SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
INFORMATION STATEMENT
PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
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14c-5(d)(2))
SEARCHHELP, INC.
(Name of Registrant As Specified In Its Charter)
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SEARCHHELP, INC.
1055 Stewart Avenue, Suite 12
Bethpage, New York, 11714
INFORMATION STATEMENT
PURSUANT TO SECTION 14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
INTRODUCTION
This notice and information statement (the "Information Statement") was mailed
on or about March 23, 2005 to the stockholders of record, as of March 8, 2005,
of SearchHelp, Inc., a Delaware corporation (the "Company") pursuant to Section
14(c) of the Exchange Act to inform the Stockholders that the majority
stockholders of the Company executed a written consent dated as of February 28,
2005 providing for an amendment to the Company's Certificate of Incorporation
increasing its authorized shares of common stock from 100 million to 250 million
and authorizing 25 million shares of preferred stock. This notice and
information statement attached hereto shall be considered the notice required
under Section 228(e) of the Delaware General Corporation Law (the "DGCL").
Our board of directors has unanimously approved the increase in our authorized
share capital, as have stockholders representing a majority of our issued and
outstanding shares of common stock. Accordingly, your approval is not required
and is not being sought.
Please read this notice carefully. It describes the increase in our authorized
share capital and contains certain related information. The certificate of
amendment effectuating the increase in our authorized share capital is attached
to this Information Statement as Appendix A. Additional information about the
Company is contained in its current and periodic reports filed with the United
States Securities and Exchange Commission (the "Commission"). These reports,
their accompanying exhibits and other documents filed with the Commission may be
inspected without charge at the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such
material may also be obtained from the Commission at prescribed rates. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding public companies that
file reports with the Commission. Copies of these reports may be obtained from
the Commission's EDGAR archives at http://www.sec.gov/index.htm.
The principal executive office of the Company is located at 1055 Stewart Avenue,
Suite 12, Bethpage, New York, 11714. The Company's telephone number is (516)
922-4765.
THIS IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO STOCKHOLDERS' MEETING
WILL BE HELD TO CONSIDER ANY MATTER DESCRIBED HEREIN.
SEARCHHELP, INC.
1055 Stewart Avenue, Suite 12
Bethpage, New York, 11714
INFORMATION STATEMENT
PURSUANT TO SECTION 14 OF THE SECURITIES EXCHANGE ACT OF 1934
AND REGULATION 14C AND SCHEDULE 14C THEREUNDER
To our Stockholders:
NOTICE IS HEREBY GIVEN that the following action was taken pursuant to a Written
Consent of the Majority Stockholders of the Company:
1. An increase in the authorized shares of common stock of the Company from
100 million to 250 million such shares and the authorization of 25 million
shares of preferred stock, to be effective as of the filing of an
amendment to the Company's Certificate of Incorporation with the Delaware
Secretary of State, attached hereto as Appendix A.
The Board of Directors has fixed the close of business on March 8, 2005,
as the Record Date for determining the Stockholders entitled to Notice of the
foregoing.
The Company has asked brokers and other custodians, nominees and
fiduciaries to forward this Information Statement to the beneficial owners of
the Common Stock held of record by such persons and will reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.
This Information Statement will serve as written Notice to stockholders
pursuant to Section 228(e) of the DGCL.
THIS IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO
STOCKHOLDERS' MEETING WILL BE HELD TO CONSIDER ANY MATTER
DESCRIBED HEREIN.
By order of the Board of Directors,
/s/ William Bozsnyak
-----------------------------------------
March 21, 2005 William Bozsnyak
Chief Executive Officer
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information included in this Information Statement may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
This information may involve known and unknown risks, uncertainties and other
factors which may cause the Company's actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe the Company's
future plans, strategies and expectations, are generally identifiable by use of
the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology. These forward-looking
statements are based on assumptions that may be incorrect, and there can be no
assurance that these projections included in these forward-looking statements
will come to pass. The Company's actual results could differ materially from
those expressed or implied by the forward-looking statements as a result of
various factors. The Company undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE AUTHORIZED SHARES
OF COMMON STOCK TO TWO HUNDRED AND FIFTY MILLION AND AUTHORIZING TWENTY-FIVE
MILLION SHARES OF PREFERRED STOCK
In order to cover future contingencies and financings, the Company will be
required to authorize and issue a greater number of shares of Common Stock than
is presently available therefor. Consequently, the Board of Directors has
determined to increase the Company's authorized share capital to two hundred and
fifty million (250,000,000) shares of Common Stock, in addition to authorizing
twenty-five million (25,000,000) shares of "blank check" preferred stock.
Establishment of the authority to issue preferred stock was approved because the
Board of Directors believes that it is advisable and in the best interests of
the Company to have available shares of preferred stock to provide the Company
with greater flexibility in financing the continued operations of the Company
and undertaking capital restructuring, financing and future acquisitions. The
Company believes that the "blank check" preferred stock will provide the Company
with a capital structure better suited to meet its short and long term capital
needs. Having "blank check" preferred stock available for designation and
subsequent issuance will permit the Company to negotiate the precise terms of an
equity instrument by simply creating a new series of preferred stock without
incurring the cost and delay in obtaining stockholder approval. This will allow
the Company to more effectively negotiate with, and satisfy the precise
financial criteria of, any investor or transaction in a timely manner.
Consequently, once the certificate of amendment to the Company's Certificate of
Incorporation has been filed, the dividend or interest rates, conversion rates,
voting rights, redemption prices, maturity dates and similar characteristics of
such preferred stock will be determined by the Company's Board of Directors,
without the necessity of obtaining approval of the stockholders.
The Company presently has no plans or commitments requiring the authorization of
additional shares, whether common stock or preferred stock.
The Board has unanimously approved, and stockholders owning a majority of the
shares of Common Stock issued and outstanding have consented in writing to, the
afore-mentioned increase in the Company's authorized shares of capital stock.
The Authorization
The Company has obtained stockholder approval for the authorization of an
additional one hundred and fifty million (150,000,000) shares of Common Stock,
0.0001 par value per share and twenty-five million (25,000,000) shares of "blank
check" preferred stock, par value $0.0001 per share, and the amendment to its
Certificate of Incorporation effectuating such amendments. The amendment,
attached hereto as Appendix A, will be filed with the Secretary of State of the
State of Delaware as soon as practicable after the period ending twenty (20)
days following the date this Information Statement is mailed to our stockholders
of record on March 8, 2005.
DESCRIPTION OF SECURITIES
General
We are authorized by our certificate of incorporation to issue an aggregate of
100,000,000 shares of common stock, $.0001 par value per share. We are not
presently authorized to issue preferred stock. As of the record date of March 8,
2005, an aggregate of 28,485,033 shares of our common stock were issued and
outstanding. All outstanding shares of common stock are of the same class and
have equal rights and attributes.
Common stock
We are presently authorized to issue 100,000,000 shares of common stock, $.0001
par value per share, of which 28,485,033 shares were issued and outstanding as
of the record date of March 8, 2005. Each outstanding share of common stock is
entitled to one vote, either in person or by proxy, on all matters that may be
voted upon by their holders at meetings of the stockholders.
Holders of our common stock:
o have equal ratable rights to dividends from funds legally available
therefor, if and when declared by our board of directors;
o are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon our liquidation,
dissolution or winding up;
o do not have preemptive, subscription or conversion rights, or
redemption or sinking fund provisions; and
o are entitled to one non-cumulative vote per share on all matters on
which stockholders may vote at all meetings of our stockholders.
Transfer Agent
The transfer agent for our common stock is American Stock Transfer & Trust
Company, located at 59 Maiden Lane, Plaza Level, New York, NY 10038.
Financial and Other Information
Financial Statements
See Appendix B
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed
below or elsewhere in this quarterly report may contain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
The Company makes such forward-looking statements under the provisions of the
"safe harbor" section of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements reflect the Company's views and assumptions based on
information currently available to management. Such views and assumptions are
based on, among other things, the Company's operating and financial performance
over recent years and its expectations about its business for the current and
future fiscal years. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions, including, but not
limited to, (a) the Company's ability to secure necessary capital in order to
continue to operate, (b) the Company's ability to complete and sell its products
and services, (c) the Company's ability to achieve levels of sales sufficient to
cover operating expenses, (d) prevailing economic conditions which may
significantly deteriorate, thereby reducing the demand for the Company's
products and services, (e) regulatory or legal changes affecting the Company's
business, (f) the effectiveness of the Company's relationships in the indoor air
quality business, (g) the effectiveness of the indoor air quality compound in
which the Company invested, (h) the effectiveness of its relationship with
Digital Card Systems, Inc. and (i) the Company's ability to effect necessary
changes to its contractual relationships.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital needs relate primarily to working capital
and other general corporate requirements. To date, the Company has funded its
operations by issuing notes and by the sale of common stock. From inception
through December 31, 2003, the Company raised net cash proceeds of $1,543,278
from sales of common stock and the conversion of $104,075 of indebtedness into
common stock. From January 2004 through September 30, 2004 the Company raised
additional cash proceeds of $1,117,000 through a private placement of its shares
of common stock at a purchase price of $.25 per share. As of March 5, 2005, the
Company's cash for operations was approximately $18,000. The Company has enough
cash for operations until March 30, 2005. Since inception, the Company has not
received any significant cash flow from operations. As of December 31, 2003, the
Company had cash and cash equivalents of $271,800 and a working capital
deficiency of $145,556. At September 30, 2004, the Company had cash and cash
equivalents of $75,200 and a working capital deficiency of $352,193. Based on
the lack of revenue and the Company's current expense levels, management
estimates that the Company has enough capital resources to fund its operations
only until mid to late March 2005. If the Company does not generate substantial
revenues from the sales of its products in an amount necessary to meet its cash
needs, the Company would need additional financing to continue to operate past
March 2005. As the Company increases sales from its products and services, the
Company expects to increase cash flow from operations.
Net cash used in operating activities from inception through September 30, 2004
was $1,725,826 and for the nine months ended September 30, 2004 and 2003 was
$374,949 and $584,729 respectively.
Net cash used in investing activities for the nine months ended September 30,
2004 and 2003 was $797,400 and $33,625, respectively, and since inception
through September 30, 2004 net cash used in investing activities was $1,105,681.
The use of cash funds in investing activities since inception has been property,
asset and license acquisitions and software development costs.
Net cash provided from financing activities was $2,906,707 from inception
through September 30, 2004 of which $1,464,149 and $14,322 was generated in the
years ended December 31, 2003 and 2002, respectively. Net cash provided from
financing activities for the nine months ended September 30, 2004 and 2003 was
$975,749 and $636,842 respectively. The cash flow provided from financing
activities was primarily derived from the net cash received from the sale of the
Company's securities and the proceeds from notes and loans payable.
