISSUED PRIOR TO THE MERGER
All references below in this section to our shares of common stock are
made on a post-Merger basis:
During the period from inception July 15, 2005 through December 31,
2005, we issued 20,754,431 shares of our restricted common stock to our founder,
Sole Director, Chief Executive Officer, and President for cash in the amount of
$168,000.
During the period from inception July 15, 2005 through December 31,
2005, we issued 1,127,958 shares of our restricted common stock for cash in the
amount of $100,000.
During the first quarter of 2006, we issued 2,678,901 shares of
restricted common stock for cash in the amount of $237,500.
During the second quarter of 2006, we issued 2,496,171 shares of
restricted common stock for cash in the amount of $187,500.
During the third quarter of 2006, we issued 1,127,958 shares of
restricted common stock for cash in the amount of $100,000.
41
During the fourth quarter of 2006, we issued 4,173,445 shares of
restricted common stock for cash in the amount of $370,000.
During January 2007, we re-priced all of our common stock investor
rounds made since July 14, 2005, the date of our inception and cancelled related
stock options issued with the investment. As a result, we issued an additional
4,419,979 of common stock to our investors and cancelled options to purchase
7,162,534 shares of our common stock. As part of the 4,419,979 new shares
issued, 3,383,875 shares of the common stock were issued to the Chief Executive
Officer and as part of the 7,1652,534 options cancelled, 4,511,833 of which were
held by the Chief Executive Officer and were cancelled as part of this
transaction. As part of the 4,419,979 new shares issued, 132,702 shares were
returned back to us by the Consulting Chief Financial Officer and as part of the
7,162,534 options cancelled, 225,592 options were held by the Consulting Chief
Financial Officer and were cancelled as part of the this transaction.
SHARES ISSUED AFTER THE MERGER
During April 2007, we agreed to a $4 million private placement for the
issuance of up to 2,540,000 restricted common shares or $1.57 per share. As of
April 27, 2007, we have received $500,000 of the $4 million private placement
and we expect to complete the private placement during the second quarter of
2007.
11. DESCRIPTION OF SECURITIES.
STOCK SPLIT AND AMENDMENTS
Effective July 18, 2006, HMAS filed a certificate of change to effect a
forward stock split of our issued and outstanding common stock. Our Board of
Directors approved the forward split pursuant to the laws of the State of Nevada
on July 13, 2006. Our filing was incorrect in regard to the certificate of
change and on August 14, 2006, we filed a certificate of correction in regard to
the forward split. The forward split approved by the Board of Directors required
the issuance of an additional twenty-five common shares for each one share
issued. We did not amend our authorized capital. Therefore, our authorized
capital remains at 75,000,000 shares of common stock with a par value of $0.001.
Our issued and outstanding share capital has increased from 2,800,000 shares of
common stock to 72,800,000 shares of common stock. On December 13, 2006, the
board of directors approved an increase in the authorized shares of common stock
from 75,000,000 to 500,000,000.
The certificate of change and the certificate of correction are
appended as an exhibit to Form 8-K filed and dated July 18, 2006.
On December 13, 2006, the board of directors and shareholders approved
an increase in the authorized shares of common stock from 75,000,000 to
500,000,000.
On January 25, 2007, the board of directors and shareholders approved
the reclassification of 20,000,000 shares of the Company's capital stock to
preferred stock, no par value, without any series, rights or preferences
ascribed to it.
AUTHORIZED CAPITAL STOCK
We are authorized to issue 480,000,000 shares of common stock, par
value $0.001 per share, and 20,000,000 shares of preferred stock, par value
$.001 per share.
COMMON STOCK
Immediately following the Merger on January 30, 2007, there were
52,833,385 shares of our common stock issued and outstanding and no shares of
preferred stock issued and outstanding.
42
The holders of our Common Stock are entitled to one vote per share held
and have the sole right and power to vote on all matters on which a vote of
stockholders is taken. Voting rights are non-cumulative. Common stockholders are
entitled to receive dividends when, as, and if declared by the Board of
Directors, out of funds legally available therefore and to share pro rata in any
distribution to stockholders. Upon liquidation, dissolution, or the winding up
of our Company, common stockholders are entitled to receive the net assets of
our Company in proportion to the respective number of shares held by them after
payment of liabilities which may be outstanding. The holders of Common Stock do
not have any preemptive right to subscribe for or purchase any shares of any
class of stock of the Company. The outstanding shares of Common Stock will not
be subject to further call or redemption and are fully paid and non-assessable.
To the extent that additional common shares are issued, the relative interest of
existing stockholders will likely be diluted.
OPTIONS
Just prior to the Merger, there were no options to purchase HomAssist
stock outstanding.
As part of the Merger, in exchange for options to purchase 7,724,850
shares of Old TFP common stock, we issued to the holders thereof options to
purchase an aggregate of 17,426,615 shares of our common stock under the same
terms and conditions as the Old TFP Option Agreements. As part of the terms and
conditions of the Old TFP Option Agreements, 50% of the options granted and
oustanding just prior to the Merger fully vested and became exercisable as a
result of the Merger transaction itself. As a result, 8,713,308 of the
17,426,615 options issued are fully vested and exercisable.
WARRANTS
Just prior to the Merger, there were no warrants to purchase HomAssist
stock outstanding.
As part of the Merger, we assumed a license agreement as amended which
Old TFP entered into during 2006, part of which may obligate us to issue
warrants to purchase our common stock at a future date, pending the achievement
of certain milestones by the licensee. As of the date of the Report, no
milestones have been met and no warrants have been issued.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Signature
Stock Transfer, Inc.
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our officers and directors are indemnified as provided by the Nevada
Revised Statutes and the Company's bylaws. Under the Nevada Revised Statutes,
director immunity from liability to a company or its shareholders for monetary
liabilities applies automatically unless it is specifically limited by a
company's Articles of Incorporation. Our Articles of Incorporation do not
specifically limit the directors' immunity. Excepted from that immunity are: (a)
a willful failure to deal fairly with the company or its shareholders in
connection with a matter in which the director has a material conflict of
interest; (b) a violation of criminal law, unless the director had reasonable
cause to believe that his or her conduct was lawful or no reasonable cause to
believe that his or her conduct was unlawful; (c) a transaction from which the
director derived an improper personal profit; and (d) willful misconduct.
Our bylaws provide that we will indemnify the directors to the fullest
extent not prohibited by Nevada law; provided, however, that we may modify the
extent of such indemnification by individual contracts with the directors and
officers; and, provided, further, that we shall not be required to indemnify any
director or officer in connection with any proceeding, or part thereof,
initiated by such person unless such indemnification: (a) is expressly required
to be made by law, (b) the proceeding was authorized by the board of directors,
(c) is provided by us, in our sole discretion, pursuant to the powers vested us
under Nevada law or (d) is required to be made pursuant to the bylaws.
43
Our bylaws provide that we will advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
us, or is or was serving at the request of us as a director or executive officer
of another company, partnership, joint venture, trust or other enterprise, prior
to the final disposition of the proceeding, promptly following request
therefore, all expenses incurred by any director or officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under the bylaws or otherwise.
Our bylaws provide that no advance shall be made by it to an officer of
us except by reason of the fact that such officer is or was a director of the
Company in which event this paragraph shall not apply, in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made: (a) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Company.
