REGISTRATION NO. 333-97687
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
SearchHelp, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 7380 11-3621755
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(State of Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
1055 Stewart Avenue, Suite 12, Bethpage, New York 11714
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(Address and Telephone Number of Principal Executive Offices)
1055 Stewart Avenue, Suite 12, Bethpage, New York 11714
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(Address of Principal Place of Business)
William Bozsnyak, Chief Executive Officer
SearchHelp, Inc.
1055 Stewart Avenue, Suite 12, Bethpage, New York 11714 (516) 922-4765
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(Name, Address and Telephone Number of Agent for Service)
Copies to:
Stephen Rosenberg, Esq.
Ralph A. Siciliano, Esq.
Tannenbaum Helpern Syracuse & Hirschtritt LLP
900 Third Avenue, 13th Floor
New York, NY 10022
Phone: (212) 508-6700
Facsimile: (212) 371-1084
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, checking the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
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CALCULATION OF REGISTRATION FEE
==================================== ======================== ======================== ========================== ==================
TITLE OF EACH PROPOSED PROPOSED
CLASS OF DOLLAR MAXIMUM MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT PRICE FEE(3)
- ------------------------------------ ------------------------ ------------------------ -------------------------- ------------------
Units $4,000,000 $.50 per Unit $4,000,000 -
Common Stock,
$.0001 par value(1) $3,840,000 $.48 per Share $3,840,000 $368
Common Stock
Class A Redeemable Warrants(2) $ 80,000 $.01 per Warrant $ 80,000 -
Common Stock, $.0001 par value,
Issuable on Exercise of
Class A Redeemable Warrants $6,000,000 $.75 per Share $6,000,000 $552
Common Stock
Class B Redeemable Warrants(2) $ 80,000 $.01 per Warrant $ 80,000 -
Common Stock, $.001 par value,
Issuable on Exercise of
Class B Redeemable Warrants $14,000,000 $1.75 per Share $14,000,000 $1,288
==================================== ======================== ======================== ========================== ==================
(1) This registration statement also covers an indeterminate number of shares of
SearchHelp, Inc.'s common stock, par value $.0001 per share, that may be
issuable by reason of stock splits, stock dividends or other adjustment
provisions of the respective warrants in accordance with Rule 416 under the
Securities Act of 1933, as amended.
(2) Included in Units for the purpose of calculating the registration fee.
(3) These Registration fees were paid with filing of original Registration
Statement.
SEARCHHELP, INC.
This Post-Effective Amendment No. 5 has been prepared to provide current
information to the holders of warrants to purchase our common stock in order to
assist them in making the decision of whether or not to exercise their warrants.
This Post-Effective Amendment No. 5 should be read in conjunction with our
prospectus, and particularly the risk factors described in the prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS OR THIS POST-EFFECTIVE AMENDMENT NO. 5.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
RISK FACTORS...................................................................4
OUR OUTSTANDING SECURITIES.....................................................7
SUMMARY OF FINANCIAL DATA......................................................7
NOTE REGARDING FORWARD LOOKING STATEMENTS......................................8
CAPITALIZATION.................................................................9
FINANCING TRANSACTIONS.........................................................9
BUSINESS......................................................................10
MANAGEMENT....................................................................14
FINANCIAL STATEMENT...........................................................18
3
RISK FACTORS
AN INVESTOR SHOULD BE ABLE TO BEAR A COMPLETE LOSS OF ITS INVESTMENT IN THE
COMPANY AND SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER RISK
FACTORS IN OUR PROSPECTUS AND OTHER INFORMATION IN THIS POST-EFFECTIVE AMENDMENT
NO. 5 AND OUR PROSPECTUS BEFORE DECIDING TO EXERCISE ITS WARRANTS.
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO OPERATE AS A GOING CONCERN; OUR SHARES
MAY HAVE NO VALUE
We completed a public offering of 2,474,000 units in July 2003 for total
gross proceeds of $1,237,000. We spent most of the funds raised to pay off debt
and accounts payable and used the balance for working capital.
We have earned less than $21,000 in revenues from inception through
December 31, 2003 and $592 as of March 31, 2004. As of December 31, 2003 and
March 31, 2004, we had a stockholders' capital deficiency of $35,123 and $
816,875 and a working capital deficiency of $145,556 and $171,209, respectively.
We began a best efforts private offering in September 2003 for a maximum of
2,400,000 shares of our common stock at $.25 per share, a total of $600,000. Due
to the delay in launching our products, we amended this offering in March 2004
to increase the number of shares of common stock to 7,200,000 shares and the
amount to be raised to a total of $1,800,000. If raised, the additional funds
will allow us to continue to operate for the next nine months even if we are
unable to generate revenues. However, if less than that amount is raised, it is
unlikely that we will be able to continue operations.
We are a developmental stage company and the risk that we may not be able
to operate as a going concern is discussed by our accountants in our financial
statements.
A PORTION OF OUR INDOOR AIR QUALITY LINE OF BUSINESS MAY REQUIRE US TO REGISTER
AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED
We are not registered and do not intend to register as an investment
company under the Company Act, or any similar state laws. As part of our planned
IAQ business, we entered into an agreement with Environmental Commercial
Technology Corp. to acquire for cash and securities an interest in the revenues
from a mold remediation product. If we do not undertake substantial additional
activities in connection with the product, it is possible that our investment in
the product could be viewed as an investment company activity. We do not believe
that our planned activity will constitute investment in securities and,
therefore, will not cause us to be subject to regulation as an "investment
company." We may however be required to register as an investment company in
order to undertake this investment. If this were to occur, our day-to-day
operations would then become subject to the regulatory and disclosure
requirements imposed by the Investment Company Act of 1940. We do not have the
infrastructure to operate as an investment company and would not be able to
continue doing business. Although there is a safe harbor exemption in the
Investment Company Act of 1940 that would allow us to use up to 40% of our
non-cash assets towards such investments, even if such investments were deemed
to be a security investment activity, it is unlikely that we will be able to
avail ourselves of such safe harbor exemption.
IN ADDITION TO GENERAL ECONOMIC CONDITIONS, OUR SUCCESS DEPENDS ON THE GROWING
AWARENESS OF THE NEED FOR CHILD SAFETY WHILE ON THE INTERNET AND THE GROWING
AWARENESS OF THE NEED FOR HEALTHY INDOOR AIR QUALITY
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We cannot assure investors that our business strategy will be successful or
that it will successfully address these risks. Our initial success will depend
almost entirely upon the acceptance of our products and services by parents with
children under the age of 17, elementary and middle schools, media companies and
households. Market acceptance will depend upon several factors, particularly (i)
the determination by parents that they need and want to monitor and protect
their children while on the Internet, (ii) the determination by schools that
they want to educate and inform their families about the need for monitoring and
knowing what their children do while on the Internet, (iii) the recognition by
home owners of the need to be concerned about home's indoor air quality and (iv)
the awareness of mold as a growing health concern.
A number of factors may inhibit acceptance, including (i) the existence of
competing products, (ii) our inability to convince families that they need to
pay for the products and services which we will offer, or (iii) failure by
households and service companies to use our products.
We have used a substantial amount of our resources to acquire an interest
in the mold remediation product. We have paid $500,000 in cash and are required
to pay an additional $100,000 in cash. We have also issued 2,300,000 shares of
our common stock and issued warrants to purchase 2,300,000 shares of our common
stock. This is a substantial commitment of our resources and we will not achieve
any substantial benefit unless the product is effective for its intended
purposes and achieves wide market acceptance and sales within a relatively short
period of time. There can be no assurance that we will earn a profit on the
product or even receive a return of any portion of its investment, all of which
could be lost. We are required to effectuate and pay the costs of a registration
statement with Securities and Exchange Commission for the shares issued and the
shares underlying the warrants issued to Environmental Commercial Technology
Corp. and its parent by September 1, 2004. If we are not successful in
registering these securities by that date, the agreement allows the warrant
exercise price to be reduced in stages from $0.33 per share at September 1, 2004
to a low of $0.01 at January 1, 2006. If the registration statement is not
effective by January 1, 2005, both ECT and its parent may cancel the agreement
and keep half of the common shares issued; but, they must surrender the warrants
and refund the cash to the Company.
ENVIRONMENTAL COMMERCIAL TECHNOLOGY CORP. MAY NOT MEET ITS OBLIGATIONS
Even if the product is effective for its intended purposes, there is a
substantial risk that Environmental Commercial Technology Corp. may not be able
to perform adequately, that it may not be effective in marketing the product,
that its own rights may be challenged or that it will fail to comply with its
obligations, both monetary and otherwise, to us. Were any of these possibilities
to occur, we might suffer the loss of our investment in the product.
5
WE WILL FACE COMPETITIVE PRESSURES
We will compete, in all of our proposed businesses, with other companies,
some of whom have far greater resources and experience than us. There are
established competitors and there is ease of market entry for other companies
who choose to compete with us.
Effective competition could result in price reductions, reduced margins or
loss of market share, any of which could adversely affect our business and
chances for success.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of these potential
competitors are likely to enjoy substantial competitive advantages, including:
larger technical staffs, greater name recognition, larger customer bases and
substantially greater financial, marketing, technical and other resources.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and competitors'
innovations by continuing to enhance its services and sales and marketing
channels. Any pricing pressures, reduced margins or loss of market share
resulting from increased competition, or our failure to compete effectively,
could seriously damage our business and chances for success.
EVEN THOUGH SOME MARKET RESEARCH HAS BEEN CONDUCTED WITH RESPECT TO THE
POTENTIAL RECEPTION FOR THE PRODUCTS IN WHICH WE HAVE AN INTEREST WILL BE
RECEIVED FAVORABLY BY OUR TARGET MARKETS, THE STUDIES MAY NOT BE ACCURATE
WE MAY BE EXPOSED TO LIABILITY IN OUR INDOOR AIR QUALITY BUSINESS OR IN
CONNECTION WITH FAMILYSAFE SENTRY PRODUCTS
We intend to operate in areas which affect the health and safety of
individuals and families. It is our intention to improve such health and safety.
However, if any person should be harmed, notwithstanding the use of our products
or services, we may be sued on various grounds including product liability or
negligence. We may seek to place in force insurance to protect it against such
potential liability, but even if we do so, we may be faced with heavy litigation
costs and possible awards for damages, any of which would severely burden our
financial position and stability.
WE COULD EXPERIENCE EXTREMELY HIGH TECHNICAL SUPPORT NEEDS FOR OUR FAMILYSAFE
SENTRY CHILD SOFTWARE PRODUCTS WHICH COULD HARM OUR BUSINESS AND REPUTATION
To succeed with our Sentry child software plans, we must be certain that
the products experience a low need for technical support. Our success in this
area depends on ease of use and customer satisfaction. Our operations depend
upon its ability to protect its network infrastructure and equipment and to keep
its information updated and correct.
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Although we have sought to build redundancy into our network and hosting
infrastructure, we could experience interruptions in service and partial system
failures due to routing problems, hard drive failures, database corruption and
other computer failures. Any of these problems could seriously damage our
business.
OUR OUTSTANDING SECURITIES
As of April 29, 2004, we had outstanding:
* 26,739,000 shares of our common stock, par value $.0001 per share;
* 2,474,000 class A warrants;
* 2,474,000 class B warrants;
* 247,400 placement agent warrants for (x) one share of our common
stock, (y) class A warrants to purchase one share of common stock exercisable at
$.985 and (z) class B warrant to purchase one share of common stock exercisable
at $2.285 per share, at a purchase price of $.985 per unit; and
* A warrant granted to a licensor and its parent company to acquire
2,300,000 common shares at $0.33 per share.
In addition, a placement agent earned, but has not been issued warrants to
acquire 111,200 shares of our common stock at $0.30 per share.
In March 2004, options to purchase an aggregate of 220,000 shares of our
common stock, exercisable at $.25 per share, were granted to two officers under
our 2004 Stock Plan and an option to purchase 750,000 shares of common stock,
exercisable at $.25 per share, was granted to one of our directors an option to
purchase 750,000 shares of our common stock, exercisable at $ .62 per share, was
also granted to a consultant, both were outside of the 2004 Stock Plan.
The common stock, class A warrants and class B warrants are each quoted on
the Over-the-Counter Bulletin Board and trade, respectively, under the symbols
SHLP, SHLPW and SHLPZ. As of April 29, 2004, they had respective market prices
of $.76, $.18 and $.8.
SUMMARY OF FINANCIAL DATA
The following tables set forth certain summary financial data for
SearchHelp. You should read this information together with the financial
statements and the notes to the statements contained in our filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, particularly our Form 10-KSB for the year ending December 31, 2003 and
March 31, 2004.
OR THE FISCAL YEAR ENDED FOR THE THREE MONTHS ENDED
STATEMENT OF OPERATIONS DATA: DECEMBER 31, 2003 MARCH 31, 2004
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Revenues $4,556 $592
Loss from operations (862,700) (310,504)
Net loss (1,068,433) (310,987)
Net loss attributable to stockholders (1,068,433) (310,987)
Basic and diluted net loss per share ($0.06) ($0.01)
Weighted average shares outstanding used in basic and 17,518,014 24,683,198
diluted net loss per share calculation
BALANCE SHEET DATA: DECEMBER 31, 2003 MARCH 31, 2004
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Cash and cash equivalents $271,800 $152,441
Working capital (deficit) (145,556) (171,209)
Total assets 386,475 1,140,525
Total liabilities 421,598 323,650
Total stockholders' capital deficiency (35,123) (816,875)
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NOTE REGARDING FORWARD LOOKING STATEMENTS
This Post-Effective Amendment No. 5 and the prospectus contain
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those contemplated by the
forward-looking statements. The company makes such forward-looking statements
under the provisions of the "safe harbor" section of the private securities
litigation reform act of 1995. Forward-looking statements reflect our views and
assumptions based on information currently available to management. such views
and assumptions are based on, among other things, our operating and financial
performance over recent years and its expectations about its business for the
current and future fiscal years. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. such statements are
subject to certain risks, uncertainties and assumptions, including, but not
limited to, (a) our ability to complete and sell its products and services, (b)
our ability to achieve levels of sales sufficient to cover operating expenses,
(c) our ability to conclude arrangements in the indoor air quality business, (d)
prevailing economic conditions which may significantly deteriorate, thereby
reducing the demand for our products and services, (e) regulatory or legal
changes affecting our business, (e) the effectiveness of our relationships in
the indoor air quality business, (g) the effectiveness of the indoor air quality
compound in which we have invested, or (h) our ability to secure necessary
capital for general operating or expansion purposes.
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CAPITALIZATION
The following table sets forth SearchHelp's total capitalization as of
December 31, 2003 and March 31, 2004.
December 1, 2003 March 31, 2004
Current liabilities $419,191 323,650
Long-term Obligations 2,407 -
Stockholders' equity:
common stock, $.0001 par value, 100,000,000 shares 2,140 2,653
authorized, 21,397,000 and 26,530,000 shares issued
and outstanding respectively
Additional paid-in capital 1,928,463 3,090,935
Deficit accumulated in development stage (1,965,726) (2,276,713
Total stockholders' capital deficiency (35,123) (816,875)
Total liabilities & Stockholders' Equity 386,475 1,140,525
FINANCING TRANSACTIONS
Recent Private Offering
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On September 8, 2003 we commenced a best efforts private offering of
4,000,000 shares of our common stock at $.25 per share. This offering was
increased to 6,000,000 shares of our common stock in November 2003 and increased
to 7,200,000 shares in March 2004 for a total of $1,800,000 to be raised. The
offering will close on May 31, 2004, unless we extend it.
As of April 29, 2004, a total of 5,460,000 shares were sold to
approximately 59 accredited investors. The gross proceeds of the offering as of
that date was $1,462,500 and the net proceeds to us, after expenses and broker
commissions, was approximately $1,417,765.
Our financial statements reflect an accrual at December 31, 2003 of $1,700
payable to S.G. Martin Securities, LLC, our placement agent, and a warrant to
purchase 34,000 shares of our common stock at $.30 per share is issuable to the
placement agent. Through April 29, 2004, S.G. Martin Securities, LLC raised a
total of $278,000 and was paid a 10% commission of $27,800. $5,560 has been
accrued for the 2% non-accountable expenses that have not been paid as of April
29, 2004. S.G. Martin is also entitled to, but has not yet received, a placement
agent warrant to purchase a total of 111,200 of our common stock. These items
will be paid by us within thirty days after the close of the offering.
Between December 1, 2001 and February 14, 2002 promissory notes in the
aggregate amount of $325,000 were issued to 13 accredited investors. Robert M.
Cohen & Co., Inc. was the placement agent and received commissions totaling
$32,500. Since we did not pay back the note holders in full within 60 days after
the issuance of the notes, they were entitled to purchase up to 5,000 shares of
our common stock per month at $.01 per share for each additional month the notes
remained unpaid. The notes were paid in full by July 2003 out of the proceeds of
our initial public offering. A total of 1,125,000 shares were purchased by the
note holders.
Initial Public Offering
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On July 23, 2003, we completed an initial public offering of 8,000,000
units at a purchase price of $0.50 per unit. Each unit consisted of one share of
common stock, one class A warrant and one class B warrant. We sold a total of
2,474,000 units for gross proceeds of $1,237,000. Placement agent fees and
registration costs totaled $403,942, of which $234,681 was paid prior to the
commencement of the offering and $169,311 of the proceeds was used to pay the
balance of the expenses of the offering. Of the remainder of the proceeds,
$557,518 was used to pay outstanding debt and interest thereon, $265,719 was
used to pay accounts payable and expenses and the balance was used for working
capital.
We paid the placement agent, Robert M. Cohen & Co., Inc., a commission of
10% and non-accountable expenses of 3% of the proceeds from the units it placed
for an aggregate of $160,810. The placement agent also received warrants,
exercisable for five years, to purchase 247,400 units at $.985 per unit. Upon
the exercise of a warrant and the payment of the exercise price, the placement
Agent will acquire one share of common stock, one class A warrant to purchase
one share of common stock at $.985 and one class B warrant to purchase one share
of common stock at $2.285 per share.
