As filed with the Securities and Exchange Commission on May 9, 2005
Registration No. 333-122773
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TORBAY HOLDINGS, INC.
(Name of small business issuer in its charter)
Delaware 3580 52-2143186
(State or Jurisdiction (Primary Standard (IRS Employer
of Incorporation Industrial Identification
or Organization) Classification Number)
Code Number)
140 Old Country Road, Suite 205
Mineola, New York 11501
516-747-5955
(Address and telephone number of principal executive offices)
140 Old Country Road, Suite 205
Mineola, New York 11501
(Address of principal place of business or intended
principal place of business)
William Thomas Large
Torbay Holdings, Inc.
140 Old Country Road, Suite 205
Mineola, New York 11501
(Name, address and telephone number of agent for service)
Copies of communications to:
Darren Ofsink, Esq.
Guzov Ofsink, LLC
600 Madison Avenue, 14th Floor
New York, New York 10022
(212) 371-8008
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
TORBAY HOLDINGS, INC.
Common Stock
----------------
This prospectus relates to the resale of up to 22,888,889 shares of our
common stock by one selling stockholder, Nutmeg Group, LLC, including up to
21,500,000 shares which may be issued pursuant to the exercise of common stock
purchase warrants and 1,388,889 shares which we are obligated to issue to the
selling stockholder, but which have not yet been issued. The transactions in
which the selling stockholder acquired the rights to obtain the shares of common
stock covered by this prospectus are described in the section of this prospectus
entitled "Selling Stockholder."
The selling stockholder, by itself or through brokers and dealers, may
offer and sell the shares at prevailing market prices or in transactions at
negotiated prices. We will not receive any proceeds from the selling
stockholder's resale of the shares of common stock. The selling stockholder will
receive all proceeds from such sales. We will, in the ordinary course of
business, receive proceeds from the issuance of our common stock upon exercise
of the common stock purchase warrants.
It is not possible to determine the price to the public in any sale of the
shares of common stock by the selling stockholder and the selling stockholder
reserves the right to accept or reject, in whole or in part, any proposed
purchase of shares. Accordingly, the selling stockholder will determine the
public offering price, the amount of any applicable underwriting discounts and
commissions and the net proceeds at the time of any sale. The selling
stockholder will pay any underwriting discounts and commissions. The selling
stockholder, and the brokers through whom sales of the securities are made, will
be "underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, as amended, referred to herein as the "Securities Act".
Our common stock is traded on the over-the-counter Bulletin Board under
the symbol "TRBY.OB." On May 5, 2005 the average of the high and low prices of
our common stock on the over-the-counter Bulletin Board was $.06.
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 8.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information from that
contained in this prospectus. The selling security holders are offering to sell
and seeking offers to buy shares of our common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.
The date of this prospectus is ____________.
No person is authorized in connection with this prospectus to give any
information or to make any representations about us, the selling stockholders,
the securities or any matter discussed in this prospectus, other than the
information and representations contained in this prospectus. If any other
information or representation is given or made, such information or
representation may not be relied upon as having been authorized by us or any
selling stockholder. This prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy the securities in any circumstances under which
the offer or solicitation is unlawful. Neither the delivery of this prospectus
nor any distribution of securities in accordance with this prospectus shall,
under any circumstances, imply that there has been no change in our affairs
since the date of this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, a registration statement on Form SB-2, as
amended, under the Securities Act for the common stock offered by this
prospectus. We have not included in this prospectus all the information
contained in the registration statement and you should refer to the registration
statement and its exhibits for further information.
Any statement in this prospectus about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or document is deemed to
modify the description contained in this prospectus. You must review the
exhibits themselves for a complete description of the contract or document.
The registration statement and other information may be read and copied at
the Commission's Public Reference Room at 450 Fifth Street N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The SEC maintains a
web site (HTTP://WWW.SEC.GOV.) that contains the registration statements,
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC such as us.
You may also read and copy any reports, statements or other information
that we have filed with the SEC at the addresses indicated above and you may
also access them electronically at the web site set forth above. These SEC
filings are also available to the public from commercial document retrieval
services.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus contain some
forward-looking statements. Certain of the matters discussed concerning our
operations, cash flows, financial position, economic performance and financial
condition, including, in particular, future sales, product demand, competition
and the effect of economic conditions include forward-looking statements within
the meaning of section 27A of the Securities Act of 1933, referred to herein as
the Securities Act, and Section 21E of the Securities Exchange Act of 1934,
referred to herein as the Exchange Act.
Statements that are predictive in nature, that depend upon or refer to
future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, including projections of
orders, sales, operating margins, earnings, cash flow, research and development
costs, working capital, capital expenditures and other projections, they are
subject to several risks and uncertainties, and therefore, we can give no
assurance that these statements will be achieved.
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Investors are cautioned that our forward-looking statements are not
guarantees of future performance and the actual results or developments may
differ materially from the expectations expressed in the forward-looking
statements.
As for the forward-looking statements that relate to future financial
results and other projections, actual results will be different due to the
inherent uncertainty of estimates, forecasts and projections and may be better
or worse than projected. Given these uncertainties, you should not place any
reliance on these forward-looking statements. These forward-looking statements
also represent our estimates and assumptions only as of the date that they were
made. We expressly disclaim a duty to provide updates to these forward-looking
statements, and the estimates and assumptions associated with them, after the
date of this filing to reflect events or changes in circumstances or changes in
expectations or the occurrence of anticipated events.
We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any additional disclosures we make in our
Form 10-KSB, Form 10-QSB and Form 8-K reports to the SEC. Also note that we
provide a cautionary discussion of risk and uncertainties under the caption
"Risk Factors" in this prospectus. These are factors that we think could cause
our actual results to differ materially from expected results. Other factors
besides those listed here could also adversely affect us. This discussion is
provided as permitted by the Private Securities Litigation Reform Act of 1995.
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TABLE OF CONTENTS
Page No.
Prospectus Summary ..................................................... 5
Risk Factors ........................................................... 8
Use of Proceeds ........................................................14
Determination of Offering Price ........................................14
Selling Stockholder ....................................................15
Business ...............................................................16
Description of Property ................................................24
Selected Financial Data ................................................24
Management's Discussion and Analysis of Financial Condition
And Results of Operations ............................................25
Security Ownership of Certain Beneficial Owners and Management .........33
Directors and Executive Officers, Promoters and Control Persons ........34
Executive Compensation .................................................35
Certain Relationships and Related Party Transactions ...................36
Plan of Distribution ...................................................37
Description of Securities ..............................................38
Market Price of and Dividends on our Common Equity and
Related Stockholder Matters ..........................................39
Legal Proceedings ......................................................41
Changes in and Disagreements with Accountants ..........................41
Indemnification of Directors and Officers ..............................41
Legal Matters ..........................................................41
Experts ................................................................41
Financial Statements ...................................................42
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary does not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus, including "Risk Factors" and the consolidated financial statements
and the related notes before making an investment decision.
In this prospectus, the "Company", "we," "us," and "our" refer to (i)
Torbay Holdings, Inc. (ii) our 100% owned United Kingdom subsidiary, Designer
Appliances Limited and (iii) our 100% owned Delaware subsidiary, Designer
Appliances, Inc.
OUR COMPANY
We are a holding company for late-stage development, or early-stage
commercial companies, with opportunities in niche markets. We have acquired what
we believe to be valuable intellectual property rights, including an exclusive
license on proprietary software and a United Kingdom patent for a computer mouse
that we believe to be beneficial to computer mice users with regard to treating
and preventing repetitive strain injury. We sell and market the AirO2bic Mouse
computer mouse and E-Quill-Liberator software. Our products are designed to
justify a premium price in the upper and certain niche sectors of our markets.
Our management believes that they have identified several products, including
the AirO2bic "Grip-less" Mouse and Nib "Click-less" software, in an under
exploited opportunity in the computer, household and domestic appliances
markets. Because of our precarious financial condition and limited capital
resources, we are currently limiting our operations to the production and sale
of the AirO2bic Mouse and related software. However, when and if our financial
condition warrants it, we plan to acquire controlling interests in late-stage
development or early-stage commercial companies, with opportunities in niche
markets.
Our executive offices are located at 140 Old Country Road, Mineola, New
York 11501 and our telephone number is 516-747-5955.
We were incorporated on March 24, 1999 as a Delaware corporation named
Acropolis Acquisition Corporation. We changed our name to Torbay Holdings, Inc.
on July 14, 1999. On October 26, 1999, Torbay Acquisition Corporation ("TAC"), a
reporting company under the Securities Exchange Act of 1934, as amended, merged
into us. In the merger we issued our common stock to the former stockholders of
TAC and our common stock automatically became registered under the Securities
and Exchange Act of 1934 as a result of such transaction.
THE OFFERING
This prospectus relates to the resale by the selling stockholder of up to
22,888,889 shares of our common stock. We are obligated to issue 1,388,889 of
such shares to the selling stockholder as a result of a $50,000 equity
investment in our company made by the selling stockholder in August 2004. We
have not yet issued such shares. The issuance of such shares to the selling
stockholder will be made in reliance upon an exemption from the registration
requirements of the Securities Act provided by Section 4(2) of the Securities
Act for private transactions. 21,500,000 of the shares of our common stock
covered by this prospectus are issuable to the selling stockholder upon the
exercise of outstanding common stock purchase warrants issued to the selling
stockholder (1,000,000 of which were issued in the August 2004 transaction and
20,500,000 of which were issued pursuant to an agreement entered into in
December 2004). Additional information concerning the transactions in which the
rights to acquire the shares covered by this prospectus were obtained by the
selling stockholder are set forth in the section of this prospectus entitled
"Selling Stockholder."
5
SALES BY SELLING STOCKHOLDER
The selling stockholder may offer the common stock pursuant to this
prospectus in varying amounts and transactions so long as this prospectus is
then current under the rules of the SEC and we have not withdrawn the
registration statement. The offering of common stock may be through the
facilities of the over-the-counter Bulletin Board or such other exchange or
reporting system where the common stock may be traded. Brokerage commissions may
be paid or discounts allowed in connection with such sales; however, it is
anticipated that the discounts allowed or commissions paid will be no more than
the ordinary brokerage commissions paid on sales effected through brokers or
dealers. To our knowledge, as of the date hereof, no one has made any
arrangements with a broker or dealer concerning the offer or sale of the common
stock. See "Plan of Distribution."
OUTSTANDING SECURITIES
As of May 9, 2005, there were 91,038,487 shares of our common stock
outstanding.
An investment in the shares of our company is subject to a number of
risks. We have set forth these risk factors below under the heading "Risk
Factors" which you should carefully review.
SUMMARY FINANCIAL DATA
The following table presents summary financial data for us for the five
fiscal years ended December 31, 2004. We derived the summary financial data set
forth below with respect to our statements of operations for the fiscal years
ended December 31, 2004 and 2003 and our balance sheets as at December 31, 2004
and December 31, 2003 from our consolidated financial statements that are
included elsewhere in this prospectus. We derived the summary financial data for
us at December 31, 2002, 2001 and 2000 and for the years then ended from our
consolidated financial statements which are not included in this prospectus. You
should read the following summary financial data in conjunction with the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.
6
For the Fiscal Year Ended December 31,
--------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Net sales $ 344,525 $ 137,944 $ 3,553 -- --
Loss from operations $ (318,201) (513,551) (968,912) (401,616) (420,265)
Net loss $(1,127,727) (874,816) (1,571,853) (418,184) (420,265)
Total assets $ 212,699(1) 180,322(2) 263,842(3) 24,060(4) 43,313(5)
Total liabilities $ 542,115(1) 909,338(2) 786,289(3) 372,597(4) 314,623(5)
(1) As at December 31, 2004
(2) As at December 31, 2003
(3) As at December 31, 2002
(4) As at December 31, 2001
(5) As at December 31, 2000
The reporting currency of the Company is the U.S. dollar.
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RISK FACTORS
This offering involves a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and other
information and our consolidated financial statements and related notes included
elsewhere in this prospectus. If any of the events described below actually
occur, our profitability may decline or we may incur losses, which in turn could
cause the price of our common stock to decline, perhaps significantly. This
means you could lose all or a part of your investment.
Risks Related to Our Business:
We have had losses since our inception. Although our loss from operations for
the year ended December 31, 2004 was less than that for the same period in 2003,
there still is a risk we may never become profitable.
We had a net loss of $1,127,727 for the fiscal year ended December 31,
2004 relative to a net loss of $874,816 for the fiscal year ended December 31,
2003. We had a loss from operations of $318,201 for the fiscal year ended
December 31, 2004 compared to a loss from operations of $513,551 for the fiscal
year ended December 31, 2003. Although we increased revenue and gross profit in
2004, which contributed to the reduction of the loss from operations, we
anticipate that we will incur operating expenses in connection with continued
development, testing and manufacturing of our proposed products, and expect
these expenses will result in continuing and, perhaps, significant, operating
losses until such time, if ever, that we are able to achieve adequate product
sales levels.
There is uncertainty as to our continuation as a going concern.
Our audited financial statements for the year ended December 31, 2004
reflect a net loss of $1,127,727, a negative cash flow from operations of
$143,705, a working capital deficiency of $461,294 and a stockholders'
deficiency of $329,416. These conditions raise substantial doubt about our
ability to continue as a going concern if sufficient additional funding is not
acquired or alternative sources of capital are not tapped to meet our working
capital needs. We need approximately $500,000 to fund our operations for the
fiscal year ending December 31, 2005. Our ability to continue our operations, in
the absence of significantly increased revenues from sales and a resulting
positive cash flow, is dependent upon receiving sufficient additional capital
financing. If we continue to incur losses and fail in obtaining additional
funding, we may not be able to fund continuing business operations, which could
lead to the curtailment or closure of some or all of our operations.
Funding for our capital needs is not assured, and we may have to curtail our
business if we cannot find adequate funding.
During the year ended December 31, 2004, we received equity financing in
an amount of $236,940. We also borrowed an aggregate of $52,020 from one lender
and in November 2004 borrowed $45,957 from our Chief Executive Officer. We
currently have no legally binding commitments with any third parties to obtain
any material amount of additional equity or debt financing. We may not be able
to obtain any additional financing on acceptable terms or at all. Our ability to
obtain debt financing may be particularly unlikely because we have limited
assets to use as collateral security for the loan. As a result, we may not have
adequate capital to implement future expansions, maintain our current levels of
operation or to pursue strategic acquisitions. Our failure to obtain sufficient
or any additional financing could result in the delay or abandonment of some or
all of our development plans, which could harm our business and the value of our
common stock.
8
Our current and potential competitors, some of whom have greater resources and
experience than we do, may develop products and technologies that may cause
demand for, and the prices of, our products to decline.
The general appliances industry as well as the general computer products
industry include numerous companies which have achieved substantially greater
market share than we have, have longer operating histories, have larger customer
bases, and have substantially greater financial, development and marketing
resources than we do. Although at this time there are no other competitors who
state they are providers of a Grip-less or Click-less computer mouse products as
we do, we expect our competition to intensify as new research and development is
going on. Existing or future competitors may develop or offer products that are
comparable or superior to ours at a lower price, which could negatively affect
our business, results of operations and financial condition.
As a developer in the computer appliance industry, we may experience substantial
cost overruns in manufacturing and marketing products, and we may not have
sufficient capital to successfully complete the development and marketing of any
of our products.
In the general appliances industry and general computer products industry
the commercial success of any product is often dependent on factors beyond the
control of the company attempting to market the product, including, but not
limited to, market acceptance of the product and whether or not retailers
promote the products through prominent shelving and other methods of promotion.
We may experience substantial cost overruns in manufacturing and marketing our
products, and may not have sufficient capital to successfully complete any of
our projects. We may not be able to manufacture or market our products because
of industry conditions, general economic conditions and competition from
existing or new manufacturers and distributors.