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following tables set forth selected unaudited quarterly income
statement data of Old TFP for each of the quarters ended March 31, June 30,
September 30, December 31, 2006 and for the each of the quarters ended September
30, and December 31, 2005. Old TFP incorporated July 14, 2005, as such, no
quarterly information is presented prior to then. The financial statements for
each of these quarters have been prepared on the same basis as the audited
financial statements included in this current report and, in the opinion of
management, include all adjustments necessary for the fair presentation of the
results of operations for these periods. You should read this information
together with the audited financial statements and the related notes included
elsewhere in this prospectus. These quarterly operating results are not
necessarily indicative of the results for any future period.
Three Three Three Three Three Three
Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended
September 30, December 31, March 31, June 30, September 30, December 31,
2005 2005 2006 2006 2006 2006
----------- ----------- ----------- ----------- ----------- -----------
REVENUES: (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Subscription $ -- $ 4,450 $ -- $ 1,888 $ 4,212 $ 7,780
----------- ----------- ----------- ----------- ----------- -----------
TOTAL REVENUE -- 4,450 -- 1,888 4,212 7,780
COST OF REVENUES:
Subscription -- 1,374 2,087 1,857 1,385 5,217
----------- ----------- ----------- ----------- ----------- -----------
TOTAL COST OF REVENUE -- 1,374 2,087 1,857 1,385 5,217
----------- ----------- ----------- ----------- ----------- -----------
GROSS PROFIT -- 3,076 (2,087) 31 2,827 2,563
OPERATING EXPENSES:
Sales and Marketing 5,067 31,439 31,359 53,085 49,560 37,698
General and
administrative 61,820 103,031 104,258 123,347 150,978 195,738
----------- ----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 66,887 134,470 135,617 176,432 200,538 233,436
LOSS FROM OPERATIONS (66,887) (131,394) (137,704) (176,401) (197,711) (230,873)
Other (expenses) income, net (7,169) (1,262) 252 (173) (221) (181)
----------- ----------- ----------- ----------- ----------- -----------
NET LOSS $ (74,056) $ (132,656) $ (137,452) $ (176,575) $ (197,932) $ (231,054)
=========== =========== =========== =========== =========== ===========
BASIC AND DILUTED
LOSS PER SHARE $ (.008) $ (.013) $ (.006) $ (.006) $ (.007) $ (.008)
=========== =========== =========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 9,023,665 * 9,555,059 * 2,055,275 * 26,787,563 * 28,197,350 * 29,689,071 *
=========== =========== =========== =========== =========== ===========
* PER SHARE DATA OF OLD TFP ON A POST MERGER BASIS
44
14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On or about February 26, 2007, we dismissed the accounting firm of
Schumacher & Associates Inc. as our principal accountant. The report of
Schumacher & Associates Inc. on the financial statements for the fiscal year
ended January 31, 2006, did not include any adverse opinion or disclaimer of
opinion, or any qualification or modification as to uncertainty, audit scope or
accounting principles, except for the addition of an explanatory paragraph
regarding the Company's ability to continue as a going concern. There were no
disagreements with Schumacher & Associates Inc. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of Schumacher & Associates
Inc., would have caused it to make reference to the subject matter of such
disagreement in their reports on our financial statements.
On or about March 7, 2007, we engaged the accounting firm of Haskell &
White LLP as our independent registered public accounting firm.
The Board of Directors approved the change in principal accountants
discussed above.
15. FINANCIAL STATEMENTS AND EXHIBITS
See Item 9.01 and the Exhibit Index below and the corresponding
exhibits, which are incorporated by reference herein.
45
ITEM 3.02--UNREGISTERED SALE OF EQUITY SECURITIES
As discussed further in Item 2.01 above, on January 30, 2007, the
Company issued 37,173,385 shares of Common Stock to the Old TFP (as defined in
Item 2.01) stockholders pursuant to the terms of the Merger.
As discussed further in Item 2.01 above, during April 2007, we agreed
to a $4 million private placement for the issuance of up to 2,540,000 restricted
common shares or $1.57 per share. As of April 27, 2007, we have received
$500,000 of the $4 million private placement and we expect to complete the
private placement during the second quarter of 2007.
Our Common Stock to be issued in these transactions will constitute
restricted securities that are exempt from the registration requirements of the
Securities Act of 1933, as amended, in reliance on the exemption provided by
Rule 506 of Regulation D of the Act.
ITEM 5.01--CHANGE IN CONTROL
On January 30, 2007, Old TFP (as defined in Item 2.01) was acquired by
the Company through its wholly owned subsidiary TFP Sub, Inc., and became a
wholly owned subsidiary of the Company. The acquisition occurred pursuant to the
Agreement and Plan of Merger. Immediately prior to the Merger, the Company had
15,600,000 outstanding shares of common stock and no outstanding shares of
preferred stock. In accordance with the terms of the Merger, the Company issued
37,173,385 shares of its common stock to the stockholders of Old TFP in exchange
for all of the common stock of Old TFP. Immediately after the Merger (i) the
previous stockholders of the Company owned 15,600,000 shares, or approximately
29.6%, (ii) Old TFP stockholders owned 37,173,385 shares, or 70.4%, and, (iii)
the Company is now controlled by the former stockholders of Old TFP. The share
exchange ratio in the Merger was determined through arms-length negotiations
between the Company and Old TFP.
ITEM 5.02--DEPARTURE OF DIRECTORS/OFFICERS; APPOINTMENT OF OFFICERS/DIRECTORS
In connection with the Merger reported pursuant to Item 2.01 above, and
as disclosed in Item 5.01 above, the Company's previous officers and directors
resigned from their positions in connection with the terms of the Agreement and
Plan of Merger and the following persons were elected as director and appointed
as officers of the Company.
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
MIKE SAWTELL 48 DIRECTOR, CEO, SECRETARY
Michael Sawtell is our founder and Chief Executive Officer since July
2005. Prior to then, he was President and Chief Operating Office of Interchange
Corporation, a publicly-held Internet advertising and local search company from
March of 2000 to April of 2005. From 1993 to 2000, Mr. Sawtell was the Chief
Operating Officer and the Vice President of Sales for Informative Research, one
of the largest mortgage services firms in the United States. From 1986 to 1993,
Mr. Sawtell worked as a director of operations on the B-2 Stealth Bomber program
for Northrop Grumman Corporation, a global defense company. He has also held key
operational positions at General Dynamics, another global defense company.
STEVEN DONG 40 CFO, PRINCIPAL ACCOUNTING OFFICER
Steven Dong, has been our Chief Financial Officer effective January 30,
2007. From March 2006, he served as our consulting CFO under a consulting
agreement with Irvine CPA Group, PC, which is owned by Mr. Dong. Prior thereto,
from 1999 to 2002, Mr. Dong served as Chief Financial Officer of Taitron
Components, Inc., a publicly-held semi-conductor company. From 1995 to 1999, Mr.
Dong served as a financial consultant specializing in assisting publicly held
companies by serving as their interim Chief Financial Officer. From 1988 to
1995, Mr. Dong was employed by PriceWaterhouseCoopers, LLP, (fka: Coopers &
Lybrand, LLP). Mr. Dong is a Certified Public Accountant and a member in good
standing with the American Institute of Certified Public Accountants and
California State Board of Accountancy.
There are no family relationships among any of the Company's directors or
executive officers.
46
Resignations:
(a) On January 30, 2007, Irene Braham resigned from position as
Director and Officer.
(b) On January 30, 2007, Ernest Cheung resigned from position as
Director and Officer.
(c) On January 30, 2007, Danny Hon resigned from position as Director
and Officer.
ITEM 5.03--AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR
On January 25, 2007, the Company filed a certificate of amendment to
its Articles of Incorporation. This document amended the Company's Articles of
Incorporation as follows:
(a) Changed its name to DigitalPost Interactive, Inc.