The Company used a large portion of the funds it raised since its inception for
the extensive independent testing and development of the Company's Sentry at
Home software, formerly known as "Spike". The Company paid approximately
$200,000 to an independent consultant Sahba Samet and his company, Edocusign,
Inc. ("Edocusign"), to develop this product over a two year period. The Company
also granted Edocusign, an option to purchase 750,000 shares of the Company's
common stock at a purchase price of $ .62 per share. Edocusign finished a beta
version of the product in August 2003. In September 2003, SearchHelp hired
E2TechLabs, LLC to conduct an independent test of both Sentry products. After a
month of testing, E2TechLabs opined that the products' infrastructure needed
additional work to meet the security standards set by the Company. E2TechLabs
gave Edocusign a list of changes to make. E2TechLabs continued to test the
products as the changes were made. These changes, plus the additional testing,
took six months to implement.
From September 2003 through the end of March 2004, the testing costs totaled
$195,000, approximately $150,000 over budget. The cost overruns occurred because
the Company set strict security parameters so children would not be able to
bypass or override the Sentry software without their parent's knowledge. Most of
the software in the marketplace of filtering out inappropriate content have
these security holes. However, the Company wanted to release a product that did
not accept these security holes as commonplace. In total, the Company had
unexpected cost overruns of approximately $198,000.
The other area in which the Company has used a large part of its raised capital
is in its Indoor Air Quality division. The Company has spent $500,000 to
purchase a royalty interest from Environmental Commercial Technology, Inc.
("ECT"), a company that was granted the rights to market a compound for mold
remediation which apparently has the ability to kill and prevent the growth of
mold and fungus in an environmentally safe manner.
Since the Company does not have sufficient cash to operate, the Company's Chief
Financial Officer and Chief Technical Officer have, as of November 1, 2004,
agreed not to take their salaries until the Company is in a position to pay such
salaries. They have also agreed that their salaries will not accrue. Both the
Chief Financial Officer and Chief Technical Officer have each been granted an
option to purchase 50,000 shares of the Company's common stock at a purchase
price of $.25 per share. These options will fully vest in 90 days from the date
of grant and expire in 5 years. The Company's Chief Executive Officer and
President are also not taking or accruing their salaries.
Management expects to raise additional capital to allow the Company to continue
to operate for the next six to seven months without revenues. To date, the
Company's CEO has provided the necessary capital to allow the Company to
continue to operate.
THE COMPANY'S BUSINESS AND PLAN OF OPERATION
The Company's new business plan is directing its efforts on investigating
opportunities that will improve family safety and well being. The Company is
currently focusing on two specific areas, family software through its
subsidiary, FamilySafe, Inc. ("FamilySafe") and digital identification and
security issues in both the public and private sectors, through its subsidiary,
Digital I.D. Systems, Inc.
FAMILY SAFE
Generally
FamilySafe owns the technology for the Company's two software products, Sentry
At Home and Sentry Remote. Sentry At Home is a comprehensive online monitoring
software package, whereby parents set the security permission levels for their
children. It enables parents to monitor their child's behavior on the Internet
by blocking and filtering out inappropriate web sites on AOL, Netscape, Internet
Explorer and MSN. It also protects children from potential online predators by
monitoring Instant Messaging applications and chat rooms. Sentry Remote enables
parents to monitor their child's behavior on the Internet, but it can also be
used remotely while the parent is not at home. It allows parents to see on their
computer screens exactly what their children are seeing on their home screens
and they can intervene if necessary. With Sentry Remote, parents are able to be
an active participant in their children's Internet experience from any computer
that is online.
In October 2004, the Company decided to outsource all future required testing to
Paradigm InfoTech, a company in India. Since testing will be an ongoing process,
it can be achieved at a more reasonable rate by outsourcing, compared to having
the testing conducted in-house. All new programming must be tested, even if it
is only a small component of a larger existing element of the software. The
slightest change made to the software's source code must be tested before being
released to the public. Testing for the Sentry products will continue in three
areas. First, upgrades and enhancements are done on a continual basis to prolong
the lifecycle of the products and as new enhancements and upgrades are
completed, each item must be tested for potential bugs. Testing is also
performed to make certain that each new component does not adversely affect the
existing software. Finally, as with all software, the testing must assure
compatibility with all third party software and new hardware platforms.
In order to market and sell the Sentry products, the Company had entered into an
exclusive manufacturing, marketing and distribution agreement with Family
Trusted Products, LLC ("FTP"), a company dedicated to creating technology-based
products that reinforce the importance of safety for children. FTP's digital
I.D. products have the support of the National Center for Missing & Exploited
Children (NCMEC). The Company felt that an association with a company like FTP,
who was affiliated to NCMEC would significantly reduce marketing expenses and
fast track the products to market. The Company spent April 2004 and May 2004
private labeling the Sentry products for FTP, at their request. Both Sentry
products are complete and have been ready to be manufactured since May 2004.
However, marketing was not commenced, and therefore, to date no products have
been sold. The Company plans to enter into a mutual termination of the
arrangement with FTP and to distribute the products under its own control. The
Company is in the process of negotiating distribution agreements with four
retail distribution companies to sell its Sentry product line. The Company plans
to have the Sentry products in the market by the beginning of the second quarter
of 2005.
The Company has had one programmer working on the Sentry Remote project and he
has earned an annual salary of $48,000. Sentry Remote was completed in April
2004. Upon completion of this project the Company granted the programmer an
option to purchase 100,000 shares of the Company's common stock at a purchase
price of $.47 per share.
On April 1, 2004, when the development and testing of both products were
completed, the Company hired the owner of E2Techlabs to be the Company's Chief
Technical Officer and a programmer/tester from the E2Techlabs to be the
Company's in-house programmer and tester. Both of their responsibilities include
working with the developer to assist with enhancements and upgrades during the
life cycle of the products. Sentry At Home and Sentry Remote both received
enhancements and upgrades in the last six months. The testing required for these
upgrades and enhancements took approximately six weeks. The testing fees were
approximately $5,000.
Marketing
The Company intends to launch its Sentry products during the second quarter of
2005. In order to begin the marketing process, the Company had created its own
literature and marketing materials to be used in media kits. The Company had to
change the branding for both products to the Company's look and feel, redo the
back-end support system, re-brand the look of the Sentry At Home software and
build the necessary infrastructure to handle the purchasing of the software
online. In September 2004, the Company hired an interim marketing consultant for
two months, at $4,000 per month to assist with the marketing materials and media
kit.
All marketing materials were finalized and sent to the printers during the first
week of November 2004. The Company is using the media kits for retail,
corporate, reseller and community outreach programs. The Company has provided
marketing materials to one of the Company's directors who has electronic stores
as existing customers. The Company hopes to generate sales from this
relationship. In addition, the Company has been working with a consultant, Brian
O'Connor, who was a senior vice president at Polaroid from 1989 through 1998.
Mr. O'Connos is involved in the Company's negotiations of distribution
agreements for its Sentry line of products, and the Company anticipates that it
may seek to employ the services of Mr. O'Connor on a mutually agreeable basis
within the near future.
To date, the Company's initial outreach efforts have resulted in two local
television appearances and one print article in a major newspaper. On August 18,
2004 the Company's President and Chief Technical Officer were on News 12 Long
Island, a local television channel for a back-to-school story where Sentry
Remote was featured and News 12 also included Sentry Remote on its `Wednesdays
on the Web' program which was shown on Long Island, Connecticut and New Jersey.
On October 9, 2004, The Miami Herald wrote an article, which was called, `New
High-Tech Devices Keep Tabs On Children' and featured Sentry Remote in its
story. Although these events did not bring about revenue, it did bring the
Sentry products their initial media exposure.
The Company will also seek to market the products focusing on grassroots
initiatives, community outreach, resellers and other media outreach initiatives.
The Company intends that grassroots initiatives will begin with Internet
outreach, whereby the Company will seek web sites for free links or mention of
the products, such as web sites for parenting, nonprofits, education, women and
technology.
The Company wrote an advertorial about the software that was placed in 18 local
weekly papers on Long Island for two consecutive weeks. The advertorial was also
submitted to other local papers and additional lists of news outlets were
created, such as community and national papers, newsletters, magazines, etc.
The Company will also seek Value Added Resellers ("VARS") who are resellers of
software and hardware. As of March 5, 2005, the Company had signed up 5 VARS.
The Company is currently in contact with one of the largest resellers of child
protection software on the Internet. The Company will also consider utilizing a
direct market reseller initiative to schools, nonprofit organizations, other
child activity places of business such as a pediatrician's office, school
photographers and child organizations such as the Boy Scouts, Girls Scouts and
Boys and Girls Clubs of America. The Company will consider purchasing email and
physical address lists for each group. Fundraisers for schools and nonprofits
will be addressed as well. The schools and organizations will be contacted
through Parent Teacher Associations (PTA) and Parent Teacher Organization (PTO),
web sites, conventions and other mailings. The Company will also leverage its
personal relationships to contact various companies seeking corporate alliances.
Additional strategies include consumer offerings, expert endorsements, private
labeled offerings that leverage the influence and power of another entity's
reputation and/or positioning as well as fully embedded offerings into
complementing products, services and providers.
Competition
The Company will compete for business with other companies that have
child-monitoring software that includes the following: NetNanny, LookSmart,
Ltd., Cybersitter, Solid Oak Software, Inc. (US), CyberPatrol, SurfControl,
MacAfee Parental Controls, Networks Associates Technology, Inc., Norton Parental
Controls, Symantec Corporation, FilterPak, S4F, Inc., Cyber Sentinel, Security
Software Systems, Inc., and Cyber Snoop, Pearl Software, Inc. NetNanny is the
best known, with revenues of approximately $4 million, but PC Magazine considers
CyberSitter the best, with revenues of approximately $10 million.
The Company plans to respond promptly and effectively to the challenges of
technological change, evolving standards and the Company's competitors'
innovations by continuing to enhance the Company's products and services, as
well as the Company's sales and marketing channels. Any pricing pressures,
reduced margins or loss of market share resulting from increased competition, or
the Company's failure to compete effectively, could seriously damage the
Company's business.
INDOOR AIR
Generally
Through the Company's Indoor Air Quality subsidiary, management has been
exploring opportunities concerning the quality of living aspects of indoor air
quality ("IAQ"). The increased knowledge and concern with regards to indoor air
toxins and irritants, combined with the dramatic increase in the diagnosis of
childhood and adult asthma and the potential impact of these issues on general
family health, represent, in the Company's opinion, an area in need of address
and solutions. The increasing media attention, as well as hard and soft data
related to in-home complaints and associations with IAQ problems, makes the
opportunity to develop a consumer friendly and informative home-based solution
appealing to the Company.
The Company has chosen to focus on one of the most important issues within the
broader IAQ arena - Mold. There is a great deal of both medical and media
attention being given to the detection and the removal of harmful molds from
indoor air systems. The Company has investigated the potential for engaging in
both aspects of the mold issue ; (1) providing definitive products for testing
for mold conditions and (2) providing effective indoor mold remediation
solutions.