We are largely dependent on key personnel, the loss of which could harm our
prospects.
We depend, to a large extent, on the abilities and participation of our
current management team, including William Thomas Large, our President and Chief
Executive Officer. The loss of the services of any of our key personnel, for any
reason, may have a material adverse effect on our prospects. There can be no
assurance in this regard nor any assurance that we will be able to find a
suitable replacement for such persons. We carry a $1.0 million life insurance
policy covering Mr. Large, but do not carry life insurance for any other key
personnel.
If we are not able to contract with retail outlets to sell our products, we may
not be able to continue to operate.
We intend to market our AirO2bic Mouse and E-Quill-Liberator Software
products through upscale department stores, boutiques and designer outlets. We
do not currently have any arrangements or agreements with any such stores to
carry our products once produced. We may not be able to locate retail outlets to
stock our products, and even if we are successful in doing so, such outlets may
not give our products sufficient marketing support such as shelving space
prominence.
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If we do not continue to succeed in establishing effective sales, marketing and
distribution systems, we will not expand our business sufficiently to achieve
profitability.
We commenced limited sales of our ergonomic products, the Quill
`grip-less' Mouse and related products, in 2002. The products are designed to
justify a premium price in the upper and certain niche sectors of our market.
Total sales of these products in 2002 and 2003 were $3,553 and $137,944,
respectively. We had total revenues of $344,525 for the fiscal year ended
December 31, 2004. Although we had increases in sales and gross profit during
the year ended December 31, 2004, there can be no assurance that such increases
will continue.
To increase market awareness and expand our products, we must establish
effective sales and marketing for our product offerings. To date, we have a
limited number of personnel devoted to sales of these products, and have made
only limited sales, primarily based on efforts by members of management. We
intend to expand our customer base through sales of the mouse and related
products. Our future profitability depends, in part, on increasing sales of our
products abovementioned and developing new products.
We may be sued for product liability and our product liability insurance may not
be adequate.
We carry product liability insurance coverage in the aggregate amount of
$1 million for our subsidiary, Designer Appliances, Inc. There can be no
assurance, however, that such insurance policies will be sufficient to fully
indemnify us against any asserted claims or that such insurance will continue to
be available.
While we have limited product liability insurance to protect against this
risk, adequate insurance coverage may not be available at an acceptable cost, if
at all, in the future and a product liability claim or product recall could
materially and adversely affect our business. Inability to obtain sufficient
insurance coverage at an acceptable cost or otherwise to protect against
potential product liability claims could prevent or inhibit the
commercialization of our products. If we are sued for any injury allegedly
caused by our products, our liability could exceed our total assets and our
ability to pay the liability.
We may not be able to protect our patents, trademarks and proprietary and/or
non-proprietary rights, and, we may infringe upon patents, copyrights,
trademarks and proprietary rights of others.
Notwithstanding the pending registration of certain trade names with the
United States Patent and Trademark Office, and the grant of a patent and trade
marks by the United Kingdom Patent Office, we may not have the resources to or
otherwise be able to enforce our rights against infringers. If we are not able
to prevent competitors from using the same or similar names, marks, concepts or
appearances, our business and financial conditions may be negatively impacted.
10
Our software products were developed by independent contractors. However,
we have no confidentiality agreements, invention assignment agreements, conflict
of interest declarations or non-competition agreements with the contractors. The
lack of the above mentioned agreements raises the risk of potential infringement
of our intellectual property rights by others including the independent
contractors and may limit our ability to enforce our intellectual property
rights.
We may, in the future, issue additional shares of our common stock which would
reduce the percentage ownership of our existing shareholders.
Our certificate of incorporation authorizes the issuance of 100,000,000
shares of common stock, par value $.0001 per share, and 20,000,000 shares of
preferred stock, par value $.0001 per share.
On August 1, 2003, the Board of Directors authorized an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares from 120,000,000 shares (100,000,000 of common and 20,000,000 of
preferred) to 520,000,000 shares (500,000,000 of common and 20,000,000 of
preferred). A meeting of the shareholders to consider approval of the amendment
has not yet been scheduled and such approval has therefore not yet been
obtained.
The future issuance of all or part of our remaining authorized common
stock may result in substantial dilution in the percentage of our common stock
held by our then existing shareholders. Our existing shareholders do not have
any preemptive rights to purchase shares that may be offered. The value of any
common or preferred stock we may issue in the future shall be determined by our
Board of Directors and may be less than the current market value or book value
of such shares. The issuance of common stock for future services or acquisitions
or other corporate actions may have the effect of diluting the value of the
shares held by our investors, and may lower the price of our common stock.
No Cash Dividends Are Expected in the Foreseeable Future.
We have never declared or paid any cash dividends. We do not intend to
declare or pay cash dividends in the foreseeable future. We intend to retain any
earnings that we may realize in the future to finance our operations. The
payment of any future dividends will be subject to the discretion of the Board
of Directors and will depend upon the Company's results of operations, financial
position and capital requirements, general business conditions, restrictions
imposed by financing arrangements, if any, legal restrictions on the payment of
dividends and other factors the Board of Directors deems relevant.
Since our common stock is listed on the OTC Bulletin Board, which can be a
volatile market, our investors may realize a loss on the disposition of their
shares.
Our common stock is quoted on the OTC Bulletin Board, which is a more
limited trading market than the Nasdaq SmallCap Market. Timely and accurate
quotations of the price of our common stock may not always be available and
trading volume in this market is relatively small. Consequently, the activity of
trading only a few shares may affect the market and result in wide swings in
price and in volume. The price of our common stock may fall below the price at
which an investor purchased shares, and an investor may receive less than the
amount invested if the investor sells its shares. Our shares of common stock may
be subject to sudden and large falls in value, and an investor could experience
the loss of the investor's entire investment.
11
Investors may not be able to enforce securities or other claims against one of
our officers and directors or against our assets.
One of our officers and directors has a primary residence outside the
United States. We anticipate that a substantial portion of the assets that may
be developed or acquired by us will be located outside the United States and, as
a result, it may not be possible for investors to effect service of process
within the United States upon such person, or to enforce against our assets or
against such person judgments obtained in United States courts predicated upon
the liability provisions, and most particularly the civil liability provisions,
of the United States securities laws or state corporation or other laws.
Risks Related to Our Common Stock:
Because the Price of Our Common Stock May Vary Widely, When You Decide to Sell
It, You May Encounter a Delay or Have to Accept a Reduced Price.
The price of our common stock may fluctuate widely, depending on many factors.
Some of these factors have little to do with our operating results or the
intrinsic worth of our products. For example, the market value of our common
stock may be affected by the trading volume of the shares, announcements of
expanded business by us or our competitors, operating results of our
competitors, general trends in the general computer products industry, general
price and volume fluctuations in the stock market, acquisition of related
companies or variations in quarterly operating results. Also, if the trading
market for our common stock remains limited, that may exaggerate changes in
market value, leading to more price volatility than would occur in a more active
trading market. As a result, if you want to sell your common stock, you may
encounter a delay or have to accept a reduced price.
If we fail to remain current in our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13 of such Act, in order to
maintain price quotation privileges on the OTC Bulletin Board. If we fail to
remain current on our reporting requirements, we could be removed from the OTC
Bulletin Board. As a result, the market liquidity for our securities could be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market.
Our directors and executive officers beneficially own approximately 7% of our
common stock; their interests could conflict with yours; significant sales of
stock held by them could have a negative effect on our stock price.
12
As of April 29, 2005, our executive officers, directors and affiliated
persons beneficially owned approximately 7% of our common stock. As a result,
our executive officers, directors and affiliated persons may have significant
influence in:
o electing or defeating the election of our directors;
o amending or preventing amendment of our certificate of incorporation
or bylaws;
o effecting or preventing a merger, sale of assets or other corporate
transaction; and
o controlling the outcome of any other matter submitted to the
stockholders for vote.
As a result of their ownership and positions, our directors and executive
officers collectively are able to significantly influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors and executive officers, or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.
Our common stock is subject to the "Penny Stock" rules of the SEC and the
trading market in our securities is limited, which makes transactions in our
stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
13
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
USE OF PROCEEDS
We will not receive any of the proceeds from the selling stockholder's
sale of the shares offered under this prospectus.
DETERMINATION OF OFFERING PRICE
We are not selling any of the common stock that we are registering. The
common stock will be sold by the selling stockholder listed in this prospectus.
The selling stockholder may therefore sell the common stock at the market price
as of the date of sale or a price negotiated in a private sale. Our common stock
is traded on the over-the-counter Bulletin Board under the symbol "TRBY.OB." On
May 5, 2005 the reported closing price for our common stock on the
over-the-counter Bulletin Board was $.06.
14
SELLING STOCKHOLDER
This prospectus relates to the offer and sale of our common stock by the
selling stockholder identified below. The selling stockholder will determine
when it will sell its common stock and in all cases, will sell its common stock
at the current market price or at negotiated prices at the time of the sale. We
will not receive any proceeds from the sale of the common stock shares by the
selling stockholder. The following table sets forth certain information
regarding the beneficial ownership of our securities as of the date of this
prospectus by the selling stockholder.
- ------------------------------------------------------------------------------------------------------------------------
Name and Relationship to Us Securities Percentage Securities to Amount of Percentage of
Beneficially Ownership be Offered Securities to be Securities to
Owned Before Offering for Selling Held After be Held After
Before (1) Stockholder's Offering (2) Offering (2)
Offering Account
- ------------------------------------------------------------------------------------------------------------------------
Nutmeg Group, LLC 22,888,889 20.3% 22,888,889 0 0
3246 Commercial Avenue (3)
Northbrook, Illinois 60062
- ------------------------------------------------------------------------------------------------------------------------
(1) Based on 91,038,487 shares of common stock outstanding as of April 29,
2005.
(2) Assumes the sale of all shares of common stock offered by the selling
stockholder.
(3) Includes 21,500,000 shares of common stock which may be issued to Nutmeg
Group, LLC upon its exercise of currently exerciseable warrants and
1,388,889 shares of common stock which we are obligated to issue to Nutmeg
Group, LLC, but which have not yet been issued.
During August 2004 Nutmeg Group, LLC ("Nutmeg") paid us $50,000 pursuant
to a stock subscription and we became obligated to issue 1,388,889 shares of
common stock to Nutmeg pursuant to this subscription. The shares are classified
as shares to be issued on our balance sheet at December 31, 2004. The number of
shares to be issued to Nutmeg were determined by dividing $50,000 by 60% of the
average closing bid price of our common stock for the five trading days prior to
the closing of the investment by Nutmeg. We recorded a financing cost of $33,333
related to this discount. Additionally, we issued to Nutmeg 1,000,000 common
stock purchase warrants, consisting of 500,000 warrants with an exercise price
of $0.08 per share and 500,000 warrants with an exercise price of $0.12 per
share. The warrants will expire December 31, 2008.
On December 16, 2004 we granted 20,500,000 common stock purchase warrants
to Nutmeg. The warrants were issued to Nutmeg partially in consideration of
Nutmeg waiving any defaults, including payment of accrued interest, relating to
a $57,800 loan made to us by Nutmeg in August 2004.The warrants were also issued
in order to raise equity financing. The warrants are exercisable immediately and
expire if unexercised by December 31, 2009. The exercise prices of the warrants
range from $0.03 to $0.13. Upon the registration under the Securities Act of
1933, as amended, of the resale by Nutmeg of the shares of common stock which
are issuable to Nutmeg upon exercise of these warrants, we can force Nutmeg to
exercise the warrants, provided that Nutmeg would not be obligated to pay us
more than $75,000 within any 30 day period with respect to the exercise of such
warrants. We will not be eligible to demand exercise of any warrants unless, the
closing bid price of our common stock was at least 50% more than the applicable
exercise price of the warrants, for the full thirty day period prior to our
giving notice to Nutmeg of our exercise of our right to demand the exercise of
the applicable warrants and for 30 days after the notice is given and the
average daily dollar trading volume for our common stock for the thirty day
period prior to the notice is at equal to or greater than the aggregate exercise
price of the warrants we demand to have exercised.
15
This prospectus covers the resale by Nutmeg of the shares of our common
stock which may be acquired by Nutmeg as described in the preceding two
paragraphs. Except for the investments made by Nutmeg in our company in 2004
which are described above Nutmeg has had no other relationship with our company
or any of our affiliates.
BUSINESS
Products
E-Quill-AirObic Computer Mouse and E-Quill-Liberator Software
Our two main products are a computer mouse which we market under the name
AirO2bic Mouse (but also is sometimes referred to in this prospectus as the
AirObic Mouse, the E-Quill AirObic Mouse, the E-Quill AirO2bic Mouse or the
Quill Mouse) and E-Quill-Liberator Software (which includes Nib software for
PC's and McNib software for Macintosh). The E-Quill-AirObic Mouse is a
"grip-less" computer mouse which allows the user to move a cursor to any point
on the screen without having to grip the mouse with the muscles of the hand. The
E-Quill-AirObic Mouse design maintains the hand in a "functional neutral"
position, one in which the muscles of the hand are kept under a constant, but
reduced tension, allowing for normal blood flow and resulting in less fatigue.
We believe that no comparable product is offered by any other company.
The E-Quill-Liberator Software which controls the E-Quill-AirObic Mouse
enables the user to operate the mouse without clicking. This helps reduce the
mechanical burden of pressing mouse buttons. We intend to use the combination of
our mouse and software bundled together as the "VHF system" (virtually hands
free) to allow the user to control the cursor through minimal use of the muscles
of the hand. The Virtually Hands Free mousing system allows for conventional
mousing techniques without the need for muscle activity forward of the elbow.
This enables those with reduced dexterity of most kinds to be able to use the
full features of their software, including and especially an easier and fuller
Internet experience. With the VHF System, upper arm muscles are used to move and
point the mouse. There is no need to grip or click. Some persons with tremors
may find that they can avoid unintentional clicking, since using the VHF System
they are able to maneuver without fingers being in close proximity to mouse
buttons.
The E-Quill-AirObic Mouse will help to alleviate the strain of computer
mouse usage by untwisting the wrist and avoiding what is called static posture.
This is when a constant grip is maintained, the excessive use of which is now
reported as correlating with computer mouse related injuries. We believe that in
many cases the VHF System can break the cycle of a user receiving therapy and
then returning to work to perform a task, like mousing, that is likely to negate
or delay the impact of the benefits of the treatment just received. We believe
that with our products many people can heal sooner, saving pain and money.
16
Some experts consider that using an ordinary mouse for more than 20 hours
a week will likely lead to an injury within 2-5 years. Muscles that are tensed
and then relaxed over short time intervals as when typing are considered as at
less risk, as they are in what is called a dynamic posture. When muscles are
tensed blood is squeezed out and they can require up to 50 times more oxygen.
Only when a muscle relaxes can full blood flow resume and oxygen concentrations
return to an "at rest" level. As with all physical work and in the absence of
other factors that can affect some individuals, while dynamic postures can and
do cause hands to tire, they are less likely to lead to injury if that posture
were the only one employed while computing.
Muscles that are tensed and held tense for longer periods of time (maybe
minutes or more; continuous and contiguously) are said to be in static posture.
This is the posture that has to be used to some degree in order to grip an
ordinary mouse including other so-called "vertical mice". This "non-neutral"
posture is the basis for an expectation of injury and that is supported by the
observation that many computer users start with problems in their mousing arm.
As a result of mousing, flexibility in the wrist can be reduced and the
ability to twist the wrist decreases. The body then compensates by sticking out
the elbow, which, due to a wrist twist limitation, mechanically re-orientates
the hand so as to allow it to be placed flat on a palm down mouse. This
"postural compensation" as it is called, in forcing the arm/elbow further away
from the body, places extra "physical load" on the shoulder joint that can
develop into conditions across the neck and shoulders that are not always
associated with, but are often due to, mousing palm down.
