U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
INFOSPI
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(Name of Small Business Issuer in its Charter)
California, U.S.A.
33-0733808
(State or other Jurisdiction
(IRS Employer
of Incorporation or Organization)
Identification No.)
2265 Camino Vida Roble, Carlsbad, California 92009
(Address of Principal Executive Offices)
(888) 257-7177
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered: Each Class is to be Registered:
Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of Class)
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Part I
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Item 1. Description of Business
Item 2. Management's Discussion and Analysis
or Plan of Operation
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners
and Management
Item 5. Directors, Executive Officers, Promoters
and Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
Part II
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Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters
Item 2. Legal Proceedings
Item 3. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Directors and Officers
Part F/S
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Item 1. Financial Statements
Part III
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Index to Exhibits
Signatures
Exhibits
Except where the context otherwise requires, all references
in this Registration to (a) the "Registrant" or the "Company" or
"InfoSPI" refer to Information Source Providers, Inc., a
California corporation, (b) the "Web" refer to the World Wide Web
and (c) the "site" refer to the Company's websites at
"www.InfoSPI.com" and "www.arrin.net".
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) Business Development and Organizational Activities.
InfoSPI, Inc. ("InfoSPI" or the "Company"), was incorporated in
the State of California on October 8, 1996 as Spy Express, Inc.
In January 1999, Spy Express, Inc., changed its name to
InfoSPI.com, Inc. In April 2001, InfoSPI.com, Inc. changed its
name to InfoSPI. Our patent-pending technology provides
individual and business users an information retrieval solution
in a seamless plug and play e-commerce environment. Although we
are still in the development stage, we are home to the arrin
System(TM) and HireHelper(TM), both advanced proprietary
technology solutions initially dedicated to the development and
implementation of web-based service mediums for human resources
(HR). Both proprietary systems transact with a wide variety of
clients and vendors without having to establish, engineer, and
implement many separate interchange mechanisms for the delivery
of key HR services and products. InfoSPI's patent pending
technology eliminates the typical tedious repetitive manual labor
for setting up standard HR services today. Currently, we provide
information retrieval and research services through our website
located at www.InfoSPI.com.
The Company's primary service is information retrieval: (1)
nationwide criminal and civil record retrieval; (2) other public
records available nationwide; (3) national motor vehicle/driver
records; (4) workers' compensation history; (5) missing person
locator search; (6) business research, corporate records,
licenses, UCC filings, etc.; (7) prior employment and reference
verification; and (8) fraud research and collection services (9)
drug testing data management (10) pre-employment online
assessments (11) pre-employment applicant tracking. Our services
can also extend to online alternative legal resources such as (9)
mediation and arbitration; (10) online court forms; (11)
paralegal services; (12) attorney referral services; and (13)
legal forums.
(b) Business of Issuer.
Since its inception in 1996, the Company has been
positioning itself to become an industry leader in the online
information industry, providing information research and
retrieval services to both the business and private sectors. We
own the proprietary arrin System(TM) ("Advanced Record Retrieval
and Information Network") that allows clients access to millions
of public and private research records via the Internet. arrin
System(TM) members have the ability to access and network with
thousands of professionals in the investigation, law and human
resources industries for the purpose of professional services and
advice. Over the next three years, we may acquire several online
companies providing information-related services. Each
acquisition would be aimed at establishing a unique service or
technology.
Using our online services is quick, easy and inexpensive.
All of our information services are highly automated and online-
technology based. The Company collects the requested information
and delivers the results in a user-friendly format. All services
can be conducted directly by clients via our Website, and search
results can be accessed on our website, by e-mail, telephone,
facsimile or regular mail. We continually assess the database
and other information sources to ensure that the most timely,
accurate and comprehensive online information services and
technology are being made available to our clients.
The information industry is the world's fastest growing
service. Online services are information driven and InfoSPI
combines the speed of Internet access with the delivery of
information. An overwhelming number of information companies
establish a web presence with proprietary or industry-specific
services, spending thousands of dollars while gaining little
marketing success. We may seek to acquire these types of
companies at depressed valuations and provide them with a solid
sales, marketing and web-promotion presence.
Growth of the Internet and Electronic Commerce.
The growth of the Internet has fueled electronic commerce.
As such, global commerce and the online exchange of information
is new and evolving, and it is difficult to predict with any
assurance whether the Internet will prove to be a viable
commercial marketplace in the long term. The Internet has
experienced, and is expected to continue to experience,
significant growth in the numbers of users and amount of traffic
Gartner Group, a market research firm, predicted on March 13,
2001 that there will be $8.5 trillion of business to-business B2B
in 2005, growing from a "mere" $0.43 trillion in 2000. B2B will
reach an expected $0.9 trillion in 2001, and then grow to $1.9
trillion in 2002. By 2003, Gartner expects global B2B to reach
$3.6 trillion, rising to $6 trillion in 2004. IDC, a market
research firm, expects worldwide E-commerce (both B2B and
Business-to-Consumer, or B2C) to reach $3.1 trillion by 2004.
IDC has estimated that the number of Internet users in the United
States will grow from an estimated 128 million in 2000 to an
estimated 210 million in 2004. Several factors have fueled the
growth of the Internet and its increased use by businesses and
consumers as a vehicle for commerce, including:
*the large and growing number of personal computers in the
workplace and home;
*continued improvements in network infrastructure
and capacity;
*easy, low-cost access to the Internet and new navigation
capabilities;
*the proliferation of online content and the development of
specialized online services; and
*the growing acceptance and awareness of the Internet among
consumer and business users.
The growth of the Internet as a global medium for
communication and information exchange has driven demand for
content and services that can be accessed and delivered online.
In particular, the Internet provides the ability to efficiently
and rapidly search, access and manipulate information from a wide
variety of sources, regardless of their location. Through
electronic commerce, these information services can be accessed
and delivered online quickly, easily and inexpensively.
Growing acceptance of electronic commerce has enabled
businesses to offer their products and services to a global
audience and to develop one-to-one relationships with consumers
without having to make significant investments in traditional
infrastructure such as retail outlets, distribution channels and
sales personnel. Technological advances that enable secure
online transactions have also facilitated an increase in
electronic commerce. In addition, consumers can access a broader
selection of goods, efficiently compare goods and make informed
purchasing decisions. Consumers also benefit from the increased
convenience of purchasing goods and services from anywhere at
anytime using their personal computers. As a result, the volume
of business transacted on the Internet is increasing
substantially.
The arrin System(TM)
We have developed the proprietary "arrin System(TM)"
("Advanced Record Retrieval and Information Network") to provide
our clients access to millions of public and private research
records via the Internet. The arrin System(TM) has also
established a web page at www.arrin.net. arrin System(TM)
members have the ability to access and network with thousands of
professionals in the industries of investigation, law and human
resources for the purpose of professional services and advice.
Members of the arrin System(TM) have full access to the network,
whereas retail clients will have access to a limited range of
services.
The arrin System(TM) is both an in-house administration,
vendor, and client database set up as a virtual server. The
database is accessible utilizing the Internet or by dialing
directly into the server. A few proprietary online services are
available instantly, while other results are available within 2
to 48 hours. Requests and results are sent utilizing e-mail, fax
or telephone. Researchers operate the system 10 hours a day, 5
days a week to handle requests that need direct correspondence.
The arrin System(TM) is accessible 24 hours a day, 7 days a week,
for a variety of immediate search requests and extended searches
for research follow-up.
The arrin website allows for downloads of the arrin
System(TM) and input of member research requests. Though the
arrin System(TM) website is a member-oriented site, it also
provides non-member services such as HR news, events, compliance
and legal reference, and HR information industry support
materials. New visitors are encouraged to become members to
fully utilize the system.
The arrin System(TM) Website uses VeriSign(TM) Digital
Server Identification to provide Secure Sockets Layer protection
for clients. This technology provides data encryption and server
authenticity before the transmission of vital information across
the Internet. To provide an even greater sense of security,
members can download a front-end direct access program.
NATIONWIDE INFORMATION RETRIEVAL SERVICES.
Our primary service is information retrieval:
*Criminal and civil record retrieval nationwide
*Other public records available nationwide
*National motor vehicle/driver records
*Workers' compensation history
*Missing person locator search
*Business research, corporate records, licenses, UCC filings
*Drug screening data management
*Pre-employment assessments
*On-line Applicant tracking
*Pre-employment and reference verification
*Fraud research and collection services
*Legal research and services Industry.
The pre-employment human resource industry has been slow to
adapt to the enormous benefits of computers and modern resources
available for information reporting. The average licensed
private investigator is still utilizing standard skip tracing
practices to laboriously retrieve information. The result of
this hit and miss method is often incorrect or inaccurate
information.
A handful of licensed investigators provide specialized
business services. Some investigators provide sub-rosa
(insurance surveillance) services to workers' compensation
insurance carriers. Clients are limited, difficult to obtain,
and casework can be sporadic causing huge swings in revenue and
cash flow.
The current advancements in electronic information reporting
have rapidly changed the way an information retrieval company
like InfoSPI can provide specialized services. Twenty years ago
the typical way to obtain a subject's birth date or social
security number was to bribe someone for the information. Today,
you can legally obtain a standard credit bureau or motor vehicle
department report that will reveal detailed subject information
without leaving your desk.
In addition to the current ease of information retrieval,
the time-delay of information recovery today has been reduced by
weeks. However, a majority of the industry still lacks the
equipment and the knowledge of where to find the resources to
retrieve available information. Very few investigation companies
can afford to build a database or access database information
resources, the costs of which are sometimes in the tens of
thousands of dollars.
The changes in the industry include computer-educated
clients. The average office employee works with a computer on a
daily basis. The information super highway is a constantly
growing resource available to everyone, providing a potentially
unlimited amount of information to the user. InfoSPI's online
services are affordable and easily accessed, and any business
with a computer, modem and phone can retrieve personal, private
and public information for the purpose of pre-employment.
Today's methods of data retrieval and management have come
to a crossroad. While some companies will maintain only field
research date retrieval services, providing little or no
electronic retrieval information, most investigation companies
will maintain the standard methods of field investigations and
pay other larger resource companies or investigation companies
with available database access for these services: companies like
InfoSPI.
THE FRAGMENTED NATURE OF PUBLIC RECORD INFORMATION
A considerable amount of public records and publicly
available information exists with respect to every individual.
This information includes names and addresses, aliases, driving
records, nationwide court records, property ownership and
bankruptcies. However, the sources of this information are often
fragmented, geographically dispersed and poorly indexed. In
addition, the reliability of this information may not be
consistent due to the fact that data provided by multiple sources
may not be consistent. In this environment, individuals,
businesses and government agencies who wish to access public
record information are faced with the time-consuming, costly and
difficult task of gathering data from numerous locations and
sources. Even after gathering the data, consumers may not be
able to adequately verify the information and organize it into a
useful format.
While services and technologies have developed to enable
remote access to public record information, there generally has
been no single, comprehensive access point for the multitude of
public record information available on individuals. Other
sources, including credit reporting services and other database
services, make available only limited types of information for
specific purposes, such as verifying individual credit records.
These services are typically expensive, charging a fee or
requiring a subscription prior to use. More comprehensive search
and background check services are available through private
investigation firms, but they are typically too detailed and
expensive to permit use by the general public.
EXISTING INFORMATION MARKETPLACE
The InfoSPI marketing plan development team gave
considerable thought and consideration to the marketplace as it
currently exists and is used. This team discovered that an
entirely new pool of potential customers exists who needs and
would use information. The team developed the marketing concepts
based upon how the marketplace should be utilized, who would
benefit from the products and services, and then developed the
plan to accommodate these changes, specifically:
1) Users spend considerable money on attorney services or
law clerks that physically go to city, county, or state
buildings, stand in long lines, pay exorbitant prices for copies,
and often miss half of the pertinent information needed for
cases. If they subscribed to the arrin System(TM), they could
enter online or fax their request during the day and have the
results available that evening. The cost and time reduction
would be significantly less than they are currently paying.
2) Businesses hire new employees largely based upon
information provided on employee applications. Managers rely on
human resource departments to verify references (given by the
applicant), addresses, and phone numbers that could or could not
belong to the applicant. Alternatively, businesses could send
employee applications for Pre-Employment Verifications to arrin
System(TM) anytime during the day and have a complete report
returned by the following morning. Significant losses in
business today are downtime due to employee turnover, retraining
new hires, absenteeism, drug abuse, and employee pilferage.
arrin System(TM) can provide an employee background search that
will save business owners thousands of dollars in employee
turnover costs.
The InfoSPI Marketing Plan defines those markets that need to be
cultivated (similar to those described above). If businesses
require the services of arrin System(TM), the Company must
dedicate sufficient resources to make these customers aware of
the value offered by InfoSPI.
MARKET.
Society is highly mobile and constantly changing: people are
moving, getting married or divorced, changing jobs, changing
names, acquiring and disposing of assets and interacting with
different private and public entities for personal, professional
and commercial reasons. These population and market dynamics
often make it very difficult to maintain contact with friends,
relatives and others and to verify individual background and
reference information for important business, personal and other
decisions. According to research published by the U.S.
Department of Commerce's Census Bureau, an increasing number of
Americans, are moving residences. In addition, according to
research published by the Bureau of National Affairs, the average
monthly employee turnover rate is increasing. Moreover, according
to the U.S. Bureau of Labor Statistics, the average worker in the
U.S. will be with their current employer for less than five
years. According to the U.S. Bureau of Labor Statistics, more
Americans are re-entering the United States work force.
We will expend considerable effort in complimentary markets
offering the potential for large revenue growth. This will be
directed at ancillary services that can be marketed to existing
target markets and clients, as well as additional information
products and services.
Drug Screening Drug screening is a natural additional
service to offer when presenting pre-employment background
screening.
Human Resource Support and Services - Training, counseling,
workplace violence and litigation avoidance, HR software,
etc.
INTERNATIONAL EXPANSION
Expansion into international markets is not anticipated
at this time, however, future services may include providing
informational retrieval of domestic information to overseas
companies doing business in the U.S.
MARKETING/BUSINESS STRATEGY
We have established an aggressive niche marketing
strategy utilizing existing company proprietary technology.
By resourcing our key strength in our data management and
automation capabilities we utilize our pre-existing web
based technology to begin identifying cross over marketing
relationships and technology tools for multi level client
and vendor distribution applications.
This evolution in our market enables the arrin System
to become a primary technology leader by providing both the
client and vendor a web medium for the processing and
management of applicant data. For the HR market, services
integrated into the arrin System include applicant tracking,
background screening, pre-assessments, drug testing,
compliance, support and a wide variety of other plug and
play HR services.
Our Marketing concept in turn becomes simple. The more
we support our partners through their efforts, the stronger
the capabilities of the up sell. The sales process is
efficient, fast and cost effective. Training, demo's and
education materials are automated and provided online
directly within the partners web system. Clients can place
an order the instant the service is available!
Through key strategic industry relationships we have
built virtual sales forces through efforts of our partners.
Our partners are leaders in their industry and have pre-
existing client relationships. Services when integrated
within their online systems become a simple value added up
sell from their existing services.
In the past our in-house sales efforts took on average
3 to 6 months to close a client. Recent results of our
partner relationships have reduced this delay to less than 1
month! The arrin System has become a primary marketing tool
for our partners and a value added service for our new
referral driven clients.
Our internal efforts are focused on establishing key
industry relationships with HR proprietary service
providers. Partner services include applicant tracking,
employee benefits, payroll, insurance and a large variety of
other HR management services.
We support these relationships through joint
participation within trade events, publications, on-site
client presentations, on-line linking, demos and client
education materials. We are expanding these relationships
to integration into key vendor software systems. An example
would be our relationship with one of our applicant tracking
partners, RecruitMax, where the arrin System will also
become an integrated part of their proprietary web system.
In turn they will resell to their existing client base our
other plug and play services. This will apply to other non-
competitive vendor service relationships as well.
DIRECT SALES
Business-to-business sales have proven very effective
in a prototype marketing effort, primarily directed at human
resource departments and loss prevention. The Company has
began to roll this program out in a national effort,
establishing sales people in all major markets and then
supporting them through telemarketing, direct mail, and
Internet marketing conducted from the corporate office.
Print advertising may be placed in major market newspapers
in coordination with other marketing and sales efforts.
Television and radio ads may be placed in selected large
markets and will be directed at both consumers and
businesses.
TRADE SHOWS
Our experience is that face-to-face meetings with
prospective clients are extremely beneficial and effective.
Therefore, we will attend trade shows (national and
regional) in targeted industries, to include legal, human
resources and general business.
