As filed with the Securities and Exchange Commission on November 1, 2004
Registration No. 333-111419
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
PRE-EFFECTIVE AMENDMENT NO. 6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
APTUS CORP.
(Exact name of small business issuer in its charter)
DELAWARE 7372 72-1528259
(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1127 BROADWAY PLAZA, SUITE 202, TACOMA, WA 98402 (253) 691-1531
(Address and telephone number of principal executive offices)
1127 BROADWAY PLAZA, SUITE 202,
TACOMA, WA 98402 (Address of principal place of
business or intended principal place of business)
JOHN P. GORST, 1127 BROADWAY PLAZA, SUITE 202, TACOMA, WA 98402 (253) 677-6649
- --------------------------------------------------------------------------------
(Name, Address and telephone number of agent for service)
COPIES TO:
RICHARDSON & PATEL LLP, 10900 WILSHIRE BOULEVARD, SUITE 500, LOS ANGELES, CA
90024
Approximate date of proposed sale to the public: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act, 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 statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.[ ] ______________
CALCULATION OF REGISTRATION FEE
Common Stock 10,000,000 $0.50 $5,000,000 $460
Title of each share Proposed maximum Proposed offering Maximum aggregate Amount of registration
class of securities to amount to be price per unit offering fee
be registered registered
(1) Calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
PROSPECTUS MAY BE USED ONLY WHERE IT IS LEGAL TO SELL THESE SECURITIES.
INFORMATION MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS.
PROSPECTUS
APTUS CORP.
10,000,000 SHARES OF COMMON STOCK
This is our initial public offering of common stock. No public market
currently exists for our securities.
We are offering a total of 10,000,000 shares of common stock, par value
$0.001 per share. The offering price is $0.50 per share. The shares will be
offered by our officers and directors. We must sell a minimum of 500,000 shares,
for gross proceeds of $250,000. The proceeds from the offering will be placed in
an escrow account until we receive subscriptions for at least 500,000 shares, at
which time the proceeds will be released to us. If we do not sell at least
500,000 shares, we will promptly return the proceeds we received, with interest.
Each subscriber must invest at least $500 to purchase 1,000 shares. The offering
will end on the date that all of the shares of common stock we are offering are
sold, but no later than September 30, 2005.
While we do not currently intend to retain the services of an
underwriter or broker-dealer, we reserve the right to do so at a later date. If
we retain the services of an underwriter or broker-dealer, we may pay a
commission of up to 10% of the sale proceeds. In that case, we would receive
proceeds of $0.45 per share, or $225,000 if we sell 500,000 shares and
$4,500,000 if all 10,000,000 shares are sold. If we retain the services of an
underwriter or broker-dealer, we will amend this registration statement and the
prospectus included in it to identify the person or persons acting in that
capacity.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. SEE THE DISCUSSION TITLED "RISK FACTORS" COMMENCING ON PAGE 8.
THE DATE OF THIS PROSPECTUS IS , 2004
3
TABLE OF CONTENTS
SUMMARY..............................................................................................5
RISK FACTORS.........................................................................................8
USE OF PROCEEDS.....................................................................................16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................................17
DILUTION............................................................................................19
CAPITALIZATION......................................................................................21
PLAN OF DISTRIBUTION................................................................................22
OUR BUSINESS........................................................................................24
PLAN OF OPERATION...................................................................................33
PRINCIPAL SHAREHOLDERS..............................................................................39
MANAGEMENT..........................................................................................41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................44
DESCRIPTION OF SECURITIES...........................................................................44
AVAILABLE INFORMATION...............................................................................45
STOCK TRANSFER AGENT................................................................................46
EXPERTS.............................................................................................46
LEGAL OPINION.......................................................................................46
INDEX TO FINANCIAL STATEMENTS......................................................................F-1
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS..................................................II-4
SIGNATURES.......................................................................................II-12
4
SUMMARY
This summary highlights selected information from elsewhere in this
prospectus. It is not complete and may not contain all of the information that
is important to you. To understand this offering fully, you should read the
entire prospectus carefully, including the risk factors and the financial
statements and the related notes thereto, which are included in this prospectus.
OUR COMPANY
We are currently a software seller. Our plan is to also become an
application service provider ("ASP"). An ASP offers hosted proprietary software
along with other hosted software business solutions distributed over Internet
ready computers. The ASP customer uses a web browser to run software products,
anywhere at anytime, without the need to download or install the software
application. Our goal is to become a reliable and secure on-demand computing
platform for the small office/home office ("SOHO") and small to medium
enterprise ("SME") markets.
We have begun implementation of a plan to purchase selected assets or
businesses from within the highly fragmented application service provider and
software development industries. In conjunction with this plan, we recently
acquired four business software applications:
On January 23, 2004, we acquired Appgen Custom Suite and MyBooks
Professional, software applications, from Appgen Technologies, Inc. and
Mark Andre, and
On February 1, 2004, we acquired QwikQuote Sales and QwikQuote
Professional Sales, sales quote applications, from QwikQuote, Inc.
Once our business plan is fully implemented, we intend to provide
hosting for either leased applications or customer owned software on leased
servers located in leased data centers, rent computing services to our customers
for a monthly fee, and perform remote management and maintenance of our
customers' servers from our network operations center.
We are a development stage company and we have a limited operating
history. No representation is made or implied that we will be able to carry on
our activities profitably. Our ability to continue our operations is dependent
upon our receipt of proceeds from this offering. We cannot assure you that we
will be successful in selling our securities and raising proceeds or that any
proceeds we receive from this offering will be sufficient to enable us to
conduct profitable operations. The likelihood of our success must be considered
in light of the expenses, difficulties and delays often encountered in
connection with the formation of any new business. Further, no assurance can be
given that we will be successful in acquiring additional assets, businesses or
properties.
Our officers, directors and principal stockholders may purchase an
unlimited number of shares in this offering. These purchases may be made so that
we are able to raise at least $250,000, the minimum we need to have the proceeds
of this offering released to us from escrow.
We were incorporated on April 4, 2002 under the laws of the State of
Delaware. Our offices are located at 1127 Broadway Plaza, Suite 202, Tacoma,
Washington 98402, and the telephone number is (253) 691-1531.
THE OFFERING
We are offering a minimum of 500,000
shares and a maximum of 10,000,000
shares of our common stock, par
value $0.001. Prior to this
offering, there has been no public
market for our common stock and
there can be no assurance that a
regular trading market for the
shares will develop or be sustained
after this offering. We anticipate
that trading of the shares will be
conducted on the Over-The-Counter
Electronic Bulletin Board, sometimes
referred to as OTCBB, which is
maintained by the NASD. There is no
guarantee that our common stock will
trade on the OTCBB.
5
OFFERING PRICE The offering price is $0.50
per share and each subscriber must
subscribe for a minimum of 1,000
shares. The offering price of the
shares has been arbitrarily
determined by us and does not bear
any relationship to such established
valuation criteria as assets, book
value or prospective earnings.
TERM OF THE OFFERING The offering will remain open until
all of the shares of common stock
are sold, but no later than
September 30, 2005. We reserve the
right to terminate the offering at
any time.
AUTHORIZED AND OUTSTANDING
SECURITIES
COMMON PROCEEDS CLASS A CLASS A CLASS B
STOCK FROM OFFERING COMMON PREFERRED PREFERRED
STOCK STOCK STOCK
- ----------------- ----------------- --------------- -------------- ------------- ----------------- ----------------
SHARES OF STOCK:
Authorized 250,000,000 5,000,000 10,000,000 10,000,000
Outstanding
prior to
offering 12,500,000 1,200,000 -0- -0-
After minimum
offering is
sold 13,000,000 $250,000 1,200,000 -0- -0-
After maximum
offering is
sold
22,500,000 $5,000,000 1,200,000 -0- -0-
In connection with our recent
purchases of certain assets, we have
issued a warrant to purchase 500,000
shares of common stock with an
exercise price of $0.50 per share
and warrants to purchase 420,000
shares of common stock with an
exercise price of $0.0095 per share.
PLAN OF DISTRIBUTION This is a direct
participation offering. We have no
commitment by anyone to purchase any
shares. The securities will be
offered by our officers and
directors.
USE OF PROCEEDS We intend to use
substantially all of the net
proceeds of this offering to develop
our ASP business. The ways we expect
to use the proceeds from this
offering are discussed in the
section of this prospectus titled,
"Use of Proceeds".
RISK FACTORS The shares offered hereby
involve a high degree of risk and
immediate and substantial dilution
and should not be purchased by
investors who cannot afford the loss
of their entire investment. See the
section of this prospectus titled
"Risk Factors" beginning on page 8.
6
SUMMARY OF FINANCIAL INFORMATION
BALANCE SHEET
September 30, December 31,
2004 2003
(unaudited)
ASSETS
Current Assets $ 70,249 $ 24,227
Other Assets 517,573 1,170
----------- -----------
Total Assets $ 587,822 $ 25,397
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current Liabilities $ 322,980 $ 33,927
Total Liabilities 322,980 33,927
Total Stockholders Equity (Deficit) 264,842 (8,530)
----------- -----------
Total Liabilities and Stockholders Equity
(Deficit) $ 587,822 $ 25,397
=========== ===========
STATEMENTS OF OPERATIONS
For the nine months Period from April
ended 4, 2002 (Date of
September 30, 2004 Inception)
through September
30, 2004
Revenue $261,591 $261,591
Total Operating Expenses (466,518) (505,048)
Other Expenses (5,997) (5,997)
------------- ------------
Net Loss $ (210,924) $ (249,454)
============= ============
7
RISK FACTORS
The securities offered hereby are highly speculative and involve
substantial risks. You should carefully consider the risks and uncertainties
described below and the other information in this prospectus before deciding
whether to invest in shares of our common stock. Any of the following risks
could cause the value of our common stock to decline.
RISKS RELATED TO OUR BUSINESS
OUR FINANCIAL STATUS CREATES A DOUBT WHETHER WE WILL CONTINUE AS A GOING CONCERN
FOR MORE THAN 12 MONTHS FROM THE DATE OF THIS PROSPECTUS.
We are a development stage company with nominal assets and limited
operations. As of September 30, 2004 we had a net loss of $210,924 and a working
capital deficit of $252,731.
In its audit report dated March 31, 2004, our auditor, De Joya &
Company, indicated that there was substantial doubt as to our ability to
continue as a going concern unless we are able to raise enough capital to
finance our operations. We cannot assure you that we will be able to raise
enough capital to finance our operations. If we fail to raise enough capital to
finance our operations, either through this offering or from other sources, we
may have to substantially curtail, or completely cease, our operations.
WE MUST RAISE MONEY IN ORDER TO IMPLEMENT OUR BUSINESS PLAN. IF WE DO NOT RAISE
AT LEAST $500,000, OR IF WE DO NOT OBTAIN OTHER FINANCING, WE WILL NOT BE ABLE
TO IMPLEMENT OUR BUSINESS PLAN AND WE MAY HAVE TO CEASE OUR OPERATIONS.
We are seeking to raise capital through this offering to implement our
business plan. If all of the shares we are offering are sold, we will receive
$5,000,000 in gross proceeds. However, we may receive significantly less than
the maximum proceeds, or we may be unsuccessful in selling any of our securities
and raise no money. To date, we have been funding our operations with loans from
Insynq, Inc. (Insynq), loans from individuals and with the modest revenues we
have begun to earn from the sales of the products we've acquired. We have no
other source of income or financing. If we are unable to raise at least $500,000
through the sale of our securities in this offering, we may be required to
substantially curtail, or to completely cease, our operations.
EVEN IF WE SELL ALL OF THE STOCK WE ARE OFFERING, WE MAY NEED ADDITIONAL
FINANCING IN THE FUTURE. IF WE ARE UNSUCCESSFUL IN OBTAINING SUCH FUNDING WE
MIGHT NOT BE ABLE TO CONTINUE OPERATIONS.
Even if we sell all of the common stock we are offering, we may need
additional financing to fully implement our business plan. We do not have any
commitments for future financing. Therefore, the continuation of our business
will depend on our ability to raise additional funds through the sale of equity
and/or debt securities or to obtain loans from third parties, such as Insynq or
our officers and directors, none of whom are obligated to make such loans. We
cannot assure you that we will be able to obtain additional financing when it is
needed, or that such financing, if available, will be on terms favorable to and
affordable by us. Our inability to obtain additional financing as needed may
require us to significantly curtail, or even to cease, our business operations.
WE ARE CURRENTLY A SOFTWARE SELLER BUT WE PLAN TO BECOME AN APPLICATION SERVICE
PROVIDER. IN ORDER TO BE SUCCESSFUL AS AN APPLICATION SERVICE PROVIDER, WE MUST
BE ABLE TO GENERATE PROFITS BY OFFERING PRODUCTS THAT ARE ATTRACTIVE TO SMALL
AND MEDIUM SIZE BUSINESSES AT COST-EFFECTIVE PRICES. IF BUSINESSES FAIL TO FIND
OUR PRODUCT OFFERINGS ATTRACTIVE OR COST EFFECTIVE, OR IF BUSINESSES BUY OUR
PRODUCTS BUT WE ARE UNABLE TO GENERATE ENOUGH REVENUES TO BECOME PROFITABLE, OUR
BUSINESS MAY FAIL.
Our goal is to become an application service provider, commonly
referred to as an "ASP". As an ASP we intend to offer to small and medium sized
businesses hosted proprietary software along with other hosted software business
solutions. We intend to deliver our products over the Internet. We began to
implement our business plan in January and February 2004, when we acquired four
business software applications. Until we become operational as an ASP, we are
selling these products through valued added resellers (VARs).
8
So far, we have earned only modest revenues from sales of our software
products. We cannot guarantee that the software applications we acquired, or
will acquire in the future, will be used by a significant number of businesses,
that a significant number of businesses will see our pricing as cost-effective,
or that we will ever earn enough revenues to become profitable, even if we fully
implement our business plan. If we fail to earn enough revenues to become
profitable, we may be required to severely curtail, or even cease, our
operations.
WE ARE SUBJECT TO THE RISKS AND UNCERTAINTIES INHERENT IN NEW BUSINESSES. OUR
FAILURE TO PLAN OR FORECAST ACCURATELY COULD HAVE A MATERIAL ADVERSE IMPACT ON
OUR DEVELOPMENT.
We are subject to the risks and uncertainties inherent in new
businesses, including the following:
o Our projected capital needs may be inaccurate, and we may not have
enough money to make the acquisitions of businesses or products that we
need to become profitable;
o We may experience unanticipated development or marketing expenses,
which may make it financially more difficult, or even impossible, to
acquire businesses or additional products;
o Even if we are able to acquire additional products or businesses, we
may not earn enough revenue from the sales of the products or from the
businesses that we acquire to cover the costs of operating our
business.
If, because of our failure to plan or project accurately, we are
unsuccessful in our efforts to acquire products or businesses, or if the
products or businesses that we acquire do not produce revenues as we project, we
are not likely to ever become profitable and we may be required to curtail some
or all of our operations.
NONE OF OUR DIRECTORS OR OFFICERS PROVIDES SERVICES TO US ON A FULL TIME BASIS
BECAUSE THEY HAVE FULL-TIME COMMITMENTS WITH OTHER BUSINESSES. THEIR LIMITED
ABILITY TO PROVIDE SERVICES TO US MAY DELAY THE DEVELOPMENT OF OUR BUSINESS.
Our chief executive officer, John P. Gorst, is the president and
chairman of the board of Insynq, a public company. M. Carroll Benton, our chief
administrative officer, secretary and treasurer is also chief administrative
officer, secretary and treasurer of Insynq, and Joanie C. Mann, vice president
of strategic alliances for Insynq is our executive vice president. None of our
officers and directors is able to provide us with full time services. As a
result, the implementation of our business plan may take longer than it would
take if we had a full-time commitment from management. Furthermore, our lack of
full-time management may make it more difficult to raise funds, either through
loans or through sales of our securities, since potential lenders or investors
may view this as an increased risk.
CURRENTLY WE HAVE ONLY A FEW CUSTOMERS AND WE GENERATE LIMITED REVENUES. IF WE
FAIL TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN BY DEVELOPING A SOLID CUSTOMER
BASE AND GENERATING SUBSTANTIAL REVENUES, WE WILL GO OUT OF BUSINESS.
Our success is dependent on the implementation of our business plan.
This involves developing and expanding our operations on a profitable basis and
developing marketing and promotional channels to promote our services on a
regular basis. We have not entered into any significant customer agreements to
provide our services or sales of our software to any company. We believe we will
not generate significant revenues in the immediate future unless we obtain
contracts with a significant number of customers. If we fail to obtain contracts
with a significant number of customers to generate meaningful revenues, we may
not achieve profitability and we will likely go out of business.
WE FACE INTENSE COMPETITION FROM OTHER ASP PROVIDERS WITH SIMILAR APPLICATION
SERVICES, WHICH MAY ADVERSELY AFFECT OUR REVENUE AND
PROFITABILITY.
A large number of ASPs offer services that are similar to the services
we currently offer and which we plan to offer. Many of these companies may have
greater resources, such as personnel, money and experience, than we have.
Specifically, these competitors may be able to provide better and cheaper
software and services to their
9
subscribers, may have more of an ability to market their products and services
and may be able to expand their operations through the acquisition of products
or other businesses more quickly than our financial resources will permit us to
do. If we are unable to compete in our market, it will have a material adverse
effect on our ability to earn revenue and achieve profitability.
OUR EXECUTIVE MANAGEMENT TEAM IS CRITICAL TO THE EXECUTION OF OUR BUSINESS PLAN
AND THE LOSS OF THE SERVICES OF ANY ONE OF THEM COULD NEGATIVELY IMPACT OUR
BUSINESS.
Competition for executives is intense. Our success depends on the
continued services of our management personnel, John P. Gorst, chairman of the
board, president and chief executive officer, M. Carroll Benton, secretary and
treasurer, chief administrative officer and interim chief financial officer,
and, Joanie C. Mann, executive vice president. Losing the experience and
knowledge of our business that any one of these individuals has could seriously
harm us. Even if we were able to replace any of these individuals, we believe
that it would take a new executive a significant amount of time to acquire the
departed executive's knowledge about our operations. We do not currently
maintain key man insurance on the lives of any of these individuals, nor do we
have employment contracts with them.
WE CURRENTLY DO NOT HAVE DATA CENTER AND SERVER INFRASTRUCTURE FACILITIES. IF WE
CANNOT ACQUIRE THESE FACILITIES WHEN WE NEED THEM, WE WILL NOT BE ABLE TO
EXECUTE A SIGNIFICANT PORTION OF OUR BUSINESS PLAN.
We currently do not own or lease server infrastructure or data center
facilities, but if we are successful in implementing our business plan, we will
eventually be required to obtain them. We cannot assure you that we will be able
to negotiate favorable leases or to purchase such facilities on favorable terms
and within our budget allowance. If we are unable to make suitable facility
acquisitions or leases when we need to, we will be unable to execute on a
significant portion of our business plan.
IF WE ARE ABLE TO RAISE AT LEAST $250,000 FROM THIS OFFERING, WE INTEND TO ENTER
INTO AN EXCLUSIVE LICENSING AGREEMENT FOR THE BRAND "E-ACCOUNTING". IF WE ARE
UNSUCCESSFUL IN RAISING THE MINIMUM PROCEEDS AND WE CANNOT OBTAIN THE LICENSE
AGREEMENT, WE WILL BE UNABLE TO EXECUTE ON A SIGNIFICANT PORTION OF OUR BUSINESS
PLAN.
Insynq has developed the "e-Accounting" brand of services and bundled
third party products with them. These products and services directly address the
needs of one of our target markets, accounting and bookkeeping professionals. A
substantial portion of our business plan is conditioned on our ability to obtain
an exclusive license from Insynq for the brand and the services that are
provided with the "e-Accounting" name. If we can raise at least $250,000 in
proceeds from our offering, Insynq will agree to license the brand and business
model to us. If we are unsuccessful in raising the minimum proceeds, we will be
unable to execute on a significant portion of our business plan.
WE WILL BE REQUIRED TO OBTAIN SOFTWARE LICENSES FROM THIRD PARTIES FOR OUR ASP
CUSTOMERS. IF OUR CUSTOMER BASE GROWS SUBSTANTIALLY, PAYMENT FOR THESE LICENSES
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE CASH AVAILABLE FOR OPERATIONS.