On February 3, 2004, the Company entered into an agreement with Environmental
Commercial Technology Corp. ("ECT"), a company that was granted the rights to
market an organic compound for mold remediation that has the ability to both
kill and prevent the growth of mold and fungus in an environmentally safe
manner. Pursuant to the agreement the Company is entitled to receive an interest
equal to 5% of the gross revenue from the sale of the product by ECT. In return,
the Company provided immediate development capital of $500,000 and was obligated
to pay ECT an additional $100,000 in August 2004. The Company will also provide
consulting services in connection with the marketing and sales of the product,
especially in the consumer marketplace. The Company granted ECT and its parent
company Bioneutral Laboratories Corporation USA, as additional consideration, a
total of 2,300,000 shares of common stock and a warrant to purchase up to
2,300,000 shares of common stock at a purchase price of $.33 per share. The
Company is required to register the stock issued to Bioneutral and ECT. If the
shares were not registered by September 2004, the purchase price of the common
would fall by $.01 per month through December 2004. If they continue to be
unregistered by January 2005, the purchase price of the common will fall by $.02
a month until they are registered or until the purchase price equals $.01 in
January 2006. If the shares are not registered by January 1, 2005, ECT can
terminate the agreement, but would have to return the Company's $500,000 and a
portion of the stock issued to ECT and Bioneutral. As of March 5, 2005, the
Company had not filed the registration statement. The Company has charged its
operations $138,000 for a $.06 difference between the issue price and the
warrant penalty schedule price. The Company is currently in negotiations with
Bioneutral to have the warrant schedule frozen at $.27 as well as having the
last $100,000 payment due for the royalty agreement waived. ECT has indicated to
the Company that it does not presently intend to terminate the agreement.
The Company has been recently informed by ECT's parent company, Bioneutral
Laboratories Corporation, USA ("Bioneutral") that the Environmental Protection
Agency ("EPA") is expected to come out with guidelines specific to mold, prior
to the end of fiscal year 2005. To date, the EPA does not have specific
guidelines pertaining to mold. Companies, such as ECT/Bioneutral who wish to get
EPA approval for a specific application, such as for mold, must submit the
specific protocol to the EPA for approval. Currently, ECT/Bioneutral are in the
process of submitting their specific protocol to the EPA for mold that pertains
to hard surface applications. No assurance can be given whether or not the EPA
will ever grant Bioneutral/ ECT a registration.
Since the Company is waiting for EPA approval, the Company will not make the
final payment of $100,000 until ECT begins to generate revenue from the mold
compound. The Company expects to begin to generate revenues from this venture
within 6 months after EPA approval.
The Company continues to evaluate possible business opportunities for mold
screening, but will wait until the Company receives revenue either through the
sale of its software products or through its interest in ECT.
Marketing
ECT continues to be the responsible party for all marketing and sales of the
mold remediation compound. The product will be marketed through remediation
companies that specialize in the remediation of mold and fungi.
Competition
The Company will compete for business with many IAQ companies, many of whom have
greater experience, expertise and/or greater resources than ECT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of the date hereof, with
respect to the beneficial ownership of our common stock by each: (i) holder of
more than five percent (5%) of the outstanding shares of our common stock; (ii)
our executive officers and directors; and (iii) all our executive officers and
directors as a group. The Company's issued and outstanding voting securities at
the close of business on March 8, 2005, consisted of 28,485,033 shares of common
stock, $.0001 par value per share. Unless otherwise indicated, the address of
each of the named persons is care of SearchHelp, Inc., 1055 Stewart Avenue,
Bethpage, New York, 11714.
Shares Percentage
Name and Address Beneficially Owned (1) Beneficially Owned
- ---------------- ---------------------- ------------------
William Bozsnyak (2) 4,413,438 15.5%
Debbie Seaman (3) 3,213,505 11.3%
Joel San Antonio (4) 5,515,000 19.4%
Joseph Carrizzo (5) 1,000,000 3.4%
Noel Bonilla (6) 192,500 *
Eric Elgar (7) 200,000 *
Bioneutral Laboratories (8) 4,600,000 14.9%
All directors and executive officers as a group (6
persons) 14,534,443 49.1%
* less than one percent
(1) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of the
Company's common stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within 60
days from the date on which beneficial ownership is to be determined, upon the
exercise of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants and
convertible securities that are held by such person (but not those held by any
other person) and which are exercisable within such 60 day period, have been
exercised.
(2) Includes an option to acquire 15,000 shares of common stock.
(3) Includes an option to acquire 15,000 shares of common stock.
(4) Mr. San Antonio's address is c/o Warrantech Corporation, 350 Bedford Street,
Stamford, CT 06901. Includes an option to acquire 15,000 shares of common stock.
(5) Mr. Carrizzo's address is 35 Marie Drive, Huntington, New York 11743.
Includes an option to acquire 750,000 shares of common stock.
(6) Includes options to acquire 92,500 shares of common stock.
(7) Consists of an option to acquire 200,000 shares of common stock.
(8) Bioneutral Laboratories Corp USA's address is c/o Reed & Smith, 599
Lexington Avenue, New York, New York 10022. Consists of: (i) 1,725,000 shares of
common stock and a warrant to acquire an additional 1,725,000 such shares, each
held in the name of Bio-Neutral; (ii) and 575,000 shares of common stock and a
warrant to acquire an additional 575,000 such shares, each held in the name of
Bio-Neutral's wholly owned subsidiary ECT and its affiliates.
APPRAISAL RIGHTS
Pursuant to the DGCL, the holders of the Common Stock are not entitled to
dissenters' rights in connection with the amendment to the Company's Certificate
of Incorporation. Furthermore, the Company does not intend to independently
provide those stockholders with any such rights.
INTERESTS OF CERTAIN PERSONS IN THE AMENDMENT TO OUR CERTIFICATE OF
INCORPORATION
No director, executive officer, associate of any director or executive officer
or any other person has any substantial interest, direct or indirect, by
security holdings or otherwise, in the amendment to the Company's Certificate of
Incorporation which is not shared by all other holders of the Common Stock.
SOLICITATION OF PROXIES
The Company is making the making the mailing and will bear the costs associated
therewith. There will be no solicitations made. The Company will reimburse
banks, brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy material to beneficial owners of
the Company's common stock.
STOCKHOLDER PROPOSALS
The Board has not yet determined the date on which the next annual meeting of
stockholders of the Company will be held. Any proposal by a stockholder intended
to be presented at the Company's next annual meeting of stockholders must be
received at the offices of the Company a reasonable amount of time prior to the
date on which the information or proxy statement for that meeting are mailed to
stockholders in order to be included in the Company's information or proxy
statement relating to that meeting.
By Order of the Board of Directors,
/s/ William Bozsnyak
- --------------------
William Bozsnyak
CEO and Chairman of the Board of Directors
March 21, 2005
Appendix A
CERTIFICATE OF AMENDMENT TO
THE CERTIFICATE OF INCORPORATION
OF
SEARCHHELP, INC.
* * * * *
SearchHelp, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"GCL"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of SearchHelp, Inc. has unanimously
approved and its Stockholders, through a Written Consent in Lieu
of a Meeting of the Majority Stockholders dated as of February
28, 2005, have ratified a resolution duly amending the
Certificate of Incorporation of said corporation, as follows:
RESOLVED, that Article Fourth of the Corporation's Certificate of Incorporation
be amended to read as follows:
"FOURTH: The aggregate number of shares of capital stock which the Corporation
is authorized to issue is 275,000,000, divided as follows,
A. 250,000,000 shares of Common Stock, $0.0001 par value per share.
B. 25,000,000 shares of Preferred Stock, $0.0001 par value per share,
which may be issued from time to time in one or more classes or series with such
dividend rates, voting rights, rights of conversion, rights upon dissolution or
liquidation, and with such designations or restrictions thereof as shall be
determined by resolution adopted by the Board of Directors at the time such
stock is issued without further approval of the shareholders."
SECOND: That said amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the GCL.
THIRD: That the capital of said corporation shall not be reduced under
or by reason of said amendment.
IN WITNESS WHEREOF, the undersigned duly authorized officer of the
Corporation has executed this Certificate and affirmed that the statements made
herein are true under penalties of perjury this __ day of March, 2005.
-----------------------------------------
William Bozsnyak, Chief Executive Officer
Appendix B
Financial Statements
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
PART I FINANCIAL INFORMATION
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
INDEX
Page No.
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as at September 30, 2004 and December 31, 2003 (Unaudited) F-2 - F-3
Statements of Operations
For the Three and Nine Months ended September 30, 2004 (Consolidated),
For the Three and Nine Months Ended September 30, 2003 and Cumulative For the Period
from January 29, 1999 (Inception) to September 30, 2004 (Consolidated) (Unaudited) F-4
Consolidated Statement of Stockholders' Equity (Capital Deficiency)
Cumulative For the Period from January 29, 1999 (Inception)
to December 31, 2003 (Unaudited) F-5
Consolidated Statement of Stockholders' Equity (Capital Deficiency)
For the Nine Months Ended September 30, 2004 (Consolidated) (Unaudited) F-6
Statements of Cash Flows
For the Nine Months ended September 30, 2004 (Consolidated) and 2003 and
Cumulative For the Period From January 29, 1999 (Inception) to
September 30, 2004 (Consolidated) (Unaudited) F-7 - F-9
Notes to Financial Statements (Unaudited) F-10- F-24
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2004 2003
---------- ----------
(Unaudited) (Unaudited)
Current assets:
Cash $ 75,200 $ 271,800
Accounts receivable 1,251 1,237
Prepaid expenses 52,810 598
---------- ----------
Total current assets 129,261 273,635
---------- ----------
Property and equipment - at cost,
less accumulated depreciation -- 17,262
---------- ----------
Other assets:
Software development costs, less accumulated
amortization of $268,317 and $179,054, respectively 294,160 93,423
Deferred license fee 1,950,000 --
Security deposit 2,155 2,155
---------- ----------
Total other assets 2,246,315 95,578
---------- ----------
Total assets $2,375,576 $ 386,475
========== ==========
See notes to financial statements.
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
September 30, December 31,
----------- -----------
2004 2003
Current liabilities:
Note payable - bank $ 14,450 $ 14,450
Current portion of long-term debt 3,732 5,206
Due to stockholders -- 332,508
Due to placement agent -- 1,700
Deferred Revenues -- 120
Accounts payable and accrued expenses 463,272 65,207
----------- -----------
Total current liabilities 481,454 419,191
----------- -----------
Long-term debt, less current portion -- 2,407
----------- -----------
Commitments and contingencies -- --
Stockholders' equity (capital deficiency):
Common stock - $.0001 par value
Authorized - 100,000,000 shares
Issued and outstanding - 28,485,033 and
21,397,000 shares, respectively 2,849 2,140
Additional paid-in capital 4,772,841 1,928,463
Deficit accumulated in the development stage (2,881,568) (1,965,726)
----------- -----------
Total stockholders' equity (capital deficiency) 1,894,122 (35,123)
----------- -----------
Total liabilities and stockholders'
equity (capital deficiency) $ 2,375,576 $ 386,475
=========== ===========
See notes to financial statements.