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BUSINESS
Overview
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We intend to become a family safety company, having shifted our primary
focus from providing small businesses with online forums. We will continue to
develop software intended to keep children safe while online, as well as seek
out emerging technologies, products and services that exhibit significant
promise of improving family safety and well being. We will no longer be offering
our hosting business or our community builder template service any longer, as
these business areas do not appear to provide viable revenue at this time.
As a result of our new focus, we have formed two new subsidiaries,
FamilySafe, Inc. for our family software division and Indoor Air Quality
Services, Inc., for our indoor air quality business, specifically mold. Mold is
at the forefront of health and environmental concerns.
FamilySafe Products
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FamilySafe owns the technology for our two software products, Sentry At
Home and Sentry Remote, formerly known as S.P.I.K.E and S.P.I.K.E Remote, which
have been in development for two years.
Sentry At Home is a comprehensive online monitoring software package
whereby parents set the security permission levels for their children. It
enables parents to monitor their child's behavior on the Internet by blocking
and filtering out inappropriate web sites on AOL, Netscape, Internet Explorer
and MSN. It also protects children from potential online predators by monitoring
Instant Messaging applications and chat rooms. Sentry At Home offers a time
usage feature, it blocks illegal music downloading and has a custom browser and
desktop for its younger users.
Sentry Remote also enables parents to monitor their child's behavior on the
Internet while the parent is not at home. It allows parents to see on their
computer screens exactly what their children are seeing on their screens. With
Sentry Remote parents are able to be active participants in their children's
Internet experience from any other computer that is online. Parents can redirect
their children to other web sites, send them protective messages, lock their
computers, hide their start menus, taskbars or desktop items, and more. Parents
are also able to view the last 25 web sites visited, view their children's
Instant Messaging conversations and even receive a text message alert about what
their children are doing while online.
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In August 2003, we entered into a five year Software License and Service
Agreement with Family Trusted Products, LLC (FTP), a company dedicated to
creating technology-based products that reinforce the importance of safety for
children. FTP will be responsible for manufacturing, marketing and distributing
the Sentry products. We will receive a 10% royalty on all sales made by FTP. FTP
will pay all marketing, manufacturing and distribution costs, and we will
receive an additional 5% from FTP's monthly sales to be used for technical
support and all updates. We are responsible for maintaining technical support
and all updates. We have delivered the Sentry products to the fulfillment house
for distribution. We anticipate FTP, who has the support of the National Center
for Missing & Exploited Children, to launch the Sentry products for consumer
purchase in July 2004. We anticipate revenues from the products in the latter
part of the third quarter.
Frank Florio, President of Family Trusted Products, has joined our Advisory
Board. Mr. Florio will be working closely with us to enhance our FamilySafe
division.
Indoor Air Products
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Indoor Air has been exploring opportunities with the "at home" quality of
living aspects of indoor air quality (IAQ). The increased knowledge and concern
with regards to indoor air toxins and irritants, combined with the dramatic
increase in the diagnosis of childhood and adult asthma and the potential impact
of these issues on general family health, represent, in our opinion, an area in
need of address and solutions. The increasing media attention, as well as hard
and soft data related to in-home complaints and associations with IAQ problems,
make the opportunity to develop a consumer friendly/informative home-based
solution attractive for us.
We chose to focus on one of the most important issues within the broader
IAQ arena - Mold. There is a great deal of both medical and media attention
being given to the detection and the removal of harmful molds from indoor air
systems. We are investigating the potential for engaging in the marketing of
products for the testing for mold conditions and have already entered into an
agreement with a company that provides indoor mold remediation solutions.
On February 3, 2004, we entered into a Participation Agreement with
Environmental Commercial Technology Corp. (ECT). ECT has been granted the rights
to market an environmentally safe compound for mold remediation that has the
ability to both kill and prevent the growth of mold and fungus. We received an
interest equal to 5% of the gross revenue from the sale of the product. In
return, we provided development capital of $500,000 and we will pay an
additional $100,000 by August 2004. We will also provide consulting services in
connection with the marketing and sales of the product through ECT. As
additional consideration, we also granted ETC and its parent company Bioneutral
Laboratories Corporation USA a total of 2,300,000 shares of common stock and a
warrant to purchase up to 2,300,000 shares of common stock. We are required to
effectuate and pay the costs of a registration statement with the Securities and
Exchange Commission for the shares issued and the shares underlying the warrants
issued to ECT and its parent by September 1, 2004. If we are not successful in
registering these securities by that date, the agreement provides that the
warrant exercise price to be reduced in stages from $0.33 per share at September
1, 2004 to a low of $0.01 at January 1, 2006. If the registration statement is
not effective by January 1, 2005, both ECT and its parent may cancel the
agreement and keep half of the common shares issued; but, they must surrender
the warrants and refund the cash to us.
11
ECT anticipates Environmental Protection Agency (EPA) approval of the
compound in the third quarter and has standing orders for the compound. We
expect to begin to generate revenues from this venture in the forth quarter of
2004. We continue to evaluate possible business opportunities for mold
screening, but we will wait until revenues are generated through the sale of our
software products before committing to any venture.
Michael O'Reilly, the third largest mold remediator in the country, joined
our Advisory Board. Mr. O'Reilly brings knowledge and experience in the Indoor
Air Quality area to our company. Additionally, John Houman, a well respected
scientist, has also joined our Advisory Board. Mr. Houman has an extensive
organic chemistry and research background and is interested in the issues and
solutions concerning mold testing, remediation and research.
Marketing Plans
- ---------------
GENERALLY - We will examine all reasonable opportunities identified,
explored and selected for development of our products for the most effective way
for our products to enter into the selected marketplace. This will include the
possibility of the inclusion of strategic partners if necessary in a variety of
areas where the partners' expertise in technology, science, marketplace
influence or other capabilities in our management's judgment needed to achieve
successful financial and marketplace results for our products.
Possible structures include consumer offerings, expert endorsements,
private labeled offerings that leverage the influence and power of another
entity's reputation and/or positioning as well as fully embedded offerings into
complementing products, services and providers.
We will be particularly cautious as it relates to launching expensive
marketing initiatives into new and untested products and services and instead
seek out ways to reduce risk while gaining expertise through the use of
test-marketing strategies and the opportunities that may lie with partners who
have established expertise and/or market entry capabilities.
For all marketplace executions, management will seek the most effective
media or combinations of media for the selected marketplace with a constant and
balanced concern towards the potential revenue and profitability returns from
the investment of funds for the strategies employed.
We will rely on our strategic partners for marketing and distribution. The
Sentry At Home and Sentry Remote products will be marketed by Family Trusted
Products (FTP) and Environmental Commercial Technology Corp (ECT) is responsible
for all marketing and sales of the mold remediation compound.
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Competition
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GENERALLY - We will compete for clients with companies that offer child
monitoring software and IAQ companies. There could be other businesses with the
same business plan and model as ours, of which we are unaware. Effective
competition could result in price reductions, reduced margins or loss of market
share, any of which could adversely affect our business.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of these potential
competitors are likely to enjoy substantial competitive advantages, including
larger technical staffs, greater name recognition, larger customer bases, and
substantially greater financial, marketing, technical and other resources.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our services, as well as our sales and
marketing channels. Any pricing pressures, reduced margins or loss of market
share resulting from increased competition, or our failure to compete
effectively, could seriously damage our business.
FAMILYSAFE PRODUCTS -We believe that every family should have monitoring
software to filter, monitor and block inappropriate web sites while their child
is on the Internet. The Sentry software has competition from Net Nanny, Cyber
Cop, Cyber Patrol and a handful of others. Net Nanny is a well-known company
rated by Consumer Reports as "very good." We have designed the Sentry products
to be the most comprehensive monitoring software on the market. We signed a
licensing agreement with FTP to market Sentry At Home and Sentry Remote. Though
this does not assure success, it is an important alliance in marketing these
products. If the Sentry products are technologically sound, we expect that we
will be supported by the National Center for Missing and Exploited Children. No
other online monitoring software has received this support.
INDOOR AIR PRODUCTS - Our IAQ mold remediation business faces competition
from organizations with mold-encapsulation capable products and from other
organizations potentially developing mold deterrence concepts.
If we enter the mold testing arena, competition will come from companies,
among others, who market lower cost, less accurate mold tests already in the
marketplace as well as other IAQ evaluation products that are marketed through
"in-person" relationships such as home service providers and home inspectors.
13
MANAGEMENT
----------
Directors and Executive Officers
- --------------------------------
We have a four-member board of directors. Each director holds office until
the next annual stockholders meeting or until a successor is duly elected or
appointed. The biographies of the members of the board and our executive
officers appear below.
Name Age Position
---- --- --------
William Bozsnyak 43 Chairman of the Board, Chief Executive Officer,
Vice President and Treasurer
Debbie Seaman 46 Director, President and Secretary
Joel San Antonio 51 Director
Joseph Carrizzo 46 Director
Noel C. Bonilla 46 Chief Financial Officer
Eric Elgar 45 Chief Technical Officer
William Bozsnyak has been a Director, the Chief Executive Officer,
Treasurer and Chairman of the Board since the company's inception in January
2001 and has been the Chief Financial Officer and Vice President since September
2002. Mr. Bozsnyak was the President of our company until September 2002 and our
Chief Financial Officer until April 1, 2004. In 1982, he joined the investment
firm of J.P. Morgan Securities Inc. where he became a vice president in the
Institutional Fixed Income Sales Department. In 1993, Mr. Bozsnyak left Morgan
to join UBS Securities Inc. (Union Bank of Switzerland). He served as a vice
president within the Global Fixed Income Department, where he was relationship
manager and sold U.S. fixed income securities to major institutional U.S. firms.
In 1998, Mr. Bozsnyak left the financial services business to create a local
portal that focused on small businesses whose needs were not being met on a
national level. This portal ultimately became the company. Mr. Bozsnyak
graduated in 1982 from the New York Institute of Technology with a B.S. degree
in Business Administration and a minor in Finance.
Debbie Seaman has been a Director and the Secretary of our company since
the company's inception in January 2001 and has been the President since
September 2002. Ms. Seaman was the Vice President of our company until September
2002. Ms. Seaman has over 20 years of professional experience in both profit and
nonprofit industries and has worked for numerous nonprofit organizations such as
the National Multiple Sclerosis Society, Nassau/Suffolk Law Services, NYS Youth
Bureaus, Surrogate's Court and North Shore Child & Family Guidance Center. Ms.
Seaman's responsibilities included department administration, policy/program
development, community project organizing, public speaking, grant writing and
clinical practice. Ms. Seaman has been a self-employed independent consultant
since 1987. As a business consultant, Ms. Seaman has worked as a strategist to
increase the value of a company as a whole, while also helping management and
staff in fostering improved performance and cooperation. She was a personal life
coach and business strategist for small and medium sized companies in industries
such as construction, law, marketing, publishing, politics and travel. Ms.
Seaman received her Masters degree in Social Work from Virginia Commonwealth
University in 1981. In 2000, Ms. Seaman was awarded the Outstanding Community
Leadership Award from the National Multiple Sclerosis Society, Long Island
Chapter.
14
Joel San Antonio has been a Director of our company since September 2001
and serves on our company's Audit Committee and Compensation Committee. Mr. San
Antonio began his career as co-founder of a sportswear manufacturer in the
women's fashion industry. In 1983, Mr. San Antonio and his partner exited the
fashion industry and founded Warrantech Corporation, a third party administrator
of service contracts and extended warranty programs. Warrantech Corporation went
public in 1984 and in September 1997 was recognized by Fortune Magazine as one
of the "100 Fastest Growing Companies in America." Mr. San Antonio serves as
Chairman of the Board and Chief Executive Officer of Warrantech Corporation.
Since December 1999, Mr. San Antonio serves as Chairman of the Board of
MedStrong International Corporation, a public company that transports medical
records over the internet and as Chairman of the Board of Marc Pharmaceuticals,
Inc., a pharmaceutical company focusing on the development and commercialization
of innovative products for the treatment of cancer and other diseases. In 1988,
Mr. San Antonio was a national finalist in Ernst & Young's "Entrepreneur of the
Year" program following his recognition as "Entrepreneur of the Year" in
financial services for E & Y's Northeast Region. He is a member of the
Metropolitan Museum of Art and is also involved in a variety of philanthropic
and charitable activities.
Joseph Carrizzo has been a Director of our company since September 2001 and
serves on our company's Audit Committee and Compensation Committee. Mr. Carrizzo
began his career with Lehman Brothers in 1983. While working there for twelve
years in the corporate bond department, he became Lehman's senior level medium
term note trader. In 1995, he left Lehman to become an independent distributor
of personal care and anti-aging products. His business now includes the
distribution of technology and telecom services and on-line products.
Noel C. Bonilla has been our Chief Financial Officer since April 1, 2004
and a member of our Advisory Board since January 2000. Mr. Bonilla is an
attorney in private practice. From November 1999 until July 2001 he was at the
law firm Meltzer, Lippe, Goldstein & Schlissel, LLP. Mr. Bonilla attended Howard
University and earned a Bachelors of Business Administration degree in
Accounting. Mr. Bonilla was and accountant for the accounting firm of Ernst &
Whinney, where he specialized in small business auditing and consulting. Mr.
Bonilla a founder and President of the Central Islip Main Street Alliance,
Treasurer of the Central Islip Civic Council, Treasurer of the Suffolk County
Hispanic Bar Association and former Treasurer of the Practicing Attorneys for
Law Students Program, Inc.
Eric Elgar has been the Chief Technology Officer since April 2004 and
attended the New York University Stern School of Business in 1982, where he
received a Bachelor of Science degree in information systems and market
research. From September 2001 to August 2003, Mr. Elgar acted as Chief Technical
Officer for Digital Online Network, Inc. In 1996 through August of 2001, he was
Group Managing Director of Online Technology and was also part of CMP Media
Speakers Bureau. He has been a spokesperson for the publication at numerous
industry events conferences, on National Public Radio and on PSEUDO Online
Internet Radio. Mr. Elgar founded E2TechLabs.com LLC in 2003 which specializes
in Quality Assurance (QA) for software applications, Web sites and complex
infrastructures.
15
Executive Officer Compensation
- ------------------------------
Long-term Compensation Awards
Annual Compensation Securities Underlying Options($)
------------------- -------------------------------
Name Salary($) Bonus($)
- ---- --------- --------
William Bozsnyak $80,000(3) (1) $200,000(2)
Debbie Seaman $70,000 (1) $200,000(2)
Joseph Carrizzo $0 $0 $187,500(4)
Noel C. Bonilla $24,000 $0 $32,900 (5)
Eric Elgar $100,000 $0 $70,500 (6)
(1) An incentive bonus to be determined prior to commencement of each year
determined by our compensation committee.
(2) Stock option to purchase up to $200,000 worth of our common stock which are
to be issued from our 2004 Stock Plan at the exercise price equal to the
midpoint between the bid and ask price of our common stock on the date of grant.
(3) Mr. Bozsnyak is currently not taking his salary. We began accruing Mr.
Bozsnyak's salary monthly in the amount of $6,667 beginning January 2004. As of
March 31, 2004, $20,000 has been accrued. We will continue to accrue this amount
until there are sufficient funds available for Mr. Bozsnyak to take his salary.
(4) In consideration for business and marketing services rendered to us by Mr.
Carrizzo, he agreed, in December 2003, to accept an option to purchase 750,000
shares of our common stock at a purchase price of $.25 per share. The value of
the services rendered as determined by both management and Mr. Carrizzo, and the
fair value of the option granted, as determined using the Black-Scholes option
pricing method, was $187,500.
(5) As of April 1, 2004 we are paying Mr. Bonilla an annual salary $24,000.
$1,000 per month is being paid currently and $1,000 per month is being deferred
until we have sufficient funds to pay Mr. Bonilla. Mr. Bonilla also received an
option under our 2004 Stock Plan to purchase 70,000 shares of our common stock
at a purchase price of $.47 per share. Beginning on March 18, 2004, options to
purchase 17,500 shares which will vest each over the next four years.
(6) As of April 1, 2004 we are paying Mr. Elgar an annual salary of $100,000.
Mr. Elgar also received an option to purchase 150,000 shares of our common stock
at a purchase price of $.47 per share. These options will vest by April 1, 2005.
Employment Agreements
- ---------------------
In January 2004, we entered into a 3-year employment agreement with William
Bozsnyak. The employment agreement provides for a base salary of $80,000 with a
minimal annual 5% increase. Mr. Bozsnyak will also receive an incentive bonus to
be determined prior to commencement of each year. Our compensation committee
will determine the criteria for Mr. Bozsnyak's bonus. Mr. Bozsnyak will be
granted options to purchase up to $200,000 worth of shares of common stock under
our 2004 Stock Option Plan, if and when it is established, at a price equal to
the midpoint between the bid and ask price of our common stock on the date of
the grant.
16
In December 2003, we entered into a 3-year employment agreement with Debbie
Seaman. The employment agreement provides for a base salary of $70,000 with a
minimal annual 5% increase. Ms. Seaman will also receive an incentive bonus to
be determined prior to commencement of each year. Our compensation committee
will determine the criteria for Ms. Seaman's bonus. Ms. Seaman will be granted
options to purchase up to $200,000 worth of shares of common stock under our
2004 Stock Option Plan, if and when it is established, at a price equal to the
midpoint between the bid and ask price of our common stock on the date of the
grant.
On March 18, 2004 we entered into an employment agreement with Noel C.
Bonilla to be our part time Chief Financial Officer effective April 1, 2004. The
employment agreement provides for an annual salary of $24,000, $1,000 to be paid
currently and $1,000 to be deferred until we have sufficient funds to pay Mr.