(b) Increased its authorized shares of common stock, par value $0.001,
to 480,000,000 shares and its preferred stock to 20,000,000 shares
with no rights or preferences currently ascribed to such shares.
(c) Changed its fiscal year end from January 31 to December 31.
Under the provisions of the Company's Articles of Incorporation, as
amended, these actions required a majority vote of shareholders.
ITEM 5.06. CHANGE IN SHELL COMPANY STATUS.
The Company was a "shell company" (as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended) immediately before
the Merger. As a result of the Merger, the Company has merged an operating
entity into its subsidiary. Consequently, the Company believes that the Merger
has caused it to cease to be a shell company. For information about the Merger,
please see the information set forth above under Item 2.01 of this Current
Report, which information is incorporated hereunder by this reference.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
(b) PRO FORMA FINANCIAL INFORMATION
The financial statements the companies and for the periods and dates
indicated below are filed with this Report.
47
THE FAMILY POST, INC.
AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Balance Sheet as of December 31, 2006 and 2005 F-3
Statement of Operations for the year ended December 31, 2006 and the
period from July 14, 2005 (date of inception) to December 31, 2005 F-4
Statement of Stockholder's Equity for year ended December 31, 2006
and for the period from July 14, 2005 (date of inception) to
December 31, 2005 F-5
Statement of Cash Flows for the year ended December 31, 2006 and
for the period from July 14, 2005 (date of inception)
to December 31, 2005 F-6
Notes to Financial Statements F-7
THE FAMILY POST, INC, AND HOMASSIST CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 31, 2006 F-21
Unaudited Pro Forma Condensed Combined Statement of Operations
the period from July 14, 2005 (date of inception) to December 31, 2005 F-22
Unaudited Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 2006 F-23
Notes to Unaudited Pro Forma Condensed Combined Financial Statements F-24
(d) EXHIBITS
See the Exhibit Index hereto, which is incorporated by reference
herein.
48
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
DIGITALPOST INTERACTIVE, INC
By: /s/ Mike Sawtell
-----------------------------------
Name: Mike Sawtell
Title: Chief Executive Officer,
President and Sole Director
Date: April 30, 2007
49
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------ ------------------------------------------------------------------
2.1 Merger Agreement, dated January 16, 2007, between HomAssist
Corporation and The Family Post, Inc. as filed on form 8k, filed
2/1/07, incorporated by reference
3.1 Articles of Incorporation as filed on form SB-2, filed 4/28/05,
incorporated by reference
3.2 Bylaws as filed on form SB-2, filed 4/28/05, incorporated by
reference
3.3 Amendment to Bylaws as filed on form 8k, filed 1/17/07,
incorporated by reference
3.4 Certificate of Amendment to Articles of Incorporation as filed on
form 8k, filed 1/25/07, incorporated by reference
10.1 2007 Incentive and Non Statutory Stock Option Plan as filed on
form 8k, filed 2/1/07, incorporated by reference
10.2 Independent Consultant Stock Option Agreement dated as of July 1,
2005 between The Family Post and William Sawtell as filed on form
8k, filed 2/1/07, incorporated by reference
10.3 Employment Agreement and Stock Option Agreement dated as of March
15, 2006 between The Family Post and Samir Patel as filed on form
8k, filed 2/1/07, incorporated by reference
10.4 Executive Employment and Indemnification Agreement dated as of
January 30, 2007, between us and Michael Sawtell as filed on form
8k, filed 2/1/07, incorporated by reference
10.5 Executive Employment and Indemnification Agreement dated as of
January 30, 2007, between us and Steven Dong as filed on form 8k,
filed 2/1/07, incorporated by reference
10.6 Form Stock Subscription Agreement, Form Stock Option Agreement,
Form Amended Stock Subscription Agreement as filed on form 8k,
filed 2/1/07, incorporated by reference
14.1 Code of Business Conduct and Ethics as filed on form 8k, filed
1/30/07, as filed on form 8k, filed 2/1/07, incorporated by
reference
21.1 List of Subsidiaries of the Company, as filed on form 8k, filed
2/1/07, incorporated by reference
50
THE FAMILY POST, INC.
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
Financial Statements-
Report of Independent Registered Public Accounting Firm ............................................F-2
Balance Sheet as of December 31, 2006 and 2005 .....................................................F-3
Statement of Operations for the year ended December 31, 2006 and for the
period from July 14, 2005 (date of inception)
through December 31, 2005 ........................................................................F-4
Statement of Stockholders' Equity for the year ended December 31, 2006 and
for the period from July 14, 2005 (date of inception)
through December 31, 2005 ........................................................................F-5
Statement of Cash Flows for the year ended December 31, 2006 and for the
period from July 14, 2005 (date of inception)
through December 31, 2005 ........................................................................F-6
Notes to Financial Statements for the year ended December 31, 2006 and for
the period from July 14, 2005 (date of inception)
through December 31, 2005.........................................................................F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Family Post, Inc.
We have audited the accompanying balance sheets of The Family Post, Inc. (the
"Company"), a California S-corporation, as of December 31, 2006 and 2005, and
the related statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 2006 and for the period from July 14, 2005 (date of
inception) through December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Family Post, Inc. as of
December 31, 2006 and 2005, and the results of its operations and its cash flows
for the year ended December 31, 2006 and for the period from July 14, 2005 (date
of inception) through December 31, 2005, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred losses from operations and
negative cash flows from operations since inception and has limited working
capital. These and other matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding those
matters are also described in Note 2. The accompanying financial statements do
not include any adjustments that may result from the outcome of this
uncertainty.
As described in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 123R on January 1, 2006.
/s/ HASKELL & WHITE LLP
Irvine, California
April 27, 2007
F-2
THE FAMILY POST, INC.
BALANCE SHEET
DECEMBER 31, DECEMBER 31,
2006 2005
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 337,012 $ 37,741
----------- -----------
Total current assets
337,012 37,741
PROPERTY AND EQUIPMENT, NET 22,226 20,546
WEB SITE DEVELOPMENT COSTS, NET 88,184 81,868
OTHER ASSETS 575 5,575
----------- -----------
Total assets $ 447,997 $ 145,730
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 37,673 $ 17,094
Accrued expenses 15,494 2,503
Deferred revenue 8,160 --
Due to stockholder 101,477 54,845
----------- -----------
Total liabilities, all current
162,804 74,442
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY
Common Stock, no par value; 27,000,000
shares authorized; 14,483,851 and 9,700,000
shares issued and outstanding, respectively 1,234,918 278,000
Accumulated deficit (949,725) (206,712)
----------- -----------
Stockholders' equity 285,193 71,288
----------- -----------
Total liabilities and stockholders' equity $ 447,997 $ 145,730
=========== ===========
The accompanying notes to financial statements are
an integral part of this balance sheet.
F-3
THE FAMILY POST, INC.
STATEMENT OF OPERATIONS
Period From
Twelve Months Inception
Ended July 14, 2005
December 31, Through
2006 December 31, 2005
------------ ------------
REVENUES:
Subscription $ 13,881 $ 4,450
------------ ------------
Total Revenue 13,881 4,450
COST OF REVENUES:
Subscription 10,547 2,128
Total Cost of Revenue 10,547 2,158
------------ ------------
GROSS PROFIT 3,334 2,292
OPERATING EXPENSES:
Sales and marketing 171,702 36,506
General and administrative 574,321 164,546
------------ ------------
TOTAL OPERATING EXPENSES 746,023 201,052
LOSS FROM OPERATIONS (742,689) (198,760)
Other expenses, net (324) (7,952)
------------ ------------
NET LOSS $ (743,013) $ (206,712)
============ ============
WEIGHTED AVERAGE OUTSTANDING SHARES 11,900,650 4,117,778
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.062) $ (.050)
============ ============
The accompanying notes to financial statements are
an integral part of this statement.