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative From
For The Nine For the Three January 29, 1999
Months Ended Months Ended (Inception) to
September 30 September 30 September 30
----------------------------- ----------------------------- ------------
2004 2003 2004 2003 2004
---- ---- ---- ---- ----
(Consolidated) (Unaudited) (Consolidated) (Unaudited) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Revenues $ 605 $ 3,676 $ -- $ 1,008 $ 21,255
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling 105,622 62,073 35,441 15,548 464,679
Web site costs 53,363 19,123 13,850 7,676 192,748
Software development costs 81,200 68,901 -- 12,631 285,524
General and administrative 570,935 170,855 187,865 47,565 1,205,222
Amortization and impairment of license
costs and deferred promotional incentives -- 17,500 -- 5,000 63,667
Depreciation and amortization 90,720 48,566 37,983 10,759 288,438
------------ ------------ ------------ ------------ ------------
Total operating expenses 901,840 387,018 275,139 99,179 2,500,278
------------ ------------ ------------ ------------ ------------
Loss from operations (901,235) (383,342) (275,139) (98,171) (2,479,023)
------------ ------------ ------------ ------------ ------------
Other expenses:
Interest 1,402 34,524 489 1,759 105,390
Compensatory element of
noteholders purchase rights -- 169,050 -- 7,350 231,450
Amortization of deferred financing costs -- 625 -- -- 52,500
Loss on disposal of equipment 13,205 -- -- -- 13,205
------------ ------------ ------------ ------------ ------------
Total other expenses 14,607 204,199 489 9,109 402,545
------------ ------------ ------------ ------------ ------------
Net loss ($ 915,842) ($ 587,541) ($ 275,628) ($ 107,280) ($ 2,881,568)
============ ============ ============ ============ ============
Per share data:
Loss per share - basic and diluted ($ .04) ($ .04) ($ .01) ($ .01)
============ ============ ============ ============
Weighted average number of shares outstanding 25,136,378 16,770,534 27,027,180 18,361,760
============ ============ ============ ============
See notes to financial statements.
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CUMULATIVE FROM JANUARY 29, 1999 (INCEPTION) TO DECEMBER 31, 2003
Deficit
Accumulated Total
Common Stock Additional in the Stock Stockholders'
------------------------- Paid-In Development Subscriptions Capital
Shares Amount Capital Stage Receivable Deficiency
----------- ----------- ----------- ----------- ----------- -----------
Common stock issued to founders 6,616,910 $ 662 $ 1,338 $ -- $ -- $ 2,000
Net loss for the period from
January 29, 1999 (inception)
to December 31, 1999 -- -- -- (24,056) -- (24,056)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 6,616,910 662 1,338 (24,056) -- (22,056)
Net loss from the year ended
December 31, 2000 -- -- -- (56,775) -- (56,775)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 6,616,910 662 1,338 (80,831) -- (78,831)
Loan converted to common stock 1,123,090 112 103,963 -- -- 104,075
Common stock subscribed 7,160,000 716 6,234 -- (6,450) 500
Common stock issued for
services rendered 100,000 10 8,990 -- -- 9,000
Promotional incentives with
respect to exercise stock
purchase rights -- -- 44,500 -- -- 44,500
Net loss from the year ended
December 31, 2001 -- -- -- (221,790) -- (221,790)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 15,000,000 1,500 165,025 (302,621) (6,450) (142,546)
Proceeds from exercise of
noteholders' purchase rights 310,000 31 3,069 -- -- 3,100
Payment of subscriptions -- -- -- -- 6,450 6,450
Compensatory element of
noteholders' purchase rights -- -- 62,400 -- -- 62,400
Net loss from the year ended
December 31, 2002 -- -- -- (594,672) -- (594,672)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 15,310,000 1,531 230,494 (897,293) -- (665,268)
Proceeds from exercise of
noteholders' purchase rights 815,000 82 8,068 -- -- 8,150
Compensatory element of
noteholders' purchase rights -- -- 169,050 -- -- 169,050
Proceeds from sale of securities,
net of registration costs 5,272,000 527 1,520,851 -- -- 1,521,378
Net loss from the year ended
December 31, 2003 -- -- -- (1,068,433) -- (1,068,433)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003
(consolidated) 21,397,000 $ 2,140 $ 1,928,463 ($1,965,726) $ -- ($ 35,123)
=========== =========== =========== =========== =========== ===========
See notes to financial statements
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
Deficit
Accumulated Total
Common Stock Additional in the Stockholders'
------------------------- Paid-In Development Equity (Capital
Shares Amount Capital Stage Deficiency)
----------- ----------- ----------- ----------- -----------
Balance at January 1, 2004 21,397,000 $ 2,140 $ 1,928,463 ($1,965,726) ($ 35,123)
Issuance of securities as partial payment for license:
Common stock 2,300,000 230 574,770 -- 575,000
Warrants to acquire 2,300,000 shares 575,000 -- 575,000
Net proceeds from sale of securities 4,078,000 408 979,222 -- 979,630
Compensatory value of stock options
issued for services rendered 290,000 -- 290,000
Compensatory value of common stock
issued to Advisory Board Members 130,000 13 90,987 -- 91,000
Compensatory value of stock options
issued to Advisory Board Members 1,949 -- 1,949
Issuance of common stock options
to non employee directors 187,500 -- 187,500
Stockholder's loans converted
to common stock 580,033 58 144,950 145,008
Net loss -- -- -- (915,842) (915,842)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 2004 28,485,033 $ 2,849 $ 4,772,841 ($2,881,568) $ 1,894,122
=========== =========== =========== =========== ===========
See notes to financial statements.
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative From
For the Nine January 29, 1999
Months Ended (Inception) to
September 30, September 30,
-------------------------- -----------
2004 2003 2004
---- ---- ----
(Consolidated) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss ($ 915,842) ($ 587,541) ($2,881,568)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deferred revenue (120) -- --
Compensatory element of noteholders' purchase rights -- 169,050 231,450
Depreciation 1,457 4,479 14,288
Amortization of deferred financing costs -- -- 52,500
Amortization of software development costs 89,263 44,712 268,317
Amortization of consulting fees 63,810 63,810
Amortization and impairment of licenses and
deferred promotional incentives -- 17,500 44,500
Amortization and write off of deferred license costs -- -- 25,000
Loss on disposal of equipment 13,205 -- 13,205
Common stock issued for legal fees -- -- 9,000
Increase (decrease) in cash flows as a result of
changes in asset and liability account balances:
Accounts receivable (14) 3,087 (1,251)
Prepaid expenses (23,073) 2,096 (23,671)
Due to placement agent (1,700) -- (1,700)
Security deposits -- -- (2,155)
Accounts payable and accrued expenses 398,065 (238,112) 462,449
----------- ----------- -----------
Total adjustments 540,893 2,812 1,155,742
----------- ----------- -----------
Net cash used in operating activities (374,949) (584,729) (1,725,826)
----------- ----------- -----------
Cash flows from investing activities:
Equipment (purchases) sales 2,600 -- (8,204)
Software development costs -- (33,625) (247,477)
Deferred license costs (50,000)
Deferred license fee (800,000) -- (800,000)
----------- ----------- -----------
Net cash used in investing activities (797,400) (33,625) (1,105,681)
----------- ----------- -----------
Net cash used in operating and investing activities (1,172,349) (618,354) (2,831,507)
----------- ----------- -----------
See notes to financial statements.
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
Cumulative From
For the Nine January 29, 1999
Months Ended (Inception) to
September 30, September 30,
-------------------------- -----------
2004 2003 2004
---- ---- ----
(Consolidated) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Net cash used in operating and
investing activities brought forward: ($1,172,349) ($ 618,354) ($2,831,507)
----------- ----------- -----------
Cash flows from financing activities:
Due to stockholders -- 15,000 332,508
Note payable - bank -- -- 14,450
Notes payable - other -- (475,000) --
Loans payable -- -- 104,075
Equipment loans (3,881) (3,447) (14,734)
Deferred financing costs -- -- (52,500)
Deferred registration costs -- -- (234,681)
Proceeds from sale of securities 979,630 1,100,289 2,751,139
Proceeds from stock
subscriptions receivable -- -- 6,450
----------- ----------- -----------
Net cash provided by financing activities 975,749 636,842 2,906,707
----------- ----------- -----------
Net increase (decrease) in cash (196,600) 18,488 75,200
Cash at beginning of period 271,800 1,012 --
----------- ----------- -----------
Cash at end of period $ 75,200 $ 19,500 $ 75,200
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash payment made during the period
Interest $ 1,396 $ 78,094 $ 105,051
=========== =========== ===========
See notes to financial statements.
SEARCHHELP, INC. AND SUBSIDIARIES
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
Cumulative From
For the Nine January 29, 1999
Months Ended (Inception) to
September 30, September 30,
-------------------------- -----------
2004 2003 2004
---- ---- ----
(Consolidated) (Consolidated)
(Unaudited) (Unaudited) (Unaudited)
Supplemental Schedules of Noncash Investing
and Financing Activities:
Assets acquired for debt -- -- $ 19,289
==========
Deferred promotional incentives acquired through
exercise of common stock purchase rights -- -- $ 44,500
==========
Common stock issued for services rendered $ 91,000 -- $ 100,000
========== ==========
Loans converted to common stock -- -- $ 104,075
========== ==========
Stockholder's loans converted to common stock $ 145,008 $ 145,008
========== ==========
Compensatory element of note holders'
purchase rights -- -- $ 231,450
========== ==========
Issuance of stock options as partial payment
For software $ 290,000 $ 290,000
========== ==========
Issuance of common stock options for
services rendered $ 189,369 -- $ 189,369
========== ==========
Issuance of common stock and common stock
warrants for license $1,150,000 $1,150,000
========== ==========
See notes to financial statements.
SEARCHHELP, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
NOTE 1 - PLAN OF ORGANIZATION:
(a) Organization and Presentation of Financial Statements:
SearchHelp, Inc. (the "Company") was incorporated in the State of
Delaware on September 5, 2001 at which time the founding shareholders
subscribed for 6,660,000 shares of the Company's common stock for an
aggregate of $6,450. The stock subscriptions were paid in January and
February 2002. The Company is a successor to SH Networks.com, Inc.,
("SHN"), formerly known as SearchHelp.com, Inc., a New York corporation
formed on January 29, 1999. SHN merged into the Company on September 5,
2001 in a transaction in which the shareholders of SHN exchanged all of
the capital stock in SHN for 6,616,910 common shares of the Company. The
merger was accounted for as a recapitalization. Certain creditors of SHN
simultaneously converted their debt of $104,075 into 1,123,090 shares of
the Company's common stock ($.09 per share). Since its inception through
September 30, 2004, the Company and its predecessor have not generated any
significant revenues and have not carried on any significant operations.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company has a working capital deficiency of $145,556 and a
stockholders' capital deficiency of $35,123 at December 31, 2003 and a
$352,193 working capital deficiency and stockholder's equity of $1,894,122
at September 30, 2004. The Company has incurred net losses of $1,965,726
through December 31, 2003 and $915,842 and $587,541 for the nine months
ended September 30, 2004 and 2003.
This condition raises substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Management's efforts have been directed towards the development and
implementation of a plan to generate sufficient revenues to cover all of
its present and future costs and expenses. The plan includes, among other
things, developing and selling products and services oriented towards
improving family well being.
