As filed with the Securities and Exchange Commission on September 4, 2003
Registration No. 333-107720
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2 1A
FIRST AMENDMENT TO REGISTRATION STATEMENT UNDER
UNDER
THE SECURITIES ACT OF 1933
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LocatePLUS Holdings Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 7379 04-3332304
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Identification
Classification Number)
Code Number)
100 Cummings Center, Suite 235M
Beverly, Massachusetts 01915
(978) 921-2727
(Address and telephone number of principal executive offices and principal
place of business)
------------------
Jon R. Latorella
President and Chief Executive Officer
LocatePLUS Holdings Corporation
100 Cummings Center
Suite 235M
Beverly, Massachusetts 01915
(978) 921-2727
(Name, Address, and Telephone Number of Agent for Service)
------------------
Copy to:
Michael A. Hickey, Esq.
Kirkpatrick & Lockhart LLP
75 State Street
Boston, Massachusetts 02109
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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. [ ]
----------------------------------------
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF . . . AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES REGISTERED. . . . BE REGISTERED OFFERING PRICE PER SHARE (1) AGGREGATE OFFERING REGISTRATION
. . . . . . . . . . . . . . (2) PRICE (1) FEE
- ---------------------------- ------------- ----------------------------- -------------------- -------------
Class A Voting Common Stock,
par value $0.01 per share. . 22,500,000 $ 0.305 $ 6,862,500 $ 556
- ---------------------------- ------------- ----------------------------- -------------------- -------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. For the purposes of
this table, the Registrant has used the average of the closing bid and asked
prices as of August 1, 2003.
(2) The maximum number of shares being registered was calculated by adding the
number of shares to be registered by a current shareholder (2,500,000 shares)
to 20,000,000, a bona fide estimate of the number of shares subject to issuance
pursuant to the exercise of a put right under a certain Investment Agreement
between the Registrant and a third party. The Registrant's management currently
anticipates that the Registrant will not cause the put right to be exercised in
a manner that will result in the issuance of more than 20,000,000 shares.
----------------------------------------
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 that 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.
----------------------------------------
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED September 4, 2003
[GRAPHIC OMITED]
[GRAPHIC OMITED]
SUBJECT TO COMPLETION, DATED September 4, 2003
LOCATEPLUS HOLDINGS CORPORATION
PROSPECTUS
This prospectus relates to the resale of up to 22,500,000 shares of our
Class A Voting Common Stock by a current stockholder, NFC Corporation, and by
Dutchess Private Equities Fund, L.P., which will become a stockholder pursuant
to a "put right" under an Investment Agreement (also referred to as an "Equity
Line of Credit" arrangement) that we have entered into with Dutchess. That
Investment Agreement permits us to "put" up to
$5.0 million in shares of Class A Voting Common Stock to Dutchess. We are not
selling any securities in this offering and therefore will not receive any
proceeds from this offering. We will, however, receive proceeds from the sale
of securities pursuant to our exercise of the put right. All costs associated
with this registration will be borne by us.
The shares of Class A Voting Common Stock are being offered for sale by the
selling stockholders at prices established on the Over-the-Counter Bulletin
Board during the term of this offering. Our Class A Voting Common Stock is
quoted on the Over-the-Counter Bulletin Board under the symbol "LPLHA" During
the 90 day period ending on August 30, 2003, the lowest reported trading price
per share for our Class A Voting Common Stock was $0.18 and the highest reported
trading price per share for our Class A Voting Common Stock was $0.42.
The selling stockholders consist of:
- - Dutchess, which intends to resell up to 20,000,000 shares of our Class A
Voting Common Stock; and
- - NFC, which intends to resell up to 2,500,000 shares of our Class A Voting
Common Stock.
Dutchess is an "underwriter" within the meaning of the Securities Act of
1933, as amended, in connection with the resale of Class A Voting Common Stock
under the Investment Agreement. Dutchess will pay us 95% of the lowest closing
bid price of the Class A Voting Common Stock during the ten consecutive trading
day period immediately following the date of our notice to them of our election
to put shares pursuant to the Equity Line of Credit. The shares held by NFC
were issued by us in a prior private placement.
With the exception of Dutchess, no other underwriter or person has been
engaged to facilitate the sale of shares of Class A Voting Common Stock in this
offering. This offering will terminate no later than 36 months after the
registration statement of which this prospectus is a part is declared effective
by the Securities and Exchange Commission. None of the proceeds from the sale
of Class A Voting Common Stock by the selling stockholders will be placed in
escrow, trust or any similar account. For more information on the Investment
Agreement with Dutchess, refer to the section of this prospectus titled "Plan of
Distribution" beginning on page 14.
_____________________
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. YOU SHOULD
CAREFULLY REVIEW THE SECTION OF THIS PROSPECTUS TITLED "RISK FACTORS", WHICH
BEGINS ON PAGE 4, BEFORE YOU MAKE AN INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
AUTHORITY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR THEIR OFFER OR
SALE, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is dated September 4, 2003.
TABLE OF CONTENTS
-----------------
PAGE
----
Prospectus Summary...........................................1
Risk Factors.................................................4
Forward-Looking Statements..................................11
Use of Proceeds............................................12
Determination of Offering Price...........................12
Dividend Policy.............................................12
Dilution.....................................................13
Plan of Distribution.......................................14
Capitalization...............................................17
Selected Consolidated Financial Data......................18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................................19
Business.....................................................25
Executive Officers and Directors..........................30
Organization Within the Past Five Years.................38
Certain Transactions........................................39
Principal Stockholders......................................41
Description of Capital Stock..............................44
Shares Eligible for Future Sale..........................47
Transfer Agent and Registrar..............................48
Legal Matters...............................................48
Experts......................................................48
Additional Information......................................48
Index to Financial Statements............................F-1
* * *
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information in this prospectus regarding us and the risks associated with
purchasing our securities.
OUR COMPANY
-----------
We are a business-to-business and business-to-government provider of public
information via our proprietary data integration solutions.
Since 1996, we have sold a CD-ROM-based product, which we refer to as Worldwide
Information , that enables users to search certain motor vehicle records and
drivers' license information in multiple states through a dynamic search engine,
using complete or partial information.
Since March 1, 2000, we have maintained a database that is accessible through
the Internet, known as LocatePLUS. Our LocatePLUS database contains searchable
and cross-referenced public information about individuals throughout the United
States, including individuals' names, addresses, dates of birth, bankruptcies,
social security numbers, prior residences and probable acquaintances (such as
neighbors and other individuals sharing a residence) and, in certain
circumstances, real estate holdings, liens, judgments, drivers' license
information and motor vehicle records. Information in our LocatePLUS database
is integrated in a manner that allows users to access it rapidly and
efficiently.
During the last quarter of 2002, we launched another version of our
LocatePLUS database that is accessible using certain wireless devices
manufactured by third parties, such as personal digital assistants and e-mail
capable pagers. We refer to this new product as LocatePLUS AnyWhere .
Our products are primarily marketed and sold to federal, state and local
government agencies (including law enforcement agencies), private investigators,
human resource professionals and the legal profession. Our products are used
in:
- - crime and terrorism prevention and investigation;
- - detection of criminal and civil fraud;
- - "skip tracking" (i.e., locating debtors and individuals in violation of
parole or bail restrictions);
- - background checks;
- - legal due diligence; and
- - risk management.
As of June 30, 2003, there were approximately 12,461 users of our
LocatePLUS database, approximately 2,000 purchasers of our Worldwide
Information CD-ROM product, and 15 users of our LocatePLUS AnyWhere product.
HOW TO CONTACT US
-----------------
Our executive offices are located at 100 Cummings Center, Suite 235M,
Beverly, Massachusetts 01915. Our phone number is (978) 921-2727. Our website
is http://www.locateplus.com. Information on our website is not intended to be
incorporated into this prospectus.
1
SALES BY OUR SELLING STOCKHOLDERS
---------------------------------
This prospectus relates to the resale of up to 22,500,000 shares of our
Class A Voting Common Stock by two entities: a current stockholder, NFC
Corporation, and Dutchess Private Equities Fund, L.P., which will become a
stockholder pursuant to a put right under an Investment Agreement that we have
entered into with Dutchess.
The table below sets forth the shares that we are registering pursuant to the
Registration Statement to which this prospectus is a part:
STOCKHOLDER NUMBER OF SHARES
- -------------------------------------------- ------------------
Dutchess Private Equities Fund, L.P 20,000,000(1)(2)
NFC Corporation 2,500,000
-----------
Total Class A Voting Common Stock being registered 22,500,000
(1) For the purpose of determining the number of shares subject to
registration with the Securities and Exchange Commission, we have assumed that
we will issue not more than 20,000,000 shares pursuant to the exercise of our
put right under the Investment Agreement, although the number of shares that we
will actually issue pursuant to that put right may be more than or less than
20,000,000, depending on the trading price of our Class A Voting Common Stock.
(2) We currently have no intent to exercise the put right in a manner that
would result in our issuance of more than 20,000,000 shares, but if we were to
exercise the put right in that manner, we would be required to file a subsequent
registration statement with the Securities and Exchange Commission and for that
registration statement to be deemed effective prior to the issuance of any such
additional shares.
The Investment Agreement with Dutchess (also referred to as an "Equity Line
of Credit" arrangement) provides that, following notice to Dutchess, we may put
to Dutchess up to $5.0 million in shares of our Class A Voting Common Stock for
a purchase price equal to 95% of the lowest closing bid price on the
Over-the-Counter Bulletin Board of our Class A Voting Common Stock during the
ten day period following that notice. The number of shares that we will be
permitted to put pursuant to the Investment Agreement will be limited by our
Class A Voting Common Stock's trading volume and other factors described in this
prospectus. In turn, Dutchess has indicated that it will resell those shares in
the open market, resell our shares to other investors through negotiated
transactions or hold our shares in its portfolio. This prospectus covers the
resale of our stock by Dutchess either in the open market or to other investors
through negotiated transactions.
We are also registering for resale 2,500,000 shares of issued and
outstanding Class A Voting Common Stock, which were issued in a private
placement to NFC prior to the filing of the registration statement of which this
prospectus is a part. NFC is not affiliated with us or any of our directors,
officers or 5% of greater stockholders and, to the best of our knowledge, NFC is
unaffiliated with Dutchess.
IMPORTANT NOTE CONCERNING OUR FINANCIAL CONDITION
-------------------------------------------------
Our financial statements were prepared on the assumption that we will
continue as a going concern, and our independent accountants have expressed
doubt as to that assumption. If sufficient capital is not available, we would
likely be required to reduce or discontinue our operations.
Our management estimates that our projected cash flow from operations, plus
our cash reserves, will be sufficient to permit us to continue our current level
of operations for at least twelve months from the date of this prospectus.
However, we plan to increase our sales and marketing, product development, and
administrative expenses during the remainder of 2003. We intend to use the
proceeds from the Equity Line of Credit to fund these activities, although there
can be no assurance the funds will be available from the Equity Line of Credit
in the amounts or at the times we require.
For more information on this matter, you should review our financial
statements, which begin on page F-1 of this prospectus, as well as the section
of this prospectus titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations", beginning on page 19.
2
OUR CAPITAL STRUCTURE AND SHARES ELIGIBLE FOR FUTURE SALE
---------------------------------------------------------
The following table outlines our capital stock as of August 30, 2003:
Shares of Class A Voting Common Stock outstanding 61,837,384 (1)
Shares of Class A Voting Common Stock issuable upon exercise of the put right 20,000,000 (2)
-----------
Shares of Class A Voting Common Stock issued following such exercise 81,837,384 (1)(2)
Shares of Class B Non-voting Common Stock outstanding 68,765,726 (3)
Total shares of both classes of Common Stock outstanding 150,603,110 (1)(2)(3)
______________
(1) Assuming no exercise or conversion of:
- - warrants to purchase 18,894,739 shares of Class A Voting Common Stock
currently outstanding;
- - options to purchase up to 13,793,300 shares of Class A Voting Common Stock
pursuant to our 1999 Incentive and Non-qualified Stock Option Plan;
- - options to purchase up to 25,000,000 shares of Class A Voting Common Stock
pursuant to our 2003 Stock Plan; or
- - debt convertible into 44,444 shares of Class A Voting Common Stock at the
election of one debtholder.
(2) For the purpose of determining the number of shares subject to
registration with the Securities and Exchange Commission, we have assumed that
we will issue not more than 20,000,000 shares pursuant to our exercise of our
put right under our Investment Agreement with Dutchess, although the number of
shares that we will actually issue pursuant to that put right may be more than
or less than 20,000,000, depending on the trading price of our Class A Voting
Common Stock. Pursuant to that Investment Agreement, we may, at our discretion,
periodically "put" or require Dutchess to purchase shares of our Class A Voting
Common Stock. For each share of Class A Voting Common Stock purchased under the
Investment Agreement, Dutchess will pay 95% of the lowest closing bid price on
the Over-the-Counter Bulletin Board (or other principal market on which our
Class A Voting Common Stock is traded) during the ten day period immediately
following the date on which we give notice to Dutchess of our intention to put
such stock. Our stock price may fluctuate significantly during the term of the
Investment Agreement. For example, during the 90 day period ending on August
30, 2003, the lowest reported trading price per share for our Class A Voting
Common Stock was $0.18 and the highest reported trading price per share for our
Class A Voting Common Stock was $0.42. As a result, we cannot predict the
number of shares that will be issued pursuant to our exercise of the put right.
We currently have no intent to exercise the put right in a manner that would
result in our issuance of more than 20,000,000 shares, but if we were to
exercise the put right in that manner, we would be required to file a subsequent
registration statement with the Securities and Exchange Commission and for that
registration statement to be deemed effective prior to the issuance of any such
additional shares.
(3) Assuming no exercise or conversion of:
- - warrants and options to purchase up to 6,422,139 shares of Class B
Non-voting Common Stock; or
- - options to purchase up to 25,000,000 shares of Class B Non-Voting Common
Stock pursuant to our 2003 Stock Plan.
* * *
3
RISK FACTORS
Any investment in our securities involves a high degree of risk. You
should carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase any of our
securities. We have not attempted to rank the following risks in order of their
likelihood.
RISKS RELATED TO OUR BUSINESS
-----------------------------
OUR FINANCIAL STATEMENTS WERE PREPARED ON THE ASSUMPTION THAT WE WILL CONTINUE
AS A GOING CONCERN, AND OUR INDEPENDENT ACCOUNTANTS HAVE EXPRESSED DOUBT AS TO
THAT ASSUMPTION.
Our financial statements were prepared on the assumption that we will
continue as a going concern, and our independent accountants have expressed
doubt as to that assumption. If sufficient capital is not available, we would
likely be required to reduce or discontinue our operations. Our management
estimates that our projected cash flow from operations, plus our cash reserves,
will be sufficient to permit us to continue our current level of operations for
at least twelve months from the date of this prospectus. However, we plan to
increase our sales and marketing, product development, and administrative
expenses during the remainder of 2003. We intend to use the proceeds from the
Equity Line of Credit to fund these activities, although there can be no
assurance the funds will be available from the Equity Line of Credit in the
amounts or at the times we require. As a result, we may be required to raise
additional capital, which may not be available to us on favorable terms, if at
all. If we are unable to generate sufficient cash from operations and we are
unable to raise additional capital, we will be forced to discontinue some or all
of our operations, reduce the development of some or all of our products, or
reduce our workforce, all of which would materially adversely affect our
business.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND CANNOT ASSURE YOU THAT WE
WILL ACHIEVE PROFITABILITY.
We have incurred significant net losses since our inception. We incurred
net losses of approximately $4.4 million in 2001, $4.0 million in 2002 and $1.6
million for the six months ended June 30, 2003. Our accumulated deficit as of
June 30, 2003 was approximately $19.9 million. We anticipate that our expenses
relating to our sales and marketing and product development, as well as our
general and administrative expenses, will increase during the remainder of 2003
and for the foreseeable future. To achieve profitability, we must generate
substantially more revenue than we have in prior years. Even if we ultimately
achieve profitability, we may not be able to sustain or increase our
profitability. If our revenue grows slower than we anticipate, or if our
operating expenses exceed our expectations, our operating results and financial
condition will be adversely affected. For more information on our history of
losses, you should review our financial statements, which are included in this
prospectus beginning on page F-1.
GEMSTONE INVESTMENT COMPANY, INC. HAS A LIEN ON ALL OF OUR ASSETS THAT WAS
GRANTED IN CONNECTION WITH A LOAN TO US BY GEMSTONE. IN THE EVENT THAT WE WERE
TO DEFAULT UNDER THIS LOAN, GEMSTONE COULD FORECLOSE UPON OUR ASSETS. ANY SUCH
FORECLOSURE WOULD SIGNIFICANTLY DISRUPT OUR BUSINESS AND MAY RESULT IN A LOSS OF
INVESTMENT BY INVESTORS.
On June 4, 2002, we received $750,000 from Gemstone Investment Company,
Inc. by issuing a promissory note collateralized by all of our assets and a
personal guarantee by our Chief Executive Officer (including a pledge of five
million shares of Class A Voting Common Stock that he owned and a mortgage on
certain of his other personal assets). Gemstone is an unaffiliated third party
lender that specializes in loans to start-up and early stage businesses. There
is no business relationship between Gemstone and any of our officers or
directors, nor is there, to management's knowledge, any affiliation between
Gemstone and any of our 5% or greater stockholders. As of October 3, 2002,
$600,000 had been repaid on this note, however the terms of this loan called for
its repayment in full, including accrued interest, by the earlier of October 3,
2002 or two business days after the closing of our initial public offering. As
such, the terms of the note were renegotiated and all accrued interest and
principal was converted to a $285,000 demand note with interest payable at 42%
per annum. If we were to default under that loan arrangement, Gemstone would
have the right to foreclose on our assets to satisfy our obligations under that
arrangement. Any such foreclosure would materially disrupt our business and
could cause investors to lose all or a portion of their investment.
OUR RIGHT TO USE CERTAIN THIRD PARTY DATA IS SUBJECT TO TERMINATION BY OUR
CURRENT DATA PROVIDERS. ANY SUCH TERMINATION COULD DISRUPT OUR BUSINESS.
We obtain our data from a variety of sources. Some of our data providers
may terminate our right to use their data in their sole discretion and without
any recourse to us. If our access to certain data sources is restricted, there
4
can be no assurance that we would be able to obtain and integrate replacement
data on a timely basis. In such an event, our products would likely be less
attractive to current and potential customers and our revenue would likely
decrease.
A SIGNIFICANT PORTION OF OUR ASSETS CONSISTS OF AN AMOUNT DUE TO US FROM A THIRD
PARTY. IF THIS AMOUNT IS NOT REPAID, OUR FINANCIAL CONDITION COULD BE HARMED.
As of June 30, 2003, approximately $889,000 million was owed to us by an
unaffiliated, privately held leasing company, pursuant to a demand note that
bears interest at the rate of 11% per annum. We cannot guarantee the timing of
this repayment or that this amount will be repaid at all. In the event that
this amount is not repaid, our financial condition would be materially harmed.
OUR FUTURE QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD
ADVERSELY AFFECT THE PRICE OF OUR SECURITIES.
You should not rely on quarter-to-quarter comparisons of our historical
results as an indication of our future performance. If our quarterly operating
results do not meet the expectations of our investors, the market price of our
securities will likely decline. Our future quarterly results may fluctuate as a
result of many factors, some of which are outside our control, including:
- - legal and regulatory developments that may adversely affect our ability to
collect or disseminate data;
- - the timing, introduction and commercialization of our new products and
services (including the integration of additional datasets into our databases);
- - increased unemployment in the United States, which may result in reduced
use of our products by human resources personnel;
- - the potential costs of protecting our intellectual property rights;
- - the operating costs and capital expenditures related to the expansion of
our business operations and infrastructure, including the retention of key
personnel, the addition of new employees and the acquisition and integration of
new datasets;
- - the introduction of similar or substitute databases by our competitors;
and
- - the timing and establishment of our marketing and channel partnership
arrangements.
WE HAVE LIMITED PRODUCT OFFERINGS, AND IF DEMAND FOR THESE PRODUCTS DECLINES OR
FAILS TO DEVELOP AS WE EXPECT, OUR REVENUE WILL DECLINE.
We derive the majority of our current consolidated net revenue from two
products. Specifically, in the year ended December 31, 2002 as well as the six
months ended June 30, 2003, we derived substantially all of our recurring
revenue from our CD-ROM-based Worldwide Information and Internet-based
LocatePLUS products. We expect that revenue from our Internet-based and
CD-ROM-based products will continue to account for a significant portion of our
total revenue for the foreseeable future. As a result, continued and widespread
market acceptance of our existing products is critical to our future success.
We cannot assure you that our current products will achieve market acceptance at
the rates at which we expect, or that demand for our products will continue to
grow. If our products do not achieve increasing market acceptance, our revenue
would most likely decline and our financial condition would be adversely
affected.
WE OBTAIN DATA FROM A VARIETY OF SOURCES. IF WE ARE UNABLE TO OBTAIN NECESSARY
DATA, OUR PRODUCTS MAY NOT BE ATTRACTIVE TO OUR TARGET CUSTOMERS.
Sources of our data include both private and government data providers,
including federal, state and local government agencies. From time to time,
certain sources of publicly available data, such as state motor vehicle
registries, have refused to release data to us. As a result, we have, on
occasion, been forced to obtain such data through the exercise of our rights
under the Freedom of Information Act. Such efforts can be costly and time
consuming, and we cannot guarantee that we will be able to successfully acquire
such data on a consistent basis. From time to time, we may also be required to
license or purchase additional data to expand our product offerings or maintain
our databases. We cannot assure you that such third-party licenses will be
available to us on commercially reasonable terms, or at all. Our inability to
maintain or obtain any third-party license required to sell or develop our
5
products or product enhancements could require us to obtain substitute, possibly
less current data, which would likely be less attractive to our current and
prospective customers.
IF WE CANNOT INTEGRATE, UPDATE AND IMPROVE OUR PRODUCTS, OUR PRODUCT MAY BE LESS
ATTRACTIVE TO OUR TARGET MARKET, WHICH WOULD ADVERSELY AFFECT OUR REVENUES AND
FINANCIAL CONDITION.
We must continuously update our databases so that we may provide datasets
to customers that are accurate and current. We must also integrate additional
datasets for our products to remain competitive. Updating our databases and
integrating additional datasets are time-consuming processes and often require
extensive resources, as we often obtain public documents in a form that is not
suitable for use in any of our products. For example, we often receive "raw
data" on electronic tape media from state motor vehicle licensing agencies that
must be modified so that it can be searched rapidly based upon partial
information. We can give no assurance that we will have adequate resources to
update our datasets or to integrate new datasets. If we are unable to update
our datasets or integrate new datasets, our products are likely to be less
desirable to our target market than those of our competitors, and our sales and
financial condition would be adversely affected.
THE MARKET FOR DATABASE PRODUCTS AND SERVICES IS HIGHLY COMPETITIVE, AND WE MAY
NOT BE ABLE TO EFFECTIVELY COMPETE IN THIS MARKET.
Our industry is intensely competitive and we expect competition to continue
to increase from both existing competitors and new market entrants. Many of the
companies that currently compete with us, as well as other companies with whom
we may compete in the future, are national or international in scope and have
greater resources than we do. Those resources could enable those companies to
initiate price cuts or take other measures in an effort to gain market share in
our target markets. We may have inadequate resources to compete against such
businesses.
For example, our LocatePLUS product competes with products offered by:
- - Accurint;
- - ChoicePoint;
- - Confi-chek.com;
- - FlatRateInfo.com; and
- - Lexis-Nexis.
We cannot assure you that we will be able to compete successfully against
these or other current and future participants in our markets or against
alternative technologies, nor can we assure you that the competitive pressures
that we face will not adversely affect our business.
WE FACE RISKS ASSOCIATED WITH OUR STRATEGIC ALLIANCES, WHICH COULD LIMIT OUR
ABILITY TO INCREASE OUR MARKET SHARE.
From time to time, we anticipate that we will enter into "channel partner"
arrangements and similar strategic alliances through which we will license
access to our databases to third parties in exchange for royalties. We can give
no assurance that we will be able to identify and secure appropriate channel
partners or that any channel partner arrangements will be profitable. If we are
unable to enter into appropriate channel partner arrangements, use of our
database may not grow sufficiently to meet our business objectives.
TO INCREASE OUR REVENUE, WE MUST INCREASE OUR SALES FORCE, AND EXPAND OUR
DISTRIBUTION CHANNELS. WE CAN NOT ASSURE YOU THAT WE WILL BE SUCCESSFUL IN
THESE EFFORTS.
To date, we have sold our products primarily through our eleven person
direct sales and tele-sales force. Our future revenue growth will depend in
large part on recruiting and training additional direct sales and tele-sales
personnel and expanding our distribution channels. We may experience difficulty
recruiting qualified sales and support personnel and establishing third-party
distribution relationships. We may not be able to successfully expand our
tele-sales force or other distribution channels, and any such expansion, if
achieved, may not result in increased revenue or profits.
6
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, AND WE MAY
BE SUBJECT TO INFRINGEMENT CLAIMS THAT MAY ADVERSELY AFFECT OUR BUSINESS AND
FINANCIAL CONDITION.
Our products consist of publicly available data that we organize to permit
rapid and effective computerized searches. Because our datasets consist of
publicly available data, we cannot prevent competitors from developing
equivalent databases. We anticipate that our success will depend, in part, on
our proprietary data integration and linking methodologies. We have not
obtained, and do not anticipate that we will obtain, patent protection for these
methodologies. We rely on trade secret rights, confidentiality agreements and
procedures and licensing arrangements to establish and protect our proprietary
rights with respect to our data integration methodologies. Despite our efforts,
third parties could attempt to copy or otherwise obtain and make unauthorized
use of our products or independently develop similar products.
WE FACE SIGNIFICANT SECURITY RISKS RELATED TO OUR ELECTRONIC TRANSMISSION OF
CONFIDENTIAL INFORMATION. IF WE ARE UNABLE TO ADEQUATELY PROTECT CERTAIN
CONFIDENTIAL INFORMATION, OUR REPUTATION AND BUSINESS WOULD BE ADVERSELY
AFFECTED.
We rely on commercially available encryption software and other
technologies to provide system security and to effect secure transmission of
confidential information, such as credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the security measures used
by us to protect customer transaction data. If our security systems were to be
compromised, it could have a material adverse effect on our reputation and
business. A party who is able to circumvent our security measures could
misappropriate our proprietary information or cause interruptions in our
operations and damage to our reputation and customers' willingness to use our
products. We may be required to expend significant capital and other resources
to protect against these security breaches or to alleviate problems caused by
these breaches.
OUR PRODUCTS MAY HAVE UNKNOWN DEFECTS WHICH COULD HAVE ADVERSE EFFECTS ON OUR
CUSTOMER RELATIONS AND FINANCIAL RESULTS.
Datasets as complex as those that we develop may contain undetected defects
or errors. For example, our products may contain unknown defects due to errors
in the data that we purchase from our data providers. Despite testing, defects
or errors may occur in our existing or new products, which could make them less
attractive to our target markets. As a result, defects and errors in our
datasets could result in loss of revenue or market share, failure to achieve
market acceptance, diversion of development resources, injury to our reputation
and an adverse effect on our business, financial condition and results of
operation.
DEFECTS OR ERRORS COULD RESULT IN PRODUCT LIABILITY CLAIMS THAT MAY NOT BE
COVERED BY OUR INSURANCE.
Our datasets may contain errors that may give rise to claims against us.
We generally disclaim all warranties on the data we include in our products.
However, our disclaimers may not be enforced. In such an event, or if
liabilities arise that are not contractually limited, our business could be
adversely affected. We currently do not maintain professional liability
insurance, and our general liability insurance may not cover claims of this
nature.
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR PLANNED GROWTH.
As of June 30, 2003, we had 41 employees. We intend to expand our customer
base and develop new products. To manage our anticipated growth, we must
continue to improve our operational and financial systems and expand, train,
retain and manage our employee base. Because of the registration of our
securities, we will be subject to additional reporting and disclosure
obligations, and we anticipate that we will hire additional finance and
administrative personnel to address these obligations. In addition, the
anticipated growth of our business will place a significant strain on our
existing managerial and financial resources.
IF WE ARE NOT ABLE TO HIRE, INTEGRATE OR RETAIN QUALIFIED PERSONNEL, WE MAY NOT
BE ABLE TO CONTINUE OUR BUSINESS AS PRESENTLY CONDUCTED.
The recent growth in our business has resulted in an increase in the
responsibilities of our personnel. Several of our personnel are presently
serving in more than one capacity. In addition, we expect that we will need to
hire additional employees during 2003. Competition for experienced and
qualified personnel in our industry is intense. We may not be able to retain
our current key employees, or attract, integrate or retain other qualified
personnel in
7
the future. If we do not succeed in attracting new personnel or in integrating,
retaining and motivating our current personnel, our business could be harmed.
