UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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CARD ACTIVATION TECHNOLOGIES INC.
(Name of Small Business Issuer in Its Charter)
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DELAWARE 6794 20-5769015
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
33 West Jackson Blvd., Suite 1618
Chicago, Illinois 60604-3749
(312) 972-1662
(Address and Telephone Number of Principal Executive Offices)
------------------------
Mark A. Robertson
Robertson & Williams
3033 N.W. 63rd Street, Suite 200
Oklahoma City, Oklahoma 73116-3607
(405) 848-1944
(Name, Address and Telephone Number of Agent for Service)
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Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this registration statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d) 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.
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.
CALCULATION OF REGISTRATION FEE
Amount to be Offering Price Per Aggregate Amount of
Securities to be Registered Registered Share (1) Offering Price Registration Fee
Common Stock, par value $0.0001 per share 44431613 $.25 $11,107,903 $341.02
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 22, 2006
CARD ACTIVATION TECHNOLOGIES INC.
44,431,613 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 44,431,613 shares of our common
stock by the selling stockholders. The selling stockholders are those
shareholders who received restricted stock in the spin-off of our company from
MedCom USA, Incorporated. There is no minimum total number of shares which must
be sold in this offering, no minimum price per share and no arrangements to
place any of the proceeds of this offering in escrow. The offering will
terminate upon the earlier of (i) the second anniversary of the date of this
prospectus, (ii) the date on which all 44,431,613 shares have been sold, or
(iii) the date on which the Company elects to terminate this offering. The
shares will not be offered through an underwriter.
We will not receive any proceeds from the sale of our shares by the selling
stockholders. We will pay the expenses of registering the shares registered in
this prospectus.
There is currently no trading market for the Company's securities. The prices
which the selling shareholders may sell these shares will be determined by the
prevailing market price for shares of our common stock or in negotiated
transactions.
The shares included in this prospectus may be reoffered and resold directly by
the selling security holders in accordance with one or more of the methods
described in the plan of distribution, which begins on page 26 of this
prospectus. We will not control or determine the price at which a selling
security holder decides to sell its shares. Brokers or dealers effecting
transactions in these shares should confirm that the shares are registered under
applicable state law or that an exemption from registration is available.
INVESTING IN THE COMPANY'S COMMON STOCK INVOLVES SUBSTANTIAL RISKS, AND
INVESTORS SHOULD NOT BUY THESE SHARES UNLESS THEY CAN AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Card Activation Technologies Inc.
33 West Jackson Blvd., Suite 1618
Chicago, Illinois 60604-3749
(312) 972-1662
The date of this prospectus is , 2007
TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FORWARD LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . . . 11
THE SPIN OFF. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . 16
MANAGEMENT'S DISCUSSION AND ANALYSIS. . . . . . . . . . . . . . . . 18
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. . . . 20
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . 21
AGREEMENTS WITH MEDCOM. . . . . . . . . . . . . . . . . . . . . . . 21
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 25
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . 25
SELLING STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 25
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . 26
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 28
INDEPENDENT PUBLIC ACCOUNTANTS. . . . . . . . . . . . . . . . . . . 28
FURTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 28
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT WHICH
IS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS MAY BE USED ONLY WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF SECURITIES.
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PROSPECTUS SUMMARY
This summary does not contain all of the information that you should consider
before investing in our common stock. You should carefully read the entire
prospectus, including the section entitled "Risk Factors" beginning on page 4
and the financial statements in this prospectus, prior to making an investment
decision.
ABOUT CARD ACTIVATION TECHNOLOGIES INC.
Card Activation Technologies Inc. ("Company") is a Delaware corporation
headquartered in Chicago, Illinois that owns proprietary patented payment
transaction technology used for electronic activation of phone, gift and
affinity cards.
The patent was transferred to the Company by MedCom USA, Incorporated
("MedCom")on the formation of the Company and in exchange for 146,770,504 shares
of Common Stock. On October 31, 2006, the MedCom board of directors declared a
stock dividend to its shareholders of record at the end of business on December
15, 2006 of one share of Common Stock in the Company for every one share of
common stock of MedCom owned by its shareholders. This was a dividend of
86,770,504 shares of our Common Stock. MedCom retained the balance of 60,000,000
shares of Common Stock. MedCom is a publicly traded Delaware corporation,
headquartered in Scottsdale, Arizona, that provides innovative healthcare and
financial transaction solutions for electronically processing HIPAA compliant
transactions within the healthcare industry. MedCom provides a terminal based
service package and a compatible web portal add-on for physicians, clinics and
hospitals and dentists that include the following services: real-time
transactions including; patient eligibility, referrals, claims status and
service authorizations, 100% paperless claims processing, patient easy pay,
credit/debit cards, and check guarantee.
The Company is a development stage company that was incorporated in August 2006
in order to own the commercially develop the assigned patent which covers the
payment transaction technology and process for taking a card with a magnetic
strip or other data capture mechanism and activating the card by loading a
determined monetary value onto the card for use at a later date for different
types of transactions. This process is utilized for prepaid phone cards, gift
cards, and affinity cards.
As of the date of this prospectus, we have no significant revenues or
operations. Our ability to obtain additional funding will determine our ability
to continue as a going concern. We have one principal asset, our patented
payment transaction technology assigned from MedCom, and one full time and two
part-time employees. We do not expect to commence full scale operations or
generate revenues until early 2007. Since incorporation, we have not made any
significant purchases or sale of assets, nor have we been involved in any
mergers, acquisitions or consolidations. We have filed three lawsuits to enforce
our patented technology and we have sent license agreement requests to a number
of companies regarding infringement resolutions available for patent violations
made through the use of our patented payment transaction technology.
SUMMARY OF THE OFFERING
The Company is currently authorized to issue 176,000,000 million shares, of
which 175,000,000 shares are common stock, par value $0.00 1 per share ("Common
Stock"), and 1,000,000 shares are preferred stock, par value $0.001 per share
("Preferred Stock"). As of December 15, 2006, 146,770,504 shares of Common Stock
are issued and outstanding and no shares of Preferred Stock are issued and
outstanding.
Pursuant to the offering described in this prospectus, the selling stockholders
intend to sell up to 44,431,613 shares of Common Stock to investors (the
"Offering"). The balance of the shares distributed in the spin-off we to
shareholders holding unrestricted shares of MedCom common stock and therefore
are not restricted shares which must be registered in order to trade.
The Company will not receive any proceeds from the Offering.
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RISK FACTORS
In vesting in our securities involves a high degree of risk. Before making an
investment decision, you should carefully consider the risk factors set forth in
this prospectus, as well as other information we include in this prospectus.
Although every effort has been made to anticipate possible risks, unforeseen
conditions and unexpected events may arise, and this list may not be
all-inclusive.
RISKS RELATED TO THE COMPANY'S BUSINESS
OUR INDEPENDENT AUDITOR HAS ISSUED A GOING CONCERN OPINION WHICH RAISES DOUBTS
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent auditor has expressed doubt about our ability to continue as a
going concern. Note xx to our financial statements includes an explanatory
paragraph expressing doubt about our ability to continue as a going concern. Our
ability to continue as a going concern is dependent on our ability to implement
our business plan, raise capital and generate revenues.
THE COMPANY MAY NOT BE ABLE TO SECURE FINANCING, WHICH IN TURN COULD AFFECT THE
COMPANY'S ABILITY TO OPERATE AS A GOING CONCERN.
As of September 30, 2006, the Company had an accumulated deficit of $15,758 and
a working capital deficit of $15,758. The Company does not anticipate any
revenues in the foreseeable future will incur losses from operations. The
Company's inability to obtain financing, if required, would have a material
adverse effect on the value of its patent and its ability to develop its
operations and implement its business plan.
THE COMPANY HAS NO OPERATING HISTORY, WHICH MAKES IT IMPOSSIBLE TO EVALUATE ITS
BUSINESS AND TO PREDICT ANY FUTURE OPERATING RESULTS.
To date, the Company has been primarily engaged in organizational activities,
including obtaining various consulting agreements and other agreements to
develop and license the patented technology. The Company has not generated any
revenues to date and does not anticipate generating any revenues until such time
as third party users of the patented technology enter into license agreements or
the Company seeks to enforce its patents in court against third party users of
the technology who will not sign licensing agreements. Accordingly, the Company
has no operating history upon which an evaluation of its performance and the
value of its patented technology.
THE COMPANY EXPECTS TO INCUR LOSSES FOR THE FORESEEABLE FUTURE AND MAY NEVER
ACHIEVE PROFITABILITY.
The Company anticipates that it will incur operating losses for the foreseeable
future. We may never generate revenues or achieve profitability and, if we ever
achieve profitability, we may not be able to maintain profitability.
THE COMPANY HAS NO EXPERIENCE IN MARKETING AND LICENSING ITS TECHNOLOGY AND, TO
BE SUCCESSFUL, THE COMPANY NEEDS TO RETAIN QUALIFIED PERSONNEL TO PROTECT AND
LICENSE ITS TECHNOLOGY
The Company is recently formed and, consequently, lacks the requisite experience
to execute its licensing and marketing objectives. The Company has hired
personnel with expertise in licensing and marketing. See "Directors, Executive
Officers, Promoters and Control Persons" discussing management's background and
experience. The Company will also have to hire administrative personnel. There
can be no assurances that the Company will be able to retain the qualified
personnel necessary for the development of its business.
THE COMPANY DEPENDS ON ITS PATENT AND PROPRIETARY RIGHTS TO DEVELOP AND PROTECT
TECHNOLOGIES AND PRODUCTS, WHICH RIGHTS MAY NOT OFFER SUFFICIENT PROTECTION FROM
INFRINGEMENT BY THIRD PARTIES.
MedCom has represented to the Company that the assigned patent issued by the
U.S. Patent Office for its patented payment transaction technology is a valid
patent. However, there can be no assurances that the patent and the payment
transaction technology will be enforceable or generate revenues for the Company.
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The Company's inability to protect its intellectual property through sufficient
patent protection will adversely affect that Company's ability to survive and
other companies may be able to develop substantially similar technologies in
competition with the Company. If those other companies enter the marketplace
with their own similar products, the value of the Company's patent will be
substantially diminished.
The Company's success will depend on its ability to obtain and enforce
protection under United States and foreign patent laws and other intellectual
property laws for the technology that the Company intends to market and license,
to develop and preserve the confidentiality of trade secrets and to operate
without infringing the proprietary rights of third parties.
The Company cannot guarantee that the patent will provide adequate protection
against competitors. The Company cannot guarantee that the patent will survive
an attack on its validity.
THE COMPANY'S INABILITY OR FAILURE TO COLLECT ANY LICENSE FEES FOR THE
TECHNOLOGY WILL ADVERSELY AFFECT THE COMPANY'S LICENSING OF ITS TECHNOLOGY,
WHICH WILL CAUSE THE COMPANY TO LOSE SUBSTANTIALLY ALL OF ITS VALUE.
The Company's inability or failure to collect any license fees will adversely
affect the Company's licensing of its technology. As those rights will be the
Company's primary asset, if the Company is unable to maintain those rights, the
Company will lose substantially all of its value.
A DECREASE IN THE PROJECTED PRICES THAT THE COMPANY MAY CHARGE FOR LICENSING ITS
TECHNOLOGY MAY ADVERSELY IMPACT OUR BUSINESS.
The Company's ability to commercialize its technology successfully will depend
in part on the price the Company may charge for that technology. Significant
uncertainty exists as to the pricing flexibility for the technology. There can
be no assurance that the Company's assumptions concerning licensing pricing will
be achieved.
THE COMPANY HAS LIMITED SALES AND MARKETING CAPABILITY AND MAY NOT BE SUCCESSFUL
IN SELLING OR MARKETING ITS TECHNOLOGY.