The Company offered for sale to the public in an initial public
offering ("IPO"), through a placement agent, on a best efforts basis, up
to 8,000,000 units (each consisting of one share of common stock, one A
warrant to purchase one share of common stock at $.75 and one B warrant to
purchase one share of common stock for $1.75) at a purchase price of $.50
per unit. The IPO was declared effective on January 22, 2003. The Company
sold 2,474,000 units for total gross proceeds of $1,237,000. The placement
agent received 10% of the gross proceeds from the offering, plus certain
warrants and reimbursement of expenses. Placement agent fees and
registration costs were $403,942 of which $234,681 had been paid in 2002
and 2001 and the balance of $169,311 was paid from the proceeds of the
offering. From the proceeds of the IPO the Company repaid all previously
outstanding notes totaling $475,000 and interest of $82,518. $265,719 of
the proceeds from the IPO was used to pay accounts payable and expenses.
The balance of $244,452 was used for working capital and was fully
expended to support operations.
Accordingly, effective September 8, 2003, after the IPO had closed
and, in part, because the IPO had not been fully subscribed, the Company
commenced a best efforts private offering of up to 4,000,000 shares of its
common stock, $0.0001 par value at $0.25 per share. The per share offering
price was established by the Company because of the restrictions on
transfer of the shares and the fact that prospective investors were
required to purchase a substantial number of shares (20,000 for $5,000) in
order to participate. In November 2003, the offering was increased to
6,000,000 shares at the same purchase price. The offering has been
extended through August 31, 2004 and further increased to raise $1,800,000
and to sell 7,200,000 shares of the Company's common stock. As of
September 30, 2004, the offering has been completed. Under this private
offering, 6,886,000 shares of the Company's common stock were sold for
gross proceeds of $1,721,500 less $52,750 in offering costs. The Company
agreed to pay each placement agent a commission of 10% of the proceeds of
all the shares placed by the placement agent and non-accountable expenses
of 2% of the proceeds of all the shares placed by the placement agent. In
addition to the placement agent's cash compensation, the Company agreed to
give the placement agent warrants to purchase up to 720,000 shares of
common stock at a purchase price of $.30 per share which will be
exercisable for a period of 5 years, which means that the placement agent
will receive a warrant to purchase one share of common stock for every 10
shares sold by the placement agent. The placement agent's warrants and the
underlying shares of common stock will not be registered at the time of
grant. The placement agent has certain piggy back rights to cause the
registration of the shares if the Company effects a registration of its
securities. For the nine months ended September 30, 2004, 4,078,000 shares
were purchased for $1,019,500 net of $39,870 in offering costs. One
placement agent was entitled to, but had not been issued, warrants to
purchase 34,000 shares of the Company's common stock at a purchase price
of $0.30 per share at December 31, 2003 and 138,800 shares of the
Company's common stock for at purchase price of $0.30 per share for the
quarter ending September 30, 2004 for a total of 172,800 shares of the
Company's common stock at a purchase price of $0.30 per share due to such
placement agent. The net proceeds of this offering have been used to
support the Company's operations
Since the Company has not generated significant revenues and as
management does not anticipate the Company will generate substantial
revenues from the sale of its products in an amount necessary to meet its
cash needs for the next twelve months to October 2005, management believes
the Company will need additional financing to continue operating.
(b) Principal Business Activity:
The Company is focused on utilizing new and emerging technology to
develop products and services oriented toward improving family and
well-being, primarily but not exclusively in the home, having shifted its
primary focus from providing small businesses with online forums. The
Company intends to continue to develop software intended to keep children
safe while online, and its more expanded purpose will be to seek out
emerging technologies, products and services that exhibit significant
promise of improving family safety and well being and to participate in
their development and marketing.
The Company's two existing software products, Sentry At Home and
Sentry Remote, formerly known as Secure Protect Identify Kids Everywhere
(S.P.I.K.E.), and S.P.I.K.E. Remote Sentry, were developed to keep
children safe while online. These monitoring programs are currently being
manufactured at the distribution center. The Company had entered into an
exclusive five year licensing agreement with Family Trusted Products, LLC
("FTP"). FTP was to be responsible for the manufacturing, marketing and
distribution of the Sentry Products. FTP was to pay the Company a royalty
of 10% on all FTP sales of the Sentry products. Marketing has not
commenced under the agreement and the Company is seeking a mutual
termination of the license agreement, after which, the Company will
utilize other channels in its efforts to market these products.
Expanded Areas of Development
Indoor Air Quality (IAQ)
The Company has been exploring opportunities with the "at home"
quality of living aspects of indoor air quality ("IAQ"). The Company has
formed a subsidiary, Indoor Air Quality Services, Inc., to pursue the IAQ
business. The increased knowledge and concern regarding indoor air toxins
and irritants, combined with the increase in the diagnosis of childhood
and adult asthma and the potential impact of these issues on general
family health, represent, in the Company's opinion, an area in need of
address and solutions. The increasing media attention, as well as hard and
soft data related to in-home complaints and associations with IAQ
problems, makes the opportunity to develop a consumer friendly/informative
home-based solution attractive to the Company.
The Company has chosen to focus on one of the most important issues
within the broader IAQ arena - Mold. There is a great deal of both medical
and media attention being given to the detection and the removal of
harmful molds from both indoor residential and commercial structures. The
Company is investigating the potential for engaging two aspects of the
mold issue: (1) providing definitive products for screening for mold
conditions and (2) providing effective indoor mold remediation solutions.
On February 3, 2004, the Company entered into a Participation
Agreement with Environmental Commercial Technology Corp. ("ECT"). ECT has
been granted the rights to market a product, an organic compound, intended
for the prevention of the growth of mold and fungus. The Company received
the right to receive 5% of the gross revenue from the sale of the product.
In return, the Company provided development capital of $500,000 plus an
additional payment of $100,000 by August 2004. Due to the delay in the
Environmental Protection Agency approval, the Company will make the final
payment of $100,000 when ECT begins to generate revenue from the mold
compound. The Company will also provide consulting services in connection
with the marketing and sales of the product for a 5 1/2-year term. As
additional consideration, the Company also granted ECT and its parent
company, Bioneutral Laboratories Corporation USA, a total of 2,300,000
shares of common stock and warrants to purchase up to 2,300,000 shares of
common stock.
The fair value paid for the participation agreement aggregated
$1,950,000 of which a total of $600,000 will be in cash and the balance
was the fair value of the securities issued is included in the
accompanying financial statements as the cost of the license. The fair
value of the common shares issued of $575,000 was determined by the
selling price of the Company's unregistered restricted common stock on the
transaction date of $0.25 per share. The fair value of the warrants using
the Black-Scholes pricing method with a 6% risk-free interest rate and
200% volatility is $575,000. The estimated registration costs to be borne
by the Company are $200,000 and are included in accounts payable and
accrued expenses. Under the participation agreement, the Company is
required to effectuate and pay the costs of a registration statement to be
filed with the Securities and Exchange Commission for the shares issued
and the shares underlying the warrants issued to ECT and its parent by
September 1, 2004. If the Company is not successful in registering these
securities by that date, the agreement allows the warrant exercise price
to be reduced in stages from $0.33 per share at September 1, 2004 to a low
of $0.01 at January 1, 2006. If the registration statement is not
effective by January 1, 2005, both ECT and its parent may cancel the
agreement and within ten (10) days of such termination, return to the
Company (i) the cash of $600,000, less any revenue sharing payments made
to the Company, (ii) the warrants and (iii) half of the common shares
issued and to the extent that the shares are not then in ECT or its parent
company's possession, they must pay fifteen cents ($0.15) for each such
share that is no longer in their possession. The Company has requested an
extension to May 1, 2005 to effect a registration statement. On March 15,
2004 the Company made its required payment to ECT of an additional
$100,000 for a total of $500,000 and has one final payment of $100,000
which is included in accounts payable.
NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES:
(a) Basis of Presentation:
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America. The Company in August 2003 incorporated its wholly
owned subsidiary, Indoor Air Quality Services, Inc., which has had no
activity through December 31, 2003. The accompanying financial statements
for the nine and three months ended September 30, 2004 includes the
accounts of the Company and its wholly owned subsidiaries. All
intercompany transactions have been eliminated in consolidation. The
accompanying financial statements for the nine and three months ended
September 30, 2004 include the accounts of the Company and its wholly
owned subsidiaries Indoor Air Quality Services, Inc. and FamilySafe, Inc.
which was incorporated in February 2004 for the software activities of the
Company, and the Company's newest subsidiary, Digital I.D. Systems, Inc.,
which was incorporated in August 2004 and will concentrate on digital
security technology.
In the opinion of management, the unaudited financial statements
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position of the Company as of
September 30, 2004 and the results of operation and cash flows for the
nine months ended September 30, 2004 and 2003. The results of operation
for the nine months ended September 30, 2004 and 2003 are not necessarily
indicative of results to be expected for the full year.
The December 31, 2003 balance sheet was derived from the audited
financial statements included in the Company's report on Form 10-KSB for
the year ended December 31, 2003 and should be read in conjunction
therewith.
(b) Revenue Recognition:
Through the nine months ended September 30, 2004, the Company did
not have significant revenues and is in the development stage. The Company
recognizes revenues in accordance with accounting principles generally
accepted in the United States of America. Income from contracts for
advertising income, web site services and solutions will be earned on a
pro-rata basis throughout the life of the related contract. The Company
had revenues at September 30, 2004 of $605. Royalty income will be
recognized in the same period as the underlying licensees' sales are
reported as income. Revenues in the form of sales and commissions from the
on-line sale of products, if any, will be recognized at the date of
shipment.
(c) Use of Estimates:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ
from those estimates.
(d) Concentration of Credit Risk:
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist of cash. The Company
places its cash with high credit quality financial institutions that at
times maybe in excess of the FDIC insurance limit.
(e) Depreciation and Amortization:
Depreciation of property and equipment is provided by the
straight-line method over the estimated useful lives of the related assets
ranging from five to seven years. Significant improvements are
capitalized; maintenance and repairs are charged to income. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts and the resulting gain or
loss, if any, is reflected in income.
Costs associated with the development of software that is not
intended for sale are capitalized. Costs incurred in the securing of
financing and for promotional incentives are also capitalized.
Amortization of software development costs, finance costs and promotional
incentives are provided by the straight-line method, over estimated useful
lives of three years, sixty days and eighteen months, respectively.
(f) Earnings Per Share:
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share". Basic earnings per share is based on the
weighted effect of all common shares issued and outstanding, and is
calculated by dividing net income available to common stockholders by the
weighted average shares outstanding during the period. Diluted earnings
per share, which is calculated by dividing net income available to common
stockholders by the weighted average number of common shares used in the
basic earnings per share calculation, plus the number of common shares
that would be issued assuming conversion of all potentially dilutive
securities outstanding, is not presented as it is anti-dilutive.