Bonilla. Mr. Bonilla also has been granted an option to purchase 70,000 common
shares of our common stock under our 2004 Stock Plan at a purchase price of $
..47. 17,500 shares will vest each over the next four years, beginning on March
18, 2004. The agreement will be automatically extended each year unless notice
is received by either employee or us.
On March 18, 2004 we entered into an employment agreement with Eric Elgar
to be our Chief Technical Officer, effective April 1, 2004. The agreement
provides for an annual salary of $100,000. Under the agreement, Mr. Elgar is
guaranteed employment for at least six months. In addition he also has been
granted an option to purchase 150,000 shares of our common stock under our 2004
Stock Plan at a purchase price of $ .47 per share. These shares will vest on
April 1, 2005. The agreement will be automatically extended each year unless
notice is received by either employee or us.
17
Financial Statement
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
I N D E X
Page No.
--------
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as at March 31, 2004 and December 31, 2003
(Unaudited) I-2 - I-3
Statements of Operations
For the Three months ended March 31, 2004 (Consolidated) and
2003 and Cumulative For the Period from January 29, 1999
(Inception) to March 31, 2004 (Consolidated) (Unaudited)
I-4
Consolidated Statement of Stockholders' Equity (Capital Deficiency)
For the Three Months Ended March 31, 2004 (Unaudited) I-5
Statements of Cash Flows
For the Three Months ended March 31, 2004 (Consolidated) and 2003 and
Cumulative For the Period From January 29, 1999 (Inception)
to March 31, 2004 (Consolidated) (Unaudited) I-6 - I-8
Notes to Financial Statements (Unaudited) I-9- I-26
I-1
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
A S S E T S
-----------
March 31, December 31,
2004 2003
----------- -----------
(Unaudited) (Unaudited)
Current assets:
Cash $ 148,578 $ 271,800
Accounts receivable 2,393 1,237
Prepaid expenses 1,470 598
----------- -----------
Total current assets 152,441 273,635
----------- -----------
Property and equipment - at cost,
less accumulated depreciation 15,805 17,262
----------- -----------
Other assets:
Software development costs, less accumulated
amortization of $192,353 and $179,054, respectively 370,124 93,423
Deferred license fee 600,000 -
Security deposit 2,155 2,155
----------- -----------
Total other assets 972,279 95,578
----------- -----------
Total assets $ 1,140,525 $ 386,475
=========== ===========
I-2
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
March 31, December 31,
2004 2003
------------- -------------
Current liabilities:
Note payable - bank $ 14,450 $ 14,450
Current portion of long-term debt 6,361 5,206
Due to stockholders 145,008 332,508
Due to placement agent 10,360 1,700
Deferred Revenues 153 120
Accounts payable and accrued expenses 147,318 65,207
------------- -------------
Total current liabilities 323,650 419,191
------------- -------------
Long-term debt, less current portion - 2,407
------------- -------------
Commitments and contingencies - -
Stockholders' equity (capital deficiency):
Common stock - $.0001 par value
Authorized - 100,000,000 shares
Issued and outstanding - 26,530,000 and
21,397,000 shares, respectively 2,653 2,140
Additional paid-in capital 3,090,935 1,928,463
Deficit accumulated in the development stage ( 2,276,713) ( 1,965,726)
------------- -------------
Total stockholders' equity (capital deficiency) 816,875 ( 35,123)
------------- -------------
Total liabilities and stockholders'
equity (capital deficiency) $1,140,525 $ 386,475
============ =============
See notes to financial statements.
I-3
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative From
For the Three For the Three January 29, 1999
Months Ended Months Ended (Inception) to
March 31, 2004 March 31, 2003 March 31, 2004
-------------- -------------- --------------
(Consolidated) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Revenues $ 592 $ 1,501 $ 21,242
-------------- -------------- --------------
Operating expenses:
Selling 41,098 14,919 400,155
Web site costs 17,472 6,401 156,857
Software development costs 75,000 40,495 279,324
General and administrative 162,769 55,808 797,056
Amortization and impairment of
license costs and deferred
promotional incentives - 11,250 63,667
Depreciation and amortization 14,757 14,134 212,475
-------------- -------------- --------------
Total operating expenses 311,096 143,007 1,909,534
-------------- -------------- --------------
Loss from operations ( 310,504) ( 141,506) ( 1,888,292)
-------------- -------------- --------------
Other expenses:
Interest 483 15,469 104,471
Compensatory element of
noteholders purchase rights - 88,200 231,450
Amortization of deferred
financing costs - 625 52,500
-------------- -------------- --------------
Total other expenses 483 104,294 388,421
-------------- -------------- --------------
Net loss ($ 310,987) ($ 245,800) ($2,276,713)
============== ============== ==============
Per share data:
Loss per share - basic and diluted ($.01) ($.02)
============== ==============
Weighted average number of
shares outstanding 24,638,198 15,684,811
============== ==============
See notes to financial statements.
I-4
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(Unaudited)
Deficit
Accumulated Total
Common Stock Additional in the Stockholders'
-------------------------- Paid-In Development Equity (Capital
Shares Amount Capital Stage Deficiency)
----------- ---------- ------------- -------------- ----------------
Balance at January 1, 2004 21,397,000 $ 2,140 $1,928,463 ($1,965,726) ($ 35,123)
Deferred License Costs 2,300,000 230 ( 230) - -
Proceeds from sale of securities,
net of registration costs 2,833,000 283 685,202 - 685,485
Issuance of common stock options
for services rendered 290,000 - 290,000
Issuance of common stock
options to non employee director 187,500 - 187,500
Net loss - - - ( 310,987) ( 310,987)
----------- ---------- ------------- -------------- ----------------
Balance at March 31, 2004 26,530,000 $ 2,653 $ 3,090,935 ($ 2,276,713) $ 816,875
=========== ========== ============= ============== ================
See notes to financial statements.
I-5
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Three For the Three January 29, 1999
Months Ended Months Ended (Inception) to
March 31, 2004 March 31, 2003 March 31, 2004
-------------- -------------- --------------
(Consolidated) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss ($ 310,987) ($ 245,800) ($2,276,713)
-------------- -------------- --------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Deferred revenue 33 - 153
Compensatory element of
noteholders' purchase rights - 88,200 231,450
Depreciation 1,457 1,493 14,288
Amortization of deferred financing costs - 625 52,500
Amortization of software
development costs 13,299 12,641 192,353
Amortization and impairment of
deferred promotional incentives - - 44,500
Amortization and write off of
deferred license costs 11,250 25,000
Common stock issued for legal fees - - 9,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable ( 1,156) 2,739 ( 2,393)
Prepaid expenses ( 872) 1,204 ( 1,470)
Due To Placement Agent 4,800 - 4,800
Security deposits - - ( 2,155)
Accounts payable and accrued expenses ( 17,889) ( 48,387) 47,318
-------------- -------------- --------------
Total adjustments ( 328) 69,765 615,344
-------------- -------------- --------------
Net cash used in operating activities ( 311,315) ( 176,035) ( 1,661,369)
-------------- -------------- --------------
Cash flows from investing activities:
Equipment purchases - - ( 10,804)
Software development costs - ( 31,120) ( 247,477)
Deferred license costs - ( 10,000) ( 50,000)
Deferred license fee ( 500,000) - ( 500,000)
-------------- -------------- --------------
Net cash used in investing activities ( 500,000) ( 41,120) ( 808,281)
-------------- -------------- --------------
Net cash used in operating and investing
activities ( 811,315) ( 217,155) ( 2,469,650)
-------------- -------------- --------------
See notes to financial statements.
I-6
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
Cumulative From
For the Three For the Three January 29, 1999
Months Ended Months Ended (Inception) to
March 31, 2004 March 31, 2003 March 31, 2004
-------------- -------------- --------------
(Consolidated) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Net cash used in operating and
investing activities brought forward: ($ 811,315) ($ 217,155) ($ 2,469,650)
-------------- -------------- --------------
Cash flows from financing activities:
Due to stockholder - 15,000 332,508
Note payable - bank - - 14,450
Notes payable - other - ( 75,000) -
Loans payable - - 104,075
Equipment loans ( 1,252) ( 1,112) ( 12,105)
Deferred financing costs - ( 52,500)
Deferred registration costs - ( 22,940) ( 234,681)
Proceeds from sale of securities 689,345 315,700 2,460,031
Proceeds from stock
subscriptions receivable - - 6,450
-------------- -------------- --------------
Net cash provided by financing activities 688,093 231,648 2,618,228
-------------- -------------- --------------
Net increase (decrease) in cash ( 123,222) 14,493 148,578
Cash at beginning of period 271,800 1,012 -
-------------- -------------- --------------
Cash at end of period $ 148,578 $ 15,505 $ 148,578
============== ============== ==============
Supplemental Disclosure of cash flow
Information:
Cash payment made during the period
Interest $ 533 $ 12,490 $ 104,188
============== ============== ==============
See notes to financial statements.
I-7
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
Cumulative From
For the Three For the Three January 29, 1999
Months Ended Months Ended (Inception) to
March 31, 2004 March 31, 2003 March 31, 2004
-------------- -------------- --------------
(Consolidated) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Supplemental Schedules of Noncash
Investing and Financing Activities:
Assets acquired for debt - - 19,289
--------------
Deferred promotional incentive acquired
through exercise of common stock
purchasing rights - - 4,450
--------------
Common stock issued for legal fees - - 9,000
--------------
Loans converted to common stock - - 104,075
--------------
Compensatory element of
Noteholders purchase rights - - 231,480
--------------
Due to placement agent 3,860 - 5,560
-------------- --------------
Deferred License Fee 100,000 - 100,000
-------------- --------------
Issuance of common stock options for
services rendered 477,500 - 477,500
-------------- --------------
See notes to financial statements.
I-8
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 1 - PLAN OF ORGANIZATION:
(a) Organization and Presentation of Financial Statements:
SearchHelp, Inc. (the "Company") was incorporated in the
State of Delaware on September 5, 2001 at which time the founding
shareholders subscribed for 6,660,000 shares of the Company's
common stock for an aggregate of $6,450. The stock subscriptions
were paid in January and February 2002. The Company is a
successor to SH Networks.com, Inc., ("SHN"), formerly known as
SearchHelp.com, Inc., a New York corporation formed on January
29, 1999. SHN merged into the Company on September 5, 2001 in a
transaction in which the shareholders of SHN exchanged all of the
capital stock in SHN for 6,616,910 common shares of the Company.
The merger was accounted for as a recapitalization. Certain
creditors of SHN simultaneously converted their debt of $104,075
into 1,123,090 shares of the Company's common stock ($.09 per
share). Since its inception through March 31, 2004, the Company
and its predecessor have not generated any significant revenues
and have not carried on any significant operations. The
accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in
the financial statements, the Company has a working capital
deficiency of $145,556 and a stockholders' capital deficiency of
$35,123 at December 31, 2003 and a $171,209 working capital
deficiency at March 31, 2004 and a stockholders' capital
deficiency of $816,875 at March 31, 2004. The Company has
incurred net losses of $1,965,726 through December 31, 2003 and
$310,987 and $245,800 for the three months ended March 31, 2004
and 2003 respectively.
This condition raises substantial doubt about the Company's
ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty. Management's efforts have been directed
towards the development and implementation of a plan to generate
sufficient revenues to cover all of its present and future costs
and expenses. The plan includes, among other things, developing
and selling products and services oriented towards improving
family well being.
The Company offered for sale to the public ("IPO"), through
a placement agent, on a best efforts basis, up to 8,000,000 units
(each consisting of one share of common stock, one A warrant to
purchase one share of common stock at $.75 and one B warrant to
purchase one share of common stock for $1.75) at a purchase price
of $.50 per unit. The Company filed its prospectus on January 22,
2003 and was declared effective on that date. The Company sold
2,474,000 units for total gross proceeds of $1,237,000. The
placement agent received 10% of the gross proceeds from the
offering, plus certain warrants and reimbursement of expenses.
Placement agent fees and registration costs were $403,942 of
which $234,681 had been paid in 2002 and 2001 and the balance of
$169,311 was paid from the proceeds of the offering. The Company
has repaid all outstanding notes totaling $475,000 and interest
of $82,518 of the proceeds from the IPO. $265,719 of the proceeds
from the IPO was used to pay accounts payable and expenses. The
balance was used for working capital.
Since the Company has not generated significant revenues and
as management does not anticipate the Company will generate
sufficiently substantial revenues from the sale of its products
in an amount necessary to meet its cash needs for the next twelve
months, management believes the Company will need additional
financing to continue operating.
I-9
Accordingly, effective September 8, 2003, the Company
commenced a best efforts private offering of up to 4,000,000
shares of its common stock, $0.0001 par value at $0.25 per share.
The per share offering price was established by the Company
because of the restrictions on transfer of the shares and the
fact that prospective investors will be required to purchase a
substantial number of shares (20,000 for $5,000) in order to
participate. In November 2003, the offering was increased to sell
6,000,000 shares of the Company's common stock at the same
purchase price and provided that the Company may use one or more
placement agents to assist in the sale. This offering has been
extended through April 30, 2004 and increased to raise $1,800,000
and to sell 7,200,000 shares of the Company's common stock. The
offering was further extended to May 31, 2004. The Company would
pay each placement agent a commission of 10% of the proceeds of
all the shares placed by the placement agent and non-accountable
expenses of 2% of the proceeds of all the shares placed by the
placement agent. In addition to the placement agent's cash
compensation, the Company has agreed to give the placement agent
warrants to purchase up to 720,000 shares of common stock at a
purchase price of $.30 per share which will be exercisable for a
period of 5 years, which means that the placement agent will
receive a warrant to purchase one share of common stock for every
10 shares sold by the placement agent. The placement agent's
warrants and the underlying shares of common stock will not be
registered at the time of grant. The placement agent will have
certain piggy back rights to cause the registration of the shares
if the Company effects a registration of its securities. For the
three months ending March 31, 2004, 2,833,000 shares were
purchased for $708,000, net of $22,515 in offering costs of which
$10,360 was unpaid at March 31, 2004. One placement agent was
entitled to, but had not been issued, warrants to purchase 32,000
shares of the Company's common stock a purchase price of $0.30
per share at December 31, 2003 and 42,000 shares of the Company's
common stock for at purchase price of $0.30 per share for the
quarter ending March 31, 2004 for a total of a warrant to
purchase 76,000 shares of the Company's common stock at a
purchase price of $0.30 per share due such placement agent.
(b) Principal Business Activity:
The Company is focused on utilizing new and emerging
technology to develop products and services oriented toward
improving family and well-being, primarily but not exclusively in
the home, having shifted its primary focus from providing small
businesses with online forums. The Company will continue to
develop software intended to keep children safe while online:
and, its more expanded purpose will be to seek out emerging
technologies, products and services that exhibit significant
promise of improving family safety and well being.
The Company's two existing software products, Sentry At Home
and Sentry Remote, formerly known as Secure Protect Identify Kids
Everywhere (S.P.I.K.E.), and S.P.I.K.E. Remote Sentry, were
developed to keep children safe while online. These monitoring
programs are currently being tested by an outside testing center.
The Company entered into an exclusive five year licensing
agreement with Family Trusted Products, LLC ("FTP"). FTP will be
responsible for the manufacturing, marketing and distribution of
the Sentry Products. FTP will pay the Company a royalty of 10% on
all FTP sales of the Sentry products. The Company is responsible
to supply FTP with technical support and upgrades.
I-10
Expanded Areas of Development
Indoor Air Quality (IAQ)
The Company has been exploring opportunities with the "at
home" quality of living aspects of indoor air quality ("IAQ").
The Company has formed a subsidiary, Indoor Air Quality Services,
Inc., to pursue the IAQ business. The increased knowledge and
concern with regards to indoor air toxins and irritants, combined
with the dramatic increase in the diagnosis of childhood and
adult asthma and the potential impact of these issues on general
family health, represent, in the Company's opinion, a vast area
in need of address and solutions. The increasing media attention,
as well as hard and soft data related to in-home complaints and
associations with IAQ problems, make the opportunity to develop a
consumer friendly/informative home-based solution extremely
attractive to the Company.
The Company has chosen to focus on one of the most important
issues within the broader IAQ arena - Mold. There is a great deal
of both medical and media attention being given to the detection
and the removal of harmful molds from both indoor residential and
commercial structures. The Company is investigating the potential
for engaging in both aspects of the mold issue (1) providing
definitive products for screening for mold conditions and (2)
providing effective indoor mold remediation solutions.
On February 3, 2004, the Company entered into a
Participation Agreement with Environmental Commercial Technology
Corp. ("ECT"). ECT has been granted the rights to market a
product, an organic compound, intended for the prevention of the
growth of mold and fungus. The Company received the right to
receive 5% of the gross revenue from the sale of the product. In
return, the Company provided development capital of $500,000 and
will pay an additional $100,000 by August 2004. The Company will
also provide consulting services in connection with the marketing
and sales of the product for a 5 1/2-year term. As additional
consideration, the Company also granted ECT and its parent
company, Bioneutral Laboratories Corporation USA, a total of
2,300,000 shares of common stock and warrants to purchase up to
2,300,000 shares of common stock.
The fair value paid for the participation agreement
aggregated $1,950,000 of which a total of $600,000 will be in
cash and the balance was the fair value of the securities issued.
The fair value of the common shares issued of $575,000 was
determined by the selling price of the Company's unregistered
restricted common stock on the transaction date of $0.25 per
share. The fair value of the warrants using the Black-Scholes
pricing method with a 6% risk-free interest rate and 200%
volatility is $575,000. The estimated registration costs to be
borne by the Company are $200,000. The Company is required to
effectuate and pay the costs of a registration statement with
Securities and Exchange Commission for the shares issued and the
shares underlying the warrants issued to ECT and its parent by
September 1, 2004. If the Company is not successful in
registering these securities by that date, the agreement allows
the warrant exercise price to be reduced in stages from $0.33 per
share at September 1, 2004 to a low of $0.01 at January 1, 2006.