The Company currently has no sales and marketing capability. The creation of
infrastructure to commercialize its technology may a difficult, expensive and
time-consuming process. The Company may not be able to establish sales
capabilities or be successful in gaining market acceptance for its technology.
THIRD PARTIES MAY ASSERT CLAIMS AGAINST THE COMPANY FOR INFRINGEMENT OF PATENTS
AND OTHER INTELLECTUAL PROPERTY RIGHTS, WHICH COULD HARM OUR BUSINESS.
Parties not affiliated with the Company have obtained or may obtain United
States or foreign patents or possess or may possess proprietary rights relating
to the patented technology of the Company. Patents now in existence or hereafter
issued to others may adversely affect the development or commercialization of
the Company's technology. Further, The Company's technology may infringe patents
owned by others. The Company could incur substantial costs in defending
infringement suits brought against it or in asserting any infringement claims
against others, which they may not have the funds or insurance to cover.
LITIGATION TO ENFORCE ITS PATENT AGAINST UNAUTHORIZED USERS WILL BE EXPENSIVE
AND TIME CONSUMING, AND THEIR OUTCOME IS UNCERTAIN. ANY DELAY OR OTHER FACTOR
WHICH NEGATIVELY AFFECTS THE COMPANY'S ABILITY TO FUND OPERATIONS AND DEVELOP
REVENUES.
Litigation to enforce the Company's patented technology against unauthorized
users can be a lengthy, time-consuming and expensive process and there can be no
assurance of the results of such litigation. On October 19, 2006 the Company
initiated lawsuits against McDonald's Corporation and Walgreen Co. for
infringing its payment transaction patent. On December 7, 2006 the Company
initiated a lawsuit against Sears Holding Corporation for infringing its payment
transaction patent. The Company has engaged counsel to work to solicit and
obtain license agreements from companies that have been utilizing our patented
payment transaction technology and to initial enforcement actions against those
using the technology but whom
5
have refused to enter into a licensing agreement for it. Counsel is continuing
to contact other entities, including retailers and product suppliers, to provide
them with a licensing agreement that will permit them to practice the patented
technology.
RISKS RELATED TO THE SPIN OFF
IF THE IRS DETERMINES THAT THE SPIN OFF DOES NOT QUALIFY AS A "TAX FREE"
DISTRIBUTION OR A "TAX FREE" REORGANIZATION, WE MAY BE SUBJECT TO SUBSTANTIAL
LIABILITY.
The Company has not received any ruling from the IRS. The Company, based upon an
opinion of counsel that, among other things, the spin off will qualify as a
tax-free distribution for U.S. federal income tax purposes under Section 355 of
the Internal Revenue Code of 1986, as amended, or the "Code," and as part of a
tax-free reorganization under Section 368(a)( 1 )(D) of the Code, and the
transfer to us of assets and the assumption by us of liabilities in connection
with the spin off will not result in the recognition of any gain or loss for
U.S. federal income tax purposes to MedCom. See "The Spin Off-Material U.S.
Federal Income Tax Consequences of the Spin Off."
If the spin off does not qualify for tax-free treatment for U.S. federal income
tax purposes, then, in general, MedCom would be subject to tax as if it has sold
the common stock of our company in a taxable sale for its fair market value.
MedCom's stockholders would be subject to tax as if they had received a taxable
distribution equal to the fair market value of our common stock that was
distributed to them, taxed as a dividend (without reduction for any portion of a
MedCom's stockholder's basis in its shares of MedCom common stock) for U.S.
federal income tax purposes and possibly for purposes of state and local tax
law, to the extent of a MedCom's stockholder's pro rata share of MedCom's
current and accumulated earnings and profits (including any arising from the
taxable gain to MedCom with respect to the spin off). It is expected that the
amount of any such taxes to MedCom's stockholders and to MedCom would be
substantial.
In the tax sharing agreement with MedCom, we will agree to indemnify MedCom and
its affiliates for any liability for taxes of MedCom resulting from: (1) any
action or failure to act by us or any of our affiliates following the completion
of the spin off that would be inconsistent with or prohibit the spin off from
qualifying as a tax-free transaction to MedCom and to you under Sections 355 and
368(a)( 1 )(D) of the Code, or (2) any action or failure to act by us or any of
our affiliates following the completion of the spin off that would be
inconsistent with or cause to be untrue any material, information, covenant, or
representation made in connection with the private letter ruling obtained by
MedCom from the IRS relating to, among other things, the qualification of the
spin off as a tax-free transaction described under Sections 355 and 368(a)( 1
)(D) of the Code. For a more detailed discussion, see "Agreements with
MedCom-Tax Sharing Agreement." Our indemnification obligations to MedCom are not
limited in amount or subject to any cap. It is expected that the amount of any
such taxes to MedCom would be substantial.
WE HAVE NO OPERATING HISTORY AS AN INDEPENDENT COMPANY UPON WHICH YOU CAN
EVALUATE OUR PERFORMANCE AND ACCORDINGLY, OUR PROSPECTS MUST BE CONSIDERED IN
LIGHT OF THE RISKS THAT ANY NEWLY INDEPENDENT COMPANY ENCOUNTERS.
Prior to the consummation of this distribution, we have operated as part of
MedCom. Accordingly, we have no experience operating as an independent company
and performing various corporate functions, including human resources, tax
administration, legal (including compliance with the Sarbanes-Oxley Act of 2002
and with the periodic reporting obligations of the Securities Exchange Act of
1934), treasury administration, investor relations, internal audit, insurance,
information technology and telecommunications services, as well as the
accounting for many items such as equity compensation, income taxes,
derivatives, intangible assets and pensions. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by companies in the
early stages of independent business operations, particularly companies such as
ours in highly competitive markets with complex supply chain operations.
6
OUR HISTORICAL AND PRO FORMA FINANCIAL INFORMATION IS NOT NECESSARILY INDICATIVE
OF OUR RESULTS AS A SEPARATE COMPANY AND THEREFORE MAY NOT BE RELIABLE AS AN
INDICATOR OF OUR FUTURE FINANCIAL RESULTS.
Our historical financial statements and Unaudited Pro Forma Combined and
Consolidated Financial Statements have been created from MedCom's financial
statements using our historical results of operations and historical bases of
assets and liabilities as part of MedCom. Accordingly, the historical financial
information we have included in this information statement is not necessarily
indicative of what our financial position, results of operations and cash flows
would have been if we had been a separate, stand-alone entity during the periods
presented.
The historical financial information is not necessarily indicative of what our
results of operations, financial position and cash flows will be in the future
and does not reflect many significant changes that will occur in our capital
structure, funding and operations as a result of the spin off. While our
historical results of operations include all costs of MedCom's assigned
technology business, our historical costs and expenses do not include all of the
costs that would have been or will be incurred by us as an independent company.
In addition, we have not made adjustments to our historical financial
information to reflect changes, many of which are significant, that will occur
in our cost structure, financing and operations as a result of the spin off.
These changes include potentially increased costs associated with reduced
economies of scale and purchasing power.
Our effective income tax rate as reflected in our historical financial
information also may not be indicative of our future effective income tax rate.
Among other things, the rate may be materially impacted by:
- changes in the mix of our earnings from the various jurisdictions in which
we operate;
- the tax characteristics of our earnings;
- the timing and amount of earnings of foreign subsidiaries that we
repatriate to the United States, which may increase our tax expense and
taxes paid; and
- the timing and results of any reviews of our income tax filing positions in
the jurisdictions in which we transact business.
We will agree to certain restrictions in order to comply with U.S. federal
income tax requirements for a tax-free spin off and may not be able to engage in
acquisitions and other strategic transactions that may otherwise be in our best
interests.
Current U.S. federal tax law that applies to spin offs generally creates a
presumption that the spin off would be taxable to MedCom but not to its
stockholders if we engage in, or enter into an agreement to engage in, a plan or
series of related transactions that would result in the acquisition of a 50% or
greater interest (by vote or by value) in our stock ownership during the
four-year period beginning on the date that begins two years before the spin
off, unless it is established that the transaction is not pursuant to a plan
related to the spin off. United States Treasury Regulations generally provide
that whether an acquisition of our stock and a spin off are part of a plan is
determined based on all of the facts and circumstances, including specific
factors listed in the regulations. In addition, the regulations provide certain
"safe harbors" for acquisitions of our stock that are not considered to be part
of a plan related to the spin off.
There are other restrictions imposed on us under current U.S. federal tax law
for spin offs and with which we will need to comply in order to preserve the
favorable tax treatment of the distribution, such as continuing to own and
manage our technology business and limitations on sales or redemptions of our
common stock for cash or other property following the distribution.
In the tax sharing agreement with MedCom, we will agree that, among other
things, we will not take any actions that would result in any tax being imposed
on MedCom as a result of the spin off. Further, for the two-year period
following the spin off, we will agree not to: (1) repurchase any of our stock
except in certain
7
circumstances permitted by the IRS guidelines, (2) voluntarily dissolve or
liquidate or engage in any merger (except certain cash acquisition mergers),
consolidation, or other reorganizations except for certain mergers of our
wholly-owned subsidiaries to the extent not inconsistent with the tax-free
status of the spin off, or (3) sell, transfer, or otherwise dispose of more than
50% of our assets, excluding any sales conducted in the ordinary course of
business. We will, however, be permitted to take certain actions otherwise
prohibited by the tax sharing agreement if we provide MedCom with an unqualified
opinion of tax counsel or private letter ruling from the IRS, acceptable to
MedCom, to the effect that these actions with not affect the tax-free nature of
the spin off. These restrictions could substantially limit our strategic and
operational flexibility, including our ability to finance our operations by
issuing equity securities, make acquisitions using equity securities, repurchase
our equity securities, raise money by selling assets, or enter into business
combination transactions.
SUBSTANTIAL SALES OF OUR COMMON STOCK FOLLOWING THE DISTRIBUTION MAY HAVE AN
ADVERSE IMPACT ON THE TRADING PRICE OF OUR COMMON STOCK.
Some of the MedCom's stockholders who receive our shares of common stock may
decide that their investment objectives do not include ownership of our shares,
and may sell their shares of common stock following the distribution. In
particular, certain MedCom stockholders that are institutional investors have
investment parameters that depend on their portfolio companies maintaining a
minimum market capitalization that we may not achieve after the distribution. We
cannot predict whether other stockholders will resell large numbers of our
shares of common stock in the public market following the distribution or how
quickly they may resell these shares. If our stockholders sell large numbers of
our shares of common stock over a short period of time, or if investors
anticipate large sales of our shares of common stock over a short period of
time, this could adversely affect the trading price of our shares of common
stock.
UNTIL THE DISTRIBUTION OCCURS MEDCOM HAS THE SOLE DISCRETION TO CHANGE THE TERMS
OF THE SPIN OFF IN WAYS WHICH MAY BE UNFAVORABLE TO US.
Until the distribution occurs MedCom will have the sole and absolute discretion
to determine and change the terms of, and whether to proceed with, the
distribution, including the establishment of the record date and distribution
date. These changes could be unfavorable to us. In addition, MedCom may decide
at any time not to proceed with the spin off.
RISKS RELATED TO THE OFFERING
THE OFFERING PRICE AND OTHER TERMS OF THIS OFFERING HAVE BEEN ARBITRARILY
DETERMINED.
The offering price of the Common Stock in this Offering was arbitrarily
determined. Such offering price otherwise has no relationship to the Company's
assets, its book value or any other established criterion of value, and may not
be indicative of the fair market value of the Company's Common Stock. In the
event the Company creates a market for publicly trading its shares, the ultimate
trading price of the Company's Common Stock may be substantially higher or lower
than the price that an investor will pay in this Offering.