PUBLIC RELATIONS
Public Relations efforts will be directed at securing
speaking engagements at business seminars, conferences, and
trade shows; placement of articles in print media regarding
our services; interviews of Company spokespersons on
television and radio news and talk shows; citation of
InfoSPI spokesman as experts by journalists, and general
promotion of the Company by means of press releases on
noteworthy company events and information.
WEBSITE MARKETING
Promotion of our website as a vehicle to bring in new
sales will be accomplished via Internet advertising on
various and appropriate websites and other Internet
locations.
BUSINESS RELATIONSHIPS
We are also pursuing strategic alliances and
relationships with a variety of business and industry
entities. This may include major credit bureaus and large
industry associations to develop preferred vendor programs
to place arrin System(TM) services in a superior strategic
position within these industries.
ACQUISITIONS AND MERGERS
An aggressive program may be initiated to acquire
businesses from other information provider companies.
Company representatives will also work to form alliances
with the mangers and owners of these companies, encouraging
them to act as independent agents, or preferred vendors, to
bring additional customers to the Company.
DIRECT ACCESS SOFTWARE
The Company's new arrin Client(TM) software, which
allows clients to order and receive searches directly from
their desktop computers, has been bringing dramatic and
positive benefits to marketing and sales efforts. Early
indications are that clients order 10-15% more searches when
utilizing the software. We may plan an aggressive campaign
to get the software into the hands of business operators on
a free trail basis if a high return on conversion into
customers through follow-up sales and telemarketing efforts
is possible. The software has also proven highly effective
as a tool in sales presentations. In addition, because use
of the software reduces the amount of labor required to
process orders, Company prices may be reduced to gain a
further competitive advantage.
Future plans call for the software to be expanded into
a broad range tool for human resource, legal, and business
clients, acting as an information reference source on
matters related to these specific fields. Offering clients
and prospective clients more value with the software creates
a significant advantage in sales and marketing situations
and in the long-term retention of clients.
We are committed to a short-term marketing and
advertising budget, as part of its aggressive sales and
marketing effort to increase current membership. We will
continue to develop a national market for national records
which include: DMV, criminal, civil, worker's compensation,
property, credit reporting services and many more through
the representation of national independent research
contractors.
In 1996, we expanded our services to the World Wide
Web, and in January 1997, we added online access capability
for requesting services. We are dedicated to continuing to
stay ahead of the competition by leading with new and
innovative services.
CUSTOMERS
It is difficult to quantify the size of our market.
There are approximately 140 million employees in the United
States, with over one million new jobs created each year and
an assumed turnover of at least ten million per year. With
awareness growing and more employers recognizing the
importance of employment background checks, the HR market
potential for arrin System(TM) is enormous.
arrin System's(TM) potential customer base is diverse
including both small and large businesses in a range of
different industries. We will develop a marketing strategy
utilizing the most appropriate media to reach this diverse
audience.
Utilizing extensive market research, we have
established templates to constantly keep our services
competitive and in demand. InfoSPI will target placement
agencies utilizing the templates that it has already
developed for its current placement company members and use
similar techniques when targeting other industries. For
example, we have secured a majority of our personnel
placement agencies utilizing particular contact methods and
literature related to their human resource needs. The
Company ascertained these needs by inquiring into the reason
that its current placement agency members utilized its
services for and by determining what services they would
like improvement in, changes to and/or additions of.
InfoSPI utilizes this information to solicit and target
other placement agencies.
InfoSPI's diverse clientele demonstrates its broad
service base and allows for a greater success ratio when
applying marketing and advertising efforts. Though the
Company does not compensate in its projections for the added
benefit to its service, we have experienced such success in
the past and look forward to similar client growth in the
future.
COMPETITION
The market in which we operate is intensely competitive
and highly fragmented. Currently, InfoSPI's competition
falls into four categories:
1) free individual locator and information services,
including services offered by major Internet portals and
directories, telephone companies and other third parties who
publish free printed or electronic directories;
2) fee-based Internet search services offering comparable
services, such as KnowX.com, a division of Information
America;
3) firms offering more comprehensive public record
information, such as LEXIS-NEXIS, a division of Reed
Elsevier Inc., The Dun & Bradstreet Corporation, Reuters
Limited, Avert, Inc. and ChoicePoint, Inc.; and
4) local, regional and national private investigation firms,
such as Kroll O'Gara Company, Pinkerton, the Proudfoot
Reports Division of ASI Solutions, Inc. and a significant
number of companies operating on either a national scale or
a local or regional basis.
Though several of these companies currently have greater
financial and marketing resources than we do, InfoSPI intends to
excel by implementing aggressive market growth through its
targeted in-house sales and strategic partner marketing efforts.
Government Regulation and Licensing Requirements.
In connection with a number of the services that the Company
provides, particularly profile report services used for various
purposes, we may be considered a "consumer reporting agency" as
such term is used in the Fair Credit Reporting Act, as amended
("FCRA"), and, therefore, may be required to comply with the
various consumer credit disclosure requirements of the FCRA.
Although our business is not directly regulated by the ADA,
the use by the Company's clients of information sold to them is
regulated, both as to the type of information and as to the
timing of its use. Similarly, there are a number of states that
have laws similar to the FCRA, and some states which have laws
more restrictive than the ADA. Further, many state laws limit
the type of information that can be made available to the public.
In addition, some state laws may require the Company to be
licensed in order to conduct business within those states.
Clients in those states can access our website, which may subject
us to the laws of those states. We may also be subject to the
laws of states in which the Company has no contacts other than
with residents of the state ordering services through our website
and our delivery of reports to persons within that state. If the
Company is determined to have violated any of these federal or
state laws, we could be subject to substantial civil and/or
criminal liability, which could have a material adverse effect on
our business and results of operations. Furthermore, it is
possible that claims could be made against the Company under both
United States and foreign law for defamation, libel, invasion of
privacy, negligence, copyright or trademark infringement, or
other theories based upon the nature and content of the materials
disseminated through their website.
Many privacy and consumer advocates and federal regulators
have become increasingly concerned with the use of personal
information, particularly consumer credit reports. The Company
uses the social security numbers of individuals to search various
databases, including those of consumer credit reporting agencies.
For example, we search the "header" information contained in
various consumer credit reporting agencies' databases to find,
among other items, current and previous addresses, social
security numbers used by an individual, or possible other names
(such as maiden names, married names, etc.). We also search
these databases to determine if another person is using a false
social security number. Attempts have been made, and can be
expected to continue to be made, by various federal regulators
and organized groups to adopt new or additional federal and state
legislation to regulate the use of personal information. If
federal and/or state laws are amended or enacted in the future
relating to access and use of personal information, in
particular, and privacy and civil rights, in general, there could
be a material adverse effect on the Company's business and
results of operations.
A number of states require consumer reporting agencies or
businesses, which provide investigative services to obtain a
license to conduct business within those states. The Company may
be deemed subject to such licensing requirements because of the
Company's individual profile report search services. Clients in
those states can access the Company's website, which may subject
the Company to the laws of those states. The Company may be
subject to the laws of those states as a result of citizens of
those states purchasing the Company's services through the
Company's website. The Company may not be able to obtain the
necessary licenses to do business in those states. In addition,
failure to comply with the privacy laws of those states could
subject the Company to civil litigation and liability to the
subjects of the search reports issued to the Company's clients.
Any violation of these laws or failure to obtain required
licenses could have a material adverse effect on the Company's
business and results of operations.
EMPLOYEES
As of the date of this filing, we employ a total of fifteen
(15) employees, four (4) of whom are executive officers. In
addition, we utilize the services of consultants in the areas of
corporate and financial services. As and if the volume of
business increases, we plan to significantly expand our
operations and, in connection with such operations, will require
additional employees. InfoSPI considers its relations with its
employees to be good.
(i) Our performance is substantially dependent on the
performance of our Chairman and Founder, David Raine, Chief
Executive Officer and President, Lawrence Kimball, and our Chief
Financial Officer and Secretary, Edson Osborne. In particular,
the Company's success depends upon their ability to develop,
design and market our information services and website.
(ii) We do not carry key person life insurance on any of our
personnel. The loss of the services of any of our executive
officers or other key employees could have a material adverse
effect on the business, results of operations and financial
condition of the Company. Our future success also depends on our
ability to retain and attract highly qualified technical and
managerial personnel, if and when the need for such personnel
arises.
(iii) We can give no assurances that the Company will be
able to retain its key managerial and technical personnel or that
it will be able to attract and retain additional highly qualified
technical and managerial personnel in the future. The inability
to attract and retain the technical and managerial personnel
necessary to support the growth of the Company's business, due
to, among other things, a large increase in the wages demanded by
such personnel, could be very detrimental to the Company's
business, results of operations and financial condition.
(c) Risk Factors.
Anticipated Losses for the Foreseeable Future.
The Company has not achieved profitability to date, and the
Company anticipates that it will continue to incur net losses for
the foreseeable future. The extent of these losses will depend,
in part, on the amount of growth in the Company's revenues from
sales of its products and services, and the possibility of
advertising revenues on its website. The Company expects that
its operating expenses will increase significantly during the
next several years, especially in the areas of sales and
marketing, and brand promotion. Thus, the Company will need to
generate increased revenues to achieve profitability. To the
extent that increases in the Company's operating expenses are not
accompanied by commensurate increases in revenues, or the Company
is unable to adjust its operating expense levels accordingly, the
Company may not be able to achieve or sustain profitability.
Furthermore, there can be no assurances that the Company's
operating losses will not increase in the future or that it can
ever achieve or sustain profitability.
Dependence on Continued Growth and Viability of the
Internet.
Our future success is substantially dependent upon continued
growth in the use of the Internet. To generate product sales,
advertising sales and e-Commerce service fees for InfoSPI, the
Internet's recent and rapid growth must continue, and e-Commerce
on the Internet must become widespread. None of these can be
assured. The Internet may prove not to be a viable commercial
marketplace. Additionally, due to the ability of consumers to
easily compare prices of similar products or services on
competing websites, gross margins for e-Commerce transactions may
narrow in the future and, accordingly, the Company's revenues
from e-Commerce arrangements may decline. If use of the Internet
does not continue to grow, the Company's business, results of
operations and financial condition would be materially and
adversely affected. Additionally, to the extent that the
Internet continues to experience significant growth in the number
of users and the level of use, there can be no assurance that its
technical infrastructure will continue to be able to support the
demands placed upon it. The necessary technical infrastructure
for significant increases in e-Commerce, such as a reliable
network backbone to minimize the occurrence and/or risk of
Internet disruptions, may not be timely and adequately developed.
In addition, performance improvements, such as high-speed modems,
may not be introduced in a timely fashion. Furthermore, security
and authentication concerns with respect to transmission over the
Internet of confidential information, such as credit card
numbers, may remain. Issues like these could lead to resistance
against the acceptance of the Internet as a viable commercial
marketplace. Also, the Internet could lose its viability due to
delays in the development or adoption of new standards and
protocols required to handle increased levels of activity, or due
to increased governmental regulation. Changes in or insufficient
availability of telecommunications services could result in
slower response times and adversely affect usage of the Internet.
Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of
uncertainty, and there exist few proven services and products.
Dependence on Third-Party Relationships.
We will be significantly dependent on a number of
third-party relationships to increase traffic to InfoSPI.
Although our website does not require links from other websites
in order to be functional and/or generate a profit, such links
could potentially increase traffic to the Company's website, and
we may seek to establish relationships with other website
operators to provide links to our InfoSPI website.
We do not presently have any agreements in place with any
website operators that provide links to InfoSPI, and, even if we
can establish such relationships, the other website operators may
terminate the links at any time without notice to us. We can not
assure that third parties will regard their relationship with the
Company as important to their own respective businesses and
operations.
Risk of System Failures.
Our ability to facilitate trade successfully through our
website and to provide high quality customer service, depends
upon the efficient and uninterrupted operation of our computer
and communications through our designated Internet Service
Provider (ISP). These systems and operations are vulnerable to
damage or interruption from earthquakes, floods, fires, power
loss, telecommunication failures, break-ins, sabotage,
intentional acts of vandalism and similar events. We do not have
fully redundant systems or a formal disaster recovery plan and do
not carry business interruption insurance to compensate us or our
clients for losses that may occur. We have identified
alternative providers of hosting services in the event that our
ISP's services malfunction. Despite any precautions taken by,
and planned to be taken by us, the occurrence of a natural
disaster or other unanticipated problems with our ISP could
result in interruptions in the services provided by the Company.
In addition, the failure by the ISP to provide the data
communications capacity required by the Company, as a result of
human error, natural disasters or other operational disruption,
could result in interruptions in the Company's service. Any
damage to or failure of the systems of the Company could result
in reductions in, or terminations of, the Company's service,
which could detrimentally affect the Company's business, results
of operations and financial condition. In the case of frequent
or persistent system failures, the Company's reputation and name
brand could also be adversely affected. Although we have
implemented certain network security measures, we and our ISP are
also vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to complete
customer postings and transactions. In addition, although the we
work to prevent unauthorized access to Company data, it is
impossible to eliminate this risk completely. The occurrence of
any or all of these events could have a long-term negative impact
on the Company's business, results of operations and financial
condition.
Competition.
The market for Internet-based information research and
retrieval is relatively new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in
the future. Barriers to entry are relatively low, and current
and new competitors may be able to launch new sites at a
relatively low cost. The Company potentially competes with a
number of other companies marketing similar information research
and retrieval systems on the Internet. Competitive pressures
created by any of our competitors, could damage our business,
results of operations and financial condition. We believe that
the principal competitive factors in our market are volume and
selection of information, population of Internet users, customer
service, reliability of delivery and payment by users, brand
recognition, website convenience and accessibility, price,
quality of search tools and system reliability. Some of our
potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly
greater financial, marketing, technical and other resources than
we have. In addition, other online information services may be
acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and
well-financed companies as use of the Internet and other online
services increases.
Therefore, some of our competitors with other revenue
sources may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies and
devote substantially more resources to website and systems
development than us or may try to attract traffic by offering
services for free. Increased competition may result in reduced
operating margins, loss of market share and diminished value in
our brand recognition. There can be no assurance that the
Company will be able to compete successfully against current and
future competitors. Further, as a strategic response to changes
in the competitive environment, we may, from time to time, make
certain pricing, service or marketing decisions or acquisitions
that could have an adverse effect on our business, results of
operations and financial condition. New technologies and the
expansion of existing technologies may increase the competitive
pressures on the Company by enabling our competitors to offer a
lower-cost service. Certain Web-based applications that direct
Internet traffic to certain websites may channel users to
information services that compete with the Company. Although we
plan to establish arrangements with online services and search
engine companies, we cannot guarantee that these arrangements
will ever be established or renewed on commercially reasonable
terms or that they will otherwise bring traffic to the Company's
website. In addition, companies that control access to
transactions through network access or Web browsers could promote
the Company's competitors or charge the Company substantial fees
for inclusion.
Potential Fluctuations in Operating Results; Quarterly
Fluctuations.
Our operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are
outside of our control, including system and operational
vulnerability to damage or interruption due to earthquakes,
floods, fires, power loss, telecommunication failures, break-ins,
sabotage, intentional acts of vandalism and similar events, as
well as changes in the competitive environment. As a strategic
response to changes in the competitive environment, the Company
may from time to time make certain pricing (e.g.,
increase/reduction in rates for InfoSPI services), marketing
decisions (e.g., increase/reduction in advertising) or
acquisitions (e.g., acquisition of competitors) that could have a
material short-term or long-term adverse effect on the Company's
business, results of operations and financial condition. In
particular, in order to accelerate the promotion of InfoSPI, we
intend to market our website, which may have a negative impact on
our operating results for that period, especially if the
marketing efforts do not yield positive results. We do not
believe that we will experience seasonality in our business.
In addition to selling our services, our strategy is to
generate additional revenues through e-Commerce arrangements
including allowing other companies to advertise on the Company's
website. However, there can be no assurance that the Company
will receive any meaningful revenues under these agreements in
the future. The foregoing factors, in some future quarters, may
lead the Company's operating results to fall below expectations.
Risk Of Capacity Constraints And Systems Failures.
A key element of our strategy is to generate a volume of
user traffic to our website. Our ability to attract customers
and to achieve market acceptance of InfoSPI product depends
significantly upon the performance of the Company and its network
infrastructure (including its server, hardware and software).