F-4
THE FAMILY POST, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock, No Par Value Total
--------------------------- Accumulated Stockholders'
Shares Amount (Deficit) Equity
----------- ----------- ----------- -----------
Balance at July 14, 2005(Inception) -- $ -- $ -- $ --
Issuance of common stock for cash 9,700,000 268,000 -- 268,000
Non cash stock based compensation -- 10,000 -- 10,000
Net loss -- -- (206,712) (206,712)
----------- ----------- ----------- -----------
Balance at December 31, 2005 9,700,000 $ 278,000 $ (206,712) $ 71,288
=========== =========== =========== ===========
Issuance of common stock for cash 4,644,000 $ 895,000 $ -- $ 895,000
Issuance of common stock for services 74,700 14,940 -- 14,940
Issuance of common stock for exercise of options 65,151 6,515 -- 6,515
Financing cost related to issuance of common stock -- (46,500) -- (46,500)
Non cash stock based compensation -- 86,963 -- 86,963
Net loss -- -- (743,013) (743,013)
----------- ----------- ----------- -----------
Balance at December 31, 2006 14,483,851 $ 1,234,918 $ (949,725) $ 285,193
=========== =========== =========== ===========
The accompanying notes to financial statements are
an integral part of this statement.
F-5
THE FAMILY POST, INC.
STATEMENT OF CASH FLOWS
Period From
Inception,
Twelve Months July 14, 2005,
Ended through
December 31, December 31,
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (743,013) $ (206,712)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 33,658 3,930
Non-cash stock-based compensation 96,418 10,000
Changes in operating assets and liabilities:
Other assets 5,000 (5,575)
Accounts payable 13,579 17,094
Accrued expenses 12,991 2,503
Deferred revenue 8,160 --
Due to stockholder 46,632 54,845
------------ ------------
Net cash used by operating activities (526,575) (123,915)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (7,023) (22,091)
Acquisition and development of software (34,631) (84,254)
------------ ------------
Net cash used by investing activities (41,654) (106,345)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock 895,000 268,000
Financing costs (27,500) --
------------ ------------
Net cash provided by financing activities 867,500 268,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 299,271 37,741
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,741 --
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 337,012 $ 37,741
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes $ 800 $ --
============ ============
Cash paid for interest $ -- $ --
============ ============
Common stock issued for finders fees and services $ 21,455 $ --
============ ============
Financing costs included in accounts payable $ 7,000 $ --
============ ============
The accompanying notes to financial statements are
an integral part of this statement.
F-6
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND ORGANIZATION
The accompanying financial statements represent the accounts of The Family Post,
Inc. ("The Family Post", "TFP" or the "Company"), which is a California
S-corporation incorporated on July 14, 2005. The Family Post produces high-end
destination web sites that allow subscribers to securely share calendars,
photos, videos, message boards, and history. The Company's proprietary web site
administration system, Qwik-Post(TM), and online video uploading system,
Video-PostSM, allow users of personal computers to easily manage these "virtual
family rooms," and provide a permanent destination to display photo and video
memories, discussions, and history.
CASH AND CASH EQUIVALENTS
For purposes of reporting within the statement of cash flows, the Company
considers all cash on hand, cash accounts not subject to withdrawal restrictions
or penalties, and all highly liquid debt instruments purchased with a maturity
of three months or less to be cash and cash equivalents.
PROPERTY AND EQUIPMENT
The Company's property and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line method over estimated useful
lives of three to five years. Maintenance and repairs are charged to operations
when incurred. Significant betterments are capitalized and depreciated over the
estimated useful life of the related asset.
INTERNAL WEB SITE DEVELOPMENT COSTS
Under Emerging Issues TaskForce Statement 00-2, ACCOUNTING FOR WEB SITE
DEVELOPMENT COSTS ("EITF 00-2"), costs and expenses incurred during the planning
and operating stages of the Company's web site are expensed as incurred. Under
EITF 00-2, costs incurred in the web site application and infrastructure
development stages are capitalized by the Company and amortized to expense over
the web site's estimated useful life or period of benefit. As of December 31,
2006 and 2005, the Company had capitalized $88,184 and $81,868, respectively,
net of amortization related to its web site development.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred.
F-7
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
REVENUE RECOGNITION
Substantially all of the Company's subscription revenues are generated from
monthly subscriptions for web site hosting services. The typical subscription
agreement includes the usage of a personalized web site and hosting services.
The individual deliverables are not independent of each other and are not sold
or priced on a standalone basis. Costs to complete the web site and prepare it
for the use of end customer are minimal, and are expensed to cost of revenues as
incurred. Upon the completion of a customer's signup and initial hosting of the
web site, the subscription is offered free of charge for a 30-day trial period
during which the customer can cancel at anytime. In accordance with Staff
Accounting Bulletin ("SAB") No. 104, after the 30-day trial period has ended,
revenue is recognized when all of the following conditions are satisfied: (1)
there is persuasive evidence of an arrangement; (2) the service has been
provided to the customer; (3) the amount of fees to be paid by the customer is
fixed or determinable; and (4) the collection of the Company's fees is probable.
These criteria are met monthly as the Company's service is provided on a
month-to-month basis, and collections are generally made in advance of the
services. There is no provision for refunds as of December 31, 2006 and 2005, as
the Company's historical refund experience has been minimal.
Customers signup and agree to purchase the web site service on a monthly or
annual basis, at the customer's option. The monthly customers pay monthly in
advance of the services, and as the services are performed, the Company
recognizes subscription revenue on a monthly basis.
For annual customers, upon payment of a full year's subscription service, the
subscription revenue is recorded as deferred revenue in the accompanying balance
sheet. As services are performed, the Company recognizes subscription revenue
ratably on a monthly basis.
LOSS PER COMMON SHARE
Basic loss per share is computed by dividing the net loss attributable to the
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Fully diluted loss per share is computed similar
to basic loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive. Due to the anti-dilutive nature of the options, there is no effect on
the calculation of weighted average shares for diluted net loss per common
share. As a result, the basic and diluted net losses attributable per common
share amounts are identical. For the year ended December 31, 2006, and for the
period from inception, July 14, 2005, through December 31, 2005, the effect of
10,839,849 and 4,225,000, respectively, dilutive securities has been excluded
because their effect was anti-dilutive.
F-8
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
INCOME TAXES AND FRANCHISE TAXES
As a Sub-Chapter S Corporation, the Company is not subject to federal income
taxes. However, the Company is subject to a California state franchise tax of
$800 per year, plus fees based upon annual gross receipts. The taxable income or
loss and other tax attributes of the Company are included in the individual tax
returns of its members.
STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 123R, SHARE-BASED
PAYMENT, which addresses the accounting for employee stock options. SFAS No.
123R requires that the cost of all employee stock options, as well as other
equity-based compensation arrangements, be reflected in the financial statements
based on the estimated fair value of the awards. That cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award--the requisite service period (usually the vesting
period).