In order to provide ASP services, we will be required to license
certain platform technologies from third parties such as Citrix, Microsoft, and
others. Both our Appgen Custom Suite and our QwikQuote software need third party
operating systems on which to run. The platform technologies are readily
attainable from distributors; however, we must acquire a license to use the
software for each of our ASP customers. While the cost of a single license is
not prohibitive, as we begin to grow and add subscribers it may become very
costly for us to obtain the licenses, which must be paid for at the time the
customer subscribes to our ASP service. This could adversely affect our cash
flow by using a significant portion of the cash that we may have available for
operating.
WE DO NOT HAVE REGISTERED COPYRIGHTS PROTECTING OUR SOFTWARE, NOR IS OUR
SOFTWARE PATENTED. WE HAVE NOT REGISTERED OUR TRADEMARKS. IF WE FAIL TO PROTECT
OUR PROPRIETARY PRODUCTS FROM INFRINGEMENT THROUGH PATENTS, COPYRIGHTS AND
TRADEMARKS, OUR ABILITY TO COMPETE EFFECTIVELY AND OUR RESULTS OF OPERATIONS
COULD BE ADVERSELY AFFECTED.
10
Our services are highly dependent upon our ability to license
technology, such as the Appgen Custom Suite, MyBooks Professional and QwikQuote
software. If we raise at least $250,000, we also intend to license the
"e-Accounting" brand and acquire the business model from Insynq. We believe that
this software is protected by common law copyright laws, however, it is not
protected by registered copyrights or patents, and we believe that the
trademarks we use are protected by common law trademark laws, but none of the
trademarks are registered. We also rely on contracts, confidentiality
agreements, and trade-secrecy laws to protect our rights in our technology. The
protective steps we have taken may not be adequate to deter misappropriation of
these assets.
Some end-user license provisions protecting against unauthorized use,
copying, transfer and disclosure of a licensed program may be unenforceable
under the laws of certain jurisdictions and foreign countries. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as the laws of the United States.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our services. As a result, we may be found to infringe on the
proprietary rights of others. In the event of a successful claim of infringement
against us and our failure or inability to license the disputed technology, our
business and operating results would be significantly harmed. Also, it is
possible that others will adopt product or service brands similar to ours,
possibly leading to customer confusion.
Intellectual property litigation has become prevalent in the Internet
and software fields. Failure to adequately protect our intellectual property
could harm our brand name and affect our ability to compete effectively.
However, prosecuting or defending an action involving our intellectual property
rights could result in significant legal fees and the diversion of our
executives from managing the day-to-day operations of our business, thereby
materially and adversely affecting our business, results of operations and
financial condition.
WE INTEND TO ACQUIRE OTHER BUSINESSES AND TECHNOLOGIES, HOWEVER, ANY SUCH
ACQUISITIONS MAY NOT BE PROFITABLE.
As part of our plan to grow our business we intend to acquire other
businesses or technology assets. Acquisitions of businesses involve a number of
special risks, including possible adverse effects on our operating results,
diversion of management's attention and failure to retain key personnel. New
technologies or products may never operate as planned, may not be accepted by
our customers or may become immediately obsolete. We cannot assure you that the
businesses or technologies we acquire will be profitable or that we will be able
to integrate other businesses or acquired technologies into our business without
substantial costs, delays, or other operational or financial problems. Some or
all of these risks could have a material adverse effect on our business,
financial condition and results of operations.
IF THE GOVERNMENT ADOPTS REGULATIONS THAT CHARGE INTERNET ACCESS FEES OR IMPOSE
TAXES ON SUBSCRIPTIONS TO OUR WEB-BASED PRODUCTS, OUR OPERATING EXPENSE WILL
INCREASE.
Currently, there are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted that address issues such as pricing and the characteristics of products
and services. In addition, several connectivity companies have petitioned the
Federal Communications Commission to regulate Internet and on-line service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on them. This regulation, if imposed, could increase the cost of
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as intellectual
property ownership and infringement, and personal privacy are applicable to the
Internet. Finally, state tax laws and regulations relating to the provision of
products and services over the Internet are still developing. A few states have
tried to impose taxes on products and services provided over the Internet. If
many states are successful in imposing such taxes, our operating costs may
increase and we may not be able to increase the price that we charge for our
services to cover these costs. Any new laws or regulations or new
interpretations of existing laws and regulations relating to the Internet could
decrease the growth in the use of the Internet, increase our operating expenses,
or otherwise adversely affect our business.
11
RISKS RELATED TO OWNERSHIP OF OUR SECURITIES
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.
After this offering, if we are successful in raising the maximum amount
of proceeds, there will be issued and outstanding 22,500,000 shares of our
common stock. Of these shares, the 10,000,000 shares sold in this offering will
be freely tradable except for any shares purchased by our "affiliates" as
defined in Rule 144 under the Securities Act. The remaining 12,500,000 shares
will be "restricted securities," subject to the conditions of Rule 144 under the
Securities Act. If all of the requirements of Rule 144 could be met, these
restricted securities would become eligible for resale on November 7, 2004.
We cannot predict if the availability of our common stock held for sale
under Rule 144 will materially and adversely affect the market price for our
common stock. Our stock price may decline if the resale of shares in accordance
with Rule 144, in addition to the resale of the shares registered in this
offering, exceeds the market demand for our stock.
OUR CERTIFICATE OF INCORPORATION PERMITS US TO ISSUE SHARES OF CLASS A COMMON
STOCK AND CLASS A AND CLASS B PREFERRED STOCK. EVEN IF ALL OF OUR AUTHORIZED
SHARES OF COMMON STOCK WERE ISSUED, HOLDERS OF OUR CLASS A COMMON STOCK HAVE
ENOUGH VOTING POWER TO ELECT ALL OF OUR DIRECTORS AND TO DELAY, DEFER OR PREVENT
A CHANGE OF CONTROL. WHILE NO SHARES OF OUR CLASS A AND CLASS B PREFERRED STOCK
HAVE YET BEEN ISSUED, OUR BOARD OF DIRECTORS COULD GRANT PREFERENCES TO THESE
STOCKHOLDERS, INCLUDING VOTING PREFERENCES SUCH AS THOSE ENJOYED BY HOLDERS OF
OUR CLASS A COMMON STOCK.
Our Certificate of Incorporation permits us to issue, without approval
from our stockholders, 5,000,000 shares of Class A Common Stock. The holders of
our Class A Common Stock are entitled to vote with the holders of our common
stock on all matters submitted to the stockholders for approval, however each
share of Class A Common Stock represents 100 votes rather than one vote.
Therefore, if all 250,000,000 shares of our common stock were issued and all
5,000,000 shares of our Class A Common Stock were issued, the holders of our
Class A Common Stock would be entitled to cast 500,000,000 votes, which would be
twice as many votes as the holders of our common stock would be entitled to
cast. This would allow the holders of our Class A Common Stock to determine the
outcome of stockholder votes. As of the date of this prospectus, we have issued
a total of 1,200,000 shares of our Class A Common Stock to two of our officers
and directors and to three other principal shareholders.
Our Certificate of Incorporation also permits us to issue, without
approval from our stockholders, 10,000,000 shares of Class A Preferred Stock and
10,000,000 shares of Class B Preferred Stock, and allows our board of directors
to determine the rights, preferences, privileges and restrictions granted to, or
imposed upon, the preferred stock and to fix the number of shares constituting
any series and the designation of such series. It is possible that our board of
directors, in determining the rights, preferences and privileges to be granted
when the preferred stock is issued, may include provisions that have the effect
of delaying, deferring or preventing a change in control, discouraging bids for
our common stock at a premium over the market price, or that adversely affect
the market price of and the voting and other rights of the holders of our common
stock.
OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS CONTROL US. TOGETHER, THEY COULD
MAKE DECISIONS THAT BENEFIT THEMSELVES, BUT THAT DO NOT BENEFIT OTHER
SHAREHOLDERS.
In addition to the shares of Class A Common Stock that they own, John
P. Gorst, M. Carroll Benton, Mark Levin, Clifford Mastricola and Clayton Chase
will beneficially own approximately 54.9% of our outstanding common stock upon
completion of this offering. As a result, these persons, acting together, will
have the ability to control substantially all matters submitted to our
stockholders for approval (including the election and removal of directors and
any merger, consolidation or sale of all or substantially all of our assets) and
to control our management and affairs. Accordingly, this concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control, impeding a merger, consolidation, takeover or other business
combination involving us or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us, which in turn
could materially and adversely affect the market price of our common stock.
12
WE HAVE NOT PAID CASH DIVIDENDS AND IT IS UNLIKELY THAT WE WILL PAY CASH
DIVIDENDS IN THE FORESEEABLE FUTURE.
We plan to use all of our earnings, to the extent we have earnings, to
fund our operations. We do not plan to pay any cash dividends in the foreseeable
future. We cannot guarantee that we will, at any time, generate sufficient
surplus cash that would be available for distribution as a dividend to the
holders of our common stock. You should not expect to receive cash dividends on
our common stock.
IF YOU PURCHASE THE SECURITIES WE ARE OFFERING, THE VALUE OF YOUR PURCHASE WILL
BE IMMEDIATELY DILUTED.
You will experience immediate and substantial dilution in the net
tangible book value of the securities that you purchase. As of September 30,
2004, we had a net tangible book value of $(0.012) per share of issued and
outstanding common stock. After giving effect to the sale of all the common
stock we are offering, the net tangible book value at that date would have been
$0.202 per share. This represents an immediate increase in book value of $0.214
per share to existing shareholders and an immediate dilution of $0.298 per share
to the investors in this offering. See the section of this prospectus titled
"Dilution."
OUR BOARD OF DIRECTORS HAS THE ABILITY TO ISSUE ADDITIONAL SHARES OF OUR COMMON
STOCK WITHOUT ASKING FOR STOCKHOLDER APPROVAL, WHICH COULD CAUSE YOUR INVESTMENT
TO BE DILUTED.
Our Certificate of Incorporation allows us to issue a total of
250,000,000 shares of common stock. The power of the board of directors to issue
shares of common stock or warrants or options to purchase shares of common stock
is generally not subject to stockholder approval. Accordingly, any additional
issuance of our common stock may have the effect of further diluting your
investment.
MANAGEMENT WILL HAVE BROAD DISCRETION IN ALLOCATING THE PROCEEDS RECEIVED FROM
THIS OFFERING. YOU MAY NOT APPROVE OF THE WAYS IN WHICH MANAGEMENT ALLOCATES
THOSE PROCEEDS. IF MANAGEMENT FAILS TO EFFECTIVELY USE THE MONEY FROM THIS
OFFERING, THE VALUE OF YOUR INVESTMENT COULD DECLINE.
We expect to use the net proceeds of this offering primarily to develop
our business and to sustain our general operations, as discussed in this
prospectus. However, the description of how we may allocate the proceeds from
this offering is only an estimate. Management is retaining broad discretion as
to the allocation of the proceeds we receive from this offering. You may not
approve of the uses to which management allocates the money. Management's
failure to effectively use this money could have a material adverse effect on
our business and financial condition, causing the value of your investment to
decline.
THERE IS NO PUBLIC MARKET FOR OUR SECURITIES, SO YOU WILL BE UNABLE TO LIQUIDATE
THEM IF YOU NEED MONEY.
Prior to this offering there has been no public market for our common
stock. It is not likely that an active market for our common stock will develop
or be sustained after this offering or in the foreseeable future. If you need
money, you may not be able to find buyers for your common stock or the price
that potential buyers might pay for your common stock may be lower than the
price you paid for it. If you purchase common stock in this offering, you should
be prepared to hold the common stock for an indefinite period of time.
We plan to apply to the NASD to have our shares traded on the
Over-The-Counter Bulletin Board, however, we cannot guarantee you that we will
be successful in having our application approved.
THE PRICE OF THE COMMON STOCK BEING OFFERED HAS BEEN ARBITRARILY DETERMINED. YOU
MAY NOT RELY ON THIS PRICE AS AN INDICATION OF THE VALUE OF THE COMMON STOCK YOU
PURCHASE.
The price of the common stock offered for sale was arbitrarily
determined. The offering price bears no relationship whatsoever to our assets,
earnings, book value or other criteria of value. As of September 30, 2004 we had
12,500,000 shares of common stock and 1,200,000 shares of class A common stock
outstanding and the book value of each share was $0.019. The price of our
common stock may decline after the offering.
WE WILL BE SUBJECT TO THE PENNY STOCK RULES AND THESE RULES MAY ADVERSELY AFFECT
TRADING IN OUR COMMON STOCK.
13
<page>
Our common stock will be a "low-priced" security under rules
promulgated under the Securities Exchange Act of 1934. In accordance with these
rules, broker-dealers participating in transactions in low-priced securities
must first deliver a risk disclosure document which describes the risks
associated with such stocks, the broker-dealer's duties in selling the stock,
the customer's rights and remedies and certain market and other information.
Furthermore, the broker-dealer must make a suitability determination approving
the customer for low-priced stock transactions based on the customer's financial
situation, investment experience and objectives. Broker-dealers must also
disclose these restrictions in writing to the customer, obtain specific written
consent from the customer, and provide monthly account statements to the
customer. The effect of these restrictions probably decreases the willingness of
broker-dealers to make a market in our common stock, decreases liquidity of our
common stock and increases transaction costs for sales and purchases of our
common stock as compared to other securities.
14
FORWARD LOOKING STATEMENTS
This prospectus contains "forward-looking statements". These
forward-looking statements are based on our current expectations, assumptions,
estimates and projections about our business and our industry. Words such as
"believe," "anticipate," "expect," "intend," "plan," "may," and other similar
expressions identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the sections of this prospectus titled "Risk
Factors" and "Plan of Operation", as well as the following:
o our lack of capital and whether or not we will be able to raise
capital when we need it,
o our overall ability to successfully compete in our market and our
industry,
o whether or not we will continue to receive the services of our
executive officers and directors,
and other factors, some of which will be outside our control. You are cautioned
not to place undue reliance on these forward-looking statements, which relate
only to events as of the date on which the statements are made. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof except as we are required to
do by the rules promulgated under the Securities Act of 1933 and the Securities
Exchange Act of 1934.
15
USE OF PROCEEDS
The table below indicates the manner in which we anticipate using any
proceeds we raise in this offering. The different amounts represent the net
proceeds that would be realized if we sell 500,000 shares, 2,500,000 shares,
5,000,000 shares, 7,500,000 shares and 10,000,000 shares, respectively.
The table below represents current estimates only. We cannot specify
with certainty the manner in which the net proceeds that we may receive upon
completion of this offering will be finally allocated, as the actual allocation
will depend upon the amount of money we receive, the licensing or other business
opportunities that arise, the amount of our future revenues, any change or
inaccuracy in our assumptions about our business or future operations and other
factors, some of which are described in the section of this prospectus titled
"Risk Factors". Our management will have broad discretion in allocating the net
proceeds of this offering and reserves the right to use the proceeds of this
offering differently than as set forth below. Pending such uses, we intend to
invest the net proceeds of our offering in short term certificates of deposit or
a money market savings account.
Our president has estimated that the expenses of the offering will be
approximately $36,000. Expenses include legal fees, accounting fees, costs
related to qualifying the offering in various states, and related miscellaneous
fees such as postage and photocopying. The expenses of the offering may exceed
$36,000.
AMOUNT OF NET PROCEEDS
AT 5% AT 25% AT 50% AT 75% AT 100%
----- ------ ------ ------ -------
Proceeds from the Offering $250,000 $1,250,000 $2,500,000 $3,750,000 $5,000,000
Less: Offering Expenses 36,000 36,000 36,000 36,000 36,000
------------ ------------- --------------- --------------- --------------
Net Proceeds from Offering $214,000 $1,214,000 $2,464,000 $3,714,000 $4,964,000
============ ============= =============== =============== ==============
Use of Net Proceeds:
Repayment of Loans $ - $176,500 $176,500 $176,500 $176,500
Acquisitions - 333,500 1,177,500 1,914,500 2,573,500
Acquisition/Finder Fees - 10,000 60,000 150,000 250,000
Infrastructure - 62,500 125,000 187,500 250,000
Research and Development - 62,500 125,000 187,500 250,000
Sales and Marketing 50,000 186,500 350,000 562,500 750,000
Operations 58,600 131,100 381,940 456,600 631,850
Consultants 105,400 251,400 68,060 78,900 82,150
------------ ------------- --------------- --------------- --------------
Total Use of Net Proceeds $214,000 $1,214,000 $2,464,000 $3,714,000 $4,964,000
============ ============= =============== =============== ==============
While we have indicated that proceeds may be used for acquisitions, we
have not yet targeted any specific business or asset for acquisition.
In January and March 2004 we undertook a private offering of our common
stock to 13 individuals and received $172,500 in proceeds. In July 2004, at our
request, these investors agreed to exchange their shares of common stock for
promissory notes. These loans are unsecured and bear interest at the prime rate
plus 1%. The loans initially matured on July 10, 2004, however, on August 19,
2004, the payment due dates were extended to October 31, 2004. We are currently
negotiating with the investors to obtain another extension of the due date. No
investor has made a demand for payment. The loan proceeds were used for working
capital and acquisitions. We may use a portion of the proceeds of this offering
to repay the loans, plus accrued interest.
16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
At this time there is no public trading market for our common stock.
We currently have a total of 12,500,000 shares of our common stock
outstanding (not including our Series A Common Stock). We are currently offering
to sell an additional 10,000,000 shares of common stock.
We also have outstanding warrants that were issued in conjunction with
the acquisition of certain assets. These warrants, if exercised, would permit
the holders to purchase an additional 920,000 shares of our common stock. A
warrant to purchase 500,000 shares of our common stock was issued on January 23,
2004 and expires on January 22, 2014. The warrant has an exercise price of $0.50
per share. Warrants for the balance of the shares were issued on February 1,
2004 and expire on January 31, 2009. These warrants have an exercise price of
$0.0095 per share.
Currently we do not have any shares of common stock that would be
available for sale under Rule 144 of the Securities Act of 1933, we have no
agreement with any shareholder to register our securities and we have no
compensation plans under which we are authorized to issue securities. The
12,000,000 shares of common stock issued to our founders may be available for
sale under Rule 144 (provided that all of the conditions of Rule 144 could be
met) in November 2004. An additional 500,000 shares of our common stock may be
available for sale under Rule 144 (provided that all of the conditions of Rule
144 could be met) in January 2005.
HOLDERS
We currently have six record holders of our common stock.
DIVIDENDS
We do not intend to pay any cash dividends with respect to our common
stock in the foreseeable future. We intend to retain any earnings for use in the
operation of our business. Our board of directors will determine dividend policy
in the future based upon, among other things, our results of operations,
financial condition, contractual restrictions and other factors deemed relevant
at the time. We intend to retain appropriate levels of our earnings, if any, to
support our business activities.
THE APPLICATION OF THE "PENNY STOCK" RULES
The Securities Exchange Act of 1934 requires additional disclosure
relating to the market for "penny stocks." A penny stock is generally defined to
be any equity security not listed on NASDAQ or a national securities exchange
that has a market price of less than $5.00 per share, subject to certain
exceptions. Among these exceptions are shares issued by companies that have:
o net tangible assets of at least $2 million, if the issuer has been in
continuous operation for three years;
o net tangible assets of at least $5 million, if the issuer has been in
continuous operation for less than three years; or
o average annual revenue of at least $6 million for each of the last
three years.
We do not currently meet the requirements of these exceptions and,
therefore, our shares would be deemed penny stocks for purposes of the Exchange
Act if and at any time while our common stock trades below $5.00 per share. In
such case, trading in our shares would be regulated pursuant to Rules 15-g-1
through 15-g-6 and 15-g-9 of the Exchange Act. Under these rules, brokers or
dealers recommending our shares to prospective buyers would be required, unless
an exemption is available, to:
17
o deliver a lengthy disclosure statement in a form designated by the SEC
relating to the penny stock market to any potential buyers, and obtain
a written acknowledgement from each buyer that such disclosure
statement has been received by the buyer prior to any transaction
involving our shares;
o provide detailed written disclosure to buyers of current price
quotations for our shares, and of any sales commissions or other
compensation payable to any broker or dealer, or any other related
person, involved in the transaction; and,
o send monthly statements to buyers disclosing updated price information
for any penny stocks held in their accounts, and these monthly
statements must include specified information on the limited market
for penny stocks.
In addition, if we are subject to the penny stock rules, all brokers or
dealers involved in a transaction in which our shares are sold to any buyer,
other than an established customer or "accredited investor," must make a special
written determination that our shares would be a suitable investment for the
buyer. The brokers or dealers must receive the buyer's written agreement to
purchase our shares, as well as the buyer's written acknowledgement that the
suitability determination made by the broker or dealer accurately reflects the
buyer's financial situation, investment experience and investment objectives,
prior to completing any transaction in our shares.