We are continuing to improve our E-Quill-Liberator Software. We believe
that our software will help manage injuries typically associated with using a
computer mouse such as cumulative trauma disease or repetitive strain injury and
carpal tunnel syndrome. This mouse driver software will have a user
de-selectable default that prompts users to take a 15 minute break every two
hours, which is a recommendation of the United States Occupational Safety and
Health Administration.
The E-Quill-Liberator Software suite will extend fatigue management and
make recommendations as to how users might seek to alleviate observed sensations
in specific limb zones by offering a series of exercises. The information,
securely contained on the user's personal computer, would be used to suggest
breaks and exercises customized to suit an individual's body mechanics.
Since 2002 we have introduced the following new products:
o Introduced in 2002: Quill "grip-less" mouse, which allows the user to
mouse without the need to grip, which is indicated as a contributory
factor in those who develop functional impairments such as repetitive
strain injury or carpal tunnel syndrome.
17
o Introduced in 2003: Nib "click-less" software, which performs a high
percentage of computer mouse button clicks for its users and, subject to
its effective utilization, can aid those with functional impairment due to
injury and is also classified as assistive technology.
o Introduced in 2003: Nib Trial version: This is a 30-day active version of
Nib software which is freely downloaded from our website.
o Introduced in 2004: The Quill Well Mouse mat: Completes the "system
approach" and helps to promote a permanent visual image of our products in
the user's environment.
o Introduced in 2003: The Virtually Hands Free (VHF) mousing system: A
bundle of the Quill Mouse and Nib Software that allows the user to elect
not to use most of his muscles forward of his elbow, but still mouse and
interact with his computer in a conventionally recognized manner.
o Introduced in 2003: Carpal Management Systems I & II: A bundle of the VHF
system and one (System I) or two (System II) FlexTend orthotic gloves that
facilitate the use of a recognized and medically validated therapy
exercise glove with a mousing system that gives relief from the type of
activity that some consider to cause clawing of the hand due to mousing.
o Introduced in 2004: Nib (for PC's) "click-less" software, with Gesture
technology, which enhances the previous version by allowing the selection
of different click types by the movement of the mouse cursor. To gesture a
right click the mouse cursor is moved to the right and back, to gesture a
double click, to the left and back or to highlight or drag, the mouse is
moved downward and back.
o Introduced in 2004: Nib (for PC's) Trial version with Gesture Technology:
This is a 30-day active version of Nib software which is freely downloaded
from our website.
o Introduced in 2004: McNib (for Macintosh) "click-less" software, with the
Gesture technology described above.
o Introduced in 2004: McNib (for Macintosh) Trial version with Gesture
Technology: This is a 30-day active version of McNib software which is
freely downloaded from our www.quillmouse.com website.
o Introduced in 2004: The McVirtually Hands Free mousing system for
Macintosh ("McVHF"): A bundle of the Quill Mouse and McNib Software with
Gesture technology that allows the user to elect not to use most of his
muscles forward of his elbow, but still mouse and interact with his
computer in a conventionally recognized manner.
o In March 2004, following an independent review by a designer, health care
professionals and persons with arthritis, the Arthritis Foundation in the
U.S. have given an Ease of Use commendation to the Virtually Hands Free
Mousing system and under a licensing agreement we are permitted to use the
Arthritis Foundation's Ease of Use logo as a graphic indication of the
commendation. This commendation makes the VHF System the first to be
recognized as being Assistive to persons with a clinical disability.
18
o Introduced in 2004 "The Clickless Web": This is a development on our
Clickless software. The Clickless software, an application that performs
mouse button clicks for the user, is a computer resident program that
requires installation upon the user's computer following purchase. One
element of the computer resident software is the ability to click links
and other functions which enables interaction with the Internet, so as to
be able to surf it and store files etc., from it. This new development, as
a product called among other names, "The Clickless Web", takes the "web
surfing and interacting" component of the computer resident software, and,
using a webpage application tool called "Active X", allows these features
to be accessed temporarily when a website, empowered with the feature, is
enabled. This type of application known as "tools on demand" is considered
a future direction and application of the Internet in which there is less
requirement for software to be loaded onto a computer, or hand held
device. Such applications as needed, are accessed on demand, and can be
potentially prepaid as a service, or rented for the duration of their use.
This feature could increase the portability of applications and also
decrease memory requirements and hard disk management of Internet
connected devices. The Clickless Web is our first product in this
potential growth area. Prior to its launch and in keeping with our
strategy, we filed a world-wide patent application on this technology.
At this time there exist two demonstration sites for this technology ---
www.theclicklessweb.com and www.theassistiveweb.com --- both of which link to an
identical page.
o In November 2004 the E-Quill-AirObic product was introduced that provided
customers with a color choice option that in our opinion matches current
system sales trends of Black or White.
The Assistive Web site will be focused upon generating income from large
corporations such as banks, search engines, web retailers, assistive technology
websites and other high traffic websites. Pricing on this product has yet to be
established and no income from either of these websites can be anticipated as
yet.
o Planned for Introduction in 2005: SooToSee; currently in Alpha (in-house)
testing, this software is designed as a dynamic magnification system to
assist those who need such assistance for observing computer screens, so
as to enhance their accuracy of pointing the computer mouse cursor, or
help in reading small text as is frequently the case with computer program
menus and text on the internet. This is as an aid to vision and does not
replace the need of use of spectacles, though it is envisaged that it will
find application for those with severe sight impairment. This is part of a
new software development package.
o Planned for Introduction in 2005: SooToSpeak; currently in late
development stage. This software is designed as convert HTML text, such as
is used on Internet web pages and now more commonly in email systems and
program menu systems, into an audible speech output, utilizing existing
and proprietary to others, voice synthesis systems such as the "supplied
as standard" Windows XP voice "Microsoft SAM".
Section 508 Amendments to the 1998 Rehabilitation
The General Services Administration ("GSA") implemented a program that sets
standards for information technology so as to make such technology accessible to
those with special needs. The standards are applied under what is called Section
508, which are described in full at www.section508.gov details pertaining to our
products can be found at www.quillmouse.com under the heading GSA Section 508.
19
These standards include a section relating to input devices, such as computer
mice and under item 1194.26 and 1194.23 standards are prescribed for input
devices. Companies that consider their products to comply to such standards can
apply to have their products listed on the section508.gov website by completion
of disclosure forms that are then inspected and their information then listed if
considered compliant. The GSA then provides access to the product and company
information on the website. The Company, having evaluated the standard and
believing that its products complied, submitted its applications for its mouse
and the Virtually Hands Free Mousing System (mouse and software bundle), which
were subsequently processed and as of April 2003, were listed on the Section 508
website under the Company's assertions as to compliance.
To our knowledge, there have been no other products listed on the website
by other companies that may be considered to be competitive to our products, be
they niche ergonomic computer mice or mass-market supplier computer mice. We
were therefore active in the development of the potential such a listing has for
opportunity to sell product to the U.S. Government under this provision. It
should be understood that this listing is not an endorsement or recommendation
but an information source for those who work or have needs in this are to help
them make their decisions thereby.
Other Products we may Market in the Future
We are developing certain other products discussed below. However, due to our
current lack of capital, we are not focusing on such development at this time.
Telstar I Designer Vacuum Cleaner. The Telstar I Designer Vacuum Cleaner is a
rocket shaped cylinder vacuum cleaner made of polished aluminum and
incorporating the latest in filtration technology. It is bagless and features
the High Efficiency Particle Arrester medical grade filter that removes
allergens in dirt associated with asthma. It has a large (50ft.) cleaning radius
that typically allows cleaning an entire floor without stopping. Early versions
of the Telstar have obtained British and European approvals for German TUV
standards, which relate to electrical safety and manufacturing practices.
Telstar II Designer Vacuum Cleaner/Table. This product is a combination of the
Telstar I vacuum cleaner with a glass tabletop accessory. When not in use, the
vacuum cleaner serves as a base for the glass tabletop and the entire unit
appears as an attractive and functional coffee table. This product is designed
for an environment where storage space is at a premium. We are considering
marketing this product under the name "Sputnik" or as the "Telstar Space
Station". The tabletop model has been developed as a working prototype.
Additional expenditures will be required for testing, tooling and packaging.
Mistral I Desktop Fan. This is a desktop fan, cased in polished aluminum, which
utilizes a design similar to the Telstar I Vacuum Cleaner. The Mistral I fan is
designed and ready for manufacturing development. Further innovations being
considered for the Mistral I include voice control activations for functions
such as stop, start, speed, swivel movement, hot and cold.
20
Wurlitzer Toaster. The Wurlitzer Toaster is in the design stage and we
anticipate that it will have a "retro" theme, while incorporating modern
technology. The product is expected to have two chrome ends in the shape of fins
with central glass panels to allow for the toasting process to be observed.
Designer Appliances is also considering incorporating an FM radio with this
product for practicality.
Thalia Kettle. The Thalia Kettle will also incorporate a "retro" design in order
to be marketed with the Wurlitzer Toaster. The product is anticipated to have
instant heat delivery, rapid boil and other potentially patentable design
aspects.
Heated Hearth Screens. We intend to develop and market designer, heated hearth
screens using chrome and glass in conjunction with a flat heating element to
offer background convection heat when the fire is not being used. The concept of
heated hearth screen may also be expanded to encompass a space heater product in
the future.
Marketing
We sell our products through distributors as well as directly to the
consumer. We have adopted a strategy of "Marketing the Science" in marketing our
products in order to raise market awareness of the issues of computer mouse
injury and of the assistive technology benefits of our products. We maintain a
website (www.aerobicmouse.com) which we sell our products directly to consumers
and provide information to our distributors including the translation into
German and Swedish of informative and instructional documents.
We believe that being seen as the market innovator and an authority on
issues relating to the use of computer mice, brand recognition can be achieved
and sales to professional bodies, therapists and ergonomists can be achieved. We
also anticipate that such recognition will enable us to form strategic
relationships with other companies who do not possess such expertise, but have a
co-market existence.
We believe that our strategy has lead to our mouse products being reviewed
by a number of magazines and the placement of technical articles in corporate
ergonomic media.
Our marketing initiatives are focused on the Assistive Technology and the
Functional Impairment markets.
Another market sector that is sought to be addressed is the so called Baby
Boomers, those individuals born between 1946 and 1964, who are numerically large
in number, when considered as a single market and are now experiencing the
gradual deterioration of limbs and sensors as is commensurate with their age. A
survey commissioned by the Microsoft Corp. (www.microsoft.com/enable/research)
suggests that approximately 30M individuals in the U.S. could benefit from
dexterity enhancing technology such at ours. We believe the following scientific
developments are of significance to our business:
Researchers in the U.S. have developed an "animal model" for the
investigation of the pathology of repetitive use injuries or "Negligible Force"
injuries as they describe them. The lack of clinical validation, by way of
recognition of the pathological consequences of repetitive injuries, we believe,
impacts the opinions and therefore the actions of legislators, employers,
insurers and product manufacturers.
21
The initial results from 2 studies performed at Temple University, PA, so
far indicate clearly definable and potentially adverse changes in the pathology
of the bones and tissues of laboratory rats studied. The researchers attribute
these changes to repetitive reaching and grasping (gripping) movements and their
pathological analysis has observed significant and, in their view, detrimental
changes in histology and immunology. The results are early research, on
non-human subjects, using analyses that cannot, by their invasive nature, be
performed on live human subjects.
In a more recent development scientist in Japan are now suggesting a
correlation between intensive computer usage and the development of glaucoma, an
eye condition. This supports even further the evidence that extensive and
extended computer work is being increasingly recognized to have unforeseen
health impact upon computer users.
While there is unlikely to be an early and measurable impact upon our
business, as a result of these studies and in anticipation that further study
might confirm these early findings, we believe popular opinion may be influenced
sufficiently that may lead to a changing market environment that could create a
greater computer user health consciousness that ultimately may be beneficial to
us.
Microsoft Assistive Technology Vendor ("MATVP")
Designer Appliances Inc. was recently enrolled into the MATvp program. The
primary purpose of this program is to decrease the time from development to
market for assistive technology products.
Hewlett-Packard Assistive Technology Listing
The Hewlett-Packard Company ("HP") has listed all of our products in their
Small and Medium Business catalogue under the section of Assistive Technology.
We believe that this is a significant development as it is the first trading
relationship established with a major and mainstream computer supplier.
Seasonality of Business
In the limited time that the Company has sold its products it appears that
product sales have declined during main holiday season periods, most noticeably
during the winter holiday period.
Competition
The Company considers competition to be any other company that can
potentially divert sales dollars away from those that could be spent on our
products.
At this time the Company believes that it holds a unique position in the
computer mouse marketplace, as it is the only provider of mouse products that do
not require grip to be used and which have an associated software product that
removes the need for the mouse to be clicked.
22
Competition in the conventional computer mouse sector is typically global
by most product providers. The major producers of computer mice include, but are
not limited to, Logitech, Kensington and Microsoft.
In the "ergonomic" market, the 3M ergonomic mouse and the Contour Design
mouse products are the major computer mouse products.
Intellectual Property
We hold a United Kingdom utility patent (No. BG2328496) on the
E-Quill-AirObic Mouse and have applied for a U.S. patent on this product.
In addition, the British Patent Office has granted to us the following
design patents:
Design Registration Number
- ------ -------------------
Telstar I vacuum cleaner design protection 2066378
The tabletop design for the Telstar II,
Sputnik or Telestar Space Station 2082459
The combined vacuum and table product 2085669
The "Mistral" table top fan design 2066377
The British patents expire 20 years after the date of grant.
We have applied for an additional utility patent on our clickless web
software.
The British Patent Office has also granted the following trademark
registrations to the Company:
Name Registration Number
- ---- -------------------
Telstar 2209241
Sputnik 2209243
Mistral 2209473
Wurlitzer 2209244
23
In addition, we were granted a United States registration on the trademark
"E-Quill-Liberator" (No. 78/105096).
Employees
We have two full-time employees, including our executive officers, neither
of whom have employment agreements with us. We have also retained two part-time
consultants. Further recruitment of office support and marketing individuals are
planned in 2005.
DESCRIPTION OF PROPERTY
We lease our executive offices at 140 Old Country Road, Suite 205,
Mineola, New York 11501 under a three year lease expiring on October 31, 2006.
Theses premises consist of approximately 1,060 square feet of office space. The
monthly rental is $1,676.75 for the period ended October 31, 2004, $1,743.82 for
the period November 1, 2004 to October 31, 2005 and $1,813.57 for the period
from November 1, 2005 to October 31, 2006.
On April 16, 2002 we contracted with Dynapoint, Inc. for Dynapoint to
provide warehousing and logistics facilities at a facility in City of Industry,
California for our E-Quill-AirObic Mouse.
We believe that our properties are adequate for our current and
immediately foreseeable operating needs. We do not have any policies regarding
investments in real estate, securities or other forms of property.
SELECTED FINANCIAL DATA
The following table presents selected financial data for us for the five
fiscal years ended December 31, 2004. We derived the selected financial data set
forth below with respect to our statements of operations for the fiscal years
ended December 31, 2004 and 2003 and our balance sheets as at December 31, 2004
and December 31, 2003 from our consolidated financial statements that are
included elsewhere in this prospectus. We derived the selected financial data
for us at December 31, 2002, 2001 and 2000 and for the years then ended from our
consolidated financial statements which are not included in this prospectus. You
should read the following summary financial data in conjunction with the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.