THE OFFERING PRICE OF THE COMMON STOCK MAY NOT BE INDICATIVE OF FUTURE MARKET
PRICES, TO THE EXTENT THAT SUCH A PUBLIC MARKET EVER DEVELOPS.
To the extent that a public market ever develops for our Common Stock, such
market may not perceive the offering price as being representative of the fair
value of the Company's Common Stock, in which case investors may not be able to
sell their Common Stock at or above the offering price, which will result in a
loss of a portion or all of the investor's investment. The Company anticipates
that the market price, if a market ever develops, of its shares will fluctuate
significantly in response to numerous factors, many of which are beyond the
control of the Company, including, without limitation:
- - the announcement of competing technology by the Company's competitors;
- - intellectual property developments;
8
- - quarterly variations in the Company's and its competitors' results of
operation;
- - changes in earnings estimates or recommendations by securities analysts;
and
- - general market conditions and other factors, including factors wholly
unrelated to the Company's own operations or performance.
To the extent that the Company does create a market for publicly trading its
Common Stock, the Company anticipates that, at least initially, its Common Stock
may be quoted on the OTC Bulletin Board or the "Pink Sheets," and the stock
market and the securities of companies that are traded in this manner are prone
to extreme price fluctuations, which could further substantially depress the
value of the Common Stock. The price volatility of the Common Stock and the
downward pressure on its price may be intensified to the extent that the trading
volume of the Common Stock will be low.
THERE IS NOT NOW NOR MAY THERE EVER BE AN ACTIVE MARKET FOR THE COMPANY'S COMMON
STOCK.
There is currently no market at all for the Company's Common Stock. Further,
although the Company anticipates that its Common Stock will be quoted on the OTC
Bulletin Board, or the "Pink Sheets," the Company expects that trading on either
of those exchanges will be light or sporadic at best. At any given time, several
days or weeks may elapse with no trading whatsoever of the Common Stock. The
Company is providing no assurances of any kind or nature whatsoever that an
active market for its Common Stock will ever develop. Investors who purchase
shares in this Offering should understand that there may be no alternative exit
strategy for them to recover or liquidate their investments in the Common Stock.
Accordingly, investors must be prepared to bear the entire economic risk of an
investment in the Common Stock for an indefinite period of time.
Additional uncertainty will be experienced with respect to the price of the
Common Stock because the Company is a technology entity and the market price of
the securities of technology companies is especially volatile.
If the Company's operations do not develop and its revenues do not grow or grow
more slowly than the Company anticipates, if operating or capital expenditures
exceed the Company's expectations and cannot be adjusted accordingly or if some
other event adversely affects the Company, the market price of its Common Stock
will decline.
UPON COMPLETION OF THIS OFFERING, THE COMPANY WILL BECOME SUBJECT TO THE
REPORTING REQUIREMENTS OF THE UNITED STATES SECURITIES LAWS, WHICH WILL REQUIRE
ADDITIONAL EXPENDITURE OF CAPITAL AND OTHER RESOURCES.
Upon completion of this Offering, the Company will become a public reporting
company and will be subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and other federal securities laws, including the
Sarbanes-Oxley Act ("Sarbanes"). The costs of preparing and filing annual and
quarterly reports, proxy statements and other information with the SEC and
furnishing audited reports to stockholders will cause the Company's expenses to
be substantially higher than they would otherwise be if the Company were
privately-held or otherwise retained its status as a non-reporting public
company. It will be costly, and time-consuming for the Company to develop and
implement internal controls and reporting procedures required by Sarbanes, and
the Company will require additional staff and third-party assistance to develop
and implement appropriate internal controls and procedures. If the Company fails
to or is unable to comply with Sarbanes, it may not be able to obtain
independent accountant certifications concerning internal controls at the time
it is required by Sarbanes.
EVEN IF THE COMPANY WERE TO BECOME AN OTC BULLETIN BOARD OR "PINK SHEET"
COMPANY, IT MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS OR
SECURITIES ANALYSTS.
Security analysts and major brokerage houses may not provide coverage of the
Company, given that its anticipated OTC Bulletin Board or "Pink Sheet" status
would provide little or no incentive to recommend the purchase of its Common
Stock. The Company may also not be able to attract any brokerage houses to
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conduct secondary offerings and other capital raising transactions with respect
to its securities. The Company's business and ability to continue as a going
concern would be adversely affected if it is unable to raise funds.
THE COMPANY IS MAKING NO REPRESENTATIONS AND IS PROVIDING NO ASSURANCES THAT ITS
COMMON STOCK WILL BECOME LISTED ON ANY SECURITIES EXCHANGE.
The Company is making no representations nor providing any assurances that it
will be able to meet the initial listing standards of any stock exchange. Prior
to the listing of the Company's stock on any stock exchange, the Company expects
that its non-restricted free trading Common Stock will be eligible to trade on
the OTC Bulletin Board or on the "Pink Sheets". The investors may find it
difficult to dispose of shares or to obtain accurate quotations as to the market
value of the Common Stock when it is trading there. In addition, the Company
will be subject to an SEC rule (Rule 1 5c2-1 1) (the so-called penny stock
rules) that imposes various requirements on broker-dealers who sell securities
governed by the rule to persons other than established customers and accredited
investors. The requirement that broker-dealers comply with this rule will deter
broker-dealers from recommending or selling the Company's Common Stock, thus
further adversely affecting the liquidity and share price of the Common Stock,
as well as the Company's ability to raise additional capital.
THE COMPANY HAS NEVER PAID DIVIDENDS AND HAS NO PLANS TO PAY DIVIDENDS AT ANY
TIME IN THE NEAR OR DISTANT FUTURE.
The Company has never paid dividends on its capital stock, and the Company does
not anticipate paying any dividends for the foreseeable or distant future. The
Company's present business plan does not include, for the foreseeable future and
beyond, any payments of dividends to stockholders. Stockholders' sole strategy
for any return on their investments will be the potential for the increase in
the value of their stock and the possibility of liquidating their stock
positions.
YOU WILL EXPERIENCE DILUTION IF THE COMPANY OBTAINS ADDITIONAL FINANCING OR
ISSUES OPTIONS.
If the Company obtains additional financing, that financing will have a dilutive
effect on the holders of the Company's securities.
The Company has adopted a stock option plan under which the Company's officers,
directors, consultants, and employees will be eligible to receive stock options
exercisable for the Company's securities at exercise prices that may be equal to
or lower than the offering price in this offering. The Company has reserved
1,000,000 shares of Common Stock for issuance under this plan. Stock and stock
option grants under such plans will further dilute the value of the Company's
securities and the investors' equity position in the Company.
THE COMPANY WILL NEED TO RAISE ADDITIONAL CAPITAL IN ORDER TO ACHIEVE ITS
LONG-TERM GOALS, BUT AS YET IT HAS NOT IDENTIFIED ANY SOURCES FOR SUCH CAPITAL.
The Company is not selling any Common Stock in this Offering and will not
receive any of the proceeds. Consequently, the Company will need to conduct
public or private offerings at appropriate times in the future to raise money
for its operations if income cannot be generated immediately from its licensing
efforts.
OUR CORPORATE CHARTER CONTAINS AUTHORIZED, UNISSUED "BLANK CHECK" PREFERRED
STOCK WHICH CAN BE ISSUED WITHOUT STOCKHOLDER APPROVAL WITH THE EFFECT OF
DILUTING THEN CURRENT STOCKHOLDER INTERESTS AND DISCOURAGING, DELAYING OR
PREVENTING A CHANGE IN CONTROL OF THE COMPANY.
Our certificate of incorporation authorizes the issuance of up to 1,000,000
shares of "blank check" preferred stock with designations, rights and
preferences as may be determined from time to time by our board of directors.
Accordingly, our board of directors is empowered, without stockholder approval,
to issue one or more series of preferred stock with dividend, liquidation,
conversion, voting or other rights which could dilute the interest of, or impair
the voting power of, our common stockholders. Furthermore, the issuance of
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a series of preferred stock could be used as a method of discouraging, delaying
or preventing a change in control.
ANY OF THE ABOVE-IDENTIFIED RISKS, EVEN IF BORNE OUT ONLY PARTIALLY AND NOT
FULLY, WILL ADVERSELY AFFECT THE COMPANY'S BUSINESS, ITS FINANCIAL CONDITION AND
ITS OPERATING RESULTS. IF ANY OF THE EVENTS WE HAVE IDENTIFIED OCCUR, IN WHOLE
OR IN PART, THE VALUE OF OUR COMMON STOCK WILL LIKELY DECLINE, AND AN INVESTOR
WILL LOSE AL OR PART OF THE FUNDS PAID TO ACQUIRE THE COMMON STOCK DESCRIBED IN
THIS PROSPECTUS WITH NO OPPORTUNITY TO REGAIN ANY PORTION OF THOSE FUNDS IN
RETURN.
FORWARD LOOKING STATEMENTS
This prospectus includes forward-looking statements. You can identify these
forward-looking statements when you see us using words such as "expect,"
"anticipate," "estimate," "believe," "intend," "may," "predict," and other
similar expressions. These forward looking statements cover, among other items:
- - our future capital needs;
- - our expectations about the value of the patented technology;
- - our expectations about the market acceptance of the technology;
- - our licensing, marketing and sales plans; and
- - our expectations about our financial performance.
We have based these forward-looking statements largely on our current
expectations. However, forward-looking statements are subject to a number of
risks and uncertainties, certain of which are beyond our control. Actual results
could differ materially from those anticipated as a result of the factors
described under "Risk Factors."
We do not undertake any obligation to publicly update or revise any
forward-looking statements contained in this prospectus or incorporated by
reference, whether as a result of new information, future events or otherwise.
Because of these risks and uncertainties, the forward-looking statements and
circumstances discussed in this prospectus might not transpire.
THE SPIN OFF
BACKGROUND
Our business has been a part of MedCom and our assets and liabilities consist of
those that MedCom attributed to its card technology business. The board of
directors of MedCom determined to separate its card technology business segment
from its other business segments by means of a spin off of a portion of our
stock to MedCom's shareholders. To accomplish the spin off, MedCom declares a
stock dividend effective at the end of business on December 15, 2006 for a
substantial portion of its equity interests in our company, consisting of
86,770,504 shares of our common stock, to MedCom's stockholders on a pro rata
basis. Following the spin off, MedCom continues to own 60,000,000 shares of our
common stock. No vote of MedCom's stockholders was required or being sought in
connection with the spin off, and MedCom's stockholders have no appraisal rights
in connection with the spin off.
REASONS FOR THE SPIN OFF
Among other things, the board of directors of MedCom considered the following
potential benefits in making its determination to approve the spin off:
- - Enabling investors to invest directly in our business. Because our company
and MedCom's other business segments operate in different industries, an
equity investment in each company may appeal to investors with different
goals, interests and concerns. Establishing separate equity securities will
11
allow investors to make separate investment decisions with respect to our
and MedCom's respective businesses.
- - Allowing us and MedCom to focus on our respective core businesses. MedCom
is implementing a transformation plan in order to make MedCom and us more
tightly focused companies-with MedCom focusing on its business of
healthcare and financial transaction solutions for electronically
processing HIPAA compliant transactions within the healthcare industry, and
us focusing on the card technology business as an independent company.
MedCom's lines of business have financial and operational characteristics
which are distinct from those of our business. The spin off will allow
MedCom to adopt more focused strategies around its core businesses and will
enable us to better focus on the growth and development of our business.
- - Direct access to capital. Historically, our working capital requirements
and capital for general corporate purposes, including acquisitions and
capital expenditures, have been satisfied as part of the corporate wide
cash management policies of MedCom. We expect to have better and more
direct access to the capital markets after the spin off as our investors
will not be forced to understand and make investment decisions with respect
to MedCom's other businesses that are fundamentally different from our
business. MedCom also will benefit since its investors will not need to
understand and make investment decisions with respect to our business. In
addition, we and MedCom will have the option to use our own respective
equity as acquisition or financing currency should the appropriate
strategic opportunities arise.