The Company adopted SFAS No. 123R on January 1, 2006, using the
modified-prospective transition method. Under the modified-prospective
transition method, prior periods of the Company's financial statements are not
restated for comparison purposes. In addition, the measurement, recognition and
attribution provisions of SFAS No. 123R apply to new grants and grants
outstanding on the adoption date. Estimated compensation expense for outstanding
grants at the adoption date will be recognized over the remaining vesting period
using the compensation expense calculated for the pro forma disclosure purposes
under SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. For the year ended
December 31, 2006 and for the period from inception July 14, 2005 to December
31, 2005, the Company's calculations were made using the Black-Scholes
option-pricing model with the following weighted average assumptions: expected
life of 4.5 years; 45 percent stock price volatility; risk-free interest rate of
4.4%; no dividends or forfeitures during the expected term. As a result of
adoption of SFAS No. 123R, the Company recognized employee stock option expense
of approximately $48,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using the
available market information and valuation methods. Considerable judgment is
required in estimating fair value. Accordingly, the estimates of fair value may
not be indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2006 and 2005, the carrying value of accounts
payable, a loan from a stockholder, and accrued liabilities approximated
fair value due to the short-term nature and maturity of these instruments.
F-9
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
CONCENTRATION OF RISK
As of December 31, 2006 and 2005, the Company maintained its cash account at one
commercial bank. The cash balance at December 31, 2006 exceeded
federally-insured limits by approximately $243,000. The cash balance at
December 31, 2005 was within the FDIC coverage.
ADVERTISING
Advertising and promotion costs are charged to operations when incurred. For the
year ended December 31, 2006, and for the period from inception, July 14, 2005,
through December 31, 2005, advertising and promotion costs amounted to $52,323,
and $9,125, respectively.
LEASE OBLIGATIONS
All non-cancellable leases with an initial term greater than one year are
categorized as either capital or operating leases. Assets recorded under capital
leases are amortized according to the same methods employed for property and
equipment or over the term of the related lease, if shorter.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives when events or circumstances lead management to
believe that the carrying value of an asset may not be recoverable. For the year
ended December 31, 2006, and for the period from inception, July 14, 2005,
through December 31, 2005, no events or circumstances occurred for which an
evaluation of the recoverability of long-lived assets was required.
DEFERRED FINANCE COSTS
The Company defers as other assets the direct incremental costs of raising
capital until such time as the offering is completed. At the time of the
completion of the offering, the costs are charged against the capital raised.
Should the offering be terminated, deferred offering costs are charged to
operations during the period in which the offering is terminated.
ESTIMATES
The financial statements are prepared on the basis of accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of December 31, 2006 and 2005, revenues and
expenses for the year ended December 31, 2006, and for the period from
inception, July 14, 2005, through December 31, 2005. Actual results could differ
from those estimates made by management.
F-10
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
(2) GOING CONCERN AND MANAGEMENT'S PLANS
During the period ended December 31, 2005, the Company was incorporated,
received working capital from its Chief Executive Officer and principal
stockholder in the amount of $168,000, and completed additional capital
formation activities to raise $100,000 from the sale of common stock. Subsequent
to December 31, 2005, through January 30, 2007, the Company completed additional
capital formation activities, and raised an aggregate amount of $895,000 from
the sale of 4,644,000 shares of its common stock. On January 30, 2007, the
Company completed the Merger (see further discussion in Note 11) to conduct
additional capital formation activities through the issuance of its common stock
as a source of capital to more aggressively market its products and services,
and increase its revenue generating activities. On April 3, 2007, the Company
agreed to a $4 million private placement for the issuance of up to 2.5 million
restricted common shares of the Company or $1.57 per share. As of April 27,
2007, the Company has received $500,000 of the $4 million private placement and
expects to complete the private placement during the second quarter of 2007.
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate the continuation of the Company as a going concern. The Company has
not established sufficient sources of revenue to cover its operating costs, and
as such, has incurred an operating loss since inception. Further, as of December
31, 2006, the cash resources of the Company were insufficient to meet its
current working capital needs and on going business plan. These and other
factors raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
----------------------
2006 2005
-------- --------
Computer equipment and software $ 23,500 $ 22,091
Furniture and fixtures 5,614 --
Less - accumulated depreciation and amortization (6,888) (1,545)
-------- --------
$ 22,226 $ 20,546
-------- --------
F-11
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
(4) WEB SITE DEVELOPMENT COSTS
Web site development costs consisted of the following:
December 31,
---------------------------
2006 2005
--------- ---------
Wesite development costs $ 118,885 $ 84,254
Less - accumulated amortization (30,701) (2,386)
--------- ---------
$ 88,184 $ 81,868
--------- ---------
(5) DUE TO STOCKHOLDER
As of December 31, 2006, $101,477 was due to an officer of the Company and
principal stockholder. The amount due to the officer was partially generated
from the officer's deferred salary. During the period ended December 31, 2005
and the month of January 2006, the Company did not pay the officer salary, which
amounted to $37,500 and $6,250, respectively. In November 2006, the officer also
made an advance to the Company for $50,000 cash which bears interest at 10% and
is due December 8, 2007. The Company also owes the officer for purchases of
computer equipment made on behalf of the Company in the amount of $17,345.
During the year ended December 31, 2006, no amounts were paid to the officer for
his deferred salary or $50,000 advance and $10,035 was paid as reimbursement to
him for computer equipment purchased on behalf of the Company.
(6) STOCKHOLDERS' EQUITY
AUTHORIZED SHARES
The Company's Amended and Restated Articles of Incorporation authorize the
issuance of common stock, no par value. The number of shares authorized is
27,000,000.
COMMON STOCK
During the period ended December 31, 2005, the Company issued 9,200,000 shares
of its common stock to its sole Director, Chief Executive Officer, and President
for cash in the amount of $168,000.
During the period ended December 31, 2005, the Company issued 500,000 shares of
its common stock to an unrelated party for cash in the amount of $100,000.
F-12
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
During the first quarter of 2006, the Company issued 1,187,500 shares of
restricted common stock for $237,500 in cash. The Company incurred a finder's
fee of $3,750 paid to a consultant and shareholder of the Company.
During the second quarter of 2006, the Company issued 1,106,500 shares of
restricted common stock for $187,500 in cash. The Company incurred a finder's
fee of $18,750 paid to an officer and consultant and shareholder of the Company.
During the third quarter of 2006, the Company issued 500,000 shares of
restricted common stock for $100,000 in cash. The Company incurred $5,000 of
financing cost related to a finder's fee paid to two officers of the Company.
During the fourth quarter of 2006, the Company issued 1,850,000 shares of
restricted common stock for $370,000 in cash. The Company incurred $19,000 of
financing cost related to a finder's fee paid to consultants of the Company. The
$19,000 finder's fee was paid with 60,000 shares of restricted stock of the
Company valued at $12,000 and cash of $7,000 that was paid subsequent to
year-end.
A shareholder of the Company also served as Consulting Chief Financial Officer
from March 2006 under a consulting agreement with a consulting firm owned by the
shareholder. During the year ended December 31, 2006, the Company issued 79,851
shares of restricted common stock for services rendered and options exercised
(See further discussion below in Note 8).
STOCK OPTION PLAN
During the period ended December 31, 2005, the Company granted stock options
under certain stock option agreements as approved, amended and administered by
the Board of Directors, which permitted the issuance of options for the purchase
of up to 4,225,000 shares of the Company's common stock.
During the year ended December 31, 2006, the Company granted stock options under
certain stock option agreements as approved, amended and administered by the
Board of Directors, which permitted the issuance of options for the purchase of
up to 6,480,000 shares of the Company's common stock.
Stock options granted under those certain stock option agreements were granted
at prices no less than the estimated fair value of the shares on the date of
grant as determined by the Board of Directors, provided, however, that (i) the
exercise price of an Incentive Stock Option ("ISO") and Non-statutory Stock
Options ("NSO") shall not be less than 100% of the estimated fair value of the
shares on the date of grant, respectively; and (ii) the exercise price of an ISO
and NSO granted to a 10% stockholder shall not be less than 110% of the
estimated fair value of the shares on the date of grant, respectively. ISO and
NSO stock options generally vest every twelve months, over a three-year period.