WE DEPEND ON OUR KEY EMPLOYEES FOR OUR FUTURE SUCCESS; THE LOSS OF ANY OF OUR
KEY EMPLOYEES COULD DELAY OUR PLANNED GROWTH AND LIMIT OUR ABILITY TO ACHIEVE
PROFITABILITY.
Our success depends to a significant extent on the performance and
continued service of our senior management and other key employees, and
particularly those of our President and Chief Executive Officer, Mr. Jon R.
Latorella. We have no employment agreements with any of our employees. The
loss of the services of any of our senior management or any of our other key
employees would disrupt our operations and would delay our planned growth while
we worked to replace those employees. We do not maintain "key man" life
insurance on any of our employees. As a result, if any of our key employees
were to die or become unable to provide services for us, our operations would be
disrupted and we would have no means of recovering any resulting losses.
THERE IS NO ASSURANCE THAT WE WILL PAY DIVIDENDS IN THE FUTURE.
We have never declared or paid a cash dividend. At this time, we do not
anticipate paying any dividends in the future. We are under no legal or
contractual obligation to declare or to pay dividends, and the timing and amount
of any future dividends and distributions is at the discretion of our Board of
Directors and will depend, among other things, on our future after-tax earnings,
operations, capital requirements, borrowing capacity, financial condition and
general business conditions. We plan to retain any earnings for use in the
operation of our business. You should not purchase our securities on the
expectation of future dividends.
RISKS RELATED TO OUR INDUSTRY
-----------------------------
EXISTING GOVERNMENT REGULATIONS AND INDUSTRY STANDARDS MAY LIMIT OUR ABILITY TO
ACQUIRE OR DISSEMINATE DATA. IF OUR ABILITY TO ACQUIRE OR DISSEMINATE DATA IS
LIMITED, OUR REVENUES WILL DECREASE AND OUR FINANCIAL CONDITION WILL BE
ADVERSELY AFFECTED. WE MAY ALSO BE SUBJECT TO LIABILITY ARISING FROM SUCH
REGULATIONS.
Much of the data we provide is subject to regulation by the Federal Trade
Commission under the Federal Fair Credit Reporting Act and Title V of the
Financial Services Modernization Act (which is also referred to as the
"Gramm-Leach-Bliley Act"), and to a lesser extent, by various other federal,
state and local regulatory authorities pursuant to a variety of laws. These
laws and regulations are designed to protect individuals from the misuse of
their personal information.
We have not engaged counsel or any other third party to review our activity in
light of these laws and regulations, although we believe that our activities do
not violate any law specifically applicable to the dissemination of data
concerning individuals. We may be in violation of laws governing the
dissemination of data. In such a case, we may be subject to enforcement action
by regulatory agencies and claims against us by individuals (to the extent such
laws permit private rights of action). Any such claims could significantly
disrupt our business and operations. We do not currently maintain liability
insurance to cover such claims.
FUTURE GOVERNMENT REGULATION MAY FURTHER LIMIT OUR ABILITY TO PROVIDE OUR
PRODUCTS TO CUSTOMERS AND CAUSE US TO LOSE REVENUE.
Future laws or regulations that further restrict the use of personal or
public record information could disrupt our business and could cause us to lose
revenue. For example, if laws were enacted that restricted our use of Social
Security numbers, our ability to provide meaningful data to our customers would
be adversely affected. If we are unable to respond to regulatory or industry
standards effectively, our business, financial condition and results of
operation would be adversely affected. Our future success will depend, in part,
on our ability to enhance and improve the responsiveness, functionality and
features of our products and services in accordance with newly-imposed
regulatory or industry standards, of which we can give no assurance.
WE COULD FACE LIABILITY BASED ON THE NATURE OF OUR SERVICES AND THE CONTENT OF
THE MATERIALS THAT WE PROVIDE.
We may face potential liability from individuals, government agencies or
businesses for defamation, invasion of privacy, negligence, copyright, patent or
trademark infringement and other claims based on the nature and content of the
data contained in our products. Although we carry a limited amount of general
liability insurance, our insurance may not cover claims of these types and may
not be adequate to indemnify us for liability that may be imposed. Any
imposition of liability, particularly liability that is not covered by insurance
or is in excess of our insurance coverage, would negatively affect our
reputation, business, financial condition and results of operations.
8
RISKS ASSOCIATED WITH AN INVESTMENT IN OUR SECURITIES
-----------------------------------------------------
WE HAVE A LARGE NUMBER OF SECURITIES THAT ARE AVAILABLE FOR RESALE. SALES OF
THESE SECURITIES COULD CAUSE THE PRICE OF OUR SECURITIES TO DECLINE.
Sales of a large number of shares of our securities in the public markets,
or the potential for such sales, could decrease the trading price of our
securities and could impair our ability to raise capital through future sales of
our securities. As of August 30, 2003, we had 61,837,384 shares of Class A
Voting Common Stock issued and outstanding and 68,765,726 shares of Class B
Non-voting Common Stock issued and outstanding. If all of our options, warrants
and convertible securities issued as of August 30, 2003 were exercised, we would
have had 119,559,867 shares of Class A Voting Common Stock issued and
outstanding and 100,187,865 shares of Class B Non-voting Common Stock issued and
outstanding
Except to the extent the shares of common stock are held by our "affiliates," as
defined under the Securities and Exchange Commission's Rule 144, we anticipate
that all of those shares will be freely available for public resale, either as a
result of the Securities and Exchange Commission's Rule 144(k) or as a result of
our planned registrations of those issued and outstanding securities through
separate resale registration statements. For more information on this matter,
you should review the section of this prospectus titled "Shares Eligible for
Future Sale", beginning on page 46.
WE HAVE ISSUED A SUBSTANTIAL NUMBER OF WARRANTS AND OTHER CONVERTIBLE
SECURITIES. OUR WARRANTS AND CONVERTIBLE SECURITIES MAY CAUSE THE TRADING PRICE
OF OUR SECURITIES TO DECLINE, AND MAY LIMIT OUR ABILITY TO RAISE CAPITAL FROM
OTHER SOURCES.
As of August 30, 2003, there were 18,894,739 shares of Class A Voting
Common Stock issuable upon the exercise of warrants. As of that date, there
also were 44,444 shares of Class A Voting Common Stock issuable upon conversion
of a certain $10,000 convertible promissory note, and we had reserved 13,793,300
shares of our Class A Voting Common Stock for issuance pursuant to our 1999
Incentive and Non-Qualified Stock Option Plan and 25,000,000 shares of our Class
A Voting Common Stock reserved for issuance pursuant to our 2003 Stock Plan.
As of August 30, 2003, there were 6,422,139 shares of Class B Non-voting Common
Stock issuable upon the exercise of warrants, and 25,000,000 shares reserved for
issuance pursuant to our 2003 Stock Plan.
While these securities are outstanding, the holders will have the opportunity to
profit from a rise in the price of our securities with a resulting dilution
(upon exercise or conversion) in the value of the interests of our other
security holders. Our ability to obtain additional financing during the period
these convertible securities are outstanding may be adversely affected and their
existence may have a negative effect on the price of our securities. The
holders of these securities are likely to exercise them at a time when we would,
in all likelihood, be able to obtain any needed capital by a new offering of
securities on terms more favorable to us than those of the outstanding warrants
and convertible promissory notes.
EXISTING STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF
SECURITIES PURSUANT TO OUR INVESTMENT AGREEMENT WITH DUTCHESS.
The sale of shares pursuant to our Investment Agreement with Dutchess may
have a dilutive impact on our stockholders. As a result, our net income per
share could decrease in future periods, and the market price of our Class A
Voting Common Stock could decline. In addition, the lower our stock price at
the time we exercise our put option, the more shares we will have to issue to
Dutchess to draw down on the full equity line with Dutchess. If our stock price
decreases, then our existing stockholders would experience greater dilution.
DUTCHESS WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR CLASS A
VOTING COMMON STOCK.
The Class A Voting Common Stock to be issued under our agreement with
Dutchess will be purchased at a 5% discount to the lowest closing bid price for
the ten days immediately following our notice to Dutchess of our election to
exercise our put right. These discounted sales could cause the price of our
Class A Voting Common Stock to decline.
9
THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF CLASS A VOTING COMMON
STOCK IN THE MARKET.
The selling stockholders have indicated that they intend to sell in the
public market the shares of common stock being registered in this offering.
Such sales are likely to cause our stock price to decline.
THE ANTICIPATION OF SIGNIFICANT SALES OF OUR CLASS A VOTING COMMON STOCK IN THIS
OFFERING COULD RESULT IN SHORT SELLING BY THIRD PARTIES, WHICH COULD CAUSE OUR
STOCK PRICE TO DECLINE.
The anticipation of significant sales by the selling shareholders could
result in short sales by third parties. If there is not a corresponding demand
for our stock, then our stock price would decline.
OUR SECURITIES HAS BEEN THINLY TRADED ON THE OVER-THE-COUNTER BULLETIN BOARD,
WHICH MAY NOT PROVIDE LIQUIDITY FOR OUR INVESTORS.
Our securities are quoted on the Over-the-Counter Bulletin Board. The
Over-the-Counter Bulletin Board is an inter-dealer, over-the-counter market that
provides significantly less liquidity than the NASDAQ Stock Market or national
or regional exchanges. Securities traded on the Over-the-Counter Bulletin Board
are usually thinly traded, highly volatile, have fewer market makers and are not
followed by analysts. The Securities and Exchange Commission's order handling
rules, which apply to NASDAQ-listed securities, do not apply to securities
quoted on the Over-the-Counter Bulletin Board. Quotes for stocks included on
the Over-the-Counter Bulletin Board are not listed in newspapers. Therefore,
prices for securities traded solely on the Over-the-Counter Bulletin Board may
be difficult to obtain and holders of our securities may be unable to resell
their securities at or near their original acquisition price, or at any price.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE EQUITY LINE OF CREDIT
WITH DUTCHESS WHEN NEEDED.
We are dependent on external financing to fund our planned expansion.
These financing needs are expected to be provided primarily pursuant to the
agreement with Dutchess. No assurances can be given that this financing will be
available in sufficient amounts or at all when needed, in part.
OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER CURRENTLY OWNS A SUBSTANTIAL PORTION
OF OUR VOTING SECURITIES. THEREFORE, HE HAS SUBSTANTIAL CONTROL OVER APPROVING
CERTAIN TRANSACTIONS AND MATTERS PRESENTED TO OUR STOCKHOLDERS.
Mr. Jon R. Latorella, our President and Chief Executive Officer, currently
controls a majority of our voting securities. He will continue to hold a
substantial portion of our voting securities even if the Dutchess put and all of
the warrants and options to purchase shares of Class A Voting Common Stock are
exercised. Mr. Latorella's holdings may delay, deter or prevent transactions,
such as tender offers, that would otherwise benefit investors.
"PENNY STOCK" RULES MAY MAKE BUYING OR SELLING OUR SECURITIES DIFFICULT.
Trading in our securities is subject to the Securities and Exchange
Commission's "penny stock" rules and it is anticipated that trading in our
securities will continue to be subject to the penny stock rules for the
foreseeable future. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
These rules require that any broker-dealer who recommends our securities to
persons other than prior customers and accredited investors must, prior to the
sale, make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to execute the transaction. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated with trading in the penny stock
market. In addition, broker-dealers must disclose commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities they offer. The additional burdens imposed upon broker-dealers
by such requirements may discourage broker-dealers from recommending
transactions in our securities, which could severely limit the liquidity of our
securities and consequently adversely affect the market price for our
securities.
WE MAY SELL ADDITIONAL SHARES IN THE FUTURE, WHICH COULD CAUSE THE PRICE OF OUR
SECURITIES TO DECLINE.
We currently have 150,000,000 shares of Class A Voting Common Stock and
250,000,000 shares of Class B Non-voting Common Stock authorized. As a result,
we have substantial amounts of authorized but unissued capital stock. Our
Second Amended and Restated Certificate of Incorporation and applicable
provisions of Delaware law
10
provide that we may issue authorized capital stock at the approval of our board
Of directors, and no stockholder vote or other form of stockholder approval is
Required for us to issue such capital stock. Consequently, we could
Issue shares of either class of our common stock in connection with future
Financings or acquisitions or in conjunction with equity compensation
Arrangements. The offering prices in connection with those future issuances
Could be less than the current sales prices of our securities. Any future
Issuances of any of our securities could cause the trading price of our
Securities to decline.
THE OVER-THE-COUNTER BULLETIN BOARD IS EXPECTED TO BE REPLACED WITH THE BBX, FOR
WHICH WE MAY NOT QUALIFY.
The NASD has announced that it will phase out the Over-the-Counter Bulletin
Board. The Over-the-Counter Bulletin Board is expect to be replaced with the
BBX, a market that will have a number of qualitative listing standards. We may
not qualify for listing on the BBX. In the event that the Over-the-Counter
Bulletin Board is phased out and we do not quality for the BBX, there would be
no public market for our securities.
INVESTORS MUST CONTACT A BROKER-DEALER TO TRADE OVER-THE-COUNTER BULLETIN BOARD
SECURITIES. AS A RESULT, YOU MAY NOT BE ABLE TO BUY OR SELL OUR SECURITIES AT
THE TIMES THAT YOU MAY WISH.
Even though our securities are quoted on the Over-the-Counter Bulletin
Board, the Over-the-Counter Bulletin Board may not permit our investors to sell
securities when and in the manner that they wish. Because there are no
automated systems for negotiating trades on the Over-the-Counter Bulletin Board,
they are conducted via telephone. In times of heavy market volume, the
limitations of this process may result in a significant increase in the time it
takes to execute investor orders. Therefore, when investors place market orders
- - an order to buy or sell a specific number of shares at the current market
price - it is possible for the price of a stock to go up or down significantly
during the lapse of time between placing a market order and its execution.
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue" or the negative of these terms
or other comparable terminology. Although we believe that the assumptions
underlying our forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
* * *
11
USE OF PROCEEDS
This prospectus relates to the resale of shares of our Class A Voting
Common Stock by a current stockholder and by a party that will become a
stockholder pursuant to our exercise of a put right. There will be no proceeds
to us from the resale of shares by those parties in this offering. However, we
will receive proceeds from the sale of shares pursuant to our exercise of the
put right.
The purchase price of the shares purchased under the Investment Agreement will
be equal to 95% of the lowest closing bid price of our Class A Voting Common
Stock on the Over-the-Counter Bulletin Board for the ten days immediately
following the date of our notice of election to exercise our put. In the case
of resales by Dutchess, due to the possibility that our stock price may
fluctuate during the period between our exercise of the put right and the resale
by Dutchess of shares of our Class A Voting Common Stock, the proceeds to
Dutchess from its resales of our Class A Common Stock may vary significantly
from the proceeds that we will realize from the exercise of our put right.
The proceeds from our exercise of the put right pursuant to the Investment
Agreement will be used for repayment of debt to the holders of certain notes
issued prior to June 2003 (which bear interest at 10% to 12% per annum),
employee compensation (including compensation for executives), infrastructure
build out, sales and marketing, and general working capital.
For illustrative purposes, we have set forth below our intended use of proceeds
for the range of net proceeds indicated below to be received under the
Investment Agreement. The table assumes estimated offering expenses of $40,000.
PROCEEDS %(1) PROCEEDS %(1) PROCEEDS %(1)
- ---------------------------- ----------- ----------- ----------- --------- ----------- ----
GROSS PROCEEDS:. . . . . . . $1,000,000 $3,000,000 $5,000,000
NET PROCEEDS:. . . . . . . . $ 960,000 $2,960,000 $4,960,000
USE OF PROCEEDS:
Repayment of Debt. . . . $ 500,000 53% $1,640,000 55% $1,640,000 33%
Employee Compensation. . $ 150,000 16% $ 150,000 6% $ 150,000 3%
Infrastructure Build-Out $ 100,000 10% $ 750,000 25% $ 750,000 15%
Sales and Marketing. . . $ 100,000 10% $ 250,000 8% $ 250,000 5%
Working Capital. . . . . $ 110,000 11% $ 170,000 6% $2,170,000 44%
----------- ----------- ----------- --------- ----------- ----
TOTAL. . . . . . . . . . . . $ 960,000 100% $2,960,000 100% $4,960,000 100%
(1) Presented as a percentage of net proceeds.
DETERMINATION OF OFFERING PRICE
Our Class A Voting Common Stock is quoted on the Over-the-Counter Bulletin
Board under the symbol "LPLHA." The shares of Class A Voting Common Stock are
being offered for sale by the selling stockholders at prices established on the
Over-the-Counter Bulletin Board during the term of this offering. These prices
will fluctuate based on the demand for the shares. During the 90 day period
ending on August 30, 2003, the lowest reported trading price per share for our
Class A Voting Common Stock on the Over-the-Counter Bulletin Board was $0.18 and
the highest reported trading price per share for our Class A Voting Common Stock
was $0.42. Where indicated, certain share and per share data set forth in this
prospectus assumes that the fair market value of our Class A Voting Common Stock
is $0.30 (the lowest reported closing price for our Class A Voting Common Stock
during the ten day period ending August 30, 2003).
DIVIDEND POLICY
We have never declared or paid a cash dividend. At this time, we do not
anticipate paying dividends in the future. We are under no legal or contractual
obligation to declare or to pay dividends, and the timing and amount of any
future cash dividends and distributions is at the discretion of our Board of
Directors and will depend, among other things, on our future after-tax earnings,
operations, capital requirements, borrowing capacity, financial
12
condition and general business conditions. We plan to retain any earnings
for use in the operation of our business and to fund future growth. You
should not purchase any of our securities on the expectation of future
dividends.
DILUTION
The net tangible book value of the Company as of June 30, 2003 was
$2,146,000 or $0.02 per share of common stock. Net tangible book value is
determined by dividing the tangible book value of the Company (total tangible
assets less total liabilities) by the number of outstanding shares of our common
stock (taking Class A Voting Common Stock and Class B Non-voting Common Stock as
a single class).
Since this offering is being made solely by the selling stockholders and none of
the proceeds will be paid to us, our net tangible book value will be unaffected
by this offering. Our net tangible book value, however, will be impacted by the
Class A Voting Common Stock to be issued under our Investment Agreement with
Dutchess. The amount of dilution will depend on the offering price and number
of shares to be issued under the Investment Agreement. Higher offering prices
result in increased dilution to new investors.
For example, if we were to issue 17,543,860 shares of Class A Voting Common
Stock under the Investment Agreement at an assumed offering price of 95% of
$0.30 per share (i.e., the number of shares we could issue at such price to
raise $5.0 million under the Investment Agreement, using the lowest reported
closing bid price for shares of our Class A Voting Common Stock during the ten
day period ending on August 30, 2003), less offering expenses of $40,000, our
net tangible book value as of June 30, 2003 would have been $7,106,000 or $0.05
per share. This represents an immediate increase in net tangible book value to
existing shareholders of [$0.03] per share and an immediate dilution to new
shareholders of $0.25 per share, or 80%.
The following table illustrates the per share dilution based on this example:
ASSUMED PUBLIC OFFERING PRICE PER SHARE. . . . . . . . $ 0.30
NET TANGIBLE BOOK VALUE PER SHARE BEFORE THIS OFFERING $ 0.02
INCREASE ATTRIBUTABLE TO NEW INVESTORS . . . . . . . . $ 0.03
------
NET TANGIBLE BOOK VALUE PER SHARE AFTER THIS OFFERING. $ 0.05
------
DILUTION PER SHARE TO NEW SHAREHOLDERS . . . . . . . . $ 0.25
======
The offering price of our common stock is based on the then-existing market
price. In order to give prospective investors an idea of the dilution per share
they may experience, we have prepared the following table showing the dilution
per share at various assumed trading prices (i.e., lowest closing prices during
the applicable ten day pricing period):
ASSUMED PER SHARE NUMBER OF
OFFERING PRICE SHARES TO BE ISSUED DILUTION PER SHARE TO NEW INVESTORS
- ------------------
0.05. . . . . . . 105,263,158 $ 0.02
0.10. . . . . . . 52,631,579 $ 0.05
0.15. . . . . . . 35,087,719 $ 0.10
0.20. . . . . . . 26,315,790 $ 0.15
0.25. . . . . . . 21,052,632 $ 0.19
0.30. . . . . . . 17,543,860 $ 0.24
0.35. . . . . . . 15,037,594 $ 0.29
0.40. . . . . . . 13,157,895 $ 0.34
0.45. . . . . . . 11,695,906 $ 0.39
0.50. . . . . . . 10,526,316 $ 0.44
* * *
13
PLAN OF DISTRIBUTION
This prospectus relates to the resale of up to 22,500,000 shares of our
Class A Voting Common Stock by a current stockholder, NFC Corporation, and by
Dutchess Private Equities Fund, L.P., which will become a stockholder pursuant
to a put right under an Investment Agreement that we have entered into Dutchess.
The selling stockholders consist of:
STOCKHOLDER NUMBER OF SHARES PERCENTAGE(1)
- ------------------------------------------------------ ----------------- -------------
Dutchess Private Equities Fund, L.P.(2) . . . . . 20,000,000(3) 24%
NFC Corporation(4). . . . . . . . . . . . . . . . 2,500,000 3%
----------------- -------------
Total Class A Voting Common Stock Registered. 22,500,000 27%
(1) Presented as a percentage of issued and outstanding Class A Voting
Common Stock, assuming exercise in full of the put right set forth in the
Investment Agreement, but not including any shares exercisable or convertible
into shares of Class A Voting Common Stock.
(2) Dutchess is a private limited partnership whose business operations are
conducted through its general partner, Dutchess Capital Management, LLC.
Douglas H. Leighton, a Managing Member of Dutchess Capital Management, LLC, has
voting and dispositive power with respect to securities held by Dutchess Private
Equities Fund.
(3) For the purpose of determining the number of shares subject to
registration with the Securities and Exchange Commission, we have assumed that
we will issue not more than 20,000,000 shares pursuant to the exercise of our
put right under the Investment Agreement, although the number of shares that we
will actually issue pursuant to that put right may be more than or less than
20,000,000, depending on the trading price of our Class A Voting Common Stock.
In the event that we elect to issue more than 20,000,000 shares of Class A
Common Stock pursuant to our exercise of the put right, we would be required to
file a subsequent Registration Statement with the Securities and Exchange
Commission (and for the subsequent Registration Statement to be declared
effective).
(4) Geoffrey J. Eiten, President of NFC, has voting and dispositive power
with respect to these securities.
DUTCHESS PRIVATE EQUITIES FUND, L.P.
On August 5, 2003, we entered into an Investment Agreement with Dutchess
Private Equities Fund, L.P. Pursuant to that Investment Agreement, we may, at
our discretion, periodically "put" or require Dutchess to purchase shares of our
Class A Voting Common Stock. The aggregate amount that Dutchess is obligated to
pay for our shares will not exceed $5.0 million. For each share of Class A
Voting Common Stock purchased under the Investment Agreement, Dutchess will pay
95% of the lowest closing bid price on the Over-the-Counter Bulletin Board (or
other principal market on which our Class A Voting Common Stock is traded)
during the ten day period immediately following the date on which we give notice
to Dutchess of our intention to put such stock. Our ability to put the shares
under the Investment Agreement is conditioned upon us registering the shares of
Class A Voting Common Stock with the Securities and Exchange Commission and
satisfaction of certain other customary closing conditions. The costs
associated with this registration will be borne by us.
Pursuant to the Investment Agreement, we may periodically put shares of Class A
Voting Common Stock to Dutchess by giving notice of Dutchess of our election to
exercise the put right. Pursuant to the Investment Agreement, a closing will be
held thirteen trading days after that written put notice, at which time we will
deliver shares of Class A Voting Common Stock and Dutchess will pay the purchase
price for the shares.
Our right to put shares under the Investment Agreement will commence once the
underlying shares are registered with the Securities and Exchange Commission,
assuming other customary closing conditions are met. Thereafter, we may
continue to put shares to Dutchess until the earlier of (I) 36 months after the
effectiveness of that registration; or (II) such time as Dutchess has purchased
a total of $5.0 million in shares of our Class A Voting Common Stock. Pursuant
to the terms of the Investment Agreement, we cannot put shares to Dutchess if,
as a result of that put, Dutchess will hold more than 4.99% of our Class A
Voting Common Stock. As Dutchess has indicated that it intends to resell our
Class A Voting Common Stock from time to time and since our stock price may
fluctuate, it is uncertain whether this limitation will materially limit our
ability to put shares of Class A Voting
14
Common Stock to Dutchess.
In addition to these restrictions, Dutchess' obligation to purchase shares
pursuant to our put right is limited by the average daily volume of our Class A
Voting Common Stock. Specifically, unless waived by Dutchess, and subject to a
$1.0 million "per put" cap, the maximum amount of each put exercise is equal to,
at our election:
- - 200% of the average daily volume of the Class A Voting Common Stock for
the 20 trading days prior to the applicable put notice multiplied by the average
of the three daily closing bid prices immediately preceding the date of the put,
or
- - $50,000.
We cannot predict the actual number of shares of Class A Voting Common
Stock that will be issued pursuant to the Investment Agreement, in part because
the volume and purchase price of the shares will fluctuate based on prevailing
market conditions, and we have not determined the total amount of advances we
intend to draw. Nonetheless, we can estimate the number of shares of our Class
A Voting Common Stock that will be issued using certain assumptions. Assuming
we drew down the entire $5.0 million available under the Investment Agreement in
a single advance (which is not permitted under the terms of the Investment
Agreement) and at a time when the last reported closing price was $0.30 (i.e.,
the lowest reported closing price during the ten day period ending August 30,
2003), then we would issue 17,543,860 shares of our Class A Voting Common Stock
to Dutchess.
You should be aware that there is an inverse relationship between our stock
price and the number of shares to be issued under the Investment Agreement.
That is, as our stock price declines, we would be required to issue a greater
number of shares under the Investment Agreement for a given advance. This
inverse relationship is demonstrated by the table below, which shows the number
of shares to be issued under the Investment Agreement at a price of $0.30 per
share (i.e., the lowest reported closing price during the ten day period ending
August 30, 2003) per share and 25%, 50% and 75% discounts to that price.
SHARE ISSUANCE AT VARIOUS PRICES
DISCOUNT: from $0.305 75% 50% 25% -
PURCHASE PRICE:(1). . . $ 0.071 $ 0.143 $ 0.214 $ 0.285
NO. OF SHARES:(2). . . 70,422,535 34,965,035 23,364,486 17,543,860
TOTAL OUTSTANDING:(3) . 132,319,919 96,762,419 85,161,870 79,341,244
PERCENT OUTSTANDING:(4) 53% 36% 27% 22%
(1) Representing 95% of the applicable lowest reported closing price.
(2) Represents the number of shares of Class A Voting Common Stock to be
issued to Dutchess at the prices set forth in the table to generate $5.0 million
in gross proceeds.
(3) Represents the total number of shares of Class A Voting Common Stock
outstanding after the issuance of the shares to Dutchess, assuming no issuance
of any other shares of Class A Voting Common Stock.
(4) Represents the shares of Class A Voting Common Stock to be issued as a
percentage of the total number shares of Class A Voting Common Stock outstanding
(assuming no exercise or conversion of any options, warrants or other
convertible securities).
Pursuant to the terms of the Registration Rights Agreement that we have
entered into with Dutchess, we would be required to register additional shares
if we wished to exercise our put right in full (e.g., if we were to sell shares
at a time when the lowest closing bid price for our Class A Voting Common Stock
was less than $0.26 per share). However, our management does not currently
intend to cause the put right to be exercised in a manner that would cause the
issuance of more than 20,000,000 shares of Class A Voting Common Stock.
All proceeds used under the Investment Agreement will be used for debt
repayment, employee compensation and for general working capital purposes. Due
to the possibility that our stock price may fluctuate during the period between
our exercise of the put right and the resale by Dutchess of shares of our Class
A Voting Common Stock, the proceeds to Dutchess from its resales of our Class A
Common Stock may vary significantly from the proceeds that
15
we will realize from the exercise of our put right. We cannot predict the total
amount of proceeds to be raised in this transaction, in part, because we have
not determined the total amount of the advances we intend to draw. However, we
expect to incur expenses of approximately $40,000, consisting primarily of
professional fees incurred in connection with this registration.
Under the terms of the Investment Agreement, Dutchess is permitted to sell
shares of our Class A Voting Common Stock subject to a put notice in advance of
our delivery of the certificates representing the shares to be sold to Dutchess.
However, subsequent events (e.g., the withdrawal of the Registration Statement
to which this prospectus is a part) may cause the shares that we are to sell to
Dutchess upon exercise of a put to cease to be freely trading securities. As a
result, the Investment Agreement provides that if the shares to be purchased
pursuant to a put become restricted or are no longer freely trading for any
reason and, after the applicable closing date, Dutchess purchases shares of our
Class A Voting Common Stock in order to make delivery in satisfaction of a sale
by Dutchess of our Class A Voting Common Stock (which Dutchess otherwise
anticipated it would have made using shares which we would sell to Dutchess
pursuant to our exercise of the put), we will reimburse Dutchess for any
shortfall realized by Dutchess as a result of its efforts to "cover" such
transaction.