Neither we nor MedCom can assure you that, following the spin off, any of these
benefits will be realized to the extent anticipated or at all.
MANNER OF EFFECTING THE SPIN OFF
At the close of business on December 15, 2006, the shareholders of MedCom were
entitled to a dividend of one share of the company's common stock for each share
owned of MedCom common stock. The payable date when the share certificates will
be distributed to the shareholders will be determined by the MedCom board of
directors.
MedCom has instructed the stock transfer agent for it and the company to act as
a distribution agent for the shares of the company to be distributed to our
stockholders. The distribution agent will effect delivery of the shares of our
common stock issuable in the spin off through the transfer agent's book-entry
registration system by mailing to each record holder a statement of holdings
detailing the record holder's ownership interest in our company and the method
by which the record holder may access its account. Please note that if any
stockholder of MedCom on the record date sells shares of MedCom common stock
after the record date but on or before the distribution date, the seller of
those shares, and not the buyer, will become entitled to receive the shares of
our common stock issuable in respect of the shares sold. See "-Trading of MedCom
Common Stock Between the Record Date and the Distribution Date" below for more
information.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN OFF
The following is a summary of certain material U.S. federal income tax
consequences to MedCom and the holders of MedCom common stock resulting from the
spin off. This discussion is based upon the Internal Revenue Code, existing and
proposed Treasury Regulations promulgated thereunder, and current administrative
rulings and court decisions, all as in effect as of the date of this prospectus,
and all of which are subject to change. Any such change, which may or may not be
retroactive, could materially alter the tax consequences to MedCom or the
holders of MedCom common stock as described in this prospectus. This summary
does not discuss all U.S. federal income tax considerations that may be relevant
to you in light of your particular circumstances or to a stockholder that may be
subject to special tax rules, including, without limitation:
- - stockholders subject to the alternative minimum tax;
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- - banks, insurance companies, or other financial institutions;
- - tax-exempt organizations;
- - dealers in securities or commodities;
- - traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
- - stockholders whose "functional currency" is not the U.S. dollar;
- - stockholders holding their common stock through partnerships and other
pass-through entities; and
- - U.S. expatriates and non-U.S. persons.
In addition, the following discussion does not address the tax consequences of
the spin off under state, local, or foreign tax laws, the tax consequences of
transactions effectuated prior to or after the spin off (whether or not such
transactions are undertaken in connection with the spin off), or the tax
consequences to stockholders who received our common stock pursuant to the
exercise of employee stock options, under an employee stock purchase plan, or
otherwise as compensation.
THIS SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL
INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, YOU ARE URGED TO CONSULT
YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, AND LOCAL, AND
NON-U.S. TAX CONSEQUENCES OF THE SPIN OFF TO YOU.
MedCom has received an opinion of counsel to the effect that the spin off will
qualify as a tax-free distribution under Section 355 and a tax-free
reorganization under Section 368(a)(1 )(D) of the Code. Such ruling provides
that, for U.S. federal income tax purposes, among other things:
- - no gain or loss will be recognized by MedCom upon the distribution of
shares of our common stock to holders of MedCom common stock pursuant to
the spin off;
- - no gain or loss will be recognized by, and no amount will be included in
the income of, a holder of MedCom common stock upon the receipt of shares
of our common stock pursuant to the spin off;
- - a MedCom stockholder who receives shares of our common stock in the spin
off will have an aggregate adjusted basis in its shares of our common stock
(including any fractional share in respect of which cash is received) and
its shares of MedCom common stock immediately after the spin off equal to
the aggregate adjusted basis of the stockholder's MedCom common stock held
prior to the spin off, which will be allocated in proportion to their
relative fair market values; and
- - the holding period of the shares of our common stock received in the spin
off by a MedCom stockholder will include the holding period of its shares
of MedCom common stock, provided that such shares of MedCom common stock
were held as a capital asset on the distribution date.
United States Treasury Regulations also generally provide that if a MedCom
stockholder holds different blocks of MedCom common stock (generally shares of
MedCom common stock purchased or acquired on different dates or at different
prices), the aggregate basis for each block of MedCom common stock purchased or
acquired on the same date and at the same price will be allocated, to the
greatest extent possible, between the shares of our common stock (including any
fractional share) received in the spin off in respect of such block of MedCom
common stock and such block of MedCom common stock, in proportion to their
respective fair market values, and the holding period of the shares of our
common stock (including any fractional share) received in the spin off in
respect of such block of MedCom common stock will include the holding period of
such block of MedCom common stock, provided that such block of MedCom common
stock was held as a capital asset on the distribution date. If a MedCom
stockholder is not able to identify which particular shares of our common stock
(including any fractional share) are received in the spin off with respect to a
particular block of MedCom common stock, for purposes of applying the rules
described above,
13
the stockholder may designate which shares of our common stock are received in
the spin off in respect of a particular block of MedCom common stock, provided
that such designation is consistent with the terms of the spin off. Holders of
MedCom common stock are urged to consult their own tax advisors regarding the
application of these rules to their particular circumstances.
If the spin off does not qualify for tax-free treatment, then MedCom will
recognize taxable gain in an amount equal to the excess of the value of the
shares of our common stock held by MedCom immediately prior to the spin off over
MedCom's tax basis in such shares of our common stock. In addition, a holder of
MedCom's common stock will be subject to tax as if the holder had received a
taxable distribution in an amount equal to the fair market value of the shares
of our common stock received in the spin off by such holder. See "Risk
Factors-Risks Related to the Spin Off-The spin off could result in substantial
tax liability."
Current U.S. federal tax law that applies to spin offs generally creates a
presumption that the spin off would be taxable to MedCom but not to its
stockholders if we engage in, or enter into an agreement to engage in, a plan or
series of related transactions that would result in 50% or greater change (by
vote or by value) in our stock ownership during the four-year period beginning
on the date that begins two years before the spin off, unless it is established
that the transaction is not pursuant to a plan related to the spin off. United
States Treasury Regulations generally provide that whether an acquisition of our
stock and a spin off are part of a plan is determined based on all of the facts
and circumstances, including specific factors listed in the regulations. In
addition, the regulations provide certain "safe harbors" for acquisitions of our
stock that are not considered to be part of a plan related to the spin off.
There are other restrictions imposed on us under current U.S. federal tax law
for spin offs and with which we will need to comply in order to preserve the
favorable tax treatment of the distribution, such as continuing to own and
manage our technology business and limitations on sales or redemptions of our
common stock for cash or other property following the distribution.
In the tax sharing agreement with MedCom, we will agree that, among other
things, we will not take any actions that would result in any tax being imposed
on the spin off. Please see "Agreements with MedCom-Tax Sharing Agreement" for
more detail.
Treasury Regulations under Section 355 of the Code require that certain MedCom
stockholders who receive shares of our common stock pursuant to the spin off
attach statements to their U.S. federal income tax returns for the taxable year
in which such stockholder receives the shares of our common stock in the spin
off, which statement shows the applicability of Section 355 of the Code to the
spin off.
MedCom will make available to the MedCom stockholders who may be subject to this
requirement any information known to MedCom and necessary to comply with this
requirement.
RESULTS OF THE SPIN OFF
Following the spin off, we became an independent public company owning and
operating what had previously been MedCom's card technology business.
Immediately following the spin off, we have 146,770,504 shares of our common
stock outstanding and approximately 620 holders of record of shares of our
common stock, based upon the number of shares of MedCom common stock outstanding
and the number of record holders of MedCom common stock on December 15, 2006.
The spin off will not affect the number of outstanding MedCom shares or any
rights of MedCom stockholders, although it will affect the market value of the
outstanding MedCom common stock.
LISTING AND TRADING OF OUR COMMON STOCK
As of the date of this prospectus, there is no public market for our common
stock. We have applied to the NASD for our common stock has been authorized for
listing on the Bulletin Board under the symbol "CATI." MedCom common stock
continues to be listed on the NASDAQ under the symbol "EMED."
14
There currently is no trading market for our common stock, although we expect
that a market will develop on or shortly after the payment date for the
distribution and the NASD authorization for listing. Shares registered in this
prospectus may not be sold until it is declared effective. Neither we nor MedCom
can assure you as to the trading price of our common stock or as to whether the
combined trading prices of our common stock and MedCom's common stock will be
less than, equal to or greater than the trading prices of MedCom's common stock
prior to the spin off. See "Risk Factors-Risks Related to the Spin Off." The
trading price of our common stock is likely to fluctuate significantly,
particularly until an orderly market develops.
The shares of our common stock distributed to MedCom's stockholders will be
freely transferable, except for shares received by individuals who are deemed
affiliates or who received restricted shares as a result of holding MedCom
restricted shares. Those receiving shares of our common stock who hold
restricted stock of MedCom on the record date are the selling shareholders under
this prospectus and will be able to use this prospectus to sell their shares.
The shares retained by MedCom are not being registered in this offering.
Individuals who may be considered our affiliates after the spin off include
individuals who control, are controlled by or are under common control with us,
as those terms generally are interpreted for federal securities law purposes.
This may include some or all of our executive officers and directors. In
addition, individuals who are affiliates of MedCom on the distribution date may
be deemed to be affiliates of ours. Individuals who are our affiliates will be
permitted to sell their shares of common stock received in the spin off only
pursuant to an effective registration statement under the Securities Act of
1933, of the "Securities Act," an appropriate exemption from registration, or
pursuant to Rule 144 once 90 days have expired since the date that the
registration statement of which this prospectus is a part was declared
effective. In general, under Rule 144, an affiliate who receives shares of our
common stock in the distribution, for a period of at least one year is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of:
- - 1% of the then-outstanding shares of common stock; and
- - the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which the notice of the sale is filed
with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to provisions relating to notice, manner
of sale, volume limitations and the availability of current public information
about us.
TRADING OF MEDCOM COMMON STOCK BETWEEN THE RECORD DATE AND DISTRIBUTION DATE
MedCom's common stock continues to trade on the NASDAQ. After December 15, 2006,
shares of MedCom purchased will not include an entitlement to receive shares of
our common stock distributed in the spin off, as the entitlement will remain
with the original holder. Therefore, if you own shares of MedCom common stock on
December 15, 2006 and thereafter sell those shares, you will receive the shares
of our common stock in the spin off.
REASONS FOR FURNISHING THIS PROSPECTUS
This prospectus is being furnished solely to provide information about us and
about the spin off to MedCom stockholders who will receive shares of our
restricted common stock in the spin off because they held restricted MedCom
stock and to register those shares of restricted common stock. It is not and
should not be construed as an inducement or encouragement to buy or sell any of
our securities or any securities of MedCom. We believe that the information
contained in this prospectus is accurate as of the date set forth on the cover.
Changes to the information contained in this prospectus may occur after that
date, and neither we nor MedCom undertake any obligation to update the
information except in the normal course of our respective public disclosure
obligations and practices.
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DESCRIPTION OF BUSINESS
BACKGROUND AND HISTORY
MedCom has assigned its patent number 6,032,859 to the Company upon its
formation. The MedCom Renewable card system patent was created by MedCom as part
of its card building technology endeavors in the 1990's. The patent covers the
technology and process for taking a card with a magnetic strip or other data
capture mechanism and activating the card by loading a determined monetary value
onto the card for use at a later date for different types of transactions. This
process can be utilized for prepaid phone cards, gift cards, affinity cards and
value cards. New View Technologies, which was acquired by MedCom developed the
patent and all patents were assigned by New View Technologies to MedCom.