Any system failure that causes interruption or slower response
time of the Company's products and services could result in less
traffic to our website and, if sustained or repeated, could
reduce the attractiveness of the Company's products. An increase
in the volume of user traffic could strain the capacity of the
Company's technical infrastructure, which could lead to slower
response time or system failures, and could adversely affect the
ability of potential users to access the Company's website,
thereby reducing the Company's advertising revenues. In
addition, as the number of Web pages on and users of InfoSPI
increases, there can be no assurance that the Company and its
technical infrastructure will be able to grow accordingly, and
the Company faces risks related to its ability to scale up to its
anticipated customer levels while maintaining superior
performance. Any failure of our server and networking systems to
handle current or higher volumes of traffic would have a negative
impact on our business, results of operations and financial
condition. The Company is also dependent upon third parties to
provide potential users with Web browsers and Internet and online
services necessary for access to its site. In the past, Internet
users have occasionally experienced difficulties with Internet
and online services due to system failures, including failures
unrelated to the Company's systems. Any disruption in Internet
access provided by third parties could have a material adverse
effect on the Company's business, results of operations and
financial condition. Our operations are dependent in part upon
its ability to protect its operating systems against damage from
human error, fire, floods, power loss, telecommunications
failures, break-ins and similar events. We do not presently have
redundant, multiple-site capacity in the event of any such
occurrence. The Company's servers are also vulnerable to
computer viruses, break-ins and similar disruptions from
unauthorized tampering with the Company's computer systems. The
occurrence of any of these events could result in interruption,
which could have a detrimental effect on the Company's business,
results of operations and financial condition.
Risks Associated With New Services, Features and Functions.
There can be no assurance that the Company will be able to
expand its operations in a cost-effective or timely manner or
that any such efforts would maintain or increase overall market
acceptance. Furthermore, any new product or service launched by
us that is not favorably received by consumers could damage the
Company's reputation and diminish the value of its brand name.
Expansion of our operations in this manner would also require
significant additional financial and operational resources. The
lack of market acceptance of our products and services could
result in our inability to generate satisfactory revenues and our
inability to offset their costs could harm the Company's
business, results of operations and financial condition.
Online Commerce Security Risks.
A significant barrier to online commerce and communications
is the secure transmission of confidential information over
public networks. The Company will rely on encryption and
authentication technology licensed from third parties to provide
the security and authentication technology to effect secure
transmission of confidential information, including, if
necessary, customer credit card numbers. There can be no
assurance that advances in computer capabilities, new discoveries
in the field of cryptography, or other events or developments
will not result in a compromise or breach of the technology used
by the Company to protect customer transaction data.
If any such compromise of the Company's security were to
occur, it could damage the Company's reputation and,
consequently, its business, results of operations and financial
condition. Furthermore, a party who is able to circumvent the
Company's security measures could misappropriate proprietary
information or cause interruptions in the Company's operations.
We may be required to expend significant capital and other
resources to protect against such security breaches or to
alleviate problems caused by such breaches. Concerns over the
security of transactions conducted on the Internet and other
online services and the privacy of users may also inhibit the
growth of the Internet and other online services generally,
especially as a means of conducting commercial transactions. To
the extent that activities of the Company involve the storage and
transmission of proprietary information, such as credit card
numbers, security breaches could damage the Company's reputation
and expose the Company to a risk of loss or litigation and
possible liability. There can be no assurance that the Company's
security measures will prevent security breaches or that failure
to prevent such security breaches will not have a material
adverse effect on the Company's business, results of operations
and financial condition.
Effect of Existing or Probable Government Regulations.
Government legislation has been proposed that imposes
liability for or prohibits the transmission over the Internet of
certain types of information. The imposition upon the Company
and other online providers of potential liability for information
carried on or disseminated through their services could require
the Company to implement measures to reduce its exposure to such
liability, which may require the Company to expend substantial
resources and/or to discontinue certain service offerings. In
addition, the increased attention focused upon liability issues
as a result of these lawsuits and legislative proposals could
impact the growth of Internet use.
We do not believe that existing regulations, most of which
were adopted prior to the advent of the Internet, govern the
operations of the Company's business nor have any claims been
filed by any state implying that the Company is subject to such
legislation. There can be no assurance, however, that State
government will not attempt to impose these regulations upon the
Company in the future or that such imposition will not have a
material adverse effect on the Company's business, results of
operations and financial condition. Several States have also
proposed legislation that would limit the uses of personal user
information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has
also recently settled a proceeding with one online service
regarding the manner in which personal information is collected
from users and provided to third parties. Changes to existing
laws or the passage of new legislation, could create uncertainty
in the marketplace that could reduce demand for the services of
the Company or increase the cost of doing business as a result of
litigation costs or increased service delivery costs, or could in
some other manner have a detrimental effect on the Company's
business, results of operations and financial condition. In
addition, because our services are accessible worldwide, and we
may facilitate sales of goods to users worldwide, other
jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in particular states or foreign
countries.
Development of Proprietary Technology
The Company continues to develop the arrin System ,
databases, e-commerce software and other technology specific to
its objectives. The Company intends to rely on a combination of
trade secret, copyright, patent, service mark and trademark law,
to establish and protect its proprietary rights and technology.
The Company has filed a provisional patent application on July 7,
2000 and may file additional patents related to the technology it
develops for the industry and its processes. Patent protection
is by no means assured and even if such protection is granted,
the Company may not be able to successfully defend or enforce its
patents, trade secrets, copyrights, service marks and trademarks.
Failure to obtain or be able to defend such rights could have a
material adverse effect on the Company's business, financial
condition, and operating results. The can be no assurance that
legal means to defend the Company's rights will in fact protect
the Company's proprietary property, that competitors will not
develop products or services with features based upon, or
otherwise similar to, the company's proposed products or
services.
Energy Availability and Price Uncertainty in California
As the Company is based in California, there can be no
assurances that adequate power will be consistently available or
available at a commercially reasonable rate to allow the Company
to operate. Even though the Internet Service Providers (ISPs)
which host the Company's data and services have electrical back-
up systems, the loss of energy for the other operations of the
company may have a material adverse effect on the Company's
business, financial condition, and results of operations.
Licensing Requirements
A number of states require consumer reporting agencies or
business, which provide investigative services to obtain a
license to conduct business within those states. The Company may
be deemed subject to this licensing requirement because of the
Company's individual profile report search services. Clients in
those states can access our Website, which may subject the
Company to the laws of those states. The Company may be subject
to the laws of those states as a result of citizens of those
states purchasing our services through the Website. The Company
may not be able to obtain the necessary licenses to do business
in those states. In addition, failure to comply with the privacy
laws of those states could subject the Company to civil
litigation and liability to the subjects of the search reports
issued to our clients. Any violation of these laws or failure to
obtain required licenses could have a material adverse effect on
the Company's business and results of operations.
Civil Liability
The Company, for inaccurate information or misuse of the
information, could be held liable to clients and/or to the
subjects of individual search reports prepared. We maintain
internal policies designed to help ensure that background
information retrieved by the Company is accurate and that we
otherwise comply with the provisions of the FCRA and similar
state laws. We, however, do not currently maintain liability
insurance to cover claims by clients or the subjects of reports.
Based on our research, losses from these claims are either
uninsurable or the insurance that is available is so limited in
coverage that it is not economically practical. We intend to
continue our efforts to obtain insurance coverage for these
claims, but the insurance coverage may not be available on terms
acceptable to us. Claims of violations of the FCRA or similar
state laws may be made against the Company in the future or the
claims, if made, may not be successfully defended. Uninsured
losses from these claims could materially adversely impact the
Company's business, financial condition, results of operations
and prospects.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
(a) Plan of Operation.
Overview.
InfoSPI provides clients with quick, easy and inexpensive
access to a broad range of public record information about
individuals. We offer our services through a website and through
a toll-free telephone number.
Revenues are generated from the sale of various public
record information and search services to clients. InfoSPI has,
and will continue, to focus on increasing revenues through sales
of memberships and targeted outsource services for information
retrieval, particularly to the human resource (HR) market.
Specifically, future new and recurring revenue growth will come
from:
A. Increased use of criminal history products;
B. Expansion of client-specific pre-employment search
packages;
C. Addition of new corporate customers and strategic
partners seeking outsource solutions;
D. Increased use of motor vehicle, employment
verification,
education verification, and other pre-employment search
products and services;
E. Increased membership subscriptions; and
F. Development of new products and services.
A. Increased use of criminal history products.
Criminal history product sales account for the largest
percentage of our sales. Management expects this percentage
to remain stable or decrease as additional products and
services are introduced.
Expansion of client-specific pre-employment search
packages.
InfoSPI's focus on exceptional client relationships
makes us responsive to their needs for client-specific
outsource solutions. In the HR market, we bundle products
and services into a solution for quick, accurate search
results. This approach is attractive to larger corporate
accounts and our strategic partners.
Addition of new corporate customers and strategic
partners seeking outsource solutions.
Management believes adoption of our "plug and play"
information retrieval solutions by new corporate customers
and strategic partners will increase in 2001 and beyond.
Mid-size corporate clients (employers with 100-999
employees) and larger corporate clients represent an
opportunity for greater additional revenue per client and an
improvement in overall client quality. Maximizing existing
strategic partner relationships and developing new ones in
crucial to our future growth. This revenue segment will be
a high priority for InfoSPI in the immediate future.
Increased use of motor vehicle, employment
verification, education verification, and other pre-
employment search products and services.
Our expectations are that overall demand for pre-
employment search products and services by the HR market
will grow and that our products and services will continue
to capture increasing market share.
Increased membership subscriptions.
While some our products and services are available to
retail customers, we encourage clients to become subscribing
members to gain access to a broader range of value-added
products and services. Management believes membership
subscriptions are competitively priced and will generate an
increasing recurring revenue stream.Development of new
products and services.
Easy client access to our products and services plus
"plug and play" functionality for the addition of new
revenue streams is an inherent capability of our arrin
System and HireHelper proprietary technology. The
combination of our in-house research and development
efforts, existing and new strategic partnerships, and our
ability to proactively respond to market demand through our
exceptional client relationships, will result in the
introduction of innovative new products and services and
additional revenue opportunities.
Revenues in 2000 were $913,425, a 362% increase over
1999. The increase is due to the factors outlined above and
management is encouraged with the increase in the number of
clients, revenue per client, and quality of client. We
recognize revenue at the time completed research results are
sent to the client.
Cost of our services consists primarily of payroll
expenses, including commissions paid to sales employees,
data acquisition costs, local and long distance telephone
charges associated with providing its services, and payment
processing costs. In addition, we include an allocable
portion of facilities, network and technology
infrastructure. The Company's cost of services is likely to
increase substantially as it obtains access to new data and
information sources and expands infrastructure to support an
anticipated increase in marketing and sales personnel.
In 2000, cost of services was $228,911, a 366% increase
over 1999. As a percentage of revenue, 2000 cost of
services was 25.0% compared with 31.6% in 1999. Management
intends to aggressively restructure various data acquisition
relationships with the intent of improving our response time
and accuracy while reducing our costs.
InfoSPI's operating expenses consist primarily of
advertising, marketing and general and administrative
expenses. In 2000, operating expenses were $6,009,259, a
71.6% increase over 1999. Operating expenses in 2000
included $3,825,651 in non-cash compensation to employees
and consultants. Management expects operating expenses to
increase substantially as the Company expands its sales and
marketing force and hires additional administrative, sales,
advertising, financial and accounting personnel. The
Company may also need to relocate or seek new facilities
that better address its operational and personnel needs, and
may, as a result, incur higher costs and possible disruption
to its business as new personnel are hired and trained to
replace those lost in an expansion or relocation.
Management expects advertising and marketing expenses
to significantly increase as the Company offers new
services, attempts to expand the arrin System(TM) brand and
build a corporate sales force both internally and through
our strategic partner relationships.
The Company's general and administrative expenses
consist primarily of compensation and related costs for
administrative personnel, fees for outside professional
advisors and an allocation of occupancy costs and other
overhead expenses. Management expects the trend of
increased general and administrative costs to continue as it
hires additional sales, research and executive personnel to
promote new services to corporate and professional clients.
Marketing Plan.
InfoSPI marketing is built around three primary
vehicles:
1) Aggressive strategic partnerships,
2) direct in-house sales,
3) and, direct relationships with the end user
HireHelper
We partner with top HR service providers, utilizing
their software applications and sales forces to sell and
deliver our services through new patent-pending technology.
In return we pay these partners a commission on sales. We
save greatly on manpower and marketing costs and gain easy
entry into new clients, many of them large corporations.
Our partners get a new revenue stream for services that can
be sold as part of their existing product without increasing
their capital outlay, sales efforts, or expenses. They also
improve the marketability of their product by a providing
their clients a new value-added service they very much need.
The end user clients win because they get quality background
screening services in a much more convenient and easy-to-use
format.
That's an old-fashioned win-win-win situation that
can't help but be successful for everyone involved. The
ultimate result for us is greatly increased sales and
profits.
The concept is simplicity defined. And it's also
revolutionary within our industry, built upon a solid
foundation of established business practices and new
technology while looking to the future growth of the
Internet and e-recruiting.
In-house Sales
The other half of our marketing and sales effort takes
a more traditional sales approach focusing on large
companies. Remember, background screening is a very hot
market. Many companies view background checks to be as
necessary as having insurance. Yet because it is such a new
and growing market there is much volatility. This opens up
a much larger sales opportunity than there would be in a
more established market, which is illustrated well by the
ease with which initial contact with a client can be
generated. Often, an unsolicited phone call will result in
an appointment with even Fortune 1000 companies! A sales
strategy of telemarketing backed by direct mail/e-mail,
online sales presentations, and occasional in-person
presentations is utilized.
In 1999, a sales program utilizing independent sales
reps was initiated. Sales increased appreciably but not at
the rate we wanted. We learned some valuable lessons
through this effort about the sales process and our
industry, particularly regarding targeting larger companies.
When HireHelper emerged, we changed our strategy to the
combined marketing plan described above featuring the
HireHelper concept and a more focused in-house sales effort
concentrating on large companies.
Future Consumer Market
Currently, all of our revenues come from business-to-
business sales, and this will continue for at least the next
few years. But consumer demand for information services
will undoubtedly grow as acceptance and use within the
business community grows, and the consumer market remains a
huge untapped well of potential revenue. How much of our
marketing efforts will be directed at the consumer market,
and when, will depend largely on management's estimates of
the acceptance and awareness among consumers, likely return
on investment, and the governing laws affecting the sale of
information to the general public.
The Investment Market
Our marketing effort also keeps in mind our image
within the investment community, where building name
recognition and branding will benefit plans to take InfoSPI
public. Press releases, particularly as regards the
Strategic Alliance Partnerships, are the main marketing
vehicle used for this.
Sharing in the Growth of E-commerce
The expansion of the Internet has fueled huge parallel
growth in the e-commerce, business-to-business sector in
recent years and will undoubtedly continue to do so in the
future. We expect to share in this growth and help drive it
within our market segment. Gartner Group, a market research
firm, predicted on March 13, 2001 that there will be $8.5
trillion of business to-business (B2B) in 2005, growing from
a "mere" $0.43 trillion in 2000. B2B will reach an expected
$0.9 trillion in 2001, and then grow to $1.9 trillion in
2002. By 2003, Gartner expects global B2B to reach $3.6
trillion, rising to $6 trillion in 2004.
Through the proprietary data management of pre-
employment background screening services via a Web-based
medium, we have taken aim at only a small portion of this
overall $2.8 trillion pie. Yet even a small portion is
lucrative. All businesses need the best information to make
the best hiring decisions, and we can provide it in the most
efficient and cost-effective manner available. As
discussed earlier, best estimates place the current
background screening industry at $1.6 billion dollars. Our
best estimate, based on expected growth in the labor market,
employee turnover rates, and use of background screening
services, the industry will push towards the $3 billion mark
by 2004.
(b) Capital and Liquidity
As of December 31, 2000, we had $61,145 cash on
hand compared to $101,508 in 1999. Net cash used in
operating activities in 2000 was $880,496, a decrease com
pared to $1,304,508 in 1999. We have funded our cash needs
from inception with a series of debt and equity
transactions. Failure to obtain such financing could have a
material adverse effect on our operations and financial
condition.
We will substantially rely on the existence of
revenue from our existing clients, products, and services;
however, we have no assurance our current or projected
revenues or capital reserves will sustain our business for
the next 12 months. If the projected revenues fall short of
needed capital we will not be able to sustain our capital
needs for more than six months. We will then need to obtain
additional capital through equity or debt financing to
sustain operations for an additional year. Modifications to
our business plans may require additional capital for us to
operate. There can be no assurance that additional capital
will be available to us when needed or available on terms
favorable to the Company.