24
For the Fiscal Year Ended December 31,
--------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Net sales $ 344,525 $ 137,944 $ 3,553 -- --
Loss from operations $ (318,201) (513,551) (968,912) (401,616) (420,265)
Net loss $(1,127,727) (874,816) (1,571,853) (418,184) (420,265)
Total assets $ 212,699(1) 180,322(2) 263,842(3) 24,060(4) 43,313(5)
Total liabilities $ 542,115(1) 909,338(2) 786,289(3) 372,597(4) 314,623(5)
(1) As at December 31, 2004
(2) As at December 31, 2003
(3) As at December 31, 2002
(4) As at December 31, 2001
(5) As at December 31, 2000
The reporting currency of the Company is the U.S. dollar.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial
condition and results of operations should be read with "Selected Financial
Data" and our consolidated financial statements and related notes appearing
elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
The actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
We are a holding company for late-stage development, or early-stage
commercial companies, with opportunities in niche markets. We currently own two
subsidiaries, Designer Appliances Ltd., an inactive United Kingdom ("UK")
company, and Designer Appliances, Inc., a Delaware corporation, and will
actively seek additional and appropriate acquisitions, subject to the comments
below. We have acquired what we believe to be valuable intellectual property
rights, including an exclusive license on proprietary software and a UK patent
for a computer mouse that we believe to be beneficial to computer mice users
with regard to treating and preventing repetitive strain injury. The UK patent
is the basis for further patent applications that may enlarge the scope and
geography of our current patent position. We have achieved what we believe are
significant technical improvements to our products that we intend to protect
with further patents, although we can give no assurance that patent applications
will be filed or, if filed, that such applications will result in our obtaining
patents.
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We sell and market the AirO2bic Mouse computer mouse and software. Our
products are designed to justify a premium price in the upper and certain niche
sectors of our markets. There is no assurance that we, through our active
subsidiary, will be able to continue to manufacture or market these items.
We intend to market and sell only products that are designed to attract a
premium, niche or upscale market. Management believes that it has identified
several products, including the AirO2bic "Grip-less" Mouse and Nib "Click-less"
software, of an under exploited opportunity in the computer, household and
domestic appliances markets. Because of our precarious financial condition and
limited capital resources, we are currently limiting our operations to the
production and sale of the AirO2bic Mouse and related software.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Gross Profit
For the year ended December 31, 2004, the Company generated revenue of
$344,525 compared to $137,944 for the year ended December 31, 2003, an increase
of $206,581 or 150%.
Cost of sales includes amortization of software, which is not
proportionate to gross sales. As a result, an increase in sales will result in
an increase in gross profit percentage. The increase in the Company's revenues
and cost of sales resulted from marketing efforts by the Company leading to
greater consumer awareness of the benefits of the Company's mouse and software
products, related system configurations, system components and accessories.
Gross profit increased 193% and was $240,636 or 70% of net revenues for
the year ended December 31, 2004 relative to $82,204 or 60% of net revenues for
the year ended December 31, 2003.
Operating Expenses
For the year ended December 31, 2004, operating expenses decreased $36,918
or 6% from $595,755 for the year ended December 31, 2003 to $558,837 for the
year ended December 31, 2004. Consulting and professional fees decreased by
$106,450 and $67,316, respectively. This aggregate decrease of $173,766 was
partially offset by increases in other areas, including rent of $46,279,
telephone charges of $7,371 and non-cash fees of $72,861, which are the result
of an increase in the sales and marketing activity of the Company.
Liquidity and Cash Position
Operating Activities
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For the years ended December 31, 2004 and 2003, the Company used $143,705
and $297,004, respectively, to fund operating activities. The decrease of
$153,299 in cash used was a result of a reduced net loss (exclusive of the
portion of the net loss attributable to financing costs - options issued),
partially offset by a net decrease in non-cash items, and a net decrease in cash
provided by operating assets and liabilities, compared to 2003.
Investing Activities
For the years ended December 31, 2004 and December 31, 2003, the Company
used $38,196 and $24,018, respectively to fund investing activities. These costs
include capital equipment purchase of computer equipment and on-going
development costs for software.
Financing Activities
For the year ended December 31, 2004 the Company realized cash of $324,717
from the private placement of restricted stock and under a loan against stock
agreement offset by the payment of $126,653 due under the debenture settlement
agreement. This compares to net cash receipts for stock issuance and notes or
loans payable in the year ended December 31, 2003 of $282,000.
Liquidity and Capital Resources
The Company, including its subsidiaries, during its development stage
incurred start-up costs, including administrative costs and research and
development costs, while realizing limited operating revenue. Revenue commenced
in late 2002 and has continued to grow to the point that the Company is now
becoming less dependent upon funding its operations from the proceeds of sales
of its securities and from loans. The retirement of the debt resulting from the
debenture settlement agreement at the end of March 2005 will further reduce the
cash burden upon the Company and at the sales growth anticipated it is
envisaged, under current operational levels, that the operations of the Company
could sustain its cash requirement independent of the need for other sources of
funds.
The Company has had, though small relative to its costs of operations and
maintaining its listing, increasing sales and revenue through December 31, 2004,
obtained through direct marketing programs, via its website and indirectly
through an increasing number of distributor/resellers who themselves have their
own websites. This strategy has been for the Company to develop product and
brand recognition amongst the "professional ergonomic" industry ahead of
investigating "niche" assistive technology markets in the broader retail sector
of the computer peripheral business. The Company is also focused upon any
opportunity to increase its sales to the US Government following clarification
that Section 508 Law does require computer mice to meet the prevailing
standards.
Access to such new markets necessarily requires partnership with
organizations that have a presence and reputation within those sectors and while
the Company has developed an increasing reliance upon distributor/resellers as
this business is now in excess of 50% of its overall sales by value the
potential for reduction in margins relative to the costs of access to those
markets in terms of time, employment of personnel and marketing is considered to
likely yield a greater return by the implementation of this strategy. As the
possibility of entrance into the retail computer market sector is considered
further, reductions in gross margin may be necessary to achieve the pricing
incentives required by such outlets. In such an event it is considered that the
increase in the volume of sales may be beneficial and thereby contribute to the
main objective of attaining profit, within the single year experience in the
pattern of business so far observed, existing distribution channels also showed
seasonality in that a lower business activity was observed during main holiday
season periods, most noticeably during the winter holiday period. This level of
business, at least, immediately returned following the end of the holiday
period.
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At the end of 2002 the Company commenced production and shipment of its
mouse product and has maintained a clear focus upon developing that business and
has no plans to launch other products outside of the computer peripheral market
at this time. It continues to seek to strengthen its Intellectual Property
Rights ("IPR") assets in the area of computer peripherals. To date the Company's
intellectual property rights portfolio includes vacuum cleaner, fans, heaters
and other intellectual property right bearing domestic appliances. The Company
will remain focused on developing sales of its Mouse and Software related
products and developing other "parallel" product technologies into products.
Going Concern Qualification
The Company's consolidated financial statements as of December 31, 2004
and for the year then ended have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. As reflected in such consolidated
financial statements, for the year ended December 31, 2004 the Company has a net
loss of $1,127,727 and a negative cash flow from operations of $143,705, and as
of December 31, 2004 the Company had a working capital deficiency of $461,294
and a stockholders' deficiency of $329,416. These factors raise substantial
doubt about the Company's ability to continue as a going concern. The ability of
the Company to continue as a going concern is dependent on the Company's ability
to raise additional funds and implement its business plan. The consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern. Management's plans include
obtaining additional financing for which they are currently in active
negotiations with several financing institutions and increasing sales of the
AirO2bic computer mouse.
Critical Accounting Policies and Estimates
Discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the amounts reported in
the consolidated financial statements and the accompanying notes. On an on-going
basis, we evaluate our estimates, including those related to intangible assets,
equity based compensation and litigation. We base our estimates on experience
and on various assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
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Accounts Receivable
Accounts receivable consist primarily of receivables from individuals and
distributors. The Company records a provision for doubtful accounts, when
appropriate, to allow for any amounts which may be unrecoverable and is based
upon an analysis of the Company's prior collection experience, customer
creditworthiness, and current economic trends.
Inventory
Inventory is stated at the lower of cost or market using the first-in
first-out method. Cost includes expense of freight-in transportation. Inventory
consists entirely of finished goods, which include left-handed and right-handed
computer mice for sale to customers. The inventory is produced by an overseas
vendor using the Company's equipment.
Revenue Recognition
The Company's products are sold directly over the internet and through
distributorships. Products sold over the internet require complete payment via
credit card prior to shipment. Products sold through distributors require the
distributor to submit a purchase order and payment (according to terms and
pricing approved by the Company) prior to shipment. Accordingly, revenues from
sales over the internet and through distributors are recognized when the product
is shipped as the price has been determined and collectibility has been
reasonably assured. Consigned inventory is not recognized as revenue until the
product has been sold by the consignee. The Company provides a warranty on goods
for two years from the date of sale. The Company has not established a warranty
reserve as of December 31, 2004 or 2003 since the amount is not material based
on past experience.
Computer Software Costs
The Company follows the AICPA's Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1), in accounting for its website and software costs. Accordingly, costs to
obtain computer software from third parties obtained for internal use are
capitalized and amortized over their estimated useful life of 5 years,
commencing in 2003. Enhancements to software are amortized over an estimated
useful life of 2 years. Costs incurred in operating a website that have no
future benefits are expensed in the period in which they are incurred.
Stock Based Compensation
The Company accounts for stock options and warrants issued to employees
using the intrinsic value based method, under which compensation cost is
measured as the excess of the stock's market price at the grant date over the
amount an employee must pay to acquire the stock. Stock options and warrants
issued to non-employees are accounted for using the fair value based method,
under which the expense is measured as the fair value of the security at the
date of grant based on the Black-Scholes pricing model.
Common stock issued as compensation is recorded based on the fair value of
the stock issued on the date of grant.
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SECTION 508 AMENDMENTS TO REHABILITATION ACT.
The General Services Administration (the "GSA") implemented a program that
sets standards for information technology so as to make such technology
accessible to those with special needs. The standards are applied under what is
called Section 508, which are described in full at www.section508.gov. Details
pertaining to our products can be found at www.aerobicmouse.com under the
heading GSA Section 508.These standards include a section relating to input
devices, such as computer mice and under item 1194.26, which relates to
subsection 1193.26- 2.0 a standard is prescribed for input devices. Companies
that consider their products to meet the standards can apply to have their
products listed within the "Buy Accessible" section of the section508.gov
website and also list a Voluntary Product Accessibility Template ("VPAT") by
which government purchasing officials can perform their own due diligence so as
to ensure the purchases they make are Section 508 compliant. The GSA Section 508
Group then provides access to the product and company information on the
website. The Company, having evaluated the standard and believing that its
products complied, submitted its applications for its hardware and software
products which were subsequently processed and listed on the Section 508
website.
Section 508 compliance has been a requirement of system purchases,
typically large contracts over $2,500, since July, 2001 whereas
"Micropurchases"- purchases less than $2,500 and typically by credit card --
have been exempt from Section 508 compliance. This exemption was due to expire
on October 1, 2004, thereby making all purchases to require Section 508
compliance. This exemption was extended on October 5, 2004 until April 1, 2005
and was designated the "final extension." The Company was made aware by third
parties that its products were no longer listed in the Section 508 website. We
had not been advised of their removal and upon inquiry we were told that
computer mice were not considered as requiring Section 508 compliance and that
our listing, by then some 18 months, was erroneous.
Following review by various bodies, at a meeting in December, 2004 the
Company's interpretation of Section 508 law, that computer mice were subject to
the standards, was confirmed and the Company's products were re-listed on the
Buy Accessible section of the www.section508.gov website.
At this time, to the Company's knowledge, there are no other products
listed on the website by other companies that may be considered to be
competitive to the Company's products, be they niche ergonomic computer mice or
mass-market supplier computer mice. The Company is therefore active in the
development of the potential such a listing has for opportunity to sell products
to the U.S. Government either directly or in partnership with other vendors who
sell to the government. It should be understood that this listing is not an
endorsement or recommendation by the U.S. Government, but an information source
for those must meet the compliance with Section 508 law.
Competition
It is the view of the board that all suppliers of computer mouse products
are potential competition. Within that principle it can be considered that there
exists direct competition, at this time considered to be companies marketing
other niche or small scale Ergonomic Products, and indirect competition or
mass-market retail competitors. The Company considers competition to be any
other company that can potentially divert sales dollars away from those that
could be spent on our products.
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At this time the Company believes that it holds a unique position in the
marketplace, as it is the only provider of mouse products that do not require
grip to be used and has an associated software product that removes the need to
be clicked. Likewise, no other competitive products, either direct or indirect
in market presence, have Section 508 compliance claims or have been reviewed and
commended for ease of use for persons with arthritis. While this position could
change, it would require competitors to expend significant product development
costs and risk potential infringement of the intellectual property rights of the
Company. These rights are undergoing extension with additional patents having
been filed on both design and utility basis in the U.S. with the intention to
extend these and other applications contemplated into PCT or world-wide patents.
The employment of an IPR strategy is considered, but not guaranteed, to
act as a barrier to entry by other providers of computer mice. It is also
considered that the market environment, in regards to the general lack of
recognition by mouse manufacturers of health issues due to mouse product usage,
precludes entries by established organizations who are outside of the directly
competitive ergonomic sector. Their entry would likely raise more risk from the
possible litigious consequence of launching a "health conscious product as, by
inference, other and previous products could be viewed as "not health
conscious". While this is opinion and cannot be relied upon as to maintain the
Company's advantage in the future, it is considered that the opportunity for the
Company to achieve a market share of 5% of the total new and replacement U.S.
computer mouse market is possible from those impaired or having some form of
disability under this market scenario. It is also the Company's intent to work
with any other who may wish to license our technology.
Since achieving a Section 508 listing, MATvp membership with Microsoft and
an Arthritis Foundation commendation, the Company has redefined its mission to
be a leading supplier of Universally Designed Assistive and Accessible
Technology computer input device products, an area that is not catered to by
mass-market suppliers. The Company believes that this sector is now on the
fringe ofopportunity for supply into a bigger market accessible by retail
distribution. Research conducted on behalf of Microsoft and found at
www.microsoft.com/enable/research under "Key Findings" on the first page states.
"57% of computer users are likely or very likely to benefit from the use of
accessible technology.
44% of computer users use some form of accessible technology.
Users seek solutions to make their computers easier to use, not for
solutions based on their health or disability.
Making accessibility options easier to discover and use will result in
computers that are easier, more convenient, and more comfortable for computer
users."
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To provide an example of the market kinetic in computer input devices: A
target of a 5% share of what is currently considered the annual new and
replacement U.S. computer mouse market would translate into approximately 2
million mice sales per year, which on a worldwide basis could relate to 10
million pieces per year. This does not contemplate earlier retirement of
computer mice and therefore possible upside due to an awareness of the issues
and our products as a result of the Company's marketing activities.
At this time there are no other competitors who state they are providers
of a Grip-less or Click-less computer mouse products or have a Section 508
listing or Arthritis Foundation commendation.
Revenues generated by sales of the mouse and software products, where and
when possible will be used to further develop sales until a cash flow positive
and profit positive position can be established at sustainable levels, thus
allowing the Company to access bank financing, thereby reducing the extent to
which the Company must rely on other sources of external financing. In the
absence of sales, the estimated amount of working capital that the Company will
need to expand the commercialization and distribution over the next year of its
products at planned operational levels, is approximately $500,000.
Recent Financings
During the fourth quarter of 2004 an officer advanced $45,957 to the
Company for working capital purposes. The advances are non-interest bearing and
are repayable upon demand.
On February 17, 2004, the Company and the holders of its outstanding
debentures entered into a Redemption and Settlement Agreement and Mutual General
Release (the "Settlement"). In accordance with the Settlement, all of the
outstanding debentures and related warrants were redeemed by the Company. The
Company issued 6,000,000 shares of common stock having a fair value of $162,000
to the debenture holders, and agreed to pay $200,000 in cash in monthly
installments of $16,667, with a present value of $189,981, commencing May 1,
2004. The Company has recorded a gain of $247,826 related to the extinguishment.
As of December 31, 2004 the balance due on the settlement was $63,328.
