UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
AMENDMENT NO. 2
(MARK ONE)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the fiscal year ended December 31, 2008
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from _______ to ______.
COMMISSION FILE NUMBER: 000-26493
EXTENSIONS, INC
---------------
(Name of small business issuer in its charter)
NEVADA 88-0390251
- ------ ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
770 SOUTH POST OAK LANE, SUITE 330
HOUSTON, TX 77056
------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (832) 487-8689
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock
(Title of Class)
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act: [ ]
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve (12) months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [x] No [
]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
1
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Exchange Act Rule 12b-2).
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [ ] No [x]
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of June 03, 2008 was approximately $3,225 based upon the closing
sale price of the Registrant's Common Stock on such date, as reported on the
NASD OTC-NQB. Common Stock held by each executive officer and director and each
person owning more than 10% of the outstanding Common Stock of the Registrant
have been excluded in that such persons may be deemed to be affiliates of the
Registrant. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of the Registrant's Common Stock, as of March
25, 2009, was 889,619,940 shares.
This Amendment is being filed in response to comments on Amendment No. 1 by the
Securities and Exchange Commission. Amendment No. 1 was filed to add the terms
of the Company's domain lease agreement.
2
Extensions, Inc.
(formerly Millennium National Events, Inc.)
Index
Page
Part I
Item 1. Business 4
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 20
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholders
Matters and Issuers Purchasers of Equity Securities 21
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Result of Operation 22
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 41
Item 9A. Controls and Procedures 41
Item 9B. Other Information 43
Part III
Item 10. Directors Executive Officers and Corporate Governance 43
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 48
Item 13. Certain Relationships and Related Transactions, and
Director Independence 49
Item 14. Principal Accountant Fees & Services 52
Part IV
Item 15. Exhibits and Financial Schedules 53
Signatures 54
3
PART I
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements regarding future events
and the Company's future results that are subject to the safe harbors created
under the Securities Act of 1933 (the "Securities Act") and the Securities
Exchange Act of 1934 (the "Exchange Act"). These statements are based on current
expectations, estimates, forecasts, and projections about the industry in which
the Company operates and the beliefs and assumptions of the Company's
management. Words such as "expects," "anticipates," "targets," "goals,"
"projects," "intends," "plans," "believes," "seeks," "estimates," "continues,"
"may," variations of such words, and similar expressions are intended to
identify such forward-looking statements. In addition, any statements that refer
to projections of the Company's future financial performance, the continuing
development of the Company's website, the prospects for selling advertising on
the website and new visitors and visitor page views related to advertising
agreements, the Company's anticipated growth and potentials in its business, and
other characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks, uncertainties, and assumptions that are
difficult to predict, including those identified elsewhere herein, including
under "Risk Factors." Therefore, actual results may differ materially and
adversely from those expressed in any forward-looking statements.
The Company is under no duty to update any of these forward-looking
statements after the date of this report. You should not place undue reliance on
these forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
The company was incorporated under the laws of the State of Nevada on
February 19, 1997. The company ceased all operating activities during the
period from October 1, 2003 to December 31, 2005 and was considered dormant.
Since October 6, 2006, the company is in the development stage, and has not
commenced planned principal operations. The company also was delinquent on its
filing with the Secretary of State for Nevada and as a result was not a
corporation in good standing until October 30, 2006.
Prior to approximately October 1, 2003, Millennium National Events, Inc.
was an operating company with its common shares listed for trading on the OTCBB
market. The company failed to remain current on its SEC filing requirements and
as a result was demoted to the Pink Sheets. The company has not filed any
periodic reports since the report filed for the third quarter of 2003.
Subsequently, the Company ceases all business operations and has been dormant
since approximately October 1, 2003. During the same period, all the Company's
officers and directors ceased acting on behalf of the Company and abandoned
their obligations to the Company and its shareholders. As a result, the Company
was considered to be dormant from October 1, 2003 to December 31, 2005.
On August 18, 2006, a complaint was filed in the Superior Court for Washoe
County, Nevada seeking the appointment for custodian for the Company under
Nevada Revised Statutes 78.347(2). On October 6, 2006, a custodian was appointed
to the Company and commenced an investigation of the assets, liabilities,
business, management, condition and liabilities of the Company.
4
In August 2007, we changed our name from Millennium National Events, Inc.
to Extensions, Inc. We are in the business of developing, operating, and
marketing information architecture solutions to assist in solving and creating
awareness concerning complex problems and issues. Our first solution we have
been developing is an interactive online community dedicated to constantly
improving the way people with cancer manage their disease.
We intend that this interactive community will serve as a comprehensive
online resource not only for people living with such conditions, but their
immediate families and friends, caregivers, recreation and rehabilitation
providers, employers, and other patients who are considered survivors of cancer.
On December 29, 2008, we created three wholly owned subsidiaries,
consisting of Cancer.im, Inc, Litego, Inc, and Newswire.net, Inc. for the
purpose of allowing the Company the ability to develop these properties separate
from the EXT platform development.
On March 9, 2009 we launched a fully functional Beta of the Extensions,
Inc. platform at www.ext.com.
The Company is currently developing a beta version of the website. Our
headquarters are located at 770 South Post Oak Lane, Suite 330, Houston, TX
77056. Our company website is www.ext.com.
-----------
On December 28, 2008 the Company created three wholly owned subsidiaries
consisting of Litego, Inc, Newswire, net, Inc and Cancer.im, Inc. for the
purpose of developing the separate opportunities on the EXT platform.
Litego, Inc. was incorporated on December 15, 2008 in the state of Wyoming,
its authorized capital consist of 1,000,000,000 (One Billion) Common shares par
value $0.0001 per share and 10,000,000 Preferred shares par value $0.001 per
share. Extensions, Inc owns 20,000,000 shares of Litego, Inc. common shares and
0 preferred shares this represents 100% of the issued shares of Litego, Inc.
Litego, Inc. is a social network that we are building on the EXT platform,
it is dedicated to consumer advocacy and uncovering corporate fraud using social
media as a discovery tool and anonymous whistle blower site. Litego will allow
its social network members participants the ability to identify corporate fraud
or suspicious activity while using the permission control feature as a safe
anonymous repository to transmit evidence.
Newswire.Net, Inc. was incorporated on December 15, 2008 in the state of
Wyoming, its authorized capital consist of 1,000,000,000 (One Billion) Common
shares par value $0.0001 per share and 10,000,000 Preferred shares par value
$0.001 per share. Extensions, Inc owns 20,000,000 shares of Newswire.Net, Inc,
Inc. common shares and 0 preferred shares this represents 100% of the issued
shares of Newswire.Net, Inc.
Newswire.Net is a social network we are building on the EXT platform, it is
dedicated to organizing independent journalist, blog writers and other active
social media contributors for the purpose of enhanced media credibility and
broader press release acceptance, and coverage. We believe the Newswire,net has
the potential of being an organic Search Engine Optimization aimed at small
business owners, content publishers and causes looking for an economic way of
broadcasting their particular message.