We engaged Oftring & Company, Inc. as our placement agent with respect to the
securities to be issued under the Equity Line of Credit and for these
services Oftring has been paid $5,000. Oftring & Company has no affiliation
or business relationship with Dutchess, however, Oftring & Company was the
underwriter in our initial public offering and an employee of Oftring & Company,
Thomas Murphy, is a member of our Board of Directors.
OTHER SELLING STOCKHOLDER
In addition to the shares subject to our put right under the Investment
Agreement, this prospectus also relates to the resale of 2,500,000 shares of
Class A Voting Common Stock issued to NFC Corporation in a private placement
prior to the date that the registration statement of which this prospectus is a
part was filed with the Securities and Exchange Commission. As of August 1,
2003, NFC Corporation held 2,500,000 shares of our Class A Voting Common Stock
or 4% of our issued and outstanding Class A Voting Common Stock. These shares
were issued in exchange for investor relations consulting services rendered by
NFC. No material relationship other than this agreement exists nor existed over
the previous three years.
PLAN OF DISTRIBUTION
Our selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. The selling stockholders
may sell the shares from time to time
- - at market prices prevailing on the OTC Bulletin Board at the time of offer
and sale, or
- - at prices related to such prevailing market prices, or
- - in negotiated transactions, or
- - in a combination of such methods of sale.
The selling stockholders may effect such transactions by offering and
selling the shares directly to or through securities broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of the shares
for whom such broker-dealers may act as agent or to whom the selling
stockholders may sell as principal, or both, which compensation as to a
particular broker-dealer might be in excess of customary commissions.
The selling stockholders and any broker-dealers who act in connection with
the sale of their shares may be deemed to be "underwriters" within the meaning
of the Securities Act, and any discounts, concessions or commissions received by
them and profit on any resale of the shares as principal may be deemed to be
underwriting discounts, concessions and commissions under the Securities Act.
On or prior to the effectiveness of the registration statement to which
this prospectus is a part, we will advise the selling stockholders that they and
any securities broker-dealers or others who may be deemed to be statutory
underwriters will be governed by the prospectus delivery requirements under the
Securities Act. Under applicable rules and regulations under the Securities
Exchange Act, any person engaged in a distribution of any of the shares may not
simultaneously engage in market activities with respect to the common stock for
the applicable period under Regulation M prior to the commencement of such
distribution. In addition and without limiting the foregoing,
16
the selling security owners will be governed by the applicable provisions of the
Securities and Exchange Act, and the rules and regulations thereunder, including
without limitation Rules 10b-5 and Regulation M, which provisions may limit the
timing of purchases and sales of any of the shares by the selling stockholders.
All of the foregoing may affect the marketability of our securities.
On or prior to the effectiveness of the registration statement to which
this prospectus is a part, we will advise the selling stockholders that the
anti-manipulation rules under the Securities Exchange Act may apply to sales of
shares in the market and to the activities of the selling security owners and
any of their affiliates. We have informed the selling stockholders that they
may not:
- - engage in any stabilization activity in connection with any of the shares;
- - bid for or purchase any of the shares or any rights to acquire the shares,
or attempt to induce any person to purchase any of the shares or rights to
acquire the shares other than as permitted under the Securities Exchange Act;
- - effect any sale or distribution of the shares until after the prospectus
shall have been appropriately amended or supplemented, if required, to describe
the terms of the sale or distribution.
We have informed the selling stockholders that they must effect all sales
of shares in broker's transactions, through broker-dealers acting as agents, in
transactions directly with market makers, or in privately negotiated
transactions where no broker or other third party, other than the purchaser, is
involved.
The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any broker-dealers, and any profits
received on the resale of shares, may be deemed to be underwriting discounts and
commissions under the Securities Act if the broker-dealers purchase shares as
principal.
In the absence of the registration statement to which this prospectus is a part,
certain of the selling stockholders would be able to sell their shares only
pursuant to the limitations of Rule 144 promulgated under the Securities Act.
CAPITALIZATION
The table below sets forth our capitalization as of June 30, 2003.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations", beginning on page 19
of this prospectus and our consolidated financial statements and the related
notes beginning on page F-1 of this prospectus.
MARCH 31, 2003
(in thousands)
(UNAUDITED)
----------------
DEBT:
Current portion of notes, convertible debt and capital lease obligations. $ 1,338
================
Capital lease obligations and notes, net of current portion . . . . . . . 1,175
================
STOCKHOLDERS' EQUITY:
Common Stock, par value $0.01 per share:
Class A Voting Common Stock, 150,000,000 shares authorized; 61,712,384
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . 617
Class B Non-voting Common Stock, 250,000,000 shares authorized;
68,765,726 shares issued and outstanding. . . . . . . . . . . . . . . . . 688
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . 18,659
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,077
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,895)
----------------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . . . . . 2,146
----------------
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,659
================
* * *
17
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected financial data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this prospectus. The statement of operations data set
forth on the following page for the years ended December 31, 2001 and 2002 and
the balance sheet data as of December 31, 2002 have been derived from our
audited consolidated financial statements included elsewhere in this prospectus.
The statement of operations data set forth below for the six months ended June
30, 2002 and 2003 and the balance sheet data as of June 30, 2003 have been
derived from unaudited financial statements included elsewhere in this
prospectus and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments that we consider necessary for a
fair presentation of our financial position and results of operations for such
periods. These historical results are not necessarily indicative of results to
be expected for any future period.
SIX MONTHS ENDED YEAR ENDED
STATEMENTS OF OPERATIONS DATA: JUNE 30, DECEMBER 31,
2003 2002 2002 2001
-------------- ------------- ------------- --------------
(unaudited)
REVENUES:
Information Sales
- CD Rom . . . . . . . . . . . . $ 232,068 $ 149,025 $ 348,003 $ 268,701
- Online . . . . . . . . . . . . 1,143,496 587,981 1,471,188 752,109
- Channel Partner. . . . . . . . 95,165 9,196 32,284 -
- Wireless . . . . . . . . . . . 2,970 - 1,980 -
Engineering services . . . . . . . 96,167 - 53,333 388,187
-------------- ------------- ------------- --------------
Total revenues. . . . . . . . . 1,569,866 746,202 1,903,788 1,408,997
-------------- ------------- ------------- --------------
COSTS AND EXPENSES:
Costs of revenues:
CD Rom. . . . . . . . . . . . . 40,856 47,187 90,397 96,561
Online and Channel Partner. . . 1,130,907 409,090 1,217,809 986,240
Engineering services. . . . . . 26,025 - 9,297 49,347
Wireless. . . . . . . . . . . . 1,375 - 1,100 -
Selling and marketing. . . . . . . 512,694 506,905 1,001,529 799,486
General and administrative . . . . 1,590,100 1,662,902 3,257,546 3,317,128
-------------- ------------- ------------- --------------
Total operating expenses. . . . 3,301,957 2,626,084 5,577,678 5,248,762
-------------- ------------- ------------- --------------
OPERATING LOSS. . . . . . . . . . . . (1,732,091) (1,879,882) (6,373,890) (3,839,765)
OTHER INCOME (EXPENSE):
Interest income. . . . . . . . . . 67,365 16,426 53,832 67,768
Interest expense . . . . . . . . . (251,795) (34,744) (397,674) (590,970)
Other income, net. . . . . . . . . 21,478 4,548 21,122 6,712
Write-off of accrued license fees
(6 months ended June 30, 2003) . 283,500 - - -
-------------- ------------- ------------- --------------
Net loss. . . . . . . . . . . . $ (1,611,543) $ (1,904,619) $ (3,996,607) $ (4,356,255)
BASIC AND DILUTED NET LOSS PER SHARE. $ (0.013) $ (0.018) $ (0.036) $ (0.044)
SHARES USED IN COMPUTING BASIC AND
DILUTED NET LOSS PER SHARE. . . . . . 124,617,401 108,123,666 111,798,301 99,613,673
AS OF AS OF
BALANCE SHEET DATA: MARCH 31, DECEMBER 31,
2003 2002
---------- -------------
(unaudited)
Cash and equivalents. . . . $1,685,981 $ 1,661,213
Total current assets. . . . 4,408,565 3,538,219
Total assets. . . . . . . . 6,225,409 4,947,157
Total current liabilities . 2,904,278 2,393,354
Total stockholders' equity. $2,146,339 $ 2,351,581
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our consolidated
financial condition and results of operations together with "Selected Financial
Data" and our consolidated financial statements and related notes included
elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements because of certain factors, including, but not
limited to, those presented below.
OVERVIEW
We are a business-to-business and business-to-government provider of public
information via our proprietary data integration solutions. Since 1996, we have
sold a CD-ROM-based product, which we refer to as Worldwide Information , that
enables users to search certain motor vehicle records and driver's license
information in multiple states through a dynamic search engine, using complete
or partial information. Since March 1, 2000, we have maintained a database that
is accessible through the Internet, known as LocatePLUS. Our LocatePLUS product
contains searchable and cross-referenced public information on individuals
throughout the United States, including individuals' names, addresses, dates of
birth, Social Security numbers, prior residences, and, in certain circumstances,
real estate holdings, recorded bankruptcies, liens, judgments, drivers' license
information and motor vehicle records. We anticipate that the majority of our
future revenues will be derived from our LocatePLUS product.
We distribute our content both directly (through the Internet in the case of our
LocatePLUS product and through the mail in the case of our Worldwide Information
CD-ROM) and through "channel partner" arrangements, by which third-party
database providers obtain access to our databases in consideration for a
royalty. In 2001, we entered into an arrangement with a third party database
provider pursuant to which we provided certain engineering services relating to
the integration and assimilation of public data. This agreement was terminated
in 2001. We also provide engineering services in connection with the
implementation and rollout of certain of our channel partnership arrangements.
Although our products consist primarily of publicly available - and therefore
non-proprietary - information, we integrate data in our products in a
proprietary manner that allows users to access data rapidly and efficiently. In
addition, our LocatePLUS product utilizes proprietary methodologies to link
data from different sources associated with a given individual to a single
background report, even though the sources of data with respect to a given
individual may be incomplete or contain only partial information with respect to
that individual.
Revenue associated with our Worldwide Information product is recognized
upon delivery to the customer of a CD-ROM, provided that no significant
obligations remain, evidence of the arrangement exists, the fee is fixed or
determinable and collectibility is reasonably assured. Information in our
Worldwide Information product is updated and released either quarterly or twice
a year. In the case of our LocatePLUS product, we charge a fee to customers,
which varies based upon the type and quantity of information requested. Revenue
from our LocatePLUS product is recognized when requested information is
downloaded, there is evidence of an arrangement, the fee is fixed or
determinable, and collectibility is reasonably assured. We charge our fees to
customers' credit cards (approximately 60% of our current LocatePLUS customer
base) or invoice customers for such fees on a monthly basis (approximately 40%
of our current customer base). Revenue from our LocatePLUS AnyWhere is
recognized monthly based on a fixed fee for usage.
Our costs of revenue consist primarily of our costs to obtain data and
software maintenance expenses, which consist primarily of payroll and related
expenses for information technology personnel, Internet access and hosting
charges, and expenses relating to Web content and design. We obtain our data
from multiple sources and we have entered into various license agreements with
the related data providers. In 2001 and 2002, we recorded $648,500 and
$665,366, respectively, and in the six months ended June 30, 2002 and 2003, we
recorded $170,000 and $798,000, respectively, in costs related to these
agreements. In the event that any of our primary sources of data became
unavailable to us, we believe that we would be able to integrate alternate
sources of data without significant disruption to our business or operations, as
there are currently a number of providers of such data. Costs of engineering
services are allocated based on time spent for engineering services. Costs of
wireless revenues are primarily the cost of wireless connectivity and the
amortized cost of devices sold to end users.
19
Our selling and marketing expenses consist of salaries and commissions paid to
sales representatives for the products that we offer, as well as direct mail
advertising campaigns and magazine and Internet-banner advertisements.
General and administrative expenses consist of payroll and related expenses for
non-sales, non-research and development and executive and administrative
personnel, facilities expenses, insurance, professional services expenses,
travel and other miscellaneous expenses.
Interest income consists of earnings on our cash, cash equivalents and
short term investments. Interest expense is primarily attributable to various
notes issued in the year ended December 31, 2002 and to various notes issued
through June 30, 2003. As of June 30, 2003, we had notes payable (current and
long-term) totaling 1,809,308.
We have incurred significant net losses since our inception. We incurred
net losses of approximately $1.6 million in the six months ended June 30, 2003
and $3.9 million in the year ended December 31, 2002. Our accumulated deficit
through June 30, 2003 was approximately $19.9 million. We raised approximately
$4.8 million from sales of our equity during 2002. Our ultimate success is
still dependent upon our ability to secure additional financing to meet our
working capital and ongoing project development needs. We believe our current
sources of liquidity, funding, and customer demand are adequate to sustain our
current level of operations for the remainder of 2003. However, we anticipate
that we will increase our sales and marketing, product development and general
and administrative expenses during 2003. As a result, to achieve our business
objectives, we must raise additional capital, which may consist of future debt
or equity offerings. There can be no assurance that additional capital will be
available to us, however, or, if it is available, that it will be available on
favorable terms.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30,
2002
Revenues. Revenue from our Worldwide InformationTM CD-ROM product
increased to $101,909 for the three months ended June 30, 2003 from $82,531 for
the three months ended June 30, 2002, an increase of 23%. This increase was the
result of increased unit sales. Revenue from our Internet-based product,
LocatePLUSTM, increased to $572,247 for the three months ended June 30, 2003 as
compared to $310,434 for the three months ended June 30, 2002, an increase of
84%. This increase is attributable to an increase in customers and usage. The
number of users of our Internet-based product increased to 12,461 at June 30,
2003 from 8,190 at June 30, 2002, an increase of 52%. Revenue from channel
partners increased to $51,112 from $5,082 an increase of 906%. The increase is
attributable to greater acceptance by our partners for streaming XML (a
distribution method for our data). The number of our channel partners has
increased from one at June 30, 2002 to four at June 30, 2003. Revenue from our
wireless product, LocatePLUS AnyWhereTM, was $1,485 during the three months
ended June 30, 2003. LocatePLUS AnyWhere was launched in late 2002, and, as a
result, no wireless revenue was recognized in the three months ended June 30,
2002. We expect online revenue to continue to grow at the same pace with both
partner and wireless to grow rapidly.
Costs of revenues. For the three months ended June 30, 2003, costs of revenue
for Worldwide InformationTM were $26,114 as compared to $21,014 for the three
months ended June 30, 2002, an increase of 24%. The increase is attributable to
an increase in the cost of the data associated with the sale of CD-ROMs during
the quarter. For the three months ended June 30, 2003, our costs of revenue
associated with LocatePLUS online and channel were $615,930 as compared to
$218,107 for the three months ended June 30, 2002, an increase of 97%. The
increase in cost is attributable to the cost of acquiring of additional data
sets. Costs of revenue associated with LocatePLUS are not expected to increase
dramatically over the next twelve months as we have acquired most of the data
planned for that product. Costs of revenue for LocatePLUS AnywhereTM was $688
and we expect this cost to decrease in the future as we sell this product
through collaboration with Earthlink. It is anticipated that the collaboration
will generate a royalty stream to us with limited associated costs of revenue.
Selling and marketing expenses. Selling and marketing expenses for the three
months ended June 30, 2003 were $267,095, as compared to $231,925 for the three
months ended June 30, 2002, an increase of approximately 15%. We expect selling
and marketing expense will increase as we increase the size of our sales staff.
General and administrative expenses. General and administrative expenses
for the three months ended June 30, 2003 were $859,533 as compared to $759,321
for the three months ended June 30, 2002, an increase of
20
13%. This increase is attributable to an increase in costs associated with
investor relations activities.
Interest income. Interest income increased to $32,952 for the three months
ended June 30, 2003, from $13,525 for the three months ended June 30, 2002.
This increase is attributable to interest earned on notes receivable in 2003,
for which there was no equivalent interest income in 2002.
Interest expense. Interest expense increased to $174,732 for the three
months ended June 30, 2003, from $39,900 for the three months ended June 30,
2002. This increase is primarily attributable to interest on notes issued in
2003 for which there was no equivalent interest expense in 2002.
Other income. Other income decreased to $9,417 for the three months ended
June 30, 2003, from $15,408 for the three months ended June 30, 2002. This
decrease is attributable to a reduction in income recorded for the repayment of
previously written off debt.
Write-off of accrued license fees. During the three months ended June 30,
2003 we wrote off $283,500 in accrued license fees. These fees were accrued in
2001 to account for potential liability associated with one of our data
providers. The potential liability was eliminated upon our execution of a new
data agreement with that provider.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002
Revenues. Revenue from our Worldwide InformationTM CD-ROM product
increased to $232,068 for the six months ended June 30, 2003 from $149,025 for
the six months ended June 30, 2002, an increase of 56%. This increase was the
result of timing differences for CD-ROM releases between 2002 and 2003 as well
as increased unit sales. Revenue from our Internet-based product, LocatePLUS,
increased to $1,143,496 for the six months ended June 30, 2003 as compared to
$587,981 for the six months ended June 30, 2002, an increase of 94%. This
increase is attributable to an increase in customers and usage. The number of
users of our Internet-based product increased to 12,461 at June 30, 2003 from
8,190 at June 30, 2002, an increase of 52%. Revenue from channel partners
increased to $95,196 from $9,196 an increase of 935%. The increase is
attributable to greater acceptance by our partners of streaming XML (a
distribution method for our data). The number of channel partners has increased
from one at June 30, 2002 to four at June 30, 2003. Revenue from our wireless
product, LocatePLUS AnyWhereTM, was $2,970 during the six months ended June 30,
2003. LocatePLUS AnyWhereTM was launched in late 2002, and, as a result, no
wireless revenue was recognized in the six months ended June 30, 2002.
Costs of revenues. For the six months ended June 30, 2003, costs of revenue for
Worldwide InformationTM were $40,856 as compared to $47,187 for the six months
ended June 30, 2002, a decrease of 13%. The decrease is attributable to a
reduction in the cost of the data associated with producing CD-ROMs. For the
six months ended June 30, 2003, our costs of revenue associated with
LocatePLUSTM online and channel were $1,130,907 as compared to $409,090 for the
six months ended June 30, 2002, an increase of 176%. The increase in cost is
attributable to the cost of acquisition of additional data sets. Costs of
revenue associated with LocatePLUSTM are not expected to increase dramatically
over the next twelve months as we have acquired most of the data planned for
that product. Costs of revenue for LocatePLUS AnywhereTM was $1,375.
Selling and marketing expenses. Selling and marketing expenses for the six
months ended June 30, 2003 were $512,694, as compared to $506,905 for the six
months ended June 30, 2002, an increase of approximately 1%.
General and administrative expenses. General and administrative expenses for
the six months ended June 30, 2003 were $1,590,100, as compared to $1,662,902
for the six months ended June 30, 2002, a decrease of 4%. This decrease is
attributable to a reduction in non-cash compensation recorded for consulting and
advisory services, as well as decreased expenses associated with the
reconciliation and consolidation of various stockholder records in 2002.
Interest income. Interest income increased to $67,365 for the six months ended
June 30, 2003, from $29,951 for the six months ended June 30, 2002. This
increase is attributable to interest earned on notes receivable in 2003, for
which there was no equivalent interest income in 2002.
Interest expense. Interest expense increased to $251,795 for the six months
ended June 30, 2003, from $74,644 for the six months ended June 30, 2002. This
increase is primarily attributable to interest on a short-term demand loan and
additional notes issued in 2003 for which there was no equivalent interest
expense in 2002.
21
Other Income. Other income increased to $21,478 for the six months ended June
30, 2003, from $19,956 for the six months ended June 30, 2002. This increase is
attributable to income recorded for the repayment of previously written off
debt.
Write-off of accrued license fees. During the six months ended June 30, 2003 we
wrote off $283,500 in accrued license fees. These fees were accrued in 2001 to
account for potential liability associated with one of our data providers. The
potential liability was eliminated upon the signing of a new data agreement with
this provider.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Revenues. Revenue from our Worldwide InformationTM CD-ROM product
increased to $345,003 for the year ended December 31, 2002 from $268,701 for the
year ended December 31, 2001, an increase of 28%. During 2002, we shipped
CD-ROM products including data from new states for which we had no shipments in
2001.
Revenue from our Internet-based product, LocatePLUS, increased to $1,471,188 for
the year ended December 31, 2002 as compared to $752,109 for the year ended
December 31, 2001, an increase of 96%. This increase is attributable to an
increase in customers and usage. The number of users of our Internet-based
product increased to 10,966 at December 31, 2002 from 5,159 at December 31,
2001, an increase of 113%. In 2002, we started delivering our online product
through channel partnerships. In 2002, we recognized $32,284 in revenue from
the first of these channel partner arrangements, for which we had no revenue in
2001. As part of deploying channel partner agreements, we occasionally provide
engineering services. In 2002, we realized $53,333 in engineering revenue to
deploy one channel partner site, as compared to $388,187 in 2001.
In 2002, we formally launched our wireless product and realized $1,980 in
revenue from sales of that product. No revenue was realized from sales of this
product in 2001.
Costs of revenues. For the year ended December 31, 2002, our costs of
revenue for Worldwide InformationTM were $90,397 as compared to $96,561 for the
year ended December 31, 2001, a decrease of 6%. This decrease is primarily
attributable to a decrease in costs associated with the acquisition of data from
certain states.
For the year ended December 31, 2002, our costs of revenue associated with
LocatePLUS were $1,217,809, as compared to $986,240 for the year ended December
31, 2001, an increase of 23%. This increase is primarily attributable to costs
associated with the acquisition of two data sets.
Selling and marketing expenses. Selling and marketing expenses for the
year ended December 31, 2002 were $1,001,529, as compared to $799,486 for the
year ended December 31, 2001, an increase of approximately 25%. This increase
in expenses is attributable primarily to an increase in our sales force and
commissions associated with increased sales volume.
General and administrative expenses. General and administrative expenses
for the year ended December 31, 2002 were $3,257,546 as compared to $3,317,128
for the year ended December 31, 2001, a decrease of 2%. This decrease is
primarily attributable to a reduction in professional services from outside
consultants.
Interest income. Interest income decreased to $53,835 for the year ended
December 31, 2002, from $67,768 for the year ended December 31, 2001. This
decrease is attributable to interest earned on a certain $1,000,000 note issued
to us in 2001, of which $95,000 of principal remained outstanding as of December
31, 2002.
Interest expense. Interest expense decreased to $397,674 for the year
ended December 31, 2002, from $590,970 for the year ended December 31, 2001, a
decrease of 33%. This decrease is attributable to non-cash interest expense
incurred in 2001 in connection with debt issued with detachable warrants in
2001.
Other Income. Other income increased to $21,122 for the year ended
December 31, 2002, from $6,712 for the year ended December 31, 2001. This
increase is attributable to the sale of certain assets and to income recorded
for the repayment of previously written off debt.
LIQUIDITY AND CAPITAL RESOURCES
From our incorporation in 1996 through December 31, 2002, we raised
approximately $19.9 million through a series of private and public placements of
equity and convertible debt to fund marketing and sales efforts and develop our
products and services. During 2002, our financing activities provided
approximately $4.8 million of cash, principally through the sale of Units in our
initial public offering and a private placement of Class B Non-
22
voting Common Stock. As of June 30, 2003, our cash and investments totaled
$1,685,981.
During 2002 and the six months ended June 30, 2003, we used approximately $3.1
million and $1.8 million of cash, respectively, in operating activities
principally to fund our net losses.
During 2001 and 2002, we loaned an aggregate of $2.0 million to Andover
Secure Resources, Inc., an unaffiliated third party leasing company, due to the
favorable terms of those loans. These loans (including interest) are payable
upon our demand to Andover and bear interest at interest rates ranging from 10%
to 11% per annum. As of June 30, 2003, approximately $889,000 on these loans
remain outstanding.
Between May and August 2002, we received $314,000 in cash by issuing
subordinated promissory notes bearing simple interest at 10% per annum. The
terms of the notes called for their repayment one year from the date of their
issuance. These notes were repaid in October 2002.
On June 4, 2002, we received $750,000 from Gemstone Investment Company,
Inc. by issuing a promissory note collateralized by all of our assets and a
personal guaranty by our Chief Executive Officer (including a pledge of five
million shares of the Chief Executive Officer's LocatePlus Holdings Corporation
Class A Voting Common Stock and a mortgage on certain of his other personal
assets). Gemstone Investment Company, Inc. is an unaffiliated third party
lender that specializes in loans to start-up and early stage businesses. As of
October 2002, $600,000 had been repaid on this note, however the terms of this
loan called for its repayment in full, including accrued interest, by the
earlier of October 3, 2002 or two business days after the closing of our initial
public offering. As a result, effective October 3, 2002, the terms of this note
were renegotiated, and all accrued interest and principal on the note were
converted to a $285,000 demand note with an interest payable at 42% per annum.
All interest has been paid on this note and as of June 30, 2003, the principal
balance remained outstanding.
In December 2002, we issued a one-year term note for $250,000 with
detachable ten year, fully vested detachable warrants to an individual who, as a
condition of his investment, required that he be appointed to the Board of
Directors of the Company. The note bears interest at the rate of 10% per annum
and is payable in one lump sum at maturity. The detachable warrants provide for
the purchase of 250,000 shares of our Class B Non-Voting Common Stock with an
exercise price of $0.22 per share.
We raised approximately $4.8 million of equity during 2002. However, we
anticipate that we will increase our sales and marketing, product development
and general and administrative expenses during 2003 and for the foreseeable
future. To achieve our business objectives, we must raise additional capital,
which may consist of future debt or equity offerings. There can be no
assurance, however, that additional capital will be available to us or, if it is
available, that it will be on favorable terms.
Through June 30, 2003, we received $440,000, net of issuance costs, by
sales of subordinated promissory notes bearing simple interest at 10% per annum.
The terms on $75,000 of the notes require their repayment 12 months from the
date of issuance and the terms of the remaining notes require their repayment 18
months from the date of issuance.
Through May 2003, we received $1,100,000 net of issuance costs by sales of
subordinated notes payable with detachable warrants. The notes have an
eighteen-month term and bear interest at a rate of 12% per annum payable
monthly. The detachable warrants were for the purchase of 1,300,000 shares of
the Company's Class B Non-Voting Common Stock at $0.10 per share.
During 2003, we received $398,000 by issuing units at $0.16 per unit. Each unit
consists of one share of Class A Voting Common stock and a warrant which is
convertible into three shares of Class A Voting Common Stock with an exercise
price at $0.16 per share. A price adjustment mechanism included in the warrants
provides that, if the stock price decreases, the warrants will nevertheless
permit the holder to receive, upon a cashless exercise of the warrants, at least
one share of Class A Voting Common Stock per warrant without any cash payment.
During June 2003, we issued 2,500,000 shares of Class A Voting Common Stock to
one investor and 125,000 shares of Class B Non-Voting Common Stock to three
investors in a private placement.
During June 2003, we issued a put to one investor, which provides that the
Company, subject to certain limitations, may sell up to $5 million in shares of
our Class A Voting Common Stock. During June 2003, we issued a put to one
investor, which provides that the Company, subject to certain limitations, may
sell up to $5 million in shares of Class A Voting Common Stock. This agreement
was subsequently cancelled, and on August 5, 2003, we entered into a new
agreement with that investor, pursuant to which we issued a similar put to that
investor. The put
23
provides us with the right to sell, at our discretion, up to $5 million in
shares of our Class A Voting Common Stock to the investor for a purchase price
equal to 95% of the lowest closing bid price for our Class a Voting Common Stock
during a ten day pricing period. The number of shares that we may sell to the
investor is limited by the trading volume of our Class A Voting Common Stock and
certain customary closing conditions.
COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
We lease office space and equipment under various operating lease
agreements which terminate on various dates through 2005. Future minimum
payments under our non-cancelable operating leases total $870,045.
CAPITAL LEASES
Through June 30, 2003, we entered into certain long-term equipment lease
agreements. These agreements are classified as capital leases and expire in
2005. Future minimum lease payments under our non-cancelable capital leases
total $831,936.
LICENSE AGREEMENTS
We have entered into various data acquisition agreements under which we are
required to make minimum payments totaling $1,665,500 through 2005.
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations are
discussed throughout this section where such policies affect our reported and
expected financial results. For a detailed discussion on the application of
these and other accounting policies, see Note 2 in the Notes to the Consolidated
Financial Statements included in the Company's Annual Report for December 31,
2002. Note that our preparation of our Consolidated Financial Statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
Our accounting policies that are the most important to the portrayal of our
financial condition and results, and which require the highest degree of
management judgment relate to revenue recognition and the provision for
uncollectible accounts receivable. We estimate the likelihood of customer
payment based principally on a customer's credit history and our general credit
experience. To the extent our estimates differ materially from actual results,
the timing and amount of revenues recognized or bad debt expense recorded may be
materially misstated during a reporting period.