These Exchange Act rules may limit the ability or willingness of
brokers and other market participants to make a market in our shares and may
limit the ability of our shareholders to sell in the secondary market, through
brokers, dealers or otherwise. We also understand that many brokerage firms will
discourage their customers from trading in shares falling within the "penny
stock" definition due to the added regulatory and disclosure burdens imposed by
these Exchange Act rules.
The SEC from time to time may propose and implement even more stringent
regulatory or disclosure requirements on shares not listed on NASDAQ or on a
national securities exchange. The adoption of the proposed changes that may be
made in the future could have an adverse effect on the trading market for our
shares.
VOLATILE MARKET CONDITIONS
If a market for our common stock develops, the market price for the
shares may be significantly affected by a variety of factors. Some of these
factors, such as the impact of further terrorist attacks on the U.S., will be
outside our control. Furthermore, in recent years the stock market has
experienced extreme price and volume fluctuations that are unrelated or
disproportionate to the operating performance of the affected companies. Broad
market fluctuations may adversely affect the market price of our common stock.
You may be unable to recover the cost of the common stock you buy in this
offering if you must sell your shares in a volatile market.
18
DILUTION
We were initially capitalized by the sale of common stock to our
founders. In November 2003 we issued 12,000,000 shares of common stock to our
founders at a price of $0.0025 per share. On December 22, 2003 we issued at a
price of $0.001 per share, which was the par value, 1,200,000 shares of class A
common stock to our founders. We have included both of these transactions in the
calculations set forth below. The following tables set forth the difference in
the amount paid by our founders for their shares of common stock as compared to
the amount that will be paid by investors in this offering.
THE TABLE BELOW ASSUMES THAT THE MINIMUM (5%) NUMBER OF SHARES OF COMMON STOCK
OFFERED HEREBY IS SOLD.
COMMON SHARES ISSUED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
Founders-common stock 12,000,000 84.5% $30,000 5.6% $0.0025
Founders-class A common
stock 1,200,000 8.5% 1,200 .2% $0.001
Asset Purchase Issuance 500,000 3.5% 250,000 47.1% $0.50
---------------- -------------- ------------------ ------------
Total before offering 13,700,000 96.5% 281,200 52.9%
New Investors 500,000 3.5% 250,000 47.1% $0.50
---------------- -------------- ------------------ ------------
Total 14,200,000 100% $531,200 100% $0.041
================ ============== ================== ============
THE TABLE BELOW ASSUMES THAT THE MAXIMUM (100%) NUMBER OF SHARES OF COMMON STOCK
OFFERED HEREBY IS SOLD.
COMMON SHARES ISSUED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
Founders-common stock 12,000,000 50.6% $30,000 0.6% $0.0025
Founders-class A common
stock 1,200,000 5.1% 1,200 0.0% $0.001
Asset Purchase Issuance 500,000 2.1% 250,000 4.7% $0.50
---------------- -------------- ------------------ -----------
Total before offering 13,700,000 57.8 281,200 5.3%
New Investors 10,000,000 42.2 5,000,000 94.7% $0.50
---------------- -------------- ------------------ -----------
Total 23,700,000 100% $5,281,200 100% $0.223
================ ============== ================== ===========
As of September 30, 2004, the net tangible book value, unaudited, of
our common stock was $(167,368) or $(0.012) per share based on 13,700,000 shares
of common stock and class A common stock outstanding. The net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the number of outstanding shares of common stock and
class A common stock. After giving effect to the sale of 10,000,000 shares of
common stock at an offering price of $0.50 per share and after deducting
estimated expenses, our pro-forma net tangible book value as of that date would
be $4,796,632 or $0.202 per share, based on a total of 23,700,000 shares of
common stock and class A common stock outstanding at that time. This represents
an immediate dilution (i.e. the difference between the offering price per share
of common stock and the net tangible book value per share of common stock after
the offering) of $0.298 per share to the new investors who purchase shares in
the offering, as illustrated in the table below. The table below also
illustrates the dilution to new investors in the event that we sell only 500,000
shares of common stock.
19
AS OF SEPTEMBER 30, 2004 (UNAUDITED) THE FOLLOWING TABLE REPRESENTS THE DILUTION
PER SHARE BASED ON THE PERCENTAGE SOLD OF THE TOTAL AMOUNT OF COMMON SHARES
BEING OFFERED.
COMMON SHARES COMMON SHARES
5% sold 100% sold
---------------- ---------------
Offering price $0.500 $0.500
Net tangible book value before offering $(0.012) $(0.012)
Increase attributable to the offering $0.015 $0.214
Net tangible book value after giving effect
to the offering $0.003 $0.202
Per share dilution to new investors $0.497 $0.298
Percent dilution per share 99.4% 59.6%
DETERMINATION OF OFFERING PRICE
There is no established public market for the shares of common stock
that we are registering. Our board of directors has established a price of $0.50
per share based upon the price at which potential investors might be willing to
purchase the common stock we are offering. The offering price has been
arbitrarily determined and does not bear any relationship to our assets, results
of operations, or book value, or to any other generally accepted criteria of
valuation.
20
CAPITALIZATION
This table represents our capitalization as of September 30, 2004, (unaudited),
as adjusted to give effect to this offering.
ACTUAL SHARES SHARES
STOCKHOLDERS' EQUITY at 5% at 100%
------------------- ---------------------- ----------------------
Class A common stock, $0.001
par value, authorized 5,000,000
shares Issued and
outstanding 1,200,000 shares at par
value $1,200 $1,200 $1,200
Common stock, $0.001 par
value, authorized
250,000,000 shares
Issued and outstanding -
12,500,000 shares
at par value 12,500 12,500 12,500
Additional paid in
capital 267,500 267,500 267,500
Additional paid in
capital for
issuance of warrants 233,096 233,096 233,096
Offering at 5% 500,000 shares at
par value 500
Additional paid in
capital 249,500
Offering at 100% 10,000,000 shares
at par value 10,000
Additional paid in
capital 4,990,000
Offering expenses (36,000) (36,000)
Accumulated deficit (249,454) (249,454) (249,454)
------------------- ---------------------- ----------------------
Total stockholders' equity
$264,842 $478,842 $5,228,842
=================== ====================== ======================
21
PLAN OF DISTRIBUTION
We are offering a minimum of 500,000 shares of common stock and a
maximum of 10,000,000 of common stock at an offering price of $0.50 per share.
We are requiring a minimum investment from subscribers of $500. The shares will
be offered and sold by Mr. John Gorst, our principal executive officer and a
director. The offering will remain open until all of the common stock we are
offering is sold, but no later than September 30, 2005, unless we decide to
terminate our selling efforts prior to that date. If we do not sell at least
500,000 shares by June 30, 2005, any proceeds that we raised will be promptly
returned to the subscribers in full, with interest. During the period through
September 30, 2005 (unless we terminate the offering before that date), no funds
will be returned to you. Your funds will only be returned to you if we do not
raise a minimum of $250,000 by September 30, 2005. The initial $250,000 in gross
proceeds received from this offering shall be deposited promptly into an escrow
account with National City Bank, NA. The procedures for subscribing to the
offering are set forth below.
Mr. Gorst will not receive commissions from the sale of any shares.
However, if we decide to employ the services of an underwriter or a
broker-dealer to assist us with the sale of our common stock, we may pay a
commission in cash of up to 10% of the proceeds we receive or we may pay a
commission consisting of cash and shares of our common stock or a warrant to
purchase our common stock. If we decide to retain the services of a
broker-dealer, we will file a post effective amendment to this registration
statement and amend this prospectus to identify the selected broker-dealer.
Once this registration statement is declared effective, Mr. Gorst will
offer the shares to potential investors such as business associates, including
our vendors and customers and friends and family members. Once this registration
statement is declared effective, we expect to advertise the sale of our
securities, as permitted by federal securities laws, in financial publications
such as Forbes magazine.
Rule 3a4-1 of the Securities Exchange Act of 1934, as amended, sets
forth the conditions under which a person associated with an issuer may
participate in the offering of the issuer's securities and not be deemed to be a
broker or dealer. The requirements of Rule 3a4-1 include the following:
o The person is not statutorily disqualified, as that term is defined in
Section 3(a)(39) of the Exchange Act at the time of his participation;
and
o The person is not compensated in connection with his participation by
the payment of commissions or other remuneration based either directly
or indirectly on transactions in securities;
o The person is not at the time of their participation an associated
person of a broker/dealer; and
o The person meets the conditions of paragraph (a)(4)(ii) of Rule 3a4-1
of the Exchange Act in that he primarily performs, or is intended
primarily to perform at the end of the offering, substantial duties
for or on behalf of the issuer otherwise than in connection with
transactions in securities, during the past 12 months has not been a
broker or dealer or a person associated with a broker or dealer and
has not participated in selling and offering securities for any issuer
more than once in every twelve months, other than in reliance on
paragraphs (a)(4)(i) or (a)(4)(iii) of the Rule.
Mr. Gorst is not subject to statutory disqualification, will not be
compensated in connection with his participation in the offering, is not an
associated person of a broker/dealer and performs substantial duties for us as
an officer and director therefore, he meets the requirements of Rule 3a4-1.
If we are unsuccessful in selling to the public the minimum number of
shares we must sell in order to have the proceeds released from escrow, we may
sell shares of our common stock to our officers and directors. These purchases
shall be made for investment purposes only and in a manner consistent with the
public offering of our shares. Our officers and directors could, therefore,
purchase up to 100% of the amount required for closing if no sales are made to
new investors from this offering.
22
HOW TO SUBSCRIBE
If you want to subscribe to this offering you must execute and deliver
to us, in accordance with the instructions that will be provided to you, a
subscription agreement along with immediately available funds.
Within five days of our receipt of a subscription agreement accompanied
by a check for the purchase price, we will send by first class mail a written
confirmation to notify the subscriber of the extent, if any, to which such
subscription has been accepted. We reserve the right to reject, in whole or in
part, orders for the purchase of shares. Certificates will be issued to
subscribers once we receive subscriptions totaling at least $250,000 for the
purchase of 500,000 shares.
23
OUR BUSINESS
Unless the context requires otherwise, the terms "we", "our" and "us"
refer to Aptus Corp., which was incorporated under the laws of the State of
Delaware on April 4, 2002.
OUR BUSINESS
GENERAL
We currently sell software. We also wish to become an application
service provider ("ASP"). An ASP offers hosted proprietary software along with
other hosted software business solutions distributed over Internet ready
computers. When we use the term "hosted" or "hosting", we mean that the ASP
customer, in exchange for a fee, uses a web browser to run software products,
anywhere at anytime, without the need to download or install the software
application. Our goal is to become a reliable and secure on-demand computing
platform for the small office/home office ("SOHO") and small to medium
enterprise ("SME") markets.
Once our business plan is fully implemented, we will sell software,
provide hosting for either leased applications or customer owned software, rent
computing services to our customers for a monthly fee, and perform remote
management, support and maintenance of our customers' servers from our network
operations center. By providing the ASP services, we will make it possible for
small and medium-sized businesses to take advantage of technology solutions that
have typically been reserved for larger business enterprises. These solutions
will enable our customers to benefit from reliable and secure technology
operations, which can grow or contract to accommodate changing business needs,
without undertaking the difficulty and expense associated with acquiring,
developing and maintaining the required in-house expertise and infrastructure.
Aside from being able to access sophisticated technologies on demand,
there are other advantages to small and medium sized businesses in using the
services of an ASP. These advantages include reducing the risk of computer
viruses, allowing for ongoing backup of user data and important information,
disaster recovery and security. Using an ASP also reduces software piracy, as
the software title is no longer downloaded or installed on the user's computer.
We intend to continue to promote and market our Appgen Custom Suite and
QwikQuote software. If we find other products that we believe can be used by
small and medium sized businesses and that we can acquire, we will do so.
Our business plan also includes the purchase of selected assets or
businesses from within the highly fragmented application service provider and
software development industries. After making these acquisitions, we intend to
apply basic consolidation practices, which, we believe, will increase our user
base, reduce overhead and increase net margins. In seeking possible
acquisitions, we target assets or businesses of ASP companies that are at or
below the 1,500-subscriber level. We look for targets that have developed
messaging, disaster recovery, accounting and finance, sales force management,
enterprise resource planning, customer relationship management, manufacturing
resource planning, or human resources applications. We identify these targeted
assets or businesses through a variety of means, such as the bankruptcy courts,
referrals, independent research and trade publications.
As part of the implementation of our acquisition strategy, we recently
acquired four business software applications from unrelated parties, along with
other related intellectual property and miscellaneous furniture and equipment.
On January 23, 2004, we acquired certain assets of Appgen Technologies,
Inc. (Appgen) and Mark Andre, which included:
The Appgen Custom Suite and MyBooks Professional, both accounting
software applications,
Used computer equipment and used office furniture and equipment,
Trade and company name(s),
24
The web site "WWW.APPGEN.COM" and the domain name "appgen.com",
Customer lists,
Marketing materials,
Software documentation and manuals, and
VAR and dealer lists.
In conjunction with our acquisition of the Appgen Custom Suite we
executed a Distribution Agreement with Mark Andre. We will pay a royalty of
5.5%, in perpetuity, on all gross proceeds from the sale of the Appgen Custom
Suite and MyBooks Professional products. On April 15, 2004 we amended the
Distribution Agreement to include a buyout provision in the amount of
$1,250,000, which we may execute at any time at our discretion.
On February 1, 2004, we acquired certain assets of QwikQuote, Inc,
which included:
QwikQuote Sales and QwikQuote Professional Sales, sales quote
applications,
Used computer equipment and office furniture and equipment,
The QwikQuote name, and
The web site "WWW.QWIKQUOTE.COM" and the domain name "qwikquote.com"
The purchase price for these assets was made up of:
$21,000 payable in cash at closing,
The payment of a transition bonus to Tim Heath in the amount of
$9,000,
The payment of a finders' fee to Mark Levin, one of our stockholders,
in the amount of $9,000,
The execution of Consulting and Non-Compete Agreements with three
stockholders of QwikQuote, Inc., each agreement having a term of 12
months and each requiring monthly payments of $17,000 to the
stockholders, and
The issuance of warrants to purchase 367,700 shares of our common stock
at a price of $0.0095 per share.
THE PRODUCTS AND SERVICES WE PROVIDE
We currently sell the following software products. These products will
also be provided to subscribers to our ASP Services.
APPGEN CUSTOM SUITE
Our Appgen Custom Suite software is a collection of collaborative
commerce modules. A mid-sized business customer selects those modules it needs
or wants to form a total business-computing environment. These modules are
designed specifically for use by mid-sized enterprises of all types, and may be
assembled in any way that suits the needs of the business. The modules include
general ledger, accounts receivable, accounts payable, payroll processing,
billing, bank reconciliation, sales order processing, purchase order processing,
inventory control, job cost tracking, bill of materials, and others. The
business accounting modules are modifiable and grow with the customer's
business. The Appgen Custom Suite may be deployed on Unix, Windows, Mac OS X,
and Linux operating systems on a single computer or any other type of networked
configuration.
25
We recently completed an upgrade of our Appgen Custom Suite software.
The initial upgrade is for those users running Mac OS X 10.3.5 software. We are
completing upgrades for users of Linux RedHat and Windows. Following the release
of that upgrade, we will complete the upgrade for users of special software
platforms such as SCO Open Server.
QWIKQUOTE SOFTWARE
The four versions of our QwikQuote Software are QwikQuote Sales, single
user and network version, and QwikQuote Professional Sales, single user and
network version. This software allows the user to generate customized sales
quotations and assists sales people by managing inventory or products. QwikQuote
can also link to popular contact manager applications, such as ACT!, Goldmine,
Outlook, TeleMagic and Maximizer, so that quotes can be synchronized and
attached to the customer contact record. It is vital for a sales force to be
equipped with current and accurate product and pricing information. QwikQuote
provides an electronic means of storing product information in the form of
picture, video, database, and free text that is instantly available when a
customer asks a question.
MYBOOKS PROFESSIONAL
MyBooks Professional is a collaborative accounting system for small to
mid-sized businesses that is designed to simplify the approach to accounting
with jargon-free menus that make it easy to manage a user's business. A single
application interface for either a service-based or product-based company helps
grow the business by gaining control over information regarding sales,
customers, vendors, purchases, bank accounts, inventory, billing, payroll, and
financial statements, with complete sales order and purchase order subsystems
and a separate accountant's page that includes the functions of the underlying
general ledger system. MyBooks Professional is a true double entry, fully
auditable accounting system and is modifiable and scalable. The application can
accommodate one to ten simultaneous users and is installable on Unix, Apple Mac
OS X, Linux, and Microsoft Windows, requiring little or no technical assistance.
It may be used by a single user on a single machine, or by multiple users in a
network environment with various operating systems.
We recently completed an upgrade of our MyBooks Professional software.
The initial upgrade is for those users running Mac OS X 10.3.5 software. We are
completing upgrades for users of Linux RedHat and Windows. Following the release
of that upgrade, we will complete the upgrade for users of special software
platforms such as SCO Open Server.
On October 4, 2004, we entered into a Master License Agreement with
26
Insynq pursuant to which Insynq will provide us with application hosting
services for Internet-based delivery of MyBooks Professional software. This will
allow customers of Aptus to obtain the MyBooks Professional software through
Insynq's data center. Insynq has appointed Aptus as a representative of InsynQ
for marketing this service. Under the agreement, we will be responsible for
developing a specialized version of MyBooks Professional software for Insynq's
hosting, for providing ongoing development and technical support and updates and
promotional services and advertising for this service. Insynq paid us $600,000
in the form of 40,000,000 shares of Insynq common stock for this license.
PLANNED PRODUCTS AND SERVICES
E-ACCOUNTING
If we are able to raise at least $250,000 in proceeds from this
offering, we are planning to enter into an exclusive master licensing agreement
with Insynq for the e-Accounting business model and brand. The terms of this
master licensing agreement have not yet been determined. Our directors, John P.
Gorst, M. Carroll Benton and Joanie C. Mann, are also employees of, and John P.
Gorst and M. Carroll Benton are directors of, Insynq. Insynq developed the
e-Accounting brand of services and bundled with it third party products and
services that directly address the needs of accounting and bookkeeping
professionals. Including the products and services bundled with it, the
e-Accounting products and services include:
E-COLLABORATE AND E-WORKPLACE - - Proprietary document management and
work flow process software applications.
EFILESHARE - - A document storage service which allows our customers to
create a shared file system on the Internet, assign users and permissions, and
allow users, both inside and outside of the company, to interact and collaborate
in real-time. Automatic data backup is included.
CONSTANT CONTACT - - A web-based email marketing service. Small- and
mid-sized businesses build their email lists, create and send professional email
newsletters and promotions, and track results with this self-service solution.
No technical expertise is required.
BIZACTIONS - - A weekly email communication system that keeps our
customers connected with their clients, prospects and referral sources.
Customers may make announcements and access online reports through this service.
BSYTECH - - A provider of template or custom web sites for professional
service firms and businesses that want affordable websites.
J2 GLOBAL COMMUNICATIONS - A fax and voicemail service, third parties
use the fax number assigned to the customer who receives the fax, or a
notification of a voicemail message, by e-mail.
ALWAYS-ON UTILITY COMPUTING
This level of service will provide standard Windows applications, such
as MS Office, Intuit's QuickBooks or other Windows based products, to the SME
and SOHO customers on a subscription basis, thereby alleviating the need for the
customer to purchase servers, anti-virus software, information technology
consultant services or other items needed to maintain a Windows network.
Always-On will allow for secured storage of data and information at
leased data centers. This service also provides the customer with the added
value and features of a wide-area network, allowing remote access to
applications and data anytime, anywhere.
MARKETING AND SALES
QWIKQUOTE SOFTWARE
We sell our QwikQuote Sales and QwikQuote Professional Sales through
our web site, WWW.QWIKQUOTE.COM. The information on this web site is not part of
this prospectus. An interested potential customer, after providing his name and
contact information, may download a copy of the software for testing. We then
call the potential customer to determine if there are any specific questions or
requirements. The customer may then purchase the downloaded software and have it
registered for full use.
Prices for our QwikQuote Software range from $69 to $1,295. The price
is determined by the number of users being licensed.