5
Cancer.im, Inc. was incorporated on December 15, 2008 in the state of
Wyoming, its authorized capital consist of 1,000,000,000 (One Billion) Common
shares par value $0.0001 per share and 10,000,000 Preferred shares par value
$0.001 per share. Extensions, Inc owns 20,000,000 shares of Cancer.im, Inc.,
Inc. common shares and 0 preferred shares this represents 100% of the issued
shares of Cancer.im, Inc.
More than 1,300,000 people will be diagnosed with cancer this year in the
United States1. There are more than 10,200,000 cancer survivors today in the
United States alone, and over 24,000,000 cancer survivors worldwide2. We believe
Extensions offers a new solution to the difficulties faced by this market.
Persons who are diagnosed with cancer face a multitude of challenges that
directly affect their lives and the lives of their friends and family. Founded
by cancer advocates and built by internet industry veterans, Extensions, Inc.
intends to bring together content and tools ranging from specialized health
information, social networking and daily living resources in a single
interactive community.
We intend to promote our website, www.ext.com, by primarily implementing a
combination of national and regional advertising campaigns, both online and
offline, as well as organic and direct response marketing intended to encourage
people to visit our site. We believe that the current state of fragmentation of
cancer related information and community-oriented websites will draw cancer
patients, survivors, and caregivers to our community and contribute to its
growth and success.
OUR TARGET MARKET
In the U.S. alone, it is estimated that there are more than 10 million
cancer survivors. Worldwide, that figure is over 24,000,000 million survivors.
A total of 1,437,180 new cancer cases and 565,650 deaths from cancer are
projected to occur in the United States in 20083. This makes cancer the
leading cause of death for people under the age of 85 years old4. We believe
that not only do the millions of persons living with cancer have a need and
desire for a comprehensive resource aimed at their disease, but their immediate
family, friends, caregivers, recreation and rehabilitation providers, and
employers can also utilize such a comprehensive resource.
1 See "Quick Facts: Economic and Health Burden of Chronic Disease" on posted
on the U.S. Department of Health and Human Services Center for Disease
Control and Prevention's website: www.cdc.gov/nccdphp/press/index.htm
2 www.nih.gov
3 CA Cancer J Clin 2008; 58:71-96; doi: 10.3322/CA.2007.0010,
http://caonline.amcancersoc.org/cgi/content/short/58/2/71.
4 CA Cancer J Clin 2008; 58:71-96; doi: 10.3322/CA.2007.0010,
http://caonline.amcancersoc.org/cgi/content/short/58/2/71.
OUR PRODUCT
Our cancer social network will be an interactive online community dedicated
to serving the specific needs of cancer patients and their caregivers. The site
focuses on the patient researching their disease and assist in finding,
organizing and managing their own cancer support network. The goal of these
support networks is to assist the patient in conserving needed energy by
lightening the burden associated with their own daily trials and tribulations
with the hope that the energy conserved can be leveraged into a higher level of
patient activity and a stronger determination to fight. The primary components
of our website are content, community, and Micro Support Networks (MSNs), each
of which serves as a gateway and complementary resource to the other.
6
Content
- -------
Extensions, Inc. cancer community intention is to provide a broad spectrum
of cancer related research and information designed to help people research
their disease, organize their resources, and become empowered to overcome their
disease. Visitors have the option of searching by keyword or category or go
directly to information that addressed a specific element of their cancer
roadmap. All of Extensions content will be organized into grouped data
according to cancer type, treatment, and clinic, and is cross indexed with
patient experiences.
- Cancer Type - comprehensive information on each of the 233
different types of cancer.
- Cancer Treatments - will provide information relating to each of
the approved chemotherapy drugs, radiation treatments, surgery
techniques and hormone therapies.
- Complementary and Alternative Medicines - will provide
information relating to over 5,100 complementary and alternative
cancer therapies.
- Oncologists and Clinics - will provide information relating to
oncologists and clinics from around the world.
Extensions, Inc. plans on identifying and entering into independent
contractor agreements with individuals (the "Content Providers") in several
specialties to provide current medical journal reviews and summaries as well as
other written materials to be used by the Company on the website.
Social Support Network
----------------------
Will provide a Social Support Network for cancer patients and their friends
and family to coordinate support activities and research treatment on behalf of
the cancer patient. The Social Support Network will be designed to engage
participants in such a way that they visit and participate interactively on the
site at a high frequency, thereby increasing site visits, repeat visitors, and
time-on-site metrics.
Discussions and Patient Contribution
------------------------------------
Will provide the online community with a forum for discussion and
contribution of patient experience related to specific cancer topics. This
discussion forum will be made up of variations of personal blogs, commentary,
and member chat.
Affiliate Groups
----------------
Will allow the online community with a method of joining various affiliate
groups related to a specific cancer topic. These groups will serve as a forum
for discussion, collaboration, and community feedback through comments posted to
the group.
Print Media
-----------
Will allow its members to convert the cancer research they have done on our
site to a printed format for offline viewing.
7
WEBSITE DEVELOPMENT AND HOSTING
Extensions, Inc. has entered into a development and hosting agreement with
Ramius, Inc, which is hosting the ww.ext.com and provide several of the tools
which make up the ext platform. Management will continue to search for a
website development partners to incorporate new tool compliments to our platform
on an ongoing basis.
WEBSITE ADVERTISING & SPONSORSHIPS
We expect our largest source of revenue to be from website advertisement
and sponsorship sales. Advertising and sponsorship fees and rates will vary
depending on page, placement, and size of the advertisement on the website.
Premium fees will be charged for home page and section sponsorships while a
lesser fee will apply to run scheduled advertisements which continuously rotate
throughout the website. We anticipate that manufacturers of cancer-specific
pharmaceuticals, products, and services will make up a large percentage of
advertisement and sponsorship sales. However, we are promoting our advertising
to a broad base of industries, including companies in the consumer products,
travel, tourism, and other industries.
POTENTIAL MARKET
In the U.S. alone, it is estimated that there are more than 10 million
cancer survivors5. Worldwide, that figure is more than 24 million survivors6.
5 http://www.nih.gov/
6 http://www.nih.gov
This year, in the US alone, 1.3 million people will be diagnosed with
cancer for the first time and 556,000 people will die of the disease7. This
makes cancer the leading cause of death for people under the age of 85 years
old8. The latest stat we have for the impact of Cancer in the US is from 2006,
the direct cost of cancer was approximately $78 Billion for direct medical costs
and an estimated $128 Billion for indirect costs (such as lost productivity and
labor) bringing the total economic impact to $206 Billion9. This equates to an
average direct medical cost of $60,454 per patient per year and a lost
productivity cost of $97,454 per patient per year10.