On a long-term basis, liquidity is dependent on
continuation and expansion of operations, receipt of
revenues, and additional infusions of capital and debt
financing. We plan to raise capital through an additional
stock offering to accredited investors in 2001. The funds
raised form this offering will be used to expand operations
and contribute to working capital. However, there can be no
assurance that we will be able to obtain additional equity
or debt financing in the future, if at all. If we are
unable to raise additional capital, our growth potential
will be adversely affected and we will have to significantly
modify our plans.
ITEM 3. DESCRIPTION OF PROPERTY.
We presently maintain our principal place of business at
2265 Camino Vida Roble, Carlsbad, California 92009. We have
leased this office space, consisting of approximately 12,303
square feet and research and development space, for 60 months, at
a rate of $9,227.25 per month. The lease expires on July 31,
2005.
We believe that this space is suitable for the Company's
needs for the foreseeable future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT.
The table below identifies any individual (including any
"group") who is known to the Company to be the beneficial owner
of more than five percent of any class of the small business
issuer's voting securities. The table also sets forth the
ownership by all directors and nominees of the Company, each of
the named executive officers of the Company, and all directors
and executive officers of the registrant as a group.
Title of Name and address Amount and nature Percentage
class of beneficial of beneficial of class
Owner ownership
Common David Raine 1,959,750 23.4%
2265 Camino Vida Roble
Carlsbad, California 92009
Common Edson Osborne 1,975,000 23.6%
2265 Camino Vida Roble
Carlsbad, California 92009
Common Lawrence Kimball 500,000 5.9%
2755 Brant Street
San Diego, California 92103
Common All Executive Officers 4,436,000 53.0%
& Directors as a Group
(four persons)
(format change)
There are no agreements between or among any of the
shareholders which would restrict the issuance of shares in a
manner that would cause any change of control of the Company.
There are no voting trusts, pooling arrangements or similar
agreements in place between or among any of the shareholders, nor
do the shareholders anticipate the implementation of such an
agreement in the near term.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL
PERSONS.
(a) Directors and Executive Officers:
David Raine, 32, is the Founder and has been a Director of the
Company since its inception in 1996. Mr. Raine brings to the job
in-depth knowledge of the burgeoning information retrieval
industry. His background includes law enforcement experience in
the Marine Corps, computer programming and database expertise, e-
commerce, private investigation, and nine years of experience
utilizing information retrieval technology. He also has over ten
years of management experience as an entrepreneur and business
operator. David is an individual of vision and drive and
impressive skills as a spokesperson. He has appeared on several
talk and news shows, including Burden of Proof on CNN and Freedom
Speaks on PBS, and has conducted numerous seminars and workshops,
educational speeches, and media interviews. Mr. Raine provides a
solid foundation for business development and execution,
including employee management, training and staffing, service
development and marketing and advertising applications. He holds a
BS degree from California State University, Chico, and holds an MBA
from the University of Phoenix.
Lawrence K. Kimball, 47, has been the Chief Executive Officer
and President and a Director since April 2001. Mr. Kimball was
previously General Partner and Investment Manager for a private
equity partnership specializing in seed and early-stage
investments in technology companies. His duties included generating
deal flow, reviewing business plans, conducting due diligence, and
making investment decisions. In 1999, Mr. Kimball was CFO/COO of
1st Net Technologies, Inc. From 1997 to 1999, Larry was a
management consultant to start-up, emerging growth, and turnaround
companies.
His business experience includes being an active Board member for
emerging growth companies and serving as CEO, COO, CFO for
various companies including Lanai Company, Inc., previously a subsidiary
of Castle & Cooke, Inc. As COO/CFO of Lanai Company, Inc. from 1994
to 1997, Larry was actively involved in all aspects of the
diversified operations of this company that had 1,000 employees
and $325 million in assets. Mr. Kimball holds a BA-Accounting from
Wichita State University and an MBA from Chaminade University.
Ted Osborne, 57, has been the Chief Financial Officer,
Secretary and a Director of the Company since July, 1996. Mr.
Osborne is responsible for the Company's financials, accounting,
growth, and operations development. He has a Bachelor of Arts
degree in Business Administration from Babson College and a
Bachelor of Arts in Accounting from San Diego State University.
He served in the U.S. Navy as an Executive Officer and Navigator.
After leaving the service, he became a Certified Public
Accountant while working for Arthur Young & Company, now Earnst & Young,
one of the world's largest public accounting firms. Ted plays an
essential role in InfoSPI's operations and growth, with over 20
years of combined experience as controller and CFO of high income
service, retail, and manufacturing companies, including Sunrise
Medical, Hoist Fitness Systems, and Ametek, Inc., a fully
reporting publicly traded company. In addition, Ted contributes a vast
amount of his business analysis and human resource skills to the
daily operations of InfoSPI.
Don Zillioux, Ph.D. has been a Director since April 2001. Mr.
Zillioux is Co-Chairman of Strategic Development Worldwide, LLC.
("SDW"), an organization formed in 1978 to assist clients in
achieving organization excellence measured through productivity,
quality, profit, and long-term growth. In the past decade,
several hundred thousand board chairmen, presidents, government leaders,
managers, and administrators worldwide have taken part in public
and private effectiveness activities with SDW.
(b) There are no significant employees who are not described as
executives above, and there are no family relationships among
directors, executive officers or any nominees to these positions.
During the past five years, no present or former director,
executive officer or person nominated to become a director or an
executive officer of the Company:
(1) was a general partner or executive officer of any
business against which any bankruptcy petition was filed, either
at the time of the bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named
subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) was subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any
type of business, securities or banking activities; or
(4) was found by a court of competent jurisdiction (in
a civil action), the Securities and Exchange Commission or the
Commodity Futures Trading Commission to have violated a federal
or state securities or commodities law, and the judgment has not
been reversed, suspended or vacated.
ITEM 6. EXECUTIVE COMPENSATION.
format change
SUMMARY COMPENSATION TABLE
Annual compensation
Long term compensation
Awards Payouts
Name and Year Salary($) Bonus($) Other Restricted Securities LTIP All
Principal annual stock awards underlying payouts other
position compensation options/SARs ($) compen-
(Medical) (#) sation ($)
- -----------------------------------------------------------------------------------------------------
David Raine 2001 90,000 30,000 3,600 0 0 0 6,000
(Founder, 2000 85,000 0 3,600 137,500 0 0 8,400
Director)(1) 1999 0 0 0 0 0 0 0
Edson Osborne 2001 90,000 30,000 3,600 0 0 0 6,000
(CFO, Secretary 2000 85,000 0 3,600 137,500 0 0 8,400
& Director)(2) 1999 0 0 0 0 0 0 0
Lawrence Kimball2001 90,000 30,000 3,600 500,000 0 0 6,000
(CEO, President 2000 0 0 0 0 0 0 0
& Director)(3) 1999 0 0 0 0 0 0 0
(1) David Raine - Medical coverage is calculated at $300 per
month which is the maximum allowed per month under the agreement (Article I,
Section 1.3(b)). The compensation under the "All other compensation" category is
the annual total payment made to the employee for a car allowance of $700 per
month (Article I, Section 1.4(b)).
(2) Ted Osborne - Medical coverage is calculated at $300 per
month which is the maximum allowed per month under the agreement (Article I,
Section 1.3(b)). The compensation under the "All other compensation" category is
the annual total payment made to the employee for a car allowance of $700 per
month (Article I, Section 1.4(b)).
(3) Lawrence K. Kimball- Employment agreement states base
compensation shall be $120,000 per year and $30,000 will be deferred until the
Company raises $2.0 million in capital or generates sufficient operating profits.
Employee will purchase 500,000 shares at $0.01 per share and Company has
the right to repurchase all of the shares if employment is terminated "For
Cause" at any time during the term of employment and the Company may repurchase
unvested shares at fair market value as determined by the Board of Directors but
not less than $0.50 per share pursuant to a vesting schedule (Schedule 2, 1.4).
Medical coverage is calculated at $300 per month which is the maximum allowed per
month under the agreement (Schedule 2, Section 2.1). The compensation under
the "Other Benefits" category is the annual total payment made to the employee for
a car allowance of $700 per month (Schedule 2, Section 2.2).
(format change)
There are no employment contracts, compensatory plans
or arrangements, including payments to be received from
the Company, with respect to any director or executive
officer of the Company which would in any way result in
payments to any such person because of his or her
resignation, retirement or other termination of
employment with the Company or its subsidiaries, any
change in control of the Company, or a change in the
person's responsibilities following a change in control
of the Company, with the exception of the employment
contract with Lawrence Kimball. Kimball's employment
contract contains a three-month severance payment for
termination without cause, vesting of all shares if there
is a change of control, and the Company retains the right
to repurchase some shares pursuant to a vesting schedule
over four years at their then fair market value in the
event of termination.
The existing directors of the Company currently serve
on a non-compensated basis, and there are no standard
arrangements pursuant to which the Company's directors
are compensated for any services provided as a director.
No additional amounts are payable to the Company's
directors for committee participation or special
assignments.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
None.
ITEM 8. DESCRIPTION OF SECURITIES.
There are authorized Twenty million (20,000,000)
shares of capital stock of the Company, divided into two
separate classes and consisting of Common Stock
(17,000,000) and Preferred Stock (3,000,000).
Common Stock:
There are seventeen million (17,000,000) shares of
the Company's Common Stock authorized, at $0.001 par
value per share, with each share having equal and
identical rights to every other share of Common Stock for
purposes of dividends, liquidation preferences, voting
rights and any other attributes of the Company's Common
Stock. No voting trusts or any other arrangement for
preferential voting exist among any of the shareholders,
and there are no restrictions in the Bylaws or Articles
of Incorporation precluding issuance of further Common
Stock or requiring any liquidation preferences, voting
rights or dividend priorities with respect to this class
of stock. As of December 31, 2000 (pre-reverse), there
were 36,683,469 shares of Common Stock and 1,386,326
(pre-reverse) warrants to purchase common stock issued
and outstanding.
Each share of Common Stock entitles the holder
thereof to one vote, either in person or by proxy, at a
meeting of shareholders. The holders are not entitled to
vote their shares cumulatively. Accordingly, the holders
of more than 50% of the issued and outstanding shares of
Common Stock can elect all of the directors of the
Company.
All shares of Common Stock are entitled to
participate ratably in dividends when and as declared by
the Company's Board of Directors out of the funds legally
available therefore. Any such dividends may be paid in
cash, property or additional shares of Common Stock. The
Company has not paid any dividends since its inception
and presently anticipates that no dividends will be
declared in the foreseeable future. Any future dividends
will be subject to the discretion of the Company's Board
of Directors and will depend upon, among other things,
future earnings, the operating and financial condition of
the Company, its capital requirements, general business
conditions and other pertinent facts. Therefore, there
can be no assurance that any dividends on the Common
Stock will be paid in the future.
Holders of Common Stock have no preemptive rights or
other subscription rights, conversion rights, redemption
or sinking fund provisions. In the event of the
dissolution, whether voluntary or involuntary, of the
Company, each share of Common Stock is entitled to share
ratably in any assets available for distribution to
holders of the Common Stock equity securities of the
Company after satisfaction of all liabilities.
Preferred Stock:
There are three million (3,000,000) shares of the
Company's Preferred Stock authorized, at $0.001 par value
per share, each share being issuable in such series or
classes and with any and all rights and restrictions
(including designations, preferences, dividend,
conversion, cumulative, relative, participating, optional
or other rights, including voting rights, qualifications
and/or limitations) as the Company's Board of Directors
may from time to time designate, provided that such right
or restriction shall be permitted by the laws of the
State of California. At December 31, 2000, there were
300,000 (pre-revers) Preferred shares issued and
outstanding.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
A. Market Information
The Common Stock of the Company is currently not
traded on any formal or national securities exchange.
There is no trading market for the Company's Common Stock
at present and there has been no trading market to date.
At this time, management has not undertaken any
discussions, preliminary or otherwise, with any
prospective market maker concerning the participation of
such market maker in the aftermarket for the Company's
securities. However, the Company may initiate such
discussions in the future following receipt of an
effective date for this Registration Statement, at which
time the Company expects its securities to trade on the
NASD Over-The-Counter Bulletin Board ("OTC BB").
(i) As of December 31, 2000, there were
approximately 1,241,226 outstanding warrants (pre-
reverse) to purchase, or securities convertible into, the
Company's Common Stock.
(ii) As of April 30, 2001, there are currently
approximately 2,839,066 shares of common stock subject to
compliance with rule 144 that could trade, of which
2,188,505 are held by affiliates and therefore limited in
their sales rights, even under Rule 144, and 5,954,890
shares of common stock of the Company which do not
currently comply with the restrictions of the rule but
could be sold under Rule 144 under the Securities Act of
1933 as amended in the future, and no shares that the
registrant has agreed to register for sale by security
holders.
(iii) There is currently no common equity that is
being or is proposed to be publicly offered by the
registrant.
B. Holders
As of December 31, 2000, the Company had approximately 420 shareholders of
record.
Applicability of Low-Priced Stock Risk Disclosure
Requirements.
The securities of the Company will be considered low-priced or designated"
securities under rules promulgated under the Exchange Act. Penny Stock
Regulation Broker-dealer practices in connection with transactions in "Penny
Stocks" are regulated by certain rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the risk associated with the
penny stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the
customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer must make a
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to
the penny stock rules.
C. Dividend Policy
The Company has not paid any dividends to date. In
addition, it does not anticipate paying dividends in the
immediate foreseeable future. The Board of Directors of
the Company will review its dividend policy from time to
time to determine the desirability and feasibility of
paying dividends after giving consideration to the
Company's earnings, financial condition, capital
requirements and such other factors as the board may deem
relevant.
D. Reports to Shareholders
We intend to furnish our shareholders with annual
reports containing audited financial statements and such
other periodic reports as the Company may determine to be
appropriate or as may be required by law. Upon the
effectiveness of this Registration Statement, the Company
will be required to comply with periodic reporting, proxy
solicitation and certain other requirements by the
Securities Exchange Act of 1934.
E. Transfer Agent and Registrar
The transfer agent for the Company's shares of
common voting stock is Transfer Online, Inc., 227 Pine
Street, Suite 300, Portland, Oregon 97204
(www.transferonline.com).
ITEM 2. LEGAL PROCEEDINGS.
Pursuant to RCW 21.20,430(4)(b) of the Washington State
Securities Act, the Company is presently in the process of
conducting a rescission offer for securities purchased by two
Washington residents in 1999. The Company is offering to rescind
the sale of up to 150,000 shares and 150,000 warrants sold to two
accredited investors in the State of Washington. The Company's
maximum exposure under the rescission offer is $90,000; however,
we believe that neither of the two investors will opt to rescind
their investment. We expect the rescission offer to be concluded by
the second quarter of 2001.
Notwithstanding the foregoing, to the best of our knowledge,
neither the Company nor any of its officers or directors is a
party to any material legal proceeding or litigation and such persons
know of no other material legal proceeding or litigation
contemplated or threatened. There are no judgments against the
Company or its officers or directors. None of the officers or
directors have been convicted of a felony or misdemeanor relating
to securities or performance in corporate office.
The Company is currently subject to an administrative
action involving sale of securities in one State. Management is
in the process of rescinding the offer in that State. Management
believes the actions currently in progress will resolve the State
administrative action. As of the date of this report, the
Company has determined the possible effect of the rescission to
be $90,000 and has recorded that amount as refundable common
stock plus accrued interest thereon of $11,500 on the balance
sheet at December 31, 2000. The Company could be the subject of
future administrative actions involving the sale of securities in
other States. As of the date of this report, none have been
filed.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On April 25, 2000, the Company issued a Private Placement
Memorandum offering up to 2,000,000 shares of the Company's Common
Stock. The offering was conducted under Rule 506 of Regulation D
of the Securities Act of 1933. As a result of the offering, the
Company raised $557,180 (net of costs) by selling 1,505,725 shares.
Also, under Rule 506, the Company converted $38,000 of previously
issued convertible promissory notes to 100,000 shares of common
stock, eliminating that indebtedness. The Company also issued,
under Section 4(2), 2,202,601 shares of its common stock in
satisfaction of $814,962 in consultancy services provided.
In 2000, the Company issued 22,363,708 shares to its
employees, primarily management, in payment of $1,390,756 past-due
compensation and $6,883,816 in deferred compensation, of which
$1,633,995 (1999 deferred compensation) was earned during 2000.
The Company also issued to consultants 2,202,601 shares in payment
of $814,962 worth of services. These shares were issued under the
Section 4(2) exemption.