Sales Units
Sales of QwikQuote Software, prior to
our purchase were approximately:
January 2003 through January 2004 $171,500 1,062
Sales since our purchase of the
QwikQuote Software:
February 2004 12,069 82
March 2004 15,212 88
April 2004 13,923 85
27
May 2004 14,953 113
June 2004 7,283 56
July 2004 10,402 71
August 2004 9,746 68
September 2004 2,818 24
APPGEN CUSTOM SUITE
A value added reseller, commonly know as a VAR, is a business that
sells a product made by another business after adding something of value such as
another component, specialized software or other peripheral hardware. Our
marketing plan includes the re-introduction of our Appgen software products to
these potential resellers. These resellers often develop their own applications
around the Appgen Custom Suite and open up entirely new vertical markets for
themselves while integrating the new packages or modules and customizations with
the accounting software. Other services they may offer include delivery and
setup, training, technical support, software tailoring, and custom programming.
Aside from selling the Appgen Custom Suite through existing channels and
resellers, we are also considering direct sales organizations.
We categorize our resellers of the Appgen software as follows:
Platinum Level - Currently we have nine Platinum Level VARs. A Platinum
Level VAR is a business authorized by us to sell our Appgen Custom Suite and
MyBooks Professional software products. Platinum Level VARs generally target
various vertical segmented markets, such as automobile dealerships, the large
retailer, the "chain retailer", the motor transportation and distribution
industry, staffing agencies or the lumber industry. The Platinum VAR bundles the
Appgen Custom Suite or MyBooks Professional software, customized or
un-customized, with other services or products that it may provide to its
customers. In order to customize the software to meet a customer's requirements,
the VAR will purchase a Developer's Kit. We copy the application from the master
copy of the software on to installation media, such as a compact disk (CD) and
ship it to the VAR for installation at the customer site. We issue user licenses
upon registration. Support for the Appgen and MyBooks software is also included
in the Platinum Level.
A Platinum VAR may market the software under its brand name or under
our un-customized brand. The Platinum VAR, rather than staffing its own sales
force, may enter into agreements with other independent contractors who also
have expertise in the same vertical markets. These sub-contractors are our Gold
or Dealer Level VARs. Neither Aptus nor the Platinum Level VAR make any payments
to the Gold or Dealer Level VARs.
For a fixed fee, the Platinum VAR is entitled to purchase from us, at a
discount, the Appgen Custom Suite software application and user licenses for
resale. In addition, the Platinum VAR receives a commission from us if it enters
into subcontracting agreements with Gold and Dealer Level resellers. The
negotiated commission is based on the retail value of the licenses sold through
the subcontractors. To date, none of our Platinum VARs have entered into
agreements with subcontractors.
Gold Level - We have one Gold Level VAR. Unlike a Platinum Level VAR, a
Gold Level VAR is not authorized to enter into subcontracting agreements. For a
fixed fee, the Gold Level VAR is also entitled to purchase the software and end
user licenses at a discount, although the discount is lower than the discount we
offer to our Platinum Level VARs. Like the Platinum VAR, a Gold Level reseller
may bundle the Appgen Custom Suite or MyBooks Professional software, customized
or un-customized, with other services or products that it provides to its
customers. A Developer's Kit and support for the Appgen software is also
included in the Gold Level.
Dealer Level - We have seven Dealer Level VARs. The only difference
between a Dealer Level VAR and a Gold level VAR is the rate of discount we offer
on purchases of our products and licenses.
Each potential VAR is free to choose its level of involvement
(Platinum, Gold or Dealer). The prices of our software and licenses are scaled,
so that the greater the level of involvement, the more advantageous the price.
Our plan is to develop long-term relationships with VARs.
28
The table below summarizes the sales of Appgen Custom Suite Software
both prior to and after our purchase.
Sales Units
Sales of the Appgen software products,
from January 2003 to October 2003 prior Not
to our purchase. $336,800 available
Our sales (unaudited) subsequent to our
purchase of the Appgen software:
January 2004 13,700 233
February 2004 14,000 127
March 2004 23,997 82
April 2004 13,690 222
May 2004 15,925 35
June 2004 31,500 247
July 2004 17,305 438
August 2004 15,448 389
September 2004 29,912 125
SALES OF OUR ASP SERVICES
If we are successful in implementing our business plan and we begin to
provide ASP services, we intend to market our services through telemarketing,
e-marketing, direct mail, advertising, and attendance at trade shows and
seminars. We also intend to try to establish relationships with VARs and dealers
who sell to medium-sized businesses that require intricate software
applications, such as accounting, sales management, contract management, and
human resources, which are complex to install and maintain. As part of the
products and services provided by the VAR or dealer, we will make the software
available to the business over the Internet. These enterprises can then take
advantage of the software functionality without having the burdens of
purchasing, installation and maintenance.
COMPETITION
The market for software products and Internet-based data processing,
information technology services, hosted business solutions, and software
applications is rapidly evolving and intensely competitive. In addition to a
customer's internally built and supported operations, our primary competitors
include:
providers of computer equipment,
providers of co-location, web site hosting and related services,
providers of Internet based systems integration or professional
services, and
developers of software similar to ours.
We do not represent a significant competitive presence in the software
sales or ASP industries.
Most of our competitors, such as Intuit Inc., which provides accounting
software, and Personable.com, Inc., which provides ASP services, have been in
business longer than we have, have significantly greater financial, technical,
and other resources, or have greater name recognition. These competitors will
likely be able to respond more quickly to new or emerging technologies and
changes in customer requirements. Competition could negatively impact our
ability to sell additional services on terms favorable to us. Competitive
pressures could cause us to lose market share or to reduce the price of our
products or services, either of which could harm our business, financial
condition and operating results.
29
To remain competitive, we must continually enhance and improve the
functionality and features of our software. Through a combination of outsourced
developers and programmers and employees, each with differing coding skills, we
intend to convert our Windows based accounting and quoting software applications
to that which functions totally in an Internet environment. We intend to develop
further Web-based software tools as the market demands.
DEPENDENCE ON THE GROWTH OF THE INTERNET
Our success depends in large part on the maintenance of the Internet
infrastructure as a reliable network frame that provides adequate speed, data
capacity, and security. Our success also depends on the timely development of
products, such as high-speed modems, that enable reliable Internet access and
services. The Internet may continue to experience significant growth in the
number of users, frequency of use and amount of data transmitted. The Internet
infrastructure may not be able to support the demands placed on it and the
performance or reliability of the Internet may be adversely affected by this
continued growth. In addition, the Internet could lose its commercial viability
if the number of people who use the Internet does not continue to grow. A number
of factors, including unreliable service, unavailability of cost-effective,
high-speed access to the Internet or concerns about security, could impede this
growth. If the Internet does not continue to grow as a commercial medium, our
operations would be adversely affected.
PRODUCT MANUFACTURING AND DISTRIBUTION
We prepare a set of master program copies for our products for each
respective computer operating system, such as Unix, Windows, Mac OS X, and
Linux. Documentation is included in the master program. We do not package,
warehouse or assemble our products for the general retailer of software
applications. We deliver, upon each paid order, a copy of the program(s) on CD
to the VAR for installation and registration at the customer site, or directly
to the customer by request. Our product(s) may also be downloaded from our
website and registered for full use. User licenses are considered delivered upon
registration by us.
GOVERNMENT REGULATION
To date, governmental regulations have not materially restricted the
use or expansion of the Internet. However, the legal and regulatory environment
that pertains to the Internet is uncertain and may change. New and existing laws
may cover issues that include sales and other taxes, user privacy, pricing
controls, characteristics and quality of products and services, cross-border
commerce, copyright, trademark and patent infringement and other claims based on
the nature and content of the Internet materials.
Due to the increasing popularity and use of the Internet it is possible
that a number of laws and regulations, covering a number of issues, may be
adopted with respect to the Internet generally and that any such laws may impose
additional burdens on companies conducting business over the Internet. The
adoption of any such laws or regulations may decrease the growth of commerce
over the Internet, which could have a harmful effect on our business.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our software applications do not have registered copyrights and are not
patented. Our trademarks and service marks are not registered. We may, in the
future, apply for such protections. We regard our service marks, domain names,
and similar intellectual property as critical to our success. We will rely on
common law, unfair competition and copyright laws, trade secret protection and
contracts such as confidentiality and license agreements with our employees,
customers, partners, and others to protect our proprietary rights. Despite the
precautions we take, it may be possible for competitors to obtain and/or use our
proprietary information without authorization, or to develop technologies
similar to ours and independently create a similarly functioning infrastructure.
Furthermore, the protection of proprietary rights in Internet-related industries
is uncertain and still evolving. The laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the United
States. Protection for proprietary rights in the United States or abroad may not
be adequate.
30
In order to provide ASP services, we will be required to license certain
platform technologies from third parties such as Citrix, Microsoft, and others.
Both our Appgen Custom Suite and our QwikQuote software need third party
operating systems on which to run. The platform technologies are readily
attainable from distributors, however, we must pay for a license to use the
software for each of our ASP customers. While the cost of a single license is
not prohibitive, as we begin to grow and add subscribers it may become very
costly for us to obtain the licenses, which must be paid for at the time the
customer subscribes to our ASP service. This could adversely affect our cash
flow by using a significant portion of the cash that we may have available for
operating. Our plan is to eventually convert our third party platform accounting
and quoting software applications to applications that function without an
operating system, solely in an Internet environment. If this is accomplished, we
will no longer be required to license some of these technologies.
Although we are not aware of any infringement or misappropriation of
our intellectual property or similar proprietary rights, infringements and
misappropriations could occur as our business grows and there is more brand
loyalty attached to our trade names and domain names. We intend to police
against infringement or misappropriation. However, we cannot guarantee that we
will be able to enforce our rights and enjoin the alleged infringers from their
use of confusingly similar trademarks, service marks, telephone numbers, and
domain names. Furthermore, third parties may assert infringement claims against
us. We cannot be certain that our technologies or service marks or trademarks do
not infringe on valid patents, trademarks, copyrights, or other proprietary
rights held by third parties. We may be subject to legal proceedings and claims
from time to time relating to the intellectual property of others in the
ordinary course of our business. Intellectual property litigation is expensive
and time-consuming and could divert management resources away from managing the
business.
CUSTOMER SERVICE AND SUPPORT
We currently outsource all customer service and support functions to
three individuals who perform these services for us on a consulting basis. All
of these individuals work from our office in Hauppauge, New York. The consulting
agreements signed by our programmers require us to pay them cash compensation in
the amount of $8,250 per month, $6,250 per monthand $5,500 per month,
respectively. Each agreement has a term of three months and is renewable for
additional three month periods. Either party may terminate his or her consulting
agreement upon 30 days notice to the other party. At present the customer
service and support are limited to e-mail and toll-free telephone calls.
It is our intention to cease outsourcing this operation when our sales
reach approximately $2,000,000, at which time we plan to train our employees to
provide customer support. Once we bring customer support in-house, we plan to
provide the service in the following ways:
E-MAIL. All day, every day monitored email support accounts with
15-minute response time.
TOLL-FREE PHONE. All day, every day manned call center with basic
support and immediate escalation as needed.
LIVE CHAT. All day, every day chat with our customer service
representative in a support center. Access chat anywhere from our web
sites by clicking on the "Support Chat" button.
SELF-SERVICE. Self-service support options to clients and resellers
including administration tools to resellers, and Internet connectivity
test tools.
ONLINE TRAINING. Customer service representatives to provide online
training for clients utilizing web based conferencing and Citrix
management tools.
DESCRIPTION OF PROPERTY
As of August 1, 2004 we share office space located at 1127 Broadway
Plaza #202, Tacoma, Washington. We pay monthly rent in the amount of $350 to
Insynq. We also lease office space located at 300 Vanderbilt Motor Parkway,
Hauppauge, New York. This is a single office from which our three programming
consultants work. Our programming consultants were previously employed by Appgen
Business Software, Inc., which was based in
31
Hauppauge, New York. The monthly rent is $750. The lease is renewable every two
months and may be cancelled with 60 days notice. Both of our offices are in good
condition and suitable for our business, as it currently is conducted.
EMPLOYEES
Currently we employ, on a part-time basis, only our three officers. We
do not intend to increase our staff until demand for our services requires us to
do so.
32
PLAN OF OPERATION
We were incorporated in April 2002 but had no operations until January
2004. We are currently a software seller. We plan to become an application
service provider. We are based in Tacoma, Washington. In January 2004 we
acquired certain accounting software from Appgen Technologies, Inc. and Mark
Andre and in February 2004 we acquired certain sales quote software from
QwikQuote, Inc. We are currently marketing the accounting software, however, the
revenue generated by these sales is nominal and is not sufficient to support our
business or to allow us to expand it. We have losses from inception through
September 30, 2004 of $249,454.
Because our revenues were not sufficient to fund our operations, we
raised $172,500 from the sale of our common stock to various individuals in
January and March 2004. In May 2004, with the agreement of these investors, we
exchanged the shares of common stock they had purchased with promissory notes.
The promissory notes bear interest at the rate of prime plus 1%. The loans are
unsecured. The loans were due to be paid in July 2004, but the due dates were
extended to October 31, 2004. We are currently negotiating another extension of
the due date. None of the individuals holding the loans has made a demand for
payment. If we raise at least $1,250,000 through this offering, we intend to
repay these loans in full. If we are unable to raise at least $1,250,000 and
repay the loans, we will likely try to negotiate other repayment options such as
payments of interest only for some period of time, payments of principal and
interest over time, further extensions of the due date or payment of the loans
with our securities. None of these lenders is required to renegotiate the terms
of the loans.
From November 1, 2003 through October 29, 2004, Insynq has advanced to
us approximately $158,334. These advances are made as needed. The advances are
evidenced by journal entries only, do not accrue interest and are payable on
demand. To date, we have repaid $58,383 of the advances, leaving a net amount
due to Insynq of approximately $99,951. We have been paying Insynq with funds
generated from the fees paid by our VARs.
We are undertaking this offering in order to fund our operations and to
finance future acquisitions of assets and companies. Our goal is to raise gross
proceeds of $5,000,000. If we succeed in raising this amount, we believe that we
will be able to become fully operational as an ASP over the next 12 months,
providing that we are able to find appropriate businesses to acquire. If we are
unable to raise at least $500,000 in this offering, we will have to borrow more
money to fund our operating requirements. We have no commitments for any such
financing and there is no guarantee that we will be able to borrow money at all.
If we do not raise sufficient funds in this offering to support our operations
and if we cannot borrow additional funds we may be forced to severely curtail,
or even to completely cease, our operations.
The following table summarizes our planned use of cash, assuming we are
successful in selling some or all of the common stock we are offering. The
different amounts represent the net proceeds that would be realized if we sell
500,000 shares, 2,500,000 shares, 5,000,000 shares, 7,500,000 shares and
10,000,000 shares, respectively. The table below represents current estimates
only. We cannot specify with certainty the manner in which the net proceeds that
we may receive upon completion of this offering will be finally allocated, as
the actual allocation will depend upon the amount of money we receive, the
licensing or other business opportunities that arise, the amount of our future
revenues, any change or inaccuracy in our assumptions about our business or
future operations and other factors, some of which are described in the section
of this prospectus titled "Risk Factors". Our management will have broad
discretion in using the net proceeds of this offering and reserves the right to
use the proceeds of this offering differently than as set forth below.
33
Percent of Maximum Proceeds at 5% at 25% at 50% at 75% at 100%
------------- -------------- --------------- --------------- ---------------
Net Proceeds from Offering $214,000 $1,214,000 $2,464,000 $3,714,000 $4,964,000
Principal Use of Net Proceeds:
1. Repayment of Loans $- $176,500 $176,500 $176,500 $176,500
2. Acquisitions - 333,500 1,177,500 1,914,500 2,573,500
3. Acquisition/Finder Fees - 10,000 60,000 150,000 250,000
4. Infrastructure - 62,500 125,000 187,500 250,000
5. Research and Development - 62,500 125,000 187,500 250,000
6. Sales and Marketing 50,000 186,500 350,000 562,500 750,000
7. Operations 58,600 131,100 381,940 456,600 631,850
8. Consultants 105,400 251,400 68,060 78,900 82,150
------------- -------------- --------------- --------------- ---------------
Total Use of Net Proceeds $214,000 $1,214,000 $2,464,000 $3,714,000 $4,964,000
============= ============== =============== =============== ===============
We believe that acquisitions of businesses and/or selected assets are
critical to the overall success of our business, therefore, if we are successful
in raising the maximum proceeds from our offering, we plan to spend
approximately $2.6 million for such acquisitions. We intend to target assets or
businesses that will integrate into our on-line delivery model utilizing Citrix
Metaframe, Tarantella Enterprise, Microsoft Terminal Services, or New Moon
Canaveral. We intend to employ a variety of means to seek out appropriate
targets, such as referrals, independent research and trade publications.
We plan to make acquisitions even if we raise less than the maximum
proceeds. However, if we raise only $500,000, we will probably be unable to make
any acquisition until such time as funds are available to do so.
We estimate that acquisition or finder's fees will range from 3% to 10%
of the total purchase price of the selected assets or businesses. None of our
officers or directors will receive any acquisition or finder's fee.
Currently, we do not have a data center and an infrastructure
requirement. We plan to acquire these components, either through purchase or
lease, as sales and business demands grow. If we are unsuccessful in raising the
maximum proceeds from our offering, we will limit the purchase of any equipment
and look to leasing equipment to meet our short-term needs. It is our intent to
lease as much of our equipment as possible in order to preserve cash. Depending
on our success in selling our securities, our twelve-month budget for this
infrastructure is estimated to range between $0.00 to $250,000.
To remain competitive, we must continually enhance and improve the
functionality and features of our software. Through a combination of outsourced
developers and programmers and employees, each with differing coding skills, we
intend to convert our Windows based accounting and quoting software applications
to applications that function without an operating system, solely in an Internet
environment. The user would simply need Internet access. We expect it to take
approximately 5,500 hours to complete the various conversions. We expect the
hourly rate to remain constant regardless of funding. If we raise $5,000,000, we
will convert all of the applications we currently have. However, if we raise
less than $5,000,000, we will scale back the conversions accordingly and
complete them in stages. If we raise only $250,000 from our offering, we will be
unable to begin to convert our software until we obtain additional funds. While
our goal is to convert our software applications to applications that function
without an operating system, we are not required to do this to implement our
business plan. Until we are able to complete these conversions, our customers
will be able to access these programs with other software platforms.
We strongly believe that a committed and strong marketing plan will
reward us with increased sales and brand recognition. If we are able to raise
the maximum proceeds in this offering, we intend to develop and execute
34
on a strategic marketing plan that will consist mainly of telemarketing,
e-marketing, direct mail, advertising, and attendance at trade shows and
seminars at an approximate cost of $750,000.
If we raise less than the maximum proceeds, we still intend to
implement a marketing plan. However, we will reduce or eliminate direct
mailings, advertising, some conference attendance and some trade business shows
and forums. Instead, we will advertise using Internet links and electronic
newsletters, attend only local and western state conferences, and host
teleconferences. By these efforts, we believe that we can still achieve a high
level of interest in our products regardless of the funding level.
We plan to use a portion of the proceeds from this offering to pay for
some or all of our general and administrative operations. Because we are not
able to predict how much revenue will be generated by the sale of our products,
the table below has been prepared assuming that we receive no such revenues. The
allocation of proceeds for our operations is an estimate only.
Use of proceeds for operations: AT 5% AT 25% AT 50% AT 75% AT 100%
1. Salaries and burden $- $- $224,840 $286,000 $442,750
2. Rent and utilities 16,100 16,100 17,100 18,100 19,100
3. Licensing and taxes 22,500 90,000 105,000 112,500 120,000
5. Professional fees 20,000 25,000 35,000 40,000 50,000
------------- -------------- --------------- --------------- ---------------
Total estimated operations $58,600 $131,100 $381,940 $456,600 $631,850
============= ============== =============== =============== ===============
We do not plan to pay wages and related payroll burden under the 5% and
25% funding levels. Under these two levels we intend to continue with certain
independent contractors under existing consulting agreements, therefore, we have
budgeted for these individuals under the consultant classification. If we raise
50% or more of the offering, we may offer employment to some of these
contractors, therefore, we have classified a portion of the related expenses
associated with these individuals as payroll and burden. If we raise 50% or more
of our offering, we plan to add three full-time employees. Staffing is expected
to be a gradual process, justified only by an incremental increase in sales and
the added administrative responsibilities resulting from more customers and
reporting requirements. If we are unsuccessful in raising the minimum proceeds
from this offering, we will continue limiting our part-time employees to our
chief executive officer, chief administrative officer and executive vice
president.
Rents and utilities are planned to be relatively constant regardless of
the funding levels. The only variable in this classification is an estimate on
the increased use of utilities due to expanded operations.