7 See "Quick Facts: Economic and Health Burden of Chronic Disease" on posted
on the U.S. Department of Health and Human Services Center for Disease
Control and Prevention's website: www.cdc.gov/nccdphp/press/index.htm
8 http://www.cdc.gov/nccdphp/press/index.htm
9 See "Quick Facts: Economic and Health Burden of Chronic Disease" on posted
on the U.S. Department of Health and Human Services Center for Disease
Control and Prevention's website: www.cdc.gov/nccdphp/press/index.htm
10 $60,454 calculation based upon $78 billion divided by 1.3 million people.
$97,454 calculation based upon $128 billion divided by 1.3 million people.
The following chart, which is posted on the U.S. Department of Health and
Human Services Center for Disease Control and Prevention's website, provides
evidence of the potential size of our market.
8
Quick Facts: Economic and Health Burden of Chronic Disease
Disease/ Risk Mortality Direct Cost/
Factors Morbidity (Illness) (Death) Indirect Cost
- ------------- --------------------- ---------------- ---------------------
Cancer About 1.3 million In 2003, an NIH estimates that
people in the U.S. estimated the overall costs for
are diagnosed with 556,000 people cancer in the year
cancer each year. died of cancer. 2006 at 206 billion:
Cancer is the second of this amount, $78
leading cause of billion for direct
eath in the United medical costs and
States. more than $128
billion for indirect
costs such as lost
productivity.
COMPETITION
We will be competing in the market for internet services and information
which is a highly competitive and volatile market. We compete with other both
for profit and nonprofit medical information websites such as
PatientsLikeMe.com, WebMD.com, RevolutionHealth.com and Healthcommunities.com
for our medical information services. However, our community is targeted and
dedicated to persons living with or directly affected by cancer which we believe
provides us a competitive advantage versus general medical information or
diagnosis-oriented websites.
We compete with other social networking websites for social networking
services such as MySpace.com, Friendster.com, Facebook.com, Bebo.com, Xanga.com,
Ning.com, eHarmony.com, and Match.com. We hope to develop a loyal client base
through the social networking aspect of the website, which in-turn will help
generate advertising and sponsorship sales specifically targeted to consumers of
cancer related products and services. We believe we have a competitive advantage
over general social networking sites because we are targeting, through a broad
array of content, community, and other services, a specific group of persons
with specific consumer and information needs.
We compete with large general internet service companies such as Google,
Inc., Yahoo!, Inc., Microsoft, Inc., and America Online for online marketing and
advertising. However, because our website content is specifically targeted to
persons living with or directly affected by cancer, the Company believes that
the general nature of these large general internet service companies renders
them unable to target the cancer market as effectively as Extensions.
PATENTS AND TRADEMARKS
We have created a portfolio of intellectual property assets, consisting of
the following three provisional patents:
Cause Based Social Support Network (Provisional Patents Number: 61038124)
The Cause Based Social Support Network (SSN) is an evolution of the
traditional social network that organizes its users for a greater social good,
or cause. SSNs are made up of miniature social networks, called Micro Support
Networks, which revolve around a single user, or Beneficiary, who is facing a
personal challenge or obstacle related to the Cause;
9
Volunteer Appreciation and Monetization of Goodwill at the Point of Impact
- --------------------------------------------------------------------------------
(Provisional Patent Number: 61038087)
- ----------------------------------------
The Volunteer Appreciation and Monetization of Goodwill at the Point of
Impact, also known as the "Goodwill Generator," is a technology which we have
created with the intention of allowing charity based organizations the
opportunity to monetize the goodwill of their volunteer base and redirect the
new goodwill created via their volunteers to a specific cause or problem. Our
intention is to empower charities with this technology with the intent of
redirecting the "goodwill created" to serve to the benefit of our members in
solving problems or organizing a cause.;
The Creation of a Mission Adaptive Plan as an Experience Based Navigation System
- --------------------------------------------------------------------------------
in Converting Social Networks and their Activity into A User Generated Content
- --------------------------------------------------------------------------------
Based Search Engines (Provisional PatentNumber: 61052407)
- --------------------------------------------------------------
To assist the user with the navigation of all of the site's Information
Group Pages (IGP's), each user is equipped with a MAP. A MAP stands for Mission
Adaptive Plan and it is an intuitive search tool used to direct the user to
content that is relevant to their data search and specific real life situation.
Our intention is that the MAP will serve as the as the backbone of every User's
experience within our network.
EFFECT OF EXISTING OR PROBABLE GOVERNMENT REGULATIONS ON THE BUSINESS.
FTC and FDA regulation of drug and medical device advertising and
-----------------------------------------------------------------
promotion.
- ----------
The FDA and the FTC regulate the form, content and dissemination of
labeling, advertising and promotional materials of pharmaceutical or medical
device companies, including direct-to-consumer prescription drug and medical
device advertising. The FTC regulates over-the-counter drug advertising and, in
some cases, medical device advertising. Generally, based on FDA requirements,
companies must limit advertising materials to discussions of FDA-approved uses
and claims.
Information that promotes the use of pharmaceutical products or medical
devices that is put on our website will be subject to the full array of the FDA
and FTC requirements and enforcement actions. The FDA and FTC would most likely
be focused on the advertisements placed on our pages, any other pharmaceutical
information found in our education pages, and the products sold through our
e-commerce site. The FTC and FDA look for editorial independence from
advertisers and sponsors in informational or educational discussions of
regulated pharmaceuticals or medical devices. The FDA and the FTC place the
principal burden of compliance with advertising and promotional regulations on
advertisers and sponsors to make truthful, substantiated claims. If the FDA or
the FTC finds that any information on our website violates FDA or FTC
regulations, they may take regulatory or judicial action against us or the
advertiser or sponsor of that information. State attorneys general may also take
similar action based on their state's consumer protection statutes.
Drug Advertising.
-----------------
The Federal Food, Drug, and Cosmetic Act, or FDC Act, requires that
prescription drugs be approved for a specific medical indication by the FDA
prior to marketing. Marketing, advertising or otherwise commercializing products
prior to approval is prohibited. Upon approval, the FDA's regulatory authority
extends to the labeling and advertising of prescription drugs sold throughout
the United States
10
which may only be promoted and advertised for their approved indications. The
labeling and advertising must not be false or misleading, and must present all
material information, including risk information. Labeling and advertising that
violate these legal standards are subject to FDA enforcement action.
The FDA regulates the safety, effectiveness, and labeling of
over-the-counter drugs. Together, the FDA and FTC require that OTC drug
formulation and labeling comply with FDA approvals or regulations and the
promotion of OTC drugs must be truthful, adequately substantiated, and
consistent with the labeled uses. OTC drugs that do not meet these requirements
are subject to FDA or FTC enforcement action depending on the nature of the
violation. In addition, state attorneys general can also bring enforcement
actions for alleged unfair or deceptive advertising.
Any increase in FDA regulation of the online advertisements of prescription
drugs could make it more difficult for us to obtain advertising and sponsorship
revenue. Only recently has the FDA relaxed its formerly restrictive policies on
direct to consumer advertising of prescription drugs. If the FDA changes its
policies to make them more restrictive, this could also make it more difficult
for us to obtain advertising and sponsorship revenue.