F-13
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
In accordance with the provisions of SFAS 123R, the Company recognized
stock-based compensation expense of $86,963 for the fiscal year ended December
31, 2006. The fair value of each option granted was estimated on the date of
grant using the Black-Scholes option-pricing model. The expected volatility is
based on historical volatility of the Company's stock. The risk-free rate is
based on the U.S. Treasury yield curve in effect at the time of grant. The
expected term of options granted is based on the remaining contractual life of
the option. The following weighted average assumptions were used for the options
granted during the year ended December 31, 2006 and period from inception July
14, 2005 to December 31, 2005:
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
2006 2005
-------------- ---------------
Expected volatility 45.0% 45.0%
Risk-free rate 4.69% 4.39%
Expected Term 4.5 years 4.5 years
A summary of stock option activity from the Company's inception through December
31, 2006, was as follows:
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE REMAINING AGGREGATE
NUMBER OF EXERCISE CONTRACTUAL INTRINSIC
SHARES PRICE TERM VALUE
----------- ----------- ----------- -----------
Outstanding as of July --
14, 2005
Granted 4,425,000 $ 0.13
----------- -----------
Outstanding as of
December 31, 2005 4,425,000 $ 0.13
Granted 6,480,000 $ 0.20
Exercised (65,151) $ 0.10
----------- -----------
Outstanding as of
December 31, 2006 10,839,849 $ 0.18 8.71 $ 697,021
===========
A summary of the status of the Company's nonvested shares is presented below:
F-14
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
WEIGHTED-
AVERAGE
NUMBER OF GRANT DATE
SHARES FAIR VALUE
-------------- ----------------
Nonvested as of July 14, 2005 -- $ --
Granted 4,425,000 $ 0.13
Vested -- $ --
--------------
Nonvested as of December 31, 2005 4,425,000 $ 0.13
Granted 6,480,000 $ 0.20
Vested 2,214,895 $ 0.13
Exercised (65,151) $ 0.10
-------------- ---------
Nonvested as of December 31, 2006 8,624,954 $ 0.18
============== =========
Information regarding the weighted-average remaining contractual life and
weighted-average exercise price of options outstanding and options exercisable
at December 31, 2006, for selected price ranges is as follows:
Options Outstanding Options Exercisable
------------------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Number Contractual Price Number Price
Prices Outstanding Life (in Years) per Share Exercisable per Share
- ---------- ----------- --------------- --------- ----------- ---------
$ 0.10-.30 10,839,849 8.7 $ 0.18 2,214,895 $ 0.13
----------- -----------
10,839,849 $ 0.18 2,214,895 $ 0.13
=========== ===========
As disclosed in Note 1, the Company applies SFAS No. 123R in accounting for its
stock-based awards effective January 1, 2006.
Prior to January 1, 2006, the Company accounted for stock-based compensation
based on the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), as amended by FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44"). APB No. 25 and FIN 44 state that no compensation
expense is recorded for stock options or other stock-based awards to employees
that are granted with an exercise price equal to or above the estimated fair
value per share of the Company's common stock on the grant date. There is no
material difference between the Company's reported net loss for the period from
inception, July 14, 2005, through December 31, 2005, and the Company's proforma
net loss computed as if the fair value provisions of Statement of Financial
Accounting Standards No. 123 had been applied.
(7) INCOME TAXES
As a Sub-Chapter S Corporation, the Company is not subject to federal income
taxes. However, the Company is subject to a California state franchise tax of
$800 per year, plus fees based upon annual gross receipts. The taxable income or
loss of the Company and other tax attributes are included in the individual tax
returns of its shareholders.
F-15
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
(8) RELATED PARTY TRANSACTIONS
As described in Note 5, as of December 31, 2006, the Company owed $101,477 to an
individual who is the Sole Director, Chief Executive Officer, President and
principal stockholder of the Company.
Commencing in March 2006, a shareholder of the Company also served as a
Consulting Chief Financial Officer under a consulting agreement with a
consulting firm owned the shareholder. The consulting agreement paid the
consulting firm an hourly rate of $100 per hour, payable partially in stock and
exercised stock options. The consulting agreement granted the firm an option to
purchase 400,000 common shares of the Company, which the Company recorded
approximately $11,000 as an expense during the year ended December 31, 2006.
From March 2006 through May 2006, for consulting services rendered, the
consulting firm received $1,770 cash proceeds, 14,700 shares of the Company's
restricted stock valued at $2,940 and 39,200 exercised options valued at $3,920.
Effective July 2006, the hourly rate was changed to $65 per hour. From July 2006
to December 2006, for consulting services rendered, the consulting firm received
$8,504 cash proceeds and 25,951 exercised options valued at $2,950. The
consulting agreement also provides a cash finder's fees of 10% of any gross
proceeds raised through an introduction made by consultant and has been amended
to provide for a cash finder's fees of 7.5% in the future.
During October 2006, the Company applied for and obtained an unsecured line of
credit from a financial institution in the amount of $20,000, which incurs
interest at 14% annually. The line of credit is personally guaranteed by the
Company's Chief Executive Officer and principal stockholder and the wife of the
Chief Executive Officer. No amount was owed under the line of credit as of
December 31, 2006.
During November 2006, the Chief Executive Officer and principal shareholder
advanced the Company $50,000 in cash that was recorded as advance due to
stockholder (See further discussion above in Note 5). As of December 31, 2006,
the $50,000 advance had not been repaid.
During January 2007, the Company re-priced all investor rounds, of which, the
Chief Executive Officer and Consulting Chief Financial Officer were included
(See further discussion below in Note 12).
(9) COMMITMENTS
In February 2006, the Company entered into a one year lease for its principal
offices. Monthly rent is $2,200 under this lease and the lease expired February
28, 2007. For the year ended December 31, 2006, principal office lease expense
amounted to $29,674.
In February 2007, the Company had entered into a two year lease for its new
principal offices. Monthly rent is $6,153.
F-16
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
Pursuant to the office lease agreement, total rental payments of $65,930 are due
through December 31, 2007; total payments of $75,266 are due through December
31, 2008; and; total payments of $12,592 are due through December 31, 2009.
(10) RECENT ACCOUNTING PRONOUNCEMENTS
In March 2006, the FASB issued SFAS No. 156, "ACCOUNTING FOR SERVICING OF
FINANCIAL ASSETS," ("SFAS No. 156"), which amends SFAS No. 140," ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES."
In a significant change to current guidance, SFAS No. 156 permits an entity to
choose either of the following subsequent measurement methods for each class of
separately recognized servicing assets and servicing liabilities: (1)
Amortization Method or (2) Fair Value Measurement Method. SFAS No. 156 is
effective as of the beginning of an entity's first fiscal year that begins after
September 15, 2006. The Company is currently reviewing the effect, if any, that
this new pronouncement will have on its financial statements.
In June 2006, the FASB issued SFAS Board Interpretation No. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN
48"), which clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with FASB No. 109. The
interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is currently reviewing the
effect, if any, that this new guidance with have on its financial statements.
In September 2006, the FASB issued SFAS No. 157, "FAIR VALUE MEASUREMENTS." This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement applies under other accounting pronouncements
that require or permit fair value measurement, the FASB having previously
concluded in those accounting pronouncement that fair value is the relevant
measurement attribute. This statement does not require any new fair value
measurements. However, for some entities, the application of the statement will
change current practice. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Company is currently reviewing the effect, if
any, that this new pronouncement will have on its financial statements.