During August 2004, the Company received $52,020 from a financial
institution pursuant to a loan term sheet. The principal balance bears interest
at the prevailing one month LIBOR, plus 3% (4.12% at December 31, 2004) and
matures in one year. The loan is secured by 1,700,000 shares of the Company's
common stock. The collateral shares have been provided by a stockholder of the
Company. The Company incurred costs of $5,200 in connection with obtaining this
financing. This amount is being amortized over the one year term of the loan.
During March 2004, the Company sold 202,614 shares of common stock for
cash proceeds of $17,000. The cash was received in March 2004 and the shares
were issued in April 2004. The shares were sold at a discount to market value,
and a financing cost related to the discount of $4,013 has been recognized.
During the three months ended March 31, 2004 the Company issued 3,000
shares of common stock, valued at $300, for services rendered.
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During April 2004, the Company issued 161,050 shares of common stock
having a fair value of $13,689 to settle a payable to an officer in the amount
of $9,663. Accordingly, the Company has recorded a loss on extinguishment of
debt of $4,026.
During April and May 2004, the Company sold 2,005,168 shares of common
stock for cash proceeds of $126,940. The shares were sold at a discount to
market value, and a financing cost related to the discount of $44,245 has been
recognized.
During July 2004, the Company sold 37,500 shares of common stock for cash
proceeds of $3,000.
During August 2004 the Company received $50,000 pursuant to a stock
subscription which is classified as a liability on the balance sheet, "Common
stock subscribed". The purchaser will be issued common stock at 60% of the
average closing bid price on the five trading days prior to the date the
subscription was accepted. Additionally, the purchaser has received 1,000,000
common stock purchase warrants. 500,000 of such warrants have an exercise price
of $0.08 per share and 500,000 of such warrants have an exercise price of $0.12
per share. The warrants will expire December 31, 2008.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of April 29, 2005, certain information
with respect to the beneficial ownership of the voting securities by (i) any
person or group with more than 5% of the Company's securities, (ii) each
director, (iii) each executive officer and (iv) all executive officers and
directors as a group.
Name and Amount and
Address of Title of Nature of Beneficial Percent of
Beneficial Owner Class Ownership (1) Class (2)
---------------- -----
Nutmeg Group, LLC
3246 Commercial Avenue
Northbrook, Illinois 60062 Common Stock 22,888,889(3) 20.3%
William Thomas Large Common Stock 5,099,582(4) 5.6%
140 Old Country Road, Suite 105
Mineola, New York 11501
Thomas A. Marchant Common Stock 921,638 1.0%
140 Old Country Road, Suite 105
Mineola, New York 11501
Alexander Gordon Lane
140 Old Country Road, Suite 105 Common Stock
Mineola, New York 11501 743,825 .8%
All Directors and Officers of the Company Common Stock 6,765,045 7.4%
as a group (3 persons)
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(1) In general, beneficial ownership includes those shares that a person has
the power to vote, sell, or otherwise dispose. Beneficial ownership also
includes that number of shares, which an individual has the right to
acquire within 60 days (such as stock options) of the date this table was
prepared. Two or more persons may be considered the beneficial owner of
the same shares. "Voting power" is the power to vote or direct the voting
of shares, and "investment power" includes the power to dispose or direct
the disposition of shares. The inclusion in this section of any shares
deemed beneficially owned does not constitute an admission by that person
of beneficial ownership of those shares.
(2) Computed based upon a total of 91,038,487 shares of common stock
outstanding as of April 29, 2005.
(3) Includes an aggregate of 21,500,000 shares of common stock issuable upon
exercise of currently exercisable warrants and 1,388,889 shares of common
stock which the Company is obligated to issue to Nutmeg Group, LLC as a
result of a stock subscription made by Nutmeg Group, LLC and accepted by
the Company in August 2004, but which shares have not yet been issued.
(4) Includes 120,000 shares of our common stock owned by Mr. Large's minor
children. Does not include 880,000 shares which the Company has agreed to
issue to Mr. Large as described in Item 12, herein.
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
The following are the executive officers and directors of the Company as
of April 29, 2005.
Name Positions Age
---- --------- ---
Alexander Gordon Lane Chairman of the 62
Board of Directors,
Secretary
William Thomas Large CEO, President and Director 49
Thomas A. Marchant Director 56
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Alexander Gordon Lane, 62, Secretary and a Director of Torbay Holdings, Inc. has
served in such capacities since October 1999. Mr. Lane has been a Financial
Consultant since 1998 and continues in such capacity. Mr. Lane has been in the
financial services business for over 30 years. From 1976 to 1983 he served as
Treasurer of Grindlays Bank PLCC, New York, and in 1983 he was a founding member
of International Money Brokers which was acquired by Traditional North America.
From 1993 to 1998, he was a principal of Intercontinental Exchange Partners, New
York, as a capital markets broker in the interest and foreign exchange areas.
Mr. Lane has an aeronautics degree from Wandsworth Technical College in London.
William Thomas Large, 49, has been President and Chief Executive Officer since
September 2000 and a Director of Torbay Holdings, Inc. and Chief Executive
Officer of Designer Appliances since October 1998. From October 1996 until
October 1998, Mr. Large was Chairman, Chief Executive Officer, a Director and a
major stockholder of DeltaTheta Ltd., a heating and cooling technology company
in Cheshire, England. From February 1997 until September 1999, Mr. Large also
served as a director of DeltaMonitor Ltd., a medical devices company in
Cheshire, England. From December 1996 until June 1997, Mr. Large also served as
a director of SoundAlert Ltd, a company that manufactured emergency vehicle
sirens. From September 1994 until July 1996, Mr. Large was a Director of
AromaScan plc, a publicly listed instrumentation and technology company in
Cheshire, England. Mr. Large graduated from Manchester Metropolitan University,
in Manchester, England, and is the author or co-author of eight articles and two
books relating to biochemical analysis.
Thomas A. Marchant, 56, has served as a member of our board of directors since
July 11, 2002. Mr. Marchant, joined Ford Motor Company in 1985 as Financial
Sales Manager of Ford Credit Canada. Mr. Marchant directed a sales and marketing
operation to institutional investors in the Commercial Paper and Medium Term
Note Markets. In 1991 Mr. Marchant transferred to Ford World Headquarters in
Dearborn, Michigan and assumed responsibility for consolidation and launch of
the Canadian Treasury funding operation. Prior to joining Ford, Mr. Marchant
held various positions with Greenshields Incorporated, one of Canada's foremost
investment banking firms, First National Bank of Chicago, Grindlays Bank and
Merrill Lynch.
All directors hold office until the next annual meeting of stockholders
and until their successors are elected. Officers are elected to serve, subject
to the discretion of the Board of Directors, until their successors are
appointed
EXECUTIVE COMPENSATION
The following table sets forth a summary for the three fiscal years ended
December 31, 2004 of the cash and non-cash compensation awarded, paid or accrued
by us to our President and our most highly compensated officer other than the
CEO, who served in such capacities as of December 31, 2004. None of our
executive officers earned in excess of $100,000 in total annual salary.
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ANNUAL COMPENSATION LONG TERM COMPENSATION
Awards Payouts
Other Restricted Securities
Annual Stock Underlying All
Year Compen- Awards Options/ LTIP Other
Name Position Ended Salary($) Bonus($) sation($) $ SARS Payouts Compensation
---- --------- ----- --------- -------- --------- ---------- ---------- ------- ------------
William Thomas CEO 12/31/2004 $51,280 0 0 0 0 0 0
Large
CEO 12/31/2003 $52,918 0 0 0 0 0 0
CEO 12/31/2002 $47,664 0 0 0 0 0 0
Alexander Gordon Chairman 12/31/2004 $30,775 0 0 0 0 0 0
Lane and
Secretary
Chairman 12/31/2003 $29,700 0 0 0 0 0 0
and
Secretary
Chairman 12/31/2002 $28,697 0 0 0 0 0 0
and
Secretary
Employment Agreements
We have not entered into any employment agreements with our executive
officers or other employees to date. We may enter into employment agreements
with them in the future.
Director Compensation
Directors do not receive cash compensation for their services to us as
directors, but are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In November 2004, William Thomas Large, a Director and the Chief Executive
Officer of the Company, sold an aggregate of 880,000 shares of common stock of
the Company for net proceeds of $45,956.65 and immediately loaned such amount to
the Company. In order to repay the loan the Company has agreed to issue to Mr.
Large 880,000 shares of common stock.
PLAN OF DISTRIBUTION
The selling stockholders may sell the common stock directly or through
brokers, dealers or underwriters who may act solely as agents or may acquire
common stock as principals. The selling stockholder may distribute the common
stock in one or more of the following methods:
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o ordinary brokers transactions, which may include long or short
sales;
o transactions involving cross or block trades or otherwise on the
open market;
o purchases by brokers, dealers or underwriters as principal and
resale by these purchasers for their own accounts under this
prospectus;
o "at the market" to or through market makers or into an existing
market for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales made through
agents;
o through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise); or
o any combination of the above, or by any other legally available
means.
In addition, the selling stockholders may enter into hedging transactions
with broker-dealers who may engage in short sales of common stock, or options or
other transactions that require delivery by broker-dealers of the common stock.
The selling stockholders and/or the purchasers of common stock may
compensate brokers, dealers, underwriters or agents with discounts, concessions
or commissions (compensation may be in excess of customary commissions).
We do not know of any arrangements between any selling stockholder and any
broker, dealer, underwriter or agent relating to the sale or distribution of the
common stock or warrants.
We and the selling stockholders and any other persons participating in a
distribution of our common stock will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, these parties and other
persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions subject to specified exceptions or
exemptions.
The selling stockholders may sell any securities that this prospectus
covers under Rule 144 of the Securities Act rather than under this prospectus if
they qualify.
We cannot assure you that any selling stockholder will sell any of such
selling stockholder's shares of common stock.
In order to comply with the securities laws of certain states, if
applicable, each selling stockholder will sell the common stock in jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states, a selling stockholder may not sell or offer the common stock unless the
holder registers the sale of the shares of common stock in the applicable state
or the applicable state qualifies the common stock for sale in that state, or
the applicable state exempts the common stock from the registration or
qualification requirement.
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We have agreed to indemnify each selling stockholder whose shares we are
registering from all liability and losses resulting from any misrepresentations
we make in connection with the registration statement.
DESCRIPTION OF SECURITIES
As of April 29, 2005 the authorized capital stock of the Company consists
of 100,000,000 shares of common stock, par value $.0001 per share, of which
there are 91,038,487 shares issued and outstanding, and 20,000,000 shares of
preferred stock, par value $.0001 per share, of which there are 420,000 shares
are issued and outstanding.
Common Stock
Holders of shares of common stock are entitled to one vote for each share
on all matters to be voted on by the stockholders. Holders of common stock do
not have cumulative voting rights. Holders of common stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion from funds legally available therefore. In the
event of a liquidation, dissolution or winding up of the Company, the holders of
the Company's common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities.
Holders of the Company's common stock have no preemptive rights. There are
no conversion or redemption rights or sinking fund provisions with respect to
the Company's common stock.
Preferred Stock
The Company's Board of Directors is authorized to provide for the issuance
of shares of preferred stock in series and, by filing a certificate of
designations, preferences and rights pursuant under Delaware law, to establish
from time to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof without
any further vote or action by the shareholders. Any shares of preferred stock so
issued are likely to have priority over the Company's common stock with respect
to dividend or liquidation rights. Any future issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the shareholders and may adversely affect the
voting and other rights of the holders of common stock.
The Company has designated 700,000 shares of its preferred stock as
"Series 1 Convertible Preferred Stock". The par value of the series is $.0001.
420,000 shares of such Series 1 Convertible Preferred Stock were issued in April
2002 and as of November 30, 2004 all of such 420,000 shares of Series I
Convertible Preferred Stock were outstanding. No other series of preferred stock
has been designated. Each share of Series I Convertible Preferred Stock is
convertible into ten shares of common stock of the Company provided that that
the subsidiary of the Corporation whose common shares were acquired in exchange
for the Series 1 Convertible Preferred Stock, has returned a net profit to the
Company of $1,000,000 in any one year within five years of the date the shares
are issued. In the event that after such five year term the Series 1 Convertible
Preferred Shares have not been so converted, each share not then converted shall
be automatically converted into one share of common stock of the Corporation.
Each share of the Series 1 Convertible Preferred stock is entitled to one vote
on all matters on which such stockholders are lawfully entitled to vote. The
Series 1 Convertible Preferred Stock is not entitled to receive dividends.
38
At present, the Company has no plans to either issue any additional shares
of Series I Convertible Preferred Stock or designate any additional other
series, preferences or other classification of preferred stock.
The issuance of shares of preferred stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of preferred stock might impede
a business combination by including class voting rights that would enable the
holder to block such a transaction, or facilitate a business combination by
including voting rights that would provide a required percentage vote of the
stockholders. In addition, under certain circumstances, the issuance of
preferred stock could adversely affect the voting power of the holders of the
common stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of the stockholders of the Company, the Board of Directors could act in a manner
that would discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
market price of such stock. The Board of Directors does not at present intend to
seek stockholder approval prior to any issuance of currently authorized
preferred stock, unless otherwise required by law.
MARKET PRICE OF AND DIVIDENDS ON OUR
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock was authorized to trade on December 23, 2000 on the
over-the-counter market with quotations available on the OTC Electronic Bulletin
Board under the symbol "TRBY." No trades occurred until January 3, 2001.
The following table sets forth the range of high and low bid quotations of
our common stock for the periods indicated. The prices represent inter-dealer
quotations, which do not include retail markups, markdowns or commissions, and
may not represent actual transactions.
High Low
------- ------
Year Ended December 31, 2003
First Quarter $0.062 $0.036
Second Quarter $0.039 $0.016
Third Quarter $0.022 $0.009
Fourth Quarter $0.008 $0.005
Year Ended December 31, 2004
First Quarter $0.13 $0.01
Second Quarter $0.12 $0.05
Third Quarter $0.09 $0.03
Fourth Quarter $0.07 $0.03
39
Security Holders
At April 29, 2005, there were 91,038,487 shares of our common stock
outstanding, which were held of record by approximately 389 stockholders, not
including persons or entities who hold the stock in nominee or "street" name
through various brokerage firms.
Dividends
The payment of dividends, if any, is to be within the discretion of the
Company's Board of Directors. The Company presently intends to retain all
earnings, if any, for use in its business operations and accordingly, the Board
of Directors does not anticipate declaring any dividends in the near future.
Dividends, if any, will be contingent upon the Company's revenues and
earnings, capital requirements and financial condition.
Equity Compensation Plan Information
As of the date of this prospectus, the Company does not have any equity
compensation plans.
Transfer Agent
Stocktrans, Inc., with offices at 44 West Lancaster Avenue, Ardmore,
Pennsylvania 19003 is the registrar and transfer agent for the Company's common
stock.
Penny Stock Regulations
The SEC has adopted regulations which generally define "penny stock" to be
an equity security that has a market price of less than $5.00 per share. The
Company's common stock falls within the definition of penny stock and is subject
to rules that impose additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
accredited investors (generally those with assets in excess of $1,000,000, or
annual incomes exceeding $200,000 or $300,000, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's prior written consent to the transaction. Additionally,
for any transaction, other than exempt transactions, involving a penny stock,
the rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's common stock and
may affect the ability of investors to sell our common stock in the secondary
market.
40
LEGAL PROCEEDINGS
The Company is not currently a party to any pending legal proceeding.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the fiscal years ended December 31, 2004 and December 31, 2003, and
the subsequent interim period, the principal independent accountant of the
Company and its subsidiaries has not resigned or declined to stand for
re-election, and was not dismissed.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We have agreed to indemnify the stockholders whose shares we are
registering from all liability and losses resulting from any misrepresentations
we make in connection with the registration statement.