FTC regulation of general internet advertising and marketing.
-------------------------------------------------------------
The FTC regulates internet advertising under the Federal Trade Commission
Act which allows the FTC to act in the interest of all consumers to prevent
deceptive and unfair acts or practices. The FTC requires that advertisements be
true and not misleading to consumers and that they be substantiated. The FTC
also requires clear and conspicuous disclosures.
Failure to comply with the FTC's prohibition of false or misleading claims
in advertisements could result in enforcement actions or civil lawsuits for
fines and civil penalties. We believe that we have taken steps to protect our
company from liability for displaying or disseminating ads in violation of these
regulations through our advertising agreements and Company advertising policy.
However, a regulatory authority may find that the Company has violated the
advertising regulations and may bring an enforcement action against the Company.
Medical Professional Regulation
-------------------------------
Most states regulate the practice of medicine requiring professional
licensing. Some states prohibit business entities from practicing medicine. We
do not believe that we are engaged in the practice of medicine, but rather we
provide information to the general public. The Company has agreements with
licensed medical professionals who provide educational information in the form
of content for the Company's website. We do not, and do not intend to, provide
professional medical advice, diagnosis or treatment through our website. A state
may determine that some aspect of our business violates that state's licensing
laws and may seek to have us discontinue those portions or subject us to
penalties or licensure requirements. Any determination that we are a healthcare
provider and acted improperly as a healthcare provider may result in liability
to us.
Many states regulate the ability of medical professionals to advertise or
maintain referral services. We do not represent that a physician's use of the
Company's online directory will comply with these or other state laws regulating
professional practice. It is possible a state or a court may determine we are
responsible for any non-compliance with these laws, which could affect our
ability to offer this service to our customers.
11
Consumer Protection Regulation
------------------------------
Advertising viewed by visitors on our website and consumer sales from our
e-commerce website are subject to federal and state consumer protection laws
which regulate unfair and deceptive practices. We are also subject to various
other federal and state consumer protection laws, including the ones described
below. Most state consumer protection laws are enforced by the Attorneys General
of each state.
COPPA
-----
The Children's Online Privacy Protection Act ("COPPA") protects personal
information of children under the age of 13 disclosed online by prohibiting
unfair or deceptive acts or practices in connection with the collection, use,
and/or disclosure of personal information from and about children. Our website
does not target children under 13, nor do we plan to allow anyone under the age
of 18 to register as a member. Therefore, the Company will not knowingly be
collecting the personal information of children under the age of 13.
CAN-SPAM
--------
The Controlling the Assault of Non-Solicited Pornography and Marketing Act
of 2003 ("CAN-SPAM") regulates commercial emails and provides recipients the
right to request the sender to stop sending messages. CAN-SPAM establishes
penalties for sending commercial email which are intended to deceive the
recipient as to source or content. We plan on sending commercial emails to
members or other users of our site. Many states have also enacted anti-spam
laws. The CAN-SPAM Act preempts many of these statutes.
EMPLOYEES
As of December 31, 2008 we had 2 employees, 2 of which are full time and 0
are part time.
ITEM 1A. RISK FACTORS
Our securities are highly speculative and involve a high degree of risk,
including among other items the risk factors described below.
RISKS RELATED TO OUR BUSINESS
- ---------------------------------
WE HAVE A LACK OF OPERATING HISTORY AND LACK OF REVENUES FROM OPERATIONS.
To date we have only realized nominal revenues and have limited operating
history. Our only significant asset is the business plan. Our ability to
successfully generate revenues from our future website is dependent on a number
of factors, including availability of funds to continue to add content to the
site, to adequately develop and maintain the website as outlined in our business
plan, to commercialize our website through advertising, sponsorships and
strategic alliances, and to attract and retain visitors to our site. There can
be no assurance that we will not encounter setbacks with our website. We do not
expect our current resources to carry us until we reach cash flow positive;
capital needs may arise or we may deem that it is appropriate to raise
additional funds for general corporate and working
12
capital purposes. If an unexpected capital need arises we cannot assure you that
capital will be available on reasonable terms, if at all. Therefore, the
inability to raise additional funds, either through equity or debt financing,
could materially impair our ability to generate revenues.
THERE ARE MANY RISKS ASSOCIATED WITH FORWARD-LOOKING INFORMATION.
Much of the information presented in our business plan contains
forward-looking statements. Although we believe the forward-looking statements
have reasonable bases, we cannot offer any assurance that we will be able to
conduct our operations as contemplated.
THE BUSINESS OF PROVIDING SERVICES OVER THE INTERNET IS DIFFICULT TO EVALUATE
AND OUR BUSINESS MODEL IS UNPROVEN.
Because we have not begun operations, it is difficult to evaluate our
business and prospects. Our revenue and income potential is unproven and our
business model is emerging. We may never achieve favorable operating results or
profitability.
WE MAY BE UNABLE TO GENERATE SIGNIFICANT ADVERTISING OR SPONSORSHIP REVENUES.
We expect to derive a significant portion of our revenues from advertising
and sponsorship on the Ext.com website. We may not, however, be able to generate
adequate advertising or sponsorship revenues. There are no widely accepted
standards that measure the effectiveness of web advertising. Advertisers and
sponsors that have traditionally relied on other advertising media may be
reluctant to advertise on the web. Advertisers that already have invested
substantial resources in other advertising or sponsor methods may be reluctant
to adopt a new strategy and our business would be adversely affected.
Different pricing models are used to sell advertising on the internet. It
is difficult to predict which, if any, will emerge as the industry standard. The
proliferation of websites across the internet may cause advertising and sponsor
pricing levels to exist or evolve which are below levels originally anticipated
in the Company's business plan. This makes it difficult to project future
advertising and sponsor revenues. Moreover, certain security, filtering and
proprietary software programs that limit or prevent certain types of advertising
from being delivered to a web user's computer are available. Widespread adoption
of this software could adversely affect the commercial viability of web
advertising.
THERE IS NO ASSURANCE THAT WE WILL BE SUCCESSFUL IN EXPANDING OUR OPERATIONS
AND, IF SUCCESSFUL, MANAGING OUR FUTURE GROWTH .
We have not launched our website and are still in development. Payments for
website development and expansion of our operations have and will result in
significant operating costs. If we are unable to generate revenues that are
sufficient to cover our significant operating costs, our results of operations
will be materially and adversely affected. In addition, we may experience
periods of rapid growth, including increased staffing levels. Such growth will
place a substantial strain on our management, operational, financial and other
resources. Moreover, we will need to train, motivate and manage employees and
partners, as well as attract sales, technical and other professionals. Any
failure to expand these areas and implement such procedures and controls in an
efficient manner and at a pace consistent with our business objectives would
have a material adverse affect on our business, financial condition and results
of operations.