F-17
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
In September 2006, the FASB issued SFAS No. 158, "EMPLOYERS' ACCOUNTING FOR
DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88, 106 AND 123(R)." This statement improves financial
reporting by requiring an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a multi-employer
plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in unrestricted net
assets for a not-for-profit organization. This statement also improves financial
reporting by requiring an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. The Company does not expect the adoption of this pronouncement to
have a material impact on its financial statements.
In February 2007, the FASB issued SFAS No. 159, "THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES--INCLUDING AN AMENDMENT OF SFAS
NO.115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES", which
applies to all entities with available-for-sale and trading securities. This
Statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement is
effective as of the beginning of an entity's first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the Company also
elects to apply the provisions of FASB Statement No. 157, Fair Value
Measurements. The Company plans to adopt SFAS No. 159 effective January 1, 2008.
The Company is in the process of determining the effect, if any, the adoption of
SFAS No. 159 will have on its Financial Statements.
(11) MERGER
On December 18, 2006, the Company entered into a letter of intent ("LOI") with a
publicly held company ("PubCo.") whereby PubCo. agreed to exchange 54,600,000
restricted common shares for all the outstanding shares of the Company
("Merger") to assist the Company in raising additional capital through equity or
debt financing. Under terms of the LOI, PubCo. would acquire 100 percent of the
issued and outstanding common stock of the Company in exchange for 54,600,000
shares of common stock of PubCo. which, upon their issuance, would be equal to
75 percent of the issued and outstanding shares of common stock of PubCo. As
provided in the LOI, the Merger is subject to the satisfaction of certain
conditions, including approval by the stockholders of the respective companies.
The Merger transaction is considered to be a capital transaction in substance
(reverse merger) rather than a business combination. The Merger transaction is
equivalent to the issuance of stock by the Company for the net monetary assets
of the PubCo., accompanied by a recapitalization. The Merger transaction would
be accounted for as a reverse acquisition of a "shell company" whereby the
Company would be the accounting acquirer and PubCo. would be the legal acquirer.
In such a transaction, no goodwill or other intangible assets would be recorded.
Costs and expenses of the Merger would also be expensed as incurred.
F-18
The Family Post, Inc.
Notes to Financial Statements
December 31, 2006 and 2005
On January 30, 2007, the Merger closed whereby the Company was acquired by
PubCo., through its wholly owned subsidiary TFP Sub, Inc. The acquisition
occurred pursuant an agreement and plan of merger dated January 16, 2007.
The unaudited condensed combined pro forma supplemental information for the year
December 31, 2006 and for the period from inception July 14, 2005 to December
31, 2005 are presented as if the Merger had occurred on January 1, 2006:
Year ended Period From July
December 31, 14, 2005 to
2006 December 31, 2005
(unaudited) (unaudited)
------------ -------------
Total Revenue $ 13,881 $ 4,450
Net loss $ (812,940) $ (209,003)
============ ============
Basic and Diluted Loss Per Share $ (.008) $ (.004)
============ ============
Weighted average common shares
outstanding - basic and diluted 11,900,650 4,117,778
============ ============
Because the Merger was with an entity that was in substance a non-operating
shell company, the impact to the Company's balance sheet as of December 31, 2006
and 2005 was not material.
(12) SUBSEQUENT EVENTS
During January 2007, the Company re-priced all common stock investor rounds made
since July 14, 2005, the date of inception of the Company, and cancelled related
stock options issued with those related investments. As a result, the Company
issued an additional 1,959,283 shares of common stock to its investors and
cancelled options to purchase 3,175,000 shares of common stock of the Company.
As part of the 1,959,283 new shares issued, 1,500,000 shares of common stock
were issued to the Chief Executive Officer, and as part of the options to
purchase 3,175,000 shares cancelled, 2,000,000 options were held by the Chief
Executive Officer, and were cancelled as part of this transaction. As part of
the 1,959,283 new shares of common stock issued, 58,824 shares were returned
back to the Company by the Consulting Chief Financial Officer, and as part of
the options to purchase 3,175,000 shares cancelled, 100,000 options were held by
the Consulting Chief Financial Officer, and were cancelled as part of the this
transaction.
On January 30, 2007, the Company completed the Merger with PubCo. (See further
discussion above in Note 11).
On April 3, 2007, the Company agreed to a $4 million private placement for the
issuance of up to 2.5 million restricted common shares of the Company or $1.57
per share. As of April 27, 2007,, the Company has received $500,000 of the $4
million private placement and expects to complete the private placement during
the second quarter of 2007.
F-19
THE FAMILY POST, INC. AND HOMASSIST CORPORATION
UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are
based on the historical financial statements of The Family Post, Inc. (Old TFP)
and HomAssist Corporation (HomAssist) and have been prepared to illustrate the
effects of the acquisition of Old TFP under terms of the Merger. The following
data is presented as if the merger of Old TFP and HomAssist (the "Merger") was
effective as of December 31, 2006 for the unaudited pro forma condensed combined
balance sheet. The unaudited condensed combined pro forma statements of
operations for the year ended December 31, 2006 and 2005 are presented as if the
Merger had occurred on January 1, 2005.
On January 25, 2007, HomAssist changed its year end from January 31 st to
December 31st . Prior to that, the fiscal year for HomAssist is January 31, as a
result, these unaudited condensed combined proforma financial statements were
prepared using HomAssist's audited condensed balance sheet as of December 31,
2006 and audited statements of operations for the eleven months ended December
31, 2006 and for the period from July 15, 2004 (date of inception) through
January 31, 2005. The accompanying unaudited condensed combined pro forma
financial statements were prepared in accordance with Article 11 of Regulation
S-X.
This unaudited condensed combined pro forma financial information reflects the
Merger as a capital transaction whereby Old TFP would be the accounting acquirer
and HomAssist would be the legal acquirer under the purchase method of
accounting for business combinations in accordance with Statement of Financial
Accounting Standards No. 141, "Business Combinations." Under the purchase method
of accounting, the total estimated purchase price will be allocated to the net
tangible assets acquired and liabilities assumed in connection with the Merger,
based on their estimated fair values as of the completion of the Merger, taking
into account the intended issuance of HomAssists remaining assets and the
settlement of its outstanding liabilities upon consummation of the Merger. The
Merger is equivalent to the issuance of stock by Old TFP for the net monetary
assets of HomAssist, accompanied by a recapitalization. Subsequent to the
Merger, reported historical financial condition and results of operations of the
combined group shown for comparative purposes in periodic filings will reflect
Old TFP's operations only.
The pro forma data presented herein is for informational purposes only and is
not intended to represent or be indicative of the results of operations or
financial condition of the combined entities that would have been reported had
the proposed transaction been completed as of the dates presented, and should
not be taken as representative of future results of operations or financial
condition of the combined group.
The unaudited condensed combined pro forma financial statements should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements, including
the related notes, of HomAssist covering these periods included in HomeAssist's
Annual Report on Form 10-KSB for the fiscal year ended January 31, 2006 and
eleven months ended December 31, 2006, as well as the historical financial
statements of Old TFP included elsewhere in this report.