Pursuant to Section 11.1 of our By-Laws, we have agreed to indemnify our
officers, directors, employees and agents to the fullest extent permitted by the
General Corporation Law of Delaware, as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our Directors, officers and controlling persons, we have
been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
Director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
LEGAL MATTERS
Our counsel, Guzov Ofsink, LLC, located in New York, New York, is passing
upon the validity of the issuance of the common stock that we are offering under
this prospectus.
EXPERTS
Weinberg & Company, P.A., independent certified public accountants,
located at 6100 Glades Road, Suite 314, Boca Raton, Florida 33434, have audited
our Financial Statements included in this registration statement to the extent,
and for the periods set forth in their reports. We have relied upon such
reports, given upon the authority of such firm as experts in accounting and
auditing.
41
FINANCIAL STATEMENTS
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
CONTENTS
PAGE F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PAGE F-2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2004
PAGE F-3 CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2004 AND
2003
PAGES F-4 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
PAGE F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2004 AND 2003
PAGES F-6 - F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 2004 AND 2003
42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
Torbay Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Torbay Holdings,
Inc. and Subsidiaries as of December 31, 2004 and the related consolidated
statements of operations and other comprehensive loss, changes in stockholders'
deficiency and cash flows for the years ended December 31, 2004 and 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Torbay Holdings, Inc.
and Subsidiaries as of December 31, 2004, and the results of their operations
and their cash flows for the years ended December 31, 2004 and 2003, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has a net loss of $1,127,727,
a negative cash flow from operations of $143,705, a working capital deficiency
of $461,294 and a stockholders' deficiency of $329,416. These factors raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning this matter are also described in Note 12. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 18, 2005
F-1
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
ASSETS
2004
-----------
CURRENT ASSETS
Cash $ 19,511
Accounts receivable, less allowance for doubtful accounts of $0 36,211
Inventory 25,099
-----------
Total Current Assets 80,821
-----------
PROPERTY AND EQUIPMENT - NET 21,968
-----------
OTHER ASSETS
Intangible assets - net 96,252
Deposits 6,795
Deferred loan costs 6,863
-----------
Total Other Assets 109,910
-----------
TOTAL ASSETS $ 212,699
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 325,030
Settlement payable 63,328
Loan payable - officer 45,957
Notes payable 107,800
-----------
Total Current Liabilities 542,115
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Convertible preferred stock, $.0001 par value, 20,000,000 shares authorized,
420,000 shares issued and outstanding 42
Common stock, $.0001 par value, 100,000,000 shares authorized,
88,948,487 issued and outstanding 8,895
Common stock to be issued (1,888,889 shares) 189
Additional paid-in capital 4,784,190
Accumulated deficit (5,037,897)
Accumulated other comprehensive loss (29,690)
Deferred equity based expenses (55,145)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (329,416)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 212,699
===========
See accompanying notes to consolidated financial statements.
F-2
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
------------ ------------
SALES, NET $ 344,525 $ 137,944
COST OF SALES 103,889 55,740
------------ ------------
GROSS PROFIT 240,636 82,204
------------ ------------
OPERATING EXPENSES
Selling 126,742 125,552
Consulting fees 6,300 112,750
Professional fees 107,942 175,258
Directors fees and compensation 86,103 82,480
Other general and administrative 231,750 99,715
------------ ------------
Total Operating Expenses 558,837 595,755
------------ ------------
LOSS FROM OPERATIONS (318,201) (513,551)
------------ ------------
OTHER INCOME (EXPENSE)
Interest and financing costs (1,068,326) (361,265)
Gain on extinguishment of debt, net 243,800 --
Cancellation of stock issued for consulting fees 15,000 --
------------ ------------
Total Other Income (Expense) (809,526) (361,265)
------------ ------------
NET LOSS (1,127,727) (874,816)
OTHER COMPREHENSIVE LOSS
Foreign currency translation loss (9,039) (7,994)
------------ ------------
COMPREHENSIVE LOSS $ (1,136,766) $ (882,810)
============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.01) $ (0.02)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 87,879,225 48,459,281
============ ============
See accompanying notes to consolidated financial statements.
F-3
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Convertible Preferred Common Stock To Be Additional
Stock Common Stock Issued Paid-In
Shares Amount Shares Amount Shares Amount Capital
------- -------- ---------- --------- ---------- -------- ----------
Balance, December 31, 2002 420,000 $ 42 20,912,617 $ 2,091 539,568 $ 54 $2,652,336
Common shares issued -- -- 539,568 54 (539,568) (54) --
Issuance of common stock
for software license -- -- 100,000 10 -- -- 5,990
Stock issued for consulting
services -- -- 1,501,000 150 -- -- 77,350
Issuance of common stock
for notes payable
conversions -- -- 43,152,637 4,315 -- -- 237,935
Shares issued for legal
services -- -- 1,000,000 100 -- -- 9,900
Shares issued for option
exercised for cash -- -- 5,583,333 558 -- -- 31,442
Shares to be issued for
consulting and advertising
services -- -- -- -- 3,500,000 350 32,150
Options issued for services -- -- -- -- -- -- 47,300
Beneficial conversion
feature and warrants
issued as part of
convertible debentures -- -- -- -- -- -- 258,450
Amortization of deferred
interest and financing
expense -- -- -- -- -- -- --
Foreign currency
translation loss -- -- -- -- -- -- --
Net loss, 2003 -- -- -- -- -- -- --
------- -------- ---------- --------- ---------- ------- ----------
Balance, December 31, 2003 420,000 $ 42 72,789,155 $ 7,278 3,500,000 $ 350 $3,352,853
Common shares issued -- -- 3,000,000 300 (3,000,000) (300) --
Shares sold for cash,
net of costs -- -- 2,245,282 225 1,388,889 139 224,909
Shares cancelled -- -- (250,000) (25) -- -- (14,975)
Issuance of common stock
for debenture settlement -- -- 6,000,000 600 -- -- 161,400
Stock issued for consulting
services -- -- 3,000 -- -- -- 300
Finance cost - shares sold
below market -- -- -- -- -- -- 48,258
Options issued for services -- -- -- -- -- -- 112,240
Options issued for loan
payment postponement and
equity funding arrangement -- -- -- -- -- -- 846,033
Shares issued for options
exercised for cash -- -- 5,000,000 500 -- -- 39,500
Shares issued for officer
payable -- -- 161,050 17 -- -- 13,672
Amortization of deferred
compensation expense -- -- -- -- -- -- --
Amortization of deferred
financing expense -- -- -- -- -- -- --
Foreign currency
translation loss -- -- -- -- -- -- --
Net loss, 2004 -- -- -- -- -- -- --
------- -------- ---------- --------- ---------- ------- ----------
Balance, December 31, 2004 420,000 $ 42 88,948,487 $ 8,895 (1,888,889) $ 189 $4,784,190
======= ======== ========== ========= ========== ======= ==========
Accumulated Deferred
Other Equity
Accumulated Comprehensive Based
Deficit (Loss) Expenses Total
----------- ------------ ----------- -----------
Balance, December 31, 2002 (3,035,354) $ (12,657) $ (128,959) $ (522,447)
Common shares issued -- -- -- --
Issuance of common stock
for software license -- -- -- 6,000
Stock issued for consulting
services -- -- -- 77,500
Issuance of common stock
for notes payable
conversions -- -- -- 242,250
Shares issued for legal
services -- -- -- 10,000
Shares issued for option
exercised for cash -- -- -- 32,000
Shares to be issued for
consulting and advertising
services -- -- (6,000) 26,500
Options issued for services -- -- (31,533) 15,767
Beneficial conversion
feature and warrants
issued as part of
convertible debentures -- -- (121,185) 137,265
Amortization of deferred
interest and financing
expense -- -- 128,959 128,959
Foreign currency
translation loss -- (7,994) -- (7,994)
Net loss, 2003 (874,816) -- -- (874,816)
----------- ------------ ----------- -----------
Balance, December 31, 2003 $(3,910,170) $ (20,651) $ (158,718) $ (729,016)
Common shares issued -- -- -- --
Shares sold for cash -- -- -- 146,940
Shares cancelled -- -- -- (15,000)
Issuance of common stock
for debenture settlement -- -- -- 162,000
Stock issued for consulting
services -- -- -- 300
Finance cost - shares sold
below market -- -- -- 48,258
Options issued for services -- -- (112,240) --
Options issued for loan
payment postponement and
equity funding arrangement -- -- -- 846,033
Shares issued for options
exercised for cash -- -- -- 40,000
Shares issued for officer
payable -- -- -- 13,689
Amortization of deferred
compensation expense -- -- 94,628 94,628
Amortization of deferred
financing expense -- -- 121,185 121,185
Foreign currency
translation loss -- (9,039) -- (9,039)
Net loss, 2004 (1,127,727) -- -- (1,127,727)
----------- ------------ ----------- -----------
Balance, December 31, 2004 $(5,037,897) $ (20,651) $ (158,718) $ (329,416)
=========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,127,727) $(874,816)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 40,198 24,414
Amortization of loan costs 4,117 --
Gain on extinguishment of debt, net (243,800) --
Common stock and warrants issued for services 300 93,500
Deferred equity based costs recognized 215,813 308,491
Financing costs - shares sold below market value 81,591 --
Financing costs - options issued 846,033
Cancellation of shares issued for services (15,000) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (32,916) (1,675)
(Increase) decrease inventory 12,524 27,830
(Increase) decrease prepaid expenses -- 15,748
(Increase) decrease deposits -- (5,795)
Increase in accounts payable and accrued expenses 75,162 115,299
--------- ---------
Net cash used in operating activities (143,705) (297,004)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangibles (32,750) (17,150)
Purchase of property and equipment (5,446) (6,868)
--------- ---------
Net cash used in investing activities (38,196) (24,018)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 236,940 32,000
Proceeds from loans payable officer 45,957 --
Principal payments on settlement payable (126,653) --
Loan and stock subscription costs (10,200) --
Proceeds from issuance of notes and loans payable 52,020 250,000
--------- ---------
Net cash provided by financing activities 198,064 282,000
--------- ---------
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH (9,039) (7,994)
--------- ---------
INCREASE (DECREASE) IN CASH 7,124 (47,016)
BEGINNING OF YEAR 12,387 59,403
--------- ---------
CASH - END OF YEAR $ 19,511 $ 12,387
========= =========
See accompanying notes to consolidated financial statements.
F-5
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 1 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BUSINESS OPERATIONS
Torbay Holdings, Inc. ("THI") was incorporated in Delaware under the name
Acropolis Acquisition Corporation on March 24, 1999 to serve as a vehicle
to effect a merger, exchange of capital stock, asset acquisition, or other
business combination with a domestic or foreign private business.
In July 1999, THI effected an Agreement and Plan of Reorganization whereby
THI acquired all of the issued and outstanding securities of Designer
Appliances Limited ("DAL"), a United Kingdom Corporation. As a result of
the agreement, DAL became a wholly owned subsidiary of THI. DAL is
currently not an operating company.
On October 26, 1999, THI entered into and consummated a merger agreement
whereby THI acquired all of the outstanding shares of common stock of
Torbay Acquisition Corp. ("TAC"). The acquisition was accounted for using
the purchase method of accounting. At the time of the merger TAC was an
inactive Delaware shell corporation and a reporting company under the
Securities Exchange Act of 1934, as amended. THI remained as the surviving
entity and became the successor issuer pursuant to rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission.
On November 10, 2002, THI authorized the purchase of 200 shares (all of
the authorized and outstanding shares at the time) of Designer Appliances,
Inc. ("DAI"), a Delaware company incorporated June 17, 2002, for a de
minimus purchase price and DAI became a wholly owned subsidiary of THI.
DAI was acquired to market and sell the Company's products (currently the
QUILL mouse, a left-handed and right-handed computer mouse) in North
America.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for 2004 and 2003 include the
accounts of Torbay Holdings, Inc. and its wholly owned subsidiaries
Designer Appliances Limited and Designer Appliances, Inc. (collectively,
the "Company"). All significant intercompany transactions and balances
have been eliminated in consolidation.
(C) BASIS OF PRESENTATION
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America.
The basis of accounting differs from that used in the United Kingdom
statutory financial statements of DAL. Adjustments are made to translate
the statutory financial statements of DAL to conform to accounting
principles generally accepted in the United States of America. The
consolidated financial statements are expressed in United States dollars.
The functional currency of DAL is the British pound sterling.
(D) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
F-6
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(E) CASH
Cash includes cash on deposit at financial institutions.
(F) INVENTORY
Inventory is stated at the lower of cost or market using the first-in
first-out method. Cost includes expense of freight-in transportation.
Inventory consists entirely of finished goods, which include left-handed
and right-handed computer mice for sale to customers. The inventory is
produced by an overseas vendor using the Company's equipment.
(G) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of three to five years.
(H) INTELLECTUAL PROPERTY RIGHTS
The Company capitalizes the costs to acquire intellectual property rights
and amortizes them over their estimated useful life of 10 years,
commencing in 2003.
(I) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment under Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Long-lived assets to be held
and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result
from the use and eventual disposition of the asset. Long-lived assets to
be disposed of are reported at the lower of carrying amount or fair value
less cost to sell. During the years ended December 31, 2004 and 2003, the
Company determined that there were no long-lived assets that were
impaired.
(J) REVENUE RECOGNITION
The Company's products are sold directly over the internet and through
distributorships. Products sold over the internet require complete payment
via credit card prior to shipment. Products sold through distributors
require the distributor to submit a purchase order and payment (according
to terms and pricing approved by the Company) prior to shipment.
Accordingly, revenues from sales over the internet and through
distributors are recognized when the product is shipped as the price has
been determined and collectibility has been reasonably assured. Consigned
inventory (amounting to less than 2% of the Company's total inventory) is
not recognized as revenue until the product has been sold by the
consignee.
The Company provides a warranty on goods for two years from the date of
sale. The Company has not established a warranty reserve as of December
31, 2004 or 2003 since the amount is not material based on past
experience.
F-7
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(K) WEBSITE AND COMPUTER SOFTWARE COSTS
The Company follows the AICPA's Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use"
(SOP 98-1), in accounting for its website and software costs. Accordingly,
costs to obtain computer software from third parties obtained for internal
use are capitalized and amortized over their estimated useful life of 5
years, commencing in 2003. Enhancements to software are amortized over an
estimated useful life of 2 years. Costs incurred in operating a website
that have no future benefits are expensed in the period in which they are
incurred. Costs incurred in operating the website that have a future
benefit are capitalized in accordance with SOP 98-1 and amortized over the
respective future periods that are expected to benefit from the changes.
(L) INCOME TAXES
The Company accounts for income taxes under the Financial Accounting
Standard Board ("FASB") SFAS No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(M) SEGMENTS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", requires that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets. The Company has only one product consisting of its "Quill
Computer Mouse" and does not operate in more than one segment.
Accordingly, segment information has not been provided.
(N) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments, including cash,
accounts receivable, accounts payable and accrued expenses, settlement
payable and notes payable approximate their fair value as of December 31,
2004 because of the relatively short-term maturity of these instruments.
(P) FOREIGN CURRENCY TRANSLATION
The functional currency of DAL is the British pound sterling. Financial
statements for this entity are translated into United States dollars at
year-end exchange rates as to assets and liabilities and weighted average
exchange rates as to revenues and expenses. Capital accounts are
translated at their historical exchange rates when the capital
transactions occurred.
(Q) COMPREHENSIVE LOSS
The Company accounts for comprehensive income (loss) under SFAS No. 130,
"Reporting Comprehensive Income" ("Statement 130"). Statement 130
establishes standards for reporting and the display of comprehensive
income and its components. The foreign currency translation gain (loss)
resulting from the translation of the financial statements of DAL
expressed in British pound sterling to United States dollars is reported
as Other Comprehensive Income (Loss) in the statements of operations and
as Accumulated Other Comprehensive Income (Loss) in the statement of
changes in stockholders' deficiency.