* * *
24
BUSINESS
OVERVIEW
We are a business-to-business and business-to-government provider of public
information via our proprietary data integration solutions. Since 1996, we have
sold a CD-ROM-based product, which we refer to as Worldwide Information , that
enables users to search certain motor vehicle records and driver's license
information in multiple states. Since March 1, 2000, we have maintained a
database that is accessible through the Internet, known as LocatePLUS. Our
LocatePLUS product contains searchable and cross-referenced public information
on individuals throughout the United States, including individuals' names,
addresses, dates of birth, Social Security numbers, prior residences, and, in
certain circumstances, real estate holdings, recorded bankruptcies, liens,
judgments, drivers' license information and motor vehicle records.
INDUSTRY BACKGROUND
We are a background information provider. Users of background information
have historically included law enforcement, other government agencies, law
firms, investigation companies, private investigators and insurance companies.
Information is used by those entities for various activities ranging from legal
discovery to employment screening to the detection of fraud and the prevention
of crime and terrorism. Additional users, such as large businesses, have
increasingly availed themselves of background information services in connection
with their hiring practices and other business decisions.
A considerable amount of background information about individuals in the United
States is publicly available. Examples of such public data include:
- - names and addresses - property ownership
- - aliases - bankruptcies
- - court records - certain criminal records
The sources of these types of public data, however, are often fragmented
and geographically dispersed. In addition, the reliability of this information
and the data provided by various sources may not be consistent. In this
environment, businesses and government agencies that wish to use public
information are faced with the time-consuming, costly and difficult task of
gathering data from numerous locations and sources, verifying the information
acquired and organizing it into a useful format. While services and
technologies have developed to enable remote access to information sources,
there have historically been few comprehensive access points for information
available about individuals. Traditional sources of information, including
credit reporting services and other database services, make available only
limited types of information for specific purposes, such as verifying credit
worthiness. Such services may also be limited by applicable law to specified
uses and users. Almost none of those sources are integrated in a manner that
allows easy and rapid access to data.
BUSINESS STRATEGY
Our business plan is to provide an entire suite of information products and
services for professionals in law enforcement agencies, human resources, law
firms, insurance underwriting, fraud investigation, private equity funds,
private investigation and financial institutions. We believe that we will be
able to compete with comparable services based upon the pricing of our services
and based upon certain technical advantages incorporated in our systems (such as
our data integration methodologies and our hyper-linked and wireless LocatePLUS
reports).
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OUR TARGET MARKET AND SCREENING OF USERS
Our products are marketed and sold to federal, state and local government
agencies (including law enforcement agencies), private investigators, human
resource professionals and the legal profession. Our products have been used
in:
- - crime and terrorism investigation (e.g., in conjunction with federal and
state investigations in the aftermath of the September 11th terrorist
attacks and the subsequent anthrax incidents);
- - detection of fraud;
- - "skip tracking" (i.e., the location of debtors and individuals in
violation of parole or bail restrictions);
- - background checks;
- - legal due diligence; and
- - risk management.
Our products are generally marketed and sold only to pre-screened business and
government end users. We do not sell products or services to the general public
due to the liability that may arise from the release of personal information to
the public. Before obtaining access to our LocatePLUS database or our
Worldwide Information product, we generally require commercial customers to
provide background information about their business need for data and about
themselves, such as business licenses, bar admission cards or private
investigator licenses. Individuals involved in law enforcement must provide
similar evidence of their authority.
In an attempt to prevent the misuse of our date, we have adopted a three-tier
security schema.
LEVEL INDUSTRY USERS SAMPLE DATASETS AVAILABLE TO USERS
I General Business Names, Addresses and Phone Numbers
Past Residences, Neighbors and Affiliates
Real Property
II Private Investigators Level I Data, plus:
Insurance Liens and Judgments
Attorneys/Law Firms Drivers' Records
Government Certain Motor Vehicle Records
Corporate Security
III Law Enforcement Level I and II Data, plus:
Comprehensive Criminal Records
Restricted Motor Vehicle Records
Certain Credit Reporting Data
LOCATEPLUS
We launched our LocatePLUS Internet site in March 2000. Our LocatePLUS
database contains searchable and cross-referenced public information on
individuals throughout the United States. Information is presented in a
dynamic, hyper-linked fashion, permitting users to rapidly identify and obtain
personal information relating to individuals and their associated residences,
possible acquaintances, and a variety of other types of data. Our LocatePLUS
database consists of approximately five billion individual data entries.
According to our estimates, we have data entries relating to approximately 205
million adult individuals in the United States (or approximately 98% of the
adult population of the United States, based on the 2000 United States Census).
As of June 30, 2003, there were approximately 12,461 pre-screened users of
our LocatePLUS database.
26
Datasets currently integrated in our LocatePLUS product include nationwide
records relating to:
- real estate records
- - names and addresses - prior residences
- - aliases - recorded bankruptcies
- - dates of birth - liens
- - Social Security numbers - motor vehicle records
- - driver's license information - certain death records
- - residential address information (including dates of residence) - phone
numbers
- - certain criminal arrest, conviction and incarceration records - vessel
registrations
We intend to continue integration of datasets into our LocatePLUS product,
including:
- - certain hunting and fishing licenses - certain professional licenses
- - certain facial image files - certain fingerprint files
- - certain gun licenses - Federal Aviation Administration records
We can currently give no assurance as to the timing of integration of such
datasets, however, or whether these new datasets will be integrated with our
LocatePLUS product at all.
We believe that one of the significant advantages of our LocatePLUS
product, in comparison with many products with which we compete, is the ability
of LocatePLUS to "tie" data associated with a given individual to produce a
single report. Our LocatePLUS system uses a proprietary methodology to
associate data in a manner that generally results in a matching of data entries
across diverse data sources, allowing users to obtain a single, comprehensive
data report about an individual, even when there is no single element that ties
data entries together (such as a Social Security number). This comprehensive
data report is itself linked to other data potentially relevant to a business or
government agency researching an individual, such as names and addresses of
possible acquaintances, relatives and neighbors of that individual.
LOCATEPLUS ANYWHERE
We recently developed a version of our LocatePLUS product that is
accessible through wireless personal digital assistants and e-mail capable
pagers, which we refer to as LocatePLUS AnyWhere. LocatePLUS AnyWhere was
commercially launched in mid-December 2002. This product is being marketed
primarily to law enforcement. The product is sold on a subscription fee basis,
permitting unlimited access to our LocatePLUS database for a flat monthly fee
provided that that the user agrees to a fixed term commitment. As of June 30,
2003, we had realized only nominal revenue from this product.
WORLDWIDE INFORMATION
Since 1996, we have produced CD-ROM products that enable users to quickly
search motor vehicle records in multiple states through a dynamic search
function, known as Worldwide Information . Unlike many competing products, our
Worldwide Information product enables users to rapidly identify vehicles or
drivers using complete or partial search criteria. We believe that this ability
to search partial data is a valuable tool in circumstances in which incomplete
information is available, as is often the case in criminal investigations.
Unlike data provided by Internet-based services, searches on our CD-ROM product
are confidential and unavailable to any person other than the user of our CD-ROM
product. We believe that the confidential nature of this CD-ROM product makes
it particularly attractive to law enforcement agencies, which must often conduct
criminal investigations in strict secrecy.
As of June 30, 2003, there were approximately 2,000 pre-screened purchasers
of our Worldwide Information CD-ROM product.
27
We currently expect to expand our Worldwide Information product to include data
from additional states, and to develop a DVD-ROM-based version of this product,
although we can give no assurance as to the timing of such product launches or
whether such products will be developed at all. We expect that a DVD-ROM-based
version of this product, if developed, would permit multi-state Worldwide
Information databases to reside on a single medium.
SOURCES OF OUR DATA
Our operations depend upon information derived from a wide variety of
automated and manual sources. External sources of data include public records
information companies, governmental authorities and on-line search systems. We
license or otherwise obtain our data from five primary sources, as well as over
twenty other ancillary sources (including both private and government sources).
In the event that any of our primary sources of data were no longer available to
us, we believe that we would be able to integrate alternate sources of data
without significant disruption to our business or operations, as we believe
there are currently a number of equivalent providers of such data.
REGULATORY RESTRICTIONS ON OUR BUSINESS
Both federal and state law regulates the sale of data. Recently, consumer
advocates and federal regulators have voiced concerns regarding public access
to, or commercial use of, personal information. As a result, increased pressure
has been placed upon federal and state legislators to regulate the dissemination
or commercial use of personal information.
One such legislative enactment that has had an effect on our business was the
Financial Services Modernization Act of 2000, also known as the
"Gramm-Leach-Bliley Act". Among other things, this law restricts the
collection, use, and transfer of certain data that includes "credit header"
information, which had historically functioned as the backbone of our data
resources. Implementation of this law's restrictions by the Federal Trade
Commission significantly limited the availability of certain data for our
database, but we have subsequently developed datasets that function
independently of "credit header" information. Although we have not engaged
counsel to review this matter or the conduct of our operations generally, we
believe that our operations are in compliance with the Gramm-Leach-Bliley Act or
any law specifically applicable to the dissemination of data concerning
individuals. Any further restriction on our use of personal information,
however, could limit the usefulness of our products and have a material adverse
effect on operations, our products, including our LocatePLUS product, and our
operations.
Federal and state law prohibits us from selling information about minors.
Our products have been designed to prevent the dissemination of such data.
DISTRIBUTION OF OUR PRODUCTS
We distribute our content both directly (though the Internet in the case of
our LocatePLUS product and through the mail in the case of our Worldwide
Information CD-ROM) and through "channel partner" arrangements, by which third
parties access our databases in consideration for a royalty. We also, from time
to time, provide certain consulting services to third party database providers
on the integration and assimilation of public data.
To date, our efforts to license data have resulted in four channel
partnerships. For the year ending December 31, 2002, we recognized revenue on
only one of these agreements. The other three agreements were implemented in
2003 and, for the six months ended June 30, 2003, these channel agreements
resulted in $95,165 in revenue.
COMPETITION
Current competitors for our LocatePLUS product include Accurint,
ChoicePoint, Confi-chek.com, FlatRateInfo.com, and Lexis-Nexis. Many of the
companies that currently compete with this product, as well as other companies
with whom we may compete in the future, are national or international in scope
and have greater resources than we do. Those resources could enable those
companies to initiate price cuts or take other measures in an effort to gain
market share in our target markets.
Our Worldwide Information product primarily competes with the registries of
motor vehicles of various
28
states that sell their data to screened users. These state agencies generally
provide data in "raw form" without the search capabilities that we provide in
our Worldwide Information product.
FACILITIES
LocatePLUS Holdings Corporation and our wholly owned subsidiary, LocatePLUS
Corporation, are presently headquartered in Beverly, Massachusetts, where we
lease approximately 32,000 square feet. The lease on that facility expires on
February 28, 2005, and our annual lease obligation is approximately $480,000.
Our wholly-owned subsidiary, Worldwide Information, Inc., is presently located
in Byfield, Massachusetts, where it leases approximately 2,700 square feet. The
lease on the Byfield facility expired on March 1, 2003, and we are currently a
tenant-at-will in this facility. Our annual lease payments on this facility in
2002 were approximately $25,000. We are currently negotiating to extend this
lease to February 2005.
We also lease a storage facility in Georgetown, Massachusetts pursuant to a
month-to-month lease, with current monthly rent of $500. We believe that our
facilities are sufficient for our projected needs.
INTELLECTUAL PROPERTY
Publicly available data concerning individuals is generally
non-proprietary. As a result, our intellectual property consists largely of
certain trade secrets and know-how associated with the integration of databases
and our ability to link diverse datasets. We rely on a combination of
confidentiality agreements, restrictions on access to our proprietary systems,
and contractual provisions (such as in our user agreements) to protect our
intellectual property.
We have registered LOCATEPLUS.COM as a trademark with the United States
Patent and Trademark Office. We maintain LOCATEPLUS and WORLDWIDE INFORMATION
as unregistered trademarks relating to our products. We may, from time to time,
claim certain other rights under trademark law, however, we currently have no
other marks registered or pending with the United States Patent and Trademark
Office or the equivalent agency of any other country.
Rights under United States copyright law do not extend to mere compilations
of data, although we may have certain rights under United States copyright law
with respect to the organization, integration and presentation of our data.
Patent protection is generally not available for compilations of data.
However, in June 2003, we filed a patent application with the United States
Patent and Trademark Office covering our BullsEye data linking methodologies.
We can give no assurance, however, that any patent will be issued by the United
States Patent and Trademark Office as a result of this application, or that the
claims of any patent issued as a result of our application will permit us to
preclude others from providing competitive technologies.
EMPLOYEES
As of June 30, 2003, we had 41 employees. We believe that our relations
with our employees are good.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings, although
claims may arise from time to time in the conduct of our operations. There can
be no assurance at this time that any claims that may arise in connection with
the conduct of our business will not materially adversely affect our business or
operations, or divert our critical resources.
* * *
29
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth specific information regarding our executive
officers and directors as of June 30, 2003.
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITIONS
- --------------------------------- --- ----------------------------------------------------------------------------------
Jon R. Latorella. . . . . . . . . 40 Chairman of the Board, President and Chief Executive Officer
Sonia P. Bejjani. . . . . . . . . 34 Director; President-Worldwide Information, Inc.
James C. Fields . . . . . . . . . 36 Vice President of Finance, Treasurer and Secretary, Acting Chief Financial Officer
Steven W. Silva . . . . . . . . . 41 Vice President of Business Development
Thomas Garlock(1) . . . . . . . . 46 Director
John P. Houlihan (1). . . . . . . 57 Director
Robert H. Kite(1) . . . . . . . . 48 Director
Thomas E. Murphy(2) . . . . . . . 44 Director
Gerard Scalley(2) . . . . . . . . 47 Director
(1) Member of our Compensation Committee.
(2) Member of our Audit Committee.
JON R. LATORELLA co-founded our business in 1991 and has been our Chief
Executive Officer since we commenced our activities. Mr. Latorella is also the
Chairman of our Board of Directors. Before founding our business, Mr. Latorella
served as a consultant to various local and state law enforcement agencies. Mr.
Latorella holds a Bachelor of Science/Bachelor of Arts from the University of
Massachusetts, which he received in 1994.
SONIA P. BEJJANI co-founded our business in 1991 and has been a member of
our Board of Directors and employed by us in various capacities since we
commenced our activities. For the five years ending August 1, 2001, Ms. Bejjani
was our Vice President - Sales and Customer Service. Since August 1, 2001, Ms.
Bejjani has been the President of Worldwide Information, Inc., our wholly-owned
subsidiary.
JAMES C. FIELDS was appointed our Vice President of Finance, Treasurer,
Secretary and Acting Chief Financial Officer on March 31, 2003. Prior to that,
Mr. Fields served as our Director of Finance since February 2001. Prior to
joining us, Mr. Fields was the Controller and Vice President of operations at CO
Space, a carrier neutral collocation company. Mr. Fields is a certified public
accountant and holds a Bachelor of Arts in Accounting from the College of St.
Scholastica, which he received in 1992, and a Masters of Business Administration
from Babson College, which he received in 1999.
STEVEN W. SILVA has been our Vice President of Business Development since
January 2002. Mr. Silva was employed with SuperWings Inc., a developer of mobile
field service management applications, as its Vice President of Business
Development and Marketing from 2000 to 2002. During 2000, Mr. Silva was the
Vice President of Strategic Marketing at ZipLink Inc., a provider of wholesale
Internet connectivity solutions, where he was responsible for marketing, product
management, business development and strategic alliances. From 1997 to 2000,
Mr. Silva worked for eZenia! Inc., a provider of real time collaboration
solutions, where he held worked as its Director of Technical Business
Development. From 1990 to 1997, Mr. Silva also held channel sales and marketing
positions with PictureTel Corporation, a provider of visual collaboration
systems. Mr. Silva holds a Bachelor of Science in Business
Administration/Economics from Salem State College, which he received in 1985.
THOMAS GARLOCK has provided organizational and merger and acquisition
consulting services to technology companies in the computer hardware/software
and wireless telecommunications industry since 1980. Mr. Garlock has been the
principal in a variety of communications license-based ventures that have
developed cellular telephone systems in 55 "metropolitan statistical areas" in
the United States. He is the co-founder and Chairman of In Sync Interactive
Corporation, the nation's largest owner of interactive video data service
licenses issued by the Federal Communications Commission. In October 2001, In
Sync filed for bankruptcy protection with respect to 29 of its 42 subsidiaries.
Mr. Garlock attended Kent State University, the University of California at Los
Angeles, and the Otis
30
Parsons School of Design. Mr. Garlock joined our Board of Directors in October
1996, and is currently a member of our Compensation Committee.
JOHN P. HOULIHAN has been President and owner of Zalkin, Inc., a worldwide
exporter of used clothing with offices in Council Bluffs, Iowa and Brownsville,
Texas, since 1979. Before that, Mr. Houlihan owned Goodrich Dairy, a chain of
47 retail stores, and Riekes Equipment, a material handling and forklift
company. Mr. Houlihan holds a Bachelor of Arts from Creighton University, which
he received in 1968, and a Juris Doctorate from Creighton University, which he
received in 1971. Mr. Houlihan joined our Board of Directors in January 2001,
and he is currently the Chairman of the Compensation Committee of our Board of
Directors.
ROBERT H. KITE has been President of KFT, Inc., the managing entity of KFT,
LLLP, a private investment entity, since 1981. Mr. Kite has also served on the
Board of National Energy, Inc., a publicly traded energy exploration and
exploitation company, since 1987. National Energy, Inc. filed for Chapter 11
bankruptcy in 1999 and was subsequently reorganized. Mr. Kite is also on the
Board of Directors of the FBI Citizens' Academy (Charter Academy) of Phoenix,
Arizona, and Child Health U.S.A. of Scottsdale, Arizona. Mr. Kite holds a
Bachelor of Science in Political Science and Psychology which he received from
Southern Methodist University 1977. Mr. Kite joined our Board of Directors in
December 2002, and is currently a member of the Compensation Committee of the
Board of Directors.
THOMAS E. MURPHY has been employed by Oftring & Company, Inc., a registered
broker-dealer located in Worcester, Massachusetts, since 1989, where he
currently holds the title of Senior Vice President. Mr. Murphy holds a
Bachelors of the Arts in Investments from Babson College, which he received in
1981. Mr. Murphy joined our Board of Directors on March 28, 2003, and he is
currently the chairman of the Audit Committee of our Board of Directors.
GERARD SCALLEY has been employed by the Woburn, Massachusetts Police Department
for the past 22 years, where he currently holds the rank of Lieutenant. His
current responsibilities include supervision of that department's detective
bureau and its Drug Abuse Resistance Education (DARE) program. He has also
worked as a crime prevention officer and as commander of the North Eastern
Massachusetts Law Enforcement Council Regional Drug Task Force. Mr. Scalley has
been affiliated with numerous law enforcement related organizations during his
career, including the National Technical Investigator's Association, the
Narcotic Enforcement Officer's Association, the National DARE Officer's
Association and the Irish American Police Officer's Association. Mr. Scalley
also lectures at the University of Massachusetts at Lowell on criminal justice
matters. Mr. Scalley received a Bachelor of Arts in Criminal Justice from Salem
State College in 1998, and a Master of Arts in Criminal Justice from the
University of Massachusetts at Lowell in 2000. Mr. Scalley joined our Board of
Directors in June 2002, and is currently a member of our Audit Committee.
We do not have any employment agreements with any of our employees.
BOARD OF DIRECTORS
We currently have seven members of our Board of Directors, who are elected
to annual terms and until their successors are elected and qualified. Executive
officers are appointed by the Board of Directors on an annual basis and serve
until their successors have been duly elected and qualified. There are no
family relationships among any of our directors, officers or key employees.
Our Board of Directors currently has two committees, the Compensation Committee
and the Audit Committee.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors is responsible for the
appointment, compensation and oversight of our independent auditors, reviews the
scope of the audit services provided by our independent accountants, and reviews
our accounting practices and internal accounting controls. Currently, the
members of the Audit Committee are Messrs. Murphy and Scalley. There is one
vacancy on the Audit Committee of the Board of Directors.
Mr. Murphy serves as the Chairman of the Audit Committee.
31
COMPENSATION COMMITTEE
The compensation committee of the board of directors reviews and recommends
To the board of directors the salaries, benefits and stock option
Grants of all employees, consultants, directors and other individuals
Compensated by us. The compensation committee also administers our equity
Compensation plan and other employee benefits plans that we may adopt from time
To time. Currently, the members of the compensation committee are messrs.
Garlock, houlihan and kite.
Mr. Houlihan serves as the Chairman of the Compensation Committee.
DIRECTORS' COMPENSATION
On February 1, 2002, we adopted a Non-employee Director Stock Option
Policy. Under the Non-employee Director Stock Option Policy, we will make
annual grants (beginning on the date of adoption of the policy or the first day
that a director is elected to our Board of Directors, if later) to our
non-employee directors of warrants to purchase 35,000 shares of our Class B
Non-voting Common Stock as compensation for service on our Board of Directors
(and any committees). Each of these warrants will be immediately exercisable
and will have an exercise price that is equal to the fair market value of our
Class B Non-voting Common Stock as of the date of grant. No separate
compensation is provided to directors for service on either of our two
committees.
Directors who are also employees of LocatePLUS Holdings Corporation or any of
its subsidiaries (currently, Mr. Latorella and Ms. Bejjani) are not paid any
compensation for their service as directors.
We will also reimburse our directors for out-of-pocket costs associated
with their activities on the Board of Directors.
BENEFIT PLANS
1999 STOCK OPTION PLAN
On November 16, 1999, our Board of Directors ratified and adopted an
Incentive and Non-Qualified Stock Option Plan, which we refer to as the "1999
Stock Option Plan". The 1999 Stock Option Plan set aside 15,000,000 shares of
our Class A Voting Common Stock (then referred to as our "Common Stock") for
issuance pursuant to the exercise of incentive and non-qualified stock options
to be awarded to our employees, officers and directors at the recommendation of
the equity compensation plan's administrator and subject to the approval of our
Board of Directors. We strongly believe in the concept of each employee having
some form of equity participation as an incentive toward excellence in
individual performance and our further success.
In June 2000, our 1999 Stock Option Plan was amended and restated to
provide greater flexibility to the equity compensation plan's administrator in
the granting of various forms of equity compensation. As of June 30, 2003,
7,005,000 incentive stock options and 2,506,016 non-qualified stock options were
outstanding under the equity compensation plan. The weighted average exercise
price of all options granted under the equity compensation plan was $0.20 per
share as of June 30, 2003. As of June 30, 2003, options to purchase 1,206,700
shares of Class A Voting Common Stock had been exercised. The 1999 Stock Option
Plan is administered by the Compensation Committee of the Board of Directors.
Our 1999 Stock Option Plan was approved by our stockholders on November 16,
1999.
2003 STOCK PLAN
On March 28, 2003, the Board of Directors adopted the 2003 Stock Plan, an
equity compensation plan which will allow us to grant awards of incentive and
non-qualified (also referred to as "non-statutory") stock options, rights to
acquire stock subject to forfeiture (i.e., restricted stock), and shares of
stock not subject to forfeiture (i.e., stock bonuses) to our employees and
consultants in consideration for services rendered for us.
By means of the 2003 Stock Plan, we seek to retain the services of eligible
recipients and to provide incentives for eligible recipients to exert efforts
for our success, with the goal of maximizing shareholder value. We anticipate
that we will file a registration statement on Form S-8 with respect to the
shares available for issuance under that plan within 30 days of this prospectus.
32
A total of 25,000,000 shares of Class A Voting Common Stock, and 25,000,000
shares of Class B Non-voting Common Stock, are available under the 2003 Stock
Plan. If there is a change of the number or kind of shares issuable under the
2003 Stock Plan as a result of declaration of stock dividend, stock split,
combination, exchange, merger, consolidation, reclassification or any
similar extraordinary event affecting either class of our common stock, an
Adjustment will be made in the maximum aggregate number of shares that will be
Subject to the 2003 stock plan, as well as in the number of shares
Subject to outstanding options and the exercise price of options granted
Under the 2003 stock plan.
The Compensation Committee of the Board of Directors is authorized to
determine the employees, officers, directors and consultants to whom awards will
be granted and the number of shares subject to each award. The Compensation
Committee also interprets the 2003 Stock Plan and the awards granted under that
plan and is authorized to adopt, amend or rescind the rules and regulations and
make all other determinations necessary or advisable for the administration of
the 2003 Stock Plan. The Board may amend the 2003 Stock Plan at any time,
although certain amendments would require stockholder approval, the approval of
award recipients, or both.
Among other things, the Compensation Committee of the Board of Directors
has the discretion to determine the extent to which an option may be exercised
in part and the extent to which any part may or may not be exercised prior to
expiration of specified periods of time after the grant. However, no option
will be exercisable to any extent after the expiration of ten years (five years
in the case of an incentive stock option granted to a greater than 10%
stockholder). The exercise price of incentive stock options granted under the
2003 Stock Plan must be at least equal to the fair market value of our Common
Stock on the date of grant. The exercise price of incentive stock options
granted to an option recipient who is a 10% or greater stockholder must equal at
least 110% of the fair market value of the Common Stock on the date of grant.
The exercise price of non-qualified stock options must be at least 85% of the
fair market value of our Common Stock on the date of grant.
As of June 30, 2003, no securities were granted pursuant to the 2003 Stock
Plan.
PLANS NOT APPROVED BY SECURITY HOLDERS
From time to time, we have issued options or warrants to employees and
non-employees (such as directors, consultants, advisors, vendors, customers,
suppliers and lenders) in exchange for services or other consideration provided
to us. These issuances have not been made pursuant to a formal policy or plan,
but instead are issued with such terms and conditions as may be determined by
our Board of Directors from time to time. Generally, our stockholders have not
approved or disapproved these issuances.
The following table reflects equity compensation granted or issued by us as
of the June 30, 2003, to employees and non-employees (such as directors,
consultants, advisors, vendors, customers, suppliers and lenders) in exchange
for consideration in the form of goods or services.
NUMBER OF SECURITIES TO BE - NUMBER OF SECURITIES REMAINING
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE AVAILABLE FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, WARRANTS PRICE OF OUTSTANDING OPTIONS UNDER EQUITY COMPENSATION
AND RIGHTS WARRANTS AND RIGHTS PLANS(1)
----------------------------- ----------------------------- -------------------------------
EQUITY COMPENSATION PLANS
APPROVED BY SECURITY HOLDERS:
Class A Voting Common
Stock . . . . . . . . . . . . 9,511,016 $ 0.20 29,282,284
- ----------------------------- ----------------------------- ----------------------------- -------------------------------
Class B Non-voting
Common Stock. . . . . . . . . 0 - -
- ----------------------------- ----------------------------- ----------------------------- -------------------------------
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS:
Class A Voting Common
Stock . . . . . . . . . . . . 869,239 $ 0.41 N/A
Class B Non-voting
Common Stock. . . . . . . . . 6,422,139 $ 0.15 N/A
- ----------------------------- ----------------------------- ----------------------------- -------------------------------
TOTAL:
Class A Voting Common
Stock . . . . . . . . . . . . 10,380,255 $ 0.22 N/A
Class B Non-voting
Common Stock. . . . . . . . . 6,422,139 $ 0.15 N/A
- ----------------------------- ----------------------------- ----------------------------- -------------------------------
33
(1) Excludes securities reflected in column titled "Number of securities to
be issued upon exercise of outstanding options, warrants and rights".
401(K) PLAN
We sponsor a defined contribution plan under the provisions of Section
401(k) of the Internal Revenue Code, which covers substantially all of our
employees. We may make discretionary matching contributions up to 1% of annual
employee contributions. Employees are eligible to participate in the 401(k)
Plan after one year of service. Our matching contributions vest ratably over a
five-year period. We pay the administrative expenses of this plan.
NON-EMPLOYEE DIRECTORS STOCK OPTION POLICY
On February 1, 2002, we adopted a Non-employee Director Stock Option
Policy. Under the Non-employee Director Stock Option Policy, we will make
annual grants (beginning on the date of adoption of the policy or the first day
that a director is elected to our Board of Directors, if later) to our
non-employee directors of warrants to purchase 35,000 shares of our Class B
Non-voting Common Stock as compensation for service on our Board of Directors
(and any committees). These grants are made in lieu of any other compensation
to our non-employee directors. Each of these warrants will be immediately
exercisable and will have an exercise price that is equal to the fair market
value of our Class B Non-voting Common Stock as of the date of grant. No
separate compensation is provided to directors for service on either of our two
committees.
We reimburse our directors for out-of-pocket costs associated with their
activities on the Board of Directors.