(g) Stock Based Compensation:
The Company elected to use the intrinsic value method to account for
future options granted to employees for the purchase of common stock as
per Accounting Principles Board Opinion No.25 "Accounting for Stock Issued
to Employees" ("APB 25"). The Company will disclose the pro forma effect
of accounting for stock options under the fair value method as prescribed
in SFAS No. 123, "Accounting for Stock-Based Compensation" ("FASB 123").
For transactions in which goods and services are the consideration
received for the issuance of common stock, the accounting shall be the
fair value of the common stock issued or the fair value of the
consideration received whichever is more reliably measurable at the date
the options are issued. The Company has chosen not to adopt SFAS 148
"Accounting for Stock-Based Compensation - Transition and Disclosure"
which was issued in December 2002. This statement amends SFAS No. 123, to
provide alternative methods of transition for a voluntary change to the
fair value based method.
(h) Advertising Costs.
The Company expenses ordinary advertising and promotion costs as
incurred. Advertising and promotion costs were $5,990 and $17,816 for the
nine months ended September 30, 2004 and 2003, respectively.
(i) Software Research and Development Costs:
Research and development costs are expensed as incurred. Software
development costs are subject to capitalization beginning when a product's
technological feasibility has been established and ending when a product
is available for release to customers. The Company intends to release its
products as soon as possible after technological feasibility has been
established. As a result, costs subsequent to achieving technological
feasibility should not be significant and all software development costs
will be expensed. Commencing in April 2002, the Company incurred software
research and development costs of $204,342 which were charged to
operations ($154,609 in 2003 and $49,715 in 2002) in connection with the
initial development phase of two products. In addition, the Company
incurred no software research and development costs for the three months
ended September 30, 2004 and $$7,676 for the three months ended September
30, 2003. For the nine months ended September 30, 2004 and 2003, the
Company incurred software research and development costs of $81,200 and
$68,901, respectively.
(j) Recently Issued Accounting Pronouncements:
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This statement
amends SFAS 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. The Company has elected not to adopt the provisions of SFAS
No. 148. However, the Company will provide all newly required disclosures
under SFAS No. 123
In December 2003, the FASB issued Interpretation No. 46 (Revised)
"Consolidation of Variable Interest Entities". This interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements",
describes the circumstances under which a variable special purpose entity
is to be consolidated with entities that do not have the characteristics
of a controlling interest in the special purpose entity.
In April 2003, the FASB issued SFAS No. 149 which amends and
clarifies SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity. This
statement establishes standards for how an issuer classifies certain
financial instruments with characteristics of both liabilities and equity.
Management believes the adoption of these pronouncements will not
have a material impact on the Company.
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment consist of the following:
September 30 September 30
------------ ------------
2004 2003
xxxxxxx ---- ----
Computers $ -- $29,290
Furniture and fixtures 803 803
------- -------
803 30,093
Less: Accumulated depreciation 803 11,338
------- -------
$ -- $18,755
======= =======
Depreciation expense charged to operations was $5,972 for the year
ended December 31, 2003 and $1,457 and $3,141 for the nine months ended
September 30, 2004 and 2003, respectively. To provide state of the art
support and web interface, management, after much research, made the
decision not to buy new equipment but sign a two year contract with
Invision, Inc. to rent a portion of their servers and to trade the old
equipment in exchange for a credit to the VMWare set up fees. The Company
expensed the equipment and received a $2,600 credit. The two year contract
was signed in January 2004 and required a one time set up fee of $14,770
plus a monthly fee of $3,830 for server space rental.
NOTE 4 - INTANGIBLE ASSETS.
In connection with the December 31, 2001 private placement of the
Company's notes, the placement agent has received a fee of $27,500 through
December 31, 2001 and an additional fee of $25,000 for the year ended
December 31, 2002. The fee was charged to operations as additional
interest over the 60-day term of the notes. Amortization of these fees
charged to operations was $625 for the year ended December 31, 2003 and
the three months ended March 31, 2003.
In accordance with the American Institute of Certified Public
Accountants Statement of Position No. 98-1, "Accounting for the Cost of
Computer Software Developed or Attained for Internal Use," the Company,
since inception, capitalized costs of $247,477 of which $33,625 and
$59,830 were capitalized in 2003 and 2002. These costs consisting of
amounts paid to independent consultants related to the implementation and
enhancement of its propriety related database and interactive operating
software. The Company is amortizing these costs over their estimated
useful lives of the three years. Amortization charged to operations during
the years ended December 31, 2003 and 2002 was $59,000 and $35,584 and
$33,625 for the nine months ended September 30, 2004 and 2003,
respectively. In August 2003, the Company agreed to purchase certain
software from the entity that had been licensing the software to the
Company. The total purchase price is cash of $25,000 and options to
acquire 750,000 shares of the Company's common stock, See Note 12. The
Company received the deliverables and paid the remaining $15,000 to the
vendor in March 2004. Amortization for the additional software costs was
$26,122 for the three months ended September 30, 2004 and $53,679 for the
nine months ended September 30, 2004.
NOTE 5 - NOTES PAYABLE - BANK.
The Company has a $50,000 revolving line of credit with a bank.
Interest on borrowings is charged at 2.25% above the bank's prevailing
prime rate which was 6.75% at September 30, 2004 and 6.25% at December 31,
2003. The weighted average interest rate for the year ended December 31,
2003 and for the nine months ended September 30, 2004 was 6.50%. Interest
expense of $2,684 was charged to operations during the year ended December
31, 2003, $1,402 and $1,759 were charged to operations for the nine months
ended September 30, 2004 and 2003. At December 31, 2003 and September 30,
2004, $14,450 of the line has been utilized. The debt is guaranteed by the
current CEO of the Company and is collateralized by marketable securities
which he owns which have a fair market value of approximately $36,000 at
December 31, 2003 and September 30, 2004.
NOTE 6 - NOTES PAYABLE - OTHER.
(a) During December 2001, the Company initiated a private placement
offering to raise capital in order to fund the creation of its web
site. The offering consisted of thirteen $25,000 notes bearing
interest at 10% per annum payable in sixty (60) days from issuance.
If the notes were not repaid in full on their due dates, then each
note holder has the right to purchase 10,000 shares of the Company's
common stock at $.01 per share and then 5,000 shares at the end of
each additional thirty (30) day period the notes remain outstanding.
The variance between the purchase right's exercise price per share
and the fair value of the securities acquired will be charged to
operations as additional interest. Additionally, the placement agent
was to be paid ten (10%) percent of the proceeds of the offering,
plus out-of-pocket expenses. Amortization of deferred financing
costs is charged to operations over the sixty (60) day term of the
notes.
(b) At December 31, 2001, the Company had sold nine notes, one of which
was to its former CFO. In January and February 2002, the remaining
four notes were sold at par value. The notes were repaid with
accrued interest in July 2003. A placement agent fee of $25,000 was
paid in December 31, 2002 and is reflected on the accompanying
balance sheet as deferred financing costs. During the year ended
December 31, 2003, an additional compensatory element interest
charged to operations for the excess of the fair value of the note
holders purchase rights received over their exercise price was
$45,200. The fair value of the purchase rights was determined by
management at $.09 per share which was the ascribed fair value of
the purchase rights using the Black-Scholes Option Pricing Model for
determining fair value. During the year ended December 31, 2003, an
additional compensatory interest element for purchase rights to
acquire 345,000 common shares was charged to operations for the
excess of the fair value of the note holders' purchase rights
received over their exercise price of $169,050. The fair value of
the purchase rights was determined by management to be $.49 per
share which was the difference between the $.50 per unit price the
Company's securities were being offered to the public at the date of
issuance of the purchase rights and the $.01 per share note holders'
purchase price.
During the year ended December 31, 2002, the note holders exercised
rights to acquire an aggregate 310,000 common shares for $3,100
including the Company's former CFO who exercised rights to acquire
55,000 common shares for $550. During the year ended December 31,
2003, the note holders exercised rights to acquire 815,000 common
shares in the aggregate for $8,150. These notes and the accrued
interest were repaid in 2003.
NOTE 7 - LOAN PAYABLE - EQUIPMENT.
Equipment loan payable is comprised of the following:
September 30, September 30,
2004 2003
---- ----
Obligation under equipment financed
payable in installments of $495 including
13% interest through March 2005 $3,732 $8,425
Less: Current portion $3,732 5,148
------ ------
$ -- $3,277
====== ======
NOTE 8 - DUE TO STOCKHOLDERS.
At December 31, 2003 and June 30, 2004, the Company was indebted to
its CEO, William Bozsnyak, in the amount of $130,188 and its President,
Debbie Seaman, in the amount of $14,820 for cash working capital advances
made to the Company. These advances are non-interest bearing. In September
2004, the Company issued 520,753 shares of the Company's common stock to
William Bozsnyak and 59,280 shares of the Company's common stock to Debbie
Seaman in full repayment and satisfaction of the loans made to the Company
by William Bozsnyak and Debbie Seaman, in the amounts of $130,188 and
$14,820, respectively.
On December 30, 2003, management agreed to issue a non employee
director options to acquire 750,000 restricted shares of the Company's
common stock for business and marketing advice rendered by the director in
the last quarter of 2003. The fair value of the services rendered as
determined by both the director and management is the fair market value of
the options to be issued, as determined by utilizing the Black-Scholes
option pricing model, based upon the then selling price of restricted
shares through the Company's private placement, $0.25 per share. Such fair
value of $187,500 has been charged to operations in 2003 with a
corresponding increase in due to stockholders. The options were physically
granted on March 12, 2004 at which time the liability to stockholders was
reduced by $187,500 and additional paid-in capital was increased by
$187,500.
As of November 5, 2004, the options have not been exercised and no
stock has been issued.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES.
Accounts payable and accrued expenses consist of the following at:
September 30, December 31,
2004 2003
---- ----
Professional fees $ 31,252 $ 20,548
License costs 100,000 15,000
Estimated registration costs 200,000 --
Interest on notes payable 81 127
Consultants 2,000 25,000
Accrued Officer Payroll 89,765 --
Accrued Payroll other & payroll taxes 19,833 --
Sundry operating expenses 20,341 4,532
-------- --------
$463,272 $ 65,207
======== ========
NOTE 10 - INCOME TAXES.
The Company does not have any currently payable or deferred federal
or local tax benefit since its inception to September 30, 2004. At
December 31, 2003, the Company had a net operating loss carryforward
available to reduce future taxable income amounting to $1,588,000 of which
$131,000 expires in 2021, $557,000 expires in 2022 and $900,000 expires in
2023. Management is unable to determine if the utilization of the future
tax benefit is more likely than not and, accordingly, the asset for
federal and local carry forwards of approximately $624,000 has been fully
reserved. A reconciliation of the actual tax provision to the expected
statutory rate is as follows:
For the Nine Months Ended September 30, For the Three Months Ended September 30,
2004 2003 2004 2003
------------------------ ------------------------ ------------------------ -----------------------
Loss before income taxes ($ 915,800) ($ 587,500) ($ 273,600) ($ 107,200)
========== ========== ========== ==========
Expected statutory
tax benefits ($ 311,300) -34.0% ($ 199,800) -34.0% ($ 93,700) -34.0% ($ 36,500) -34.0%
Nondeductible expenses 89,200 9.8% 1,300 0.2% 37,900 13.8% 300 0.3%
Net operating loss
valuation reserve 222,100 24.2% 198,500 33.8% 55,800 20.2% 36,200 33.7%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total tax benefit $ -- 0.0% $ -- 0.0% $ -- 0.0% $ -- 0.0%
========== ========== ========== ========== ========== ========== ========== ==========
NOTE 11 - COMMON STOCK.