Licensing and taxes is an overhead cost based on projected sales under
each funding level. When we speak of gross sales, we mean revenues earned from
sales of our existing software and from the subscription sales we anticipate
earning for our ASP services. We have estimated the calculation of licenses at
7.5% of licensed product sales and taxes at 1.5% of gross sales. Licensed sales
are estimated to range between $250,000 at the minimum funding level to
$1,000,000 at the maximum funding level. Gross sales, which include the licensed
product sales, are estimated to range between $250,000 at the minimum funding
level and $3,000,000 at the maximum funding level.
WORKING CAPITAL REQUIREMENTS
We had a deficit in working capital at December 31, 2003 (audited) of $
8,530 and as of September 30, 2004 (unaudited) of $252,731. The deficit is
primarily a result of borrowing short-term money to fund the initial stages of
our operation from Insynq and from certain individuals. As of September 30,
2004, Insynq advanced us $144,435 and we have repaid $58,081 of the advances,
leaving a net amount due to Insynq of approximately $86,354. We have also
borrowed $172,500 from various individuals. These loans are evidenced by
promissory notes bearing an interest rate of prime plus 1% and are unsecured.
The loans were due to be paid in July 2004, but the due dates were extended to
October 31, 2004. Because we have not paid the loans, we intend to negotiate
another extension of the due dates. None of the loan holders has made a demand
for payment.
35
In connection with assets purchased on January 23, 2004 from Mark
Andre, we executed a Distribution Agreement pursuant to which we will pay a
royalty in perpetuity to Mr. Andre of 5.5% of all gross proceeds from the sales
of the Appgen Custom Suite and MyBooks Professional products. On April 15, 2004
we amended the Distribution Agreement to include a buyout provision in the
amount of $1,250,000, which we may execute at any time at our discretion. We do
not anticipate buying-out the Distribution Agreement during the next twelve
months.
RESULTS OF OPERATIONS
During the three and nine month periods ended September 30, 2004 we
earned revenues of $85,338 and $261,591, respectively. For the nine months ended
September 30, 2004, revenues from Appgen products were $175,500 or 67% of total
revenues and revenues from our QwikQuote products were $86,500 or 33% of total
revenues.
Our principal source of revenue is from fees billed to our VARs and
from the sales of software applications. VARs are enlisted into a licensing
program that allows them to resell, under their names if they so choose, either
a custom suite of enterprise accounting and management software or a standard
off the shelf software application to an end user. To participate in our
program, VARs sign an agreement for a specified period and are charged a monthly
fee over the term. Fees charged to the VARs are due on invoice receipt and are
collected primarily through credit card charges. Revenue is fully recognized at
billing because we have no continuing obligation to the VAR.
We warrant the magnetic media on which the program is furnished to be
free from defects in materials and workmanship, under normal use, for a period
of 90 days from the date of shipment to the licensee. Our standard agreement
also limits our liability as well as the licensee's remedies in the event of
product failure to replacement of the magnetic media or a refund of the
licensee's money. We have not established an allowance for future product
warranty or other post delivery obligations because we expect that any such
amounts will be immaterial. Any future costs associated with warranty or other
post delivery obligations will be charged to the period in which the obligation
is incurred.
We recorded direct costs of $114,868 and $320,899 for the three and
nine month periods ending September 30, 2004, respectively. For the nine months
ended September 30, 2004 approximately 69% or $220,017 of these expenses are for
independent contractors with whom we have short-term consulting agreements.
Under direct costs, we also recorded amortization of our intellectual property
and other intangible assets for the nine months ended totaling $78,803.
Our general and administrative expenses were $74,219 and $124,850 for
the three and nine months ended September 30, 2004, respectively. This category
included $25,000 for a consulting fee paid to the seller of the Appgen products.
We pay this consultant $5,000 per month, which started in May 2004, and will pay
this amount for a term of 24 months.
For the three and nine months ended September 30, 2004, we had a net
loss of $107,145 and $210,924, respectively.
For the nine months ended September 30, 2004 we recorded negative cash
flows from operations of $36,793. The primary use of our cash, consisting of
$107,500, was for the purchase of assets from Mark Andre and Appgen and
QwikQuote. During the nine months ended September 30, 2004, we received cash of
$173,700 from sales of our securities.
Because of our lack of capital and substantial losses, our auditor, De
Joya & Company, indicated that there was substantial doubt as to our ability to
continue as a going concern in its report dated March 31, 2004.
AGREEMENTS
We currently are committed to the following contractual obligations:
36
In connection with our purchase of the Appgen Custom Suite and MyBooks
Professional, we executed a consulting agreement with Mark Andre. Under
the terms of the agreement, Mr. Andre has agreed to provide his
services to us on a "mutually determined" basis for a period of two
years, until April 15, 2006. We pay Mr. Andre the sum of $5,000 per
month for his services.
In connection with our purchase of the Appgen Custom Suite and MyBooks
Professional, we executed a Distribution Agreement with Mark Andre.
Under the terms of the Distribution Agreement, we pay to Mr. Andre a
royalty of 5.5%, in perpetuity, on cash proceeds we earn from the sale
of the assets we acquired. We have not budgeted for this buyout
provision during the next twelve-month period as our decision to
execute the buyout would be dependent upon many factors, including
available cash reserves from operations, future sales potential, and
amounts previously paid under the Agreement.
Mr. Errol Alahverdi acts as a consultant to us providing programming
and technical support as needed and receives monthly compensation in
the amount of $8,250. This consulting agreement had an initial term of
three months, but it is renewed for additional three-month periods
unless either party gives the other 30 days notice of his or its
decision not to renew. Mr. Alahverdi has over 22 years experience as an
information technology senior manager concentrating in business systems
development, applications design, project management and end-to-end
customer relations management. Mr. Alahverdi provides customer service
and support and programming services for us. Mr. Alahverdi graduated
from Grumman Data Systems Institute with a degree in computer science.
Ms. Marianne Grimaldi acts as a consultant to us providing programming
and technical support as needed and receives monthly compensation in
the amount of $5,500. This consulting agreement had an initial term of
three months, but it is renewed for additional three-month periods
unless either party gives the other 30 days notice of her or its
decision not to renew. Ms. Grimaldi began work with Appgen Business
Software, Inc. in 2000 as a software engineer and in 2002 was promoted
to programmer/technical support, a position she has held with us wince
2003. Ms. Grimaldi graduated from the DeVry Institute of Technology in
Chicago, Illinois with a Bachelor of Science degree in computer
information systems.
Ms. Sylvia Sze acts as a consultant to us providing programming and
technical support as needed and receives monthly compensation in the
amount of $6,250. This consulting agreement had an initial term of
three months, but it is renewed for additional three-month periods
unless either party gives the other 30 days notice of her or its
decision not to renew. Ms. Sze has been a software engineer since 1988
and, while she was employed by Appgen Business Software, Inc. from 1993
through October 2003, she was the manager and project leader of the
software development department. Ms. Sze also provides customer service
and support and programming services for us. Ms. Sze graduated from
Providence College (Taiwan) with a Bachelor of Science degree in
Information Science and from the University of Southern California with
a Masters of Science degree in computer science.
In connection with our purchase of the QwikQuote Software, we executed:
A consulting and non-compete agreement with Glenn Paul under which he
provides advice and consulting services related to the selling and
marketing of the applications. In addition, for the term of one year,
Mr. Paul agreed to refrain from creating, marketing or reselling sales
quoting software or services. Compensation for the consulting portion
of the agreement was a cash payment in the amount $10,000 and
compensation for the non-compete portion of the agreement was a cash
payment of $7,000.
A consulting and non-compete agreement with Alan Katz under which he
will provide advice and consulting services related to the selling and
marketing of the applications. In addition, for the term of one year,
Mr. Katz will refrain from creating, marketing or reselling sales
quoting software or services. Compensation for the consulting portion
of the agreement was a cash payment in the amount of $10,000 and
compensation for the non-compete portion of the agreement was a cash
payment of $7,000.
A consulting and non-compete agreement with Win Straube (The Straube
Foundation) under which he will provide advice and consulting services
related to the selling and marketing of the applications. In addition,
for the term of one year, Mr. Straub will refrain from creating,
marketing or reselling sales quoting
37
software or services. Compensation for the consulting portion of the
agreement was a cash payment in the amount of $10,000 and compensation
for the non-compete portion of the agreement was a cash payment of
$7,000.
In the future we may decide to compensate providers of services by
issuing stock in lieu of cash.
NEED FOR ADDITIONAL FINANCING
Implementation of our plan of operation is subject to our ability to
secure adequate financing and generate minimum revenues through the sales of our
products. If we raise the entire $5,000,000 in proceeds, we believe that we will
have the funds to fully implement our business plan and continue our operations
for the next 12 months. If we raise less than $5,000,000 in proceeds, we will
scale back the implementation of our business plan, but we may need to raise
additional funds within the next 12 months. We do not have a commitment with
respect to any additional capital. We have no loan commitments from, or lines of
credit with, banks or other financial institutions. Therefore, the continuation
of our business will depend on our ability to raise additional funds through
equity and/or debt financing. We cannot assure you that we will be able to
obtain additional funding when or if it is needed, or that such funding, if
available, will be obtainable on terms favorable to and affordable by us. Our
inability to obtain additional funding, when required, would impair severely our
business operations.
38
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of October 29, 2004 for each person or group
who is known by us to beneficially own more than 5% of the outstanding shares
of our common stock, each of our directors, each of our named executive
officers and all of our directors and executive officers as a group:
The percentage of shares owned provided in the table is based on
12,500,000 shares of common stock outstanding as of October 29, 2004. Beneficial
ownership is determined in accordance with the rules of Section 13(d)(3) of the
Securities Act of 1934. Except as indicated by footnote, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The determination as to
whether these persons have sole voting and investment power is based on
information provided by them.
Common Shares Beneficially Common Shares Beneficially
Owned Prior to Offering Owned After Offering(5)
---------------------- ------------------ -------------------- -------------------
NUMBER PERCENT NUMBER PERCENT
John P. Gorst (1) 3,300,000 25.78% 3,300,000 14.74%
1127 Broadway Plaza #202
Tacoma, WA 98402
M. Carroll Benton (1) 3,300,000 25.78% 3,300,000 14.74%
1127 Broadway Plaza #202
Tacoma, WA 98402
Clifford Mastricola (2) 1,650,000 13.04% 1,650,000 7.28%
2190 Carmel Valley Rd
Delmar, CA. 92014
Clayton Chase (2) 1,650,000 13.04% 1,650,000 7.28%
2190 Carmel Valley Rd
Delmar, CA. 92014
Mark Levin (1) 3,300,000 25.78% 3,300,000 14.74%
9812 Falls Rd, Suite 198
Potomac, MD. 20854
Mark Andre (4) 1,000,000 7.69% 1,000,000 4.35%
PO Box 86
Great River, NY 11739
Directors and Officers as a group 6,600,000 50.38% 6,600,000 28.57%
(2 persons) (3)
(1) Includes 300,000 shares of Class A Common Stock, which may be
immediately converted into common stock. Each share of Class A Common
Stock is entitled to 100 votes per share.
(2) Includes 150,000 shares of Class A Common Stock, which may be
immediately converted into common stock. Each share of Class A Common
Stock is entitled to 100 votes per share.
(3) Includes 600,000 shares of Class A Common Stock, which may be
immediately converted into common stock. Each share of Class A Common
Stock is entitled to 100 votes per share.
(4) Includes a warrant to purchase 500,000 shares of common stock, which
may be immediately exercised at $0.50 per share. (5) The amounts shown
in this column assume that all shares being offered are sold and that
none of the offered shares are
purchased by our directors and officers.
OWNERSHIP OF CLASS A COMMON STOCK
The following table illustrates the ownership of our shares of Class A
Common Stock, based on 1,200,000 shares outstanding on October 29, 2004. Based
on representations made by the persons named in the table, each
39
person has sole voting and investment power with respect to all shares of Class
A Common Stock shown as beneficially owned by him.
Class A Common Shares Beneficially Class A Common Shares Beneficially
Owned Prior to Offering Owned After Offering
----------------------------------------- ------------------------------------------
NUMBER PERCENT NUMBER PERCENT
John P. Gorst
1127 Broadway Plaza #202
Tacoma, WA 98402 300,000 25% 300,000 25%
M. Carroll Benton
1127 Broadway Plaza #202
Tacoma, WA 98402 300,000 25% 300,000 25%
Clifford Mastricola
2190 Carmel Valley Rd
Delmar, CA. 92014 150,000 12.5% 150,000 12.5%
Clayton Chase
2190 Carmel Valley Rd
Delmar, CA. 92014 150,000 12.5% 150,000 12.5%
Mark Levin
9812 Falls Rd, Suite 198
Potomac, MD. 20854 300,000 25.0% 300,000 25%
The following table shows, as of October 29, 2004, the aggregate
percentage of votes held by each member of management and each person holding
more than 5% of our common stock. The percentage is based on 12,500,000 shares
of common stock and 1,200,000 shares of Class A Common Stock, which is entitled
to 100 votes for each share.
Beneficially Owned Voting Percentage Beneficially Owned Voting Percentage After
Prior to Offering Offering
------------------------------------------ ---------------------------------------------
Voting Voting Aggregated Voting Voting Aggregated
Percentage Percentage of Voting Percentage of Percentage of Voting
of Common Class A Percentage Common Stock Class A Common Percentage
Stock Common Stock Stock
------------- --------------- ------------ --------------- ---------------- ------------
John P. Gorst
1127 Broadway Plaza #202
Tacoma, WA 98402 24% 25% 24.9% 13.3% 25% 23.2%
M. Carroll Benton
1127 Broadway Plaza #202
Tacoma, WA 98402 24% 25% 24.9% 13.3% 25% 23.2%
Clifford Mastricola
2190 Carmel Valley Rd
Delmar, CA. 92014 12% 12.5% 12.5% 6.7% 12.5% 11.6%
Clayton Chase
2190 Carmel Valley Rd
Delmar, CA. 92014 12% 12.5% 12.5% 6.7% 12.5% 11.6%
Mark Levin
9812 Falls Rd, Suite 198
Potomac, MD. 20854 24% 25% 24.9% 13.3% 25% 23.2%
Mark Andre (4)
PO Box 86
Great River, NY 11739 4% -0- 0.3% 2.2% -0- 0.4%
------------- --------------- ------------ --------------- ---------------- ------------
Total Percentage Voted 100% 100% 100% 55.5% 100% 93.2%
============= =============== ============ =============== ================ ============
40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our
directors and executive officers.
NAME AGE OFFICE DATE OF SERVICE OFFICER AND/OR
DIRECTOR OF OTHER
PUBLIC COMPANIES
John P. Gorst 35 Chairman of the Board, Chief November 2003 Insynq*
Executive Officer and President
M. Carroll Benton 60 Secretary, Treasurer, Chief November 2003 Insynq*
Administrative Officer and
Director
Joanie C. Mann 43 Executive Vice President November 2003 Insynq
*Indicates a board member
All directors will hold office until the next annual stockholder's
meeting and until their successors have been elected or qualified or until
death, resignation, retirement, removal, or disqualification. Vacancies on the
board will be filled by a majority vote of the remaining directors. Our officers
serve at the discretion of the board of directors. Currently, all of our
officers provide services to us on a part-time basis.
There are no family relationships among any of our directors or
officers.
None of our directors or executive officers has, during the past five
years,
o had any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer, either at the
time of the bankruptcy or within two years prior to that time,
o been convicted in a criminal proceeding and none of our directors or
executive officers is subject to a pending criminal proceeding,
o been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities, futures, commodities or banking activities, or
o been found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended, or
vacated.
41
BUSINESS EXPERIENCE
JOHN P. GORST - Co-Founder, Chairman of the Board, President and Chief Executive
Officer.
Mr. John P. Gorst is one of our co-founders and has directed all
development and business efforts for us since November 2003. Mr. Gorst has over
14 years experience in founding entrepreneurial technology ventures,
specifically in the development of software and data services for business. His
experience includes serving as chief executive officer and board chairman of
Insynq, an application service provider, from August 1998 to present, vice
president & general manager for a computer integration company, Interactive
Information Systems Corp., from July 1996 to August 1998, and a training/IS
consulting business in conjunction with Nynex Business Centers of New York. Mr.
Gorst's primary responsibility shall be chairman of the board and chief
executive officer and president. Mr. Gorst will be directing our strategy, and
positioning us in the business marketplace by forging strategic business
alliances and mergers and acquisitions. Mr. Gorst will also serve as company and
technology evangelist at tradeshows, press conferences and industry analyst
meetings in order to increase awareness for our brand. Mr. Gorst graduated top
of his class as an Electronic Design Engineer from one of the top trade schools
in Arizona, and is currently pursing his MBA at Villanova University. Mr. Gorst
was also awarded a medal of honor for business leadership in 2001 from the
National Republican Congress.
M. CARROLL BENTON, - Co-Founder, Secretary/Treasurer, Chief Administrative
Officer, Interim Chief Financial Officer and Director.
Ms. M. Carroll Benton is one of our co-founders and has directed and
managed the fiscal responsibilities of the enterprise since November 2003. Ms.
Benton's early career spanned both the public and private sectors working
largely with the banking systems and higher education institutions where she
assisted in the development and deployment strategies necessary for
computerization of these and other entities. Ms. Benton has successfully managed
a 13 state insurance brokerage firm and has been a consultant to the small to
medium business markets via accounting system design, implementation, support,
and business practice analysis. She also taught undergraduate accounting courses
at several Puget Sound colleges and universities. With an in-depth understanding
of our finances, accounting infrastructure and compliance issues, Ms. Benton
oversees the current administrative and financial operations. From December 1995
through December 1999 Ms. Benton was president of a computer integration
company, Interactive Information Systems, Corp. Her public sector experience
includes serving as chief administrative officer, secretary, treasurer, interim
chief financial officer and director for Insynq a Pacific Northwest application
service provider, from August 1998 to present. Formerly with a local CPA firm,
Ms. Benton brings over 37 years of financial expertise to the business.
JOANIE C. MANN - Executive Vice President.
Beginning in November 2003, Ms. Joanie Mann brings to our management
team, as the executive vice president over 25 years of experience in multi-user
system design and implementation, voice and data networking, and advanced
network integrations. Ms. Mann also has extensive experience in business process
automation and a strong background in business accounting principles. Previous
positions held include formation, in January 1985, of Com-Pacific Resources,
Inc. a network integration firm, which was successfully sold to Communications
World International, a telephone sales and service provider, in September 1994.
From July 1998 to December 1999, Ms Mann was an information systems management
consultant for Interactive Information Systems Corp., a Pacific Northwest
regional network integration company. Her public experience includes serving as
the vice president of strategic alliances for Insynq, a Pacific Northwest
application service provider from January 2000 to present.
EXECUTIVE COMPENSATION
We have not paid compensation to any officer and we do not anticipate
paying compensation to any officer until our operations generate revenues
sufficient for us to do so. We do, however, reimburse our officers for
out-of-pocket expenses, up to $500 per individual, including travel, incurred on
our behalf. No officer will receive any compensation from the proceeds of this
offering. We have no stock option, retirement, pension, or profit-sharing plans
for the benefit of directors, officers or other employees, but the board of
directors may recommend adoption of one or more such plans in the future.
42
DIRECTORS' COMPENSATION
Our directors receive no compensation for their services as directors.
However, Article III, Section 3.10 of our bylaws permits our directors to set
reasonable compensation for their services and, in the future, our directors may
do so. We reimburse our directors for out-of-pocket expenses, up to $500 per
individual, including travel, incurred on our behalf. No director will receive
any compensation from the proceeds of this offering.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by Section 102(b)(7) of the Delaware General Corporation
Law, Article Thirteen of our Certificate of Incorporation includes a provision
that eliminates the personal liability of each of our directors for monetary
damages for breach of such director's fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to us or our
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) under Section
174 of the Delaware General Corporation Law; or (iv) for any transaction from
which the director derived an improper personal benefit. Furthermore, Article
Fourteen of our Certificate of Incorporation eliminates the personal liability
of directors for breach of fiduciary duty to us, except in the case of breach of
the duty of loyalty and for acts or omissions that were not done in good faith
or which involve intentional misconduct or a knowing violation of law or that
involve any unlawful payment of dividends or unlawful stock purchases or
redemptions in violation of Section 174 of the General Corporation Law of
Delaware or for any transaction for which the director derived an improper
personal benefit.
In addition, Article VII, Section 7.04 of our bylaws provides that we
must, to the fullest extent permitted by law, indemnify our directors, officers
and employees.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our chief executive officer, John P. Gorst, is the president and
chairman of the board of directors of Insynq, a publicly traded corporation. M.
Carroll Benton, our chief administrative officer, secretary and treasurer is
also chief administrative officer, secretary and treasurer of Insynq and Joanie
C. Mann, vice president of strategic alliances for Insynq, is our executive vice
president.