13
WE ARE DEPENDENT ON OUR KEY PERSONNEL, AND THE LOSS OF ANY COULD ADVERSELY
AFFECT OUR BUSINESS .
We depend on the continued performance of various consultants including
computer programming, legal and business development.
If we lose the services of any of the foregoing individuals, and are unable
to locate suitable replacements for such persons in a timely manner, it could
have a material adverse effect on our business. We do not have, and we do not
expect to obtain, key man life insurance for any members of management in the
foreseeable future.
WE FACE SIGNIFICANT COMPETITION; AND, OUR COMPETITORS MAY HAVE GREATER RESOURCES
OR RESEARCH AND DEVELOPMENT CAPABILITIES THAN WE HAVE, AND WE MAY NOT HAVE THE
RESOURCES NECESSARY TO SUCCESSFULLY COMPETE WITH THEM.
Our business has been to create an interactive online resource for people
living with or directly affected by cancer We are currently not aware of any
significant competitors commercially selling this resource; however, the online
marketplace for general healthcare information, resources and services is
intensely competitive, rapidly evolving and subject to rapid technological
change. As we continue to develop and launch modifications and updated releases
of our website, we have found the internet and advertising business is highly
competitive, and we may face increasing competition. Additionally, we are aware
that many of our potential competitors operating in the online marketplace for
general healthcare information, resources and services have greater financial
and technical resources, more experience in research and development, and more
established marketing and distribution capabilities than we have. Some of our
large customers may also complete with us. These organizations are also better
known and have more customers. We may be unable to compete successfully against
these organizations if they expand their focus and operations to directly target
our marketplace serving people living with or directly affected by disabilities
or functional limitations.
We also compete for visitors, members, consumers, content and service
providers, advertisers, sponsors, partners and acquisition candidates with the
following categories of companies:
- - online services or websites targeted to the healthcare industry and
healthcare consumers generally, including webmd.com, medscape.com, pol.net,
ivillage.com, medcareonline.com, mediconsult.com, betterhealth.com,
drkoop.com, onhealth.com, healthcentral.com and thriveonline.com;
- - publishers and distributors of traditional offline media, including those
targeted to healthcare professionals, many of which have established or may
establish websites;
- - general purpose consumer online services and portals which provide access
to healthcare-related content and services;
- - public sector and non-profit websites that provide healthcare information
without advertising or commercial sponsorships;
- - vendors of healthcare information, products and services distributed
through other means, including direct sales, mail and fax messaging; and
- - web search and retrieval services and other high-traffic websites.
14
WE FACE SIGNIFICANT COMPETITION FROM TRADITIONAL MEDIA COMPANIES WHICH COULD
ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS.
We also compete with traditional media companies for advertising. Most
advertisers currently spend only a portion of their advertising budgets on
internet advertising. If we fail to persuade advertisers to spend a portion of
their budget on advertising with us, our revenues could decline and our future
operating results could be adversely affected.
PERFORMANCE OR SECURITY PROBLEMS WITH OUR WEBSITE COULD NEGATIVELY IMPACT OUR
BUSINESS.
Our success depends greatly on (i) the successful launch and ongoing
development of our website, and (ii) maintaining the site to minimize delays and
systems problems. Our customer satisfaction and our business could be harmed if
we or our customers experience system delays, failures or loss of data. The
occurrence of a major catastrophic event or other system failure at any of our
or our vendor facilities could interrupt data processing or result in the loss
of stored data. In addition, we depend on the efficient operation of internet
connections from customers to our systems and vendors. These connections, in
turn, depend on the efficient operation of Web browsers, internet service
providers and internet backbone service providers, all of which have had
periodic operational problems or experienced outages.
A material security breach could damage our reputation or result in
liability. We may be required to spend significant capital and other resources
to protect against security breaches or to alleviate problems caused by
breaches. Any well-publicized compromise of internet security could deter people
from using the internet or from conducting transactions that involve
transmitting confidential information, including confidential healthcare
information. Therefore, it is critical that these facilities and infrastructure
remain secure and are perceived by the marketplace to be secure.
Despite the implementation of security measures, this infrastructure may be
vulnerable to physical break-ins, computer viruses, programming errors, attacks
by third parties or similar disruptive problems.
TECHNOLOGY MAY CHANGE FASTER THAN WE CAN UPDATE OUR APPLICATIONS AND SERVICES.
Medical information exchange is a relatively new and evolving market. The
pace of change in this market is rapid and there are frequent new product
introductions and evolving industry standards. We may be unsuccessful in
responding to technological developments and changing customer needs. In
addition, our applications and services offerings may become obsolete due to the
adoption of new technologies or standards.
We will depend on service and content providers to provide information and
data feeds on a timely basis. Our website could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. In addition, our members and consumers depend on
internet service providers, online service providers and other website operators
for access to our websites. All of them have experienced significant outages in
the past and could experience outages, delays and other difficulties in the
future due to system failures unrelated to our systems. Any significant
interruptions in our services or increases in response time could result in a
loss of potential or existing members, consumers, strategic partners,
advertisers or sponsors and, if sustained or repeated, could reduce the
attractiveness of our services.
15
IF WE ARE UNABLE TO PROVIDE SERVICES WHICH GENERATE SIGNIFICANT TRAFFIC TO OUR
WEBSITES, OR WE ARE UNABLE TO ENTER INTO DISTRIBUTION RELATIONSHIPS WHICH DRIVE
SIGNIFICANT TRAFFIC TO OUR WEBSITES, OUR BUSINESS COULD BE HARMED, HAMPERING OUR
ABILITY TO INCREASE OUR REVENUES.
The success of our business plan is largely dependent on the number of page
views and subsequently advertising and sponsorship revenue. Our marketing plan
is measured by the number of page views or website hits we receive. Although
management has based its estimates on what it believes to be reasonable
assumptions, there can be no assurance that the number of page views can be
accurately predicted, which in turn will substantially impact the ability to
attract the requisite purchasers with spending power as well as advertisers and
sponsors to our site, who advertise based on website traffic numbers. A material
reduction in our website hits will substantially affect our business plan,
projected revenues and net income.
THE MAJORITY OF OUR REVENUES WILL BE DERIVED FROM ADVERTISING AND SPONSORSHIPS,
AND THE REDUCTION IN SPENDING BY OR LOSS OF CURRENT OR POTENTIAL ADVERTISERS OR
SPONSORS WOULD CAUSE OUR REVENUES AND OPERATING RESULTS TO DECLINE.
The majority of our total revenues will come from advertising and
sponsorships. Our ability to grow advertising and sponsorship revenue depends
upon:
- - growing and retaining our user base;
- - attracting new and broadening our relationships with existing advertisers
and sponsors;
- - attracting advertisers and sponsors to our user base;
- - increasing demand for our advertising and sponsorships;
- - deriving better demographic and other information from our users; and
- - driving continued and increased acceptance of the web by advertisers and
sponsors as an effective advertising medium.