F-8
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
(R) LOSS PER SHARE
Basic and diluted loss per common share for all periods presented is
computed based on the weighted average number of common shares outstanding
during the year as defined by SFAS No. 128, "Earnings Per Share". The
assumed exercise of common stock equivalents was not utilized since the
effect would be anti-dilutive. At December 31, 2004 and 2003 the Company
had 25,700,000 and 105,750,000 potentially dilutive securities,
respectively.
(S) STOCK BASED COMPENSATION
The Company accounts for stock options and warrants issued to employees
using the intrinsic value based method, under which compensation cost is
measured as the excess of the stock's market price at the grant date over
the amount an employee must pay to acquire the stock. The Company issued
no options or warrants to employees during the years ended December 31,
2004 or 2003 and had no employee stock options or warrants outstanding at
those dates. Stock options and warrants issued to non-employees are
accounted for using the fair value based method, under which the expense
is measured as the fair value of the security at the date of grant based
on the Black-Scholes pricing model.
Common stock issued as compensation is recorded based on the fair value of
the stock issued on the date of grant.
(T) RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to conform to
the current year presentation. For the year ended December 31, 2003,
$31,136, representing shipping, amortization and warranty costs, have been
classified as cost of sales, rather than operating expenses. Also, travel
and entertainment expenses for 2003 have been reclassified from other
general and administrative expenses to selling expenses.
(U) ADVERTISING
The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising and marketing expense included in
the statement of operations for the years ended December 31, 2004 and 2003
was $67,443 and $94,557, respectively.
(V) RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4". The amendments made by Statement 151
clarify that abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as current
period charges and require the allocation of fixed production overheads to
inventory based on the normal capacity of the production facilities. The
guidance is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after November 23,
2004. The Company has evaluated the impact of the adoption of SFAS 151,
and does not believe the impact will be significant to the Company's
overall results of operations or financial position.
F-9
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions." The amendments made by Statement 153 are based on the
principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged. Further, the amendments eliminate
the narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. Previously,
Opinion 29 required that the accounting for an exchange of a productive
asset for a similar productive asset or an equivalent interest in the same
or similar productive asset should be based on the recorded amount of the
asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive
assets. The Board believes that exception required that some nonmonetary
exchanges, although commercially substantive, be recorded on a carryover
basis. By focusing the exception on exchanges that lack commercial
substance, the Board believes this Statement produces financial reporting
that more faithfully represents the economics of the transactions. The
Statement is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Earlier application is permitted
for nonmonetary asset exchanges occurring in fiscal periods beginning
after the date of issuance. The provisions of this Statement shall be
applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 152, and does not believe the impact will be significant
to the Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of
financial statements with more complete and neutral financial information
by requiring that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be
measured based on the fair value of the equity or liability instruments
issued. Statement 123(R) covers a wide range of share-based compensation
arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share
purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees. Statement 123, as originally
issued in 1995, established as preferable a fair-value-based method of
accounting for share-based payment transactions with employees. However,
that Statement permitted entities the option of continuing to apply the
guidance in Opinion 25, as long as the footnotes to financial statements
disclosed what net income would have been had the preferable
fair-value-based method been used. Public entities (other than those
filing as small business issuers) will be required to apply Statement
123(R) as of the first interim or annual reporting period that begins
after June 15, 2005. The Company has evaluated the impact of the adoption
of SFAS 123(R), and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
In December 2004 the Financial Accounting Standards Board issued two FASB
Staff Positions--FSP FAS 109-1, Application of FASB Statement 109
"Accounting for Income Taxes" to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS
109-2 Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004.
Neither of these affected the Company as it does not participate in the
related activities.
In January 2003, the FASB issued FASB Interpretation No. ("FIN") 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). In December
2003, FIN 46 was replaced by FASB interpretation No. 46(R) "Consolidation
of Variable Interest Entities." FIN 46(R) clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
to certain entities in which equity investors do not have the
F-10
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46(R)
requires an enterprise to consolidate a variable interest entity if that
enterprise will absorb a majority of the entity's expected losses, is
entitled to receive a majority of the entity's expected residual returns,
or both. FIN 46(R) is effective for entities being evaluated under FIN
46(R) for consolidation no later than the end of the first reporting
period that ends after March 15, 2004. The Company does not currently have
any variable interest entities that will be impacted by adoption of FIN
46(R).
NOTE 2 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 2004, the Company reached a settlement to retire its remaining 12%
convertible debentures aggregating $507,750 and related accrued interest
of $92,057 in exchange for the issuance of 6,000,000 shares of common
stock having a fair value of $162,000, and $200,000 in cash, payable in
monthly installments of $16,667, with a present value of $189,981,
commencing May 1, 2004. Accordingly, the Company has recorded a gain of
$247,826 related to the extinguishment.
In February 2004, the Company granted options to purchase an aggregate of
5,000,000 shares of common stock to two individuals in exchange for
services to be rendered through August 1, 2005. The fair value of these
options is $112,240. This amount has been deferred and is being amortized
over the life of the services agreement (see Note 11B).
During April 2004, the Company issued 161,050 shares of common stock
having a fair value of $13,689 to an officer to settle a payable to him of
$9,663. Accordingly, the Company has recorded a loss on extinguishment of
debt of $4,026 (see Notes 6 and 11B).
During August 2004, the Company received $52,020 from a financial
institution pursuant to a term loan sheet. The fair value of the debt is
$57,800; costs of $5,780 were deducted from the proceeds.
During the year ended December 31, 2003, a portion of the Company's 12%
convertible debentures in the amount of $242,250 was converted into
43,152,637 shares of common stock.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2004 consisted of the following:
Manufacturing equipment $ 20,000
Computer equipment 11,335
Office equipment 4,224
--------
35,559
Less accumulated depreciation (13,591)
--------
$ 21,968
========
Depreciation expense for the years ended December 31, 2004 and 2003 was
$8,072 and $4,935, respectively. All of the depreciation expense is
included in general and administrative expenses.
F-11
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
NOTE 4 INTANGIBLE ASSETS
Intangible assets as of December 31, 2004 consisted of the following:
Intellectual property $ 44,000
Software license 53,957
Software development 49,900
---------
147,857
Less accumulated amortization (51,605)
---------
$ 96,252
=========
During 2004 and 2003, the Company incurred costs of $32,750 and $17,150,
respectively, for the development of software enhancements.
Amortization expense recorded in the statement of operations was $32,126
and $19,479 for 2004 and 2003, respectively.
Amortization of the above costs for each of the next five years is as
follows:
2005 $35,854
2006 23,207
2007 15,191
2008 4,400
2009 4,400
NOTE 5 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following schedule reflects accounts payable and accrued expenses as
of December 31, 2004:
Accounts payable $278,478
Accrued interest payable 680
Other accrued liabilities 45,772
--------
$324,930
========
NOTE 6 LOAN PAYABLE - OFFICER
The Company had received advances from an officer who provided funding for
working capital requirements. As of December 31, 2003, $9,663 was due to
this officer. During April 2004, the Company issued 161,050 shares of
common stock, having a fair value of $13,689, to settle this payable.
Accordingly, the Company has recorded a loss on extinguishment of debt of
$4,026 (see Note 11B).
F-12
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
During the fourth quarter of 2004 another officer advanced $45,957 to the
Company for working capital purposes. The advances are non-interest
bearing and are repayable upon demand. The Company has agreed to issue
880,000 shares of common stock to repay the advance.
NOTE 7 12% CONVERTIBLE DEBENTURES
On February 17, 2004, the Company and the debenture holders entered into a
Redemption and Settlement Agreement and Mutual General Release (the
"Settlement"). In accordance with the Settlement, all of the outstanding
debentures and related warrants were redeemed by the Company. The Company
issued 6,000,000 shares of common stock having a fair value of $162,000 to
the debenture holders, and agreed to pay $200,000 in cash in monthly
installments of $16,667, with a present value of $189,981, commencing May
1, 2004. The Company has recorded a gain of $247,826 related to the
extinguishment. As of December 31, 2004 the balance due on the settlement
was $63,328.
NOTE 8 NOTES PAYABLE
The Company has issued a $50,000 note due to an individual that is
non-interest bearing, convertible to shares of common stock at $1.50 per
share and unsecured, which was due March 23, 2003. This note is currently
being renegotiated.
During August 2004, the Company received $52,020 from a financial
institution pursuant to a loan term sheet, with a face value of $57,800.
The principal balance bears interest at the prevailing one month LIBOR,
plus 3% (4.12% at December 31, 2004) and matures in one year. The loan is
secured by 1,700,000 shares of the Company's common stock. The collateral
shares have been provided by a stockholder of the Company. The Company
incurred costs of $10,980 in connection with obtaining this financing.
This amount is being amortized over the one year term of the loan. On
December 16, 2004 a default in this note was cured by the issuance of
common stock purchase warrants (see Note 11(B)).
NOTE 9 INCOME TAXES
The United States parent company and its United States subsidiary and its
United Kingdom subsidiary file separate income tax returns. Income tax
expense (benefit) for the years ended December 31, 2004 and 2003 is
summarized as follows:
2004 2003
-------------- -----------------
Current:
Federal $ -- $ --
State -- --
Foreign -- --
Deferred:
Federal and State -- --
Foreign -- --
-------------- -----------------
Income tax expense (benefit) $ -- $ --
============== =================
The United States parent company and its United States subsidiary's tax
expense differs from the "expected" tax expense for the years ended
December 31, 2004 and 2003 (computed by applying U.S. Federal Corporate
tax rate of 34 percent to income before taxes), as follows:
F-13
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
----------- ---------
Computed "expected" tax expense (benefit) $ (23,391) $(210,154)
Change in valuation allowance 23,391 210,154
--------- ---------
$ -- $ --
========= =========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets for the United States parent company and
its United States subsidiary at December 31, 2004 and 2003 are as follows:
2004 2003
--------- ---------
Deferred tax assets:
Net operating loss carryforwards $ 934,320 $ 910,929
Less valuation allowances (934,320) (910,929)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
As of December 31, 2004, the United States parent company and its United
States subsidiary had net operating loss carry forwards of approximately
$2,748,000 for income tax purposes, available to offset future taxable
income expiring on various dates through 2024. The valuation allowance as
of December 31, 2004 was $934,320. The net change in the valuation
allowance during the year ended December 31, 2004 was an increase of
$23,391.
The United Kingdom subsidiary has also incurred substantial net operating
losses in prior years which result in no income tax expense or (benefit)
for the years ended December 31, 2004 and 2003. The subsidiary's available
net operating loss carry forward of approximately $534,000 results in a
deferred tax asset of $160,200 (computed by applying the United Kingdom
tax rate of 30%) which has been fully offset by a valuation allowance. The
United Kingdom subsidiary is currently not an operating company.
NOTE 10 COMMITMENTS AND CONTINGENCIES
(A) COMMITMENTS AND CONTINGENCIES
The Company conducts its operations from facilities occupied pursuant to a
lease that commenced in October 2003 and expires on October 31, 2006. The
Company also pays the lease for an apartment occupied by an officer. Such
occupancy is for the benefit of the Company. The apartment lease expired
December 31, 2004 and was extended for a one year period, with a monthly
rent of $2,075. Future minimum lease payments are as follows:
Year Ending Amount
----------- ------
2005 $45,964
2006 18,136
F-14
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Rent expense for the years ended December 31, 2004 and 2003 was $60,339
and $14,060, respectively.
(B) ROYALTIES
The Company is required to pay royalty payments at a rate of $3 per copy
of certain software that is distributed in any manner. The minimum
royalties are $500 for the second quarter of 2003, $1,000 for the third
quarter for 2003, $2,000 for the fourth quarter of 2003 and $3,000 per
quarter thereafter. The term of the agreement is perpetual provided the
Company continues to pay the royalty payments within 120 days after the
end of each quarter and abides by the other terms of the agreement. During
the years ended December 31, 2004 and 2003, the Company recorded the
minimum royalties expense of $12,000 and $3,500, respectively.
NOTE 11 STOCKHOLDERS' DEFICIENCY
(A) PREFERRED STOCK
The Company designated 700,000 shares of its preferred stock as "Series 1
Convertible Preferred Stock". The par value of the series is $.0001. Each
preferred share is convertible into ten shares of common stock of the
Company. Each share of the Series 1 stock is entitled to one vote on all
matters on which such stockholders were lawfully entitled to vote and were
not entitled to receive dividends.
In July 2001, the Company entered into a purchase agreement with two
individuals who held the intellectual property rights, software and
know-how to a computer mouse known as the "QUILL". Under the terms of the
agreement, the Company acquired all of the sellers' rights, title and
interest in the QUILL in exchange for 220,000 Series 1 convertible
preferred shares. The agreement also called for the issuance of an
additional 200,000 shares of Series 1 convertible preferred shares upon
the Company receiving an approval for the United Kingdom patent rights to
the QUILL, which was granted in January 2002. These preferred shares will
convert 1:10 into 4,200,000 shares of common stock upon the QUILL
generating $1,000,000 net profit after tax averaged over four fiscal
quarters within five years from the signing of the agreement. However, if
the $1,000,000 net profit requirement is not met within five years from
the signing of the agreement, then these preferred shares will convert 1:1
into 420,000 shares of common stock. Since the $1,000,000 net profit
requirement is a contingency, the convertible preferred shares were valued
based on the 1:1 conversion ratio using the value of recent cash sales of
the common stock at $.10 per share, for a total fair value of $42,000, of
which $20,000 and $22,000 was recognized in 2002 and 2001, respectively.
The 420,000 preferred shares were issued on April 22, 2002.
(B) COMMON STOCK
On August 1, 2003, the Board of Directors authorized an amendment to the
Company's Certificate of Incorporation to increase the number of
authorized shares from 120,000,000 shares (100,000,000 of common and
20,000,000 of preferred) to 520,000,000 shares (500,000,000 of common and
20,000,000 of preferred) subject to shareholder approval. The shareholder
vote has not yet been scheduled.
During February and March 2004, the Company issued 6,000,000 shares of
common stock in connection with the retirement of its 12% convertible
debentures payable described in Note 7.
F-15
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
In February 2004, the Company granted options to purchase an aggregate of
5,000,000 shares of common stock to two individuals in exchange for
services to be rendered through August 1, 2005. The options had an
exercise price of $.008 per share and had a life of ninety days from grant
date. The fair value of these options is $112,240. This amount has been
deferred and is being amortized over the life of the services agreement
(seventeen months). Of the total fair value of the options, $57,095 was
expensed in 2004 and $55,145 is deferred at December 31, 2004. The value
has been determined using the Black-Scholes option pricing model in
accordance with SFAS 123 with the following assumptions: dividend yield of
zero, expected volatility of 178%, risk-free interest rate of 3.5% and an
expected life of three months. The options were exercised in February 2004
and cash proceeds of $40,000 were received by the Company.
During March 2004, the Company sold 202,614 shares of common stock for
cash proceeds of $17,000. The cash was received in March 2004 and the
shares were issued in April 2004. The shares were sold at a discount to
market value, and a financing cost related to the discount of $4,013 has
been recognized.
During the three months ended March 31, 2004 the Company issued 3,000
shares of common stock, valued at $300, for services rendered.
During April 2004, the Company issued 161,050 shares of common stock
having a fair value of $13,689 to settle a payable to an officer in the
amount of $9,663. Accordingly, the Company has recorded a loss on
extinguishment of debt of $4,026.
During April and May 2004, the Company sold 2,005,168 shares of common
stock for cash proceeds of $126,940. The shares were sold at a discount to
market value, and a financing cost related to the discount of $44,245 has
been recognized.
During July 2004, the Company sold 37,500 shares of common stock for cash
proceeds of $3,000.