Directors who are also employees of LocatePLUS Holdings Corporation or
any of its subsidiaries (currently, Mr. Latorella and Ms. Bejjani) are not paid
any compensation for their service as directors. Mr. Murphy, a director who is
otherwise entitled to participate in the Non-employee Directors Stock Option
Policy, has waived his right to compensation (but not reimbursement of expenses
incurred) in 2003.
Pursuant to the Non-employee Directors Stock Option Policy:
- - On February 1, 2002, Messrs. Garlock and Houlihan were each issued a
warrant to purchase 35,000 shares of our Class B Non-voting Common Stock for
$0.15 per share.
- - On August 27, 2002, Dr. Richard B. Yules, a former member of our Board of
Directors, was issued a warrant to purchase 35,000 shares of our Class B
Non-voting Common Stock for $0.22 per share.
- - On August 27, 2002, Mr. Scalley was issued a warrant to purchase 35,000
shares of our Class B Non-voting Common Stock for $0.22 per share.
- - On March 28, 2003, Messrs. Garlock, Houlihan, and Kite were each issued a
warrant to purchase 35,000 shares of our Class B Non-voting Common Stock for
$0.15 per share.
* * *
34
SUMMARY COMPENSATION TABLE
The following table sets forth, for 2002, 2001 and 2000, certain
compensation paid by us, including salary, bonuses and certain other
compensation, to our Chief Executive Officer and all other executive officers
whose annual compensation for the years ended December 31, 2002, 2001 and 2000
exceeded $100,000.
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND ($) ($) (#) ($)
PRINCIPAL POSITION YEAR
- ------------------------ -----------
JON R. LATORELLA . . . . 2002 50,100(1) - - 13,200(3)
President and. . . . . . 2001 48,850(1) - - 13,200(3)
Chief Executive Officer. 2000 127,462(1) 275,000(2) - 13,200(3)
JAMES C. FIELDS(4) . . . 2002 104,160 - - -
Acting Chief Financial . 2001 86,673 - 500,000 -
Officer, Treasurer and . 2000 - - - -
Secretary
ROBERT A. GODDARD(5) . . 2002 123,658 - - 8,079(6)
Former Chief Financial . 2001 123,802 - - 8,079(6)
Officer, Treasurer and . 2000 125,000 125,000(2) - 6,384(6)
Secretary
(1) Mr. Latorella elected to reduce his annual salary to $50,100 in
September of 2000. On June 17, 2002, the Board of Directors voted to return Mr.
Latorella's salary to his pre-reduction salary of $150,000 per annum.
Notwithstanding the Board's vote, Mr. Latorella decided to forego the increase
and, as a result, his salary was not modified in 2002.
(2) On January 3, 2000, the Board of Directors approved, and we made, a term
loan to Mr. Latorella in the amount of $275,000, and a loan to Mr. Goddard in
the amount of $125,000. The loans included certain cancellation features if Mr.
Latorella and Mr. Goddard, as applicable, remained employed by us through
January 3, 2003. The loans were intended to deter Messrs. Latorella and Goddard
from terminating their services for us as well as to provide executive
compensation. As both Messrs. Latorella and Goddard remained employed with us
as of January 3, 2003, these loans have been forgiven in accordance with the
loans' terms, and, also in accordance with these loans' terms, certain tax
equalization payments are anticipated to be made Messrs. Latorella and Goddard
in 2004 (which we anticipate will not exceed $214,439 in the aggregate).
(3) Mr. Latorella and his family are allowed use of two company cars, the
value of which is approximately $1,100 per month to Mr. Latorella.
(4) Mr. Fields commenced his employment with us in 2001. Mr. Fields became
an executive officer with the Company on March 31, 2003.
(5) Mr. Goddard ceased employment with us on March 31, 2003. As part of a
severance arrangement that we entered into with Mr. Goddard, an incentive stock
option to purchase 1,000,000 shares of Class A Voting Common Stock owned by Mr.
Goddard was cancelled and, in lieu of that option, Mr. Goddard was issued a
fully vested non-qualified stock option to purchase 250,000 shares with an
exercise price of $0.15 per share.
(6) Mr. Goddard received a monthly automobile allowance of $523 and a fuel
allowance as part of his compensation and severance. This benefit terminated on
June 30, 2003.
None of Messrs. Latorella, Goddard, or Fields was granted options or issued
shares in 2002. None of Messrs. Latorella, Goddard or Fields exercised any
option held by him in 2002.
35
The table below outlines the value, as of December 31, 2002, of options granted
to Messrs. Latorella, Goddard, and Fields in prior years that remain
exercisable.
AGGREGATED FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT DECEMBER 31,
2002 VALUE OF UNEXERCISED IN-THE-MONEY
(#) OPTIONS AT DECEMBER 31, 2002
EXERCISABLE/UNEXERCISABLE ($)
NAME EXERCISABLE/UNEXERCISABLE(1)
------------------------------------
JON R. LATORELLA. . . . . . . . . . . . . 190,000 / 0(2) $ 11,400 / 0
President and
Chief Executive Officer
JAMES C. FIELDS . . . . . . . . . . . . . 250,000 / 250,000(3) $ 20,000 / 20,000
Acting Chief Financial Officer
Treasurer and Secretary
ROBERT A. GODDARD(3). . . . . . . . . . . 1,000,000 / 0(4)(5) $ 80,000 / 0
Former Chief Financial Officer
Treasurer and Secretary
(1) Based on the closing price ($0.28 per share) of our Class A Voting
Common Stock as quoted on the Over the Counter Bulletin Board. This amount
reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
(2) Consists of options to purchase shares of Class A Voting Common Stock
with an exercise price of $0.22 per share in the case of Mr. Latorella.
(3) Consists of options to purchase 500,000 shares of Class A Voting Common
Stock with an exercise price of $0.20.
(4) Consists of options to purchase shares of Class A Voting Common Stock
with an exercise price of $0.20 per share.
(5) Mr. Goddard ceased his employment with us on March 31, 2003. On March
31, 2003, and in connection with a severance agreement that we entered into with
Mr. Goddard, incentive stock option to purchase 1,000,000 shares of Class A
Voting Common Stock owned by Mr. Goddard was cancelled and, in lieu of that
option, Mr. Goddard was issued a fully vested non-qualified stock option to
purchase 250,000 shares with an exercise price of $0.15 per share.
ADVISORY BOARD
On December 2, 1999, our Board of Directors authorized the formation of an
Advisory Board to provide ongoing advice and consultation to the Board of
Directors to enhance the development and operation of our LocatePLUS product.
The Advisory Board will consist of up to eight members (none of which will be
employees or directors) selected by the Board of Directors based on each
candidate's experience, accomplishments and national recognition in the fields
encompassed by our target markets. Compensation for members of our advisory
board consists of expense reimbursement and a grant of a fully vested
non-qualified stock option or immediately exercisable warrant. The Advisory
Board meets informally from time to time with management.
DALE C. JENKINS, JR.
On December 2, 1999, we appointed Dale C. Jenkins, Jr., as the first member
of our Advisory Board. In 1999, Mr. Jenkins was appointed to the position of
Special Assistant for Law Enforcement and Public Safety to the Chancellor of
Higher Education of the Commonwealth of Massachusetts. Mr. Jenkins was also
appointed to the Advisory Board of the U.S. Commission on Civil Rights and the
Massachusetts Governor's Crime Watch Committee and was a consultant to the U.S.
Department of Justice. In addition, Mr. Jenkins directed the Lead Advanced
Security Team for Presidents Ronald Reagan and George H. W. Bush and acted as
Deputy Director of Inaugural Security for then President-Elect George H. W.
Bush. On November 17, 1999, our Board of Directors
36
granted a ten-year option to Mr. Jenkins to purchase 25,000 shares of our Class
A Voting Common Stock with an exercise price of $0.20 per share as compensation
for his services on the Advisory Board.
JAMES A. CORRY
On July 20, 2000, our Board of Directors appointed James A. Corry as the
second member of our Advisory Board. Since July 2001, Mr. Corry has been the
Chief Operating Officer of Abel Telecom, Inc., based in Scottsdale, Arizona.
Prior to that, Mr. Corry was a criminal investigation and security expert for
the United States Secret Service. During his more than twenty years with that
agency, Mr. Corry worked on security issues globally, conducting criminal and
fraud investigations and managing the security of political personnel, including
President George H. W. Bush. On June 1, 2001, the Board of Directors issued to
Mr. Corry a ten-year option to purchase 25,000 shares of our Class A Voting
Common Stock with an exercise price of $0.20 per share as compensation for his
services on the Advisory Board.
WILLIAM H. SHAHEEN
On October 1, 2001, our Board of Directors appointed William H. Shaheen to
our Advisory Board. Mr. Shaheen is currently the Managing Partner of the law
firm of Shaheen and Cohen, with offices in Concord and Dover, New Hampshire.
Mr. Shaheen served as U.S. Attorney for the District of New Hampshire from 1976
to 1981. In 1981, he was appointed a New Hampshire District Court Judge in
Durham, New Hampshire. Mr. Shaheen resigned his judgeship in 1997 upon the
election of his wife as Governor of the State of New Hampshire. On October 12,
2001 in consideration for his services on the Advisory Board, Mr. Shaheen
received a ten-year warrant to purchase 25,000 shares of our Class B Non-voting
Common Stock, with an exercise price of $0.20.
DAVID G. DUCHESNEAU
On October 1, 2001, our Board of Directors also appointed David G.
Duchesneau to our Advisory Board. From 1991 to the present, Mr. Duchesneau has
been General Manager of Standa, Inc., a full service private investigative
agency and consulting firm. From 1971 to 1991, Mr. Duchesneau was the Commander
and Senior Officer of the Organized Crime Unit and Fugitive Apprehensive Unit of
the New Hampshire State Police. On October 12, 2001 Mr. Duchesneau was issued a
ten-year warrant to purchase 25,000 shares of our Class B Non-voting Common
Stock, with an exercise price of $0.20 per share in consideration for his
services on the Advisory Board.
CHARLES LYONS
On November 20, 2001, our Board of Director appointed Charles Lyons to the
Advisory Board. Mr. Lyons is the Superintendent Director of the Shawsheen Valley
Technical School District located in Billerica, Massachusetts. He is also the
Chairman of the Arlington, Massachusetts Board of Selectmen. On that date, our
Board of Directors granted a ten-year warrant to Mr. Lyons to purchase 12,500
shares of our Class B Non-voting Common Stock with an exercise price of $0.20
per share as compensation for his services on the Advisory Board.
Matters Presented to Stockholders for Approval
On May 29, 2003, we held our 2003 Annual Meeting of Stockholders, at which three
matters were presented to the stockholders for approval: the election of our
Board of Directors, the ratification of Carlin, Charron & Rosen LLP as our
independent auditors for the year ending December 31, 2003, and the ratification
of our 2003 Stock Plan.
At the meeting, the stockholder votes for election of the Board were as follows:
Member For Against Abstain
- -------------- ---------- ------- -------
Sonia Bejjani. 31,927,266 638,670 30,000
- -------------- ---------- ------- -------
Thomas Garlock 32,217,586 378,350 -
- -------------- ---------- ------- -------
John Houlihan. 32,267,586 328,350 -
- -------------- ---------- ------- -------
Robert Kite. . 32,215,036 380,900 -
- -------------- ---------- ------- -------
Jon Latorella. 32,240,936 325,000 30,000
- -------------- ---------- ------- -------
Thomas Murphy. 32,265,936 330,000 -
- -------------- ---------- ------- -------
Gerard Scalley 31,997,266 595,320 3,350
- -------------- ---------- ------- -------
Carlin, Charron & Rosen LLP was ratified as our independent auditors by our
stockholders at the meeting by a vote of 32,580,086 shares in favor and 617,500
against with 125,000 abstaining.
Our 2003 Stock Plan was ratified by our stockholders by a vote of
31,853,436 shares in favor and 617,500 against with 125,000 abstaining.
37
ORGANIZATION WITHIN THE PAST FIVE YEARS
We were incorporated in Massachusetts in 1996 as Worldwide Information,
Inc. In July 1999, we reincorporated in Delaware to take advantage of certain
favorable corporate excise tax rates relative to Massachusetts as well as
Delaware's well-established corporate law. As part of that re-incorporation, we
changed our name to LocatePLUS.com, Inc.
On August 1, 2001, we changed our name from LocatePLUS.com, Inc. to LocatePLUS
Holdings Corporation as part of a corporate restructuring. In conjunction with
that corporate restructuring, we created two wholly-owned subsidiaries,
LocatePLUS Corporation, a Delaware corporation, and Worldwide Information, Inc.,
a Delaware corporation. We capitalized LocatePLUS Corporation with all of our
Internet-based LocatePLUS business, in consideration for all of its equity, 100
shares of common stock, par value $0.01. We capitalized Worldwide Information,
Inc. with all of our CD-ROM-based Worldwide Information business, in
consideration for all of its equity, 100 shares of common stock, par value
$0.01. We created these subsidiaries for two primary reasons:
- - We wished to isolate any potential liabilities in one of our products
(such as claims associated with errors or omissions in our databases, as
described in the section above titled "Risk Factors" beginning on page 4) in a
manner that would reduce the impact of any such liabilities on our other product
line. There are no claims pending relating to errors or omissions in either of
our two product lines, nor does management currently anticipate any such claims.
However, as disclosed above, claims associated with defects in our databases may
arise from time to time.
- - We wished to administratively separate the operations associated with our
LocatePLUS product from our Worldwide Information product. Operations
associated with our Worldwide Information product have historically been
conducted through our Byfield, Massachusetts office. Operations associated with
our LocatePLUS product have been conducted through our Beverly, Massachusetts
office. Although each of these products is marketed to similar users, the
acquisition and integration of data for and the operation of these two products
differs significantly.
LocatePLUS Holdings Corporation provides certain administrative and
executive functions on behalf of each of the two subsidiaries, such as
management of payroll and other accounts payable.
We presently hold all of the equity of each subsidiary, and we account for each
subsidiary on a consolidated basis.
No options, warrants or similar rights to acquire equity in either subsidiary
currently exists, nor do we anticipate any such rights being created in the
future. We have no present intention of selling or otherwise disposing of
either subsidiary.
* * *
38
CERTAIN TRANSACTIONS
On June 17, 2002, the Board of Directors adopted our Interested Parties
Transaction Policy, pursuant to which the Company will not enter into any
agreement, arrangement or understanding with any director, officer, or 5% or
greater stockholder of unless (I) the terms of such agreement, arrangement or
understanding are consistent with the terms of equivalent agreements or
arrangements that the Company could obtain from third parties; and (II) the
agreement, arrangement or understanding is fair to the Company.
THOMAS GARLOCK (a member of our Board of Directors)
In consideration for his service as a member of our Board of Directors and
for strategic advisory and shareholder relations services rendered for us, we
issued warrants to Mr. Garlock to purchase 386,670 shares of our Class B
Non-voting Common Stock, of which warrants to purchase 324,581 were issued in
December 2001 and warrants to purchase 62,089 were issued in February 2002.
These ten-year warrants have an exercise price of $0.15 per share.
In consideration for his strategic advisory and shareholder relations
services, Mr. Garlock was also issued options under our 1999 Stock Option Plan
to purchase an aggregate of 1,034,720 shares of our Class A Voting Stock (with
an average exercise price of $0.31), of which options to purchase 836,112 were
granted in November 1999, options to purchase 38,067 were granted in June 2001,
and options to purchase 160,541 were granted in 2002.
JOHN HOULIHAN (a member of our Board of Directors)
On March 7, 2001, we borrowed $15,000 from Mr. Houlihan pursuant to a
promissory note providing for an interest rate of 12% per annum. The interest on
this loan was paid on April 26, 2001. On that date, the principal on this loan
was exchanged for 150,000 shares of our Class B Non-voting Common Stock. In
conjunction with this note, we also issued to Mr. Houlihan a warrant to purchase
shares of our capital stock. This warrant currently permits Mr. Houlihan to
purchase 75,000 shares of our Class A Voting Common Stock for $0.20 per share.
ROBERT KITE (a member of our Board of Directors)
Mr. Kite purchased 333,333 of our Units in our initial public offering
under the terms and conditions of that offering.
On December 5, 2002, we borrowed $250,000 from Mr. Kite through KFT LLLP, a
private equity fund, pursuant to a promissory note providing for an interest
rate of 10% per annum payable monthly. In conjunction with this note, we also
issued to Mr. Kite a warrant to purchase shares of our capital stock. This
warrant currently permits KFT LLLP to purchase 250,000 shares of the Company's
Class B Non-Voting Common Stock at $0.22 per share.
JON R. LATORELLA (our President and Chief Executive Officer and Chairman of our
Board of Directors)
Mr. Latorella elected to reduce his annual salary to $50,100 in September
2000. On June 17, 2002, the Board of Directors voted to return Mr. Latorella's
salary prospectively to its pre-reduction level of $150,000 per annum. However,
Mr. Latorella elected to forego that increase and, as a result, his salary
remained approximately $50,000 per annum.
On January 3, 2000, the Board of Directors approved, and we made, a ten
year term loan to Mr. Latorella for $275,000, which we refer to as Mr.
Latorella's "Incentive Loan." This Incentive Loan was intended to provide a
bonus to Mr. Latorella for services rendered in conjunction with the development
and launch of our LocatePLUS product and to deter Mr. Latorella from
terminating his employment with us. The loan was evidenced by two promissory
notes, pursuant to which interest on the loan was computed at an annual rate
equal to the 90-day Treasury Bill Rate. Among other things, the Incentive Loan
provided that, if Mr. Latorella was still employed by us as of January 3, 2003,
then the obligations and debt evidenced by the notes would be immediately
canceled, and we would make a tax equalization payment to Mr. Latorella. As a
result, we amortized this loan assuming its cancellation as of January 3, 2003.
As Mr. Latorella was employed by us on January 3, 2003, this loan has been
forgiven in accordance with its terms, and we anticipate that, in accordance
with the loan's terms, we will make a tax equalization payment to Mr. Latorella
in 2004 in the amount of approximately $147,427.
Mr. Latorella and his family are allowed use of two company cars, the value
of which is approximately $1,100 per month to Mr. Latorella.
39
THOMAS MURPHY (a member of our Board of Directors)
Mr. Murphy is a Vice President at Oftring & Company, Inc., the underwriter
of our initial public offering. In connection certain private offerings prior to
our initial public offering, we issued a five year warrant to purchase 300,000
shares of our Class B Non-Voting Common Stock with an exercise price of $0.30
per share. Oftring & Company has also been paid $166,000 in fees and expenses
by us during 2002 for services as a placement agent and in connection with the
initial public offering.
ROBERT A. GODDARD (our former Chief Financial Officer; Mr. Goddard resigned on
March 31, 2003)
In connection with the cessation of his employment with the Company on
March 31, 2003, we entered into a severance agreement with Mr. Goddard. Among
other things, that severance agreement provides that he will receive three
months' severance and, in exchange for canceling an incentive stock option to
purchase 1,000,000 shares of our Class A Voting Common Stock with an exercise
price of $0.20 per share, Mr. Goddard was issued an option to purchase 250,000
shares of our Class A Voting Common Stock with an exercise price of $0.15 per
share.
On January 3, 2000, the Board of Directors approved, and we made, a ten
year term loan to Mr. Goddard for $125,000, which we refer to as Mr. Goddard's
"Incentive Loan." This Incentive Loan was intended to provide a bonus to Mr.
Goddard for services rendered in conjunction with the development and launch of
our LocatePLUS product and to deter Mr. Goddard from terminating his employment
with us. The loan was evidenced by a promissory note, pursuant to which interest
on the loan was computed at an annual rate equal to the 90-day Treasury Bill
Rate. Among other things, the Incentive Loan provided that, if Mr. Goddard was
still employed by us as of January 3, 2003, then the obligations and debt
evidenced by the note would be immediately and without further action by either
party canceled, and we would make a tax equalization payment to Mr. Goddard. As
a result, the Company amortized this loan assuming its cancellation as of
January 3, 2003. As Mr. Goddard was employed by us on January 3, 2003, this
loan has been forgiven in accordance with its terms, and we anticipate that, in
accordance with the loan's terms, we will make a tax equalization payment to Mr.
Goddard in 2004 in the amount of approximately $67,012.
GREGORY B. LINDAE (a former member of our Board of Directors and a holder of
more than 5% of our Class B Non-voting Common Stock; Mr. Lindae resigned from
the Board of Directors on April 12, 2001)
On January 31, 2002, we issued a ten-year warrant to Mr. Lindae to purchase
1,177,680 shares of our Class B Non-voting Common Stock for $0.15 per share for
strategic advisory, investment banking and public relations services rendered by
him.
USE OF OUR ASSETS
Certain of our executives are allowed use of company cars for both business
and personal purposes. These cars have been capitalized as assets of the
Company, totaling $104,379 as of December 31, 2002.
* * *
40
PRINCIPAL STOCKHOLDERS
As of the close of business on June 30, 2003, we had 61,712,384 shares of
Class A Voting Common Stock and 68,765,726 shares of Class B Non-voting Common
Stock issued and outstanding. There were also unexercised options and warrants
issued to purchase 28,405,755 shares of Class A Voting Stock and unexercised
warrants to purchase 6,422,139 shares of Class B Non-voting Common Stock
(including both vested and unvested options).
The table on the following page sets forth certain information known to us with
respect to the beneficial ownership of our Class A Voting Common Stock and Class
B Non-voting Common Stock as of the close of business on June 30, 2003, by:
- - each of our directors;
- - each of our executive officers;
- - each person known to us to beneficially own more than 5% of either class
of our common stock; and
- - all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that person,
shares of common stock underlying options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days of June 30,
2003 are deemed outstanding, while such shares are not deemed outstanding for
computing percentage ownership of any other person.
To our knowledge, except as indicated in the footnotes to this table, each
stockholder identified in the table possesses sole voting and investment power
with respect to all shares shown as beneficially owned by such stockholder.
Each of our directors and executive officers can be contacted at 100
Cummings Center, Suite 235M, Beverly, Massachusetts 01915.
41
OWNERSHIP OF LOCATEPLUS HOLDINGS CORPORATION SECURITIES
Class A Voting Common Stock Class B Non-voting Common Stock
NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY PERCENTAGE OF NUMBER OF SHARES
- - OWNED SHARES BENEFICIALLY
- - - OWNED -
DIRECTORS
- -------------------------------------
SONIA P. BEJJANI 2,500,000(1) 3.9% -
THOMAS GARLOCK 1,577,838(2) 2.5% 421,670(3)
JOHN P. HOULIHAN 550,000(4) * 2,395,000(5)
ROBERT H. KITE 333,333(6) * 618,333(7)
JON R. LATORELLA 27,690,500(8) 44.7% -
THOMAS E. MURPHY 75,000(9) * 335,000(10)
GERARD SCALLEY - - 35,000(11)
OFFICERS
- -------------------------------------
JAMES C. FIELDS 250,000(12) * -
5% STOCKHOLDERS
- -------------------------------------
GREGORY LINDAE
P.O. Box 9062
Truckee, CA 96162 700,000(13) 1.1% 6,300,000(14)
MANAGEMENT GROUP
- -------------------------------------
All directors and executive officers
as a group (8 persons) 32,976,671(15) 49.8% 3,805,003(16)
BENEFICIAL OWNER PERCENTAGE OF
- - SHARES
- -
DIRECTORS
- -------------------------------------
SONIA P. BEJJANI. . . . . . . . . . . -
THOMAS GARLOCK. . . . . . . . . . . . *
JOHN P. HOULIHAN. . . . . . . . . . . 3.5%
ROBERT H. KITE. . . . . . . . . . . . *
JON R. LATORELLA. . . . . . . . . . . -
THOMAS E. MURPHY. . . . . . . . . . . *
GERARD SCALLEY. . . . . . . . . . . . *
OFFICERS
- -------------------------------------
JAMES C. FIELDS . . . . . . . . . . . -
5% STOCKHOLDERS
- -------------------------------------
GREGORY LINDAE
P.O. Box 9062
Truckee, CA 96162 . . . . . . . . . . 9.0%
MANAGEMENT GROUP
- -------------------------------------
All directors and executive officers
as a group (7 persons). . . . . . . . 5.4%
___________________________
* Less than one percent of outstanding shares.
(1) Consists of 2,500,000 shares issuable upon the exercise of an
immediately exercisable option with an exercise price of $0.20 per share.
(2) Includes (I) 543,118 shares held by the Kenai River Trust, over which
Mr. Garlock has voting and dispositional authority; and (II) 1,034,720 shares
issuable upon the exercise of immediately exercisable options with a weighted
average exercise price of $0.20 per share.
(3) Consists of 421,670 shares issuable upon exercise of immediately
exercisable warrants with an exercise price of $0.15 per share (including
warrants to purchase 70,000 shares granted pursuant to our Non-employee
Directors' Stock Option Policy).
(4) Includes (I) 75,000 shares held by the Houlihan Trust, over which Mr.
Houlihan has voting and dispositional authority; and (II) 75,000 shares issuable
upon the exercise of immediately exercisable warrants with an exercise price of
$0.20 per share.
(5) Includes (I) 425,000 shares held by the Houlihan Trust, over which Mr.
Houlihan has voting and dispositional authority; (II) 66,667 shares held by
Failte Investments, over which Mr. Houlihan has voting and dispositional
authority; and (III) 70,000 shares issuable on the exercise of immediately
exercisable warrants with an exercise price of $0.15 per share (granted pursuant
to our Non-employee Directors' Stock Option Policy).
42
(6) Includes 333,333 shares issuable upon the exercise of three-year public
warrants issued in our initial public offering, with an exercise price of $0.50
per share.
(7) Includes (I) 250,000 shares issuable upon the exercise of immediately
exercisable warrants to with an exercise price of $0.22 per share owned by KFT
LLLP, over which Mr. Kite has voting and dispositional authority; and (II)
35,000 shares issuable upon the exercise of immediately exercisable options with
an exercise price of $0.15 per share (granted pursuant to our Non-employee
Directors' Stock Option Policy).
(8) Includes 190,000 shares issuable upon the exercise of an immediately
exercisable option with an exercise price of $0.22 per share.
(9) Consists of 75,000 shares issuable upon the exercise of immediately
exercisable warrants with an exercise price of $0.22 per share.
(10) Includes 300,000 shares issuable upon the exercise of immediately
exercisable warrants with an exercise price of $0.15 per share.
(11) Consists of 35,000 shares issuable upon the exercise of immediately
exercisable warrants with an exercise price of $0.15 per share (granted pursuant
to our Non-employee Directors' Stock Option Policy).
(12) Consists of the vested portion (250,000 shares) of an option to purchase
500,000 shares with an exercise price of $0.20 per share. The option will be
vested in full on February 8, 2005, assuming Mr. Fields is employed by us as of
that date.
(13) Includes 564,840 shares issuable upon the exercise of a fully vested stock
option with an exercise price of $0.20 per share.
(14) Includes (I) 500,000 shares issuable upon the exercise of immediately
exercisable warrants with an exercise price of $0.10 per share, and (II)
1,177,680 shares issuable upon the exercise of immediately exercisable warrants
with an exercise price of $0.15 per share.
(15) Includes 4,458,053 shares issuable upon the exercise of convertible
securities (i.e., options and warrants).
(16) Includes 1,111,670 shares issuable upon the exercise of warrants.
* * *
43
DESCRIPTION OF CAPITAL STOCK
The authorized capital of LocatePLUS Holdings Corporation consists of:
- - 150,000,000 shares of Class A Voting Common Stock; and
- - 250,000,000 shares of Class B Non-voting Common Stock.
The following description of our capital stock does not purport to be complete
and is governed by and qualified by our Second Amended and Restated Certificate
of Incorporation (which we refer to as our "Charter") and By-laws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of August 30, 2003, there were 61,837,384 shares of Class A Voting
Common Stock and 68,765,726 shares of Class B Non-Voting Common Stock issued and
outstanding.
The holders of both classes of our common stock are entitled to receive
ratably dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, the holders of both classes of our
common stock are entitled to share ratably in all assets remaining after payment
of liabilities. Neither class of our common stock has any preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to either class of our common stock.
CLASS A VOTING COMMON STOCK
Shares of Class A Voting Common Stock are entitled to one vote per share
held of record on all matters submitted to a vote of stockholders. Holders of
Class A Voting Common Stock do not have cumulative voting rights, and,
therefore, the holder of a majority of the shares of Class A Voting Common Stock
(currently, Mr. Latorella) may elect all of our directors standing for election.
CLASS B NON-VOTING COMMON STOCK
Shares of Class B Non-voting Common Stock have no voting rights, but are
otherwise identical to shares of Class A Voting Common Stock.
CLASS A REDEEMABLE WARRANTS
GENERAL
Each Class A Redeemable Warrant entitles the holder to purchase one share
of our Class A Voting Common Stock for $0.50 per share. The exercise price is
subject to adjustment upon the occurrence of certain events as provided in the
Class A Redeemable Warrant certificate and as summarized below. Our Class A
Redeemable Warrants may be exercised at any time until October 12, 2005, which
is their expiration date. Those of our Class A Redeemable Warrants which have
not previously been exercised will expire on the expiration date. A Class A
Redeemable Warrant holder will not be deemed to be a holder of the underlying
shares of our Class A Voting Common Stock for any purpose until the Class A
Redeemable Warrant has been properly exercised.