If the registration statement is not effective by January 1,
2005, both ECT and its parent may cancel the agreement and within
ten (10) days of such termination, return to the Company (i) the
cash of $600,000, less any revenue sharing payments made to the
Company, (ii) the warrants and (iii) half of the common shares
issued and to the extent that the shares are not then in ECT or
its parent company's possession, they must pay fifteen cents
($0.15) for each such share that is no longer in their
possession. On March 15, 2004 the Company made its required
payment to ECT for $100,000 and has one final payment of $100,000
to pay in August 2004 which is reflected in accounts payable.
I-11
NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES:
(a) Basis of Presentation:
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The Company in August 2003 incorporated
its wholly owned subsidiary, Indoor Air Quality Services, Inc.,
which has had no activity through December 31, 2003. The
accompanying financial statements for the three months March 31,
2003 includes the accounts of the Company. All intercompany
transactions have been eliminated in consolidation and its wholly
owned subsidiaries. The accompanying financial statements for the
three months ending March 31, 2004 include the accounts of the
Company and its wholly owned subsidiaries Indoor Air Quality
Services, Inc. and FamilySafe, Inc. which was incorporated in
February 2004 for the software activities of the Company.
In the opinion of management, the unaudited financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position of the Company as of March 31, 2004 and the results of
operation and cash flows for the three months ended March 31,
2004 and 2003. The results of operation for the three months
ended March 31, 2004 and 2003 are not necessarily indicative of
results to be expected for the full year.
The December 31, 2003 balance sheet was derived form the
audited financial statements included in the Company's report on
Form 10-K fir for the year ended December 31, 2003 and should be
read in conjunction therewith.
(b) Revenue Recognition:
Through the three months ending March 31, 2004, the Company
did not have significant revenues and is in the development
stage. The Company recognizes revenues in accordance with
accounting principles generally accepted in the United States of
America. Income from contracts for advertising income, web site
services and solutions will be earned on a pro-rata basis
throughout the life of the related contract. The Company had
revenues at March 31, 2004 of $592 and deferred revenue of $153.
Royalty income will be recognized in the same period as the
underlying licensees' sales are reported as income. Revenues in
the form of sales and commissions from the on-line sale of
products, if any, will be recognized at the date of shipment.
(c) Use of Estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
I-12
(d) Concentration of Credit Risk:
Financial instruments that potentially subject the Company
to a significant concentration of credit risk consists of cash.
The Company places its cash with high credit quality financial
institutions which at times maybe in excess of the FDIC insurance
limit.
(e) Depreciation and Amortization:
Depreciation of property and equipment is provided by the
straight-line method over the estimated useful lives of the
related assets ranging from five to seven years. Significant
improvements are capitalized; maintenance and repairs are charged
to income. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the
accounts and the resulting gain or loss, if any, is reflected in
income.
Costs associated with the development of software that is
not intended for sale are capitalized. Costs incurred in the
securing of financing and for promotional incentives are also
capitalized. Amortization of software development costs, finance
costs and promotional incentives are provided by the
straight-line method, over estimated useful lives of three years,
sixty days and eighteen months, respectively.
(f) Earnings Per Share:
The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share". Basic earnings per share
is based on the weighted effect of all common shares issued and
outstanding, and is calculated by dividing net income available
to common stockholders by the weighted average shares outstanding
during the period. Diluted earnings per share, which is
calculated by dividing net income available to common
stockholders by the weighted average number of common shares used
in the basic earnings per share calculation, plus the number of
common shares that would be issued assuming conversion of all
potentially dilutive securities outstanding, is not presented as
it is anti-dilutive.
(g) Stock Based Compensation:
The Company elected to use the intrinsic value method to
account for future options granted to employees for the purchase
of common stock as per Accounting Principles Board Opinion No.25
"Accounting for Stock Issued to Employees". The Company will
disclose the pro forma effect of accounting for stock options
under the fair value method as prescribed in SFAS No. 123,
"Accounting for Stock-Based Compensation". For transactions in
which goods and services are the consideration received for the
issuance of common stock, the accounting shall be the fair value
of the common stock issued or the fair value of the consideration
received whichever is more reliably measurable at the date the
options are issued. The Company has chosen not to adopt SFAS 148
"Accounting for Stock-Based Compensation - Transition and
Disclosure" which was issued in December 2002. This statement
amends SFAS No. 123, to provide alternative methods of transition
for a voluntary change to the fair value based method.
I-13
(h) Software Research and Development Costs:
Research and development costs are expensed as incurred.
Software development costs are subject to capitalization
beginning when a product's technological feasibility has been
established and ending when a product is available for release to
customers. The Company intends to release its products as soon as
possible after technological feasibility has been established. As
a result, costs subsequent to achieving technological feasibility
should not be significant and all software development costs will
be expensed. Commencing in April 2002, the Company incurred
software research and development costs of $204,342 which were
charged to operations ($154,609 in 2003 and $49,715 in 2002) in
connection with the initial development phase of two products. In
addition, the Company incurred software research and development
costs of $75,000 for the three months ended March 31, 2004 and
$6,401 for the three months ended March 31, 2003.
(i) Advertising Costs.
The Company expenses ordinary advertising and promotion
costs as incurred. Advertising and promotion costs were $1,745
and $10,156 for the three months ended March 31, 2004 and 2003,
respectively.
(j) Recently Issued Accounting Pronouncements:
In December 2002, the FASB issued SFAS No. 148, "ACCOUNTING
FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE." This
statement amends SFAS 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION", to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. The Company
has elected not to adopt the provisions of SFAS No. 148. However,
the Company will provide all newly required disclosures under
SFAS No. 123
In December 2003, the FASB issued Interpretation No. 46
(Revised) "Consolidation of Variable Interest Entities". This
interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", describes the circumstances
under which a variable special purpose entity is to be
consolidated with entities that do not have the characteristics
of a controlling interest in the special purpose entity.
I-14
In April 2003, the FASB issued SFAS No. 149 which amends and
clarifies SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities.
In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Instruments with Characteristics of Both Liabilities and
Equity. This statement establishes standards for how an issuer
classifies certain financial instruments with characteristics of
both liabilities and equity.
Management believes the adoption of these pronouncements
will not have a material impact on the Company.
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment consist of the following:
March 31, December 31,
2004 2003
-------- -------
Computers $29,290 $29,290
Furniture and fixtures 803 803
-------- -------
30,093 30,093
Less: Accumulated depreciation 14,288 12,831
-------- -------
$15,805 $17,262
======== =======
Depreciation expense charged to operations was $5,972 for
the year ended December 31, 2003 and $1,457 and $1,493 for the
three months ended March 31, 2004 and 2003, respectively.
I-15
NOTE 4 - INTANGIBLE ASSETS.
In connection with the December 31, 2001 private placement
of the Company's notes, the placement agent has received a fee of
$27,500 through December 31, 2001 and an additional fee of
$25,000 for the year ended December 31, 2002. The fee was charged
to operations as additional interest over the 60-day term of the
notes. Amortization of these fees charged to operations was $625
for the year ended December 31, 2003 and the three months ended
March 31, 2003.
In accordance with the American Institute of Certified
Public Accountants Statement of Position No. 98-1, "Accounting
for the Cost of Computer Software Developed or Attained for
Internal Use," the Company, since inception, capitalized costs of
$247,477 of which $33,625 and $59,830 were capitalized in 2003
and 2002. These costs consisting of amounts paid to independent
consultants related to the implementation and enhancement of its
propriety related database and interactive operating software.
The Company is amortizing these costs over their estimated useful
lives of the three years. Amortization charged to operations
during the years ended December 31, 2003 and 2002 was $59,000 and
$11,564 and $31,120 for the three months ended March 31, 2004 and
2003, respectively. In August 2003, the Company agreed to
purchase certain software from the entity that had been licensing
the software to the Company. The purchase has not closed at
December 31, 2003. The Company has reflected the cash portion of
the purchase price it will pay in software and will commence to
amortize the software upon closing. The total purchase price is
cash of $25,000 and options to acquire 750,000 shares of the
Company's common stock, See Note 12. The Company received the
deliverables and paid the remaining $15,000 to the vendor in
March 2004. Amortization for the additional software costs is
$4,792 for the three months ended March 31, 2004.
NOTE 5 - NOTES PAYABLE - BANK.
The Company has a $50,000 revolving line of credit with a
bank. Interest on borrowings is charged at 2.25% above the bank's
prevailing prime rate which was 6.25% at March 31, 2004 and
December 31, 2003, respectively. The weighted average interest
rate for the year ending December 31, 2003 and for the three
months ending March 31 2004 was 6.25%. Interest expense of $2,684
was charged to operations during the year ended December 31,
2003, $483 and $641 were charged to operations for the three
months ended March 31, 2004 and 2003. At December 31, 2003 and
March 31, 2004, $14,450 of the line has been utilized. The debt
is guaranteed by the current CEO of the Company and is
collateralized by marketable securities which he owns which have
a fair market value of approximately $36,000 at December 31, 2003
and March 31, 2004.
1-16
NOTE 6 - NOTES PAYABLE - OTHER.
(a) During December 2001, the Company initiated a private
placement offering to raise capital in order to fund the
creation of its web site. The offering consisted of thirteen
$25,000 notes bearing interest at 10% per annum payable in
sixty (60) days from issuance. If the notes were not repaid
in full on their due dates, then each note holder has the
right to purchase 10,000 shares of the Company's common
stock at $.01 per share and then 5,000 shares at the end of
each additional thirty (30) day period the notes remain
outstanding. The variance between the purchase right's
exercise price per share and the fair value of the
securities acquired will be charged to operations as
additional interest. Additionally, the placement agent was
to be paid ten (10%) percent of the proceeds of the
offering, plus out-of-pocket expenses. Amortization of
deferred financing costs is charged to operations over the
sixty (60) day term of the notes.
(b) At December 31, 2001, the Company had sold nine notes, one
of which was to its former CFO. In January and February
2002, the remaining four notes were sold at par value. The
notes were repaid with accrued interest in July 2003. A
placement agent fee of $25,000 was paid in December 31, 2002
and is reflected on the accompanying balance sheet as
deferred financing costs. During the year ended December 31,
2003, an additional compensatory element interest charged to
operations for the excess of the fair value of the note
holders purchase rights received over their exercise price
was $45,200. The fair value of the purchase rights was
determined by management at $.09 per share which was the
ascribed fair value of the purchase rights using the
Black-Scholes Option Pricing Model for determining fair
value. During the year ended December 31, 2003, an
additional compensatory interest element for purchase rights
to acquire 345,000 common shares was charged to operations
for the excess of the fair value of the note holders'
purchase rights received over their exercise price of
$169,050. The fair value of the purchase rights was
determined by management to be $.49 per share which was the
difference between the $.50 per unit price the Company's
securities were being offered to the public at the date of
issuance of the purchase rights and the $.01 per share note
holders' purchase price.
During the year ended December 31, 2002, the note holders'
exercised rights to acquire an aggregate 310,000 common
shares for $3,100 including the Company's former CFO who
exercised rights to acquire 55,000 common shares for $550.
During the year ended December 31, 2003, the note holders
exercised rights to acquire 815,000 common shares in the
aggregate for $8,150. These notes and the accrued interest
were repaid in 2003.
I-17
NOTE 7 - LOAN PAYABLE - EQUIPMENT.
Equipment loan payable is comprised of the following:
March 31, December 31,
2004 2003
-------- --------
Obligation under equipment financed
payable in installments of $495 including
13% interest through March 2005 $6,361 $7,613
Less: Current portion 6,361 5,206
-------- --------
$ - $2,407
======== ========
NOTE 8 - DUE TO STOCKHOLDERS.
At December 31, 2003 and March 31, 2004, the Company was
indebted to the CEO of the Company in the amount of $130,188 and
its President in the amount of $14,820 for cash working capital
advances made to the Company. These advances are non-interest
bearing. The officers of the Company do not expect repayment of
these advances prior to the Company's attainment of sufficient
cash flows to sustain its operations for eighteen (18) months.
On December 30, 2003, management agreed to issue a non
employee director options to acquire 750,000 restricted shares of
the Company's common stock for business and marketing advice
rendered by the director in the last quarter of 2003. The fair
value of the services rendered as determined by both the director
and management is the fair market value of the options to be
issued, as determined by utilizing the Black-Scholes option
pricing model, based upon the then selling price of restricted
shares through the Company's private placement, $0.25 per share.
Such fair value of $187,500 has been charged to operations in
2003 with a corresponding increase in due to stockholders. The
options were physically granted on March 12, 2004 at which time
the liability to stockholders was reduced by $187,500 and
additional paid-in capital was increased by $187,500.
As of April 29, 2004 the options have not been exercised and
no stock has been issued.
I-18
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES.
Accounts payable and accrued expenses consist of the following
at:
March 31, December 31,
2004 2003
-------- ---------
Professional fees $20,000 $ 20,548
License costs 100,000 15,000
Interest on notes payable 77 127
Consultants - 25,000
Accrued Officer Payroll 20,000 -
Accrued Payroll other & payroll taxes 4,184
Sundry operating expenses 3,057 4,532
-------- ----------
$147,318 $ 65,207
======== ==========
NOTE 10 - INCOME TAXES.
The Company does not have any currently payable or deferred
federal or local tax benefit since its inception to March 31,
2004. At December 31, 2003, the Company had a net operating loss
carryforward available to reduce future taxable income amounting
to $1,588,000 of which $131,000 expires in 2021, $557,000 expires
in 2022 and $900,000 expires in 2023. Management is unable to
determine if the utilization of the future tax benefit is more
likely than not and, accordingly, the asset for federal and local
carryforwards of approximately $624,000 has been fully reserved.
A reconciliation of the actual tax provision to the expected
statutory rate is as follows:
For the Three Months Ended March 31,
---------------------------------------------------------
2004 2003
---------------------------------------------------------
Loss before income taxes ($311,000) ($245,800)
========== ==========
Expected statutory tax benefits ($105,700) -34.0% ($ 83,600) -34.0%
Nondeductible expense, amortization 16,400 5.3% 200 0.1%
Net operating loss valuation reserve 89,300 28.7% 93,400 33.9%
---------- ------ ---------- ------
Total tax benefit $ - 0.0% $ - 0.0%
========== ====== ========== ======
I-19
NOTE 11 - COMMON STOCK.
On September 5, 2001, the founding shareholders subscribed
for 6,660,000 common shares for an aggregate of $6,450. The
subscriptions were paid in January, February and July 2002 and
are reflected as stock subscriptions receivable in the financial
statements as at December 31, 2001.
On September 5, 2001, the shareholders of SH Networks.com,
Inc. (SHN) and the Company agreed to merge SHN into the Company.
The SHN shareholders received 6,616,910 shares of the Company's
common stock in exchange for all of the outstanding capital stock
of SHN. At the date of the merger, SHN's liabilities exceeded its
assets by $131,461. Simultaneously with the merger, certain
creditors agreed to exchange $104,075 in debts for 1,123,090
shares of the Company's common stock ($.09 per share).
On September 5, 2001, counsel for the Company accepted
100,000 shares of the Company's common stock as partial payment
for services rendered. The fair value of the services rendered
and the shares at date of issuance was $9,000 ($.09 per share).
On November 26, 2001, the individual assignees of an
advertising agreement exercised the purchase right contained in
the agreement to acquire 500,000 shares of the Company's common
stock for $500. The fair value for the securities issued was
$45,000 ($.09 per share) on the date of issuance, which was the
ascribed fair value of the purchase rights using the
Black-Scholes Option Pricing Model for determining fair value.
I-20
Commencing in February 2002 through December 2002, seven
note holders exercised their purchase rights and acquired 310,000
common shares for $3,100 in cash. During fiscal 2003, nine note
holders exercised their purchase rights for 815,000 common shares
for $8,150 in cash.
In December 2003, management agreed to issue to a director
options to acquire 750,000 restricted shares of the Company's
common stock as payment for services rendered by the director.
The fair value of option for the services rendered of $187,500,
as determined by the Black-Scholes option pricing model, was
charged to operations in 2003 with a corresponding increase in
due to stockholders. The options were physically granted on March
12, 2004 at which time the liability to stockholders was reduced
by $187,500 and additional paid-in capital was increased by
$187,500. Upon the issuance of the options, the liability to
stockholders will be reduced by $187,500 and additional paid-in
capital will be increased by $187,500.
Initial Sale of the Company's Securities to the Public:
The Company entered into a agreement with a placement agent
to offer for sale to the public on a best efforts basis up to
8,000,000 units (each consisting of one share of common stock,
one warrant to purchase one share of common stock at a price of
$.75 per share and a warrant to purchase one common share at
$1.75) at $0.50 per unit, which became effective on January 22,
2003. The placement agent is to receive 10% of the gross proceeds
from the offering plus certain warrants and reimbursements of
expenses of 3% of the gross proceeds and certain placement agent
warrants. The Company granted the placement agent and his
designee warrants which expire on December 31, 2007, to purchase
up to 247,000 units at $.985 per unit for five years. Upon the
exercise of a warrant by the placement agent, the placement agent
shall receive a share of the Company's common stock, a class A
redeemable warrant to purchase one share of common stock
I-21
exercisable at $.985 per share for five years and class B
redeemable warrant to purchase one share of the Company's common
stock for five years at $2.285. Management and the placement
agent consider the placement agent warrants to be additional
compensation for the agent's services in the offering. If these
warrants are exercised in whole or in part, any excess of the
fair value of the securities issued over the warrant exercise
price will be reflected as cost of raising capital and not a
charge to operations and, accordingly, will be charged to
additional paid in capital. The offering which originally
terminated on June 30, 2003 was extended to July 31, 2003. The
Company sold 2,474,000 units for $843,068 in cash, net of
placement and deferred registration costs.