On September 5, 2001, the founding shareholders subscribed for
6,660,000 common shares for an aggregate of $6,450. The subscriptions were
paid in January, February and July 2002 and are reflected as stock
subscriptions receivable in the financial statements as at December 31,
2001.
On September 5, 2001, the shareholders of SH Networks.com, Inc.
(SHN) and the Company agreed to merge SHN into the Company. The SHN
shareholders received 6,616,910 shares of the Company's common stock in
exchange for all of the outstanding capital stock of SHN. At the date of
the merger, SHN's liabilities exceeded its assets by $131,461.
Simultaneously with the merger, certain creditors agreed to exchange
$104,075 in debts for 1,123,090 shares of the Company's common stock ($.09
per share).
On September 5, 2001, counsel for the Company accepted 100,000
shares of the Company's common stock as partial payment for services
rendered. The fair value of the services rendered and the shares at date
of issuance was $9,000 ($.09 per share).
On November 26, 2001, the individual assignees of an advertising
agreement exercised the purchase right contained in the agreement to
acquire 500,000 shares of the Company's common stock for $500. The fair
value for the securities issued was $45,000 ($.09 per share) on the date
of issuance, which was the ascribed fair value of the purchase rights
using the Black-Scholes Option Pricing Model for determining fair value.
Commencing in February 2002 through December 2002, seven note
holders exercised their purchase rights and acquired 310,000 common shares
for $3,100 in cash. During fiscal 2003, nine note holders exercised their
purchase rights for 815,000 common shares for $8,150 in cash.
In December 2003, management agreed to issue to a director options
to acquire 750,000 restricted shares of the Company's common stock as
payment for services rendered by the director. The fair value of option
for the services rendered of $187,500, as determined by the Black-Scholes
option pricing model, was charged to operations in 2003 with a
corresponding increase in due to stockholders. The options were physically
granted on March 12, 2004 at which time the liability to stockholders was
reduced by $187,500 and additional paid-in capital was increased by
$187,500.
In February 2004, Environmental Commercial Technology Corp. was
issued 2,300,000 shares of the Company's common stock and warrants to
acquire an additional 2,300,000 common shares at an initial exercise price
of $0.33 per share. The fair value of the common stock issued was
determined by the selling price of the Company's unregistered restricted
common stock on the transaction date of $0.25 per share. The fair value of
the warrants using the Black-Scholes pricing method with a 6% risk-free
interest rate and 200% volatility is $575,000.
In May 2004, three members of the Company's Advisory Board were
issued an aggregate of 130,000 shares of the Company's common stock whose
fair value on the date of issuance was $91,000. Half of these shares are
being held in escrow as the recipients will earn these escrowed shares on
a pro rata basis if they continue to serve on the Advisory Board for one
year. The other 50% was earned by the recipients when issued. Amortization
of the 50% to be earned and the initial 50% aggregated $61,361 and was
charged to operations in the nine months ended September 30, 2004.
Amortization charged to operations for the three months, was $11,375.
In May 2004, management issued 90,000 options to purchase the
Company's restricted common stock to Directors and Advisory Board Members.
The Advisory Board Members were issued 50,000 options of which 10,000 was
granted to the Chief Financial Officer who also serves on the Advisory
board. The fair value of the option as determined by the Black-Scholes
option pricing model of $487 will be accounted for under APB 25. The other
40,000 options were granted to four non employees. The fair value of the
option as determined by the Black-Scholes option pricing model of $1,949
was charged to operations with a corresponding increase to paid in
capital. An additional 40,000 options were granted to two directors who
also serve on the Audit and Compensation Committees. The fair value of
these options was $1,949 using the Black-Scholes option method and will be
accounted for under APB 25. For the three and nine months ended September
30, 2004, $1,360 and $1,949 was charged to operations for the Advisory
Board Members options. The fair value of the Chief Financial Officer's and
directors' options as determined by the Black-Scholes option pricing model
and accounted for under APB 25 was $1,360 and $1,949 respectively.
Initial Sale of the Company's Securities to the Public:
The Company entered into an agreement with a placement agent to
offer for sale to the public on a best efforts basis up to 8,000,000 units
(each consisting of one share of common stock, one warrant to purchase one
share of common stock at a price of $.75 per share and a warrant to
purchase one common share at $1.75) at $0.50 per unit, which became
effective on January 22, 2003. The placement agent was to receive 10% of
the gross proceeds from the offering plus certain warrants and
reimbursements of expenses of 3% of the gross proceeds and certain
placement agent warrants. The Company granted the placement agent and its
designee warrants which expire on December 31, 2007, to purchase up to
247,000 units at $.985 per unit for five years. Upon the exercise of a
warrant by the placement agent, the placement agent shall receive a share
of the Company's common stock, a class A redeemable warrant to purchase
one share of common stock exercisable at $.985 per share for five years
and class B redeemable warrant to purchase one share of the Company's
common stock for five years at $2.285. Management and the placement agent
consider the placement agent warrants to be additional compensation for
the agent's services in the offering. If these warrants are exercised in
whole or in part, any excess of the fair value of the securities issued
over the warrant exercise price will be reflected as cost of raising
capital and not a charge to operations and, accordingly, will be charged
to additional paid in capital. The offering which originally terminated on
June 30, 2003 was extended to July 31, 2003. The Company sold 2,474,000
units for a total gross proceeds of $1,237,000. The placement agent
received 10% of the gross proceeds from the offering, plus certain
warrants and reimbursement of expenses. Placement agent fees and
registration costs were $403,942 of which $234,681 had been paid in 2002
and 2001 and the balance of $169,311 was paid from the proceeds of the
offering. From the proceeds of the IPO the Company repaid all previously
outstanding notes totaling $475,000 and interest of $82,518. $265,719 of
the proceeds from the IPO was used to pay accounts payable and expenses.
The balance of $244,452 was used for working capital and was fully
expended to support operations.
Private Placement of the Company's Securities:
On September 8, 2003, the Company commenced a best efforts private
offering of up to 4,000,000 shares of its common stock, $0.0001 par value,
at $0.25 per share. The per share offering price was established by the
Company because of the restrictions on transfer of the shares and the fact
that prospective investors will be required to purchase a substantial
number of shares (20,000 for $5,000) in order to participate. In November
2003, the offering was increased up to 6,000,000 shares of the Company's
common stock at the same purchase price and provided that the Company may
use one or more placement agents to assist in the sale. This offering was
further extended through September 30, 2004 as well as increased to raise
$1,800,000 and to sell 7,200,000 shares of the Company's common stock.
This was primarily due to the delay in launching the Company's software
products. Each placement agent earns a commission of 10% of the proceeds
of all the shares placed by the placement agent and non-accountable
expenses of 2% of the proceeds of all the shares placed by the placement
agent. In addition to the placement agent's cash compensation, the Company
has agreed to give the placement agent warrants to purchase up to 720,000
shares of common stock at a purchase price of $.30 per share which will be
exercisable for a period of 5 years, which means that the placement agent
will receive a warrant to purchase one share of common stock for every 10
shares sold by the placement agent. For the nine months ended September
30, 2004 one Placement Agent sold a total of 1,388,000 shares for an
aggregate of $347,000 net of $41,640 in commissions. Through September 30,
2004, the same placement agent was paid in full the 10% commission and 2%
non accountable expense fee. The placement agent is entitled to receive a
warrant to purchase 172,800 common shares of the Company's stock at $0.30
per share. The offering was closed on September 30, 2004, and the warrant
was issued on October 15, 2004.
In September 2004, the Company's Chief Executive Officer, purchased
an aggregate of 400,000 shares of the Company's restricted common stock
through a private sale for a purchase price of $.25 per share. The total
purchase price was $100,000.
Stock Option Plan:
On December 15, 2003, the Company's stockholders ratified the
SearchHelp, Inc. 2004 Stock Plan ("Plan") which became effective January
1, 2004. Under the Plan, 1,500,000 shares of the Company's common stock
are reserved for issuance to employees (including officers), directors and
consultants upon exercise of options, stock awards, and stock purchase
rights. Options intended to qualify as incentive stock options ("ISO")
under Section 422(b) of the Internal Revenue Code of 1986 are to be
granted to employees only at an exercise price not less than 100% of the
fair market value of the Company's common stock at date of grant except
for employees holding more than 10% of the Company's common stock whose
option price shall be 110% of fair market value at date of grant. Options,
stock awards and purchase rights not intended to qualify as ISOs may be
granted to employees, officers, directors and consultants to the Company.
The minimum exercise price of non-qualified ISOs shall be not less than
the minimum legal consideration required under the laws of jurisdiction
where the Company was organized. The number of shares granted, terms of
exercise, and expiration dates are to be decided at the date of grant of
each option, award and purchase right by the Company's Compensation
Committee of the Board of Directors. The maximum term of an ISO is five
(5) years and ten (10) years for non-qualifying ISO. The Plan commenced on
January 1, 2004 and will terminate on December 31, 2014 unless sooner
terminated by the Board of Directors.
During the nine months ended September 30, 2004 options under the
Plan to acquire 615,590 common shares were issued to employees, officers
and directors of the Company at prices ranging from $0.47 to $0.77 which
was the average of the bid and ask of the common stock on the dates of
grant. As the Company has elected to use APB 25 for accounting for its
employee stock plan, no compensation has been recognized for its fixed
stock option plan. If the Company had determined compensation cost for its
stock option plan based on the fair value at the grant dates for awards
under the Plan, consistent with the method prescribed by FASB 123, the
Company's net loss and loss per share would have been increased by (i)
$31,092 to $946,934, ($0.04) per share for the nine months ended September
30, 2004 and (ii) $16,020 to $291,648 ($0.01) per share for the three
months ended September 30, 2004. The fair value of stock options used to
compute pro forma net income and earnings per share disclosures is the
estimated value at grant date using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected dividend yield
of 0%; expected volatility of 200%; a risk free interest rate of 6.0%; and
expected option life of 5 years.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure, an Amendment of FASB Statement No. 123" (SFAS No. 148).
SFAS No. 148 provides alternative methods of transition for companies
making a voluntary change to fair value-based accounting for stock-based
employee compensation. The Company continues to account for its stock
option plan under the intrinsic value recognition and measurement
principles of APB Opinion No. 25 "Accounting for Stock Issued to
Employees," and related Interpretations. Effective for interim periods
beginning after December 15, 2002, SFAS No. 148 also requires disclosure
of pro-forma results on a quarterly basis as if the Company had applied
the fair value recognition provisions of SFAS No. 123.