The Company issued 30,100 warrants during 2000, at an
exercise price of between $.001 and $0.30 per share, to consultants. The
fair market value of the warrants, aggregating $8,813, using the
Black-Scholes pricing model, was $8,813, and was charged to
consultants and contractors expenses at the grant date. These
securities were issued under the Section 4(2) exemption.
The Company accepted $151,249 in payment of exercise
prices for 777,937 shares of its common stock. These warrants had
previously been issued, during 1997 and 1998, under Rules 504 and
506, to investors in "unit" offerings.
In 1999, the Company issued a Private Placement Memorandum
offering up to 555,555 Units at $2.25 per Unit. Each Unit
consisted of one share of Common Stock at $2.00 and one warrant at
$.25, with the warrants exercisable at $3.00 per share and within
three years. The offering was conducted under Rule 506 of
Regulation D of the Securities Act of 1933. As a result of the
offering, the Company raised $216,241 by selling 139,558 Units.
The Company issued 65,000 warrants, at an exercise price of
$0.30 per share, as consideration for raising equity in 1999. The
fair market value of the warrants, aggregating $31,200, was
estimated on the grant date using the Black-Scholes option pricing
model, and was charged as a direct offering expense, to equity in
1999. The Company also issued 50,000 warrants during 1999, at an
exercise price of $.001 per share to a consultant. The fair market
value of the warrants, aggregating $37,500, was estimated on the
grant date using the Black-Scholes option pricing model, and was
charged to selling, general and administrative expenses at the
grant date. These securities were issued under the Section 4(2)
exemption.
In 1999, the Company also issued 4,358,924 shares of its
restricted common stock to employees, in lieu of salaries,
resulting in $3,264,834 of additional paid-in capital and
$1,633,995 in deferred compensation, and 402,833 shares in payment
of $302,163 worth of services to consultants. These shares were
issued under the Section 4(2) exemption.
On December 11, 1998, the Company issued a Private Placement
Memorandum offering up to 800,000 Units at $.60 per Unit. Each
Unit consisted of one share of Common Stock at $.45 and one warrant
at $.15, with the warrants exercisable at $.30 per share and within
three years. The offering was conducted under Rule 504 of
Regulation D of the Securities Act of 1933. As a result of the
offering, the Company netted $912,850 by selling 1,582,604 Units
(which included one share and one warrant).
During the years ended December 31, 2000 and 1999, various
loans aggregating $50,000 and $24,500, respectively, were converted
into 100,000 and 69,524 common shares, respectively. This resulted
in the extinguishment of debt in the amount of $12,000 for 2000 and
a loss on extinguishment of debt in the amount of $22,018 for the
year ended 1999. These share were issued under the Section 4(2)
exemption.
The proceeds from the above transactions were generally used
for marketing and corporate growth, internet and software
development, working capital and offering expenses.
During 1998 and 2000, no compensation or commission was paid
to any person in connection with the issuance of the shares and/or
warrants, and no underwriter, broker or dealer participated in such
a sale. Each issuee in the transactions described above made a
written representation to the Company that he was acquiring the
Company's stock for investment purposes and not with a view to the
resale or redistribution thereof. Each stock certificate issued
contains a restrictive legend. Each of the above transactions was
deemed by the Company to be exempt from registration under Section
4(2) of the Securities Act of 1933, and Rules 504 or 506 as a
transaction not involving any public offering.
As of December 31, 2000, the company has 1,241,226 warrants
(pre-reverse) outstanding in connection with past private placement
offerings.
In a subsequent transaction, during 2001, the Company issued
2,000,000 shares, at a purchase price of $0.14 per share for a
total raise of $275,000. These shares were purchased by two
entities under Rule 506, during February and March, 2001.
Also subsequent to December 31, 2000, the Company issued
approximately 460,000 common shares for compensation and consulting
services. The shares were valued at their fair market value for
financial reporting purposes based on concurrent cash offering
prices at the date of issuance. In February, 2001, a total of
3,150,000 non-vested employee owned common shares were retired upon
the respective employee's separation of service from the Company.
As of the date of this report, all of the issued and
outstanding shares of the Company's Common Stock could potentially
be eligible for sale under Rule 144 promulgated under the
Securities Act of 1933, as amended, subject to certain limitations
included in the Rule, such as those limiting sales by affiliates
and recent issuees holding less than two years:
In summary, Rule 144 applies to affiliates (that is, control
persons) and non-affiliates when they resell restricted securities
(those purchased from the issuer or an affiliate of the issuer in
non-public transactions). Non-affiliates reselling restricted
securities, as well as affiliates selling restricted or
non-restricted securities, are not considered to be engaged in a
distribution and, therefore, are not deemed to be underwriters as
defined in Section 2(a)(11), if six conditions are met:
(1) Current public information must be available about the
issuer unless sales are limited to those made by non-affiliates
after two years.
(2) When restricted securities are sold, generally there must
be a one-year holding period.
(3) When either restricted or non-restricted securities are
sold by an affiliate after one year, there are limitations on the
amount of securities that may be sold (144(e)); when restricted
securities are sold by non-affiliates between the first and second
years, there are identical limitations; after two years, there are
no volume limitations for resale by non-affiliates (144(k)).
(4) Except for sales of restricted securities made by
non-affiliates after two years, all sales must be made in brokers'
transactions as defined in Section 4(4) of the Securities Act of
1933, as amended, or a transaction directly with a "market maker"
as that term is defined in Section 3(a)(38) of the 1934 Act.
(5) Except for sales of restricted securities made by
non-affiliates after two years, a notice of proposed sale must be
filed for all sales in excess of 500 shares or with an aggregate
sales price in excess of $10,000.
(6) There must be a bona fide intention to sell within a
reasonable time after the filing of the notice referred to in (5)
above.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limit, to the maximum
extent permitted by the California General Corporation Law, the
personal liability of directors and officers for monetary damages
for breach of their fiduciary duties as directors and officers
(other than liabilities arising from acts or omissions that involve
intentional misconduct, fraud or knowing violations of law or the
payment of distributions in violation of California General
Corporation Law). The Articles of Incorporation provide further
that the Company shall indemnify, to the fullest extent permitted
by California General Corporation Law, any person made a party to
an action or proceeding by reason of the fact that such person was
a director or officer.
The indemnification provisions in the Company's Articles of
Incorporation may permit indemnification for liabilities arising
under the Securities Act of 1933, as amended (The "Securities
Act"). Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has 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.
PART F/S FINANCIAL
INFOSPI.COM, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 BALANCE SHEETS AS OF DECEMBER 31, 2000 AND
1999
PAGE 3 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
PAGE 4 - 5 STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE YEARS ENDED DECEMBER 31,
2000 AND 1999
PAGE 6 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
PAGES 7 - 17 NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER
31, 2000 AND 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
InfoSPI.com, Inc.
We have audited the accompanying balance sheets of
InfoSPI.com, Inc. as of December 31, 2000 and 1999 and the
related statements of operations, changes in stockholders'
deficiency and cash flows for the years ended December 31,
2000 and 1999. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of
America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly in all material respects, the financial
position of InfoSPI.com, Inc. as of December 31, 2000 and
1999 and the results of its operations and its cash flows
for the years ended December 31, 2000 and 1999 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 9 to the financial statements, the
Company has recurring losses from operations, a current net
loss of $5,325,335, a working capital deficiency of $702,324
and a stockholders' deficiency of $727,243. These matters
raise substantial doubt about the Company's ability to
continue as a going concern. Management's Plan in regards
to these matters is also described in Note 9. The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 16, 2001
INFOSPI.COM, INC.
BALANCE SHEET
AS OF DECEMBER 21, 2000 AND 1999
ASSETS
2000 1999
------- --------
Current assets
Cash $61,145 $101,508
Accounts receivable, net 97,525 35,621
Advances receivable 1,036 -
Prepaid expenses 828 11,295
-------- ------
Total Current Assets 160,534 148,424
-------- -------
PROPERTY AND EQUIPMENT - NET 74,638 57,074
-------- -------
OTHER ASSETS
Security deposits 9,500 -
------- -------
TOTAL ASSETS $244,672 $205,498
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and other accrued expenses $178,493 $100,601
Accrued payroll 281,498 41,222
Accrued payroll taxes 337,87 94,959
Accrued interest 17,939 8,659
Capital lease obligation - current portion 4,955 862
Notes and loans payable 42,094 41,044
--------- --------
Total Current Liabilities 862,858 197,347
LONG-TERM LIABILITIES
Capital lease obligation - long-term 19,057 3,139
-------- -------
TOTAL LIABILITIES 881,915 200,486
-------- -------
COMMITMENTS AND CONTINGENCIES - -
REFUNDABLE COMMON STOCK
Common stock - refundable 150,000 shares
issued and outstanding 150 150
Additional paid-in capital-
refundable 150,000 shares 89,850 89,850
------ ------
Total Refundable Common Stock 90,000 90,000
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $0.001 par value,
2,000,000 shares authorized,
300,000 and 0 issued and outstanding,
respectively 300 -
Common stock, $0.001 par value,
48,000,000 shares authorized,
36,683,469 and 9,763,998 shares
issued and outstanding, respectively 36,683 9,764
Additional paid-in capital 15,588,796 5,683,114
Accumulated deficit (9,469,206)
(4,143,871)
Deferred compensation (6,883,816)
(1,633,995)
----------- -----------
Total Stockholders' Deficiency (727,243)
(84,988)
-----------
- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $244,672 $205,498
========== ===========
INFOSPI.COM, INC.
STATEMENT of OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
REVENUES $ 913,425 $197,676
COST OF GOODS SOLD 228,911 62,515
GROSS PROFIT 684,514 135,161
OPERATING EXPENSES
Selling and marketing 27,000 53,686
Outside consultants and contractors 13,712 233,448
Non-cash compensation to employees
and consultants 3,825,651 2,019,981
Employee compensation 1,414,063 550,242
Other general and administrative 728,833 644,046
---------- ----------
Total Operating Expense 6,009,259 3,501,403
---------- ----------
LOSS FROM OPERATIONS (5,324,745) (3,366,242)
---------- ----------
OTHER INCOME (EXPENSE)
Interest income - 2,188
Interest expense (11,790) (7,601)
Loss on disposal of fixed assets - (5,471)
---------- ----------
Total Other Expense (11,790) (10,884)
---------- ----------
LOSS BEFORE INCOME TAXES (5,336,535) (3,377,126)
FEDERAL AND STATE INCOME TAXES 800 800
---------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (5,337,335) (3,377,926)
EXTRAORDINARY ITEM
Gain/(loss) on extinguishment of debt 12,000 (22,018)
---------- -----------
NET LOSS $(5,325,335) (3,399,944)
============= ===========
NET LOSS PER COMMON SHARE AND EQUIVALENTS
BASIC AND DILUTED $(0.24) $(0.60)
============= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING DURING
THE PERIOD BASIC AND DILUTED 21,853,048 5,666,982
============= ===========
format change
STATEMENT IN CHANGES OF STOCKHOLDERS'
DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND
1999
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED DEFERRED
STOCK AMOUNT STOCK AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------------- -------------------- -------- ------------ ------- ------
Balance, December 7,500 $ 8 2,055,494 $2,055 $649,890 $(743,927) $(45,120) $(137,094)
31, 1998
Conversion of pre-
ferred stock to
common stock (7,500) (8) 7,500 8 - - - -
Issuance of common
stock to consul-
tants for services - - 402,833 403 301,760 - - 302,163
Issuance of common
stock for cash, net
of offering costs - - 2,877,173 2,877 1,382,674 - - 1,385,551
Exchange of conver-
tible notes payable
for common stock - - 62,024 62 46,456 - - 46,518
Deferred compensation
earned in 1999 - - - - - - 45,120 45,120
Issuance of common
stock to employees
for services - - 4,358,924 4,359 3,264,834 - (1,633,995)1,635,198
Issuance of warrants
for services - - - - 37,500 - - 37,500
Net loss, December
31, 1999 - - - - - (3,399,944) -(3,399,944)
----------------------------------------------------------------------------------
Balance, December
31, 1999 - - 9,763,998 9,764 5,683,114$(4,143,871) (1,633,995) (84,988)
Issuance of pre-
ferred stock 300,000 300 - - 110,700 - - 111,000
Issuance of common
stock to consultants
for services - - 2,202,601 2,203 812,759 - - 814,962
Issuance of common
stock for cash, net
of offering costs - - 1,505,725 1,505 555,675 - - 557,180
Exchange of converti-
ble notes payable
for common stock - - 100,000 100 37,900 - - 38,000
Deferred compensation
earned in 2000 - - - - - - 1,633,995 1,633,995
Issuance of common
stock to employees
for services - -22,363,708 22,364 8,252,208 - (6,883,816) 1,390,756
Rescinded shares
issued to employees
in 1999 - - (30,500) (31) (22,844) - - (22,875)
Conversion of warrants
for common stock - - 777,937 778 150,471 - - 151,249
Issuance of warrants
for services - - - - 8,813 - - 8,813
Net loss, December
31, 2000 - - - - -(5,325,335) - (5,325,335)
-----------------------------------------------------------------------------------
BALANCE, DECEMBER
31, 2000 300,000 30036,683,469 36,683 15,588,796(9,469,206) (6,883,816) (727,243)
(format change) INFOSPI.COM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,325,335) (3,399,944)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and Amortization 32,793 18,181
(Gain) loss on exchange of debt (12,000) 22,018
Loss on disposal of fixed assets - 5,471
Provision for doubtful accounts 25,710 -
Stock issued for services and compensation 3,816,838 1,982,481
Warrants issued for services 8,813 37,500
(Increase) in accounts receivable (87,614) (22,454)
(Increase) in advances receivable (1,036) -
(Decrease) in prepaid expenses 10,467 (11,084)
Increase in security deposits (9,500) -
Increase in accounts payable 77,892 34,542
Increase in accrued payroll 240,276 20,469
Increase in accrued payroll taxes 332,920 2,341
Increase in accrued interest 9,280 5,971
----------- ----------
Net Cash Used In Operating Activities (880,496) (1,304,508)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (29,431) (51,999)
----------- ----------
Net Cash Used in Investing Activities (29,431) (51,999)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases (915) (6,266)
Payments on notes payable (17,450) (16,059)
Proceeds from notes payable 68,500 -
Proceeds from issuance of refundable common stock - 90,000
Proceeds from issuance of common stock 557,180 1,385,551
Proceeds from conversion of warrants to
common stock 151,249 -
Proceeds from issuance of preferred stock 111,000 -
----------- ---------
Net Cash Provided By Financing Activities 869,564 1,453,226
----------- -----------
NET INCREASE (DECREASE) IN CASH (40,363) 96,719
CASH, BEGINNING OF YEAR 101,508 4,789
---------- ----------
CASH, END OF YEAR $ 61,145 $101,508
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON - CASH INVESTING AND FINANCING ACTIVITIES:
Acquired equipment under capital lease $ 20,926 $ -
========== ==========
Exchanged notes payable for common stock $ 38,000 $ 46,518
========== ==========
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
(A) Organization
InfoSPI.com, Inc. (the "Company") was organized as a California
corporation in October 1996 under the name Spy Express, Inc.
In May 1998, the Company changed its name to InfoSPI.com, Inc.
Over the past four years, InfoSPI.com has developed the
proprietary arrinSystem, an in-house software system relating
to information retrieval in the research industry. The 1999
introduction of the state-of-the-art arrinClient software,
including its internet interface, allows clients direct access
to the arrinSystem via desktop computer.
(B) Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and
revenues and expenses during the reported period. Actual
results could differ from those estimates.
(C) Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers
all highly liquid investments with original maturates of three
months or less at the time of purchase to be cash equivalents.
(D) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided using the straight-line
method over the estimated useful life of the assets from three
to seven years.
(E) Stock Options and Warrants
In accordance with Statement of Financial Accounting Standards
No. 123, ("SFAS 123") the Company has elected to account for
Stock Options and Warrants issued to employees under Accounting
Principles Board Opinion No. 25 ("APB Opinion No. 25") and
related interpretations. The Company accounts for stock
options and warrants issued to non-employees for services under
the fair value method of SFAS 123.
(F) Revenue Recognition
The Company recognizes revenue at the time completed research
results are sent to the client.
(G) Income Taxes
The Company accounts for income taxes under the Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("Statement
109"). Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
(H) Advertising Costs
In accordance with the Accounting Standards Executive Committee
Statement of Position 93-7 ("SOP 93-7"), costs incurred for
producing and communicating advertising of the Company are
charged to operations.
(I) Loss per Share
Basic net loss per common share is computed based on the
weighted average common shares outstanding during the year as
defined by Statement of Financial Accounting Standards, No.