F-20
THE FAMILY POST, INC. AND HOMASSIST CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2006
Condensed
Proforma Combined
Old TFP HomAssist Adjustments ProForma
(audited) (audited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 337,012 $ -- $ -- $ 337,012
Other current assets -- -- -- --
----------- ----------- ----------- -----------
Total current assets 337,012 -- -- 337,012
PROPERTY AND EQUIPMENT, NET 22,226 -- -- 22,226
WEBSITE DEVELOPMENT COSTS, NET 88,184 -- -- 88,184
OTHER ASSETS 575 -- -- 575
----------- ----------- ----------- -----------
Total assets $ 447,997 $ -- $ -- $ 447,997
=========== =========== =========== ===========
CURRENT LIABILITIES
Accounts payable $ 37,673 $ -- $ -- $ 37,673
Accrued expenses 15,494 -- -- 15,494
Deferred revenue 8,160 -- -- 8,160
Due to shareholder 101,477 -- -- 101,477
----------- ----------- ----------- -----------
Total current liabilities 162,804 -- -- 162,804
----------- ----------- ----------- -----------
Total liabilities 162,804 -- -- 162,804
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value; 20,000,000
shares authorized; no shares issued
and outstanding -- -- -- --
Common Stock, $.001 par value; 480,000,000
shares authorized; 52,833,385
shares issued and outstanding 1,234,918 72,800 (1,254,885) A,B 52,833
Additional paid in capital -- 9,200 1,172,885 A,B 1,182,085
Accumulated deficit (949,725) (82,000) 82,000 A,B (949,725)
----------- ----------- ----------- -----------
Stockholders' equity 285,193 -- -- 285,193
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 447,997 $ -- $ -- $ 447,997
=========== =========== =========== ===========
See notes to unaudited pro forma condensed combined financial statements.
F-21
THE FAMILY POST, INC. AND HOMASSIST CORPORATION.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THE PERIOD JULY 14, 2005, DATE OF INCEPTION, THROUGH DECEMBER 31, 2005
Condensed
Proforma Combined
HomAssist Adjustments ProForma
Old TFP (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------
REVENUES:
Subscription $ 4,450 $ -- $ -- $ 4,450
------------ ------------ ------------ ------------
Total Revenue
4,450 -- -- 4,450
COST OF REVENUES:
Subscription 2,158 -- -- 2,158
------------ ------------ ------------ ------------
Total Cost of Revenue 2,158 -- -- 2,158
------------ ------------ ------------ ------------
GROSS PROFIT 2,292 -- -- 2,292
OPERATING EXPENSES:
Sales and marketing 36,506 -- -- 36,506
Sales, general and administrative 164,546 2,291 -- 166,837
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 201,052 2,291 -- 203,343
LOSS FROM OPERATIONS (198,760) (2,291) -- (201,051)
Other (expenses) income, net (7,952) -- -- (7,952)
------------ ------------ ------------ ------------
NET LOSS $ (206,712) $ (2,291) $ -- $ (209,003)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.050) $ Nil $ -- $ (.004)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUSTANDING - BASIC AND DILUTED
4,117,778 53,301,875 C -- 53,301,875
============ ============ ============ ============
_______________
* Per share data of Old TFP on pre Merger basis.
See notes to unaudited pro forma condensed combined financial statements.
F-22
THE FAMILY POST, INC. AND HOMASSIST CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
Condensed
Proforma Combined
Old TFP HomAssist Adjustments ProForma
(audited) (audited) (unaudited) (unaudited)
------------ ------------ ------------ ------------
REVENUES:
Subscription $ 13,881 $ -- $ -- $ 13,881
------------ ------------ ------------ ------------
Total Revenue 13,881 -- -- 13,881
COST OF REVENUES:
Subscription 10,547 -- -- 10,547
------------ ------------ ------------ ------------
Total Cost of Revenue 10,547 -- -- 10,547
------------ ------------ ------------ ------------
GROSS PROFIT 3,334 -- -- 3,334
OPERATING EXPENSES:
Sales and Marketing ` 19,300 -- 191,002
General and administrative 574,321 31,706 -- 621,938
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 746,023 51,006 -- 812,940
LOSS FROM OPERATIONS (742,689) (51,006) -- (809,606)
Other (expenses) income, net (324) -- -- (2,549)
------------ ------------ ------------ ------------
NET LOSS $ (743,013) $ (51,006) $ -- $ (812,155)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.062) $ (.001) $ -- $ (.008)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC AND DILUTED 11,900,650 71,819,162 -- 71,819,162
============ ============ ============ ============
__________________
* Per share data of Old TFP on pre Merger basis.
See notes to unaudited pro forma condensed combined financial statements.
F-23
THE FAMILY POST, INC. AND HOMASSIST CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
On January 30, 2007, HomAssist Corporation, a publicly held Neveda
corporation (HomAssist) acquired The Family Post, Inc. a privately held
California corporation ("Old TFP"), pursuant to an agreement and plan of merger,
dated as of January 16, 2007, as amended (the "Merger Agreement"), by and among
HomAssist, Old TFP and HomAssist's wholly-owned subsidiary ("Merger Sub"),
providing for the merger of Merger Sub and Old TFP, with Old TFP being the
surviving corporation and becoming HomAssists wholly-owned subsidiary (the
"Merger"). Immediately following the Merger, HomeAssist changed its name to
DigitalPost Interactive, Inc. ("DPI", the Merger Sub changing its name to The
Family Post, Inc. ("New TFP"), and DPI began operating New TFPs business of
Internet content sharing.
Effective upon the closing of the Merger, the directors elected at the
special meeting, who comprise all of the then current HomAssist directors
resigned and the sole director of OLD TFP became the new sole director of DPI.
As part of the Merger, HomAssist also adopted the existing option agreements
("Old TFP Option Agreements") outstanding under which options to purchase shares
of common stock of Old TFP outstanding prior to the Merger were converted into
options to purchase shares of common stock of DPI. Just prior to the Merger,
there were 16,478,175 common shares of Old TFP issued and outstanding and
options to purchase 7,724,850 common shares of OLD TFP granted under Old TFP
Option Agreements.
As part of the Merger effective January 30, 2007, we issued 37,173,385
shares of our common stock to the former stockholders of Old TFP in exchange for
all of the issued and outstanding shares of common stock of Old TFP. Also, as
part of the Merger, we cancelled 57,140,000 shares of our common stock held by
HomAssist stockholders. Also, as part of the Merger, in exchange for options to
purchase 7,724,850 shares of Old TFP common stock, we issued to the holders
thereof options to purchase an aggregate of 17,426,615 shares of our common
stock under the same terms and conditions as the Old TFP Option Agreements. As a
result of the Merger, the former stockholders of Old TFP became holders of DPI
common stock, and holders of Old TFP options became holders of options to
acquire shares of DPI common stock.
Following the Merger, there were 52,833,385 shares of DPI common stock
outstanding, of which the pre-Merger stockholders of HomAssist owned
approximately 29.6% and the pre-Merger stockholders of Old TFP owned
approximately 70.4%. As a result, Old TFP has been treated as the acquiring
company for accounting purposes. The Merger has been accounted for as a reverse
acquisition under the purchase method of accounting for business combinations in
accordance with generally accepted accounting principles in the United States of
America, or "U.S. GAAP." Reported results of operations of the combined group
issued after completion of the transaction will reflect Old TFP's operations.
2. PRO FORMA ADJUSTMENTS
(A) To record (i) the issuance of 37,173,385 shares of HomAssist
common stock to Old TFP stockholders upon the consummation of the
Merger; (ii) the cancellation of 57,140,000 shares of HomAssist
common stock held by HomAssist stockholders upon the consummation
of the Merger and (iii) the eliminations of Old TFP's common
stock and HomAssist's accumulated deficit.
(B) The Merger Sub was incorporated January 10, 2007, for the sole
purpose of facilitating the Merger. The Merger Sub had no
assets, no liabilities and immaterial capital, as such, is not
included as a separate entity in this Pro Forma.
(C) The weighted average shares outstanding for HomAssist reflects a
forward split of its common stock of 26:1 done on or about
August 14, 2006.
F-24