Advertising agreements often have payments contingent upon guaranteed
minimum usage, impressions, or click-through levels. Accordingly, it is
difficult to forecast certain advertising revenues accurately. Any reduction in
spending by or loss of existing or potential future advertisers or sponsors
would cause our revenues to decline. Further, we may be unable to adjust
spending quickly enough to compensate for any unexpected revenue shortfall.
DECREASES OR DELAYS IN ADVERTISING SPENDING BY OUR ADVERTISERS OR SPONSORS DUE
TO GENERAL ECONOMIC CONDITIONS COULD HARM OUR ABILITY TO GENERATE ADVERTISING
REVENUE.
Expenditures by advertisers and sponsors tend to be cyclical, reflecting
overall economic conditions and budgeting and buying patterns. Since we expect
to derive the majority of our revenues from advertising, any decreases in or
delays in advertising or sponsorship spending due to general economic conditions
could reduce our revenues or negatively impact our ability to grow our revenues.
IF WE ARE UNABLE TO ACQUIRE COMPELLING CONTENT AT REASONABLE COSTS OR IF WE DO
NOT DEVELOP COMPELLING CONTENT, THE NUMBER OF USERS OF OUR SERVICES MAY NOT GROW
AS ANTICIPATED, OR MAY DECLINE, WHICH COULD HARM OUR OPERATING RESULTS.
Our success depends in part upon our ability to create; license and
aggregate compelling content from third parties, and deliver that content
through our website. We plan on providing audio and video content to our users,
and we believe that users will increasingly demand high-quality audio and video
content, including user-generated content, such as interviews, speeches, news
footage, and other specialized content. Such content may require us to make
substantial payments to third parties from whom we license or acquire such
content. Our ability to maintain and build relationships with third-party
16
content providers is critical to our success. In addition, as new methods for
accessing the internet become available, including through alternative devices,
we may need to enter into amended content agreements with existing third-party
content providers to cover these new devices. Also, to the extent that Ext.com
develops content of its own, Ext.com's current and potential third-party content
providers may view our services as competitive with their own, and this may
adversely affect their willingness to contract with us. We may be unable to
enter into new, or preserve existing, relationships with the third parties whose
content we seek to obtain. In addition, as competition for compelling content
increases both domestically and internationally, our content providers may
increase the prices at which they offer their content to us, and potential
content providers may not offer their content on terms agreeable to us. An
increase in the prices charged to us by third-party content providers could harm
our operating results and financial condition. Further, many of our content
licenses with third parties are non-exclusive. Accordingly, other webcasters
and other media such as radio or television may be able to offer similar or
identical content. This increases the importance of our ability to deliver
compelling editorial content and personalization of this content for users in
order to differentiate Ext.com from other businesses. If we are unable to
license or acquire compelling content at reasonable prices, if other companies
broadcast content that is similar to or the same as that provided by Ext.com, or
if we do not develop compelling editorial content or personalization services,
the number of users of our services may not grow as anticipated, or may decline,
which could harm our operating results.
OUR INTELLECTUAL PROPERTY RIGHTS ARE VALUABLE, AND ANY INABILITY TO PROTECT THEM
COULD REDUCE THE VALUE OF OUR BRAND IMAGE AND HARM OUR BUSINESS AND OUR
OPERATING RESULTS.
We create, own and maintain a wide array of intellectual property assets,
including copyrights, trademarks, trade secrets and rights to certain domain
names, which we believe are among our most valuable assets. We seek to protect
our intellectual property assets through copyright, trade secret, trademark and
other laws of the United States, and through contractual provisions. The
efforts we have taken to protect our intellectual property and proprietary
rights may not be sufficient or effective at stopping unauthorized use of those
rights. In addition, effective trademark, copyright and trade secret protection
may not be available or cost-effective in every country in which our website and
media properties are distributed or made available through the internet. There
may be instances where we are not able to fully protect or utilize our
intellectual property assets in a manner to maximize competitive advantages.
Further, while we attempt to ensure that the quality of our brand is maintained
by our licensees, our licensees may take actions that could impair the value of
our brand, our proprietary rights or the reputation of our products and media
properties. We realize that third parties may, from time to time, copy
significant content available on Ext.com for use in competitive internet
services. Protection of the distinctive elements of Ext.com may not be
available under copyright law. If we are unable to protect our proprietary
rights from unauthorized use, the value of our brand image may be reduced. Any
impairment of our brand could negatively impact our business. In addition,
protecting our intellectual property and other proprietary rights is expensive
and time consuming. Any increase in the unauthorized use of our intellectual
property could make it more expensive to do business and consequently harm our
operating results.
17
WE MAY IN THE FUTURE BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS,
WHICH ARE COSTLY TO DEFEND, COULD RESULT IN SIGNIFICANT DAMAGE AWARDS, AND COULD
LIMIT OUR ABILITY TO PROVIDE CERTAIN CONTENT OR USE CERTAIN TECHNOLOGIES IN THE
FUTURE.
Third parties may in the future assert claims against us alleging
infringement of copyrights, trademark rights, trade secret rights or other
proprietary rights, or alleging unfair competition or violations of privacy
rights or failure to maintain confidentiality of user data. In addition, third
parties may make trademark infringement and related claims against us. As we
expand our business and develop new technologies, products and services, we may
become increasingly subject to intellectual property infringement claims. In
the event that there is a determination that we have infringed third-party
proprietary rights such as copyrights, trademark rights, trade secret rights or
other third party rights such as publicity and privacy rights, we could incur
substantial monetary liability, be required to enter into costly royalty or
licensing agreements or be prevented from using the rights, which could require
us to change our business practices in the future and limit our ability to
compete effectively. We may also incur substantial expenses in defending
against third-party infringement claims regardless of the merit of such claims.
In addition, many of our agreements with our customers or affiliates require us
to indemnify them for certain third-party intellectual property infringement
claims, which could increase our costs in defending such claims and our damages.
The occurrence of any of these results could harm our brand and negatively
impact our operating results.
WE ARE SUBJECT TO UNITED STATES AND FOREIGN GOVERNMENT REGULATION ON INTERNET
SERVICES WHICH COULD SUBJECT US TO CLAIMS AND REMEDIES INCLUDING MONETARY
LIABILITIES AND LIMITATIONS ON OUR BUSINESS PRACTICES.
We are subject to regulations and laws directly applicable to providers of
internet services both domestically and internationally. The application of
existing domestic and international laws and regulations to Ext.com relating to
issues such as user privacy and data protection, defamation, pricing,
advertising, taxation, gambling, sweepstakes, promotions, financial market
regulation, consumer protection, content regulation, quality of services,
telecommunications and intellectual property ownership and infringement in many
instances is unclear or unsettled. In addition, we will also be subject to any
new laws and regulations directly applicable to our domestic and international
activities. Further, the application of existing laws to Ext.com regulating or
requiring licenses for certain businesses of our advertisers including, for
example, distribution of pharmaceuticals, alcohol, adult content, tobacco or
firearms, as well as insurance and securities brokerage and legal services, can
be unclear. We may incur substantial liabilities for expenses necessary to
comply with these laws and regulations or penalties for any failure to comply.