128, "Earnings Per Share" ("SFAS 128"). Diluted net loss per
common share is computed based on the weighted average common
shares and common stock equivalents outstanding during the year
as defined by SFAS 128.
Common stock equivalents have not been included in the
computation of diluted loss per share for 2000 and 1999 since
the effect would be anti-dilutive.
(J) Segment Information
The Company follows Statement of Financial Accounting Standards
No. 131 "Disclosures About Segments of an Enterprise and
Related Information". During 2000 and 1999, the Company
operated in one segment and therefore segment information is
not presented.
(K) Reclassifications
Certain reclassifications have been made to the 1999 financial
statement presentation to correspond to the current year's
format. Total equity and net income are unchanged due to these
reclassifications.
NOTE 2 ACCOUNTS RECEIVABLE
Accounts receivable at December 31 consist of the following:
2000 1999
Accounts receivable $126,901 39,286
Less allowance for doubtful accounts (29,376) (3,665)
------- ------
$ 97,525 $ 35,621
======== =========
For the years ended December 31, 2000 and 1999, the Company
recorded a provision for doubtful accounts of $66,803 and $0,
respectively, in its statement of operations.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
2000 1999
Computers $ 81,451 $ 62,532
Furniture 14,952 9,232
Office equipment 34,768 9,050
Leasehold improvement 3,552 3,552
Less accumulated depreciation (60,085) (27,292)
--------- ---------
$ 74,638 $ 57,074
========= =========
Depreciation expense for the years ended December 31, 2000 and
1999 was $32,793 and $18,181, respectively.
NOTE 4 NOTES AND LOANS PAYABLE
The following schedule reflects notes and loans payable at
December 31:
2000 1999
Note payable to an individual,
8% interest, due on demand,
unsecured $ 13,000 $ 13,000
Note payable to an individual,
8% interest, due on demand,
unsecured 13,000 13,000
Loan payable to an individual,
non-interest bearing, due on
demand, unsecured 14,044 15,044
Note payable to an individual,
non-interest bearing, due on
demand, unsecured 2,050 -
------- -------
Total - all current $ 42,094 $ 41,044
========== =========
NOTE 5 ACCRUED PAYROLL TAXES
At December 31, 2000 the Company owed $337,879 in federal and
state payroll taxes, penalties and interest for the year ended
December 31, 2000.
NOTE 6 COMMITMENTS AND CONTINGENCIES
(A) Operating Leases
The Company leases corporate office space under an operating
lease that is scheduled to expire in 2005.
Future minimum lease payments under operating leases are
approximately as follows at December 31, 2000:
2001 $ 110,724
2002 110,724
2003 110,724
2004 110,724
2005 64,589
-----------
$ 507,485
===========
Rent expense under the operating lease for the years ended
December 31, 2000 and 1999 was $85,912 and $38,855,
respectively.
(B) Capital Lease Agreements
Capital leases are summarized as follows at December 31, 2000
and 1999:
2000 1999
---- ----
Telephone equipment, 15%
interest per annum, secured
by telephone equipment $ 20,716 $ -
Telephone equipment, 21%
interest per annum, secured
by telephone equipment 3,296 4,001
------- -------
24,012 4,001
Less current portion 4,955 862
------- -------
$ 19,057 $ 3,139
========= =========
Minimum future lease payments under the capital lease as of
December 31, 2000 are as follows:
2001 $ 8,601
2002 7,604
2003 6,791
2004 5,978
2005 4,085
-----
Total minimum lease payments 33,059
Less: Amount representing interest 9,047
------
Present value of net minimum
lease payments $ 24,012
The interest rate on the capital leases is shown above and is
imputed at the inception of the lease. At lease inception, the
present value of the net minimum lease payments did not exceed
the fair market value of the leased asset.
(C) Litigation, Claims and Assessments
The Company is currently subject to an administrative action
involving sale of securities in one State. Management is in
the process of rescinding the offer in that State. Management
believes the actions currently in progress will resolve the
State administrative action. As of the date of this report,
the Company has determined the possible effect of the
rescission to be $90,000 and has recorded that amount as
refundable common stock plus accrued interest thereon of
$11,500 on the balance sheet at December 31, 2000. The Company
could be the subject of future administrative actions involving
the sale of securities in other States. As of the date of this
report, none have been filed.
(D) Strategic Partners
The Company has numerous strategic partner agreements in effect
to promote business. Any income derived or expenses incurred
from these agreements will be included in the financial
statement at the time the transaction is completed.
NOTE 7 STOCKHOLDERS' DEFICIENCY
(A) Stock
The Company authorized 2,000,000 shares of preferred stock at
$0.001 par value to be issued in one or more series with such
rights, preferences, and restrictions as determined by the
Board of Directors at the time of authorization of issuance. A
series of preferred stock was designated as Class A convertible
preferred stock and consists of 600,000 shares, $0.001 par
value. These shares are convertible at the option of the
holder or upon a two-thirds vote by the preferred stockholders
at a rate of one common share for each share of preferred A
outstanding. At December 31, 2000, 300,000 (pre-reverse) shares
of preferred stock are outstanding.
In April 2000, the Company increased its authorized shares of
common stock from 26,000,000 to 48,000,000.
(B) Common Stock Warrants
The Company issued 65,000 warrants during 1999, at an exercise
price of $0.30 per share as consideration for raising equity.
The fair market value of the warrants, aggregating $31,200, was
estimated on the grant date using the Black-Scholes option
pricing model as required under SFAS 123 with the following
weighted average assumptions: expected dividend yield 0%,
volatility 0%, risk-free interest rate 5.25%, expected option
life 2 years. The value of the warrants is a direct offering
expense and accordingly, was charged to equity in 1999.
The Company issued 50,000 warrants during 1999, at an exercise
price of $.001 per share to a consultant. The fair market
value of the warrants, aggregating $37,500, was estimated on
the grant date using the Black-Scholes option pricing model as
required under SFAS 123 with the following weighted average
assumptions: expected dividend yield 0%, volatility 0%, risk-
free interest rate 5.25%, expected option life 1 year. The
$37,500 was charged to 1999 selling, general and administrative
expense at the grant date.
The Company issued 30,100 warrants during 2000, at an exercise
price of between $.001 and $0.30 per share to consultants. The
fair market value of the warrants, aggregating $8,813, was
estimated on the grant date using the Black-Scholes option
pricing model as required under SFAS 123 with the following
weighted average assumptions: expected dividend yield 0%,
volatility 0%, risk-free interest rate between 5.13% and 5.14%,
expected lives between three and five years. The $8,813 was
charged to 2000 outside consultants and contractors expense at
the grant date.
In addition, as of December 31, 2000, the Company has 1,241,226
warrants outstanding in connection with past private placement
offerings.
(C) Common Stock Options
During 2000 the Company granted stock options to certain
employees. The Company applies APB Opinion No. 25 and related
interpretations in accounting for stock options issued to
employees. Accordingly, no compensation cost has been
recognized for options issued as of December 31, 2000. Had
compensation cost been determined based on the fair market
value at the grant date, consistent with SFAS 123, the
Company's net loss for the year ended December 31, 2000 would
have been increased to the pro-forma amount indicated below.
2000 1999
Net Loss As Reported $ (5,325,335) $ (3,399,944)
Pro Forma (5,328,310) (3,604,344)
Net Loss Per Share As Reported (0.24) (0.60)
Pro Forma (0.24) (0.64)
The effect of applying Statement No. 123 is not likely to be
representative of the effects on reported net loss for future
years due to, among other things, the effects of vesting.
A summary of the stock options issued under the employment and
consulting agreements as of December 31, 2000 and 1999 is
presented below:
Weighted
Average
Number of Exercise
Options Price
--------- --------
Stock Options
Balance, December 31, 1998 150,000 $ .25
Granted 395,000 .25
Exercised - -
Forfeited (50,000) -
------- ----
Balance, December 31, 1999 495,000 $ .25
Granted 17,500 .25
Exercised (20,000) .25
Forfeited - -
------- -----
Balance, December 31, 2000 492,500 $ .25
======= ======
Weighted average fair value of options
granted during the period
- $ .25
The following table summarizes information about stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------------------------------
Weighted Number
Range Number Average Weighted Exercisable Weighted
of Outstanding Remaining Average at Average
Exercise at Dec. Contractual Exercise December Exercise
Price 31, 2000 Life Price 31, 2000 Price
- -------- ---------- ----------- --------- ----------- ---------
$ 0.25 492,500 2 Years $ 0.25 492,500 $ 0.25
====== ======= ======== ====== ======== ========
(D) Conversion of Notes into Common Stock
During the years ended December 31, 2000 and 1999, various
loans aggregating $50,000 and $24,500 were converted into
100,000 and 69,524 common shares, respectively. These shares
were valued at the fair market value on the conversion dates
resulting in a gain on extinguishment of debt in the amount of
$12,000 for the year ended 2000 and a loss on extinguishment of
debt in the amount of $22,018 for the year ended 1999.
(E) Issuance of Common Stock for Services
During the years ended December 31, 2000 and 1999, 2,202,601
and 402,883 common shares, respectively, were issued for
services to various service providers. The shares were valued
at $814,962 and $302,163, respectively, the fair market value
for financial reporting purposes based on concurrent cash
offering prices at the date of issuance.
During the years ended December 31, 2000 and 1999, 22,363,708
and 4,358,924 common shares, respectively, were issued for
services to employees. The shares were valued at 8,274,572 and
3,269,193, respectively, the fair value for financial reporting
purposes based on concurrent cash offering prices at the date
of issuance.
The Company issued the shares to its employees for services and
the value of these shares are being amortized over the service
periods which range from twelve to sixty months. The Company
charges operations for employee services when the shares have
been earned. The values of the unearned services are recorded
as deferred compensation and are presented on the balance sheet
as a contra equity account. Any shares that have not vested
prior to an employee's termination are rescinded by the
Company. The 1999 deferred compensation of $1,633,995 was
earned by employees during 2000 and therefore charged to
employee compensation in that year. The value of the shares
issued in 2000 and 1999 that was allocated to deferred
compensation was $6,883,816 and $1,633,995, respectively, and
is presented on the balance sheet in the equity section.
During 2000, the Company rescinded 30,500 shares valued at
$22,875 from employees since they were not vested prior to
termination of employment.
NOTE 8 INCOME TAXES
Income tax expense (benefit) for the years ended December 31,
2000 and 1999 is summarized as follows:
2000 1999
Current:
Federal $ - $ -
State 800 800
Deferred-Federal and State - -
Change in Valuation Allowance - -
-------- ---------
Income tax expense (benefit) $ 800 $ 800
The Company's tax expense differs from the "expected" tax
expense for the years ended December 31, 2000 and 1999, as
follows:
2000 1999
U.S. Federal income tax provision
(benefit) $ (1,794,600) $ (1,150,000)
Effect of stock issued for services
and compensation 1,297,700 674,000
Effect of net operating loss
carryforward 496,900 476,000
------------- -------------
$ - $ -
============= =============
The tax effects of temporary differences that gave rise to
significant portions of deferred tax assets and liabilities at
December 31 are as follows:
2000 1999
Deferred tax assets:
Stock issued for services and compensation $ 2,000,600 $ 702,900
Net operating loss carryforward 1,136,200 639,300
---------- ---------
Total gross deferred tax assets 3,136,800 1,342,200
Less valuation allowance 3,136,800 1,342,200
---------- ---------
Net deferred tax assets $ - $ -
========== =========
At December 31, 2000, the Company had net operating loss
carryforwards of approximately $3,341,600, for U.S. federal
income tax purposes available to offset future taxable income
expiring on various dates beginning in 2012 through 2020.
The valuation allowance at January 1, 2000 was approximately
$1,342,200. The net change in the valuation allowance during
the year ended December 31, 2000 was an increase of
approximately $1,794,600.
NOTE 9 GOING CONCERN
As reflected in the accompanying financial statements, the
Company has had continuing losses since inception and, at
December 31, 2000, has a net loss of $5,325,335, a working
capital deficiency of $702,324, and a stockholders' deficiency
of $727,243. The ability of the Company to continue as a going
concern is dependent on the Company's ability to raise
additional capital and implement its business plan. The
financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going
concern.
The Company anticipates a continued increase in revenues and
intends to continue raising additional capital. Management
believes that actions presently taken to improve its future
operations and obtain additional funding provide the
opportunity for the Company to continue as a going concern.
NOTE 10 SUBSEQUENT EVENT
In January 2001, a financial consultant will be granted
preferred stock in increments of 50,000 shares up to a maximum
of 500,000 preferred shares, for consulting services to the
Company. These preferred shares can be converted into common
shares at a rate of one common share for each share of
preferred for a period of five years from the date of issuance.
In December 2000, the Company entered into a contract with a
third party to issue 2,000,000 common shares of stock in
exchange for a note in the amount of $1,000,000. The common
shares were issued on January 26, 2001 upon receipt of the note
which is due and payable by March 31, 2001 or the date the
Company becomes a reporting entity. Any balance of the note
remaining will be dissolved and the stock will be rescinded on
a pro rata basis.
Subsequent to December 31, 2000, the Company issued
approximately 460,000 common shares for compensation and
consulting services. The shares were valued at their fair
market value for financial reporting purposes based on
concurrent cash offering prices at the date of issuance. The
value of stock for services will be charged to operations and
deferred compensation in 2001.
In February 2001, approximately 3,150,000 non-vested employee
owned common shares were retired upon the respective employee's
separation of service from the Company.
PART III
FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
Interim Statement for September 30, 2000 (unaudited)
Audited Financial Statements for December 31, 1999
and December 31, 1998
(b) EXHIBITS
3.1 Amended and Restated Articles of Incorporation,
filed on October 8, 1996
3.2 Amended and Restated Articles of Incorporation
filed On April 10, 2001
3.3 Bylaws of the Company, adopted on October 10, 1996
10.1 Summary of Office Lease provisions
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant has caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
INFOSPI.COM, INC.
Date: May 7, 2001 By: /s/ David A. Raine
David A. Raine
Chairman of Board
Date: May 7, 2001 By: /s/ Ted H. Osborne
Ted H. Osborne
CFO, Secretary, Director
Date: May 7, 2001 By: /s/ Lawrence Kimball
Lawrence Kimball
CEO, Director
Date: May 7, 2001 By: /s/ Don Zillioux
Don Zillioux
Director
Exhibit 3.1 Amended and Restated Articles of Incorporation
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INFOSPI.COM INC.
George Menzies and Edson H. Osborne each certifies that:
1. They are the president and secretary, respectively, of
InfoSPI.com Inc., a California corporation (the "Corporation").
2. The Articles of Incorporation of the Corporation are
amended and restated to read as follows:
ARTICLE I.
The name of the Corporation is InfoSPI.com Inc.
ARTICLE II.
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking
business, the trust company business or the practice of a profession
permitted to be incorporated by the California Corporations Code.
ARTICLE III.
The name and address in the State of California of this
corporation's agent for service of process is:
EDSON H. OSBORNE
2265 Camino Vida Roble
Carlsbad, CA 92009
ARTICLE IV.
A. This corporation is authorized to issue two classes of
shares to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is
authorized to issue is Fifty Million (50,000,000) shares, $.001 par
value (40,000,000) shares shall be Common Stock and Ten Million
(10,000,000) shares shall be Preferred Stock.
B. The Preferred Stock may be divided into such number of
classes or series as the Board of Directors may determine. The Board
of Directors is authorized to determine and alter
1
the rights, preferences, privileges and restrictions granted to and
imposed upon any wholly unissued series of Preferred Stock, and to
fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of
Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing
the number of shares constituting any series, may increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series subsequent to the
issue of shares of that series.
ARTICLE V.
The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
ARTICLE VI.
The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) for
breach of duty to the corporation and shareholders through bylaw
provisions or through agreements with the agents, or both, in excess
of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California
Corporations Code.
* * * * *
The foregoing Amended and Restated Articles of Incorporation of
this corporation were duly adopted by the Board of Directors of this
corporation.
The foregoing Amended and Restated Articles of Incorporation
were duly adopted by the required vote of the shareholders in
accordance with Section 902 of the California Corporations Code. The
total number of outstanding shares of the Corporation entitled to
vote was 23,861,049. The number of shares voting in favor of the
Amended and Restated Articles of Incorporation equaled or exceeded
the vote required, such required vote being a majority of the
outstanding shares (i.e., more than 50%).
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth herein are true
and correct to the best of our knowledge.
Dated: November 13, 2000.