During August 2004 the Company received $50,000 pursuant to a stock
subscription. The Company is to issue 1,388,889 shares pursuant to this
subscription, which are classified as shares to be issued on the balance
sheet at December 31, 2004. The shares to be issued were determined at 60%
of the average closing bid price on the five trading days prior to
closing. Accordingly, the Company has recorded a financing cost of $33,333
related to this discount. Additionally, the purchasers received 1,000,000
common stock purchase warrants, 500,000 warrants with an exercise price of
$0.08 per share and 500,000 warrants with an exercise price of $0.12 per
share. The warrants will expire December 31, 2008.
The Company has deferred costs related to the issuance of options for
services to be rendered through July 2005. During 2004, the Company has
expensed $88,628 of these costs and $55,145 remains deferred at December
31, 2004.
On December 16, 2004 the Company granted 20,500,000 common stock purchase
warrants to an investor group. The warrants are exercisable immediately
and expire if unexercised by December 31, 2009. Upon registration of the
underlying shares with the Securities and Exchange Commission, the Company
can force the exercise of the warrants, provided that the investor would
not be obligated to pay more than $75,000 within any 30 day period. The
demand for exercise is subject to certain trading price requirements,
relative to the exercise price of the warrants. The exercise prices of the
warrants range from $0.03 to $0.13. The weighted average exercise price of
the warrants is $0.07. The fair value of the warrants has been estimated
at $846,033, using the Black Scholes pricing model with the following
weighted average assumptions: estimated life of 1.34 years; dividend yield
of 0%; volatility of 189%; risk free interest rate of 2.64%. The amount
has been recorded as a financing expense in the statement of operations.
On February 5, 2003, the Company entered into a two-month non-exclusive
agreement with a consultant to provide strategic planning services. The
agreement called for the consultant to receive up to 2,000,000 shares
whereby 1,251,000 shares of S-8 registered shares were issued upon the
effective date of the agreement for the initial period. This agreement
expired on April 4, 2003 and has not been extended. The 1,251,000 shares
were issued on February 5, 2003 and valued for financial accounting
purposes at $62,500, the fair market value of the common stock on the
effective date of the agreement based on concurrent cash offerings.
F-16
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
On February 6, 2003, the Company entered into a one-year non-exclusive
agreement with a consultant to provide strategic planning services. The
agreement calls for the consultant to receive 250,000 shares of restricted
common stock upon the effective date of the agreement for the initial
period. The 250,000 shares were valued for financial accounting purposes
at $15,000, the fair market value of the common stock on the effective
date of the agreement based on concurrent cash offerings, and were issued
in the second quarter of 2003. The consultant is entitled to an additional
500,000 shares upon the consultant identifying and introducing and the
Company closing on agreements with European community contacts. This
agreement terminated in February 2004 and there is no other amount owed.
On February 7, 2003, the Company entered into an agreement whereby the
Company received the exclusive license of software named NIB Version 1.0,
which automatically actuates contextual menus in computer programs without
the need to use or click a computer mouse button. In consideration, the
Company issued 100,000 shares of common stock valued for financial
accounting purposes at $6,000, the fair market value of the common stock
on the effective date of the agreement based on concurrent cash offerings.
On April 21, 2003, the Company entered into an agreement with a consultant
whereby the consultant agreed to analyze and provide advice and
introductions as to both short and long-term strategic business plans,
business development, marketing and communications. In consideration, the
Company has agreed to issue 3,000,000 shares of common stock valued for
financial accounting purposes at $24,000, the fair market value of the
common stock on the effective date of the agreement based on concurrent
cash offerings, of which $18,000 and $6,000 has been recognized as
consulting expense during the years ended December 31, 2004 and 2003,
respectively. The chief executive officer has rendered 3,000,000 freely
trading shares of his common stock that were transferred to the
consultant. These shares are to be repaid to the chief executive officer
and are reflected as to be issued as of December 31, 2003. The 3,000,000
shares were issued in 2004.
On June 5, 2003, the Company finalized an agreement through which the
Company is to receive a media package. The consideration includes 500,000
shares of common stock to be issued as of December 31, 2003 having an
aggregate fair market value of $8,500 (based on the closing trading price
on the date the agreement was finalized) for advertising communication
costs. The expense related to the shares was recognized the first time the
advertising occurred, which was in August 2003.
During April 2003, the Company issued 1,000,000 shares of common stock,
valued for financial accounting purposes at $10,000, the fair market value
of the common stock, as consideration for legal services.
During June 2003, the Company issued 583,333 shares of restricted common
stock for options exercised for cash proceeds of $7,000.
During the year ended December 31, 2003, an aggregate of $242,250 of the
notes payable issued on May 15, 2002 were converted into 43,152,637 shares
of common stock. The aggregate amounts converted and average conversion
price per share during each month is as follows: January - $20,000 at
$.0169; February - $10,000 at $.0145; March - $30,000 at $.0079; April -
$16,050 at $.0035; May - $29,200 at $.0043; June - $21,500 at $.0053; July
- $30,100 at $.0057; August - $25,800 at $.0058; September - $21,500 at
$.0058; October - $34,100 at $.0047, and November - $4,000 at $.0031.
F-17
TORBAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
In September 2003, the Company granted options to purchase an aggregate of
5,000,000 shares of common stock to two individuals in exchange for
services rendered. The options had an exercise price of $.005 per share
and had a life of ninety days from grant date. The fair value of these
options is $47,300, of which $15,767 has been expensed during 2003 and
$31,533 has been expensed during 2004. The value has been determined using
the Black-Scholes option pricing model in accordance with SFAS 123 with
the following assumptions: dividend yield of zero, expected volatility of
178%, risk-free interest rate of 3.5 and an expected life of three months.
During the fourth quarter of 2003, the options were exercised and the
Company issued 5,000,000 share of common stock for proceeds of $25,000.
NOTE 12 GOING CONCERN
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. As reflected in the accompanying consolidated financial
statements, the Company has a net loss of $1,127,727, a negative cash flow
from operations of $143,705, a working capital deficiency of $461,294 and
a stockholders' deficiency of $329,416. These factors raise substantial
doubt about its ability to continue as a going concern. The ability of the
Company to continue as a going concern is dependent on the Company's
ability to raise additional funds and implement its business plan. The
consolidated financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
Management's plans include obtaining additional financing for which they
are currently in active negotiations with several financing institutions
and increasing sales of the Quill computer mouse.
NOTE 13 CONCENTRATIONS
At December 31, 2004, one customer accounted for approximately 90% of
accounts receivable. This customer accounted for approximately 35% of
sales during 2004. The Company purchases its inventory from a single
supplier.
NOTE 14 SUBSEQUENT EVENTS
During 2005 the Company pledged 2,000,000 shares of common stock to secure
a demand loan of up to $50,000 pursuant to an oral agreement.
F-18
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You should rely on the information contained in this document or to which we
have referred you. We have not authorized anyone to provide you with information
that is different. The information in this document may only be accurate on the
date of this document. This document may be used only where it is legal to sell
these securities.
----------------
TABLE OF CONTENTS
Page
Prospectus Summary............................................................ 5
Risk Factors.................................................................. 8
Use of Proceeds...............................................................14
Determination of Offering Price...............................................14
Selling Stockholder...........................................................15
Business......................................................................16
Description of Property.......................................................24
Selected Financial Data.......................................................24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................................................25
Security Ownership of Certain Beneficial
Owners and Management........................................................33
Directors and Executive Officers, Promoters
And Control Persons..........................................................34
Executive Compensation........................................................35
Certain Relationships and Related Party
Transactions.................................................................36
Plan of Distribution..........................................................36
Description of Securities.....................................................38
Market Price Of and Dividends On Our
Common Equity and Related Stockholder
Matters......................................................................39
Legal Proceedings.............................................................41
Changes and Disagreements with Accountants....................................41
Indemnification of Directors and Officers.....................................41
Legal Matters.................................................................41
Experts.......................................................................41
Financial Statements..........................................................42
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers
Pursuant to Section 11.1 of our By-Laws, we have agreed to indemnify our
officers, directors, employees and agents to the fullest extent permitted by the
General Corporation Law of Delaware, as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, Officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable.
Item 25. Other Expenses Of Issuance And Distribution
Our expenses in connection with the issuance and distribution of the securities
being registered, other than the underwriting discount, are estimated as
follows:
SEC Registration Fee $ 215.62
Legal Fees and Expenses $15,000.00
Accountants' Fees and Expenses $11,000.00
Miscellaneous Expenses $ 100.00
Total $26,315.62
Item 26. Recent Sales Of Unregistered Securities
In the preceding three years, we have issued the following securities that
were not registered under the Securities Act:
On January 21, 2005 the Company issued and pledged to William F. Bragg,
Jr. an aggregate of 2,000,000 shares of the Company's Common Stock in order to
secure payment of a demand loan of up to $50,000 from Mr. Bragg to the Company.
The issuance was made in a private placement transaction under an exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
On December 16, 2004 the Company granted 20,500,000 common stock purchase
warrants to Nutmeg Group, LLC. The warrants are exercisable immediately and
expire if unexercised by December 31, 2009. The exercise prices of the warrants
range from $0.03 to $0.13. The issuance of the warrants was made in a private
placement transaction under an exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act.
During August 2004 the Company granted 1,000,000 common stock purchase
warrants to Nutmeg Group, LLC in connection with a loan made to the Company.
500,000 of such warrants have an exercise price of $0.08 per share and 500,000
of such warrants have an exercise price of $0.12 per share. The warrants will
expire December 31, 2008. The issuance of the warrants was made in a private
placement transaction under an exemption from the registration requirements of
the Securities Act afforded by Section 4(2) of the Securities Act. The Company
did not use a placement agent in connection with the transaction in which the
warrants were issued.
II-1
During July 2004 the Company sold 37,500 shares of its common stock for
cash proceeds of $3,000. The sale was made in a private placement transaction
under an exemption from the registration requirements of the Securities Act
afforded by Section 4(2) of the Securities Act. The Company did not use a
placement agent in connection with such sale and did not pay any underwriting
discount or commissions.
During the period from April 6, 2004 to April 30, 2004, the Company sold
an aggregate of 2,166,218 shares of its common stock for gross proceeds of
$126,940 and to settle a payable to an officer in the amount of $9,663. The
sales were all made in private placements transactions under an exemption from
the registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act. The Company did not use a placement agent in connection with
such sales and did not pay any underwriting discounts or commissions.
In March 2004 we issued 500,000 shares of our common stock to TVA
Productions in partial payment for promotional services. We believe that such
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof and Regulation D promulgated thereunder.
During February and March 2004, the Company issued 6,000,000 shares of
common stock in connection with the retirement of the Company's 12% debentures.
All of such shares of stock were issued in private placements transactions under
an exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act. The Company did not use a placement agent
in connection with such sales and did not pay any underwriting discounts or
commissions.
In February 2004 we issued and sold an aggregate 5,000,000 shares of our
common stock to two people upon exercise of options granted in February 2004 for
an aggregate purchase price of $40,000. We believe that such transactions were
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof and Regulation D promulgated thereunder. The Company did
not use a placement agent in connection with such option grants or issuances and
did not pay any underwriting discounts or commissions
In August 2003 we issued and sold 583,333 shares of our common stock to
Mr. William Bragg upon exercise of options for an aggregate purchase price of
$7,000. We believe that such transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof and
Regulation D promulgated thereunder.
In order to obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with four accredited investors on April 16, 2003
for the sale of (i) $250,000 in convertible debentures and (ii) warrants to buy
500,000 shares of our common stock. We believe that such transaction was exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof and Regulation D promulgated thereunder.
II-2
Item 27. Exhibits
(a) Exhibits. The following exhibits are either filed as part of this report or
are incorporated herein by reference:
1.1 Registration Rights Agreement dated as of May 5, 2005 between Nutmeg
Group, LLC and the Company.**
2.1 Agreement and Plan of Merger between Torbay Acquisition Corporation and
Torbay Holdings, Inc. (1)
3.1 Certificate of Incorporation of Torbay Holdings, Inc., as amended (2)
3.2 By-Laws of Torbay Holdings, Inc.(3)
4.1 Certificate of Designation with respect to Series 1 Convertible Preferred
Stock of Torbay Holdings, Inc.(4)
4.2 Form of Common Stock Certificate (5)
4.3 Warrant to Purchase 500,000 Shares of Common Stock, dated August 24, 2004*
4.4 Warrant to Purchase 500,000 Shares of Common Stock, dated August 24, 2004*
4.5 Warrant to Purchase 3,000,000 Shares of Common Stock dated December 16,
2004*
4.6 Warrant to Purchase 2,500,000 Shares of Common Stock dated December 16,
2004*
4.7 Warrant to Purchase 2,000,000 Shares of Common Stock dated December 16,
2004*
4.8 Warrant to Purchase 2,000,000 Shares of Common Stock dated December 16,
2004*
4.9 Warrant to Purchase 2,000,000 Shares of Common Stock dated December 16,
2004*
4.10 Warrant to Purchase 2,000,000 Shares of Common Stock dated December 16,
2004*
4.11 Warrant to Purchase 2,000,000 Shares of Common Stock dated December 16,
2004*
4.12 Warrant to Purchase 2,000,000 Shares of Common Stock dated December 16,
2004*
4.13 Warrant to Purchase 1,000,000 Shares of Common Stock dated December 16,
2004*
4.14 Warrant to Purchase 1,000,000 Shares of Common Stock dated December 16,
2004*
II-3
4.15 Warrant to Purchase 1,000,000 Shares of Common Stock dated December 16,
2004*
5.1 Opinion of Guzov Ofsink, LLC*
10.1 Manufacturing Agreement between the Company and Dynapoint, Inc. dated
April 16, 2002(6)
10.2 Redemption and Settlement Agreement and Mutual General Release, dated as
of February 17, 2004 (7)
10.3 Lease, dated October 22, 2003 between 140 OCR, LLC and the Company (8)
10.4 Nutmeg Term Sheet for $50,000 Financing*
10.5 Nutmeg Term Sheet for $30,000 Financing*
10.6 Agreement, dated December 16, 2004 between the Company and The Nutmeg
Group*
21.1 List of subsidiaries.*
23.1 Consent of counsel to the use of the opinion annexed at Exhibit 5.1 is
contained in the opinion annexed as Exhibit 5.1*;
23.2 Consent of accountants for use of their report.**
- -------------------------
* Previously filed.
**Filed herewith.
(1) Incorporated by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K, filed with the Securities and Exchange Commission (the
Commission") on November 12, 1999 (the "1999 8-K").
(2) Incorporated by reference to Exhibit 3.1 to the 1999 8-K.
(3) Incorporated by reference to Exhibit 3.2 to the 1999 8-K.
(4) Incorporated by reference to Exhibit 3.4 to the 1999 8-K.
(5) Incorporated herein by reference to Exhibit 4.2 to the Registration
Statement on Form SB-2 (Registration No. 333-93847), filed with the
Commission on December 30, 1999.
(6) Incorporated by reference to Exhibit 10.3 to our Form 10-KSB filed with
the Commission on April 29, 2002.
(7) Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed with the Commission on February 18, 2004.
II-4
(8) Incorporated by reference to Exhibit 10.3 to our Form 10-KSB filed with
the Commission on April 14, 2004.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement(or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering. Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly in the
City of Mineola, New York on May 9, 2005.
TORBAY HOLDINGS, INC.
By: /s/ William Thomas Large
------------------------
William Thomas Large
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was by the following persons in the capacities and on the
dates stated.
Name and Title Date
- -------------- ----
/s/ William Thomas Large
- --------------------------------------- May 9, 2005
William Thomas Large
President, Chief Executive Officer
And Director (Principal Executive
Officer, Principal Accounting Officer
and Principal Financial Officer)
/s/ Alexander Gordon Lane
- --------------------------------------- May 9, 2005
Alexander Gordon
Chairman, Secretary
and Director
/s/ Thomas A. Marchant
- --------------------------------------- May 9, 2005
Thomas A. Marchant
Director