Compliance with these laws and regulations may also cause us to change or limit
our business practices in a manner adverse to our business.
A number of federal laws, including those referenced below, impact our
business. The Digital Millennium Copyright Act ("DMCA") is intended, in part,
to limit the liability of eligible online service providers for listing or
linking to third-party websites that include materials that infringe copyrights
or other rights of others. Portions of the Communications Decency Act ("CDA")
are intended to provide statutory protections to online service providers who
distribute third party content. Ext.com relies on the protections provided by
both the DMCA and CDA in conducting its business. Any changes in these laws or
judicial interpretations narrowing their protections will subject us to greater
risk of liability and may increase our costs of compliance with these
regulations or limit our ability to operate certain lines of business. The
Children's Online Protection Act and the Children's Online Privacy Protection
Act are intended to restrict the distribution of certain materials deemed
harmful to children and impose additional restrictions on the ability of online
services to collect user information from minors. In addition, the
18
Protection of Children From Sexual Predators Act of 1998 requires online service
providers to report evidence of violations of federal child pornography laws
under certain circumstances. The costs of compliance with these regulations may
increase in the future as a result of changes in the regulations or the
interpretation of them. Further, any failures on our part to comply with these
regulations may subject us to significant liabilities.
CHANGES IN REGULATIONS OR USER CONCERNS REGARDING PRIVACY AND PROTECTION OF USER
DATA COULD ADVERSELY AFFECT OUR BUSINESS.
Federal, state and international laws and regulations may govern the
collection, use, sharing and security of data that we receive from our users and
partners. In addition, we have and post on our website our own privacy policies
and practices concerning the collection, use and disclosure of user data. Any
failure, or perceived failure, by us to comply with our posted privacy policies
or with any data-related consent orders, Federal Trade Commission requirements
or other federal, state or international privacy-related laws and regulations
could result in proceedings or actions against us by governmental entities or
others, which could potentially have an adverse effect on our business.
Further, failure or perceived failure to comply with our policies or
applicable requirements related to the collection, use, sharing or security of
personal information or other privacy-related matters could result in a loss of
user confidence in us and ultimately in a loss of users, partners or
advertisers, which could adversely affect our business.
There are a large number of legislative proposals pending before the United
States Congress, various state legislative bodies and foreign governments
concerning privacy issues related to our business. We cannot accurately predict
whether or when such legislation may be adopted. Certain proposals, if adopted,
could impose requirements that may result in a decrease in our user
registrations and revenues. In addition, the interpretation and application of
user data protection laws are in a state of flux. Complying with these varying
requirements could cause us to incur substantial costs or require us to change
our business practices in a manner adverse to our business.
RISKS RELATED TO OUR SECURITIES
- -----------------------------------
WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE AND WE CANNOT ASSURE YOU THAT
CAPITAL WILL BE AVAILABLE ON REASONABLE TERMS, IF AT ALL, OR ON TERMS THAT WOULD
NOT CAUSE SUBSTANTIAL DILUTION TO YOUR STOCK HOLDINGS.
We expect our cash on-hand, to be insufficient for our corporate needs
until we project being cash flow positive. However, estimates for expenses, as
well as our market approach and timing may change and we may decide to attempt
to obtain additional debt or equity financing during 2008. Further, we may
determine that it is appropriate to raise additional capital for working capital
and general corporate purposes. There can be no assurance that such capital will
be available in sufficient amounts or on terms acceptable to us, if at all. Any
sale of a substantial number of additional shares may cause dilution to your
investment and could also cause the market price of our common stock to decline.
19
WE DO NOT PLAN TO PAY DIVIDENDS ON OUR COMMON STOCK.
We do not anticipate paying cash dividends to the holders of our common
stock in the foreseeable future. Accordingly, investors in our common stock must
rely upon subsequent sales after price appreciation as the sole method to
realize a gain on an investment in our common stock. There are no assurances
that the price of our common stock will ever appreciate in value particularly if
we continue to sustain operating losses. Investors seeking cash dividends should
not buy our common stock.
WE CURRENTLY HAVE A LIMITED TRADING MARKET AS THERE IS LIMITED LIQUIDITY ON THE
OTC WHICH MAY IMPACT YOUR ABILITY TO SELL YOUR SHARES.
Currently our shares of our Common Stock are traded on the NASD - OTC NQB.
However, there is limited trading volume in our shares. When fewer shares of a
security are traded on the OTC NQB, price volatility may increase and price
movement may outpace the ability of the OTC NQB deliver accurate quote
information. If low trading volumes in our common stock continue, there may be a
lower likelihood of orders for shares of our common stock being executed, and
current prices may differ significantly from prices quoted by the OTC NQB at the
time of order entry.
OUR COMMON STOCK IS SUBJECT TO THE PENNY STOCK RULES WHICH LIMITS THE MARKET FOR
OUR COMMON STOCK.
Because our stock is traded on the NASD-OTC NQB, if the market price of the
common stock is less than $5.00 per share, the common stock is classified as a
"penny stock." SEC Rule 15g-9 under the Exchange Act imposes additional sales
practice requirements on broker-dealers that recommend the purchase or sale of
penny stocks to persons other than those who qualify as an "established
customer" or an "accredited investor." This includes the requirement that a
broker-dealer must make a determination that investments in penny stocks are
suitable for the customer and must make special disclosures to the customers
concerning the risk of penny stocks. Many broker-dealers decline to participate
in penny stock transactions because of the extra requirements imposed on penny
stock transactions. Application of the penny stock rules to our common stock
reduces the market liquidity of our shares, which in turn affects the ability of
holders of our common stock to resell the shares they purchase, and they may not
be able to resell at prices at or above the prices they paid.
THERE MAY BE A GREATER RISK OF FRAUD ON THE NASD-OTC NQB.
NASD-OTC NQB securities are more frequently targets for fraud or market
manipulation because they are not regulated as closely as securities listed on
exchanges. Dealers may dominate the market and set prices that are not based on
competitive forces. Individuals or groups may create fraudulent markets and
control the sudden, sharp increase of price and trading volume and the equally
sudden collapse of market prices. While there is regulation of the NASD-OTC NQB,
it is not as comprehensive as the regulation of the listed exchange. If this
should occur, the value of an investment in our common stock could decline
significantly.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
20
ITEM 2. DESCRIPTION OF PROPERTY
In August 2007 we entered into a Sublease Agreement for the lease of office
space at 770 South Post Oak Lane, Suite 330, Houston Texas 77056 which we use
as our corporate offices. The sublease commenced August 1, 2007 and terminates
on July 31, 2009. We pay $350 per month under the terms of the sublease.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of our common stock began trading on the NASD - OTC NQB Board on
February 1997. As of December 31, 2008, there were approximately 62 holders of
record of our common stock. This does not include persons who hold our common
stock in brokerage accounts and otherwise in 'street name.'