/S/ George Menzies
-----------------------------------
George Menzies, President
/s/ Edson Osborne
-----------------------------------
Edson H. Osborne, Secretary
Exhibit 3.2 Amendment to Articles of Incorporation (April, 2001)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INFOSPI.COM INC.
The undersigned, being the Chief Financial Officer and Secretary
of InfoSPI.com, Inc., a California corporation (the "Corporation"),
does hereby certify:
That the Board of Directors, at a meeting held on April 10,
2001, adopted a resolution to amend the Articles of Incorporation.
The amendment set forth below to the Company's Articles of
Incorporation was duly adopted in accordance with the provisions of
California by unanimous vote of the Board of Directors of the Company
and shall be effective upon filing.
ARTICLE I.
CORPORATE NAME, "InfoSPI.com Inc.", is hereby amended to be
"InfoSPI", an acronym for "Information Source Providers Inc."
Therefore Article I of the Articles in Incorporation of the
Corporation is hereby amended to read as follows:
"The name of the Corporation is InfoSPI."
ARTICLE III.
CAPITAL STOCK is hereby amended by the addition of the following
provision:
"Recapitalization. Simultaneously with the effective date of
this amendment (the "Effective Date"), each share of the
Company's Stock, par value $0.001 per share, issued and
outstanding immediately prior to the Effective Date (the "Old
Stock") shall automatically and without any action on the part
of the record holder thereof be reclassified as and changed into
one-forth (1/4) of a share (the "New Stock"), subject to the
treatment of fractional share interests as described below.
Each record holder of a certificate or certificates which
immediately prior to the Effective Date represented outstanding
shares of Old Stock (the "Old Certificates," whether one or
more) shall be entitled to receive upon surrender of such Old
Certificates to the Company's Exchange Agent for cancellation, a
certificate or certificates (the "New Certificates," whether one
or more) representing the number of whole shares of the New
Stock into which and for which the shares of the Old Stock
formerly represented by such Old Certificates so surrendered,
are reclassified under the terms hereof. From and after the
Effective Date, Old Certificates shall represent only the right
to receive New Certificates pursuant to the provisions hereof.
A record holder of Old Certificates shall receive, in lieu of
any fraction of a share of New Stock to which the record holder
would otherwise be entitled, one full share. If more than one
Old Certificate shall be surrendered at one time for the account
of the same record stockholder, the number of full shares of New
Stock for which New Certificates shall be issued shall be
computed on the basis of the aggregate number of shares
represented by the Old Certificates so surrendered. In the
event that the Company's Exchange Agent determines that a record
holder of Old Certificates has not tendered all of his
certificates for exchange, the Exchange Agent shall carry
forward any fractional share until all certificates of that
record holder have been presented for exchange such that
issuance for fractional shares to any one person shall not
exceed one full share. If any New Certificate is to be issued
in the name other than that in which the Old Certificates
surrendered for exchange are issued, the Old Certificates so
surrendered shall be properly endorsed and otherwise in proper
form for transfer, and the person or persons requesting such
exchange shall affix any requisite stock transfer tax stamps to
the Old Certificates surrendered, or provide funds for their
purchase, or establish to the satisfaction of the Exchange Agent
that such taxes are not payable. From and after the Effective
Date the amount which the shares of the Old Stock are
reclassified under the terms hereof shall be the same as the
amount of capital represented by the shares of Old Stock so
reclassified, until thereafter reduced or increased in
accordance with applicable law."
Therefore Article III of the Articles in Incorporation of the
Corporation is hereby amended to read as follows:
"This corporation is authorized to issued two classes of shares
to be designated, respectively, "Common Stock" and Preferred
Stock." The total number of shares which the Corporation is
authorized to issue is Twenty Million (20,000,000) shares, $.001
par value (17,000,000) shares shall be Common Stock and
(3,000,000) shares shall be Preferred Stock."
The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors.
The foregoing Amendment to the Articles of Incorporation has been
duly approved by the required vote of the shareholders in accordance
with section 902 of the General Corporation Law of California. The
total number of shares entitled to vote was 36,641,151. The total
number of shares voting in favor of the amendment equaled or exceeded
the vote required. The percentage of the vote was more than 50%.
We further declare under penalty of perjury under laws of the State
of California that the matters set forth in this certificate are true
and correct of our own knowledge.
Date: April 10, 2001
INFOSPI.COM, INC.
By: /s/ Edson Osborne
Edson Osborne, Chief Financial Officer
and Secretary
Exhibit 3.3 Bylaws of the Company
BYLAWS
OF
InfoSPI.com, Inc.
A CALIFORNIA CORPORATION
George Menzies and Edson H. Osborne each certify that:
1. They are president and secretary, respectively, of InfoSPI.com
Inc., a California corporation (the "Corporation").
2. The Bylaws of the Corporation are amended and restated as follows:
ARTICLE I
OFFICES
------------
Section 1. PRINCIPAL OFFICE. The principal office for the
transaction of business of the Corporation is hereby fixed and
located at: 616 Stevens Ave., Ste. C, San Diego, State of California.
The location may be changed by approval of a majority of the
authorized Directors, and additional offices may be established and
maintained at such other place or places, either within or without
California, as the Board of Directors may from time to time
designate.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any
time be established by the Board of Directors at any place or places
where the Corporation is qualified to do business.
ARTICLE II
DIRECTORS - MANAGEMENT
--------------------------
Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the
provisions of the General Corporation Law and to any limitations in
the Articles of Incorporation of the Corporation relating to action
required to be approved by the Shareholders, as that term is defined
in Section 153 of the California Corporations Code, or by the
outstanding shares, as that term is defined in Section 152 of the
California Corporations Code, (the "Outstanding Shares") the business
and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of
Directors. The Board may delegate the management of the day-to-day
operation of the business of the Corporation to a management company
or other person, provided that the business and affairs of the
Corporation shall be managed and all corporate powers shall be
exercised under the ultimate direction of the Board.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of Directors shall be no less than one (1) nor more than five
(5) until changed by a duly adopted amendment to the Articles of
Incorporation or by an amendment to this by-law adopted by the vote
or written consent of holders of a majority of the Outstanding Shares
entitled to vote, as provided in Section 152.
1
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors
shall be elected at each annual meeting of the Shareholders to hold
office until the next annual meeting. Each Director, including a
Director elected to fill a vacancy, shall hold office until the
expiration of the term for which elected and until a successor has
been elected and qualified.
Section 4. VACANCIES. Vacancies in the Board of Directors shall be
filled by a majority of the remaining Directors, though less than a
quorum, or by a sole remaining Director, except that a vacancy
created by the removal of a Director by the vote or written consent
of the Shareholders or by court order may be filled only by the vote
of a majority of the shares entitled to vote represented at a duly
held meeting at which a quorum is present, or by the written consent
of holders of a majority of the Outstanding Shares entitled to vote.
Each Director so elected shall hold office until the next annual
meeting of the Shareholders and until a successor has been elected
and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation, or removal of any
Director, or if the Board of Directors, by resolution, declares
vacant the office of a Director who has been declared of unsound mind
by court order or convicted of a felony, or if the authorized number
of Directors is increased, or if the shareholders fail, at any
meeting of shareholders at which any Director or Directors are
elected, to elect the number of Directors to be voted for at that
meeting.
The Shareholders may elect a Director or Directors at any time to
fill any vacancy or vacancies not filled by the Directors, but any
such election by written consent shall require the consent of a
majority of the Outstanding Shares en titled to vote.
No reduction of the authorized number of Directors shall have the
effect of removing any Director before that Director's term of office
expires.
Section 5. REMOVAL OF DIRECTORS. The entire Board of Directors or
any individual Director may be removed from office as provided by
Sections. 302, 303 and 304 of the California Corporations Code. In
such case, the remaining Board members may elect a successor Director
to fill such vacancy for the remaining unexpired tenure of the
Director so removed.
Section 6. NOTICE, PLACE AND MANNER OF MEETINGS.
Meetings of the Board of Directors may be called by the Chairman of
the Board, or any two (2) Directors and shall be held at the
principal executive office of the Corporation, unless some other
place is designated in the notice of the meeting. Members of the
Board may participate in a meeting through use of a conference
telephone or similar communications equipment so long as all members
participating in such a meeting can hear one another. Accurate
minutes of any meeting of the Board or any committee thereof, shall
be maintained as required by Sect 1500 of the California Corporations
Code by the Secretary or other Officer designated for that purpose.
Section 7. ORGANIZATION MEETINGS. The organization meetings of the
Board of Directors shall be held immediately following the
adjournment of the annual meetings of the Shareholders for the
purpose of organization, election of officers and the transaction of
other business.
2
Section 8. REGULAR MEETINGS. Regular meetings of the Board shall
be held at such places and times within or without the state as may
be designated in the notice of the meeting or which are designated by
resolution of the Board. In the absence of designation of place,
regular meetings shall be held at the principal office of the
Corporation.
Section 9. SPECIAL MEETINGS - NOTICES - WAIVERS. Special meetings
of the Board may be called at any time by the Chairman of the Board,
Chief Executive Officer, the President or any two (2) Directors.
At least forty-eight (48) hours notice of the time and place of
special meetings shall be delivered personally to the Directors or
personally communicated to them by a corporate Officer by telephone
or facsimile. Such notice need not specify the purpose of the
meeting. If the notice is sent to a Director by letter, it shall be
addressed to him or her at his or her address as it is shown upon the
records of the Corporation.
Notice of a meeting need not be given to any director who signs a
waiver of notice or consent to holding the meeting or on approval of
the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its
commencement the lack of notice to such director. All such waivers,
consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 10. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. Any
action required or permitted to be taken by the Board of Directors
may be taken without a meeting and with the same force and effect as
if taken by a unanimous vote of Directors, if authorized by a writing
signed individually or collectively by all members of the Board.
Such consent shall be filed with the regular minutes of the Board.
Section 11. QUORUM. A majority of the number of Directors as fixed
by the Articles of Incorporation or Bylaws shall be necessary to
constitute a quorum for the transaction of business, and the action
of a majority of the Directors present at any meeting at which there
is a quorum, when duly assembled, is valid as a corporate act;
provided that a minority of the Directors, in the absence of a
quorum, may adjourn from time to time, but may not transact any
business. A meeting at which a quorum is initially present may
continue to transact business, notwithstanding the withdrawal of
Directors, if any action taken is approved by a majority of the
required quorum for such meeting.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given to absent Directors if
the time and place be fixed at the meeting adjourned and held within
twenty-four (24) hours, but if adjourned more than twenty-four (24)
hours, notice shall be given to all Directors not present at the time
of the adjournment.
Section 13. COMPENSATION OF DIRECTORS. Directors, as such, shall
not receive any stated salary for their services, but by resolution
of the Board a fixed sum and expense of attendance, if any, may be
allowed for attendance at each regular and special meeting of the
Board; provided that nothing herein contained shall be construed to
preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefore.
3
Section 14. COMMITTEES. Committees of the Board of Directors may be
appointed by the Chairman of the Board or resolution passed by a
majority of the Board of Directors. Committees shall be composed of
two (2) or more members of the Board of Directors, and shall have
such powers of the Board as may be expressly delegated to it by
resolution of the Board of Directors, except those powers expressly
made non-delegable by Section 311.
Section 15. RESIGNATIONS. Any Director may resign effective upon
giving written notice to the Chairman of the Board, Chief Executive
Officer, the President, the Secretary or the Board of Directors of
the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective
at a future time, a successor may be elected to take office when the
resignation becomes effective.
ARTICLE III
OFFICERS
-------------
Section 1. OFFICERS. The officers of the Corporation (each
individually an "Officer") shall be a Chief Executive Officer, a
President, a Secretary, and a Chief Financial Officer. The
Corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board, one or more Vice Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers, and
such other officers as may be appointed in accordance with the
provisions of this Article III. Any number of offices may be held by
the same person.
Section 2. ELECTION. The Officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by
the Board of Directors, and each shall hold office until he or she
shall resign or shall be removed or otherwise disqualified to serve,
or a successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors, or
the Chief Executive Officer may appoint such other Officers as the
business of the Corporation may require, each of whom shall hold
office for such period and have such authority and perform such
duties as are provided in the Bylaws or as the Board of Directors may
from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any
officer may be removed, either with or without cause, by the Board of
Directors, at any regular or special meeting to the Board, or, except
in case of an officer chosen by the Board of Directors, by any
officer upon whom such power of removal may be conferred by the Board
of Directors.
Any Officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice;
and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any, of the
Corporation under any contract to which the Officer is a party.
4
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in the Bylaws for regular
appointments to that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
such an officer be elected, shall, if present, preside at meetings of
the Board of Directors and exercise and perform such other powers and
duties as may be from time to time assigned by the Board of Directors
or prescribed by the Bylaws. The Chairman of the Board shall in
addition be the Chief Executive Officer unless the Board of Directors
of the Corporation appoints one and shall have the powers and duties
prescribed in Section 7 of this Article III.
Section 7. CHIEF EXECUTIVE OFFICER. . The Chief Executive Officer
of the Board, if such an officer be elected in the absence of the
Chairman of the Board, shall preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as
may be from time to time assigned by the Board of Directors or
prescribed by the Bylaws.
Section 8. PRESIDENT. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the
Board, if there be such an Officer, shall, subject to the control of
the Board of Directors and by direction of the Chief Executive
Officer or if there be none, have general supervision, direction and
control of the business and Officers of the Corporation. He or she
shall preside at all meetings of the Shareholders and in the absence
of both the Chairman of the Board or Chief Executive Officer, or if
there be none, at all meetings of the Board of Directors. The
President shall have the general powers and duties of management
usually vested in the office of President of a Corporation, and shall
have such other powers and duties as may be prescribed by the Board
of Directors or the Bylaws.
Section 9. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as
fixed by the Board of Directors, or if not ranked, the Vice President
designated by the Board of Directors, shall perform all the duties of
the President, and when so acting shall have all the powers of, and
be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties
as from time to time may be prescribed for them respectively by the
Board of Directors, Chief Executive Officer or the President.
Section 10. SECRETARY. The Secretary shall keep, or cause to be
kept, a book of minutes at the principal office or such other place
as the Board of Directors may order, of all meetings of Directors and
Shareholders, with the time and place of holding, whether regular or
special, and if special, how authorized, the notice thereof given,
the names of those present at Directors' meetings, the number of
shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
office or at the office of the Corporation's transfer agent, a share
register, or duplicate share register, showing the names of the
Shareholders and their addresses; the number and classes of shares
held by each; the number and date of certificates issued for the
same; and the number and date of cancellation of every certificate
surrendered for cancellation.
5
The Secretary shall give, or cause to be given, notice of all the
meetings of the Shareholders and the Board of Directors required by
the Bylaws or by law to be given. He or she shall keep the seal of
the Corporation in safe custody, and shall have such other powers and
perform such other duties as may be prescribed by the Board of
Directors or by the By Laws.
Section 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained adequate
and correct accounts of the properties and business transactions of
the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or
surplus) and shares. The books of account shall at all reasonable
times be open to inspection by any Director.
This Officer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He or she shall disburse the
funds of the Corporation as may be ordered by the Board of Directors,
shall render to the President and Directors, whenever they request
it, and account of all of his or her transactions and of the
financial condition of the Corporation, and shall have such other
powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
ARTICLE IV
SHAREHOLDERS' MEETINGS
------------------------
Section 1. PLACE OF MEETINGS. All meetings of the Shareholders
shall be held at the principal executive office of the Corporation
unless some other appropriate and convenient location be designated
for the purpose, from time to time, by the Board of Directors.
Section 2. ANNUAL MEETINGS. The annual meetings of the
Shareholders shall be held, each year between 30 and 120 days
following the end of the fiscal year of the Corporation.
At the annual meeting, the Shareholders shall elect a Board of
Directors, consider reports of the affairs of the Corporation and
transact such other business as may be properly brought before the
meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders
may be called at any time by the Board of Directors, the Chairman of
the Board, Chief Executive Officer, the President, a Vice President,
the Secretary, or by one or more Shareholders holding not less than
ten percent (10%) of the voting power of the Corporation. Except as
next provided, notice shall be given as for the annual meeting.
Upon receipt of a written request addressed to the Chairman, Chief
Executive Officer, President, or Secretary, mailed or delivered
personally to such officer by any person (other than the Board)
entitled to call a special meeting of Shareholders, such officer
shall cause notice to be given, to the Shareholders entitled to vote,
that a meeting will be held at a time requested by the person or
persons calling the meeting, not less than thirty-five (35) nor more
than sixty (60) days after the receipt of such request. If such
notice is not given within twenty (20) days after receipt of such
request, the persons calling the meeting may give notice thereof in
the manner provided by these Bylaws or apply to the Superior Court as
provided in Section 305 (c).