DESCRIPTION OF THE INDUSTRY
From the increased use of phone cards populated with value by retailers to the
expansion of gift cards at major department stores and big box stores, to the
creation of affinity cards by retailers building customer loyalty, and the sale
of these cards in supermarkets, convenience stores, coffee shops and other
outlets, the implementation of card activation for consumers has been expanding
greatly throughout the United States. Many retailers every day are adding this
product availability to its sales efforts.
There are many different companies offering phone cards. There are a number of
different service companies offering gift card processing and there are a
variety of different companies offering processing services. It is our
understanding that many, if not all of these companies, are utilizing those
processes protected by the patent we own for activating these types of cards.
The Retail industry has adopted the method of activating cards at the time of
purchase in order to reduce theft and cost of holding cards with pre-loaded
values included. According to projections by Deloitte & Touche, more than
two-thirds of U.S. shoppers bought nearly five gift cards on average this past
holiday season. Sales of these prepaid products, along with cash cards, prepaid
phone cards and other stored value instruments, are projected to increase from
$109 billion today to $132 billion in 2008.
The retailer benefits significantly because it receives revenue from the
customer and provides an interest free float on those monies until the customer
actually utilizes the card for purchasing. This creates a tremendous profit
opportunity for the retailer which has resulted in their encouragement of
consumers to acquire gift cards as a gift solution.
The retailer also benefits because a percentage of the cards are not fully
utilized or used at all thereby providing a 100% profit to the retailer for the
amount not used.
The retailer benefits thirdly from consumers who may not normally frequent the
store, but do so because they have a gift card and then often increment the sale
above the value of the gift card with additional purchases.
Lastly, the retailer accrues a benefit by reducing returns of merchandise from
unsatisfied customers who received merchandise as gifts.
OVERVIEW
We are a technology licensing company who intends to license our technology to
retailers, supermarkets, convenience stores and other service providers such as
phone companies, the post office and military stores who wish to provide
consumers with cards that can be encoded with monetary value for use for a
subsequent purchase.
We intend to require, wherever our patents apply, reasonably appropriate annual
royalty guarantees and advances from the retailer or service provider to enter
into these licensing agreements, given the value added of our intellectual
property.
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By providing a licensing model, we expect to be able to convert many, if not
all, of these providers to licensees for our patented system. With the multiples
of number of outlets per chain, the revenue potential can be quite significant.
MARKETING
In developing our marketing approach, we have secured the services of the law
firm of Orum and Roth LLC to begin the negotiations concerning the licensing of
the proprietary patented technology of electronic activation of phone, gift
cards, affinity cards and value cards with current users of our technology.
We intend to generate revenues primarily by charging licensing fees to the
retailers who are utilizing our patented technology. We have identified hundreds
of retail chains who the company believes are presently utilizing our patented
technology in the sale of gift cards, phone cards, affinity cards and value
cards.
PATENTS AND LICENSES
When a new product or process is developed, we may seek to preserve the economic
benefit of the product or process by applying for a patent in each jurisdiction
in which the product or process is likely to be exploited. Generally, for a
patent to be granted, the product or process must be new and be inventively
different from what has been previously patented or otherwise known anywhere in
the world. Patents generally have a life span of 20 years from the date of
application depending on the relevant jurisdiction, after which time any person
is free to exploit the product or process covered by a patent. A person who is
the owner of a patent has, within the jurisdiction in which the patent is
granted, the exclusive right to exclude others from practicing the subject
matter defined in the patent claims. The patent, 6,032,859 was granted on March
7, 2000. The patent has about another 11 year term, based on the September, 1997
application date.
COMPETITION
Competition in the technology industry is intense. Potential competitors in the
United States and Europe are numerous and include.
EMPLOYEES
As of December 15, 2006, we had three executive officers, Mr. Williams,
President and CEO, Mr. Bednarski, our Chief Operating Officer and Mr. Michael
Mallet our Executive Vice President. All of these gentlemen are employees of
MedCom and do not receive any compensation from us at this time. Mr. Bednarski
will be providing a substantial portion of his time to the Company. We have no
full or part-time employees.
PROPERTY
The Company has office space in Chicago under a monthly oral agreement with no
specific term. At present, we require little dedicated office space. We believe
that our existing facilities are adequate for our current needs and that
additional space will be available as needed.
LEGAL PROCEEDINGS
As of December 15, 2006, we had initiated lawsuits against McDonald's
Corporation, Walgreen Co. and Sears Holding Corporation for infringing its
payment transaction patent but no responses had been filed in those actions by
the defendants. On that date, there were no pending or threatened legal
proceedings against the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of our plan of operations should be read
in conjunction with our financial statements and related notes appearing
elsewhere in this prospectus. This discussion and analysis contain
forward-looking statements that involve risks, uncertainties and assumptions.
Actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those presented under the heading of "Risk Factors" and elsewhere in
this prospectus.
OVERVIEW
- --------
PLAN OF OPERATIONS
We were incorporated in Delaware in August of 2006 as Card Activation
Technologies, Inc.
PATENT TECHNOLOGY
The Company has the ability to market and sell licensing opportunities for the
card activation proprietary patented technology for activating phone cards and
gift cards at retail stores and other distribution outlets. The patent covers
the technology and process for taking a card with magnetic strip or other data
capture mechanism and activating the card by downloading a determined monetary
value onto the card for use at a later date for different types of transactions.
This process can be utilized for prepaid phone cards, gift cards, and affinity
cards. New View Technologies, which was acquired by MedCom, developed the patent
and all patents have been assigned to MedCom.
In September 2006, MedCom transferred the patent technology to the company.
Presently, the company has sent proposed license agreements to numerous
companies and initiated three law suits against companies that have violated
this patent and will continue to pursue the litigation against those companies
that have violated the company's patents. Once the company is successful in the
pursuit of the patent violators and in its licensing program, we anticipate
receiving the appropriate royalties from the use of our technology by third
parties by allowing licensing arrangements to our technology and anticipated
royalties for the use of our patent.
RESULTS OF OPERATIONS
We are a development stage company and have generated no revenues from the
anticipated royalty income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating requirements has been and will be funded primarily from
its related party entity MedCom USA, Inc. The Company believes that the cash
flows from the patent litigation are inadequate will rely upon the sale of
common stock to sustain its operations. The Company will used funds advanced
from an affiliated entity that is controlled by the Company's chairman and chief
executive officer. The company is looking at expanding its market and look for
acquisition that complement the Company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------
USE OF ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. When preparing our financial statements, we make estimates and
judgments that affect the reported amounts on our balance sheets and income
statements, and our related disclosure about contingent assets and liabilities.
We continually evaluate our estimates, including those related to revenue,
allowance for doubtful accounts, reserves for income taxes, and litigation. We
base our estimates on historical experience and on various other assumptions,
which we believe to be reasonable in order to form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily ascertained from other sources. Actual results may deviate from these
estimates if alternative
18
assumptions or condition are used.
REVENUE RECOGNITION
Revenue recognized the use of our patent technology by receiving royalties or
licensing fees from the deployment of our technology. Revenue is recorded when
sales are generated from third parties that have deployed our technology and
generated sales from that technology. We anticipated that at a minimum Card
Activation will received nearly 3% of royalties or licensing fees based upon the
overall use of our technology today by violators, Company has no further
obligation.
NET INCOME (LOSS) PER SHARE
The Company has presented basic and diluted net income (loss) per share pursuant
to SFAS No. 128, "Earnings per Share," and the Securities and Exchange
Commission SAB No. 98. In accordance with SFAS No. 128, basic net income (loss)
per share has been computed by dividing net income (loss) by the
weighted-average number of shares of common stock outstanding during the period.
Diluted net income (loss) per share includes the effect, if any, from the
potential exercise or conversion of securities, such as stock options, which
would result in the issuance of shares of common stock.
Basic and diluted loss per share is based on the net loss divided by the
weighted average number of common shares outstanding during the period. No
effect has been given to outstanding potential common shares such as options,
warrants and convertible instruments in the diluted computation as their effect
would be anti-dilutive.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources and would be considered
material to investors. Certain officers and directors of the Company have
provided personal guarantees to our various lenders as required for the
extension of credit to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 R (As amended) Accounting for Stock-Based Compensation. This statement
is a revision of FASB Statement No 123 and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods and
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods and services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. For public entities that are not small business issuers, the
implementation of this Statement is required as of the beginning of the first
interim or annual reporting period after June 15, 2005. For public entities that
are small business issuers, like Bond, the implementation of this Statement, is
required as of the beginning of the first interim or annual reporting period
after December 15, 2005. Management is required to implement this Statements
beginning in fiscal year beginning on January 1, 2006 and they are currently
evaluating the impact of implementation of this Statement on the Company.
Description of Properties
- ---------------------------
The company has its headquartered in rented office space adjacent to its patent
counsel's offices in Chicago, Illinois. The company does not have any other
facilities at this time.
19
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Set forth below is information regarding the Company's current directors and
executive officers. There are no family relationships between any of our
directors or executive officers. The directors are elected annually by
stockholders. The executive officers serve at the pleasure of the Board of
Directors.
Name Age Title
William P. Williams 53 President and Chief Executive Officer, Director
Michael Malet 59 Executive Vice President
William L. Bednarski 52 Chief Operating Officer
William P. Williams, President and Chief Executive Officer, Director
- --------------------------------------------------------------------
William P. Williams has been the Chairman, Chief Executive Officer of the
Company since inception and has held the same positions with MedCom since August
2001. He is also currently Chief Executive Officer and Chairman of the Board for
American Nortel Communications, Inc., a publicly traded company located in
Scottsdale, Arizona, which is in the business of long-distance telephone service
domestically, as well as internationally. From 1983 to 1995, he was President
and Chairman of the Board of Shelton Financial, Inc., a financial factoring firm
headquartered in San Antonio, Texas. Mr. Williams has a Bachelor of Arts and a
Master of Business Administration in Finance from Baylor University
Michael Malet, Executive Vice President
- ---------------------------------------
Mr. Malet has served as Executive Vice President of MedCom since 2001. From 1998
to 2001 he was the chief operating office of MedCom. From 1995 to 1997 he was
President of New View Technologies Inc. which manufactured on-line phone card
vending machines and produced software for point-of-sale terminals for the
activation of debit transactions and phone card/gift card activation. New View
Technologies was purchased by MedCom in 1998. From 1986 to 1994 he was President
of Keyosk Corporation, a manufacturer of on-line intelligent vending machines.
William L. Bednarski, Chief Operating Officer
- ---------------------------------------------
Mr. Bednarski joined the Company in October, 2006 from Minrad International
Inc., a medical device and acute care company, where he had originally been
hired as the COO in February 2005 and was then promoted to President and CFO in
January 2006. For the twelve years prior to Minrad, he worked with Nellcor, now
a division of Tyco International Ltd., as Vice President of OEM and Licensing
Technology. While with Nellcor, a leading manufacturer of pulse oximetry and
critical care products, he negotiated and managed over 90 OEM and Licensing
agreements. Mr. Bednarski was recruited to Nellcor from the Ohmeda Monitoring
Group of BOC, Inc., where he had been Director of Business Development. Prior to
entering the medical device industry, he had served as Controller of a division
of Otis Elevator and Controller of Alpha Wire Corporation. Mr. Bednarski
graduated Cum Laude from Harvard University and has an MBA in Finance from the
Wharton School of Business at the University of Pennsylvania.
AUDIT COMMITTEE FINANCIAL EXPERT
The Company does not have an audit committee or a compensation committee of its
board of directors. In addition, the Company's board of directors has determined
that the Company does not have an audit committee financial expert serving on
the board. When the Company develops its operations, it will create an audit and
a compensation committee and will seek an audit committee financial expert for
its board and audit committee. Until it has such committees and such an expert,
the Company will not be able to list its stock on the major securities exchanges
or the NASDAQ.