Private Placement of the Company's Securities:
On September 8, 2003, the Company commenced a best efforts
private offering of up to 4,000,000 shares of its common stock,
$0.0001 par value, at $0.25 per share. The per share offering
price was established by the Company because of the restrictions
on transfer of the shares and the fact that prospective investors
will be required to purchase a substantial number of shares
(20,000 for $5,000) in order to participate. In November 2003,
the offering was increased up to 6,000,000 shares of the
Company's common stock at the same purchase price and provided
that the Company may use one or more placement agents to assist
in the sale. This offering has been further extended through
April 30, 2004May 31, 2004 as well as increased to raise
$1,800,000 and to sell 7,200,000 shares of the Company's common
stock. The offering was further extended to May 31, 2004. This is
primarily due to the delay in launching the Company's software
products. Each placement agent earns a commission of 10% of the
proceeds of all the shares placed by the placement agent and
non-accountable expenses of 2% of the proceeds of all the shares
placed by the placement agent. In addition to the placement
agent's cash compensation, the Company has agreed to give the
placement agent warrants to purchase up to 720,000 shares of
common stock at a purchase price of $.30 per share which will be
exercisable for a period of 5 years, which means that the
placement agent will receive a warrant to purchase one share of
common stock for every 10 shares sold by the placement agent. For
the three months ending March 31, 2004 one Placement Agent sold a
total of 420,000 shares for an aggregate of $94,500 net of
$10,500 in commissions. Through March 31, 2004, the same
placement agent was owed an aggregate of $3,800 and was entitled
to receive a warrant to purchase 76,000 common shares of the
Company's stock at $0.30 per share.
I-22
Stock Plan:
On December 15, 2003, the Company's stockholders ratified
the SearchHelp, Inc. 2004 Stock Plan ("Plan") which became
effective January 1, 2004. Under the Plan, 1,500,000 shares of
the Company's common stock are reserved for issuance to employees
(including officers), directors and consultants upon exercise of
options, stock awards, and stock purchase rights. Options
intended to qualify as incentive stock options ("ISO") under
Section 422(b) of the Internal Revenue Code of 1986 are to be
granted to employees only at an exercise price not less than 100%
of the fair market value of the Company's common stock at date of
grant except for employees holding more than 10% of the Company's
common stock whose option price shall be 110% of fair market
value at date of grant. Options, stock awards and purchase rights
not intended to qualify as ISOs may be granted to employees,
officers, directors and consultants to the Company. The minimum
exercise price of non-qualified ISOs shall be not less than the
minimum legal consideration required under the laws of
jurisdiction where the Company was organized. The number of
shares granted, terms of exercise, and expiration dates are to be
decided at the date of grant of each option, award and purchase
right by the Company's Compensation Committee of the Board of
Directors. The maximum term of an ISO is five (5) years and ten
(10) years for non-qualifying ISO. The Plan commenced on January
1, 2004 and will terminate on December 31, 2014 unless sooner
terminated by the Board of Directors
As of March 31, 2004, options to purchase a total of 240,000
shares of the Company's common stock were granted to employees
and directors officers. In addition, an option to purchase
750,000 shares of the Company's common stock was granted to a
consultant. (See note 12b) The employees, officers and directors
have not exercised their options as of April 29, 2004.
I-23
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
(a) Stock Purchase Rights:
Certain notes payable include a default penalty that
entitles the holder to purchase (i) 10,000 shares of the
Company's common stock for $.01 per share if the note is not
repaid on its original due date and (ii) 5,000 shares of the
Company's common stock for $.01 per share for each thirty day
period the note remains unpaid past its original due date. Each
note holder receives these purchase rights regardless of whether
the individual note holder agrees to extend the due date of the
note. Through December 31, 2002, the note holders received rights
to acquire 780,000 shares of the Company's common stock at $.01 a
purchase price of each. The difference between the fair value of
the common stock underlying the purchase rights ($.09 per share,
which was the ascribed fair value of the purchase rights using
the Black-Scholes Option Pricing Model for determining fair
value) and the exercise price of $.01 is charged to operations as
additional interest on the date the purchase rights are issued.
Through December 31, 2002, the note holders exercised rights to
acquire 310,000 shares of the Company's common stock. During the
year ended December 31, 2003, the note holders received
additional rights to acquire 345,000 shares of the Company's
common stock at a purchase price of $.01 per share. The
difference between the fair value of the common stock underlying
the purchase rights ($.49 per share which was determined by
management as the difference between the $.50 per unit price the
common stock was then being offered to the public and the $.01
par share note holders purchase price). During the year ended
December 31, 2003, the note holders exercised purchase rights to
acquire 815,000 shares of the Company's common stock. At March
31, 2004, no purchase rights to acquire common shares were
outstanding.
(b) License and Distribution Agreement.
In June 2002, the Company entered into a 5 year license
agreement to be the exclusive licensee through December 31, 2003
and a non-exclusive licensee thereafter to manufacture, package,
promote, advertise, market and sell a software package designed
to assist parents to monitor their child's on-line behavior. The
Company was required to pay the licensor an initial license fee
of $50,000 and thereafter a royalty of $4 for each product sold.
At December 31, 2002 the unamortized portion of the deferred
license fee was $44,167 and the licensor was owed $50,000 which
is included in accounts payable and accrued expenses at December
31, 2002. Through August 15, 2003, the Company paid the licensor
$25,000.
I-24
Effective August 15, 2003, the parties terminated the
agreement by entering into a software purchase and services
agreement. Under the terms of this agreement the Company is not
required to pay the balance owed of $25,000 under the license
agreement. The Company, under the new agreement, will acquire the
software and all related documents which it had licensed in the
June 2002 agreement. The purchase price for the software is
$50,000 in cash of which $10,000 was paid at the signing of the
agreement, the Company was given a $25,000 credit for the cash
paid under the old license agreement and the balance of $15,000
was paid on March 26, 2004 on the date of the closing. The seller
also received additional compensation for the software in the
form of two options to buy a total of 750,000 shares of the
Company's common stock. The exercise price of the shares is $ .62
per share which is the average of the Company's trading prices
for the thirty (30) day period immediately preceding the
effective date of the agreement. One option to purchase 250,000
shares of the Company's common stock is exercisable only if the
Company sells 3,000,000 units of the software in the five (5)
year period immediately following the closing. The other option
to purchase 500,000 shares of the Company's common stock is
exercisable at any time up to five (5) years. The fair value of
the option for 500,000 shares at the date of grant was $290,000
which along with the $50,000 in cash is reflected in the
accompanying financial statements as capitalized software costs
of $562,477. This asset will be amortized over its estimated
useful life of three years. The option to purchase 250,000 shares
of the Company's common stock will be reflected in financial
statements upon the fulfillment of the conditional sale of
product. The agreement also requires the licensor to perform
certain consulting services for the Company for $8,000 per month
commencing in October 2003 through April 2004. The Company has
extended the agreement for an additional three months to July
2004. The consulting services include, among other items,
assistance in hiring, training and overseeing a technical support
team for the Company.
(c) Lease:
The Company is obligated under an operating lease for its
office, which expires on December 1, 2004, at an annual rent of
$12,960.
(d) Employment Agreements:
On December 8, 2003, William Bozsnyak entered into an
amended and restated 3-year employment agreement with the
Company. Currently, Mr. Bozsnyak is the Chief Executive Officer
and Treasurer, Vice President and Chairman of the Board of
Directors. The agreement provides for a base salary of $80,000
and a minimum annual increase in base salary of 5% if approved by
the Board of Directors. His salary may be increased to $150,000
per annum upon the Company's successful completion of future
sales of stock with total gross proceeds of at least $2,400,000.
As of March 31, 2004 the Company has accrued $20,000 of his
compensation.
I-25
On December 8, 2003, Debbie Seaman entered into an amended
and restated 3-year employment agreement with the Company.
Currently, Ms. Seaman is the President and Secretary. The
agreement provides for a base salary of $70,000 and a minimum
annual increase in base salary of 5% if approved by the Board of
Directors. Her salary may be increased to $140,000 per annum upon
the Company's successful completion of future sales of stock with
total gross proceeds of at least $2,400,000. For the three months
ended March 31, 2004, Ms. Seaman received $17,500 in
compensation.
Both of these employment agreements will be automatically
extended each year unless notice is received by either the
employee or the Company. Both Mr. Bozsnyak and Ms. Seaman will
receive incentive bonuses to be determined prior to the
commencement of each year if they satisfy the criteria for such
bonuses as determined by the Company's compensation committee.
Both Ms. Seaman and Mr. Bozsnyak will be granted options to
purchase up to $200,000 worth of shares of common stock at a
price equal to the midpoint between the bid and ask price of a
share of common stock on the date of the grant from the Company's
2004 Stock Plan.
On March 18, 2004, the Company hired a part time Chief
Financial Officer, Noel C. Bonilla. Mr. Bonilla entered into an
employment agreement with the Company in which he will receive,
beginning April 1, 2004, $2,000 per month salary, $1,000 per
month will be deferred until the Company has sufficient funds to
pay him. Mr. Bonilla also has been granted the right to purchase
70,000 shares of the Company's common stock under the Company's
2004 Stock Plan at a purchase price of $ .47. The option will
vest equally each year over the next four years.
On March 18, 2004, the Company hired Eric Elgar as the
Company's Chief Technical Officer. Mr. Elgar entered into an
employment agreement with the Company in which he will receive,
beginning April 1, 2004, an annual salary of $100,000. Mr. Elgar
is guaranteed employment for at least six months and he also has
been granted the right to purchase 150,000 shares of the
Company's stock at $ .47. The option will vest one year from the
date of grant.
I-26
I N D E X
Page No.
--------
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets as at December 31, 2003 (Consolidated) and 2002 F-3 - F-4
Statements of Operations
For the Years Ended December 31, 2003 (Consolidated)
(Inception) to December 31, 2003 (Consolidated) F-5
Statement of Stockholders' Capital Deficiency
Cumulative from January 29, 1999 (Inception)
To December 31, 2003 (Consolidated) F-6
Statements of Cash Flows
For the Years Ended December 31, 2003 (Consolidated)
and 2002 and Cumulative from January 29, 1999
(Inception) to December 31, 2003 (Consolidated) F-7 - F-8
Notes to Financial Statements F-9 - F-26
F-1
[GRAPHIC OMITTED]
WEINICK
SANDERS 1375 BROADWAY
LEVENTHAL & CO., LLP NEW YORK, N.Y. 10018-7010
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS 212-869-3333
---------------------------- FAX 212-764-3060
WWW.WSLCO.COM
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
SearchHelp, Inc.
We have audited the accompanying balance sheets of SearchHelp, Inc. (A
Development Stage Company) as at December 31, 2003 (consolidated) and 2002, and
the related statements of operations and cash flows for the years ended December
31, 2003 (consolidated) and 2002 and cumulative from January 29, 1999
(inception) to December 31, 2003 (consolidated) and stockholders' capital
deficiency cumulative from January 29, 1999 (inception) to December 31, 2003
(consolidated). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 SearchHelp, Inc. (A Development
Stage Company) as at December 31, 2003 (consolidated) and 2002 and the results
of its operations and its cash flows for the years ended December 31, 2003
(consolidated) and 2002 and cumulative from January 29, 1999 (inception) to
December 31, 2003 (consolidated) 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 disclosed in Note 1 to the
financial statements, the Company has a working capital deficiency of $145,556
and a stockholders' capital deficiency of $35,123 at December 31, 2003 and as a
development stage company has incurred losses since inception. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plan regarding those matters is also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
New York, New York
January 20, 2004 (Except as to a portion
of Notes 1, 11 and 14 as to which the
date is February 3, 2004)
F-2
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
BALANCE SHEETS
A S S E T S
December 31,
2003 2002
----------- -----------
(Consolidated)
Current assets:
Cash $ 271,800 $ 1,012
Accounts receivable 1,237 3,716
Prepaid expenses 598 3,693
----------- -----------
Total current assets 273,635 8,421
----------- -----------
Property and equipment - at cost,
less accumulated depreciation 17,262 23,234
----------- -----------
Other assets:
Software development costs, less accumulated
amortization of $179,054 and $120,054, respectively 93,423 93,798
Deferred financing costs, less accumulated
amortization of $52,500 and $51,875, respectively - 625
Deferred license costs, less accumulated
amortization of $5,833 - 44,167
Deferred registration costs - 234,681
Security deposit 2,155 2,155
----------- -----------
Total other assets 95,578 375,426
----------- -----------
Total assets $ 386,475 $ 407,081
=========== ===========
See notes to financial statements.
F-3
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
December 31,
2003 2002
----------- -----------
(Consolidated)
Current liabilities:
Note payable - bank $ 14,450 $ 39,450
Notes payable - other - 475,000
Current portion of long-term debt 5,206 4,672
Due to stockholders 332,508 130,008
Due to placement agent 1,700 -
Deferred revenues 120 -
Accounts payable and accrued expenses 65,207 416,019
----------- -----------
Total current liabilities 419,191 1,065,149
----------- -----------
Long-term debt, less current portion 2,407 7,200
----------- -----------
Commitments and contingencies - -
Stockholders' equity (capital deficiency):
Common stock - $.0001 par value
Authorized - 100,000,000 shares
Issued and outstanding - 21,397,00 and
15,000,000 shares, respectively 2,140 1,531
Additional paid-in capital 1,928,463 230,494
Deficit accumulated in the development stage ( 1,965,726) ( 897,293)
----------- -----------
Total stockholders' equity (capital deficiency) ( 35,123) ( 665,268)
----------- -----------
Total liabilities and stockholders'
equity (capital deficiency) $ 386,475 $ 407,081
=========== ===========
See notes to financial statements.
F-4
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative From
For the Year For the Year January 29, 1999
Ended Ended (Inception) to
December 31, 2003 December 31, 2002 December 31, 2003
----------------- ----------------- -----------------
(Consolidated) (Consolidated)
Revenues $ 4,556 $ 4,399 $ 20,650
----------------- ----------------- -----------------
Operating expenses:
Selling 295,918 48,620 359,057
Web site costs 24,394 62,150 139,385
Software development costs 154,609 49,715 204,324
General and administrative 308,196 178,189 634,287
Amortization and impairment of
license costs and deferred
promotional incentives 19,167 41,550 63,667
Depreciation and amortization 64,972 64,897 197,718
----------------- ----------------- -----------------
Total operating expenses 867,256 445,121 1,598,438
----------------- ----------------- -----------------
Loss from operations ( 862,700) ( 440,722) ( 1,577,788)
----------------- ----------------- -----------------
Other expenses:
Interest 36,058 54,675 103,988
Compensatory element of
noteholders purchase rights 169,050 62,400 231,450
Amortization of deferred
financing costs 625 36,875 52,500
----------------- ----------------- -----------------
Total other expenses 205,733 153,950 387,938
----------------- ----------------- -----------------
Net loss $( 1,068,433) ($ 594,672) ($1,965,726)
================= ================= =================
Per share data:
Loss per share - basic and diluted ($.06) ($.04)
================= =================
Weighted average number of
shares outstanding 17,518,014 15,084,395
================= =================
See notes to financial statements.
F-5
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CUMULATIVE FROM JANUARY 29, 1999 (INCEPTION) TO DECEMBER 31, 2003
Deficit
Accumulated Total
Common Stock Additional in the Stock Stockholders'
--------------------- Paid-In Development Subscriptions Capital
Shares Amount Capital Stage Receivable Deficiency
---------- -------- ----------- ------------- --------------- -------------
Common stock issued to founders 6,616,910 $ 662 $ 1,338 $ - $ - $ 2,000
Net loss for the period from
January 29, 1999 (inception)
to December 31, 1999 - - - ( 24,056) - ( 24,056)
---------- -------- ----------- ------------- --------------- -------------
Balance at December 31, 1999 6,616,910 662 1,338 ( 24,056) - ( 22,056)
Net loss from the year ended
December 31, 2000 - - - ( 56,775) - ( 56,775)
---------- -------- ----------- ------------- --------------- -------------
Balance at December 31, 2000 6,616,910 662 1,338 ( 80,831) - ( 78,831)
Loan converted to common stock 1,123,090 112 103,963 - - 104,075
Common stock subscribed 7,160,000 716 6,234 - ( 6,450) 500
Common stock issued for
services rendered 100,000 10 8,990 - - 9,000
Promotional incentives with
respect to exercise stock
purchase rights - - 44,500 - - 44,500
Net loss from the year ended
December 31, 2001 - - - ( 221,790) - ( 221,790)
---------- -------- ----------- ------------- --------------- -------------
Balance at December 31, 2001 15,000,000 1,500 165,025 ( 302,621) ( 6,450) ( 142,546)
Proceeds from exercise of
noteholders' purchase rights 310,000 31 3,069 - - 3,100
Payment of subscriptions - - - - 6,450 6,450
Compensatory element of
noteholders' purchase rights - - 62,400 - - 62,400
Net loss from the year ended
December 31, 2002 - - - ( 594,672) - ( 594,672)
---------- -------- ----------- ------------- --------------- -------------
Balance at December 31, 2002 15,310,000 1,531 230,494 ( 897,293) - ( 665,268)
Proceeds from exercise of
noteholders' purchase rights 815,000 82 8,068 - - 8,150
Compensatory element of
noteholders' purchase rights - - 169,050 - - 169,050
Proceeds from sale of securities,
net of registration costs 5,272,000 527 1,520,851 - - 1,521,378
Net loss from the year ended
December 31, 2003 - - - ( 1,068,433) - ( 1,068,433)
---------- -------- ----------- ------------- --------------- -------------
Balance at December 31, 2003
(consolidated) 21,397,000 $2,140 $1,928,463 ($1,965,726) $ - ($ 35,123)
========== ======== =========== ============= ================ =============
See notes to financial statements.