On November 7, 2003, our board of directors authorized and issued an
aggregate of 12,000,000 shares of our common stock in exchange for cash in the
amount of $30,000. 3,000,000 shares were issued to each of John P. Gorst and M.
Carroll Benton; 3,000,000 shares were issued to Mark Levin and 1,500,000 shares
were issued to each of Clifford Mastricola and Clayton Chase. In the past,
Insynq had engaged Mark Levin, Clifford Mastricola and Clayton Chase as
consultants. In the future, we may retain the services of these individuals as
consultants to assist us in executing certain portions of our business plan.
In connection with our purchase of the QwikQuote software, we paid
$9,000 in cash and issued a warrant to purchase 42,000 shares of common stock at
a purchase price of $0.0095 per share to Mark Levin for his services in locating
this opportunity.
Insynq is, and has been, providing administrative and financial
assistance to us from our inception. John P. Gorst, M. Carroll Benton and Joanie
C. Mann are all shareholders of Insynq. Since November 1, 2003, Insynq has
advanced to us approximately $158,334. These advances are made as needed. The
advances are evidenced by journal entries only, do not accrue interest and are
payable on demand. To date, we have repaid $58,383 of the advances, leaving a
net amount due to Insynq of approximately $99,951.
From November 1, 2003 through July 31, 2004, we shared office space
located at 1127 Broadway Plaza, Suite #203, Tacoma, Washington with Insynq,
although Insynq did not pay or reimburse us for expenses incurred in leasing
this facility. Effective August 1, 2004, we terminated our lease agreement and
moved our administrative operations to offices located at 1127 Broadway Plaza,
Suite 202, Tacoma, Washington. Aptus and Insynq pay $350 and $1,790,
respectively, per month to lease these offices.
DESCRIPTION OF SECURITIES
The securities we are offering are shares of our common stock. We are
authorized by our Certificate of Incorporation to issue 250,000,000 shares of
common stock, $0.001 par value. There is currently no public market for our
common stock. We presently have issued and outstanding 12,500,000 shares of
common stock.
The holders of our common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. The holders of our common
stock do not have cumulative voting rights. Subject to preferences that may be
applicable to the holders of outstanding shares of preferred stock, if any, the
holders of our common stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the board of directors out of funds
legally available therefore. In the event of liquidation, dissolution or
winding-up, and subject to the prior distribution rights of the holders of
outstanding shares of preferred stock, if any, the holders of shares of our
common stock shall be entitled to receive pro rata all the remaining assets
available for distribution to our stockholders. Our common stock has no
preemptive or conversion rights or other subscription rights.
Our Certificate of Incorporation also allows us to issue Class A Common
Stock and Class A and Class B Preferred Stock. Holders of our Class A Common
Stock have the power to delay or prevent a change of control. Depending on the
rights, preferences and privileges designated by our board of directors in
issuing our Class A or Class B Preferred Stock, the holders of our Class A or
Class B Preferred Stock could also have the power to delay or prevent a change
of control.
44
CLASS A COMMON STOCK
Our Certificate of Incorporation authorizes us to issue a total of
5,000,000 shares of Class A Common Stock, $0.001 par value. We currently have
issued 1,200,000 shares issued and outstanding of our Class A Common Stock to
five stockholders of record. The holders of our Class A Common Stock are
entitled to one hundred votes per share on all matters to be voted upon by the
stockholders therefore, if they vote together, the holders of our Class A Common
Stock currently have the power, with 120,000,000 votes, to elect our board of
directors and to approve or disapprove of other corporate actions such as a
merger or liquidation.
Our board of directors is authorized to issue additional shares of
Class A Common Stock, not to exceed the amount authorized by our Certificate of
Incorporation, and to issue options and warrants for the purchase of Class A
Common Stock on such terms and conditions and for such consideration as the
board may deem appropriate without stockholder approval.
PREFERRED STOCK
Our Certificate of Incorporation allows us to issue up to 10,000,000
shares of Class A Preferred Stock and 10,000,000 shares of Class B Preferred
Stock. We have not issued any Class A or Class B Preferred Stock. Our board of
directors has the authority to designate the rights, preferences and privileges
of our Class A and Class B Preferred Stock, including dividend rates and
preferences, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any series
or the designation of such series, without approval by our stockholders. The
board of directors could, therefore, issue preferred stock with voting and
conversion rights, which could adversely affect the voting power of the holders
of our common stock and our Class A Common Stock.
The factors considered in determining the offering price were our
financial condition and prospects, our limited operating history and the general
condition of the securities market. The offering price is not an indication of
and is not based upon our actual value. The offering price bears no relationship
to our book value, assets or earnings or any other recognized criteria of value.
The offering price should not be regarded as an indicator of the future market
price of the securities.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 relating to the common stock
offered hereby. This prospectus, which is part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
us, the common stock offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained in
this prospectus concerning the provisions or contents of any contract, agreement
or any other document referred to herein are not necessarily complete. With
respect to each such contract, agreement or document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matters involved.
The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
DC 20549. The Commission also maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, including us. The address of such site is
http://www.sec.gov.
We intend to furnish to our shareholders annual reports containing
audited financial statements certified by independent public accountants for
each fiscal year.
We will provide without charge to each person who receives a copy of
this prospectus, upon written or oral request of such person, a copy of any of
the information that was incorporated by reference into the prospectus (not
including exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically
45
incorporated by reference). Any such request shall be directed to the Interim
Financial Officer of Aptus Corp., M. Carroll Benton, 1127 Broadway Plaza, Suite
202, Tacoma, WA 98402, Tel.# (253) 691-1531.
STOCK TRANSFER AGENT
Our transfer agent and registrar is Colonial Stock Transfer, 66
Exchange Place, Salt Lake City, Utah, 84111, Tel. (801) 355-5740.
EXPERTS
Our financial statements, as of and for the periods December 31, 2002
and December 31, 2003 have been audited by De Joya & Company, independent
auditors, as set forth in their report included herein and incorporated herein
by reference. Such financial statements have been included in reliance upon such
report given upon their authority as experts in accounting and auditing.
LEGAL OPINION
Miles Garnett, Attorney at Law, has given us an opinion relating to the
due issuance of the common stock being registered.
46
INDEX TO FINANCIAL STATEMENTS
Page
No.
Balance Sheet as of September 30, 2004 F-2
Statements of Operations for the three and nine months ended September 30, 2004
and from April 2, 2002 (date of inception) through September 30, 2004 F-3
Statement of Shareholders' Equity (Deficit) for the nine months ended September
30, 2004 F-4
Statements of Cash Flows for the nine months ended September 30, 2004
and from April 2, 2002 (date of inception) through September 30, 2004 F-5
Notes to Financial Statements for the period ended September 30, 2004 F-6
Report of Independent Certified Public Accountants F-12
Balance Sheets as of December 31, 2003 and December 31, 2002 F-13
Statements of Operations for the year ended December 31, 2003 and from April 4,
2002 (date of inception) to December 31, 2002 and 2003, respectively F-14
Statement of Stockholders' Deficit from April 4, 2002 (date of inception) to December 31,
2003 F-15
Statements of Cash Flows for the year ended December 31, 2003 and from April 4,
2002 (date of inception) to December 31, 2002 and 2003, respectively F-16
Notes to Financial Statement for the period ended December 31, 2003 F-17
F-1
Aptus Corp.
(A Development Stage Company)
BALANCE SHEET
September 30, 2004
---------------------
Assets (unaudited)
Current assets
Cash $ 38,634
Accounts receivable, net of allowance for doubtful
accounts of $10,000 17,944
Related party receivables, net of allowance for doubtful
accounts of $8,133 13,671
---------------------
Total current assets 70,249
---------------------
Other assets
Intellectual property, net of $79,193 accumulated 511,403
amortization
Deposits 6,170
---------------------
Total other assets 517,573
---------------------
Total assets $ 587,822
=====================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 172,500
Accounts payable 34,486
Accrued liabilities 29,640
Amounts due to related parties 86,354
---------------------
Total current liabilities 322,980
---------------------
Commitments and contingencies --
Stockholders' equity
Class A preferred stock, $0.001 par value, 10,000,000
shares authorized, no shares issued and outstanding --
Class B preferred stock, $0.001 par value, 10,000,000
shares authorized, no shares issued and outstanding --
Class A common stock, $0.001 par value, 5,000,000 shares
authorized, 1,200,000 shares issued and outstanding 1,200
Common stock, $0.001 par value, 250,000,000 shares
authorized, 12,500,000 shares issued and outstanding 12,000
Additional paid-in capital 500,596
Accumulated deficit during development stage (249,454)
---------------------
Total stockholders' equity 264,842
---------------------
Total liabilities and stockholders' equity $ 587,822
=====================
The accompanying notes are an integral part of this financial statement.
F-2
APTUS CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
For the three For the nine Period from April
months ended months ended 4,2002 (Date of
September 30, September 30, Inception) through
2004 2004 September 30, 2004
----------------- ------------------ --------------------
Revenues $ 85,338 $ 261,591 $ 261,591
----------------- ------------------- --------------------
Costs and expenses
Direct costs 114,868 320,899 334,437
Marketing, selling and advertising 829 20,769 21,009
General and administrative 74,219 124,850 149,602
----------------- ------------------- --------------------
Total costs and expenses 189,916 466,518 505,048
----------------- ------------------- --------------------
Loss from operations (104,578) (204,927) (243,457)
----------------- ------------------- --------------------
Interest expense (2,567) (5,997) (5,997)
----------------- ------------------- --------------------
Loss before provision for income taxes (107,145) (210,924) (249,454)
Provision for income taxes -- -- --
----------------- ------------------- --------------------
Net loss $ (107,145) $ (210,924) $ (249,454)
================= =================== ====================
Net loss per share, basic and diluted $ (0.01) $ (0.02) $ (0.06)
================= =================== ====================
Weighted average of common shares,
basic and diluted 12,500,000 12,459,854 4,462,212
================= =================== ====================
</table>
The accompanying notes are an integral part of these financial statements.
F-3
Aptus Corp.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
Accumulated
Additional Stock Deficit Total
Class A Common Stock Common Stock Paid-In Subscriptions During Stockholders'
Capital Receivable Development Equity
Stage (Deficit)
Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ------------ ------------- --------------
Balance, December 31, 1,200,000 $1,200 12,000,000 $12,000 $18,000 $(1,200) $(38,530) $(8,530)
2003
Issuance of common stock -- -- 500,000 500 249,500 -- -- 250,000
in conjunction with the
purchase of assets in
January 2004, valued at
$.50 per share
Issuance of warrants in -- -- -- -- 26,750 -- -- 26,750
conjunction with the
purchase of assets in
January 2004
Issuance of warrants in -- -- -- -- 206,346 -- -- 206,346
conjunction with the
purchase of assets in
February 2004
--
Principal received on -- -- -- -- -- 600 600
stock subscriptions in
January 2004
Principal received on -- -- -- -- -- 600 -- 600
stock subscriptions in
March 2004
Net loss for the nine -- -- -- -- -- -- (210,924) (210,924)
months ended September
30, 2004
---------- ---------- ---------- ---------- ---------- ------------ ------------- --------------
Balance, September 30,
2004, unaudited 1,200,000 $1,200 12,500,000 $12,500 $500,596 $ -- $(249,454) $264,842
========== ========== ========== ========== ========== ============ ============= ==============
The accompanying notes are an integral part of this financial statement.
F-4
Aptus Corp.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
Period from
April 4,
2002 (Date
For the nine of
months ended Inception)
September through
30, 2004 September
30, 2004
----------------- -----------------
Cash flows from operating activities
Net loss $ (210,924) $ (249,454)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization 79,193 79,193
Bad debts 18,133 18,133
Changes in operating assets and liabilities:
Accounts receivable - trade (27,944) (27,944)
Other receivables - related party (21,804) (6,804)
Accounts payable 37,664 37,937
Accrued liabilities 29,640 29,640
Account payable - related party 64,249 82,903
Deposits (5,000) (21,170)
----------------- -----------------
Net cash used in operating activities (36,793) (57,566)
----------------- -----------------
Cash flows from investing activities:
Purchase of intellectual property (99,000) (99,000)
Purchase trademarks (8,500) (8,500)
----------------- -----------------
Net cash used in investing activities (107,500) (107,500)
----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 172,500 172,500
Proceeds from issuance of common stock -- 30,000
Proceeds from stock subscriptions receivable 1,200 1,200
----------------- -----------------
Net cash provided by financing activities 173,700 203,700
----------------- -----------------
Net increase in cash 29,407 38,634
Cash at beginning of period 9,227 --
----------------- -----------------
Cash at end of period $ 38,634 $ 38,634
================= =================
The accompanying notes are an integral part of these financial statements.
F-5
Aptus Corp.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2004
(unaudited)
Note 1 - Business
BUSINESS
Aptus Corp. (the Company), a Delaware corporation, is headquartered in Tacoma,
Washington USA. The Company is an Application Service Provider (ASP) seeking and
pursuing merger and acquisition companies and/or certain related industry assets
in the application service provider and small - niche software industries.
Note 2 -Basis of Presentation and Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The Company's operating revenue has been minimal and is insufficient to maintain
the Company as a going concern. The Company is continuing to develop its
products and business plan. In accordance with Statement of Financial Accounting
Standards ("SFAS") No.7, the Company is considered a Development Stage Company.
Summary of Significant Accounting Policies
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements is as follows:
Revenue Recognition
The Company's principal source of revenue is generated from licensing fees
billed to the Company's value added reseller dealers (VARS) and from the sales
of software applications.
VARS are enlisted into a program that licenses them to resell to an end user
either: (a.) a custom suite of enterprise accounting and management software or
(b.) a standard off-the-shelf accounting software application. To participate in
the program, VARS sign an agreement with the Company for a period, generally one
year, for a predetermined fixed licensing fee. The licensing fee revenue is
recognized monthly over the term of agreement. Once an agreement is executed,
the VARS are then entitled to resell or license the software under their
proprietary name.
Sales of software products are recognized at the point of sale or when licensing
of the product to the end user is completed.
The Company's standard agreement limits its liability as well as the licensee's
remedies in the event of product failure to replacement of the magnetic media or
a refund of the licensee's money. The Company has not set up an allowance for
future product warranty or other post delivery obligations because the Company
expects that any such amounts will be immaterial. Any future costs associated
with warranty or other post delivery obligations will be charged to the period
in which the obligation is incurred.
Discounts, if any, are recorded at the time of sale as a reduction of the
revenue.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash, accounts and related party
receivables, trade and related party payables, accrued liabilities, and short
and long-term debt obligations. The carrying amounts of such financial
instruments in the accompanying balance sheets approximate their fair values due
to their relatively short-term nature. It is management's opinion that the
Company is not exposed to significant currency or credit risks arising from
these financial instruments.
F-6
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 disclosures 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.
INTANGIBLE ASSETS
Intellectual Property - In accordance with Statement of Financial Accounting
Standards ("SFAS") No.86, "Accounting Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," the Company capitalizes software and product
rights (intellectual property) as allocated within the purchase agreements.
Capitalized costs are recorded at the lower of cost, or net realizable value and
are amortized straight-line over five years, the estimated economic life of the
products.
Trademarks - Trademarks are recorded at cost and are amortized over fifteen
years.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets. The cost of repairs and maintenance is charged to expense as
incurred. Expenditures for property betterments and renewals are capitalized.
Upon sale or other disposition of a depreciable asset, cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in
other income (expense). As of September 30, 2004, the Company has no fixed
assets.
Income Taxes
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.
As of September 30, 2004, the Company has available net operating loss
carryovers of approximately $249,000 that will expire in various periods through
2024. Such losses may not be fully deductible due to the significant amounts of
non-cash service costs. The Company has established a valuation allowance for
the full tax benefit of the operating loss carryovers due to the uncertainty
regarding realization.
COMPREHENSIVE INCOME (LOSS)
The Company has no components of other comprehensive loss. Accordingly, net loss
equals comprehensive loss for all periods.
Advertising Costs
The Company recognizes advertising expenses in accordance with Statement of
Position 93-7 "Reporting on Advertising Costs." Accordingly, the Company
expenses the costs of producing advertisements at the time production occurs,
and expenses the costs of communicating advertisements in the period in which
the advertising space or airtime is used. The Company has recorded advertising
costs of approximately $830 and $20,760 for the three and nine months ended
September 30, 2004, respectively, and approximately $21,000 for the period from
April 4, 2002 (Date of Inception) through September 30, 2004.
Research and Development Costs
Research and development costs are charged to expense as incurred.
F-7
Stock-Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and Related Interpretations, in
accounting for stock options issued to employees. Under APB No. 25, employee
compensation cost is recognized when estimated fair value of the underlying
stock on date of the grant exceeds exercise price of the stock option. For stock
options and warrants issued to non-employees, the Company applies SFAS No. 123,
Accounting for Stock-Based Compensation, which requires the recognition of
compensation cost based upon the fair value of stock options or warrants at the
grant date using the Black-Scholes option pricing model.
The Company issued no stock, nor granted warrants and options, to employees for
compensation for the nine months ended September 30, 2004 and the period from
April 4, 2002 (Date of Inception) through September 30, 2004. As of September
30, 2004, the Company has not adopted an employee incentive plan.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure". SFAS No. 148 amends the transition and
disclosure provisions of SFAS No. 123. The Company is currently evaluating SFAS
No. 148 to determine if it will adopt SFAS No. 123 to account for employee stock
options using the fair value method and, if so, when to begin transition to that
method. The Company applies the provisions of SFAS No. 123 for stock-based
awards to those other than employees. Stock-based compensation expense for these
awards is calculated over related service or vesting periods. Companies choosing
the intrinsic-value method are required to disclose the proforma impact of the
fair value method on net income or net loss.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported amounts to
conform to the Company's current interim period presentation.
RECENT AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In January 2003, (as revised in December 2003) The Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", an interpretation of Accounting Research Bulletin
("ARB") No. 51, "Consolidated Financial Statements". Interpretation No. 46
addresses consolidation by business enterprises of variable interest entities,
which have one or both of the following characteristics: (i) the equity
investment at risk is not sufficient to permit the entity to finance its
activities without additional subordinated support from other parties, which is
provided through other interest that will absorb some or all of the expected
losses of the entity; (ii) the equity investors lack one or more of the
following essential characteristics of a controlling financial interest: the
direct or indirect ability to make decisions about the entities activities
through voting rights or similar rights; or the obligation to absorb the
expected losses of the entity if they occur, which makes it possible for the
entity to finance its activities; the right to receive the expected residual
returns of the entity if they occur, which is the compensation for the risk of
absorbing the expected losses.
Interpretation No. 46, as revised, also requires expanded disclosures by the
primary beneficiary (as defined) of a variable interest entity and by an
enterprise that holds a significant variable interest in a variable interest
entity but is not the primary beneficiary.
Interpretation No. 46, as revised, applies to small business issuers no later
than the end of the first reporting period that ends after December 15, 2004.
This effective date includes those entities to which Interpretation 46 had
previously been applied. However, prior to the required application of
Interpretation No. 46, a public entity that is a small business issuer shall
apply Interpretation 46 or this Interpretation to those entities that are
considered to be special-purpose entities no later than as of the end of the
first reporting period that ends after December 15, 2003
Interpretation No. 46 may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
The implementation of the provisions of Interpretation No. 46 is not expected to
have a significant effect on the Company's financial statement presentation or
disclosures.
F-8
In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 150, "Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS No. 150 requires that those instruments be classified as
liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of freestanding
financial instruments. One type is mandatorily redeemable shares, which the
issuing company is obligated to buy back in exchange for cash or other assets. A
second type includes put options and forward purchase contracts, which involves
instruments that do or may require the issuer to buy back some of its shares in
exchange for cash or other assets. The third type of instruments that are
liabilities under this Statement is obligations that can be settled with shares,
the monetary value of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the issuers'
shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of Statement 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this Statement are consistent
with the FASB's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own
shares. This Statement shall be effective for financial instruments entered into
or modified after May 31, 2003 and otherwise shall be effective at the beginning
of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of a non-public entity, as to which
the effective date is for fiscal periods beginning after December 15, 2004.
The implementation of the provisions of SFAS No. 150 is not expected to have a
significant effect on the Company's financial statement presentation or
disclosures.
Note 3 - Going Concern and Management's Plans
The Company's financial statements as of and for the nine months ended September
30, 2004 have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. For the nine months ended September 30, 2004, the
Company had a net loss of $210,924 and negative cash flows from operations of
$36,793. The Company had a working capital deficit of $252,731. The Company's
working capital deficit as of September 30, 2004 may not enable it to meet
certain financial objectives as presently structured.