20
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
At the present time, none of the company's officers receive any compensation
from the company. It is anticipated that once the company begins to generate
revenues, the company's Chief Operating Officer, William Bednarski, will begin
receiving compensation from the company, but the amount has yet to be
determined. In addition, it is anticipated that the Company will provide Mr.
Bednarski with normal and customary benefits, including health and dental
insurance, vacation, expense reimbursement, and retirement plan contributions.
There is currently no arrangement with Mr. Williams or Mr. Malet to provide
compensation for their executive services to the Company.
NON-EMPLOYEE DIRECTOR COMPENSATION
The Company has no formal plan for Director compensation, but anticipates that
it will reimburse the reasonable and customary expenses of any future
non-employee directors associated with their service on the board, including
travel expenses and standard fees for attending board meetings. In addition, the
Company has established the 2006 Stock Option Plan (the "Plan") for employees,
directors and consultants and reserved 1,000,000 shares for issuance under the
Plan. At the date hereof, no options have been issued under this Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists stock ownership of our Common Stock as of December 15,
2006. The information includes beneficial ownership by (i) holders of more than
5% of our Common Stock, (ii) each of three directors and executive officers and
(iii) all of our directors and executive officers as a group. Except as noted
below, to our knowledge, each person named in the table has sole voting and
investment power with respect to all shares of our Common Stock beneficially
owned by them.
- --------------------------------------------------------------------------------------------------------------
Number Percentage of
of Shares Percentage Class After
Name and Address of Owner Title of Class Owned (1) of Class (2) Offering (3)
William P. Williams Common Stock
7975 N. Hayden Rd., Suite D333
Scottsdale, AZ 85258
William O. Bednarski Common Stock
Michael Malet Common Stock
2102 Business Center Drive
Suite G115
Irvine, CA 92612
All Officers and Directors Common Stock
As a Group (3 persons)
21
American Nortel Communications, Common Stock Inc.
7975 N. Hayden Rd., Suite D333
Scottsdale, AZ 85258
MedCom USA, Incorporated
7975 N. Hayden Rd., Suite D333
Scottsdale, AZ 85258
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of are deemed outstanding for computing the percentage of the
persons holding such options or warrant but are not deemed outstanding for
computing the percentage of any other persons.
(2) Percentage based on shares of common stock outstanding as of .
(3)
- --------------------------------------------------------------------------------------------------------------
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The Company has adopted an employee stock option plan, which acts as an
incentive stock option plan, under which the Company's officers, directors,
consultants, and employees will be eligible to receive, in relevant part, either
securities or stock options exercisable for the Company's securities at exercise
prices that may be equal to or lower than the offering price. The Company has
reserved 1,000,000 shares of Common Stock for issuance under this plan. No
options have been issued under this plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no material transactions during the past two years between us
and any officer, director or any stockholder owning greater than 5% of our
outstanding shares, nor any of their immediate family members.
AGREEMENTS WITH MEDCOM
Following the spin off, our company and MedCom operate separately, each as
independent public companies. In order to govern the relationship between our
company and MedCom after the spin off and to provide mechanisms for an orderly
transition, we and MedCom are entering into certain agreements which will
facilitate the spin off, govern our relationship with MedCom after the spin off
and provide for the allocation of tax and other liabilities and obligations. The
following is a summary of the terms of the material agreements we are entering
into with MedCom.
SEPARATION AGREEMENT
The separation agreement governs the contribution of MedCom's card technology
business to us, the subsequent distribution of shares of our common stock to
MedCom stockholders and other matters related to MedCom's relationship with us.
The Contribution
To effect the contribution, MedCom transferred all of the assets of the card
technology business, including its patent to us as described in this prospectus.
We have assumed and will agree to perform and fulfill all of the liabilities
(including contingent liabilities) of the card technology business in accordance
with their respective terms. MedCom has not and will not make any representation
or warranty as to the assets or
22
liabilities transferred or assumed as part of the contribution or sale or as to
any consents which may be required in connection with the transfers. All assets
were transferred on an "as is," "where is" basis.
The parties agreed to use reasonable best efforts to obtain any required
consents, substitutions or amendments required to novate or assign all rights
and obligations under any contracts to be transferred in connection with the
contribution. We will also use our reasonable best efforts to replace or
terminate any guarantees, sureties, bonds, letters of credit or similar
instruments made or posted by MedCom, if any, which relate to our business, and
indemnify MedCom against any losses it may incur if we are unable to do so.
The Distribution
The separation agreement provides that on the payable date (which will be
determined by MedCom), MedCom will distribute one share of our common stock for
every one share of its common stock to its stockholders of record as of the end
of business on December 15, 2006. MedCom has retained a significant number of
shares of our stock.
The separation agreement provides that we and MedCom will use our reasonable
best efforts to consummate the distribution, including to use such efforts to
file a registration statement and any subsequent amendments or supplements
thereto with the SEC regarding our common stock and the company, take such
actions as may be necessary under state blue-sky laws and prepare and mail to
MedCom stockholders such other materials as MedCom determines necessary or
desirable and required under law. In addition, the separation agreement provides
that we will agree to prepare, file and use our reasonable best efforts to make
effective an application for listing our stock with NASDAQ.
Exchange of Information
We and MedCom agree to provide each other with information reasonably necessary
to comply with reporting, disclosure or filing requirements of governmental
authorities, for use in judicial, regulatory, administrative and other
proceedings and to satisfy audit, accounting, claims, litigation or similar
requests, business or legal related. We and MedCom also agree to certain record
retention and production procedures and agree to cooperate in any litigation as
described below. Each party has agreed to maintain at its own cost and expense
adequate systems and controls for its business to the extent reasonably
necessary to allow the other party to satisfy its reporting, accounting, audit
and other obligations. Each party also agrees to provide to the other party all
financial and other data and information that the requesting party determines
necessary or advisable in order to prepare its financial statements and reports
or filings. Each party agrees to use its reasonable best efforts to make
available to the other party its current, former and future directors, officers,
employees and other personnel or agents who may be used as witnesses and books,
records and other documents which may reasonably be required in connection with
legal, administrative or other proceedings.
Limitation on Damages
We and MedCom agree to waive, and neither we nor MedCom will be able to seek,
consequential, special, indirect or incidental damages or punitive damages.
Dispute Resolution
If a dispute arises with MedCom under the separation agreement or any ancillary
agreement, we have agreed to the following procedures:
- - the dispute will be submitted to a steering committee of two members, one
appointed by each of us and MedCom, the decision of such steering committee
to be binding on us and MedCom; and
- - if resolution through the steering committee fails, the parties can resort
to final and binding arbitration unless the suit seeks injunctive relief or
specific performance or if the suit involves the tax free treatment of the
spin off.
TAX SHARING AGREEMENT
23
In connection with the separation agreement, we have entered into a tax sharing
agreement with MedCom. This agreement (1) governs the allocation of U.S.
federal, state, local, and foreign tax liability between us and MedCom, (2)
provides for certain restrictions and indemnities in connection with the tax
treatment of the distribution, and (3) addresses certain other tax-related
matters.
Allocation of Tax Liability
Prior to December 15, 2006, we were included in MedCom's consolidated federal
income tax returns and were included with MedCom in applicable combined or
unitary state and local income tax returns.
- - Under the tax sharing agreement, MedCom generally is be liable for all U.S.
federal, state, local, and foreign income taxes attributable to us with
respect to taxable periods ending on or before December 15, 2006. We are
generally liable for all other taxes attributable to us post December 15,
2006.
- - MedCom will prepare and file (1) the MedCom consolidated U.S. federal
income tax return for all taxable periods, including the taxable periods in
which we are included, (2) any MedCom combined, unitary or consolidated
state income tax returns for all taxable periods, including the taxable
periods in which we are included, (3) all other U.S. federal, state, and
local income tax returns for MedCom and its affiliates (including us) with
respect to taxable periods ending on or before December 15, 2006, (4)
income tax returns for MedCom and its affiliates for post-December 14, 2006
tax periods and (5) certain other tax returns. We will generally prepare
and file all other tax returns attributable to us, except that MedCom has
the option to prepare and file any income tax return for us with respect to
any taxable period beginning before the record date and ending after the
record date if it provides us with written notice within 45 days after the
end of that taxable period. The party responsible for the tax liability
will generally control all decisions affecting audits and legal proceedings
with respect to that return.
- - Under the tax sharing agreement, we have agreed to indemnify MedCom (and
MedCom has agreed to indemnify us) for any tax detriments arising from an
inter-group adjustment, but only to the extent we (or MedCom) realize a
corresponding tax benefit.
Restrictions and Indemnities in Connection with the Tax Treatment of the
Distribution
The tax sharing agreement also provides that we are liable for taxes incurred by
MedCom that arise as a result of our taking or failing to take certain actions
that result in the distribution failing to meet the requirements of a tax-free
distribution under Sections 355 and 368(a)(1)(D) of the Code. We therefore have
agreed that, among other things, we will not take any actions that would result
in any tax being imposed on the spin off. More specifically, for the two-year
period following the spin off, we have agreed not to:
- - Sell or otherwise issue to any person, or redeem or otherwise acquire from
any person, any of our equity securities; provided, however that we may (1)
sell or otherwise issue equity securities or repurchase equity securities
in certain circumstances permitted by the IRS guidelines, and (2) sell or
otherwise issue equity securities provided that such issuance, individually
or when aggregated with other issuances and any transactions occurring in
the four-year period beginning on the date which is two years before the
distribution date, and with any other transaction which is part of a plan
or series of related transactions (within the meaning of Section 355(e) of
the Code) that includes the spin off (other than sales or issuances of
equity securities described in clause (1) above), results in one or more
persons acquiring, directly or indirectly (as determined under Section
355(e) of the Code, taking into account applicable constructive ownership
rules), stock representing a 35% or greater interest, by vote or value, in
us.
- - Sell, transfer, or otherwise dispose of our assets that, in the aggregate,
constitute more than 50% of our gross assets, excluding any sales conducted
in the ordinary course of our business.
24
- - Voluntarily dissolve or liquidate or engage in any merger (except for
certain cash acquisition mergers), consolidation, or other reorganization,
except for certain mergers and liquidations of our wholly owned
subsidiaries to the extent not inconsistent with the tax-free status of the
spin off.
- - Take any action (including, but not limited to, the sale or disposition of
any stock, securities, or other assets), or fail to take any action that
would cause MedCom to recognize gain under any gain recognition agreement
to which MedCom is a party.
- - Amend our certificate of incorporation (or any other organizational
document), or take any action, whether through a stockholder vote or
otherwise, affecting the relative voting rights of our separate classes of
stock (including, without limitation, through the conversion of one class
of stock into another class of stock), but only to the extent such
amendment, action or conversion, if treated as an issuance of equity
securities, would otherwise be prohibited by the tax sharing agreement.
- - Solicit any person to make a tender offer for, or otherwise acquire or
sell, our equity securities, participate in or support any unsolicited
tender offer for, or other acquisition, issuance, or disposition of, our
equity securities, or approve or otherwise permit any proposed business
combination or merger or any transaction which, individually or when
aggregated with any other transactions occurring within the four-year
period beginning on the date which is two years before the distribution
date, and with any other transaction which is part of a plan or series of
related transactions (within the meaning of Section 355(e) of the Code)
that includes the spin off (other than certain issuances of equity
securities permitted by IRS guidelines), results in one or more persons
acquiring, directly or indirectly (as determined under Section 355(e) of
the Code, taking into account applicable constructive ownership rules),
stock representing a 35% or greater interest, by vote or value, in us.
In addition, we have agreed not to engage in certain of the actions described
above, whether before or after the two-year period following the spin off, if it
is pursuant to an arrangement negotiated (in whole or in part) prior to the
first anniversary of the spin off.