EXERCISE
A Class A Redeemable Warrant holder may exercise our Class A Redeemable
Warrants only if an appropriate registration statement is then in effect with
the Securities and Exchange Commission and if the shares of Class A Voting
Common Stock underlying our Class A Redeemable Warrants are qualified for sale
under the securities laws of the state in which the holder resides. We will use
commercially reasonable efforts to maintain the registration of the Class A
Voting Common Stock underlying the warrants until the expiration date of the
Class A Redeemable Warrants and to qualify for sale the shares of Class A Voting
Common Stock in each U.S. jurisdiction in which our Class A Redeemable Warrant
holders reside, although we can give no guarantee that such registration will be
permitted under applicable state law.
44
Our Class A Redeemable Warrants may be exercised by delivering to our Transfer
Agent the applicable Class A Redeemable Warrant certificate on or prior to the
expiration date, with the form on the reverse side of the certificate executed
as indicated, accompanied by payment of the full exercise price for the number
of Class A Redeemable Warrants being exercised plus payment of any taxes
required by the holder's jurisdiction. Fractional shares of Class A Voting
Common Stock will not be issued upon exercise of our Class A Redeemable
Warrants.
ADJUSTMENTS OF EXERCISE PRICE
If we effect any stock split or stock combination with respect to our Class
A Voting Common Stock, the exercise price in effect immediately prior to such
stock split or combination will be proportionately reduced or increased, as the
case may be. Any adjustment of the exercise price will also result in an
adjustment of the number of shares purchasable upon exercise of a Class A
Redeemable Warrant.
REDEMPTION
We may repurchase the Class A Redeemable Warrants for $0.001 per warrant upon 30
days' notice to the holders of the Class A Redeemable Warrants in the event that
the closing bid on the Over the Counter Bulletin Board for our Class A Voting
Stock is at or above $1.25 per share for five consecutive days.
RESTRICTED WARRANTS
We have issued restricted warrants to purchase an aggregate of 5,488,489
shares of our Class A Voting Common Stock, for which the weighted average
exercise price of these warrants is $0.20 per share. We have also issued
restricted warrants to purchase an aggregate of 6,202,139 shares of our Class B
Non-voting Common Stock, for which the weighted average exercise price of these
warrants is $0.14 per share. These restricted warrants include "net issuance"
provisions, permitting a holder to exchange a portion of the warrants for shares
of the underlying security in lieu of payment of a cash exercise price.
CONVERTIBLE NOTE
In consideration for a $10,000 loan made to us on March 9, 2001, we issued
a convertible promissory note. This convertible promissory note bears interest
at the rate of 12% per annum. This note is convertible into 44,444 shares of
our Class A Voting Common Stock at the election of the holder. The note
originally matured on September 9, 2001. On July 22, 2002, the holder of the
note agreed with us to convert the note into a demand note providing for
quarterly payments of interest on the note until the principal of the note is
repaid or converted.
"BRIDGE NOTES AND WARRANTS"
From September 2000 to January 2001, we sold $312,000 in convertible notes
and restricted warrants in a private placement. We refer to these securities as
our "Bridge Notes and Warrants". Pursuant to the terms of these securities, the
Bridge Notes converted into 1,681,712 shares of Class A Voting Common Stock on
October 12, 2002 (the closing of our initial public offering), and the Bridge
Warrants were exercised or otherwise converted into 80,000 shares of Class A
Voting Common Stock. As a result of these transactions, the Bridge Notes and
Warrants are no longer outstanding.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Our Charter provides that members of our Board of Directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director except for liability:
- - for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- - for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- - under Section 174 of the General Corporation Law of the State of Delaware
(relating to distributions by insolvent corporations); or
- - for any transaction from which the director derived an improper personal
benefit.
45
Our Charter also provides that if the General Corporation Law of the State of
Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of members of
our Board of Directors will be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
Our Charter and By-laws also provide that we may indemnify our directors and
officers to the fullest extent permitted by Delaware law. A right of
indemnification shall continue as to a person who has ceased to be a director or
officer and will inure to the benefit of the heirs and personal representatives
of such a person. The indemnification provided by our Charter and By-laws will
not be deemed exclusive of any other rights that may be provided now or in the
future under any provision currently in effect or hereafter adopted by our
Charter, By-laws, by any agreement, by vote of our stockholders, by resolution
of our directors, by provision of law or otherwise.
We have also secured directors' and officers' liability insurance on behalf of
our directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons in accordance
with the provisions contained in our Charter and By-laws, Delaware law or
otherwise, we have been advised that, in the opinion of the Securities and
Exchange Commission, this indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. If 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, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and we will follow the
court's determination.
* * *
46
SHARES ELIGIBLE FOR FUTURE SALE
Investors should note that, with the exception of shares held by our
affiliates, all of our issued and outstanding shares of Class A Voting Common
Stock and Class B Non-voting Common Stock, as well as shares of Class A Voting
Common Stock and Class B Non-voting Common Stock underlying all of our issued
options, warrants and convertible debt, are anticipated to be available for
public resale, without restriction, either through our registration of those
securities or through the provisions of the Securities and Exchange Commission's
Rule 144(k).
The following table outlines our capital stock as of August 30, 2003:
Shares of Class A Voting Common Stock outstanding 61,837,384 (1)
Shares of Class A Voting Common Stock issuable upon exercise of the put right 20,000,000 (2)
-----------
Shares of Class A Voting Common Stock issued following such exercise 81,837,384 (2)
Shares of Class B Non-voting Common Stock outstanding 68,765,726 (3)
Total shares of both classes of Common Stock outstanding 150,603,110 (1)(2)(3)
______________
______________
(1) Assuming no exercise or conversion of:
- - warrants to purchase 18,894,739 shares of Class A Voting Common Stock
currently outstanding;
- - options to purchase up to 13,793,300 shares of Class A Voting Common Stock
pursuant to our 1999 Incentive and Non-qualified Stock Option Plan;
- - options to purchase up to 25,000,000 shares of Class A Voting Common Stock
pursuant to our 2003 Stock Plan; or
- - debt convertible into 44,444 shares of Class A Voting Common Stock at the
election of one debtholder.
(2) For the purpose of determining the number of shares subject to
registration with the Securities and Exchange Commission, we have assumed that
we will issue not more than 20,000,000 shares pursuant to our exercise of our
put right under the Investment Agreement, although the number of shares that we
will actually issue pursuant to that put right may be more than or less than
20,000,000, depending on the trading price of our Class A Voting Common Stock.
(3) Assuming no exercise or conversion of:
- - warrants and options to purchase up to 6,422,139 shares of Class B
Non-voting Common Stock; or
- - options to purchase up to 25,000,000 shares of Class B Non-Voting Common
Stock pursuant to our 2003 Stock Plan.
As of August 30, 2003, our affiliates hold 28,518,618 shares of Class A
Voting Common Stock and 2,658,333 shares of our Class B Non-voting Common Stock.
In general, under Rule 144, as currently in effect, after the date of this
prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned shares of our common stock for at least one year, including
any person who is deemed to be our affiliate, will be entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of:
- - 1% of the number of shares of such class of common stock then outstanding,
which will equal approximately 618,378 shares (in the case of Class A Voting
Common Stock) and 687,657 shares (in the case of our Class B Non-voting Common
Stock); or
- - the average weekly trading volume of our Common Stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect to such
sale.
Sales under Rule 144 are also governed by other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us. Under Rule 144(k), however, a person who is not, and for the
47
three months prior to the sale of such shares has not been, an affiliate of the
company will be free to sell "restricted securities" (e.g., shares issued in a
private placement) which have been held for at least two years without regard to
the limitations described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our securities is Transfer Online,
Inc. Transfer Online's address is 227 SW Pine Street, Suite 300, Portland,
Oregon 97204.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for us by Kirkpatrick & Lockhart LLP.
EXPERTS
The financial statements as of December 31, 2001 and 2002 and for each of
the years in the period ended December 31, 2001 and 2002 included in this
Prospectus have been so included in reliance on the report (which contains an
explanatory paragraph relating to the Company's ability to continue as a going
concern as described in Note 1 to the financial statements) of Carlin, Charron,
& Rosen, LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act of 1933 for the shares of Common
Stock in the offering, of which this prospectus is a part. This prospectus does
not contain all of the information in the registration statement and the
exhibits and schedule that were filed with the registration statement. For
further information with respect to us and the Units, we refer you to the
registration statement and the exhibits and schedule that were filed with the
registration statement.
Statements contained in this prospectus about the contents of any contract or
any other document that is filed as an exhibit to the registration statement are
not necessarily complete, and we refer you to the full text of the contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules that were filed with the
registration statement may be inspected without charge at the Public Reference
Room maintained by the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee. Information regarding the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange Commission
at 1-800-SEC-0330.
The Securities and Exchange Commission maintains a web site that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC. The address of the site is
www.sec.gov.
* * *
48
LOCATEPLUS HOLDINGS CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants..................................F-1
Consolidated Balance Sheets as of December 31, 2002,
and June 30, 2003 (unaudited).........................................F-2
Consolidated Statements of Operations for the years ended
December 31, 2001 and 2002, and for the six months ended
June 30, 2002 (unaudited) and 2003 (unaudited)...................F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 2001 and 2002, and for
the six months ended June 30, 2003 (unaudited).................F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and 2002, and for the six months
ended June 30, 2002 (unaudited) and 2003 (unaudited).................F-5
Notes to Consolidated Financial Statements........................F-6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
LocatePLUS Holdings Corporation:
Beverly, Massachusetts
We have audited the accompanying consolidated balance sheet of LocatePLUS
Holdings Corporation as of December 31, 2002, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LocatePLUS
Holdings Corporation as of December 31, 2002, and the results of its
consolidated operations and its consolidated cash flows for each of the two
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As disclosed in the financial
statements, the Company has an accumulated deficit at December 31, 2002 and has
suffered substantial net losses in each of the last two years, which raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are disclosed in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
CARLIN, CHARRON & ROSEN LLP
Worcester, Massachusetts
March 24, 2003
The accompanying financial statements as of June 30, 2003 and for the six months
ended June 30, 2003, and 2002 have not been audited as disclosed in Note 1.
F-1
LOCATEPLUS HOLDINGS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30,
2003 DECEMBER 31,
(UNAUDITED) 2002
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 1,685,981 $ 1,661,213
Accounts receivable, trade - net. . . . . . . . . . 437,856 269,566
Prepaid expenses and other current assets . . . . . 1,199,292 375,966
Notes receivable. . . . . . . . . . . . . . . . . . 1,085,436 1,231,474
Total current assets. . . . . . . . . . . . . . 4,408,565 3,538,219
Property and equipment, net . . . . . . . . . . . . . 1,724,707 1,301,468
Security deposits . . . . . . . . . . . . . . . . . . 92,137 97,748
Notes receivable - related parties, net . . . . . . . - 9,722
Total assets. . . . . . . . . . . . . . . . . . $ 6,225,409 $ 4,947,157
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . $ 615,825 $ 293,900
Accounts payable. . . . . . . . . . . . . . . . . . 1,163,560 1,177,014
Accrued expenses. . . . . . . . . . . . . . . . . . 334,655 433,942
Deferred revenue. . . . . . . . . . . . . . . . . . 67,839 124,459
Current portion of capital lease obligation . . . . 479,731 142,172
Note payable - related party. . . . . . . . . . . . 232,668 211,867
Convertible notes payable . . . . . . . . . . . . . 10,000 10,000
Total current liabilities . . . . . . . . . . . 2,904,278 2,393,354
Notes Payable . . . . . . . . . . . . . . . . . . . . 950,815 -
Capital lease obligation, net of current portion. . . 223,977 202,222
Total liabilities . . . . . . . . . . . . . . . 4,079,070 2,595,576
Commitments and Contingencies
Stockholders' equity:
Class A common stock, $0.01 par value; 150,000,000
shares authorized; 61,712,384 and 54,850,292 shares
issued and outstanding at June 30, 2003 and
December 31, 2002 respectively, . . . . . . . . . . . 617,123 548,503
Class B common stock, $0.01 par value, 250,000,000
shares authorized; 68,765,726 and 68,640,726 shares
issued and outstanding at June 30, 2003 and
December 31, 2002, respectively . . . . . . . . . . . 687,657 686,407
Additional paid-in capital. . . . . . . . . . . . . 18,658,961 17,749,748
Warrants. . . . . . . . . . . . . . . . . . . . . . 2,077,143 1,824,833
Common stock subscriptions receivable . . . . . . . - (174,908)
Accumulated deficit . . . . . . . . . . . . . . . . (19,894,545) (18,283,002)
Total stockholders' equity. . . . . . . . . . . 2,146,339 2,351,581
Total liabilities and stockholders' equity. . . $ 6,225,409 $ 4,947,157
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
F-2
LOCATEPLUS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
2003 2002 2002 2001
(UNAUDITED) (UNAUDITED)
Revenues:
Information Sales
- CD Rom . . . . . . . . . . . . . . $ 232,068 $ 149,025 $ 345,003 $ 268,701
- Online . . . . . . . . . . . . . . 1,143,496 587,981 1,471,188 752,109
- Channel Partner. . . . . . . . . . 95,165 9,196 32,284 -
- Wireless . . . . . . . . . . . . . 2,970 - 1,980 -
Engineering Services. . . . . . . . 96,167 - 53,333 388,187
Total revenues. . . . . . . . . . . 1,569,866 746,202 1,903,788 1,408,997
Costs and expenses:
Costs of revenues
CD Rom . . . . . . . . . . . . . 40,856 47,187 90,397 96,561
Online and Channel Partner . . . 1,130,907 409,090 1,217,809 986,240
Engineering. . . . . . . . . . . 26,025 - 9,297 49,347
Wireless . . . . . . . . . . . . 1,375 - 1,100 -
Selling and marketing . . . . . . . 512,694 506,905 1,001,529 799,486
General and administrative. . . . . 1,590,100 1,662,902 3,257,546 3,317,128
Total operating expenses . . . . 3,301,957 2,626,084 5,577,678 5,248,762
Operating loss . . . . . . . . . . . . (1,732,091) (1,879,882) (3,673,890) (3,839,765)
Other income (expense):
Interest income . . . . . . . . . . 67,365 29,951 53,835 67,768
Interest expense. . . . . . . . . . (251,795) (74,644) (397,674) (590,970)
Other income. . . . . . . . . . . . 21,478 19,956 21,122 6,712
Write-off Accrued License Fees. . . 283,500
Net loss . . . . . . . . . . . . . . . $ (1,611,543) $ (1,904,619) $ (3,996,607) $ (4,356,255)
Basic and diluted net loss per share . $ (0.013) $ (0.018) $ (0.036) $ (0.044)
Shares used in computing basic and
diluted net loss per share . . . . . . 124,617,401 108,123,666 111,798,301 99,613,673
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
F-3
LOCATEPLUS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------- ---------- -------------- -------------
Balance at December 31, 2000 . . . . . . . . . . . 53,108,580 $ 531,086 - $ - $ 8,846,452
------------ ------------- ---------- -------------- -------------
Issuance of detachable warrants to purchase
common stock in conjunction with convertible debt. - - - - -
Issuance of options to purchase common
stock in exchange for services. . . . . . . . . . - - - - 101,488
Beneficial conversion feature on convertible debt. - - - - 293,912
Issuance of common stock at $0.10 per share,
net of issuance costs of $1,750 . . . . . . . . . - - 30,209,121 302,091 2,717,071
Issuance of common stock in exchange for services. - - 75,000 750 6,750
Issuance of common stock at $0.15 per share,
net of issuance costs of $22,626. . . . . . . . . - - 12,307,836 123,078 1,700,472
Issuance of warrants to purchase common stock
in exchange for services. . . . . . . . . . . . . - - - - -
Exchange of convertible notes to related party
plus accrued interest at $0.075 per share . . . . - - 2,996,000 29,960 269,640
Exchange of convertible notes payable plus
accrued interest at $0.10 per share . . . . . . . - - 2,672,430 26,724 240,519
Exchange of convertible notes payable plus
accrued interest at $0.15 per share. . . . . . . . - - 266,667 2,667 37,333
Net loss . . . . . . . . . . . . . . . . . . . . . - - - - -
------------ ------------- ---------- -------------- -------------
Balance at December 31, 2001 . . . . . . . . . . . 53,108,580 531,086 48,527,054 485,270 14,213,637
------------ ------------- ---------- -------------- -------------
Payment of stock subscription receivable . . . . . - - - - -
Issuance of common stock at $0.15 per share,
net of issuance costs of $28,478 . . . . . . . . . - - 8,113,672 81,137 1,107,436
Issuance of warrants to purchase common
stock in exchange for services . . . . . . . . . . - - - - -
Issuance of Units at $0.30 per unit net of
590,662 issuance cost . . . . . . . . . . . . . . - - 12,000,000 120,000 1,929,338
Exchange of convertible notes payable plus
accrued interest at $0.22 per share. . . . . . . . 1,681,712 16,817 - - 386,794
Exercise of detachable warrants. . . . . . . . . . 60,000 600 - - 8,040
Beneficial conversion feature on convertible
debt . . . . . . . . . . . . . . . . . . . . . . . - - - - 104,503
Issuance of detachable warrants forstock in
conjunction with debt and lease financing. . . . . - - - - -
Net loss . . . . . . . . . . . . . . . . . . . . . - - - - -
------------ ------------- ---------- -------------- -------------
Balance at December 31, 2002 . . . . . . . . . . . 54,850,292 $ 548,503 68,640,726 $ 686,407 $ 17,749,748
------------ ------------- ---------- -------------- -------------
Payment of stock subscription receivable . . . . . - - - - -
Issuance of detachable warrants for stock in
conjunction with debt and lease financing. . . . . - - - - -
Issuance of Units at $0.16 per unit. . . . . . . . 2,477,250 24,772 - - 255,351
Issuance of common stock in exchange
for services . . . . . . . . . . . . . . . . . . . 3,300,000 33,000 125,000 1,250 589,500
Issuance of detachable warrants to purchase
common stock in exchange for service . . . . . . . - - - - -
Issuance of options to purchase
common stock as part of severance agreement. . . . - - - - 17,870
Exercise of options @ $0.20. . . . . . . . . . . . 286,700 2,867 - - 54,473
Net Issuance options exercised . . . . . . . . . . 798,141 7,981 - - (7,981)
Net loss for the six months
ended June 30, 2003. . . . . . . . . . . . . . . . - - - - -
------------ ------------- ---------- -------------- -------------
Balance at June 30, 2003 . . . . . . . . . . . . . 61,712,383 $ 617,123 68,765,726 $ 687,657 $ 18,658,961
============ ============= ========== ============== ============
LOCATEPLUS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
WARRANTS STOCK TOTAL
SUBSCRIPTIONS ACCUMULATED STOCKHOLDERS'
RECEIVABLE DEFICIT EQUITY
-------------- -------------- ------------- ------------
Balance at December 31, 2000 . . . . . . . . . . . $ 126,732 $ - $ (9,930,140) $ (425,870)
-------------- -------------- ------------- ------------
Issuance of detachable warrants to purchase
common stock in conjunction with convertible debt. 126,541 - - 126,541
Issuance of options to purchase common
stock in exchange for services. . . . . . . . . . - - - 101,488
Beneficial conversion feature on convertible debt. - - - 293,912
Issuance of common stock at $0.10 per share,
net of issuance costs of $1,750 . . . . . . . . . - (4,500) - 3,014,662
Issuance of common stock in exchange for services. - - - 7,500
Issuance of common stock at $0.15 per share,
net of issuance costs of $22,626. . . . . . . . . - - - 1,823,550
Issuance of warrants to purchase common stock
in exchange for services. . . . . . . . . . . . . 294,721 - - 294,721
Exchange of convertible notes to related party
plus accrued interest at $0.075 per share . . . . - - - 299,600
Exchange of convertible notes payable plus
accrued interest at $0.10 per share . . . . . . . - - - 267,243
Exchange of convertible notes payable plus
accrued interest at $0.15 per share. . . . . . . . - - - 40,000
Net loss . . . . . . . . . . . . . . . . . . . . . - - (4,356,255) (4,356,255)
-------------- -------------- ------------- ------------
Balance at December 31, 2001 . . . . . . . . . . . 547,994 (4,500) (14,286,395) 1,487,092
-------------- -------------- ------------- ------------
Payment of stock subscription receivable . . . . . - 4,500 - 4,500
Issuance of common stock at $0.15 per share,
net of issuance costs of $28,478 . . . . . . . . . - - - 1,188,573
Issuance of warrants to purchase common
stock in exchange for services . . . . . . . . . . 236,177 - - 236,177
Issuance of Units at $0.30 per unit net of
590,662 issuance cost . . . . . . . . . . . . . . 960,000 (174,908) - 2,834,430
Exchange of convertible notes payable plus
accrued interest at $0.22 per share. . . . . . . . - - - 403,611
Exercise of detachable warrants. . . . . . . . . . - - - 8,640
Beneficial conversion feature on convertible
debt . . . . . . . . . . . . . . . . . . . . . . . - - - 104,503
Issuance of detachable warrants for stock in
conjunction with debt and lease financing. . . . . 80,662 - - 80,662
Net loss . . . . . . . . . . . . . . . . . . . . . - - (3,996,607) (3,996,607)
-------------- -------------- ------------- ------------
Balance at December 31, 2002 . . . . . . . . . . . $ 1,824,833 $(174,908) $(18,283,002) $ 2,351,581
-------------- -------------- ------------- ------------
Payment of stock subscription receivable . . . . . - 174,908 - 174,908
Issuance of detachable warrants for stock in
conjunction with debt and lease financing. . . . . 134,654 - - 134,654
Issuance of Units at $0.16 per unit. . . . . . . . 116,237 - - 396,360
Issuance of common stock in exchange
for services . . . . . . . . . . . . . . . . . . . - - - 623,750
Issuance of detachable warrants to purchase
common stock in exchange for service . . . . . . . 1,419 - - 1,419
Issuance of options to purchase
common stock as part of severance agreement. . . . - - - 17,870
Exercise of options @ $0.20. . . . . . . . . . . . - - - 57,340
Net Issuance options exercised . . . . . . . . . . - - - -
Net loss for the six months
ended June 30, 2003. . . . . . . . . . . . . . . . - - (1,611,543) (1,611,543)
-------------- -------------- ------------- ------------
Balance at June 30, 2003 . . . . . . . . . . . . . $ 2,077,143 $ - $(19,894,545) $ 2,146,339
============== ============== ============= ============
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
F-4
LOCATEPLUS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FOR THE
JUNE 30, DECEMBER 31,
2003 2002 2002
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,611,543) $ (1,904,619) $(3,996,607)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment. . . . . . . . 268,798 238,291 475,542
Provision for doubtful accounts. . . . . . . . . . . . . . . . . . . . 38,386 22,955 32,180
Interest on convertible debt converted into common stock . . . . . . . - - -
Interest expense related to warrants issued with debt. . . . . . . . . 42,244 - 4,020
Interest expense related to beneficial conversion features . . . . . . - - 104,503
Interest expense recorded on mandatorily convertible debt. . . . . . . - 25,398 40,773
Loss on sale of property and equipment. . . . . . . . . . . . . . . . - - -
Amortization of notes receivable from related parties. . . . . . . . . 9,722 66,667 133,334
Expense recorded upon exchange of convertible notes payable
to a related party . . . . . . . . . . . . . . . . . . . . . . . . . . - - -
Write down of license fees . . . . . . . . . . . . . . . . . . . . . . 283,500 - -
Expense recorded for fair value of stock, options, and warrants
issued for services. . . . . . . . . . . . . . . . . . . . . . . . . . 47,861 236,175 238,603
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . (206,676) (34,949) (148,156)
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . (212,753) (358,951) (154,432)
Security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,611 50,238 50,488
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (296,954) (13,764) 115,678
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (99,287) (142,864) 101,550
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . (56,620) (47,972) (145,545)
------------- -------------- ------------
Net cash used in operating activities. . . . . . . . . . . . . . . . . (1,787,711) (1,863,395) (3,148,069)
------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayment of purchased notes receivable. . . . . . . . . . . 281,492 850,000 1,018,525
Purchase of notes receivable . . . . . . . . . . . . . . . . . . . . . (135,449) (88,498) (1,250,000)
Purchases of property and equipment. . . . . . . . . . . . . . . . . . (15,005) (146,321) (150,636)
Proceeds from sale of property and equipment . . . . . . . . . . . . . - - -
------------- -------------- ------------
Net cash used in investing activities. . . . . . . . . . . . . . . . . 131,038 615,181 (382,111)
------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash overdraft. . . . . . . . . . . . . . . . . . . . . . . - - -
Repayment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (48,126) - (600,000)
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 1,416,000 940,000 1,382,900
Payments of obligation under capital lease . . . . . . . . . . . . . . (315,041) (66,913) (169,514)
Proceeds from issuance of common stock and collection of stock
subscriptions receivable, net of issuance costs . . . . . . . 628,608 1,193,073 3,662,143
------------- -------------- ------------
Net cash provided by financing activities. . . . . . . . . . . . . . . 1,681,441 2,066,160 4,275,529
------------- -------------- ------------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . 24,768 817,946 745,349
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 1,661,213 915,864 915,864
------------- -------------- ------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $ 1,685,981 $ 1,733,810 $1, 661,213
============= ============== ============
Supplemental disclosure of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,215
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property and equipment under capital leases . . . . . . . $ 211,436
Exchange of convertible debt for common stock. . . . . . . . . . . . . . 312,000
Relative fair value of detachable warrants issued in
conjunction with convertible debt. . . . . . . . . . . . . . . . . . . . 4,020
Value ascribed to beneficial conversion features on convertible debt . . 104,503
Issuance of common stock for subscription receivable . . . . . . . . . . 174,908
Fair value of warrants issued in conjunction with prepaid legal. . . . . 26,687
LOCATEPLUS HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
2001
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,356,255)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment. . . . . . . . 421,542
Provision for doubtful accounts. . . . . . . . . . . . . . . . . . . . -
Interest on convertible debt converted into common stock . . . . . . . 26,943
Interest expense related to warrants issued with debt. . . . . . . . . 126,541
Interest expense related to beneficial conversion features . . . . . . 293,912
Interest expense recorded on mandatorily convertible debt. . . . . . . 45,863
Loss on sale of property and equipment. . . . . . . . . . . . . . . . 4,940
Amortization of notes receivable from related parties. . . . . . . . . 133,333
Expense recorded upon exchange of convertible notes payable
to a related party . . . . . . . . . . . . . . . . . . . . . . . . . . 74,900
Write down of license fees . . . . . . . . . . . . . . . . . . . . . . -
Expense recorded for fair value of stock, options, and warrants
issued for services. . . . . . . . . . . . . . . . . . . . . . . . . . 403,709
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . (62,431)
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . (111,924)
Security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . (15,847)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (165,246)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,317
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,189)
-------------
Net cash used in operating activities. . . . . . . . . . . . . . . . . (3,087,892)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayment of purchased notes receivable. . . . . . . . . . . -
Purchase of notes receivable . . . . . . . . . . . . . . . . . . . . . (1,000,000)
Purchases of property and equipment. . . . . . . . . . . . . . . . . . (310,167)
Proceeds from sale of property and equipment . . . . . . . . . . . . . 12,000
-------------
Net cash used in investing activities. . . . . . . . . . . . . . . . . (1,298,167)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash overdraft. . . . . . . . . . . . . . . . . . . . . . . (16,395)
Repayment of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (30,000)
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 551,000
Payments of obligation under capital lease . . . . . . . . . . . . . . (40,894)
Proceeds from issuance of common stock and collection of stock
subscriptions receivable, net of issuance costs . . . . . . . 4,838,212
-------------
Net cash provided by financing activities. . . . . . . . . . . . . . . 5,301,923
-------------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . 915,864
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . -
-------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $ 915,864
=============
Supplemental disclosure of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,711
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property and equipment under capital leases . . . . . . . $ -
Exchange of convertible debt for common stock. . . . . . . . . . . . . . 505,000
Relative fair value of detachable warrants issued in
conjunction with convertible debt. . . . . . . . . . . . . . . . . . . . 126,541
Value ascribed to beneficial conversion features on convertible debt . . 293,912
Issuance of common stock for subscription receivable . . . . . . . . . . 4,500
Fair value of warrants issued in conjunction with prepaid legal. . . . . -
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
F-5
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
LocatePLUS Holdings Corporation (the "Company") was initially incorporated
in Massachusetts in 1996 as Worldwide Information, Inc. In July 1999, the
Company reincorporated in Delaware and changed its name to LocatePLUS.com, Inc.