F-6
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative From
For the Year For the Year January 29, 1999
Ended Ended (Inception) to
December 31, 2003 December 31, 2002 December 31, 2003
----------------- ----------------- -----------------
(Consolidated) (Consolidated)
Cash flows from operating activities:
Net loss ($1,068,433) ($ 594,672) ($1,965,726)
------------ ---------- ------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Deferred revenue 120 - 120
Compensatory element of
noteholders' purchase rights 169,050 62,400 231,450
Depreciation 5,972 4,178 12,831
Amortization of deferred financing costs 625 36,875 52,500
Amortization of software
development costs 59,000 54,886 179,054
Amortization and impairment of
deferred promotional incentives - 41,550 44,500
Amortization and write off of
deferred license costs 19,167 5,833 25,000
Common stock issued for legal fees - - 9,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable 2,479 ( 3,716) ( 1,237)
Prepaid expenses 3,095 ( 290) ( 598)
Security deposits - - ( 2,155)
Accounts payable and accrued expenses ( 350,811) 386,144 64,384
----------------- ----------------- -----------------
Total adjustments ( 91,303) 587,860 614,849
----------------- ----------------- -----------------
Net cash used in operating activities ( 1,159,736) ( 6,812) ( 1,350,877)
----------------- ----------------- -----------------
Cash flows from investing activities:
Equipment purchases - ( 2,200) ( 10,804)
Software development costs ( 33,625) ( 59,830) ( 247,477)
Deferred license costs - ( 50,000) ( 50,000)
----------------- ----------------- -----------------
Net cash used in investing activities ( 33,625) ( 112,030) ( 308,281)
----------------- ----------------- -----------------
Net cash used in operating and
activities ( 1,193,361) ( 118,842) ( 1,659,158)
----------------- ----------------- -----------------
See notes to financial statements.
F-7
SEARCHHELP, INC. AND SUBSIDIARY (A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
Cumulative From
For the Year For the Year January 29, 1999
Ended Ended (Inception) to
December 31, 2003 December 31, 2002 December 31, 2003
------------------- ------------------ ------------------
(Consolidated) (Consolidated)
Net cash used in operating and
investing activities brought forward: ($ 1,193,361) ($ 118,842) ($ 1,659,158)
----------------- ------------ -------------
Cash flows from financing activities:
Due to stockholder 202,500 43,237 332,508
Note payable - bank ( 25,000) - 14,450
Notes payable - other ( 475,000) 200,000 -
Loans payable - - 104,075
Equipment loans ( 4,260) ( 3,784) ( 10,853)
Deferred financing costs - ( 25,000) ( 52,500)
Deferred registration costs - ( 209,681) ( 234,681)
Proceeds from sale of securities 1,765,909 3,100 1,771,509
Proceeds from stock
subscriptions receivable - 6,450 6,450
----------------- ------------ -------------
Net cash provided by financing activities 1,464,149 14,322 1,930,958
----------------- ------------ -------------
Net increase (decrease) in cash 270,788 ( 104,520) 271,800
Cash at beginning of period 1,012 105,532 -
----------------- ------------ -------------
Cash at end of period $ 271,800 $ 1,012 $ 271,800
================= ============ =============
Supplemental Disclosures of
Cash Flows Information:
Cash payments made during period for:
Interest $ 79,500 $ 13,619 $ 103,655
================= ============ =============
Supplemental Schedules of Noncash
Investing and Financing Activities:
Assets acquired for debt $ - $ 15,656 $ 19,289
================= ============ =============
Deferred promotional incentive acquired
through exercise of common stock
purchase rights $ - $ - $ 44,500
================= ============ =============
Common stock issued for legal fees $ - $ - $ 9,000
================= ============ =============
Loans converted to common stock $ - $ - $ 104,075
================= ============ =============
Compensatory element of
Noteholders purchase rights $ 169,050 $ 62,400 $ 231,450
================= ============ =============
Due to placement agent $ 1,700 $ - $ 1,700
================= ============ =============
See notes to financial statements.
F-8
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
NOTE 1 - PLAN OF ORGANIZATION:
(b) Organization and Presentation of Financial Statements:
SearchHelp, Inc. (the "Company") was incorporated in the
State of Delaware on September 5, 2001 at which time the founding
shareholders subscribed for 6,660,000 shares of the Company's
common stock for an aggregate of $6,450. The stock subscriptions
were paid in January and February 2002. The Company is a
successor to SH Networks.com, Inc., ("SHN"), formerly known as
SearchHelp.com, Inc., a New York corporation formed on January
29, 1999. SHN merged into the Company on September 5, 2001 in a
transaction in which the shareholders of SHN exchanged all of the
capital stock in SHN for 6,616,910 common shares of the Company.
The merger was accounted for as a recapitalization. Certain
creditors of SHN simultaneously converted their debt of $104,075
into 1,123,090 shares of the Company's common stock ($.09 per
share). Since its inception through December 31, 2003, the
Company and its predecessor have not generated any significant
revenues and have not carried on any significant operations. The
accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in
the financial statements, the Company has a working capital
deficiency of $145,556 , a stockholders' capital deficiency of
$35,123 and has incurred net losses of $1,068,433 and $594,672
for the years ended December 31, 2003 and 2002, respectively and
$1,965,726 cumulative from January 29, 1999 to December 31, 2003.
This condition raises substantial doubt about the Company's
ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty. Management's efforts have been directed
towards the development and implementation of a plan to generate
sufficient revenues to cover all of its present and future costs
and expenses. The plan includes, among other things, developing
and selling products and services oriented towards improving
family well being.
The Company offered for sale to the public ("IPO"), through
a placement agent, on a best efforts basis, up to 8,000,000 units
(each consisting of one share of common stock, one A warrant to
purchase one share of common stock at $.75 and one B warrant to
purchase one share of common stock for $1.75) at a purchase price
of $.50 per unit. The Company filed its prospectus on January 22,
2003 and was declared effective on that date. The Company sold
2,474,000 units for total gross proceeds of $1,237,000. The
placement agent received 10% of the gross proceeds from the
offering, plus certain warrants and reimbursement of expenses.
Placement agent fees and registration costs were $403,942 of
which $234,681 had been paid in 2002 and 2001 and the balance of
$169,311 was paid from the proceeds of the offering. The Company
has repaid all outstanding notes totaling $475,000 and interest
of $82,518 of the proceeds from the IPO. $265,719 of the proceeds
from the IPO was used to pay accounts payable and expenses. The
balance was used for working capital.
(a) Organization and Presentation of Financial Statements:
(Continued)
Since the Company has not generated significant revenues and
as management does not anticipate the Company will generate
sufficiently substantial revenues from the sale of its products
in an amount necessary to meet its cash needs for the next twelve
months, management believes the Company will need additional
financing to continue operating.
F-9
Accordingly, effective September 8, 2003, the Company
commenced a best efforts private offering of up to 4,000,000
shares of its common stock, $0.0001 par value at $0.25 per share.
The per share offering price was established by the Company
because of the restrictions on transfer of the shares and the
fact that prospective investors will be required to purchase a
substantial number of shares (20,000 for $5,000) in order to
participate. In November 2003, the offering was increased up to
6,000,000 shares at the same purchase price and provided that the
Company may use one or more placement agents to assist in the
sale. This offering has been extended through February 29, 2004.
The Company would pay each placement agent a commission of 10% of
the proceeds of all the shares placed by the placement agent and
non-accountable expenses of 2% of the proceeds of all the shares
placed by the placement agent. In addition to the placement
agent's cash compensation, the Company has agreed to give the
placement agent warrants to purchase up to 600,000 shares of
common stock at a purchase price of $.30 per share which will be
exercisable for a period of 5 years, which means that the
placement agent will receive a warrant to purchase one share of
common stock for every 10 shares sold by the placement agent. The
placement agent's warrants and the underlying shares of common
stock will not be registered at the time of grant. The placement
agent will have certain piggybank rights to cause the
registration of the shares if the Company effects a registration
of its securities. Through December 31, 2003, 2,798,000 shares
were purchased for $688,320, net of $12,880 in offering costs of
which $1,700 was unpaid at December 31, 2003. The placement agent
was entitled to, but had been issued, his warrants to purchase
34,000 shares of the Company's common stock for $0.30 per share
at December 31, 2003.
(b) Principal Business Activity:
The Company is focused on utilizing new and emerging
technology to develop products and services oriented toward
improving family and well-being, primarily but not exclusively in
the home, having shifted its primary focus from providing small
businesses with online forums. The Company will continue to
develop software intended to keep children safe while online:
and, its more expanded purpose will be to seek out emerging
technologies, products and services that exhibit significant
promise of improving family safety and well being.
The Company's two existing software products, Sentry At Home
and Sentry Remote, formerly known as Secure Protect Identify Kids
Everywhere (S.P.I.K.E.) and S.P.I.K.E. Remote Sentry, were
developed to keep children safe while online. These monitoring
programs are currently being tested by an outside testing center.
The Company entered into an exclusive five year licensing
agreement with Family Trusted Products, LLC ("FTP"). FTP will be
responsible for the manufacturing, marketing and distribution of
the Sentry Products. FTP will pay the Company a royalty of 10% on
all FTP sales of the Sentry products. The Company is responsible
to supply FTP with technical support and upgrades.
F-10
Expanded Areas of Development
Indoor Air Quality (IAQ)
The Company has been exploring opportunities with the "at
home" quality of living aspects of indoor air quality ("IAQ").
The Company has formed a subsidiary, Indoor Air Quality Services,
Inc., to pursue the IAQ business. The increased knowledge and
concern with regards to indoor air toxins and irritants, combined
with the dramatic increase in the diagnosis of childhood and
adult asthma and the potential impact of these issues on general
family health, represent, in the Company's opinion, a vast area
in need of address and solutions. The increasing media attention,
as well as hard and soft data related to in-home complaints and
associations with IAQ problems, make the opportunity to develop a
consumer friendly/informative home-based solution extremely
attractive to the Company.
The Company has chosen to focus on one of the most important
issues within the broader IAQ arena - Mold. There is a great deal
of both medical and media attention being given to the detection
and the removal of harmful molds from both indoor residential and
commercial structures. The Company is investigating the potential
for engaging in both aspects of the mold issue (1) providing
definitive products for screening for mold conditions and (2)
providing effective indoor mold remediation solutions.
In September 2003, the Company signed a letter of intent
("Letter of Intent") with a company that holds a license to
exploit an organic compound that renders mold harmless (the
"Product"). On February 3, 2004, the Company entered into a
Participation Agreement with Environmental Commercial Technology
Corp. (ECT). ECT has been granted the rights to market a product
which is a compound intended for the remediation and prevention
of the growth of mold and fungus. The Company received the right
to receive 5% of the gross revenue from the sale of the product
for a 5 and 1/2 year term. In return, the Company provided
development capital of $600,000 in cash of which $400,000 was
paid at closing the balance is payable in two equal installments
in March and August 2004. The Company will provide consulting
services in connection with the marketing and sales of the
product. As additional consideration, the Company also granted
ETC and its parent company, Bioneutral Laboratories Corporation
USA, a total of 2,300,000 shares of common stock and warrants to
purchase up to 2,300,000 shares of common stock.
Community Builder Template and Online Employment/Job Listing
The Company has decided that its primary focus will be on
family well being and home safety which includes its family
software products and the area of indoor air quality,
specifically, mold. The Company will not be offering its hosting
business or the community builder templates any longer as these
business areas do not appear to provide viable revenue at this
time.
F-11
NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES:
(j) Basis of Presentation:
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The Company in August 2003 incorporated
its wholly-owned subsidiary, Indoor Air Quality Services, Inc.,
which has had no activity through December 31, 2003. The
accompanying consolidated financial statements as at and for the
year ended December 31, 2002 includes the accounts of the
Company. All intercompany transactions have been eliminated in
consolidation and its wholly-owned subsidiary. The accompanying
financial statements as at and for the year ended December 31,
2003 include the accounts of the Company and its wholly-owned
subsidiary.
(k) Revenue Recognition:
Through December 31, 2003, the Company did not have
significant revenues and is in the development stage. The Company
recognizes revenues in accordance with accounting principles
generally accepted in the United States of America. Income from
contracts for advertising income, web site services and solutions
will be earned on a pro-rata basis throughout the life of the
related contract. Deferred revenues at December 31, 2003 were
$120. Royalty income will be recognized in the same period as the
underlying licensees' sales are reported as income. Revenues in
the form of sales and commissions from the on-line sale of
products, if any, will be recognized at the date of shipment.
(l) Use of Estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
F-12
(m) Concentration of Credit Risk:
Financial instruments that potentially subject the Company
to a significant concentration of credit risk consists of cash.
The Company places its cash with high credit quality financial
institutions which at times maybe in excess of the FDIC insurance
limit.
(n) Depreciation and Amortization:
Depreciation of property and equipment is provided by the
straight-line method over the estimated useful lives of the
related assets ranging from five to seven years. Significant
improvements are capitalized; maintenance and repairs are charged
to income. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the
accounts and the resulting gain or loss, if any, is reflected in
income.
Costs associated with the development of software that is
not intended for sale are capitalized. Costs incurred in the
securing of financing and for promotional incentives are also
capitalized. Amortization of software development costs, finance
costs and promotional incentives are provided by the
straight-line method, over estimated useful lives of three years,
sixty days and eighteen months, respectively.
(o) Earnings Per Share:
The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share". Basic earnings per share
is based on the weighted effect of all common shares issued and
outstanding, and is calculated by dividing net income available
to common stockholders by the weighted average shares outstanding
during the period. Diluted earnings per share, which is
calculated by dividing net income available to common
stockholders by the weighted average number of common shares used
in the basic earnings per share calculation plus the number of
common shares that would be issued assuming conversion of all
potentially dilutive securities outstanding, is not presented as
it is anti-dilutive.
(p) Stock Based Compensation:
The Company elected to use the intrinsic value method to
account for future options granted to employees for the purchase
of common stock as per Accounting Principles Board Opinion No.25
"Accounting for Stock Issued to Employees". The Company will
disclose the pro forma effect of accounting for stock options
under the fair value method as prescribed in SFAS No. 123,
"Accounting for Stock-Based Compensation". For transactions in
which goods and services are the consideration received for the
issuance of common stock, the accounting shall be the fair value
of the common stock issued or the fair value of the consideration
received whichever is more reliably measurable at the date the
options are issued. The Company has chosen not to adopt SFAS 148
"Accounting for Stock-Based Compensation - Transition and
Disclosure" which was issued in December 2002. This statement
amends SFAS No. 123, to provide alternative methods of transition
for a voluntary change to the fair value based method.
F-13
(q) Software Research and Development Costs:
Research and development costs are expensed as incurred.
Software development costs are subject to capitalization
beginning when a product's technological feasibility has been
established and ending when a product is available for release to
customers. The Company intends to release its products as soon as
possible after technological feasibility has been established. As
a result, costs subsequent to achieving technological feasibility
should not be significant and all software development costs will
be expensed. Commencing in April 2002, the Company incurred
software research and development costs of $204,342 which were
charged to operations ($154,609 in 2003 and $49,715 in 2002) in
connection with the initial development phase of two products.
(r) Advertising Costs.
The Company expenses ordinary advertising and promotion
costs as incurred. The Company incurred no advertising and
promotion costs prior to January 1, 2001. Advertising and
promotion costs were $20,325 and $43,754 for the year ended
December 31, 2003 and 2002, respectively.
The Company amortized promotional incentives under an
eighteen-month advertising agreement with Lifetyme, Inc.
Amortization costs charged to operations under the agreement was
for the year ended December 31, 2002 was $41,550. These
promotional incentives have been fully amortized because
management determined they have no future benefit to the Company.
(j) Recently Issued Accounting Pronouncements:
In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure." This
statement amends SFAS 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for
an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. The Company
has elected not to adopt the provisions of SFAS No. 148. However,
the Company will provide all newly required disclosures under
SFAS No. 123
In December 2003 the FASB issued Interpretation No. 46
(Revised) "Consolidation of Variable Interest Entities". This
interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", describes the circumstances
under which a variable special purpose entity is to be
consolidated with entities that do not have the characteristics
of a controlling interest in the special purpose entity.
F-14
In April 2003, the FASB issued SFAS No. 149 which amends and
clarifies SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities.
In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Instruments with Characteristics of Both Liabilities and
Equity. This statement establishes standards for how an issuer
classifies certain financial instruments with characteristics of
both liabilities and equity.
Management believes the adoption of these pronouncements
will not have a material impact on the Company.
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment consist of the following:
December 31,
2003 2002
-------- -------
Computers $29,290 $29,290
Furniture and fixtures 803 803
-------- -------
30,093 30,093
Less: Accumulated depreciation 12,831 6,859
-------- -------
$17,262 $23,234
======== =======
Depreciation expense charged to operations were $5,972 and
$4,178 for the years ended December 31, 2003 and 2002,
respectively.
F-15
NOTE 4 - INTANGIBLE ASSETS.
In connection with the December 31, 2001 private placement
of the Company's notes, the placement agent has received a fee of
$27,500 through December 31, 2001 and an additional fee of
$25,000 for the year ended December 31, 2002. The fee was charged
to operations as additional interest over the 60-day term of the
notes. Amortization of these fees charged to operations was $625
and $36,875 for the years ended December 31, 2003 and 2002,
respectively.
In accordance with the American Institute of Certified
Public Accountants Statement of Position No. 98-1, "Accounting
for the Cost of Computer Software Developed or Attained for
Internal Use," the Company, since inception, capitalized costs of
$247,477 of which $33,625 and $59,830 were capitalized in 2003
and 2002. These costs consisting of amounts paid to independent
consultants related to the implementation and enhancement of its
propriety related database and interactive operating software.
The Company is amortizing these costs over their estimated useful
lives of the three years. Amortization charged to operations
during the years ended December 31, 2003 and 2002 was $59,000 and
$54,886, respectively. In August 2003, the Company agreed to
purchase certain software from the entity that had been licensed
the software to the Company. The purchase has not closed at
December 31, 2003. The Company has reflected the cash portion of
the purchase price it will pay in software and will commence to
amortize the software upon closing. The total purchase price is
cash of $25,000 and options to acquire 750,000 shares of the
Company's common stock, See Note 12.