6
Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings,
annual or special, shall be given in writing not less than ten (10)
nor more than sixty (60) days before the-date of the meeting to
Shareholders entitled to vote at such meeting. Such notice shall be
given by the Secretary or the Assistant Secretary, or if there be no
such officer, or in the case of his or her neglect or refusal, by any
Director or Shareholder.
Such notices or any reports shall be given personally or by mail or
other means of written communication as provided in Section 601 of
the California Corporations Code and shall be sent to the
Shareholder's address appearing on the books of the Corporation, or
supplied by him or her to the Corporation for the purpose of notice,
and in the absence thereof, as provided in Section 601 of the
California Corporations Code.
Notice of any meeting of Shareholders shall specify the place, the
day and the hour of meeting, and (1) in case of a special meeting,
the general nature of the business to be transacted and no other
business may be transacted, or (2) in the case of an annual meeting,
those matters which the Board at date of mailing, intends to present
for action by the Shareholders. At any meetings where Directors are
to be elected, notice shall include the names of the nominees, if
any, intended at date of notice to be presented by management for
election.
Notice shall be deemed given at the time it is delivered personally
or deposited in the mail or sent by other means of written
communication. The officer giving such notice or report shall
prepare and file an affidavit or declaration thereof.
When a meeting is adjourned for forty-five (45) days or more, notice
of the adjourned meeting shall be given as in case of an original
meeting. Save, as aforesaid, it shall not be necessary to give any
notice of adjournment or of the business to be transacted at an
adjourned meeting other than by announcement at the meeting at which
such adjournment is taken.
Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of Shareholders, however called and
noticed, shall be valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or
by proxy, and if, either before or after the meeting, each of the
Shareholders entitled to vote, not present in person or by proxy,
sign a written waiver of notice, or a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Attendance shall
constitute a waiver of notice, unless objection shall be made as
provided in Section 601 (e).
Section 6. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise
provided in the California Corporations Code or the Articles, any
action which may be taken at any annual or special meeting of
Shareholders may be taken without a meeting and without prior notice,
if a consent in writing, setting forth the action so taken, signed by
the holders of Outstanding Shares having not less than the minimum
number of votes that would be necessary to authorized or take such
action at a meeting at which all shares entitled to vote thereon were
present and voted.
Unless the consents of all Shareholders entitled to vote have been
solicited in writing,
(1) Notice of any Shareholder approval pursuant to Sections
310, 317, 1201 or 2007 without a meeting by less than
unanimous written consent shall be given at least ten (10)
days before the consummation of the action authorized by such
approval, and
7
(2) Prompt notice shall be given of the taking of any other
corporate action approved by Shareholders without a meeting
by less than unanimous written consent, to each of those
Shareholders entitled to vote who have not consented in
writing.
Any Shareholder giving a written consent, or the Shareholder's proxy
holders, or a transferee of the shares of a personal representative
of the Shareholder or their respective proxy holders, may revoke the
consent by a writing received by the Corporation prior to the time
that written consents of the number of shares required to authorize
the proposed action have been filed with the Secretary of the
Corporation, but may not do so thereafter. Such revocation is
effective upon its receipt by the Secretary of the Corporation.
Section 7. QUORUM. The holders of a majority of the shares
entitled to vote thereat, present in person, or represented by proxy,
shall constitute a quorum at all meetings of the Shareholders for the
transaction of business except as otherwise provided by law, by the
Articles of Incorporation, or by these Bylaws. If, however, such
majority shall not be present or represented at any meeting of the
Shareholders, the Shareholders entitled to vote thereat, present in
person, or by proxy, shall have the power to adjourn the meeting from
time to time, until the requisite amount of voting shares shall be
present. At such adjourned meeting at which the requisite amount of
voting shares shall be represented, any business may be transacted
which might have been transacted at a meeting as originally notified.
If a quorum is initially present, the Shareholders may continue to
transact business until adjournment, notwithstanding the withdrawal
of enough Shareholders to leave less than a quorum, if any action
taken is approved by a majority of the Shareholders required to
initially constitute a quorum.
Section 8. VOTING. Only persons in whose names shares entitled to
vote stand on the stock records of the Corporation on the day of any
meeting of Shareholders, unless some other day be fixed by the Board
of Directors for the determination of "shareholders of record, and
then on such other day, shall be entitled to vote at such meeting.
Provided the candidate's name has been placed in nomination prior to
the voting and one or more Shareholder has given notice at the
meeting prior to the voting of the Shareholder's intent to cumulate
the Shareholder's votes, every Shareholder entitled to vote at any
election for Directors of any corporation for profit may cumulate
their votes and give one candidate a number of votes equal to the
number of Directors to be elected multiplied by the number of votes
to which his or her shares are entitled, or distribute his or her
votes on the same principle among as many candidates as he or she
thinks fit. The candidates receiving the highest number of votes up
to the number of Directors to be elected are elected.
Section 9. PROXIES. Every Shareholder entitled to vote, or to
execute consents, may do so, either in person or by written proxy,
executed in accordance with the provisions of Sections 604 and 705 of
the California Corporations Code and filed with the Secretary of the
Corporation.
Section 10. ORGANIZATION. The Chief Executive Officer, or in the
absence of the Chief Executive Officer, the President, shall call the
meeting of the Shareholders to order, and shall act
8
as chairman of the meeting. In the absence of the Chief Executive
Officer and the President, the Shareholders shall appoint a chairman
for such meeting. The Secretary of the Corporation shall act as
Secretary of all meetings of the Shareholders, but in the absence of
the Secretary at any meeting of the Shareholders, the presiding
Officer may appoint any person to act as Secretary of the meeting.
Section 11. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Board of Directors may, if they so elect, appoint
inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election be not so appointed, or if any
persons so appointed fail to appear or refuse to act, the chairman of
any such meeting may, and on the request of any Shareholder or his or
her proxy shall, make such appointment at the meeting in which case
the number of inspectors shall be either one (1) or three (3) as
determined by a majority of the Shareholders represented at the
meeting.
ARTICLE V
CERTIFICATES OF SHARES
-------------------------
Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall
be of such form and device as the Board of Directors may designate
and shall state the name of the record holder of the shares
represented thereby; its number; date of issuance; the number of
shares for which it is issued; a statement of the rights, privileges,
preferences and restrictions, if any; a statement as to the
redemption or conversion, if any; a statement of liens or
restrictions upon transfer or voting, if any; if the shares be
assessable or, if assessments are collectible by personal action, a
plain statement of such facts.
All certificates shall be signed in the name of the Corporation by
the Chairman of the Board or Vice Chairman of the Board or Chief
Executive Officer or the President or Vice President and by the Chief
Financial Officer or an Assistant Treasurer or the Secretary or any
Assistant Secretary, certifying the number of shares and the class or
series of shares owned by the Shareholder.
Any or all of the signatures on the certificate may be by facsimile.
In case any Officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed on a certificate shall have
ceased to be that Officer, transfer agent, or registrar before that
certificate is issued, it may be issued by the Corporation with the
same effect as if that person were an Officer, transfer agent, or
registrar at the date of issue.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary
or transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the
old certificate and record the transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit
or affirmation of the fact and shall, if the Directors so require,
give the Corporation a bond of indemnity, in form and with one or
more sureties satisfactory to the Board, in at least double the value
of the stock represented by said certificate, whereupon a new
certificate may be issued in the same tenor and for the same number
of shares as the one alleged to be lost or destroyed.
9
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may appoint one or more transfer agents or transfer clerks, and one
or more registrars, which shall be an incorporated bank or trust
company, either domestic or foreign, who shall be appointed at such
times and places as the requirements of the Corporation may
necessitate and the Board of Directors may designate.
Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order
that the Corporation may determine the Shareholders entitled to
notice of any meeting or to vote or entitled to receive payment of
any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any other lawful
action, the Board may fix, in advance, a record date, which shall not
be more than sixty (60) nor less than ten (10) days prior to the date
of such meeting nor more than sixty (60) days prior to any other
action.
If no record date is fixed; the record date for determining
Shareholders entitled to notice of or to vote at a meeting of
Shareholders shall be at the close of business on the business day
next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the business day next preceding
the day on which the meeting is held. The record date for
determining Shareholders entitled to give consent to corporate action
in writing without a meeting, when no prior action by the Board is
necessary, shall be the day on which, the first written consent is
given. The record date for determining Shareholders for any other
purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto, or the sixtieth (60th)
day prior to the date of such other action, whichever is later.
ARTICLE VI
RECORDS - REPORTS - INSPECTION
----------------------------------
Section 1. RECORDS. The Corporation shall maintain, in accordance
with generally accepted accounting principles, adequate and correct
accounts, books and records of its business and properties. All of
such books, records and accounts shall be kept at its principal
executive office in the State of California, as fixed by the Board of
Directors from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records
provided for in Section 1500 shall be open to inspection of the
Directors and Shareholders from time to time and in the manner
provided in said Sections 1600 - 1602.
Section 3. CERTIFICATION AND INSPECTION OF BYLAWS. The original or
a copy of these Bylaws, as amended or otherwise altered to date,
certified by the Secretary, shall be kept at the Corporation's
principal executive office and shall be open to inspection by the
Shareholders of the Corporation at all reasonable times during office
hours, as provided in Section 213 of the California Corporations
Code.
Section 4. CHECKS, DRAFTS, ETC. All checks, drafts, or other
orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such
manner as shall be determined from time to time by resolution of the
Board of Directors.
10
Section 5. CONTRACTS, ETC. -- HOW EXECUTED. The Board of
Directors, except as in the Bylaws otherwise provided, may authorize
any officer or Officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to specific
instances. Unless so authorized by the Board of Directors, no
Officer, agent or employee, other than the President, shall have any
power or authority to bind the Corporation by any contract or
agreement, or to pledge its credit, or to render it liable for any
purpose or to any amount, except as provided in Section 313 of the
California Corporations Code.
ARTICLE VII
ANNUAL REPORTS
-----------------
The Board of Directors shall cause an annual report to be sent to the
Shareholders not later than one hundred twenty (120) days after the
close of the fiscal or calendar year adopted by the Corporation.
This report shall be sent at least fifteen (15) days before the
annual meeting of Shareholders to be held during the next fiscal year
and in the manner specified in Section 4 of Article IV of these
Bylaws for giving notice to Shareholders of the Corporation. The
annual report shall contain a balance sheet as of the end of the
fiscal year and an income statement and statement of changes in
financial position for the fiscal year, accompanied by any report of
independent accountants or, if there is no such report, the
certificate of an authorized officer of the Corporation that the
statements were prepared without audit from the books and records of
the Corporation.
ARTICLE VIII
AMENDMENTS TO BYLAWS
------------------------
Section 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the vote or written
consent of holders of a majority of the Outstanding Shares entitled
to vote; provided, however, that if the Articles of Incorporation of
the Corporation set forth the number of authorized Directors of the
Corporation, the authorized number of Directors may be changed only
by an amendment of the Articles of Incorporation.
Section 2. POWERS OF DIRECTORS. Subject to the right of the
Shareholders to adopt, amend or repeal Bylaws, as provided in Section
1 of this Article VIII, and the limitations of Section 204 (a) (5)
and Section 212, the Board of Directors may adopt, amend or repeal
any of these Bylaws other than a By-Law or amendment thereof changing
the authorized number of Directors.
Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new
By-Law is adopted, it shall be copied in the book of Bylaws with the
original Bylaws, in the appropriate place. If any By-Law is
repealed, the fact of repeal with the date of the meeting at which
the repeal was enacted or written assent was filed shall be stated in
said book.
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ARTICLE IX
CORPORATE SEAL
------------------
The corporate seal shall be circular in form, and shall have
inscribed thereon the name of the Corporation, the year or date of
its incorporation, and the word "California".
ARTICLE X
MISCELLANEOUS
---------------
Section 1. REFERENCES TO CODE SECTIONS. "Section" references
herein refer to the equivalent Sections of the California
Corporations Code effective January 1, 1977, as amended.
Section 2. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares
of other corporations standing in the name of this Corporation may be
voted or represented and all incidents thereto may be exercised on
behalf of the Corporation by the Chairman of the Board, Chief
Executive Officer, the President or any Vice President and the
Secretary or an Assistant Secretary.
Section 3. SUBSIDIARY CORPORATIONS. Shares of this Corporation
owned by a subsidiary shall not be entitled to vote on any matter. A
subsidiary for these purposes is defined as a corporation, the shares
of which possessing more than 25% of the total combined voting power
of all classes of shares entitled to vote, are owned directly or
indirectly through one (1) or more subsidiaries.
Section 4. INDEMNIFICATION AND LIABILITY. The liability of the
directors of the Corporation for monetary damages shall be eliminated
to the fullest extent permissible under California law.
The Corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) for
breach of duty to the Corporation and shareholders through bylaw
provisions or through agreements with the agents, or both, in excess
of the indemnification otherwise permitted by Section 317 of the
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California
Corporations Code.
Section 5. ACCOUNTING YEAR. The accounting year of the Corporation
shall be fixed by resolution of the Board of Directors.
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
------------------------------------------------------
CERTIFICATE BY SECRETARY
THE UNDERSIGNED HEREBY CERTIFIES AS FOLLOWS:
The foregoing Amended and Restated Bylaws were adopted as the Amended
and Restated Bylaws of said Corporation on the date set forth above
by the Board of Directors of the Corporation by Action by Unanimous
Written Consent.
12
CERTIFICATE BY PRESIDENT
THE UNDERSIGNED HEREBY CERTIFIES AS FOLLOWS:
The foregoing Amended and Restated Bylaws were adopted as the Amended
and Restated Bylaws of said Corporation on the date set forth above
by the Board of Directors of the Corporation by Action by Unanimous
Written Consent.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
13th day of November 2000.
- ------------------------------ ------------------------------
George Menzies, President Edson H. Osborne, Secretary
CERTIFICATE BY SECRETARY OF ADOPTION BY SHAREHOLDERS' VOTE.
- -----------------------------------------------------------
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of the
above named Corporation and that the above and foregoing California
Corporations Code of Amended and Restated Bylaws was submitted to the
Shareholders and was ratified by the vote of Shareholders entitled to
exercise the majority of the voting power of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of
November 2000.
__________________________________
Edson H. Osborne, Secretary
Exhibit 10.1 REAL PROPERTY LEASE (5-YEAR TERM)
1. Basic Provisions
1.1 Parties: This lease, dated for reference purposes only,
August 1, 2000, is made by and between RB Co., RELP
("Lessor") and INFOSPI.COM ("Lessee").
1.2a Premises: That certain portion of the project (defined
later), including all improvements therein or to be provided
by Lessor under the terms of the Lease, commonly known by the
street address of 2265 Camino Vida Roble, located in the City
of Carlsbad, County of San Diego, State of California, with
zip code 92009, as outlined on the exhibit, and generally
described as approximately 12,303 square feet of office and
research and development space. In addition to Lessee's
rights to use and occupy the Premises as specified, Lessee
shall have non-exclusive rights to the Common Areas, but
shall not have any rights to the roof, exterior walls or
utility raceways of the building containing the Premises or
to any other buildings in the Project. The premises, the
building, the Common Areas, the land upon which they are
located along with all other buildings and improvements
thereon, are collectively referred to as the "Project."
1.2b Parking: 34 unreserved vehicle parking spaces and 0 reserved
vehicle parking spaces.
1.3 Term: 5 years and 0 months, commencing August 1, 2000 and
ending July 31, 2005.
1.4 Early Possession: not applicable
1.5 Base Rent: $9,227.25 per month, payable on the first day of
each month commencing August 1, 2000.
1.6 Lessee's Share of Common Area Operating Expense: seventeen
and 3/10 percent (17.3%).
1.7 Base Rent and Other Monies Paid Upon Execution:
(A) Base Rent: $9,227.25 for the period August, 2000
(B) Common Area Operating Expenses: $738.18 for the period
August, 2000
(C) Security Deposit: $9,500.00.
(D) N/A
(E) total Due Upon Execution of the Lease: $19,465.43.
1.8 Agreed Use: Administration offices and research and
development for an internet-related business.
1.9 Insuring Party. Lessor is the "Insuring Party"
1.10 Real Estate Brokers:
Business Real Estate Brokerage Co: Kent Moore (for
Lessor) and Dan Oruv (for Lessee), per agreement.
Remainder of terms of Lease are set forth in detail and are on
file at the company's offices on the Premises.