We may, however, take certain actions prohibited by the tax sharing agreement if
we provide MedCom with an unqualified opinion of tax counsel or MedCom receives
a supplemental private letter ruling from the IRS, acceptable to MedCom, to the
effect that these actions will not affect the tax-free nature of the spin off.
ADMINISTRATIVE SERVICES AGREEMENT
Under an administrative services agreement between the MedCom and us, we have
agreed to share certain administrative functions and personnel until we can
establish our own administrative operating systems and hire its own personnel.
25
DESCRIPTION OF SECURITIES
DESCRIPTION OF CAPITAL STOCK
The Company has authorized a total of 176,000,000 shares, consisting of
175,000,000 shares of Common Stock, par value $0.00 1 per share, and 1,000,000
shares of Preferred Stock, par value $0.00 1 per share. As of December 15, 2006,
the Company had 146,770,504 shares of Common Stock issued and outstanding and no
shares of Preferred Stock issued and outstanding.
Common Stock
- -------------
Voting Rights
Each holder of Common Stock is entitled to one vote for each share of Common
Stock held on all matters submitted to a vote of stockholders.
Dividends
Subject to preferences that may be applicable to any then-outstanding shares of
Preferred Stock, if any, and any other restrictions, holders of Common Stock are
entitled to receive ratably those dividends, if any, as may be declared from
time to time by the Company's board of directors out of legally available funds.
The Company and its predecessors have not declared any dividends in the past.
Further, the Company does not presently contemplate that there will be any
future payment of any dividends on Common Stock.
Preferred Stock
- ----------------
Our board of directors has the authority to issue 1,000,000 shares of preferred
stock in one or more series and to determine all of the rights, preferences,
privileges and restrictions of the preferred stock. As of the date of this
prospectus, the Company does not have any preferred stock issued or outstanding.
If we issue any preferred stock in the future, it may have the effect of
delaying or preventing a change in control without further action by our
stockholders and may adversely affect the voting, dividend and other rights of
the holders of our common stock. In addition, the issuance of preferred stock
with voting and/or conversion rights may adversely affect the voting power of
the holders of our common stock, including the loss of voting control to others.
Options
- -------
The Company has established a 2006 Stock Option Plan (the "Plan") for employees,
directors and consultants and reserved 1,000,000 shares for issuance under the
Plan. At the time of this Offering, no options have been issued under this Plan.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public trading market for our securities although we expect one to
develop once the company's shares are approved for trading with the NASDAQ. As
of December 15, 2006, 175,000,000 shares of our Common Stock were authorized for
issuance and 146,770,504 shares of Common Stock were issued and outstanding. As
of December 15, 2006, 1,000,000 shares of our Preferred Stock were authorized
for issuance and no shares of Preferred Stock were issued and outstanding.
The Company has not paid any dividends on its capital stock and does not expect
to pay dividends for the foreseeable future.
SELLING STOCKHOLDERS
The following table details the name of each selling stockholder, the number of
shares owned by that selling stockholder and the number of shares that may be
offered by each selling stockholder for sale under this prospectus. The selling
stockholders may sell their shares of our Common Stock from time to time in one
or more offerings under this prospectus. Because each selling stockholder may
offer all, some or none of the shares it holds, and because, based upon
information provided to us, there are currently no agreements,
26
arrangements, or understandings with respect to the sale of any of the shares,
no definitive estimate as to the number of shares that will be held by each
selling stockholder after the Offering can be provided. The following table has
been prepared on the assumption that all shares offered under this prospectus
will be sold to parties unaffiliated with the selling stockholders. Except as
indicated below, no selling stockholder nor any of their affiliates have held a
position or office or had any other material relationship with us.
PLAN OF DISTRIBUTION
The Common Stock offered by this prospectus is being offered by the selling
stockholders. The Common Stock may be sold or distributed from time to time by
the selling stockholders directly to one or more investors or through brokers,
dealers or underwriters who may act solely as agents at market prices prevailing
at the time of sale, at prices related to the prevailing market prices, at
negotiated prices, or at fixed prices, which may be changed. The sale of the
Common Stock offered by this prospectus may be effected in one or more of the
following methods:
- - ordinary brokers' transactions,
- - through brokers, dealers, or underwriters who may act solely as agents,
- - "at the market" into an existing market for the Common Stock,
- - in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
- - in privately negotiated transactions, and
- - any combination of the foregoing.
In order to comply with the securities laws of certain states, if applicable,
the Common Stock may be sold only through registered or licensed brokers or
dealers. In addition, in certain states, the Common Stock may not be sold unless
the shares have been registered or qualified for sale in the state or an
exemption from the registration or qualification requirement is available and
complied with.
The selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended, in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the Common Stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act of 1933, as
amended.
We will pay the entire expenses incident to the registration, offering, and sale
of the Common Stock to the public other than commissions or discounts of
underwriters, broker-dealers or agents.
While they are engaged in a distribution of the Common Stock included in this
prospectus the selling stockholders are required to comply with Regulation M
promulgated under the Securities Exchange Act of 1934, as amended. With certain
exceptions, Regulation M precludes the selling stockholders, any affiliated
purchasers and any broker-dealer or other person who participates in the
distribution, from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the Common Stock offered by this prospectus.
27
USE OF PROCEEDS
This prospectus relates to shares of our Common Stock that may be offered and
sold from time to time by selling stockholders. We will receive no proceeds from
their sale of shares of Common Stock in this Offering.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's charter and bylaws provide that directors and officers shall be
indemnified by the Company to the fullest extent authorized by the General
Corporation Law of the State of Delaware, against all expenses and liabilities
reasonably incurred in connection with services for the Company or on its
behalf.
Insofar as indemnification for liabilities arising under the Securities Act
might be permitted to directors, officers or persons controlling our Company
under the provisions described above, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements of our Company for the period August 29, 2006
through September 30, 2006 have been audited by S E Clark & Company P.C.,
independent public accountants. The report of S E Clark & Company P.C., which
appears elsewhere herein, includes an explanatory paragraph as to the ability of
our Company to continue as a going concern. The financial statements of our
Company are included in reliance upon such report and upon the authority of such
firm as an expert in auditing and accounting.
FURTHER INFORMATION
We will become subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended, and file reports, proxy statements and other
information with the Securities and Exchange Commission. These reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at 100
F. Street, N.E., Room 1580, Washington, D.C. 20549 and at the Securities and
Exchange Commission's regional offices. You can obtain copies of these materials
from the Public Reference Section of the Securities and Exchange Commission upon
payment of fees prescribed by the Securities and Exchange Commission. You may
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission's Web site contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of that site is
http://www.sec.gov.
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28
CARD ACTIVATION TECHNOLOGIES, INC.
Development Stage Company
AUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2006
With Report of Registered Public Accountants
F-29
CARD ACTIVATION TECHNOLOGIES, INC.
Development Stage Company
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: F-2
SE Clark & Company P.C.
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet at September 30, 2006 F-3
Statements of Operations for the period ended
September 30, 2006 F-4
Statements of Stockholders' Equity for the period ended
September 30, 2006 F-5
Statements of Cash Flows for the period ended
September 30, 2006 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
F-30
S.E.CLARK & COMPANY, P.C.
Registered Firm: Public Company Accounting Oversight Board
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
Board of Directors and Stockholders
Card Activation Technologies, Inc.
Scottsdale, Arizona
We have audited the accompanying balance sheet of Card Activation Technologies,
Inc. (the "Company"), as of September 30, 2006 and the related statements of
operations, changes in stockholders' equity, and cash flows for the current and
accumulated period then ended. 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Card Activation Technologies,
Inc. (the "Company"), as of September 30, 2006 and the results of its operations
and its cash flows for the current and accumulated periods then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the accumulation of losses and shortage of capital raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 3. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
/s/ S.E.CLARK & COMPANY, P.C.
Tucson, Arizona
December 15, 2006
- --------------------------------------------------------------------------------
744 N. Country Club Road, Tucson, AZ 85716 (520) 323-7774, Fax (520) 323-8174,
seclarkcpa@aol.com
------------------
F-31
CARD ACTIVATION TECHNOLOGIES INC.
BALANCE SHEET
DEVELOPMENT STAGE COMPANY
SEPTEMBER 30, 2006
- ------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ -
- ------------------------------------------------------------------------------
Total current assets -
TOTAL ASSETS $ -
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES:
Accounts payable $ -
Accrued Liabilities -
- ------------------------------------------------------------------------------
Total current liabilities -
Loans Payable - Intercompany 15,758
- ------------------------------------------------------------------------------
15,758
- ------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT:
Common stock, $.0001 par value, 175,000,000 shares -
authorized 0 issued and outstanding -
Preferred shares, $.001par value, 1,000,000 shares -
authorized 0 issued and outstanding Paid in capital -
Accumulated deficit (15,758)
- ------------------------------------------------------------------------------
Total stockholders' deficit (15,758)
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ -
- ------------------------------------------------------------------------------
See accompanying notes to financial statements
F-32
CARD ACTIVATION TECHNOLOGIES INC.
STATEMENT OF OPERATIONS
DEVELOPMENT STAGE COMPANY
FOR THE CURRENT AND ACCUMULATED
PERIOD ENDED SEPTEMBER 30, 2006
-------------------------------
2006
---------
REVENUES:
Revenue -
---------
Total -
OPERATING EXPENSES:
General and Administrative 15,758
Selling and Marketing -
Depreciation and amortization -
---------
Total operating expenses 15,758
---------
OPERATING LOSS (15,758)
---------
OTHER (INCOME) AND EXPENSES
Interest Expense -
---------
Total other expense -
---------
LOSS BEFORE INCOME TAXES $(15,758)
INCOME TAX (BENEFIT) PROVISION -
---------
NET LOSS PER SHARE $(15,758)
---------
NET LOSS PER SHARE
Basic: $ -
---------
Diluted: $ -
---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic: -
---------
Diluted: -
---------
See accompanying notes to financial statements
F-33
CARD ACTIVATION TECHNOLOGIES INC.
STATEMENT OF CASH FLOWS
Development Stage Company
FOR THE CURRENT AND ACCUMULATED
PERIOD ENDED SEPTEMBER 30, 2006
-------------------------------
2006
- ---------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(15,758)
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization -
Change in assets and liabilities:
Accrued Liabilities -
Accounts payable -
- ---------------------------------------------------------------
Net cash (used in) operating activities (15,758)
- ---------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ---------------------------------------------------------------
Net cash (used in) provided by investing activities -
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Common Stock -
Loans from Affiliates 15,578
- ---------------------------------------------------------------
Net cash provided by financing activities 15,578
- ---------------------------------------------------------------
INCREASE IN CASH -
CASH, BEGINNING OF YEAR -
- ---------------------------------------------------------------
CASH, END OF YEAR $ -
- ---------------------------------------------------------------
See accompanying notes to financial statements
F-34
CARD ACTIVATION TECHNOLOGIES INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Development Stage Company
FOR THE CURRENT AND ACCUMULATED
PERIOD ENDED SEPTEMBER 30, 2006
-------------------------------
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- --------- ---------- ---------- ----------
$ - -
Stock Issued August 29, -
2006 Accumulated Deficit (15,758) (15,758)
- ----------------------------------------------------------------------------------
September 30, 2006 - - - (15,758) (15,758)
See accompanying notes to financial statements
F-35
CARD ACTIVATION TECHNOLOGIES, INC.
DEVELOPMENT STAGE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING SEPTEMBER 30, 2006
----------------------------------------
1. DESCRIPTION OF BUSINESS
Card Activation Technologies, Inc. ("CAT or The Company") was incorporated in
the state of Delaware on August 29, 2006. The Company is a development stage
company and is a wholly owned subsidiary of MedCom USA, Incorporated (EMED.OB).