In November 2001 the Company capitalized $44,500 in
promotional incentives upon a vendor exercising stock purchase
rights in accordance with provisions contained in an advertising
agreement which expired in April 2003. The Company had been
amortizing the costs over the agreement period of eighteen
months. At December 31, 2002, these promotional incentives had
been fully amortized ($41,550 for the year ended December 31,
2002) because management determined they had no future benefit to
the Company.
NOTE 5 - NOTES PAYABLE - BANK.
The Company has a $50,000 revolving line of credit with a
bank. Interest on borrowings is charged at 2.25% above the bank's
prevailing prime rate which was 6.25% and 6.5% at December 31,
2003 and 2002, respectively. The weighted average interest rate
for fiscal 2003 and 2002 was 6.25% and 6.5%, respectively.
Interest expense of $2,684 and $3,085 was charged to operations
in 2003 and 2002. At December 31, 2003 and 2002, $14,450 and
$39,450 of the line has been utilized. The debt is guaranteed by
the current CEO/CFO of the Company and is collateralized by
marketable securities which he owns which have a fair market
value of approximately $36,000 and $33,000 at December 31, 2003
and 2002.
F-16
NOTE 6 - NOTES PAYABLE - OTHER.
(c) During December 2001, the Company initiated a private
placement offering to raise capital in order to fund the
creation of its web site. The offering consisted of thirteen
$25,000 notes bearing interest at 10% per annum payable in
sixty (60) days from issuance. If the notes were not repaid
in full on their due dates, then each note holder has the
right to purchase 10,000 shares of the Company's common
stock at $.01 per share and then 5,000 shares at the end of
each additional thirty (30) day period the notes remain
outstanding. The variance between the purchase right's
exercise price per share and the fair value of the
securities acquired will be charged to operations as
additional interest. Additionally, the placement agent was
to be paid ten (10%) percent of the proceeds of the
offering, plus out-of-pocket expenses. Amortization of
deferred financing costs is charged to operations over the
sixty (60) day term of the notes.
(d) At December 31, 2001, the Company had sold nine notes, one
of which was to its former CFO. In January and February
2002, the remaining four notes were sold at par value. The
notes were repaid with accrued interest in July 2003. A
placement agent fee of $25,000 was paid in December 31, 2002
and is reflected on the accompanying balance sheet as
deferred financing costs. During the year ended December 31,
2003, an additional compensatory element interest charged to
operations for the excess of the fair value of the note
holders purchase rights received over their exercise price
was $45,200. The fair value of the purchase rights was
determined by management at $.09 per share which was the
ascribed fair value of the purchase rights using the
Black-Scholes Option Pricing Model for determining fair
value. During the year ended December 31, 2003, an
additional compensatory interest element for purchase rights
to acquire 345,000 common shares was charged to operations
for the excess of the fair value of the note holders'
purchase rights received over their exercise price of
$169,050. The fair value of the purchase rights was
determined by management to be $.49 per share which was the
difference between the $.50 per unit price the Company's
securities were being offered to the public at the date of
issuance of the purchase rights and the $.01 per share note
holders' purchase price.
During the year ended December 31, 2002, the note holders'
exercised rights to acquire an aggregate 310,000 common
shares for $3,100 including the Company's former CFO who
exercised rights to acquire 55,000 common shares for $550.
During the year ended December 31, 2003, the note holders
exercised rights to acquire 815,000 common shares in the
aggregate for $8,150. These notes and the accrued interest
were repaid in 2003.
(e) Included in the caption "Notes Payable - Other" are 10%
interest bearing bridge loans in the amount of (1) $75,000
received during May 2002, (2) $50,000 received in July 2002
and (3) $25,000 received in October 2002. The notes were due
in September 2002, November 2002 and January 2003,
respectively. As the notes were not paid on their due dates,
the interest rate increased to 20%. The notes were repaid
with accrued interest in July 2003.
F-17
NOTE 7 - LOAN PAYABLE - EQUIPMENT.
Equipment loan payable is comprised of the following:
December 31,
2003 2002
-------- --------
Obligation under equipment financed
payable in installments of $495 including
13% interest through March 2005 $7,613 $11,872
Less: Current portion 5,206 4,672
-------- --------
$2,407 $ 7,200
======== ========
NOTE 8 - DUE TO STOCKHOLDERS.
At December 31, 2003 and 2002, the Company was indebted to
the CEO/CFO of the Company in the amount of $115,188 and its
President in the amount of $14,820 for cash working capital
advances made to the Company. During the year ended December 31,
2003, the CEO/CFO made additional loans to the Company in the
amount of $15,000. These advances are non-interest bearing. The
officers of the Company do not expect repayment of these advances
prior to the Company's attainment of sufficient cash flows to
sustain its operations for eighteen (18) months.
On December 30,2003, management agreed to issue a non
employee director options to acquire 750,000 restricted shares of
the Company's common stock for business and marketing advice
rendered by the director in the last quarter of 2003. The fair
value of the services rendered as determined by both the director
and management is the fair market value of the options to be
issued, as determined by utilizing the Black-Scholes option
pricing model, based upon the then selling price of restricted
shares through the Company's private placement, $0.25 per share.
Such fair value of $187,500 has been charged to operations in
2003 with a corresponding increase in due to stockholders. Upon
the issuance of the options, the liability to stockholders will
be reduced by $187,500 and additional paid-in capital will be
increased by $187,500.
F-19
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES.
Accounts payable and accrued expenses consist of the following
at:
December 31,
2003 2002
-------- --------
Professional fees $20,548 $224,795
License costs 15,000 50,000
Interest on notes payable 127 43,774
Consultants 25,000 43,170
Sundry operating expenses 4,532 54,280
-------- --------
$65,207 $416,019
======== ========
NOTE 10 - INCOME TAXES.
The Company does not have any currently payable or deferred
federal or local tax benefit since its inception to December 31,
2003. At December 31, 2003, the Company had a net operating loss
carryforward available to reduce future taxable income amounting
to $1,588,000 of which $131,000 expires in 2021, $557,000 expires
in 2022 and $900,000 expires in 2023. Management is unable to
determine if the utilization of the future tax benefit is more
likely than not and, accordingly, the asset for federal and local
carryforwards of approximately $624,000 has been fully reserved.
A reconciliation of the actual tax provision to the expected
statutory rate is as follows:
For the Year Ended December 31,
---------------------------------------------------------
2003 2002
---------------------------------------------------------
Loss before income taxes ($1,068,433) ($594,672)
============ ==========
Expected statutory tax benefits ($363,300) -34.0% ($202,200) -34.0%
Nondeductible expense, amortization 77,500 7.3% 12,900 2.0%
Net operating loss valuation reserve 285,800 26.7% 189,300 32.0%
---------- ------ --------- -----
Total tax benefit $ - 0.0% $ - 0.0%
========== ====== ========= =====
F-20
NOTE 11 - COMMON STOCK.
On September 5, 2001, the founding shareholders subscribed
for 6,660,000 common shares for an aggregate of $6,450. The
subscriptions were paid in January, February and July 2002 and
are reflected as stock subscriptions receivable in the financial
statements as at December 31, 2001.
On September 5, 2001, the shareholders of SH Networks.com,
Inc. (SHN) and the Company agreed to merge SHN into the Company.
The SHN shareholders received 6,616,910 shares of the Company's
common stock in exchange for all of the outstanding capital stock
of SHN. At the date of the merger, SHN's liabilities exceeded its
assets by $131,461. Simultaneously with the merger, certain
creditors agreed to exchange $104,075 in debts for 1,123,090
shares of the Company's common stock ($.09 per share).
September 5, 2001, counsel for the Company accepted 100,000
shares of the Company's common stock as partial payment for
services rendered. The fair value of the services rendered and
the shares at date of issuance was $9,000 ($.09 per share).
On November 26, 2001, the individual assignees of an
advertising agreement exercised the purchase right contained in
the agreement to acquire 500,000 shares of the Company's common
stock for $500. The fair value for the securities issued was
$45,000 ($.09 per share) on the date of issuance, which was the
ascribed fair value of the purchase rights using the
Black-Scholes Option Pricing Model for determining fair value.
Commencing in February 2002 through December 2002, seven
note holders exercised their purchase rights and acquired 310,000
common shares for $3,100 in cash. During fiscal 2003, nine note
holders exercised their purchase rights for 815,000 common shares
for $8,150 in cash.
F-21
In December 2003, management agreed to issue to a director
options to acquire 750,000 restricted shares of the Company's
common stock as payment for services rendered by the director.
The fair value of option for the services rendered of $187,500,
as determined by the Black-Scholes option pricing model, was
charged to operations in 2003 with a corresponding increase in
due to stockholders. Upon the issuance of the options, the
liability to stockholders will be reduced by $187,500 and
additional paid-in capital will be increased by $187,500.
Initial Sale of the Company's Securities to the Public:
The Company entered into a agreement with a placement agent
to offer for sale to the public on a best efforts basis up to
8,000,000 units (each consisting of one share of common stock,
one warrant to purchase one share of common stock at a price of
$.75 per share and a warrant to purchase one common share at
$1.75) at $0.50 per unit, which became effective on January 22,
2003. The placement agent is to receive 10% of the gross proceeds
from the offering plus certain warrants and reimbursements of
expenses of 3% of the gross proceeds and certain placement agent
warrants. The Company granted the placement agent and his
designee warrants which expire on December 31, 2007, to purchase
up to 247,000 units at $.985 per unit for five years. Upon the
exercise of a warrant by the placement agent, the placement agent
shall receive a share of the Company's common stock, a Class A
redeemable warrant to purchase one share of common stock
exercisable at $.985 per share for five years and Class B
redeemable warrant to purchase one share of the Company's common
stock for five years at $2.285. Management and the placement
agent consider the placement agent warrants to be additional
compensation for the agent's services in the offering. If these
warrants are exercised in whole or in part, any excess of the
fair value of the securities issued over the warrant exercise
price will be reflected as cost of raising capital and not a
charge to operations and, accordingly, will be charged to
additional paid in capital. The offering which originally
terminated on June 30, 2003 was extended to July 31, 2003. The
Company sold 2,474,000 units for $843,068 in cash, net of
placement and deferred registration costs.
Private Placement of The Company's Securities:
Effective September 8, 2003, the Company commenced a best
efforts private offering of up to 4,000,000 shares of its common
stock, $0.0001 par value at $0.25 per share. The per share
offering price was established by the Company because of the
restrictions on transfer of the shares and the fact that
prospective investors will be required to purchase a substantial
number of shares (20,000 for $5,000) in order to participate. In
November 2003, the offering was increased up to 6,000,000 shares
at the same purchase price and provided that the Company may use
one or more placement agents to assist in the sale. This offering
has been extended through February 29, 2004. Each placement agent
earns a commission of 10% of the proceeds of all the shares
placed by the placement agent and non-accountable expenses of 2%
of the proceeds of all the shares placed by the placement agent.
In addition to the placement agent's cash compensation, the
Company has agreed to give the placement agent warrants to
purchase up to 600,000 shares of common stock at a purchase price
of $.30 per share which will be exercisable for a period of 5
years, which means that the placement agent will receive a
warrant to purchase one share of common stock for every 10 shares
sold by the placement agent. Through December 31, 2003, 2,798,000
were purchased by accredited investors for $699,500 and through
February 3, 2004, 33 individuals purchased 3,468,000 shares for
$867,000. At December 31, 2003, the placement agent was owed
$1,700 and was entitled to receive warrants to acquire 34,000
common shares at $0.30 each.
F-22
Stock Option Plan:
On December 15, 2003, the Company's stockholders ratified
the SearchHelp, Inc. 2004 Stock Option Plan ("Plan") which became
effective January 1, 2004. Under the Plan, 1,500,000 shares of
the Company's common stock are reserved for issuance to employees
(including officers), directors and consultants upon exercise of
options, stock awards, and stock purchase rights. Options
intended to qualify as incentive stock options ("ISO") under
Section 422(b) of the Internal Revenue Code of 1986 are to be
granted to employees only at an exercise price not less than 100%
of the fair market value of the Company's common stock at date of
grant except for employees holding more than 10% of the Company's
common stock whose option price shall be 110% of fair market
value at date of grant. Options, stock awards and purchase rights
not intended to qualify as ISOs may be granted to employees,
officers, directors and consultants to the Company. The minimum
exercise price of non-qualified ISOs shall be not less than the
minimum legal consideration required under the laws of
jurisdiction where the Company was organized. The number of
shares granted, terms of exercise, and expiration dates are to be
decided at the date of grant of each option, award and purchase
right by the Company's Compensation Committee of the Board of
Directors. The maximum term of an ISO is five (5) years and ten
(10) years for non-qualifying ISO. The Plan commenced on January
1, 2004 and will terminate on December 31, 2014 unless sooner
terminated by the Board of Directors
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
(e) Stock Purchase Rights:
Certain notes payable include a default penalty that
entitles the holder to purchase (i) 10,000 shares of the
Company's common stock for $.01 per share if the note is not
repaid on its original due date and (ii) 5,000 shares of the
Company's common stock for $.01 per share for each thirty day
period the note remains unpaid past its original due date. Each
note holder receives these purchase rights regardless of whether
the individual note holder agrees to extend the due date of the
note. Through December 31, 2002, the note holders received rights
to acquire 780,000 common shares at $.01 each. The difference
between the fair value of the common stock underlying the
F-22
purchase rights ($.09 per share, which was the ascribed fair
value of the purchase rights using the Black-Scholes Option
Pricing Model for determining fair value) and the exercise price
of $.01 is charged to operations as additional interest on the
date the purchase rights are issued. Through December 31, 2002,
the note holders exercised rights to acquire 310,000 common
shares. During the year ended December 31, 2003, the note holders
received additional rights to acquire 345,000 common shares at
$.01 each. The difference between the fair values of the common
stock underlying the purchase rights ($.49 per share which was
determined by management as the difference between the $.50 per
unit price the common stock was then being offered to the public
and the $.01 par share note holders purchase price). During the
year ended December 31, 2003, the note holders exercised purchase
rights to acquire 815,000 common shares. At December 31, 2003, no
purchase rights to acquire common shares were outstanding.
(f) License and Distribution Agreement.
In June 2002, the Company entered into a 5 year license
agreement to be the exclusive licensee through December 31, 2003
and a non-exclusive licensee thereafter to manufacture, package,
promote, advertise, market and sell a software package designed
to assist parents to monitor their child's on-line behavior. The
Company was required to pay the licensor an initial license fee
of $50,000 and thereafter a royalty of $4 for each product sold.
At December 31, 2002 the unamortized portion of the deferred
license fee was $44,167 and the licensor was owed $50,000 which
is included in accounts payable and accrued expenses at December
31, 2002. Through August 15, 2003, the Company paid the licensor
$25,000.
Effective August 15, 2003, the parties terminated the
agreement by entering into a software purchase and services
agreement. Under the terms of this agreement the Company is not
required to pay the balance owed of $25,000 under the license
agreement. The Company under new agreement will acquire the
software and all related documents which it had licensed in the
June 2002 agreement. The purchase price for the software is
$50,000 in cash of which $10,000 was paid at the signing of the
agreement, the Company was given a $25,000 credit for the cash
paid under the old license agreement and the balance of $15,000
is payable at the closing date. The closing date was scheduled
for October 15, 2003 but has been extended indefinitely because
the seller has been unable to transfer all of the deliverable
items in the agreement to the Company. Management and the seller
anticipate that all of the items will be delivered in late March
or early April 2004. On the date of the closing, the seller is
entitled to additional compensation for the software in the form
of two options to buy a total of 750,000 shares of the Company's
common stock.
F-23
The exercise price of the options will be determined to be
the average of the Company's trading prices for the thirty (30)
day period immediately preceding the closing. One option for
250,000 shares is exercisable only if the Company sells 3,000,000
units of the software in the five (5) year period immediately
following the closing. The other option for 500,000 shares is
exercisable for any time up to five (5) years after the closing.
At August 15, 2003, the unamortized portion of the license
agreement less the $25,000 which was not required to be paid was
charged to operations. Amortization and the write off aggregating
$19,167 were charged to operations in 2003.
The agreement also requires the seller to perform certain
consulting services for the Company for $8,000 per month
commencing in October 2003 through April 2004. The consulting
services include, among other items, assistance in hiring,
training and overseeing a technical support team for the Company.
(g) Lease:
The Company is obligated under an operating lease for its
office, which expires on December 1, 2004 at an annual rent of
$12,960.
(h) Internet Advertising Agreement.
The Company entered into an Internet Advertising Agreement
with Lifetyme, Inc., a development stage company. The original
term of the agreement was for 18 months with the Company having
the option to extend the agreement for an additional 18 months.
At the inception of the agreement, the Company granted Lifetyme,
Inc. a right to purchase 500,000 shares of the Company's common
stock for $500 cash. This right was assigned to certain
shareholders of Lifetyme, Inc. who exercised the right. At the
time of the exercise of the common stock purchase right the
deemed fair value of the Company's common stock was $.09 per
share, which was the ascribed fair value of the purchase rights
using the Black-Scholes Option Pricing Model for determining fair
value (which was for services rendered to the Company). The
difference between the $500 price paid by Lifetyme, Inc. upon
exercise of the purchase right and the intrinsic fair value of
the Company's common stock ($.09) of $44,500 was classified in
the financial statements as deferred promotional incentives and
was being amortized over the life of the advertising agreement.
Through August 2002, no benefit had arisen from the contract with
Lifetyme and management determined its value was fully impaired
because it did not appear that any income would arise from the
contract prior to its expiration. Accordingly, the unamortized
portion of the contract of $21,773 was written off and charged to
operations in September 2002. As of August 6, 2003, the Company
has notified Lifetyme, Inc. that it will not be extending or
renewing the contract.