The rate at which the Company expends its resources is variable, may be
accelerated, and will depend on many factors. The Company will need to raise
substantial capital to finance its operations and may seek such additional
funding through public or private equity or new debt. There can be no assurance
that such additional funding, if any, will be available on acceptable terms. The
Company's continued existence as a going concern is ultimately dependent upon
its ability to secure additional financing.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Note 4 - Loss Per Common Share
Basic and diluted loss per share of common stock is computed by dividing the net
loss by the weighted average number of common shares outstanding available to
common stockholders during the period. However, common stock equivalents have
been excluded from the computation of diluted loss per share of common stock for
the nine months ended September 30, 2004, as their effect would be
anti-dilutive.
Note 5 - Purchase of Assets
On January 23, 2004, the Company consummated an asset purchase agreement for the
purchase of proprietary software, proprietary rights, source codes and
trademarks totaling $294,250 in consideration for $17,500 in cash, 500,000
shares of the Company's common stock valued at $250,000 ($0.50 per share based
on current market
F-9
price), and stock warrants for 500,000 shares of the Company's common stock at
strike price of $0.50 per share valued under the Black-Scholes pricing model at
$26,750. Additionally, the Company will (a.) assume existing obligations of the
sellers specifically related to providing continuous customer service and
support to the existing licensees of the acquired proprietary software in
accordance with the existing license agreements between such licensees and the
sellers, (b.) pay a distribution fee of 5.5% on all revenues in perpetuity (See
Note 8), and, (c.) pay $5,000 per month pursuant to a two year consulting
agreement (See also Note 8). The entire purchase cost is allocated to: (a.)
intellectual property - $285,750 and, (b.) trademarks - $8,500. An amended
distribution agreement was executed on April 15, 2004 to provide the buyer for a
$1,250,000 buyout at anytime.
On February 1, 2004, the Company consummated its second asset purchase agreement
for its proprietary sales quoting software approximating $296,000 in
consideration of $90,000 in cash and stock warrants for 420,000 shares of the
Company's common stock at strike price of $0.0095 per share valued under the
Black-Scholes pricing model at approximately $206,000. The purchase cost is
recorded on the balance sheet as intellectual property.
The $15,000 deposit recorded as of December 31, 2003, was applied at the time of
closing toward the total acquisition costs of the sales quoting software.
Note 6 - Promissory Notes Payable
As of September 30, 2004, the Company has fourteen short-term promissory notes
totaling $172,500 with thirteen individuals and/or entities, and has related
accrued interest totaling $5,843. All promissory notes, plus accrued interest,
were due October 31, 2004. The Company is currently negotiating another
extension of the due date. None of the individuals holding the loans has made a
demand for payment. The notes are unsecured and bear interest at prime plus one
percent. Prime rate of interest at September 30, 2004 was 4.75%.
Note 7 - Amounts Due to Related Parties
As of September 30, 2004, the Company owes two entities, both of which are
either completely or partially owned and managed by two Aptus' officers,
directors and stockholders. One of the entities, a public company, is due
$83,176. The other entity, a private company, is due $3,178. The amounts
advanced are due on demand, unsecured and do not bear interest. These companies
have provided and continue to provide Aptus Corp. with administrative and
financial assistance. As of and through the period ended September 30, 2004, a
total of $144,435 has been advanced to Aptus and Aptus has paid back $58,082,
leaving a combined balance due of $86,354.
Note 8 - Commitments and Contingencies
Consulting Agreements
The Company has entered into one long-term and three short-term consulting
agreements with individuals who provide technical expertise and special skills
in connection with the respective assets purchased in January and February 2004.
The long-term agreement, commencing on April 15, 2004, calls for twenty-four
successive monthly payments of $5,000 (See also Note 5). The Company's three
short-term (three-months) consulting agreements are subject to automatic renewal
with a monthly cost of $20,000.
Distribution Agreement
The Company has a distribution agreement (See also Note 5) with the seller of
certain assets, as originally executed on January 23, 2004, and amended on April
15, 2004, that stipulates Aptus will pay 5.5%, in perpetuity, on all gross
proceeds from the sales of certain software products beginning the second
quarter of the year 2004. Terms of the amended distribution agreement also
include a buyout provision, not to exceed $1,250,000, at any time by the buyer.
Note 9 - Capital Structure
COMMON STOCK
F-10
The Company is authorized to issue 250,000,000 shares of common stock, $0.001
par value, of which 12,500,000 shares are issued and outstanding. The holders of
common stock are entitled to one vote per share on all matters to be voted upon
by the stockholders and do not have cumulative voting rights.
Class A Common Stock
The Company is authorized to issue a total of 5,000,000 shares of Class A Common
Stock, $0.001 par value, of which 1,200,000 shares are issued and outstanding.
The holders of Class A Common Stock are entitled to one hundred votes per share
on all matters to be voted upon by the stockholders.
Preferred Stock
The Company may issue up to 10,000,000 shares (par value - $0.001 per share) of
Class A Preferred Stock and 10,000,000 shares (par value - $0.001 per share) of
Class B Preferred Stock. No shares of preferred stock have been issued. The
Company's Board of Directors has the authority to designate the rights,
preferences and privileges of the Class A and the Class B Preferred Stock,
including dividend rates and preferences, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
approval the stockholders. The Board of Directors could, therefore, issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of the Common Stock and the Class A Common
Stock.
Note 10 - Other Disclosure
Non-cash investing and financing activities included the following:
Period from
For the nine April 4, 2004
months ended (Date of
September 30, Inception)
2004 through
September 30,
2004
------------------ ---------------------
Issuance of common stock for assets purchased $ 250,000 $ 250,000
Valuation of warrants issued in conjunction with assets 233,096 233,096
purchased
Note 11 - Subsequent Event
On October 4, 2004, the Board of Directors approved a three-year Application
Hosting Agreement with a public Company, which is also partially owned, managed
and directed by two of Aptus Corp. officers. The agreement allows other company
to be the exclusive host for an Aptus' internet-based accounting software
program. In consideration for the exclusive rights to host the software, Aptus
received 40,000,000 shares of common stock valued at $600,000, which was the
market price ($0.015 per share) of the public company's common stock at the
close of business on October 4, 2004.
F-11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Aptus Corp.
(A Development Stage Company)
Tacoma, Washington
We have audited the accompanying balance sheets of Aptus, Corp. (A
Development Stage Company) as of December 31, 2003 and 2002, and the
related statements of operations, stockholders' deficit, and cash flows
for the year ended December 31, 2003, the period from April 4, 2002 (Date
of Inception) through December 31, 2002 and the period from April 4, 2002
(Date of Inception) through December 31, 2003. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Aptus, Corp.
(A Development Stage Company) as of December 31, 2003 and 2002, and the
results of its operations and cash flows for the year ended December 31,
2003, the period from April 4, 2002 (Date of Inception) through December
31, 2002 and the period from April 4, 2002 (Date of Inception) through
December 31, 2003 in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered losses from
operations, all of which raise substantial doubt about its ability to
continue as a going concern. Management's plans in regards to these
matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ De Joya & Company
De Joya & Company
March 31, 2004
Las Vegas, Nevada
F-12
APTUS CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
----------------- -----------------
December 31, December 31,
2003 2002
----------------- -----------------
ASSETS
Current assets
Cash ................................................................. $ 9,227 $ --
Deposit .............................................................. 15,000 --
-------- --------
Total current assets ................................................ 24,227 --
Other asset .............................................................. 1,170 --
-------- --------
Total assets ............................................................. $ 25,397 $ --
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable ...................................................... $ 18,927 $ 273
Due to related party ................................................. 15,000 --
-------- --------
Total current liabilities ........................................... 33,927 273
-------- --------
Total liabilities ................................................... 33,927 273
Stockholders' deficit
Class A preferred stock, $.001 par value, 10,000,000 shares authorized,
no shares issued and outstanding ...................................... -- --
Class B preferred stock, $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding ....................... -- --
Common stock, $.001 par value, 50,000,000 shares
authorized, 12,000,000 shares issued and outstanding ............... 12,000 --
Class A common stock, $.001 par value, 5,000,000 shares
authorized and 1,200,000 shares issued and outstanding ............. 1,200 --
Additional paid-in capital ............................................ 18,000 --
Stock receivable ...................................................... (1,200) --
Accumulated deficit ................................................... (38,530) (273)
-------- --------
Total stockholders' deficit
(8,530) (273)
-------- --------
Total liabilities and stockholders' deficit ......................... $ 25,397 $ --
======== ========
See Accompanying Notes to Financial Statements.
F-13
APTUS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Period from Period from
April 4, 2002 April 4, 2002
(Date of inception) (Date of inception)
For the year ended through through
December 31, 2003 December 31, 2002 December 31, 2003
--------------------- ----------------------- --------------------
Revenue ...................... $ -- $ -- $ --
Operating expenses
General and administrative 38,257 273 38,530
----------- ----------- -----------
Total operating expenses 38,257 273 38,530
----------- ----------- -----------
Loss before provision for
income taxes ................. (38,257) (273) (38,530)
Provision for income taxes ... -- -- --
----------- ----------- -----------
Net loss ..................... $ (38,257) $ (273) $ (38,530)
=========== =========== ===========
Basic and diluted loss per
common share ................. $ (0.02) $ -- $ (0.04)
=========== =========== ===========
Basic and diluted weighted
average of common shares
outstanding .................. 1,804,932 -- 1,032,864
=========== =========== ===========
See Accompanying Notes to Financial Statements.
F-14
APTUS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' DEFICIT
Outstanding Stock
-------------------------- Class A Additional Stock Total
Class A Common Common Paid-in Subscriptions Accumulated Stockholders'
Common Common Stock Stock Capital Receivable Deficit Deficit
------------- ------------- ---------- ----------- --------- ---------- ----------- ------------
Balance, April 4, 2002
(Date of inception) $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss for the period
ended December 31, 2002 -- -- -- -- -- -- (273) (273)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 -- -- -- -- -- -- (273) (273)
Issuance of common stock for 12,000,000 -- 12,000 -- 18,000 -- -- 30,000
cash, at $0.0025 per share
Issuance of class A common
stock for subscriptions
receivable, at $0.001 per
share -- 1,200,000 -- 1,200 -- (1,200) -- --
(38,257)
Net loss for the year ended
December 31, 2003 -- -- -- -- -- -- (38,257)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 12,000,000 1,200,000 $ 12,000 $ 1,200 $ 18,000 $ (1,200) $ (38,530) $ (8,530)
=========== =========== =========== =========== =========== =========== =========== ===========
See Accompanying Notes to Financial Statements.
F-15
APTUS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Period from Period from
April 4, 2002 April 4, 2002
(Date of inception) (Date of inception)
For the year ended through through
December 31, 2003 December 31, 2002 December 31, 2003
---------------------- ------------------------ ------------------------
Cash flows from operating activities:
Net loss $ (38,257) $ (273) $ (38,530)
Changes in operating assets and liabilities:
Increase in deposit (15,000) -- (15,000)
Increase in other asset (1,170) -- (1,170)
Increase in accounts payable 18,654 273 18,927
Increase in due to related party 15,000 -- 15,000
------------- -------------- --------------
Net cash used by operating activities (20,773) -- (20,773)
Cash flow from financing activities:
Proceeds from issuance of common stock 30,000 -- 30,000
------------- -------------- --------------
Net cash provided by financing activities 30,000 -- 30,000
------------- -------------- --------------
Net increase in cash 9,227 -- 9,227
Cash, beginning of period -- -- --
------------- -------------- --------------
Cash, end of period $ 9,227 $ -- $ 9,227
============= ============== ==============
See Accompanying Notes to Financial Statements.
F-16
APTUS CORP.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
DESCRIPTION OF BUSINESS - Aptus Corp. (hereinafter referred to as the
"Company") is seeking merger and asset-purchase activity to pursue
application service providers and small-niche software companies. The
Company has minimal operations and is considered a development stage
company in accordance with Statement of Financial Accounting Standards No.
7. The Company was incorporated in the State of Delaware on April 4, 2002.
GOING CONCERN - The Company incurred net losses of approximately $32,000
from the period of April 4, 2002 (Date of Inception) through December 31,
2003 and has not commenced its operations, raising substantial doubt about
the Company's ability to continue as a going concern. The Company will seek
additional sources of capital through the issuance of debt or equity
financing, but there can be no assurance the Company will be successful in
accomplishing its objectives.
The ability of the Company to continue as a going concern is dependent on
additional sources of capital and the success of the Company's plan. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
YEAR END - The Company's year end is December 31.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results
could differ from those estimates.
FIXED ASSETS - Fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets. The cost of repairs
and maintenance is charged to expense as incurred. Expenditures for
property betterments and renewals are capitalized. Upon sale or other
disposition of a depreciable asset, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in other income
(expense). Currently, the Company has no fixed assets.
INCOME TAXES - The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standards No. 109, which requires
recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in operations in the period that includes the
enactment date.
As of December 31, 2003, the Company has available net operating loss
carryovers of approximately $32,000 that will expire in various periods
through 2023. Such losses may not be fully deductible due to the
significant amounts of non-cash service costs. The Company has established
a valuation allowance for the full tax benefit of the operating loss
carryovers due to the uncertainty regarding realization.
F-17
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
NEW ACCOUNTING PRONOUNCEMENTS - In September 2001, the Financial Accounting
Standards Board (FASB) issued Statement No. 143, ASSET RETIREMENT
OBLIGATIONS. This statement addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The statement will be
effective for the Company's fiscal year ending 2003. Management does not
expect the adoption of this standard to have a material impact on the
Company's financial statements.
In April 2002, the FASB issued Statement No. 145, RESCISSION OF FASB
STATEMENTS NO. 4, 44, AND 64, AMENDMENTS OF FASB STATEMENT NO. 13, AND
TECHNICAL CORRECTIONS. The Company does not believe that the adoption of
this pronouncement will have a material effect on its financial statements.
In June 2002, the FASB issued Statement No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. This statement requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date the Company commits
to an exit plan. In addition, this statement states the liability should be
initially measured at fair value. The statement is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company
does not believe that the adoption of this pronouncement will have a
material effect on its financial statements.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN No. 45"), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others an interpretation of SFAS No. 5, 57, and 107 and rescission of
FASB Interpretation No. 34, was issued. FIN No. 45 clarifies the
requirements of SFAS No. 5, Accounting for Contingencies, relating to a
guarantor's accounting for, and disclosure of, the issuance of certain
types of guarantees. The adoption of the provisions of FIN No. 45 did not
have a material impact on the Company's results of operations, financial
position or cash flows.
In January 2003, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION -- TRANSITION AND DISCLOSURE. This statement provides
alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation. In
addition, this statement also amends the disclosure requirements of SFAS
No. 123 to require more prominent and frequent disclosures in the financial
statements about the effects of stock-based compensation. Because the
Company continues to account for employee stock-based compensation under
APB Opinion No. 25, the transitional guidance of SFAS No. 148 has no effect
on the financial statements at this time.
In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES. This interpretation establishes standards for
identifying a variable interest entity and for determining under what
circumstances a variable interest entity should be consolidated with its
primary beneficiary. Until now, a company generally has included another
entity in its consolidated financial statements only if it controlled the
entity through voting interests. Interpretation No. 46 changes that by
requiring a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a majority of the
entity's residual returns or both. The Company does not believe that the
adoption of this pronouncement will have a material effect on its financial
statements.
F-18
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT POLICIES (continued)
NET LOSS PER COMMON SHARE - The Company computes net loss per share in
accordance with SFAS No. 128, Earnings per Share (SFAS 128) and SEC Staff
Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and
SAB 98, basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average
number of shares of common stock outstanding during the period. The
calculation of diluted net loss per share gives effect to common stock
equivalents; however, potential common shares are excluded if their effect
is antidilutive. For the year ended December 31, 2003 and for the period
from April 4, 2002 (Date of Inception) through December 31, 2002, no
options and warrants were included from the computation of diluted earnings
per share because their effect would be antidilutive.
COMPREHENSIVE INCOME (LOSS) - The Company has no components of other
comprehensive loss. Accordingly, net loss equals comprehensive loss for all
periods.
ADVERTISING COSTS - The Company recognizes advertising expenses in
accordance with Statement of Position 93-7 "Reporting on Advertising
Costs." Accordingly, the Company expenses the costs of producing
advertisements at the time production occurs, and expenses the costs of
communicating advertisements in the period in which the advertising space
or airtime is used. The Company has recorded no significant advertising
costs for the year ended December 31, 2003 and the period from April 4,
2002 (Date of Inception) through December 31, 2002.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are charged
to expense as incurred.
STOCK-BASED COMPENSATION - The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
Related Interpretations, in accounting for stock options issued to
employees. Under APB No. 25, employee compensation cost is recognized when
estimated fair value of the underlying stock on date of the grant exceeds
exercise price of the stock option. For stock options and warrants issued
to non-employees, the Company applies SFAS No. 123, Accounting for
Stock-Based Compensation, which requires the recognition of compensation
cost based upon the fair value of stock options at the grant date using the
Black-Scholes option pricing model.
The Company issued no stock, neither granted warrants or options, to
employees for compensation for the year ended December 31, 2003 and the
period from April 4, 2002 (Date of Inception) through December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure". SFAS No. 148 amends the transition
and disclosure provisions of SFAS No. 123. The Company is currently
evaluating SFAS No. 148 to determine if it will adopt SFAS No. 123 to
account for employee stock options using the fair value method and, if so,
when to begin transition to that method.
2. DEPOSIT
As of December 31, 2003, deposit totaling $15,000 relates to an asset
purchase agreement with QwikQuote, Inc. as described in Note 5.
3. DUE TO RELATED PARTY
As of December 31, 2003, due to related party is comprised of advances from
an entity owned by a shareholder. This amount is due on demand, unsecured
and bears no interest.
F-19
4. STOCKHOLDERS' DEFICIT
On November 7, 2003, the Company issued 12,000,000 shares of its common
stock for cash in the amount of $30,000 ($0.0025 per share) to five
individuals.
On December 15, 2003, the Company increased the authorized number of shares
of common stock to 250,000,000.
On December 17, 2003, the Company authorized 5,000,000 shares of class A
common stock.
On December 22, 2003, the Company issued 1,200,000 shares of class A common
stock to five individuals in consideration of a stock receivable totaling
$1,200 ($0.001 per share).
5. SUBSEQUENT EVENT
The Company collected $1,200 in cash related to 1,200,000 shares of class A
common stock issued in December 2003 as discussed in Note 4.
ASSETS PURCHASED - On January 23, 2004, the Company consummated an asset
purchase agreement with Appgen Technologies, Inc. and Mark Andre
(collectively the "Sellers") for the purchase of proprietary software,
source codes and computer hardware totaling $294,250 in consideration of
$17,500 in cash, 500,000 shares of the Company's common stock valued at
$250,000 ($0.50 per share), and stock warrants for 500,000 shares of the
Company's common stock at strike price of $0.50 per share valued at
$26,750. Additionally, the Company will assume existing obligations of the
Sellers related to provide continuing customer service and support to the
existing licensee of the acquired proprietary software in accordance with
the existing license agreements between such licensees and the Sellers. The
entire purchase cost will be allocated to the acquired proprietary software
and hardware.
In addition, in connection with the assets purchased, the Company executed
a distribution agreement under terms of which the Company will pay Mark
Andre a 5.5% distribution fee on all revenues. The Company also executed a
consulting agreement with Mark Andre for a term of 2 years at a fee of
$5,000 per month.
On February 1, 2004, the Company consummated an asset purchase agreement
with QwikQuote, Inc. for the purchase of software and equipment
approximating $296,000 in consideration of $90,000 in cash and stock
warrants for 420,000 shares of the Company's common stock at strike price
of $0.0095 per share valued at approximately $206,000. The entire purchase
cost will be allocated to the acquired software and equipment.
For warrants issued to non-employees, the Company applied SFAS 123,
Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting
for Stock-Based Compensation - for Transition and Disclosure. Under the
provisions of this standard, it requires the recognition of compensation
cost based upon the fair value of warrants, at the date of grant, using the
Black-Scholes pricing model.
NOTES PAYABLE - During January 2004, the Company executed seven promissory
notes for a total of $120,000 to six individuals and during March 2004, the
Company executed seven promissory notes for a total of $52,500 to seven
individuals/parties. The fourteen notes are unsecured, bear interest at
prime plus one and are due July 10, 2004. The prime rate of interest at
March 31, 2004 was 4.00%.
F-20
APPENDIX
FOR OFFICE USE ONLY:
SUBSCRIPTION AGREEMENT
FOR
APTUS CORP.