On August 1, 2001, the Company changed its name from LocatePLUS.com, Inc. to
LocatePLUS Holdings Corporation as part of a corporate restructuring. As part
of the restructuring, the Company created two wholly-owned subsidiaries,
LocatePLUS Corporation and Worldwide Information, Inc. The restructuring was
completed by commonly-controlled entities and, accordingly, was accounted for
based on historical cost. All intercompany accounts have been eliminated in
consolidation.
The Company provides access to public information such as bankruptcies,
real estate transactions, motor vehicles, and drivers' licenses to commercial,
private sector and law enforcement entities in the United States. In 1999 and
prior periods, this information was delivered to customers on compact disks. In
March 2000, the Company began providing information through the Internet and in
2002 began providing information through the use of handheld wireless devices.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements of the Company for the six
months ended June 30, 2003 and 2002 have been prepared in accordance with
accounting principles generally accepted in the United States of America. In
the opinion of management, these interim financial statements reflect all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position, results of operations, and cash flows at June 30,
2003, and for the six months ended June 30, 2003 and 2002. These statements
include the accounts of LocatePlus Holdings Corporation and its subsidiaries.
Certain information and footnote disclosures normally included in LocatePlus
Holdings Corporation's annual consolidated financial statements have been
condensed or omitted in accordance with Securities and Exchange Commission
("SEC") rules for interim financial statements. The results for the six months
ended June 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003 or any future period.
LIQUIDITY AND OPERATIONS
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The Company has
incurred substantial losses in each of the last two years, as well as the
quarter ended June 30, 2003. In addition, the Company has incurred an
accumulated deficit of approximately $19.9 million through June 30, 2003. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The financial statements included in this quarterly report have been
prepared assuming that the Company will continue as a going concern, and
contemplates continuity of operations, realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
The Company has incurred significant net losses in each of the last two years as
well as during the six months ended June 30, 2003. In addition, the Company has
incurred an accumulated deficit of approximately $19.9 million through June 30,
2003. The Company raised approximately $4.8 million of equity during 2002
though the sale of its equity securities and $1.4 million in the six months
ended June 30, 2003 through the issuance of subordinated promissory notes. The
ultimate success of the Company is still dependent upon its ability to secure
additional financing to meet its working capital and ongoing project development
needs. Management believes the Company's current sources of liquidity, funding,
and customer demand are adequate to sustain its current level of operations
through the end of 2003. Management's plans include increasing sales, expanding
infrastructure, and hiring additional staff that will require the Company to
obtain additional financing (through sales of equity securities or debt
instruments). There can be no assurance, however that the Company's operations
will be profitable or will generate sufficient cash to fund
F-6
the Company's business in the future or that the Company will be able to obtain
additional financing if needed. The Company's financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
During June 2003, we entered in to an Equity Line of Credit where we may
issue a put to one investor, which provides that the Company, subject to certain
limitations, may sell up to $5 million in shares of Class A Voting Common Stock
for a purchase price equal to 95% of the lowest closing bid price on the
Over-the-Counter Bulletin Board of our Class A Voting Common Stock during the
ten day period following that notice. The number of shares that we will be
permitted to put pursuant to the Investment Agreement will be limited by our
Class A Voting Common Stock's trading volume and other factors. This agreement
was subsequently cancelled prior to our exercise of the put right.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all money market funds, bank certificates of deposit,
and short term investments with original maturities of three months or less at
the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risk consist of
cash and cash equivalents, accounts receivable, notes receivable, and the notes
receivable - related parties. The risk with respect to cash and cash
equivalents is minimized by the Company's policies in which such investments are
placed only with highly rated financial institutions and in instruments with
relatively short maturities. The financial stability of these financial
institutions is constantly reviewed by senior management. The notes receivable
are placed with unrelated companies that are also reviewed by management.
Consequently, the carrying value of cash and cash equivalents, and notes
receivable approximates their fair value based on the short-term maturities of
these instruments. The risk with respect to accounts receivable is minimized by
the large number of customers comprising the Company's customer base, none of
which are individually significant, and by their dispersion across many
geographical regions. The Company generally does not require collateral, but
evaluations of customers' credit and financial condition are performed
periodically. The notes receivable - related parties are being amortized to
expense as they will be completely forgiven in 2003.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method at rates sufficient to
write off the cost of the assets over their estimated useful lives.
INCOME TAXES
The Company accounts for income taxes using the liability method under
which deferred tax assets and liabilities are determined based on differences
between financial reporting and income tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. The majority of the Company's deferred
tax asset has been established for the expected future benefit of net operating
tax loss and credit carryforwards. A valuation reserve against net deferred tax
assets is required if, based upon available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized.
UNUSED SICK LEAVE
Employees of the Company are entitled to paid sick days off, which may be
accumulated indefinitely. Unused sick leave in the event of termination,
however, is forfeited and is not reimbursable to the employee. It is
impracticable to estimate the amount of compensation for such future absences
and, accordingly, no liability has been recorded in the accompanying financial
statements. The Company's policy is to recognize the cost of sick time when
actually paid to employees.
REVENUE RECOGNITION
The Company provides access to public information such as bankruptcies,
real estate transactions and motor vehicles and drivers' licenses. The Company
provides this information as an online service through
F-7
its website, wirelessly to handheld wireless devices, via XML over the Internet
to Channel Partners, or through licenses of the information on compact disks.
The Company updates the information contained in compact disks (CDRoms)
either quarterly or semi-annually. Revenue is recognized upon delivery to the
customer of a compact disk, provided that no significant obligations remain,
evidence of the arrangement exists, the fees are fixed or determinable, and
collectibility is reasonably assured. In October 2002, the Company changed its
method of selling compact disks. Prior to October, compact disks were sold with
an upfront purchase of an annual supply of compact disks, with the purchase
price allocated equally based on the number of compact disks to which the
customer is entitled. Deferred revenue principally relates to undelivered
compact disks. Subsequent to October, compact disks are sold individually.
Customers may choose to have the disks automatically shipped and billed.
Online customers are charged fees which vary based on the type of
information requested. Revenue is recognized when the information requested is
downloaded, there is evidence of an arrangement, the fees are fixed or
determinable, and collectibility is reasonably assured.
Wireless customers using LocatePlus Anywhere are charged a monthly
subscription fee billed in arrears. Revenue is recognized on a monthly basis
when there is evidence of an arrangement, the fees are fixed or determinable,
and collectibility is reasonably assured.
Channel partners are charged royalty fees, which vary based on the type of
information requested. Revenue is recognized when the information requested is
downloaded, there is evidence of an arrangement, the fees are fixed or
determinable, and collectibility is reasonably assured.
Engineering services in 2001 related to integration services provided to a
third party database provider with whom the Company was to have an arrangement
whereby the Company provided the third party access to the Company's database.
This arrangement was not consummated and the third party paid the Company for
software development services through the date of termination. Engineering
services in 2002 relate to integration services provided to a third party
database provider with whom the Company has an arrangement whereby the Company
provides the third party access to the Company's database. Revenue is
recognized over the term of the contract when there is evidence of an
arrangement, the fees are fixed or determinable, and collectibility is
reasonably assured.
COSTS OF REVENUES AND SOFTWARE DEVELOPMENT COSTS
Costs of revenues relating to CD Rom sales consist primarily of costs for
data acquisition, materials and costs associated with compilation of compact
disks, such as labor. Costs of revenues relating to online sales consist
primarily of costs for license agreements related to data acquisition, software
development and maintenance costs and costs associated with delivery of such
services that include labor and depreciation.
Software development costs are generally charged to operations as incurred,
as they relate to ongoing maintenance of data and the Company's website. The
Company evaluates certain software development costs for capitalization in
accordance with the American Institute of Certified Public Accountants Statement
of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Costs incurred relating to the
Company's own personnel and outside consultants who are directly associated with
software developed for internal use may be capitalized. Costs eligible for
capitalization under SOP 98-1 have been immaterial to date.
STOCK COMPENSATION PLANS
The Company accounts for stock option awards granted to officers, directors
and employees (collectively "employees") under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Under APB 25, no stock-based employee
compensation cost is reflected in net income, as all options granted to
employees under these plans have been granted at no less than fair market value
on the date of grant. The Company applies the disclosure only provisions of
statement of Financial Accounting Standards ("SFAS") 123, "Accounting for
Stock-based Compensation" ("SFAS 123") and SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure ("SFAS 148") for such employee stock
option awards. The Company accounts
F-8
for stock option awards granted to consultants under the fair value recognition
provisions of SFAS 123. Under this method, options are valued using the Black
- -Scholes option pricing method, andthe calculated option value is recorded as an
expense in the financial statements
For purposes of providing pro forma disclosures for employee grants, the
fair value of options was estimated at the date of grant using the minimum value
option pricing method since all employee options were issued prior to the
Company's Initial Public Offering of securities during the current year with the
following weighted average assumptions:
2002 2001
Expected life (years). . . . . . 5 5
Average risk-free interest rate. 2.8% 5.5%
Volatility . . . . . . . . . . . 0.00% 0.00%
Dividend yield . . . . . . . . . 0.00% 0.00%
The weighted average fair value of options granted during 2002 and 2001 was .03
and .05 respectively. The Company recognizes forfeitures as they occur. Had
the Company determined compensation expense for the Plan in accordance with the
fair value methodology prescribed by SFAS 123, the Company's pro forma net loss
and loss per share would have been as follows:
YEAR ENDED DECEMBER 31
------------------------
2002 2001
------------------------ ------------
Net loss - reported. . . . . . . . . . . . . . . $ (3,996,607) $(4,356,255)
Amortization of stock compensation expense . . . (100,407) (79,337)
Pro forma net loss . . . . . . . . . . . . . . . $ (4,097,014) $(4,435,592)
------------------------ ------------
Pro forma net loss per share - basic and diluted $ (0.04) $ (0.04)
======================== ============
For purposes of this disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting periods. The effects on pro
forma disclosures of applying SFAS 123 are not likely to be representative of
the effects on pro forma disclosures of future years since the pro forma expense
includes only one year of option grants.
The Company's net loss and basic and diluted net loss per share would have
approximated the pro forma amounts indicated below for the six months ended June
30, 2003:
Net loss as reported $ (1,611,543)
Add: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (102,899)
--------------
Pro forma net loss $ (1,714,442)
--------------
Pro forma net loss per share: Basic and Diluted $ (0.014)
For the six months ended June 30, 2003 the fair value of stock options used
to compute pro forma net loss and net loss per share disclosures was estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: dividend yield of 0%; expected
volatility of 29%; average risk-free interest rate of 3.54%; and an expected
option holding period of 6 years.
EARNINGS PER SHARE
Basic earnings per share is based upon the weighted average number of
common shares outstanding during each period. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during the period.
The computation of diluted earnings per share does not assume the issuance of
Potential
F-9
common shares that have an anti-dilutive effect. Diluted per share computations
are not presented since the effect would be antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECENT PRONOUNCEMENTS
During 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations," effective for fiscal years beginning after June 15,
2002. This statement requires the Company to estimate the fair value of
liabilities associated with asset retirement obligations. The associated asset
retirement costs are to be capitalized as part of the carrying value of the
long-lived asset and allocated to expense over the asset's useful life. The
Company is currently evaluating the effects of this pronouncement.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"), which addresses financial
accounting and reporting for costs associated with exit or disposal activities,
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity including Certain Costs Incurred in a Restructuring" which previously
governed the accounting treatment for restructuring activities. SFAS 146 applies
to costs associated with an exit activity that does not involve an entity newly
acquired in a business combination or with a disposal activity covered by SFAS
144, "Accounting for the Impairment or Disposal of Long-Lived Assets". These
costs include, but are not limited to, the following: (1) termination benefits
provided to current employees who are involuntarily terminated under the terms
of a benefit arrangement that, in substance, is not an ongoing benefit
arrangement or an individual deferred-compensation contract, (2) costs to
terminate a contract that is not a capital lease, and (3) costs to consolidate
facilities or relocate employees. SFAS 146 does not apply to costs associated
with the retirement of long-lived assets covered by SFAS 143, "Accounting for
Asset Retirement Obligations". SFAS 146 will be applied prospectively and is
effective for exit or disposal activities initiated after December 31, 2002.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-based
Compensation and Disclosure - an amendment of FASB Statement No.123" (FAS 148).
This statement amends SFAS 123, "Accounting for Stock-Based Compensation," to
provide alternative transition methods for a voluntary change to fair value
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS 123 to require more prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. Management is currently evaluating the effects of
this pronouncement.
3. ACCOUNTS RECEIVABLE, TRADE
Trade accounts receivable are presented net of an allowance for doubtful
collections of $41,078 at December 31, 2002. In determining this allowance,
objective evidence that a single receivable is uncollectible as well as a
historical pattern of collections of accounts receivable that indicate that the
entire face amount of a portfolio of accounts receivable may not be collectible
is considered at each balance sheet date.
4. PREPAID EXPENSES
Included in prepaid expenses at June 30, 2003 is $360,000 paid to NFC
Corporation by issuing 2.5 million shares of Class A Voting Common stock for
investor relation services. The Stock was valued at $0.18, the market price on
the date of issue, or $450,000. To date, $90,000 has been used to pay for
services provided by NFC.
F-10
Also included in prepaid expenses at June 30, 2003 is $275,000 to
Professional Media Services. This is the remaining eleven months of a 12 month
agreement for promotion services.
5. NOTES RECEIVABLE
RELATED PARTIES
During 2000, the Company issued cash loans of $400,000 in exchange for
promissory notes from certain officers. Although the notes were due January 3,
2010, in the event that, as of January 3, 2003, the officers were (i) still
employed by the Company; (ii) an independent contractor of the Company; or (iii)
a member of the Company's Board of Directors, then the obligations and debt
evidenced by the notes would be canceled without further action by any party.
In the event that the note is canceled pursuant to the conditions noted above,
the Company agrees to pay to the officer, no later than two months after the end
of the officer's applicable tax year in which such cancellation occurs, an
amount in cash sufficient to fulfill the officer's tax liability attributable to
the cancellation of the notes. As such, the Company has been expensing the
principal of the notes on a monthly basis and in 2002 and 2001 recognized
$133,000 each year of amortization expense on notes receivable from related
parties. Additionally, the Company has accrued approximately $44,000 in 2002
and $57,000 in 2001 ($209,000 cumulative through December 31, 2002) relating to
an estimate of the officers' tax liability expected to be reimbursed by the
Company.
UNRELATED PARTIES
Demand promissory note receivable with an unrelated leasing company, with an 11%
interest rate. One million dollars was advanced to the leasing company near the
end of 2002 as proceeds from the Company's initial public offering were
collected. There is no business relationship between the Company and this
leasing company or any officers or directors of either company. Interest income
on the note receivable was approximately $23,000 in 2002 and $58,000 in 2001 and
the entire $81,000 is unpaid at December 31, 2002 which is included in prepaid
expenses and other current assets. The remaining principal balance at December
31, 2002 and June 30, 2003 was $1,095,000 and $889,000 respectively.
Unsecured note payable with an unrelated entity. There is an oral agreement to
advance up to $250,000 on this note. There is no business relationship between
the Company and this entity or any officers or directors of either company,
except that the Company is currently performing some administrative and
bookkeeping services for the unrelated entity in exchange for approximately
$1,000 per month. In 2002, the Company advanced a total of $250,000 to this
unrelated entity in the form of cash and services. The remaining balance at
December 31, 2002, and June 30, 2003 was $136,474 and $197,000 respectively.
There is no stated interest rate on these advances but the Company believes it
is entitled to warrants that would allow it to buy stock in the unrelated
entity; however, the terms and conditions of the warrants have yet to be agreed
on.
6. INVESTMENT
During 2000, the Company entered into certain agreements, as amended, with
a third party ("IntelliCorp") under which the Company invested cash of $500,000
in exchange for contingently convertible promissory notes. The Company reserved
all amounts owed to it by IntelliCorp.
On January 22, 2002 both parties agreed to the repayment of the $500,000
through an addendum to the Channel Partner Agreement signed in August 2001
between the parties. The addendum provides for a 75:25 sharing of revenues
received by the third party resulting from this Channel Partner Agreement in
favor of the Company. One third of proceeds remitted to the Company under this
arrangement will be treated as repayment of the $500,000 plus accrued interest
and the balance will be recorded as revenue. On full repayment of the $500,000
plus accrued interest, the revenue sharing arrangement will change to a 50:50
basis. Interest on the note ceased to accrue on January 21, 2002 in accordance
with the arrangement. As of that date, interest receivable of $76,280 was due
but not recorded as income. In 2002, the Company recognized $16,000, as partial
repayment towards the $500,000, recorded as other income.
F-11
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
June 30, DECEMBER 31,
2003 2002
(UNAUDITED)
Equipment. . . . . . . . . . . . . 2,128,243 $ 1,441,606
Vehicles . . . . . . . . . . . . . 104,379 104,379
Software . . . . . . . . . . . . . 121,107 155,907
Furniture and fixtures . . . . . . 388,493 388,493
Leasehold improvements . . . . . . 531,196 525,796
3,273,418 2,616,181
Less accumulated depreciation and
amortization . . . . . . . . . . (1,548,711) 1,314,713
Property and equipment, net. . . . $ 1,724,707 $ 1,301,468
The carrying value of assets under capital leases was $536,933, net of
amortization of $392,412 as of December 31, 2002.
Depreciation and amortization expense was $475,542 and $421,542 for the
years ended December 31, 2002 and 2001, respectively, which includes
amortization expense on the equipment under capital lease of $163,532 and
$136,088 for the years ended December 31, 2002 and 2001, respectively.
8. ACCRUED EXPENSES
Accrued expenses consist of the following at:
June 30, DECEMBER 31,
2003 2002
(UNAUDITED)
Payroll and related taxes. . . . . . . . 281,801 $ 278,842
Sales tax. . . . . . . . . . . . . . . . 25,651 47,859
Accounting, legal and professional fees. - 50,000
Interest . . . . . . . . . . . . . . . . - 20,000
Deposit for Units. . . . . . . . . . . . - -
Other. . . . . . . . . . . . . . . . . . 27,203 37,241
Total. . . . . . . . . . . . . . . . . . 334,655 $ 433,942
9. CONVERTIBLE DEBT AND NOTES PAYABLE
MANDATORILY CONVERTIBLE DEBT
During October, November and December 2000 and January 2001, the Company
issued convertible subordinated notes with detachable warrants to purchase
156,000 shares of the Company's Class A Voting Common Stock for proceeds of
$312,000. The notes paid interest at a rate of 14% per year, compounded
semiannually on the unpaid balance of the principal amount until paid in full or
converted. All outstanding principal and accrued unpaid interest was due and
payable on the first to occur of: the fifth-year anniversary on various dates
during 2005 and 2006, or the occurrence of an event of default as defined in the
agreements to the notes.
The notes were not convertible at the discretion of the holder. The entire
outstanding principal amount of the notes and any accrued unpaid interest was to
automatically convert into shares of Class A Voting
F-12
Common Stock of the Company, upon the first to occur of: (i) the Company's
initial public offering; (ii) the closing of at least a $5 million equity
investment in the Company in an offering subsequent to the issuance of the
convertible debt; or (iii) a transaction involving a change of control of the
Company. The conversion price for the debt and warrants contained a beneficial
conversion feature and was to be equal to: (i) 80% of the per share value of the
common stock as determined by the Board of Directors of the Company, in good
faith; or (ii) 80% of the value of the consideration offered to each stockholder
for each share of the Company's common stock in the event of a change of control
transaction, in which all or substantially all of the common stock of the
Company is acquired or transferred.
On October 12, 2002 the Company completed its initial public offering and
as a result these notes were converted at $0.24 into 1,681,712 Class A Common
Shares and the Company recorded $100,903 interest expense as a result of the
beneficial conversion. In addition, all detachable warrants were exercised
either through purchase or cashless conversion into 60,000 shares of Class A
Common Stock.
CONVERTIBLE NOTES PAYABLE
Convertible promissory note, due on demand, that bears interest at the rate
of 12% per annum. The note is convertible into 44,444 shares of Class A Voting
Common Stock at the note holder's option. The note requires quarterly payment
of interest until the principal is repaid or converted.
NOTES PAYABLE
Between May and August 2002 the Company received $314,000 in cash by issuing
subordinated promissory notes with simple interest at 10% per annum. The terms
of the notes required repayment in one year from date of issuance. These note
were repaid in October 2002.
On June 4, 2002, the Company received $750,000 from Gemstone Investment Company,
Inc. by issuing a promissory note collateralized by all of the Company's assets
and a personal guarantee the Chief Executive Officer (including a pledge of five
million shares of the Chief Executive Officer's LocatePlus Holdings Corporation
Class A Voting Common Stock and a mortgage on certain of his other personal
assets). Gemstone Investment Company, Inc. is an unaffiliated third party
lender that specializes in loans to start-up and early stage businesses. There
is no business relationship between Gemstone and any of the Company's officers
or directors, nor is there, to management's knowledge, any affiliation between
Gemstone and any 5% or greater stockholder of the Company. As of October 2002,
$600,000 had been repaid on this note, however the terms of this loan called for
its repayment in full, including accrued interest, by the earlier of October 3,
2002 or two business days after the closing of the initial public offering. As
such, the terms of the note were renegotiated and all accrued interest and
principal were converted to a $285,000 demand note with interest payable at 42%.
In addition, there are three small unsecured subordinated promissory notes
outstanding at December 31, 2002 with simple interest at 10% per annum due June
1, 2003, that total $8,900.
During 2003, the Company received $1.4 million, net of issuance costs, by
issuing subordinated promissory notes with simple interest between 10% and 12%
per annum. The Company is required to pay $75,000 of the notes require
repayment within twelve months from issuance and the remaining are notes
required to be repaid eighteen months from issuance. In conjunction with the
notes, warrants to purchase 1.5 million shares of Class B Non-Voting Common
stock with a weighted average exercise price of $0.14 were also issued.
The Company allocated the investment proceeds beteween the notes and warrants
based on their relative fair values. The relative fair value of the warrants
was determined to be $125,502, which was recorded as debt discount, a reduction
of the carrying amount of the notes. This amount is being amortized to interest
expense over the term of the debt. The fair value of the warrants was based on
the Black-Scholes model. The Black-Scholes calculation incorporated the
following assumptions: 0% dividend yield, 29% volatility, 3.6% average
risk-free interest rate, a ten-year life and an underlying Class B Non-Voting
Common Stock value of $0.14 per share.
F-13
10. NOTE PAYABLE - RELATED PARTY
In December 2002, the Company issued a note with detachable warrants
payable to one of its current board members in exchange for $250,000 in cash.
The note has a twelve-month term with interest at a rate of 10% per annum
payable monthly. The detachable warrants were for the purchase of 250,000
shares of the Company's Class B Non-Voting Common Stock at $0.22 per share. The
warrants had a term of ten years and became exercisable upon issue.
The Company allocated the investment proceeds to the debt and warrants
based on their relative fair values. The relative fair value of the warrants
was determined to be $41,599, which was recorded as debt discount, a reduction
of the carrying amount of the debt. This amount is being amortized to interest
expense over the term of the debt. The fair value of the warrants was based on
the Black-Scholes model. The Black-Scholes calculation incorporated the
following assumptions: 0% dividend yield, 100% volatility, 4.1% average
risk-free interest rate, a ten-year life and an underlying Class B Non-Voting
Common Stock value of $0.22 per share.
11. RELATED PARTY TRANSACTIONS
Certain members of the Company's Board of Directors have performed
consulting services for the Company. Expense relating to these services
amounted to $303,892 in 2001 and was recorded as part of general and
administrative expenses.
In 2001, the Company granted options to purchase 119,104 shares of Class A
Voting Common Stock at $0.20 per share for services rendered as a consultant to
a former board member. The Company recorded expense of $21,645 associated with
the options. On January 31, 2002, the Company granted a warrant to purchase
1,177,680 shares of Class B Non-voting Common Stock at $0.15 per share for
consulting services rendered by the former board member and recorded expense of
$161,026 associated with the warrants.
In 2001 and 2002, the Company granted options to purchase 38,067 and
160,541shares of Class A Voting Common Stock, respectively, with an average
exercise price of $0.20 and $.90 per share, respectively, and warrants to
purchase 324,581 and 27,089 shares of Class B Non-voting Common Stock,
respectively, at $0.15 per share in consideration for services rendered by a
member of the Company's Board of Directors. The Company recorded expenses of
$51,195 and $40,238, respectively, associated with these options and warrants.
On February 1, 2002, the Company issued warrants to purchase a total of 70,000
shares of Class B Non-voting Common Stock to two directors of the Company and
recorded expense of $9,569 associated with the warrants.
The fair value of the options granted in 2001 to purchase shares of Class A
Voting Common Stock was based on the Black-Scholes model. The Black-Scholes
calculation incorporated the following assumptions: 0% dividend yield, 100%
volatility, 5.0% average risk-free interest rate, a ten-year life and an
underlying Class A Voting Common Stock value of $0.20 per share.
The fair value of the warrants granted in 2001 and 2002 to purchase shares
of Class B Non-voting Common Stock was based on the Black-Scholes Model. The
Black-Scholes calculation incorporated the following assumptions: 0% dividend
yield, 100% volatility, 5.0% average risk-free interest rate, a ten-year life
and an underlying Class B Voting Common Stock value of $0.15 per share.
12. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under various non-cancelable
operating lease agreements which terminate on various dates through 2005. Rent
expense amounted to $493,701 and $494,466 for 2001 and 2002, respectively.
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Future minimum payments under non-cancelable operating leases are as
follows:
YEAR ENDING DECEMBER 31,
2003 . . . . . . . . . . $ 530,419
2004 . . . . . . . . . . 522,027
2005 . . . . . . . . . . 87,005
Total. . . . . . . . . . $1,139,451
CAPITAL LEASES
The Company acquired equipment under long-term capital leases. The
economic substance of the leases is that the Company is financing the
acquisition of the assets through the leases.
The following is a schedule by years of future minimum lease payments under
the capital leases, together with the net present value of the minimum lease
payments at December 31, 2002.
YEAR ENDING DECEMBER 31,
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 193,662
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 142,001
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . 105,081
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,044
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,268
445,056
- --------------------------------------------------------
Less: amounts representing interest and executory costs (100,662)
Present value of future minimum lease payments . . . . . 344,394
Less: current portion of obligation under capital lease 142,172
Long-term obligation under capital lease . . . . . . . . $ 202,222
LICENSE AGREEMENTS
The Company obtains its data from multiple sources and has entered into
various license agreements with the related data providers. In 2001 and 2002,
the Company recorded $648,500 and $665,366 respectively in costs related to
these agreements. In the event that any of the primary sources of data are no
longer available to the Company, management believes that it would be able to
integrate alternate sources of data without significant disruption to the
business or operations, as there are currently a number of providers of such
data. The Company is required to make minimum payments under these agreements
as follows:
YEAR ENDING DECEMBER 31,
2003. . . . . . . . . . . $ 813,125
2004. . . . . . . . . . . 417,594
2005. . . . . . . . . . . 347,156
$1,577,875
The Company's operations depend upon information that includes public records.
If material changes were to occur in federal or state laws regulating or
prohibiting the distribution of public records, particularly credit header
records, the Company's financial condition and results of operations could be
materially affected. In the event that such a termination occurred, management
believes it could acquire replacement data from other sources; however, such
termination might have an adverse effect on the Company's operations.
F-15
LEGAL PROCEEDINGS
The Company is from time to time subject to legal proceedings and claims
which arise in the normal course of its business. There are no pending or known
actions for which the amount of ultimate liability could have a material adverse
effect on the Company's financial position or results of operations.
13. INCOME TAXES
Deferred tax assets consist of the following at December 31:
2002
Net operating loss carryforwards . . $ 5,851,000
Depreciation and amortization. . . . 342,350
Bad debt reserve . . . . . . . . . . 16,600
Investment loss. . . . . . . . . . . 202,500
Capitalized research and development 644,000
Other. . . . . . . . . . . . . . . . 85,000
Gross deferred tax assets. . . . . . 7,141,450
Valuation allowance. . . . . . . . . (7,141,450)
$ -
The Company has provided a valuation allowance for the full amount of the
deferred tax assets since realization of these future benefits is not
sufficiently assured. As the Company achieves profitability, these deferred tax
assets may be available to offset future income tax liabilities and expenses.
At December 31, 2002, the Company had net operating loss carryforwards for
federal and state income tax reporting purposes of approximately $14,450,000.
The federal and state net operating loss carryforwards expire through 2022.
Certain substantial changes in the Company's ownership may occur. As a result,
under the provisions of the Internal Revenue Code, the amount of net operating
loss carryforwards available annually to offset future taxable income may be
limited. The amount of this annual limitation is determined based upon the
Company's value prior to the ownership changes taking place. Subsequent
ownership changes could further affect the limitation in future years.
14. COMMON STOCK
DESCRIPTION OF COMMON STOCK
On March 23, 2001, the Company amended its articles of incorporation
wherein it renamed all the authorized 150,000,000 shares of common stock, par
value $0.01 per share, Class A Voting Common Stock and authorized the issuance
of 250,000,000 shares of Class B Non-voting Common Stock.