As the exercise price of all options granted under the plan was
equal to or above the market price of the underlying common stock on the
grant date, no stock-based employee compensation is recognized in net
income. The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value recognition
provisions of SFAS No. 123, as amended, to options granted under the stock
option plans and rights to acquire stock granted under the company's Stock
Participation Plan, collectively called "options." For purposes of this
pro-forma disclosure, the value of the options is estimated using a
Black-Scholes option pricing model and amortized ratably to expense over
the options' vesting periods. Because the estimated value is determined as
of the date of grant, the actual value ultimately realized by the employee
may be significantly different.
Cumulative From
For The Three Months
For The Nine Months Ended For The Three Months Ended Ended
September 30, September 30, September 30,
------------- ------------- -------------
2004 2003 2004 2003 September 30, 2004
---- ---- ---- ---- ------------------
Net loss as reported (915,842) (587,541) (275,628) (107,280) (2,881,568)
Net loss pro forma (946,934) (587,541) (291,648) (107,280) (2,912,660)
Shares - Basic 28,485,033 18,644,000 28,485,033 18,644,000 28,485,033
Basic loss per share as reported ($ 0.04) ($ 0.04) ($ 0.04) ($ 0.01) ($ 0.04)
Basic loss per share pro forma ($ 0.04) ($ 0.04) ($ 0.04) ($ 0.01) ($ 0.04)
The fair value of the Company's stock options used to compute pro forma
net income and earnings per share disclosures is the estimated value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for the nine and three months ended September
30, 2004 and 2003, respectively: expected dividend yield of 0%; expected
volatility of 200%; a risk free interest rate of 6.0%; and expected option
life of 5 years.
Presented below is a summary of the status of the stock options in the
plan and the related transactions for the nine months ended September 30,
2004.
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
Options outstanding at the
beginning of the period 595,590 $ 0.53
Granted 0
Canceled/Surrendered 20,000 $ 0.24
Exercised 0
Forfeited 0
-------
Options outstanding at the
end of the period 575,590 $ 0.53
======= =======
Options exercisable at the
end of the period 218,898 $ 0.51
======= =======
The weighted average fair value of stock options at date of grant,
calculated using the Black-Scholes option-pricing model, granted during
the nine months ended September 30, 2004 was $0.53.
The Company may issue options to purchase the Company's common stock to
officers, non-employees, non-employee directors or others as part of
settlements in disputes and/or incentives to perform services for the
Company. The Company accounts for s tock options issued to vendors and
non-employees of the Company under SFAS No. 123 "Accounting for
Stock-based Compensation." The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing
model is charged to operations utilizing weighted average assumptions
identical to those used for options granted to employees.
The following table summarizes the status of all the Company's stock
options outstanding and exercisable at September 30, 2004.
STOCK OPTIONS STOCK OPTIONS
OUTSTANDING EXERCISABLE
----------- -----------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
EXERCISE PRICES SHARES PRICE SHARES PRICE
--------------- ------ ----- ------ -----
$0.25 750,000 $0.24 750,000 $0.24
$0.33 2,300,000 $0.32 0 $0.32
$0.47 445,590 $0.46 218,898 $0.46
$0.62 750,000 $0.61 500,000 $0.61
$0.70 90,000 $0.68 22,500 $0.68
$0.77 120,000 $0.75 30,000 $0.75
--------- ----- ------ -----
Total at September 30 , 2004 4,455,590 $0.51 1,521,398 $0.51
--------- ----- --------- -----
As of September 30, 2004, outstanding options to purchase a total of
40,000 shares of the Company's common stock were granted to members of the
Company's Advisory Board in May 2004. A consultant was also granted two
options to purchase an aggregate of 750,000 shares of the Company's common
stock which are outstanding at September 30, 2004. (See note 12b). None of
the options have been exercised at September 30, 2004.
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
(a) Stock Purchase Rights:
Certain notes payable include a default penalty that entitles the
holder to purchase (i) 10,000 shares of the Company's common stock for
$.01 per share if the note is not repaid on its original due date and (ii)
5,000 shares of the Company's common stock for $.01 per share for each
thirty day period the note remains unpaid past its original due date. Each
note holder receives these purchase rights regardless of whether the
individual note holder agrees to extend the due date of the note. Through
December 31, 2002, the note holders received rights to acquire 780,000
shares of the Company's common stock at $.01 a purchase price of each. The
difference between the fair value of the common stock underlying the
purchase rights ($.09 per share, which was the ascribed fair value of the
purchase rights using the Black-Scholes Option Pricing Model for
determining fair value) and the exercise price of $.01 is charged to
operations as additional interest on the date the purchase rights are
issued. Through December 31, 2002, the note holders exercised rights to
acquire 310,000 shares of the Company's common stock. During the year
ended December 31, 2003, the note holders received additional rights to
acquire 345,000 shares of the Company's common stock at a purchase price
of $.01 per share. The difference between the fair value of the common
stock underlying the purchase rights ($.49 per share which was determined
by management as the difference between the $.50 per unit price the common
stock was then being offered to the public and the $.01 par share note
holders purchase price). During the year ended December 31, 2003, the note
holders exercised purchase rights to acquire 815,000 shares of the
Company's common stock. At September 30, 2004, no purchase rights to
acquire common shares were outstanding.
(b) Former License and Distribution Agreement.
In June 2002, the Company entered into a 5 year license agreement
with Edocusign, Inc., to be the exclusive licensee through December 31,
2003 and a non-exclusive licensee thereafter to manufacture, package,
promote, advertise, market and sell a software package designed to assist
parents to monitor their child's on-line behavior. The Company was
required to pay the licensor an initial license fee of $50,000 and
thereafter a royalty of $4 for each product sold. At December 31, 2002 the
unamortized portion of the deferred license fee was $44,167 and the
licensor was owed $50,000 which is included in accounts payable and
accrued expenses at December 31, 2002. Through August 15, 2003, the
Company paid the licensor $25,000.
Effective August 15, 2003, the parties terminated the agreement by
entering into a software purchase and services agreement. Under the terms
of this agreement the Company is not required to pay the balance owed of
$25,000 under the license agreement. The Company, under the new agreement,
will acquire the software and all related documents which it had licensed
in the June 2002 agreement. The purchase price for the software is $50,000
in cash of which $10,000 was paid at the signing of the agreement, the
Company was given a $25,000 credit for the cash paid under the old license
agreement and the balance of $15,000 was paid on March 26, 2004 on the
date of the closing. The seller also received additional compensation for
the software in the form of two options to buy a total of 750,000 shares
of the Company's common stock. The exercise price of the shares is $ .62
per share which is the average of the Company's trading prices for the
thirty (30) day period immediately preceding the effective date of the
agreement. One option to purchase 250,000 shares of the Company's common
stock is exercisable only if the Company sells 3,000,000 units of the
software in the five (5) year period immediately following the closing.
The other option to purchase 500,000 shares of the Company's common stock
is exercisable at any time up to five (5) years. The fair value of the
option for 500,000 shares at the date of grant was $290,000 which along
with the $50,000 in cash is reflected in the accompanying financial
statements as capitalized software costs of $562,477. This asset will be
amortized over its estimated useful life of three years.
The option to purchase 250,000 shares of the Company's common stock
will be reflected in financial statements upon the fulfillment of the
conditional sale of product. The agreement also requires the licensor to
perform certain consulting services for the Company for $8,000 per month
commencing in October 2003 through April 2004. The Company has extended
the agreement for an additional three months to July 2004 and currently
working on a month to month consulting basis. The consulting services
include, among other items, assistance in hiring, training and overseeing
a technical support team for the Company.
(c) Lease:
The Company is obligated under an operating lease for its office,
which expires on December 1, 2004, at an annual rent of $12,960.
(d) Employment Agreements:
On December 8, 2003, William Bozsnyak entered into an amended and
restated 3-year employment agreement with the Company. Currently, Mr.
Bozsnyak is the Chief Executive Officer and Treasurer, Vice President and
Chairman of the Board of Directors. The agreement provides for a base
salary of $80,000 and a minimum annual increase in base salary of 5% if
approved by the Board of Directors. His salary may be increased to
$150,000 per annum upon the Company's successful completion of future
sales of stock with total gross proceeds of at least $2,400,000 As of
September 30, 2004 the Company has accrued $59,998 of his compensation.
The Company has stopped accruing Mr. Bozsnyak's salary as of September 30,
2004.
On December 8, 2003, Debbie Seaman entered into an amended and
restated 3-year employment agreement with the Company. Currently, Ms.
Seaman is the President and Secretary. The agreement provides for a base
salary of $70,000 and a minimum annual increase in base salary of 5% if
approved by the Board of Directors. Her salary may be increased to
$140,000 per annum upon the Company's successful completion of future
sales of stock with total gross proceeds of at least $2,400,000. For the
nine months ended September 30, 2004, Ms. Seaman received $14,860 in
compensation. Ms. Seaman stopped receiving her salary in May, 2004. As of
September 30, 2004 the Company has accrued $27,640 of her compensation.
The Company has stopped accruing Ms. Seaman's salary as of September 30,
2004.
Both of these employment agreements will be automatically extended
each year unless either the employee or the Company gives notice. Both Mr.
Bozsnyak and Ms. Seaman will receive incentive bonuses to be determined
prior to the commencement of each year if they satisfy the criteria for
such bonuses as determined by the Company's compensation committee. Both
Ms. Seaman and Mr. Bozsnyak will be granted options to purchase up to
$200,000 worth of shares of common stock at a price equal to the midpoint
between the bid and ask price of a share of common stock on the date of
the grant from the Company's 2004 Stock Plan.
On March 18, 2004, the Company hired a part time Chief Financial
Officer, Noel C. Bonilla. Mr. Bonilla entered into an employment agreement
with the Company in which he will receive, beginning April 1, 2004, $2,000
per month salary; $1,000 per month will be deferred until the Company has
sufficient funds to pay him. Mr. Bonilla also has been granted the right
to purchase 70,000 shares of the Company's common stock under the
Company's 2004 Stock Plan at a purchase price of $0.47. The option will
vest equally each year over the next four years. As of September 30, 2004
the Company has paid Mr. Bonilla $12,000 in compensation and will pay him
$2,000 per month as long as the Company can afford to do so. Mr. Bonilla
will not receive his salary for a three month period beginning November 1,
2004 through January 31, 2005. Instead, Mr. Bonilla has agreed to take an
option to purchase 50,000 shares of the Company's common stock at a
purchase price of $.25. This option will vest in 90 days from the date of
grant and will expire in 5 years.
On March 18, 2004, the Company hired Eric Elgar as the Company's
Chief Technical Officer. Mr. Elgar entered into an employment agreement
with the Company in which he will receive, beginning April 1, 2004, an
annual salary of $100,000. Mr. Elgar is guaranteed employment for at least
six months and he also has been granted the right to purchase 150,000
shares of the Company's stock at $0.47. The option will vest fully one
year from the date of grant. Mr. Elgar will not receive his salary for a
three month period beginning November 1, 2004 through January 31, 2005.
Instead, Mr. Elgar has agreed to take an option to purchase 50,000 shares
of the Company's common stock at a purchase price of $.25. This option
will vest in 90 days from the date of grant and will expire in 5 years.