COMMON STOCK ($0.50 PER SHARE)
Persons interested in purchasing common stock of Aptus Corp. must complete and
return this Subscription Agreement along with their check or money order to:
Aptus Corp.
1127 Broadway Plaza, #202
Tacoma, Washington 98402, ("the Issuer")
Subject only to acceptance hereof by the issuer, in its discretion, the
undersigned hereby subscribes for the number of common shares and at the
aggregate subscription price set forth below.
An accepted copy of this Agreement will be returned to the Subscriber as a
receipt, and the physical stock certificates shall be delivered to each Investor
within thirty (30) days of the Close of this Offering.
SECURITIES OFFERED - The Company is offering 10,000,000 shares (par
value $0.001 per share) at $0.50 per share. The minimum subscription is 1,000
shares.
SUBSCRIPTION - In connection with this subscription the undersigned
hereby subscribes to the number of common shares shown in the following table.
NUMBER OF COMMON SHARES = ___________________
Multiply by Price of Shares x $.50 per Share
Aggregate Subscription Price = $___________________
Check or money order shall be made payable to APTUS CORP. ESCROW ACCOUNT.
II-1
In connection with this investment in the Company, I represent and warrant as
follows:
a) Prior to tendering payment for the shares, I received a copy of and read your
prospectus dated ______________, 2004.
b) I am a bona fide resident of the state of ________________________________.
c) The Issuer and the other purchasers are relying on the truth and accuracy of
the declarations, representations and warranties herein made by the undersigned.
Accordingly, the foregoing representations and warranties and undertakings are
made by the undersigned with the intent that they may be relied upon in
determining his/her suitability as a purchaser. Investor agrees that such
representations and warranties shall survive the acceptance of Investor as a
purchaser.
Please register the shares, which I am purchasing as follows:
Name: _____________________________________ Date: ___________________
As (check one)
Individual Tenants in Common Existing Partnership
Joint Tenants Corporation Trust
Minor with adult custodian under the Uniform Gift to Minors Act IRA
For the person(s) who will be registered shareholder(s):
- ------------------------------------------- --------------------------------
Signature of Subscriber Residence Address
- ------------------------------------------ --------------------------------
Name of Subscriber (Printed) City or Town
- ------------------------------------------- --------------------------------
Signature of Co-Subscriber State Zip Code
- ------------------------------------------- --------------------------------
Name of Co-Subscriber (Printed) Telephone
- ------------------------------------------- --------------------------------
Subscriber Tax I.D. or Co-Subscriber Tax I.D. or
Social Security Number Social Security Number
- ------------------------------------------- ------------------------------
E-mail Address (if available)
ACCEPTED BY: APTUS CORP.
By: _______________________________________ Date: ______________________________
Officer
II-2
<c>
No dealer, salesperson or any other person is authorized to give any
information or to make any representations in connection with this
Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by Aptus Corp.
us. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the
securities offered by this Prospectus, or an offer to sell or
solicitation of an offer to buy any securities by anyone in any
jurisdiction in which such offer or solicitation is not authorized
or is unlawful. 10,000,000
_____________________________________________
SHARES OF COMMON STOCK
Until _________, 2004 all dealers effecting transactions in the
(par value $.001 per share) registered securities, whether or not
participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
TABLE OF CONTENTS
Aptus Corp.
1127 Broadway Plaza, #202
Tacoma, Washington 98402
Summary .................................................5
Risk Factors.............................................8
Use of Proceeds..........................................16 ________, 2004
Market for Common Equity and Related Stockholder
Matters..................................................17
Dilution.................................................19
Capitalization...........................................21
Plan of Distribution.....................................22
Our Business.............................................24 ---------------------------------------
Plan of Operation........................................33
Principal Shareholders...................................39
Management...............................................41
Certain Relationships and Related Transactions...........44
Description of Securities................................44
Available Information....................................45
Stock Transfer Agent.....................................46
Experts..................................................46
Legal Opinion............................................46
Index to Financial Statements............................F-1
Information Not Required In Prospectus..................II-4
Signatures.............................................II-12
II-3
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware General Corporation Law") permits indemnification of officers and
directors as follows:
(a) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection
with such action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the
fact that the person is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of
such action or suit if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a present or former director or officer
of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the
applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination,
(1) by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such
directors, even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
II-4
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the
power to indemnify such person against such liability under this
section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with
respect to the resulting or surviving corporation as such person would
have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with
respect to an employee benefit plan, its participants or beneficiaries;
and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a
corporation's obligation to advance expenses (including attorneys'
fees).
II-5
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article Thirteen of the Registrant's Certificate of Incorporation includes a
provision that eliminates the personal liability of each director for monetary
damages for breach of such director's fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
under Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction from which the director derived an improper personal benefit.
Article Fourteen of the Registrant's Certificate of Incorporation eliminates the
personal liability of directors for breach of fiduciary duty to us, except in
the case of breach of the duty of loyalty and for acts or omissions that were
not done in good faith or which involve intentional misconduct or knowing
violation of law or that involve any unlawful payment of dividends or unlawful
stock purchases or redemptions in violation of Section 174 of the General
Corporation Law of Delaware or for any transaction for which the director
derived an improper personal benefit.
Article VII, Section 7.04 of the Registrant's bylaws provides that the
Registrant must, to the fullest extent permitted by law, indemnify its
directors, officers and employees.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee $ 460.00
Blue Sky Fees and Expenses 6,000.00
Trustee's and Transfer Agent Fees 4,000.00
Legal Fees and Expenses 18,000.00
Printing and Engraving Expenses 3,500.00
Accountant's Fees and Expenses 4,000.00
-------------------
Total $ 35,960.00
===================
The foregoing expenses, except for the SEC fees, are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Unregistered Securities Sold within the past three years
The following sets forth information relating to all previous sales of
common stock by the Registrant, which sales were not registered under the
Securities Act of 1933, as amended.
On November 7, 2003, the Registrant issued an aggregate of 12,000,000
shares of common stock to the Registrant's founders at a price of $0.0025 per
share. John P. Gorst, M. Carroll Benton and Mark Levin each invested $7,500.
Clifford Mastricola and Clayton Chase each invested $3,750. The common stock was
issued pursuant to an exemption provided by Section 4(2) of the Securities Act
of 1933. There was no general solicitation or advertising engaged in by the
Registrant in making this offering and all the offerees occupied an insider
status relative to the Registrant that afforded them effective access to the
information registration would otherwise provide.
On December 17, 2003, the Registrant issued 1,200,000 shares of Class A
Common Stock at a price of $0.001 per share to the Registrant's founders. John
P. Gorst, M. Carroll Benton and Mark Levin, each of whom invested $300, and to
Clifford Mastricola and Clayton Chase, each of whom invested $150. The common
stock was issued pursuant to an exemption provided by Section 4(2) of the
Securities Act of 1933. There was no general solicitation or advertising engaged
in by the Registrant in making this offering and all the offerees occupied an
insider status relative to the Registrant that afforded them effective access to
the information registration would otherwise provide.
On January 23, 2004, in conjunction with the acquisition of certain
assets the Registrant issued to Mark Andre, Chief Executive Officer of Appgen
Technologies, Inc., 500,000 shares of the Registrant's common stock valued at
$1.00 per share, and a warrant to purchase an additional 500,000 shares of the
Registrant's common stock at an exercise price of $0.50 per share. The warrant
expires on January 22, 2014. In return for the securities, the Registrant
received assets having an approximate value of $500,000. The value of the
consideration was negotiated between the parties, none of whom was related. The
securities were issued pursuant to an exemption provided by Section 4(2) of the
Securities Act of 1933. There was no general solicitation or advertising engaged
in by the Registrant in making this offering and the Registrant provided to the
offeree access to information registration would otherwise provide.
On February 1, 2004, in conjunction with the acquisition of certain
assets from QwikQuote, Inc. having an approximate value of $25,000, the
Registrant issued warrants for the purchase of common stock to various
II-6
stockholders of QwikQuote, Inc. as payment of $3,990 of the purchase price. The
value of the consideration was negotiated between the parties, none of whom was
related. The warrants were issued as follows: to Win Straube, a warrant to
purchase 58,147 shares of common stock; to Tim Heath a warrant to purchase
42,000 shares of common stock; to Glenn Paul, a warrant to purchase 219,706
shares of common stock; and to Alan Katz, a warrant to purchase 58,147 shares of
common stock. A warrant to purchase 42,000 shares of the Registrant's common
stock was also issued to the Registrant's founder, Mark Levin as a finder's fee.
The exercise price for each warrant is $0.0095 per share. The expiration date of
each warrant is January 31, 2009. The securities were issued pursuant to an
exemption provided by Section 4(2) of the Securities Act of 1933.
In January 2004 and March 2004 the Registrant issued a total of 345,000
shares of its common stock to 13 individuals. The individuals were friends and
family members and all were accredited investors as defined by Section 501(a) of
Regulation D. The purchase price was $0.50 per share and the Registrant raised a
total of $172,500 through this offering. The common stock was issued pursuant to
an exemption provided by Rule 504 of Regulation D. In May 2004, the Registrant
asked each investor to exchange the shares of common stock that had been issued
to him or her and to accept, in its place, a promissory note for the amount he
or she had invested. The promissory notes bear interest at the rate of prime
plus 1%, and carried a due date of July 10, 2004, although this date was
extended to October 31, 2004. We are currently negotiating another extension of
the due date. None of the individuals holding the loans has made a demand for
payment. The promissory notes were also issued pursuant to an exemption provided
by Rule 504 of Regulation D.
II-7
ITEM 27. EXHIBITS
Index to Exhibits
- ----------------- ------------------------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION
- ----------------- ------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 as filed December 19, 2003)*
- ----------------- ------------------------------------------------------------------------------------------------
3.2 Amended Articles of Incorporation changing authorized common shares to 250,000,000.
(Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form SB-2
as filed December 19, 2003)*
- ----------------- ------------------------------------------------------------------------------------------------
3.3 Amended Articles of Incorporation adding class A common shares with super voting rights.
(Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form SB-2
as filed December 19, 2003)*
- ----------------- ------------------------------------------------------------------------------------------------
3.4 Bylaws (Incorporated by reference to the Company's Registration Statement on Form SB-2 as
filed December 19, 2003)*
- ----------------- ------------------------------------------------------------------------------------------------
4.1 Warrant Agreement issued to Mark Levin dated February 1, 2004. (Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form SB-2 as filed February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
4.2 Warrant Agreement issued to Glenn Paul dated February 1, 2004. (Incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form SB-2 as filed February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
4.3 Warrant Agreement issued to Straube Foundation dated February 1, 2004. (Incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on Form SB-2 as filed
February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
4.4 Warrant Agreement issued to Tim Heath dated February 1, 2004. (Incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form SB-2 as filed February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
4.5 Asset Purchase Agreement dated February 1, 2004 between QwikQuote, Inc. and Aptus Corp.
(Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form SB-2
as filed February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
4.6 Asset Purchase Agreement dated January 23, 2004 between Mark Andre and Aptus Corp. (Incorporated
by reference to Exhibit 4.6 to the Company's Registration Statement on Form SB-2 as filed
February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
4.7 Asset Purchase Agreement dated January 23, 2004 between Appgen Technologies, Inc. and Aptus
Corp. (Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on
Form SB-2 as filed February 25,2004)*
- ----------------- ------------------------------------------------------------------------------------------------
4.8 Warrant Agreement issued to Mark Andre dated January 23, 2004.*
- ----------------- ------------------------------------------------------------------------------------------------
4.9 Amendment to Asset Purchase Agreement between Mark Andre and Aptus Corp. dated April 5, 2004*
- ----------------- ------------------------------------------------------------------------------------------------
4.10 Revised Warrant Agreement issued to Mark Levin dated February 1, 2004 filed as Exhibit 4.1 to
the Company's Registration Statement on Form SB-2 as filed February 25, 2004*
- ----------------- ------------------------------------------------------------------------------------------------
4.11 Revised Warrant Agreement issued to Glenn Paul dated February 1, 2004 filed as Exhibit 4.2 to
the Company's Registration Statement on Form SB-2 as filed February 25, 2004*
- ----------------- ------------------------------------------------------------------------------------------------
4.12 Revised Warrant Agreement issued to Straube Foundation dated February 1, 2004 filed as Exhibit
4.3 to the Company's Registration Statement on Form SB-2 as filed February 25, 2004*
- ----------------- ------------------------------------------------------------------------------------------------
4.13 Revised Warrant Agreement issued to Tim Heath dated February 1, 2004 as filed as Exhibit 4.4
to the Company's Registration Statement on Form SB-2 as filed February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
5.1 Legal Opinion*
- ----------------- ------------------------------------------------------------------------------------------------
10.1 Distribution Agreement dated January 23, 2004 between Mark Andre and Aptus Corp. (Incorporated
by reference to Exhibit 10.1 to the Company's Registration Statement on Form SB-2 as filed
February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.2 Security Agreement dated January 23, 2004 between Mark Andre and Aptus Corp. (Incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement on Form
II-8
SB-2 as filed February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.3 Consulting Agreement dated January 23, 2004 between Mark Andre and Aptus Corp. (Incorporated
by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2 as filed
February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.4 Consulting and Non-Compete Agreement dated February 1, 2004 between Glenn Paul and Aptus Corp.
(Incorporated by reference to Exhibit 10.4 to the Company's Registration Statement)*
- ----------------- ------------------------------------------------------------------------------------------------
10.5 Consulting and Non-Compete Agreement dated February 1, 2004 between Alan Katz and Aptus Corp.
(Incorporated by reference to Exhibit 10.5 to the Company's Registration Statement as filed
February 25, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.6 Consulting and Non-Compete Agreement dated February 1, 2004 between Win Straube. (Incorporated
by reference to Exhibit 10.6 to the Company's Registration on Form SB-2 as filed February 25,
2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.7 Lease Agreement dated November 17, 2003 between Simon-Marten, LLC and Aptus Corp.
(Incorporated by reference to Exhibit 10.7 to the Company's
Registration on Form SB-2/A as filed on April 16, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.8 Lease Agreement dated December 1, 2003 between HQ Global Workplace and Aptus Corp.
(Incorporated by reference to Exhibit 10.8 to the Company's
Registration on Form SB-2/A as filed April 16, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.9 Form of Platinum Level Dealer VAR Agreement (Incorporated by reference to Exhibit 10.9 to the
Company's Registration on Form SB-2/A as filed May 21, 2004).*
- ----------------- ------------------------------------------------------------------------------------------------
10.10 Form of Gold Level Dealer VAR Agreement. (Incorporated by reference to Exhibit 10.10 to the
Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.11 Form of Dealer Level VAR Agreement. (Incorporated by reference to Exhibit 10.11 to the
Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.12 Promissory Note dated January 8, 2004 between David Fargo and Aptus Corp. (Incorporated by
reference to Exhibit 10.12 to the Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.13 Promissory Note dated January 9, 2004 between Anthony Edlin
and Aptus Corp (Incorporated by reference to Exhibit 10.13 to
the Company's Registration on Form SB-2/A as filed May 21,
2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.14 Promissory Note dated January 9, 2004 between Joseph and Kristina O'Brien and Aptus Corp
(Incorporated by reference to Exhibit 10.14 to the Company's
Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.15 Promissory Note dated January 14, 2004 between Marview Holdings and Aptus Corp. (Incorporated
by reference to Exhibit 10.15 to the Company's Registration on Form SB-2/A as filed May 21,
2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.16 Promissory Note dated January 27, 2004 between Norman Dyer and Aptus Corp. (Incorporated by
reference to Exhibit 10.16 to the Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.17 Promissory Note dated January 29, 2004 between Jeffery Salomon and Aptus Corp. (Incorporated
by reference to Exhibit 10.17 to the Company's Registration on Form SB-2/A as filed May 21,
2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.18 Promissory Note dated January 29, 2004 between Norman Dyer and Aptus Corp. (Incorporated by
reference to Exhibit 10.18 to the Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.19 Promissory Note dated March 4, 2004 between the Chase Family Trust and Aptus Corp.
(Incorporated by reference to Exhibit 10.19 to the Company's
Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.20 Promissory Note dated March 18, 2004 between Kenneth Green and Aptus Corp. (Incorporated by
reference to Exhibit 10.20 to the Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.21 Promissory Note dated March 19, 2004 between Juan Gamez and Aptus Corp. (Incorporated by
reference to Exhibit 10.21 to the Company's Registration on Form SB-2/A as filed May 21, 2004)*
II-9
- ----------------- ------------------------------------------------------------------------------------------------
10.22 Promissory Note dated March 24, 2004 between D. Alan Dillenberg and Aptus Corp. (Incorporated
by reference to Exhibit 10.22 to the Company's Registration on Form SB-2/A as filed May 21,
2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.23 Promissory Note dated March 23, 2004 between Daniel Lauter and
Aptus Corp (Incorporated by reference to Exhibit 10.23 to the
Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.24 Promissory Note dated March 19, 2004 between Marvin Sauter and Aptus Corp. (Incorporated by
reference to Exhibit 10.24 to the Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.25 Promissory Note dated March 24, 2004 between Absolute Internet Service, Inc. and Aptus Corp
(Incorporated by reference to Exhibit 10.25 to the Company's
Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.26 Amendment #1 to Security Agreement dated April 15, 2004 between Mark Andre and Aptus Corp.
(Incorporated by reference to Exhibit 10.26 to the Company's
Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.27 Amendment #1 to Consulting Agreement dated April 15, 2004 between Mark Andre and Aptus Corp.
(Incorporated by reference to Exhibit 10.27 to the Company's
Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.28 Amendment #1 to Asset Purchase Agreement dated April 15, 2004 between Mark Andre and Aptus
Corp. (Incorporated by reference to Exhibit 10289 to the
Company's Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.29 Amendment #1 to Distribution Agreement dated April 15, 2004 between Mark Andre and Aptus Corp.
(Incorporated by reference to Exhibit 10.29 to the Company's
Registration on Form SB-2/A as filed May 21, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.30 Letter of Intent dated September 4, 2003 between QwikQuote, Inc. and Aptus Corp. (Incorporated
by reference to Exhibit 10.30 to the Company's Registration on Form SB-2/A as filed June 30,
2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.31 Letter of Intent dated November 3, 2003 between Mark Andre, Appgen, Inc. and Aptus Corp.
(Incorporated by reference to Exhibit 10.31 to the Company's Registration on Form SB-2/A as
filed June 30, 2004)*
- ----------------- ------------------------------------------------------------------------------------------------
10.32 Form of Amendment #1 to Promissory Note agreed to August 19, 2004 and signed by 13 Promissory
Note holders *
- ----------------- ------------------------------------------------------------------------------------------------
10.33 Master License Agreement between Aptus Corp. and Insynq, Inc. dated October 4, 2004(1)
- ----------------- ------------------------------------------------------------------------------------------------
10.34 Independent Consultant Agreement dated December 3, 2003 between Errol Allahverdi and Aptus Corp.
(1)
- ----------------- -------------------------------------------------------------------------------------------------
10.35 Independent Consultant Agreement dated December 11, 2003 between Marianne Grimaldi and Aptus Corp.
(1)
- ----------------- ------------------------------------------------------------------------------------------------
10.36 Independent consultant Agreement dated February 10, 2004 between Sylvia Sze and Aptus Corp.(1)
- ----------------- ------------------------------------------------------------------------------------------------
23.1 Consent of Arthur De Joya and Company(1)
- ----------------- ------------------------------------------------------------------------------------------------
</table>
*Previously filed.
(1) Filed herewith.
II-10
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
registration statement;
(iii) To include any additional or changed material
information on the plan of distribution.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "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 Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the 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 and will be governed by the final adjudication of such issue.
II-11
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing this Pre-Effective Amendment No. 6 on Form
SB-2 and authorized this Pre-Effective Amendment No. 6 on Form SB-2 to be signed
on our behalf by the undersigned, in the City of Tacoma, Pierce County, State of
Washington, on November 1, 2004.
APTUS CORP.
By:/S/ JOHN P. GORST
---------------------------------
John P. Gorst,
Chief Executive Officer
In accordance with the Securities Act of 1933, Pre-Effective Amendment No. 6 to
SB-2 Registration Statement was signed by the following persons in the
capacities and on the dates indicated.
Dated: November 1, 2004
/S/ JOHN P. GORST
Chief Executive Officer, Chairman of the Board
and Director
Dated: November 1, 2004
/S/ M. CARROLL BENTON
------------------------------------------
M. Carroll Benton
Chief Administrative Officer
Secretary, Treasurer and
Director, Principal Accounting
Officer and Principal Financial Officer
II-12