Each Class A Voting Common stockholder is entitled to one vote for each share
held on all matters submitted to a vote of stockholders. The holders of both
classes of common stock are entitled to dividends on a pro rata basis,
when-and-if declared by the Company's Board of Directors. Through December 31,
2002, no dividends have been declared or paid.
On August 12, 2002, the Company commenced its initial public offering of
securities (Registration No. 333-85154, effective August 12, 2002), pursuant to
which the Company offered up 12,000,000 Units for $0.30 per Unit. Each Unit
consisted of one share of Class B Non-voting Common Stock and a three year
redeemable warrant to purchase one share of Class A Voting Common Stock with an
exercise price of
F-16
$0.50 per share. This offering was fully subscribed and as of December 31, 2002
all but $174,908 had been received.
As of December 31, 2002, a total of 15,864,239 shares of Class A Voting
Common Stock were reserved for issuance upon exercise of outstanding stock
option and warrant agreements. As of December 31, 2002, 4,412,139 shares of
Class B Non-voting Common Stock were reserved for issuance upon exercise of
outstanding warrant agreements.
STOCK OPTIONS AND WARRANTS
In 2001, the Company issued warrants to purchase 137,500 shares of its
Class A Voting Common Stock at a price of $0.20 per share in consideration for
services rendered by third parties. The warrants vested fully on the date of
grant and will expire on various dates through April 2011. The Company recorded
general and administrative expense of $25,057 associated with these warrants.
In October 2001, the Company canceled the warrants issued in November 2000 and
issued warrants to purchase 138,663 shares of Class B Non-voting Common Stock,
for an exercise price of $0.15 per share. The Company recorded expense of
$18,851 related to these warrants.
Also during 2001, the Company issued options to purchase 460,171 shares of
Class A Voting Common Stock at $0.20 per share and warrants to purchase
1,779,634 shares of Class B Non-Voting Common Stock at $0.15 and $0.20 per share
to third parties in exchange for services. The Company recorded expense of
$90,945 and $242,450, respectively, associated with these options and warrants.
In 2000 and 2001, the Company also issued warrants to purchase 156,000
shares of its Class A Voting Common Stock in conjunction with the issuance of
$312,000 of convertible debt.
During 2001, the Company issued warrants to purchase 970,000 shares of the
Company's Class A Voting Common Stock in conjunction with the issuance of
$545,000 of convertible debt.
During 2001, the Company issued options to purchase 57,922 shares of Class
A Voting Common Stock and warrants to purchase 62,500 shares of Class B
Non-voting Common Stock to members of the Company's advisory board. The
exercise price was $0.20 per share, the term was ten years, and these options
and warrants were exercisable immediately upon issuance. The Company determined
the fair value of the options and warrants to be $10,543 and $8,363,
respectively, and recorded the amounts as compensation expense on the date of
issuance.
As of December 31, 2001, each of these options and warrants were
outstanding and there were total of 763,500 and 2,480,797 options and warrants
outside the Stock Plan for Class A Voting and Class B Non-Voting Stock
respectively.
During 2001, the fair value of the options and warrants to purchase shares
of Class A Voting Common Stock was based on the Black-Scholes model. The
Black-Scholes calculation incorporated the following assumptions: 0% dividend
yield, 100% volatility, 5.0% average risk-free interest rate, a ten-year life
and an underlying Class A Voting Common Stock value of $0.20 per share.
During 2001, the fair value of the warrants to purchase shares of Class B.
Non-voting Common Stock was based on the Black-Scholes Model. The Black-Scholes
calculation incorporated the following assumptions: 0% dividend yield, 100%
volatility, 5.0% average risk-free interest rate, a ten-year life and an
underlying Class B Voting Common Stock value of $0.15 per share.
During 2002, the Company issued options to purchase 261,739 shares of Class
A Voting Common Stock at an average exercise price of $0.90 per share and
warrants to purchase 1,304,158 shares of Class B Non-Voting Common Stock at an
average exercise price of $0.15 per share to third parties in exchange for
services. The Company recorded expense of $59,573 and $190,586, respectively,
associated with these options and warrants.
F-17
During 2002, the Company issued warrants to purchase 307,184 shares of
Class B Non-Voting Common Stock at an average exercise price of $0.23 per share
to third parties as part of financing arrangements. The Company will record
interest expense of $51,549 over the life of the financing agreements associated
with these warrants.
During 2002, the Company issued warrants to purchase 250,000 shares of
Class B Non-Voting Common Stock at an exercise price of $0.22 per share to third
parties in exchange for legal services. The Company will record legal expense
of $29,113 over the life of the contract associated with these warrants.
During 2002, the Company issued 36,000 shares of Class A Common Stock for
the exercise of warrants associated with manditorily convertible debt.
During 2002, the Company issued 24,000 shares of Class A Common Stock for
the cashless exercise of 120,000 warrants associated with manditorily
convertible debt.
During 2002, the fair value of the options and warrants to purchase shares
of Class A Voting Common Stock was based on the Black-Scholes model. The
Black-Scholes calculation incorporated the following assumptions: 0% dividend
yield, 100% volatility, 5.0% average risk-free interest rate, a ten-year life
and an underlying Class A Voting Common Stock average value of $0.90 per share.
During 2002, the fair value of the warrants to purchase shares of Class B.
Non-voting Common Stock was based on the Black-Scholes Model. The Black-Scholes
calculation incorporated the following assumptions: 0% dividend yield, 100%
volatility, 4.4% average risk-free interest rate, a ten-year life and an
underlying Class B Voting Common Stock average value of $0.18 per share.
As of December 31, 2002, each of these options and warrants were
outstanding and there were total of 869,239 and 4,412,139 options and warrants
outside the Stock Plan for Class A Voting and Class B Non-Voting Stock
respectively.
15. STOCK OPTION PLAN
On November 16, 1999, the Board of Directors approved the Incentive and
Non-Qualified Stock Option Plan as amended (the "Plan"). Under the terms of the
Plan, the Company is authorized to grant incentive and nonqualified stock
options to purchase shares of common stock to its employees, officers and
directors, and consultants or advisors. The Board of Directors administers the
Plan. A maximum of 15,000,000 shares of Class A Voting Common Stock has been
approved for issuance under the Plan of which 4,267,284 are available for grant
at December 31, 2002. The options are not transferable except by will or
domestic relations order.
The Board of Directors determines the exercise price and vesting period of
the options at the date of grant. The exercise price for incentive stock
options shall not be less than 100% of the fair market value of the Company's
stock on the date of grant. The option exercise period will not exceed ten
years from the date of grant. The options are generally fully exercisable when
issued to directors and consultants and exercisable 25% per year and continuing
over four years for employees (based on continual employment). If a grantee owns
stock representing more than 10% of the outstanding shares on the date such an
incentive option is granted, the price shall be at least 110% of fair market
value and the maximum term of the options will be five years. The following
table presents activity under the Plan for the years ended December 31, 2002 and
2001:
F-18
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
Outstanding at December 31, 2000 6,579,623 0.20
Issued . . . . . . . . . . . . . 4,148,093 0.20
Canceled . . . . . . . . . . . . (125,000) 0.20
Outstanding at December 31, 2001 10,602,716 0.20
Issued . . . . . . . . . . . . . 300,000 0.25
Canceled . . . . . . . . . . . . (170,000) 0.20
Outstanding at December 31, 2002 10,732,716 0.20
he following table summarizes information relating to options outstanding at
December 31, 2002:
WEIGHTED
- - AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE
0.20 - $0.25 10,652,716 7.51 $ 0.20 8,480,216 $ 0.20
- -
0.30 . . . . 80,000 8.01 $ 0.30 80,000 $ 0.30
----------- -----------
10,732,716 7.57 $ 0.20 8,560,216 $ 0.20
=========== ===========
16. DEFINED CONTRIBUTION RETIREMENT PLAN
The Company sponsors a defined contribution retirement plan under the
provisions of Section 401(k) of the Internal Revenue Code, which covers
substantially all employees. The Company may make discretionary matching
contributions up to 1% of employee contributions. Company contributions vest
ratably over a six-year period. Company matching contributions amounted to
$2,806 and $4,469 in 2002 and 2001, respectively.
F-19
17. SEGMENT INFORMATION
The Company has two reportable segments which management operates as
distinct sales organizations; these two segments are segregated by the nature of
products and services provided. The Company measures and evaluates its two
reportable segments based on revenues and costs of revenues. The CD ROM segment
provides information on motor vehicles and drivers' licenses, contained on
compact disks. The online segment provides information on individuals
throughout the United States of America through the Company's website. No
material operating costs, other than costs of revenues, or assets and
liabilities relate to the CD ROM segment.
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
June 30, DECEMBER 31,
2003 2002 2001 2002
(UNAUDITED) (UNAUDITED)
Information sales:
CD Rom. . . . . . . . $ 232,068 $ 149,025 $ 268,701 $ 345,003
Online and Channel. . 1,238,661 597,177 752,109 1,503,472
Total information sales. $ 1,470,729 $ 746,202 1,020,810 1,848,475
Costs of revenues:
CD Rom. . . . . . . . $ 40,856 $ 47,187 96,561 90,397
Online and Channel. . 1,156,933 409,090 986,240 1,217,809
Total costs of revenue . $ 1,197,789 $ 456,227 $1,082,801 1,308,206
18. SUBSEQUENT EVENTS (UNAUDITED)
In July, 2003 two option holders exercised their option to purchase a total of
85,000 shares of Class A voting common at $0.20 per share.
During June 2003, the Company issued a put to one investor, which provides
that the Company, subject to certain limitations, may sell up to $5 million in
shares of Class A Voting Common Stock. This agreement was subsequently
cancelled, and on August 5, 2003, the Company entered into a new agreement with
that investor, pursuant to which a put was issued to that investor. The put
provides the Company with the right to sell, at its discretion, up to $5
million in shares of our Class A Voting Common Stock to the investor for a
purchase price equal to 95% of the lowest closing bid price for Class a Voting
Common Stock during a ten day pricing period. The number of shares the Company
may sell to the Investor is limited by the trading volume of its Class A Voting
Common Stock and certain customary closing conditions.
SEE INDEPENDENT AUDITORS' REPORT
F-20
TABLE OF CONTENTS
-----------------
Prospectus Summary................................................1
Risk Factors......................................................4
Forward-Looking Statements.......................................11
Use of Proceeds.................................................12
Determination of Offering Price................................12
Dividend Policy..................................................12
Dilution..........................................................13
Plan of Distribution............................................14
Capitalization....................................................17
Selected Consolidated Financial Data...........................18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......................................19
Business..........................................................25
Executive Officers and Directors...............................30
Organization Within the Past Five Years......................38
Certain Transactions.............................................39
Principal Stockholders...........................................41
Description of Capital Stock...................................44
Shares Eligible for Future Sale...............................47
Transfer Agent and Registrar...................................48
Legal Matters....................................................48
Experts...........................................................48
Additional Information...........................................48
Index to Financial Statements.................................F-1
* * *
UNTIL [90 DAYS FROM THE DATE OF EFFECTIVENESS], ALL DEALERS EFFECTING
TRANSACTIONS IN THESE SECURITIES MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS.
[GRAPHIC OMITED]
[GRAPHIC OMITED]
Please read this prospectus carefully. It describes our business, products and
services, and financial condition and results of operations.
We have prepared this prospectus so that you will have the information necessary
to make an informed investment decision. You should rely only on the
information contained in this prospectus. The information contained in this
prospectus is accurate only as of its date, regardless of the time this
prospectus is delivered or that our securities are sold.
Our selling security owners are offering to sell our securities and seeking
offers to buy our securities only in jurisdictions where such offers and sales
are permitted.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We estimate that the approximate expenses in connection with this
Registration Statement will be as follows:
SEC registration fee $ 1,500
Legal fees and expenses 25,000
Accounting fees and expenses 5,000
Miscellaneous 8,500
------------
Total $40,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a list of the Registrant's securities sold within the
past three years without registration under the Securities Act of 1933, as
amended.
- - From November 1999 to June 2001, the Registrant granted options to
purchase 11,142,716 shares our Common Stock (now referred to as Class A Voting
Common Stock) to 43 employees and consultants under the terms of the
Registrant's Incentive and Non-qualified Stock Option Plan. These options have
varying exercise prices. Of these options to purchase 11,142,716 shares, options
to purchase 1,176,700 shares of Common Stock have been exercised. The offer and
sale of these securities were exempt from registration under the Securities Act
pursuant to Rules 701 and 506 promulgated thereunder.
- - From December 1999 to February 2000, the Registrant sold 3,000,000 shares
of Common Stock (now referred to as Class A Voting Common Stock) to 120
accredited investors for $1.00 per share. The offer and sale of these securities
were exempt from registration under the Securities Act under the provisions of
Rules 506 and 508 promulgated under the Securities Act, as the Registrant
received representations from all offerees that they were accredited investors
at the time of the offer and sale and no general solicitation was undertaken.
- - From March 2000 to September 2000, the Registrant sold 3,000,000 shares of
Common Stock (now referred to as Class A Voting Common Stock) to 96 accredited
investors for $1.00 per share. The offer and sale of these securities were
exempt from registration under the Securities Act under the provisions of Rules
506 and 508 promulgated thereunder, as we received representations from all
offerees that they were accredited investors at the time of the offer and sale
and no general solicitation was undertaken. A Form D Notice of Sale of
Securities Pursuant to Regulation D was not filed with the Securities and
Exchange Commission in a timely manner.
- - From October 2000 through January 2001, the Registrant issued a total of
$312,000 in convertible promissory notes with detachable restricted warrants to
nine accredited investors. The offer and sale of these securities were exempt
from registration under the Securities Act under the provisions of Rules 506 and
508 promulgated thereunder, as the Registrant received representations from all
offerees that they were accredited investors at the time of the offer and sale
and no general solicitation was undertaken.
- - In January 2001, the Registrant issued $200,000 in the form of a
convertible promissory note with a detachable warrant to one investor, then a
member of the Registrant's Board of Directors. The offer and sale of that
security were exempt from registration under the Securities Act under the
provisions of Rules 506 and 508 promulgated thereunder.
- - In February and March 2001, the Registrant issued $345,000 in six-month
convertible term promissory notes to 11 accredited investors. The offer and sale
of that security were exempt from registration under the Securities Act under
the provisions of Rules 506 and 508 promulgated thereunder, as the Registrant
received representations from all offerees that they were accredited investors
at the time of the offer and sale and no general solicitation was undertaken.
- - In April 2001, the Registrant made a non-transferable offer to its
accredited stockholders to sell three shares of the Registrant's Class B
Non-voting Common Stock for $0.10 per share for each share of Class A Voting
Common Stock held by each stockholder. Pursuant to that offer, the Registrant
sold approximately 31.6 million shares of Class B Non-voting Common Stock to 270
of the Registrant's stockholders. The offer and sale of these securities were
exempt from registration under the Securities Act under the provisions of Rules
506 and 508 promulgated thereunder, as the Registrant received representations
from all offerees that they were accredited investors at the time of the offer
and sale and no general solicitation was undertaken. A Form D Notice of Sale of
Securities Pursuant to Regulation D was not filed with the Securities and
Exchange Commission in a timely manner.
- - At various times from November 17, 2000 to March 12, 2002, the Registrant
issued warrants to purchase an aggregate of 537,902 shares of Class A Voting
Common Stock to 11 accredited consultants and to members of the Registrant's
Advisory Board in consideration for services rendered. The offer and sale of
these securities were exempt from registration under the Securities Act under
the provisions of Rules 506 and 508 promulgated thereunder, as the Registrant
received representations from all offerees that they were accredited investors
at the time of the offer and sale and no general solicitation was undertaken. A
Form D Notice of Sale of Securities Pursuant to Regulation D was not filed with
the Securities and Exchange Commission in a timely manner.
- - From August 2001 to April 2002, the Registrant issued warrants to purchase
an aggregate of 3,272,455 shares of Class B Non-Voting Common Stock to 17
accredited consultants and to members of the Registrant's Advisory Board in
consideration for services rendered. The offer and sale of these securities were
exempt from registration under the Securities Act under the provisions of Rules
506 and 508 promulgated thereunder, as the Registrant received representations
from all offerees that they were accredited investors at the time of the offer
and sale and no general solicitation was undertaken. A Form D Notice of Sale of
Securities Pursuant to Regulation D was not filed with the Securities and
Exchange Commission in a timely manner.
- - From September 2001 through February 13, 2002, the Registrant sold
20,421,510 shares of Class B Non-voting Common Stock to 175 accredited investors
(of which 82 were existing stockholders) for $0.15 per share. The offer and sale
of these securities were exempt from registration under the Securities Act under
the provisions of Rule 506 promulgated thereunder, as we received
representations from all offerees that they were accredited investors at the
time of the offer and sale and no general solicitation was undertaken. A Form D
Notice of Sale of Securities Pursuant to Regulation D was not filed with the
Securities and Exchange Commission in a timely manner.
- - On May 22, 2002 the Registrant received $190,000 by issuing subordinated
promissory notes with simple interest at ten percent per annum to five lenders.
The Registrant does not believe that these subordinated promissory notes
constitute securities because the subordinated promissory notes do not convert
into our equity and are in the nature of commercial loans.
- - On August 27, 2002, the Registrant issued warrants to purchase an
aggregate of 70,000 shares of Class B Non-voting Common Stock to two members of
our Board of Directors pursuant to our Non-employee Director Stock Option
Policy. The offer and sale of these securities were exempt from registration
under the Securities Act under the provisions of Rules 506 and 508 promulgated
thereunder, as both recipients are accredited and no general solicitation was
undertaken.
- - In December 2002, we issued a one year term note with ten year, fully
vested detachable warrants to an individual who, as a condition of his
investment, required that he be appointed to the Board of Directors of the
Company. The note bears interest at the rate of 10% per annum and is payable in
one lump sum at maturity. The detachable warrants provide for the purchase of
250,000 shares of our Class B Non-Voting Common Stock with an exercise price of
$0.22 per share. The offer and sale of these securities were exempt from
registration under the Securities Act under the provisions of Rules 506 and 508
promulgated thereunder, as both recipients are accredited and no general
solicitation was undertaken.
- - On March 28, 2003, the Registrant issued warrants to purchase 105,000
shares of Class B Non-voting Common Stock to three members of the Registrant's
Board of Directors pursuant to the Registrant's Non-employee Director Stock
Option Policy. The offer and sale of these securities were exempt from
registration under the Securities Act under the provisions of Rules 506 and 508
promulgated thereunder, as the recipients were accredited and no general
solicitation was undertaken.
- - Through May 2003, the Registrant issued notes payable with detachable
warrants in exchange for $1,500,000. The notes have an eighteen-month term and
bear interest at a rate of 12% per annum payable monthly. The detachable
warrants were for the purchase of 1,300,000 shares of the Company's Class B
Non-Voting Common Stock at $0.10 per share. The offer and sale of these
securities were exempt from registration under the Securities Act under the
provisions of Rule 506 promulgated thereunder, as the recipient was accredited
and no general solicitation was undertaken.
- - During 2003, the Registrant received $440,000, net of issuance costs, by
issuing subordinated promissory notes with simple interest at 10% per annum.
The terms on $75,000 of the notes require repayment 12 months from issuance and
the remaining notes require repayment 18 months from issuance. In conjunction
with the notes, warrants to purchase 485,000 shares of Class B Non-Voting Common
stock with a weighted average exercise price of $0.14 were also issued. The
offer and sale of these securities was exempt from registration under the
Securities Act under the provisions of Rule 506 promulgated thereunder, as the
recipient was accredited and no general solicitation was undertaken.
- - During 2003, the Registrant received $398,000 by issuing units at $0.16
per unit. Each unit consists of one share of Class A Voting Common stock and a
warrant which is convertible into three shares of Class A Voting Common Stock
with an exercise price at $0.16 per share. A price adjustment mechanism
included in the warrants provides that, if the stock price decreases, the
warrants will nevertheless permit the holder to receive, upon a cashless
exercise of the warrants, at least one share of Class A Voting Common Stock per
warrant without any cash payment.
- - During June 2003, the Registrant issued 2,500,000 shares of Class A Voting
Common Stock to one investor and 125,000 shares of Class B Non-Voting Common
Stock to three different investors. The Registrant believes that the offer and
sale of these securities were exempt from registration under the Securities Act
under the provisions of Section 4(2) thereunder.
INITIAL PUBLIC OFFERING
On August 12, 2002, we commenced our initial public offering of securities
(Registration No. 333-85154, effective August 12, 2002), pursuant to which we
offered up 12,000,000 Units for $0.30 per Unit. Each Unit consisted of one
share of Class B Non-voting Common Stock and a three year redeemable warrant to
purchase one share of Class A Voting Common Stock with an exercise price of
$0.50 per share. This offering was fully subscribed and, as of December 31,
2002, all but $174,908 of the subscriptions were paid in full. Subsequent to
December 31, 2002, all subscriptions in that offering were paid in full.
Through December 31, 2002, we had used approximately $1.66 million of the net
proceeds from that offering approximately as follows:
Repayment of Note Payable $ 600,000
Purchases of Data 650,000
Other Working Capital/General Corporate Purposes: 410,000
TOTAL: $ 1,660,000
-----------
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Second Amended and Restated Certificate of Incorporation of LocatePLUS
Holdings Corporation, as filed with the Secretary of State of the State of
Delaware on March 19, 2002.(1)
3.2 By-Laws of LocatePLUS Holdings Corporation.(1)
4.1 Warrant and Unit Agreement by and between LocatePLUS Holdings
Corporation and Transfer Online, Inc., dated March 22, 2002.(1)
4.2 Form of Warrant Certificate.(2)
4.3 Form of Unit Certificate.(2)
4.4 Form of Class A Voting Common Stock Certificate.(2)
4.5 Form of Class B Non-voting Common Stock Certificate.(2)
4.6 Form of Restricted Warrant Agreement (Warrant to Purchase Shares of
Class A Voting Common Stock).(1)
4.7 Form of Restricted Warrant Agreement (Warrant to Purchase Shares of
Class B Non-voting Common Stock).(2)
4.8 $10,000 Convertible Promissory Note, dated March 9, 2001.(1)
4.9 Amended Form of Warrant Certificate.(3)
4.10 Amendment to $10,000 Convertible Promissory Note, dated July 23,
2002.(3)
5.1 Opinion of Kirkpatrick & Lockhart LLP (8)
10.1 Master Lease Agreement between Cummings Properties, Inc. and Worldwide
Information, Inc., dated November 20, 1999.(1)
10.2 Secured Note, dated June 1, 2001.(1)
10.3 $750,000 Loan Agreement between LocatePLUS Holdings Corporation and
Gemstone Investment Company, Inc., dated June 4, 2002.(2)
10.4 Security Agreement between LocatePLUS Holdings Corporation and Gemstone
Investment Company, Inc., dated June 4, 2002.(2)
10.5 Pledge Agreement between Jon R. Latorella and Gemstone Investment
Company, Inc., dated June 4, 2002.(2)
10.6 Mortgage between Jon R. Latorella and Gemstone Investment Company,
Inc., dated June 4, 2002.(2)
10.7 Guaranty Agreement, between Jon R. Latorella and Gemstone Investment
Company, Inc., dated June 4, 2002.(2)
10.8 $175,000 Ten Year Term Promissory Note, made by Jon R. Latorella, dated
January 3, 2000.(2)
10.9 $100,000 Ten Year Term Promissory Note, made by Jon R. Latorella, dated
January 3, 2000.(2)
10.10 $125,000 Ten Year Term Promissory Note, made by Robert A. Goddard,
dated January 3, 2000.(2)
10.11 $750,000 Promissory Note, made by LocatePLUS Holdings Corporation,
dated June 4, 2002.(2)
10.12 Amendment to $750,000 Promissory Note, dated August 30, 2002.(4)
10.13 $285,000 Loan Agreement between LocatePLUS Holdings Corporation and
Gemstone Investment Company, Inc., dated June 4, 2002.(5)
10.14 Equity Line of Credit Agreement, dated June 2, 2003, by and between
LocatePLUS Holdings Corporation and Dutchess Private Equities Fund, L.P.(6)
10.15 Registration Rights Agreement, dated June 2, 2003 by and between
LocatePLUS Holdings Corporation and Dutchess Private Equities Fund, L.P.(6)
10.16 Placement Agent Agreement, dated June 5, 2003 by and among LocatePLUS
Holdings Corporation, Dutchess Private Equities Fund, L.P. and Oftring &
Company, Inc.(6)
10.17 Letter Agreement, dated August 5, 2003, between LocatePLUS Holdings
Corporation and Dutchess Private Equities Fund, L.P. canceling Investment
Agreement, dated June5, 2003, between the parties.(7)
10.18 Letter Agreement, dated August 5, 2003, between LocatePLUS Holdings
Corporation and Dutchess Private Equities Fund, L.P., canceling Placement Agent,
dated June 5, 2003, between the parties.(7)
10.19 Investment Agreement, dated August 5, 2003, by and between LocatePLUS
Holdings Corporation and Dutchess Private Equities Fund, L.P.(7)
10.20 Registration Rights Agreement, dated August 5, 2003 by and between
LocatePLUS Holdings Corporation and Dutchess Private Equities Fund, L.P.(7)
10.21 Placement Agent Agreement, dated June 5, 2003 by and among LocatePLUS
Holdings Corporation, Dutchess Private Equities Fund, L.P. and Oftring &
Company, Inc.(7)
21.1 Subsidiaries of LocatePLUS Holdings Corporation.(1)
23.1 Consent of Carlin, Charron & Rosen, LLP.(8)
23.2 Consent of Kirkpatrick & Lockhart LLP.(8)
(1) Filed as an Exhibit to Form SB-2, filed with the Securities and Exchange
Commission on March 28, 2002 (Registration No. 333-85154).
(2) Filed as an Exhibit to Form SB-2/A, filed with the Securities and
Exchange Commission on June 21, 2002 (Registration No. 333-85154).
(3) Filed as an Exhibit to Form SB-2/A, filed with the Securities and
Exchange Commission on July 24, 2002 (Registration No. 333-85154).
(4) Filed as Exhibit to Form SB-2/A (post-effective amendment), filed with
the Securities and Exchange Commission on September 10, 2002 (Registration No.
333-85154).
(5) Filed as an Exhibit to Form SB-2, filed with the Securities and Exchange
Commission on June 9, 2003 (Registration No. 333-105944).
(6) Filed as an Exhibit to Form SB-2/A, filed with the Securities and
Exchange Commission on July 15, 2003 (Registration No. 333-105944).
(7) Filed as an Exhibit to Form SB-2, filed with the Securities and Exchange
Commission on August 6, 2003 (Registration No. 333-107720)
(8) Filed herewith.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) For determining any liability under the Securities Act, treat the
information omitted from this form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act of 1933 as part of this registration statement as of the time
the Securities and Exchange Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in this registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
The undersigned Registrant hereby undertakes with respect to the securities
being offered and sold in the offering:
(1) To file, during any period in which it offers or sells securities, a
post- effective amendment to this Registration Statement to:
(A) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(B) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in this 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 Securities and Exchange Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
(C) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act of 1933, treat each
post- effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by a director, officer or
controlling person relating to the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
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 First Amendment
to Registration Statement to be signed on its behalf by the undersigned, in the
Commonwealth of Massachusetts, on September 4, 2003.
LOCATEPLUS HOLDINGS CORPORATION
(Registrant)
By /s/ Jon R. Latorella
-----------------------
Chairman, President and Chief Executive Officer
Each person whose signature appears below appoints Jon R. Latorella as his
or her attorney-in-fact, with full power of substitution and re-substitution, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement on Form SB-2/A of LocatePlus Holdings Corporation and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all the said attorney-in-fact and agent or his or her substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- -------------------- --------------------------------- --------------
/S/ Jon R. Latorella Chairman of the Board, President August 6, 2003
- ----------------------- and Chief Executive Officer
Jon R. Latorella
/S/ James C. Fields Acting Chief Financial Officer, August 6, 2003
- ----------------------- Treasurer and Secretary
James C. Fields (Chief Accounting Officer)
/S/ Jon R. Latorella Director, August 6, 2003
- ----------------------- President, Worldwide
Sonia P. Bejjani Information, Inc.
pursuant to power of attorney
/S/ Jon R. Latorella Director August 6, 2003
- -----------------------
Thomas W. Garlock
pursuant to power of attorney
/S/ Jon R. Latorella Director August 6, 2003
- -----------------------
Thomas E. Murphy
pursuant to power of attorney
/S/ Jon R. Latorella Director August 6, 2003
- -----------------------
Robert H. Kite
pursuant to power of attorney
/S/ Jon R. Latorella Director August 6, 2003
- -----------------------
John P. Houlihan
pursuant to power of attorney
/S/ Jon R. Latorella Director August 6, 2003
- -----------------------
Gerard Scalley
pursuant to power of attorney