The company received, through a spin off, the ownership of a patent of MedCom
USA Incorporated. The company has not begun the process of operating this
business and is still in the process of reviewing the impact of the patent
infringement costs, and future cash flow from successful litigation. The Company
was incorporated for the sole purpose of financing and litigation patent
infringements related to the unauthorized use of electronic activation of phone,
gift and infinity cards. CAT is incorporated in Delaware with the focus on the
licensing of the proprietary patented technology of electronic activation of
phone, gift and affinity cards
The MedCom Management intends to spin off Card Activation Technology, Inc. into
a separately traded company. Under the current plan, shareholders will receive
one share in the new entity for each share of MedCom they own on the record
date. The MedCom Renewable card system patent was created by MedCom as part of
its card building technology endeavors in the 1990's. The patent covers the
technology and process for taking a card with a magnetic strip or other data
capture mechanism and activating the card by downloading a determined monetary
value onto the card for use at a later date for different types of transactions.
This process can be utilized for prepaid phone cards, gift cards, and affinity
cards. New View Technologies, which was acquired by MedCom in December 1996,
developed the patent and all patents were assigned by New View Technologies to
MedCom.
2. BASIS OF PRESENTATION
The accompanying financial statements represent the financial position and
results of operations of the Company and includes the accounts and results of
operations of the Company. The accompanying financial statements include only
the subsidiary Company for the period ended September 30, 2006.
3. GOING CONCERN ISSUES
Management cannot provide any assurances that they will be able to secure
sufficient funds to satisfy the cash requirements for the next 12 months. The
inability to secure additional funds would have a material adverse effect on the
Company.
These financial statements are presented on the basis that the Company will
continue as a going concern. Other than the previously disclosed impairments, no
adjustments have been made to these financial statements to give effect to
valuation adjustments that may be necessary in the event the Company is not able
to continue as a going concern. The effect of those adjustments, if any, could
be substantial.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP"). A summary of
the Company's significant accounting policies follows:
F-36
(a) Nature of Business
The Company was incorporated in Delaware on August 29, 2006 and is a development
stage company. The company is in the process of determining the expected cash
flow from the patent infringement litigation.
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
The primary management estimates included in these financial statements are the
impairment reserves applied to various long-lived assets and the fair value of
its stock tendered in various non-monetary transactions.
(c) Property and Equipment
Property and equipment will be recorded at cost less impairment and accumulated
depreciation. Depreciation will be recorded using the straight-line method.
Management periodically assesses its ability to recover the cost of its
long-lived assets in accordance with the provisions of SFAS 144. Costs deemed
not recoverable are charged to operations and the asset cost reduced by the
estimated impairment.
(d) Cash and Cash Equivalents
Cash includes all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less. Cash balances are insured by the F.D.I.C. up to $100,000 per
institution.
(e) Fair Value of Financial Instruments
The financial instruments disclosed elsewhere in these notes are deemed to be
representative of their fair values, as the interest rates approximate market
rates giving consideration to their respective risks. The Company has applied
certain assumptions in estimating these fair values. The use of different
assumptions or methodologies may have a material effect on the estimates of fair
values.
(f) Income Taxes
The Company provides for income taxes based on the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which,
among other things, requires that recognition of deferred income taxes be
measured by the provisions of enacted tax laws in effect at the date of
financial statements.
(g) Net Loss Per Share
Net loss per share is calculated using the weighted average number of shares of
common stock outstanding during the year. The Company has adopted the provisions
of SFAS No. 128 Earnings Per Share.
F-37
(h) Stock-Based Compensation
Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, ("SFAS 123") established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation. In accordance with SFAS 123, the Company has elected to continue
accounting for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees."
The Company accounts for stock awards issued to nonemployees in accordance with
the provisions of SFAS 123 and Emerging Issues Task Force ("EITF") Issue No.
96-18 Accounting for Equity Instruments that are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling Goods or Services. Under SFAS 123
and EITF 96-18, stock awards to nonemployees are accounted for at their fair
value as determined under Black-Scholes option pricing model.
(h) Intangible Assets
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 142,
Goodwill and Other Intangible Assets, effective July 1, 2002. As a result, the
Company discontinued amortization of goodwill, and instead annually evaluates
the carrying value of goodwill for impairment, in accordance with the provisions
of SFAS No. 142. The Company holds one asset, the cost basis of the development
of the patent infringement litigation. The Company owns the patent technology of
the electronic activation of gift, Affinity, and phone cards the patent had a
cost basis of $13,100 of legal costs related to the establishment of the patent.
In first quarter 2006 of MedCom. MedCom impaired the entire value of the patent
cost because there were not yet any proven revenues related to the patent
infringement litigation.
Research and Development costs are expensed as incurred.
Impairment of Long-Lived Assets is assessed by the Company for impairment
whenever there is an indication that the carrying amount of the asset may not be
recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted cash flows generated by those assets to the assets' net
carrying value. The amount of impairment loss, if any, is measured as the
difference between the net book value of the assets and the estimated fair value
of the related assets.
5. SHARE CAPITAL
On August 29, 2006, the Company authorized 175,000,000 shares of common stock,
at $.0001 par value and no shares were issued to its shareholders. The company
authorized 1,000,000 of preferred shares at a par value of .001 and no shares
were issued to its shareholders as of September 30, 2006.
6. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. CAT is a wholly
owned subsidiary of MedCom and will be spun off as a tax free exchange and as
the there will a proportionate distribution of stock based on the shareholders
of record at a particular date to be determined.
7. COMMITMENTS AND CONTINGENCIES
The Company has entered into various consulting agreements with outside
consultants. However, certain of
F-38
these agreements included additional compensation on the basis of performance.
The consulting agreements are with key shareholders that are instrumental to the
success of the company and its development of it product.
8. RELATED PARTY TRANSACTIONS
Card Activation is managed by its key officer and director William P. Williams
as of September 30, 2006. The company appointed William Bednarski as the
Company's Chief Operating Officer. Mr. Williams is the single largest
shareholder, sole officer, and director of MedCom.
9. NET LOSS PER SHARE
Restricted shares and warrants are not included in the computation of the
weighted average number of shares outstanding during the periods. There are no
restricted shares or warrants issued in the Capital of Card Activation. The net
loss per common share is calculated by dividing the consolidated loss by the
weighted average number of shares outstanding during the periods.
10. SUBSEQUENT EVENTS
The company's management consisted of William P. Williams CEO and William
Bednarski COO. The company received a patented technology that litigation of
patent infringement will ensue. The Company has sent out notice of patent
infringement to three very large abuses and unauthorized use of the company's
patent technology. The company is related to MedCom and the key officer and
Directors will be the key to success to this development stage company.
Pursuant to the above the following action has been taken:
On October 13, 2006 a patent infringement suit was filed against McDonald's
Corporation and Walgreen Co, et al, in the Federal District Court for the
Northern District of Illinois.
On November 28, 2006 a patent infringement suit was filed against Sears Holding
Corporation, also in the Federal District Court for the Northern District of
Illinois.
The intellectual property attorneys are pursuing these cases on a contingent fee
basis, whereby they will receive approximately 35% of amounts recovered, if
successful.
SPIN OFF
On October 31, 2006, the MedCom board of directors declared a stock dividend to
its shareholders of record at the end of business on December 15, 2006 of one
share of Common Stock in the Company for every one share of common stock of
MedCom owned by its shareholders. This was a dividend of 86,770,504 shares of
our Common Stock. MedCom retained the balance of 60,000,000 shares of Common
Stock.
Following the spin off, CAT and MedCom will operate separately, each as
independent public companies. In order to govern the relationship between our
company and MedCom after the spin off and to provide mechanisms for an orderly
transition, we and MedCom are entering into certain agreements which will
facilitate the spin off, govern our relationship with MedCom after the spin off
and provide for the allocation of tax and other liabilities and obligations.
The following is a summary of the terms of the material agreements we are
entering into with MedCom.
F-39
SEPARATION AGREEMENT
The separation agreement governs the contribution of MedCom's card technology
business to us, the subsequent distribution of shares of our common stock to
MedCom stockholders and other matters related to MedCom's relationship with us.
TAX SHARING AGREEMENT
In connection with the separation agreement, we have entered into a tax sharing
agreement with MedCom.
This agreement (1) governs the allocation of U.S. federal, state, local, and
foreign tax liability between us
and MedCom, (2) provides for certain restrictions and indemnities in connection
with the tax treatment of
the distribution, and (3) addresses certain other tax-related matters.
ADMINISTRATIVE SERVICES AGREEMENT
Under an administrative services agreement between the MedCom and us, we have
agreed to share certain administrative functions and personnel until we can
establish our own administrative operating systems and hire its own personnel.
STOCK OPTION PLAN
On October 31, 2006, the Company adopted an employee stock option plan, which
acts as an incentive stock option plan, under which the Company's officers,
directors, consultants, and employees will be eligible to receive, in relevant
part, either securities or stock options exercisable for the Company's
securities at exercise prices that may be equal to or lower than the offering
price. The Company has reserved 1,000,000 shares of Common Stock for issuance
under this plan. No options have been issued under this plan.
F-40
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State Delaware allows a
corporation to indemnify any officer, director, employee or agent who is a party
or is threatened to be made a party to a litigation by reason of the fact that
he or she is or was an officer, director, employee or agent of the corporation,
or is or was serving at the request of the corporation as an officer, director,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such director
or officer if:
the person acted in good faith and in a manner the person reasonably
believed to be in or not
- opposed to the best interests of the corporation; and
with respect to any criminal action or proceeding, had no reasonable cause
to believe the person's
- conduct was unlawful.
Our Certificate of Incorporation provides for the indemnification of our
officers and directors to the maximum extent permitted by Delaware law, and also
provides that:
No director of the Corporation shall have any personal liability to
the Corporation or to any of its stockholders for monetary damages for
breach of fiduciary duty as a director; provided, however, that this
provision eliminating such personal liability of a director 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) under Sec.
174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to
authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL as so amended.
The Company's bylaws provide that directors and officers shall be indemnified by
the Company to the fullest extent authorized by the Delaware General Corporation
Law, against all expenses and liabilities reasonably incurred in connection with
services for the Company or on its behalf.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of our company
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses the Company expects to
incur in connection with the distribution of the securities being registered.
The selling stockholders will not be responsible for any such fees. With the
exception of the SEC registration fee, all amounts are estimates.
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 341.02
Accounting Fee and Expenses 10,000.00*
F-41
Legal Fees and Expenses 25,000.00*
Printing Expense 8,000.00
Transfer Agent 2,000.00
Miscellaneous 4,658.98
-----------
TOTAL $ 50,000.00
-----------
*Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 27. EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.1 Certificate of Incorporation of Card Activation Technologies Inc., filed with the Secretary of State of
Delaware August 29, 2006
3.2 Bylaws of Card Activation Technologies Inc.
5.1 Opinion of Robertson & Williams The Company
10.1 2006 Stock Option Plan Separation Agreement with
10.2 MedCom Tax Sharing Agreement with MedCom
10.3 Administrative Services Agreement with MedCom
10.4 Consent of S E Clark & Company P.C.
23.1
ITEM 28. UNDERTAKINGS
The Company hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a) (3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) Deregister any of the securities that remain unsold at the end of the
offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Scottsdale, State of Arizona on December 26, 2006.
Card Activation Technologies Inc.
By: /s/ William P. Williams Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to this registration statement appears below hereby
constitutes and appoints William P. Williams as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments to this registration
statement and any and all instruments or documents filed as part of or in
connection with this registration statement or the amendments thereto and each
of the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or his substitutes, shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
Signature Title Date
/s/ William P. Williams President, Chief Executive Officer, December 26, 2006
Chief Financial Office and
Sole Director
William P. Williams