F-24
(i) Employment Agreements:
On January 1, 2004, William Bozsnyak entered into a 3-year
employment agreement with the Company terminating the previous
agreement. Mr. Bozsnyak is the Chief Executive Officer, Chief
Financial Officer, Treasurer, Vice President and Chairman of the
Board of Directors. The agreement provides for a base salary of
$80,000 and a minimum annual increase in base salary of 5% if
approved by the Board of Directors. His salary shall be increased
to $150,000 per annum upon the Company's successful completion of
future sales of stock with total gross proceeds of at least
$2,400,000.
On December 8, 2003, Debbie Seaman entered into a 3-year
employment agreement with the Company terminating the previous
agreement. Ms. Seaman is the President and Secretary. The
agreement provides for a base salary of $70,000 and a minimum
annual increase in base salary of 5% if approved by the Board of
Directors. Her salary shall be increased to $140,000 per annum
upon the Company's successful completion of future sales of stock
with total gross proceeds of at least $2,400,000. During the year
ended December 31, 2003, Ms. Seaman received $26,246 in
compensation.
Both of these employment agreements will be automatically
extended each year unless notice is received by either the
employee or the Company. Both Mr. Bozsnyak and Ms. Seaman will
receive incentive bonuses to be determined prior to the
commencement of each year if they satisfy the criteria for such
bonuses as determined by the Company's compensation committee.
Both Ms Seaman and Mr. Bozsnyak will be granted options to
purchase up to $200,000 worth of shares of common stock at a
price equal to the midpoint between the bid and ask price of a
share of common stock on the date of the grant from the Company's
stock option plan.
F-25
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The Company's quarterly financial data, for the years ended
December 31, 2003 and 2002 follows below.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
December 31, 2003:
- ------------------
Net loss ($245,800) ($234,461) ($107,280) ($480,892)
=========== =========== =========== ==========
Loss per share ($.02) ($.01) ($.01) ($.02)
=========== =========== =========== ==========
Shares used in
computation 15,684,811 16,356,032 18,261,760 19,722,913
=========== =========== =========== ==========
December 31, 2002:
- ------------------
Net loss ($268,106) ($ 34,498) ($165,054) ($127,014)
=========== =========== =========== ==========
Loss per share ($.02) $ - ($.01) ($.01)
=========== =========== =========== ==========
Shares used in
computation 15,008,111 15,003,186 15,111,800 15,162,008
=========== =========== =========== ==========
NOTE 14 - SUBSEQUENT EVENT.
On February 3, 2004, the Company entered into a
Participation Agreement with Environmental Commercial Technology
Corp. ("ECT"). ECT has been granted the rights to market a
product, an organic compound ("product"), intended for the
prevention of the growth of mold and fungus. The Company received
the right to receive 5% of the gross revenue from the sale of the
product. In return, the Company provided development capital of
$600,000 and will provide consulting services in connection with
the marketing and sales of the product for a 5 and 1/2 year term.
As additional consideration, the Company also granted ETC and its
parent company, Bioneutral Laboratories Corporation USA, a total
of 2,300,000 shares of common stock and warrants to purchase up
to 2,300,000 shares of common stock.
The fair value paid for the participation agreement
aggregated $1,950,000 of which $600,000 was in cash and the
balance was the fair value of the securities issued. The fair
value of the common shares issued of $575,000 was determined by
the selling price of the Company's unregistered restricted common
stock on the transaction date of $0.25 per share. The fair value
of the warrants using the Black-Scholes pricing method with a 6%
risk-free interest rate and 200% volatility is $575,000. The
estimated registration costs to be borne by the Company are
$200,000. The Company is required to effectuate and pay the costs
of a registration statement with Securities and Exchange
Commission for the shares issued and the shares underlying the
warrants issued to ECT and its parent by September 1, 2004. If
the Company is not successful in registering these securities by
that date, the agreement allows the warrant exercise price to be
reduced in stages from $0.33 per share at September 1, 2004 to a
low of $0.01 at January 1, 2006. If the registration statement is
not effective by January 1, 2005, both ECT and its parent may
cancel the agreement and within ten (10) days of such
termination, return to the Company (i) the cash of $600,000, less
any revenue sharing payments made to the Company, (ii) the
warrants and (iii) half of the common shares issued and to the
extent that the shares are not then in ECT or its parent
company's possession, they must pay fifteen cents ($0.15) for
each such share that is no longer in their possession.
F-26
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation (the "Certificate") provides that, except
to the extent prohibited by the Delaware General Corporation Law, as amended
(the "DGCL"), the Registrant's directors shall not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Registrant. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
the DGCL. This provision also does not affect the directors' responsibilities
under any other laws, such as the Federal securities laws or state or Federal
environmental laws. The Registrant has applied for liability insurance for its
officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Registrant may fully indemnify 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 such person is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
70
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Not applicable.
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES
On September 8, 2003 we commenced a best efforts private offering of
4,000,000 shares of our common stock at $.25 per share. This offering was
increased to 6,000,000 shares of our common stock in November 2003 and increased
to 7,200,000 shares in March 2004 for a total of $1,800,000 to be raised. The
offering will close on May 31, 2004, unless we extended it.
As of April 29, 2004, a total of 5,460,000 shares were sold to
approximately 59 accredited investors. The gross proceeds of the offering as of
that date was $1,462,500 and the net proceeds to us, after expenses and broker
commissions, was approximately $1,417,765.
S.G. Martin Securities, LLC was the placement agent for a portion of the
funds raised and received 10% commission of $27,800 and 2% non-accountable
expense of $5,560 has been accrued and not paid as of April 29, 2004. The
placement agent is entitled to but has not yet received 111,200 placement agent
warrants. These and the 2 % non accountable expenses will be paid to the
placement agent within thirty days of the close of the offering.
Our financial statements reflect an accrual at December 31, 2003 of $1,700
payable to S.G. Martin Securities, LLC, our placement agent, and a warrant to
purchase 34,000 shares of our common stock at $.30 per share is issuable to the
placement agent. Through April 29, 2004, S.G. Martin Securities, LLC raised a
total of $278,000 and was paid a 10% commission of $27,800. $5,560 has been
accrued for the 2% non-accountable expenses that have not been paid as of April
29, 2004. S.G. Martin is also entitled to, but has not yet received, a placement
agent warrant to purchase a total of 111,200 our common stock. These items will
be paid by us within thirty days after the close of the offering.
In February 2004, we issued 2,300,000 of its common shares valued at
$575,000 and warrants to acquire another 2,300,000 common shares at $0.33 in
partial payment for royalties as per a participation agreement with the mold
remediation licensee and its parent.
Between December 1, 2001 and February 14, 2002 promissory notes in the
aggregate amount of $325,000 were issued to 13 accredited investors. Robert M.
Cohen & Co., Inc. was the placement agent and received commissions totaling
$32,500. Since we did not pay back the note holders in full within 60 days after
the issuance of the notes, they were entitled to purchase up to 5,000 shares of
our common stock per month at $.01 per share for each additional month the notes
remained unpaid. The notes were paid in full by July 2003 out of the proceeds of
our initial public offering. A total of 1,125,000 shares were purchased by the
note holders.
All of the above mentioned shares of common stock were issued in reliance
on the exemption from registration provided by Rule 506 of the Securities Act of
1933, as amended.
On December 30, 2003, management agreed to issue an option to purchase
750,000 shares of common stock at $.25 per share to a non-employee director for
business and marketing services rendered by him. The option was issued on March
12, 2004.
In March, 2004, options to purchase an aggregate of 220,000 shares of our
common stock, exercisable at $.25 per share, were granted to two officers under
our 2004 Stock Plan and an option to purchase 750,000 shares of common stock,
exercisable at $.62 per share, was granted to a consultant, outside of the 2004
Stock Plan.
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ITEM 27: EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(a) Placement Agent Registration Rights Agreement, dated January 22,
2003, between the Company and Robert M. Cohen & Co, Inc.
(Incorporated herein by reference to the Company's Form SB-2
filed with the Securities and Exchange Commission, File No.
33-97687).
1(b) Form of Placement Agent Warrant (Incorporated herein by reference
to the Company's Form SB-2 filed with the Securities and Exchange
Commission, File No. 33-97687).
3(a) Articles of Incorporation of the Company (Incorporated herein by
reference to the Company's Form SB-2 filed with the Securities
and Exchange Commission, File No. 33-97687).
3(b) By-laws of the Company (Incorporated herein by reference to the
Company's Form SB-2 filed with the Securities and Exchange
Commission, File No. 33-97687).
4(a) Specimen Common Stock Certificate of the Company (Incorporated
herein by reference to the Company's Form SB-2 filed with the
Securities and Exchange Commission, File No. 33-97687).
4(b) Specimen Class A Warrant Certificate of the Company (Incorporated
herein by reference to the Company's Form SB-2 filed with the
Securities and Exchange Commission, File No. 33-97687).
4(c) Specimen Class B Warrant Certificate of the Company (Incorporated
herein by reference to the Company's Form SB-2 filed with the
Securities and Exchange Commission, File No. 33-97687).
5 Opinion re: Legality (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 filed
to the Form SB-2 Registration Statement with the Securities and
Exchange Commission on May 10, 2004.)
10(a) Agreement of Lease, dated December 1, 2000, between the Company
and Briarcliffe Foundation, Inc. (Incorporated herein by
reference to the Company's Form SB-2 filed with the Securities
and Exchange Commission, File No. 33-97687).
10(b) Extension of Agreement of Lease, dated March 18, 2002, between
the Company and Briarcliffe Foundation, Inc. (Incorporated herein
by reference to the Company's Form SB-2 filed with the Securities
and Exchange Commission, File No. 33-97687).
72
10(c) Form Lock-Up Agreement between the Company and non-public
Stockholders (Incorporated herein by reference to the Company's
Form SB-2 filed with the Securities and Exchange Commission, File
No. 33-97687).
10(d) Warrant Agreement, dated January 22, 2003, between the Company
and American Stock Transfer and Trust Company (Incorporated
herein by reference to the Company's Form SB-2 filed with the
Securities and Exchange Commission, File No. 33-97687).
10(e) Company 2004 Stock Plan, dated January 1, 2004. (Incorporated
herein by reference to the Company's Annual Report on Form 10-KSB
for the period ended December 31, 2003 filed with the Securities
and Exchange Commission, File No. 33-97687).
10(f) Participation Agreement, dated February 3, 2004, between the
Company and Environmental Commercial Technology Corp.
(Incorporated herein by reference to the Company's Annual Report
on Form 10-KSB for the period ended December 31, 2003 filed with
the Securities and Exchange Commission, File No. 33-97687).
10(g) Letter Agreement, dated February 3, 2004, between the Company and
Bioneutral Laboratories Corporation USA. (Incorporated herein by
reference to the Company's Annual Report on Form 10-KSB for the
period ended December 31, 2003 filed with the Securities and
Exchange Commission, File No. 33-97687.)
10(h) Letter Agreement, dated February 3, 2004, between the Company and
Bioneutral Laboratories Corporation (Worldwide) Limited.
(Incorporated herein by reference to the Company's Annual Report
filed on Form 10-KSB for the period ended December 31, 2003, File
No. 33-97687).
10(i) Warrant to purchase 575,000 shares of the Company's common stock
granted from the Company to Environmental Commercial Technology
Corp. (Incorporated herein by reference to the Company's Annual
Report on Form 10-KSB for the period ended December 31, 2003
filed with the Securities and Exchange Commission, File No.
33-97687.)
10(j) Warrant to purchase 1,725,000 shares of the Company's common
stock granted from the Company to Bioneutral Laboratories
Corporation USA. (Incorporated herein by reference to the
Company's Annual Report on Form 10-KSB for the period ended
December 31, 2003 filed with the Securities and Exchange
Commission, File No. 33-97687.)
10(k) Amended and Restated Employment Agreement, dated December, 2003,
between the Company and Debbie Seaman. (Incorporated herein by
reference to the Company's Annual Report on Form 10-KSB for the
period ended December 31, 2003 with the Securities and Exchange
Commission, File No. 33-97687.)
10(l) Amended and Restated Employment Agreement, dated January 1, 2004,
between the Company and William Bozsnyak. (Incorporated herein by
reference to the Company's Annual Report on Form 10-KSB for the
period ended December 31, 2003 filed with the Securities and
Exchange Commission, File No. 33-97687.)
73
10(m) Placement Agent Agreement, dated November 7, 2003, by and between
the Company and S.G. Martin Securities LLC. (Incorporated herein
by reference to the Company's Annual Report on Form 10-KSB for
the period ended December 31, 2003 filed with the Securities and
Exchange Commission, File No. 33-97687.)
10(n) Registration Rights Agreement, dated November 7, 2003, by and
between the Company and S.G. Martin Securities LLC. (Incorporated
herein by reference to the Company's Annual Report on Form 10-KSB
for the period ended December 31, 2003 filed with the Securities
and Exchange Commission, File No. 33-97687.)
10(o) Software Purchase and Service Agreement, dated as of August 15,
2003, by and between the Company and Edocusign, Inc.
(Incorporated herein by reference to the Company's Annual Report
on Form 10-KSB for the period ended December 31, 2003 filed with
the Securities and Exchange Commission, File No. 33-97687.)
10(p) Software License Agreement, dated August 29, 2003, by and between
the Company and Family Trusted Products, LLC. (Incorporated
herein by reference to the Company's Annual Report on Form 10-KSB
for the period ended December 31, 2003, File No. 33-97687.)
10(q) Form Lock-up Extension for Board of Directors. (Incorporated
herein by reference to the Company's Annual Report on Form 10-KSB
for the period ended December 31, 2003 filed with the Securities
and Exchange Commission, File No. 33-97687. )
10(r) Schedule 10.21 identifying extensions that are substantially
similar to Exhibit 10(q) in all material respects except as to
the parties thereto and the amount of shares of common stock of
the Company that are locked up. (Incorporated herein by reference
to the Company's Annual Report on Form 10-KSB for the period
ended December 31, 2003 filed with the Securities and Exchange
Commission, File No. 33-97687.)
10(s) Form Lock-up Extension for the Founding Shareholders and Previous
Noteholders. (Incorporated herein by reference to the Company's
Annual Report on Form 10-KSB for the period ended December 31,
2003 filed with the Securities and Exchange Commission, File No.
33-97687).
10(t) Schedule 10.23 identifying extensions that are substantially
similar to Exhibit 10(s) in all material respects except as to
the parties thereto and the amount of shares of common stock of
the Company that are locked up. (Incorporated herein by reference
to the Company's Annual Report on Form 10-KSB for the period
ended December 31, 2003 filed with the Securities and Exchange
Commission, File No. 33-97687).
10(u) Code of Ethics of the Company. (Incorporated herein by reference
to the Company's Annual Report on Form 10-KSB for the period
ended December 31, 2003 filed with the Securities and Exchange
Commission, File No. 33-97687.)
10(v) Employment Agreement, dated March 18, 2004, between the Company
and Noel C. Bonilla. (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 to the
Form SB-2 Registration Statement filed with the Securities and
Exchange Commission on May 10, 2004.)
10(w) Employment Agreement, dated March 18, 2004, between the Company
and Eric Elgar. (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 filed
to the Form SB-2 Registration Statement with the Securities and
Exchange Commission on May 10, 2004.)
74
10(x) Stock Option Agreement, dated March 18, 2004, between the Company
and Noel C. Bonilla. (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 filed
to the Form SB-2 Registration Statement with the Securities and
Exchange Commission on May 10, 2004.)
10(y) Stock Option Agreement, dated March 18, 2004, between the Company
and Eric Elgar. (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 filed
to the Form SB-2 Registration Statement with the Securities and
Exchange Commission on May 10, 2004.)
10(z) Stock Option Agreement, dated March 26, 2004, between the Company
and EDOCUSIGN, INC. (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 filed
to the Form SB-2 Registration Statement with the Securities and
Exchange Commission on May 6, 2004.)
10(aa) Stock Option Agreement, dated March 26, 2004, between the Company
and EDOCUSIGN, INC. (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 filed
to the Form SB-2 Registration Statement with the Securities and
Exchange Commission on May 6, 2004.)
10(bb) Stock Option Agreement, dated March 12, 2004, between the Company
and Joseph Carrizzo. (Previously filed and incorporated herein by
reference to the Company's Post-Effective Amendment No. 4 filed
to the Form SB-2 Registration Statement with the Securities and
Exchange Commission on May 6, 2004.)
(23)(a) Consent of Weinick Sanders Leventhal & Co., LLP (Filed herein)
(23)(b) Consent of Tannenbaum Helpern Syracuse & Hirschtritt LLP
(included in Exhibit 5) (Previously filed and incorporated herein
by reference to the Company's Post-Effective Amendment No. 4
filed to the Form SB-2 Registration Statement with the Securities
and Exchange Commission on May 6, 2004.)
75
ITEM 28: UNDERTAKINGS
A. Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(3) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
c. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceedings) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
D. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
E. The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act 1934;
and, where interim financial information required to be presented by Article 3
of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
76
SIGNATURES
The issuer has duly caused this offering statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Bethpage,
state of New York, on May 25, 2004.
SearchHelp, Inc.
By: /s/ William Bozsnyak
------------------------
Name: William Bozsnyak
Title: Chief Executive Officer,
Vice President and
Chairman of the Board
This offering statement has been signed by the following persons in the
capacities and on the dates indicated.
By: /s/ DEBBIE SEAMAN Date: May 25, 2004
---------------------
Name: Debbie Seaman
Title: President
By: /s/ JOEL SAN ANTONIO Date: May 25 2004
---------------------
Name: Joel San Antonio
Title: Director
By: /s/ JOSEPH CARRIZZO Date: May 25 2004
---------------------
Name: Joseph Carrizzo
Title: Director
By: /s/ NOEL C. BONILLA Date: May 25 2004
---------------------
Name: Noel C. Bonilla
Title: Chief Financial Officer
77