Our transfer agent is Transfer Online, Inc., 317 Alder Street, 2nd Floor,
Portland Oregon 97204.
The table below sets forth the high and low closing prices of the Company's
Common Stock during the periods indicated as reported on Yahoo Finance
(http://finance.yahoo.com). The quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission and may not reflect actual transactions.
QUARTER ENDED HIGH LOW
------------------ ----- -----
March 30, 2008 $0.15 $0.15
June 30, 2008 $0.15 $0.15
September 30, 2008 $0.10 $0.10
December 31, 2008 $1.01 $1.01
The closing sales price of the Common Stock as reported on March 25, 2009,
was $0.15 per share.
DIVIDENDS
On December 9, 2008 the Board of Directors voted to issue a common stock
dividend of 19 shares for every 1 common share of record held on December 15,
2008. On December 29, 2008 44,480,997 common shares received a dividend
consisting 845,138,943 common shares of the company
21
SECURITIES AUTHORIZED UNDER EQUITY COMPENSATION PLANS INFORMATION
None
RECENT SALES OF UNREGISTERED SECURITIES
Following are descriptions of all unregistered equity securities of the
Company sold during the last fiscal quarter, excluding transactions that were
previously reported on Form 10-QSB or Form 8-K during the period.
On October 30, 2008, we sold 100,000 shares to a director of the
corporation for $50,000 we relied on the exemption from registration provided by
Section 4(2) under the Securities Act of 1933 for this issuance. No commissions
or other remuneration was paid in connection with this issuance.
All other recent sales of unregistered securities have been otherwise
reported.
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31
2008 2007
--------- ---------
Revenues 0 0
Expenses 198,924 109,662
Net Income (loss) (198,924) (109,662)
Total Assets 117,950 20,976
Shareholder Equity 35,696 20,976
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
PLAN OF OPERATION
We were incorporated under the laws of the State of Nevada on February 17,
1997 and our primary purpose is to develop, operate and market interactive
online communities around our intellectual property. Our first interactive
community will be addressing the subject of cancer and will be dedicated to
constantly improving the way people with cancer live their lives. With the
intention of serving as a comprehensive online resource not only for people
living with such conditions, but their immediate families and friends,
caregivers, volunteers and rehabilitation providers, and employers.
The Company released a fully functional beta version of the website around
March 6, 2009. Our headquarters are located in the metropolitan area of Houston,
Texas.
The activities of the Company in 2008 were primarily organizational in
nature, including the planning, ongoing development and design of our main
website ( www.ext.com )
-----------
Our focus during 2009 will continue to be: (i) the ongoing development and
design of our main website www.ext.com (ii) planning and beginning to implement
our marketing and business development initiatives, the start up of our sales
operations, and continuing to build our management team and staff.
22
(iii) the development of related micro support networks which will reside as
sub-domains on the ext.com platform, operational platform, and product strategy;
(iv) to negotiate and to enter into advertising, sponsorship and other
agreements, thereby generating revenue and cash flow; (v) to create subsidiaries
to leverage off our infrastructure in other vertical markets and (vi) to
increase brand awareness and drive internet traffic to and within our online
community through various online and organic media campaigns, business
development and partnership initiatives, sponsorships, events and other
activities. The greater the awareness of our main website and network of related
micro support networks, community and brand in the marketplace, the greater the
number of page views we will experience. The more page views our online
community experiences, the greater the inventory of advertising impressions,
sponsorship opportunities, and billable revenue under the standard terms of our
advertising and sponsorship agreements.
Our financial statements for our fiscal year 2008 and fiscal year 2007
reflect minimal business activities. During this time period we worked primarily
on the planning, development and integration of our main website, the planning
and initial implementation of our marketing and business development
initiatives, the start up of our sales operations, and the initial development
of our management team and staff.
LIQUIDITY AND CAPITAL RESOURCES
We currently fund our operations primarily through funds raised through
private placements completed and the limited conversion of vendor invoices for
stock. On October 30, 2008 we sold 100,000 shares of common stock to one of our
directors for $50,000. The shares were issued at $0.50 per share.
On September 26, 2008, the Company issued 6,144 shares of its common stock
for payment of an invoice in the amount of $6,144. The shares were converted at
$1.00 per share.
We may determine it is appropriate to raise additional capital for working
capital and general corporate purposes. If we need, or elect, to obtain
additional debt or equity financing, but there can be no assurance that
additional financing will be available on reasonable terms, if at all. Without
additional financing, we have insufficient funds to carry out our business plan
for the next twelve months.
RESULTS OF OPERATIONS:
Our financial statements for the fiscal years ended December 31, 2008 and
December 31, 2007 reflect minimal business activities. We had no revenue for
either year. For the year ended December 31, 2008, we had operating expenses of
$198,924 This compares with expenses of $109,662 consisting of an impairment
loss of $33,953 for the write off of goodwill and general expenses of
$75,709.for the year ended December 31, 2007, all from the write-down of
goodwill, initiatives, the start up of our sales operations and the initial
development of our management team and staff.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with U. S. generally
accepted accounting principles requires management to make a variety of
estimates and assumptions that affect (i) the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and (ii) the reported amounts of revenues and
expenses during the reporting periods covered by the financial statements.
23
Our management routinely makes judgments and estimates about the effect of
matters that are inherently uncertain. As the number of variables and
assumptions affecting the future resolution of the uncertainties increase, these
judgments become even more subjective and complex. Although we believe that our
estimates and assumptions are reasonable, actual results may differ
significantly from these estimates. Changes in estimates and assumptions based
upon actual results may have a material impact on our results of operation
and/or financial condition. Our significant accounting policies are disclosed in
Note 2 to the Financial Statements included in this prospectus.
While all of the significant accounting policies are important to the
Company's financial statements, the following accounting policies and the
estimates derived there from have been identified as being critical:
WEBSITE DEVELOPMENT COSTS:
The Company adopted the Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force ("EITF") 00-2, "Accounting for Website Development
Costs," which specifies the appropriate accounting for costs incurred in
connection with the development and maintenance of websites. Under the EITF
00-2, costs related to certain website development activities are expensed as
incurred (such as planning and operating stage activities). Costs relating to
certain website application and infrastructure development are generally
capitalized, and are amortized over their estimated useful life.
REVENUE RECOGNITION:
During the year ended December 31, 2008, the Company has received no
revenue from its website through the sale of advertising and sponsorship
revenue. Advertising and sponsorship revenue is recognized ratably over the
period in which it is delivered and earned.
SHORT-TERM INVESTMENTS:
The Company accounts for short-term marketable securities in accordance
with the Financial Accounting Standards Board ("FASB"), Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". There were no short-term securities on hand at the
end of either year.
STOCK-BASED COMPENSATION:
The Company accounts for stock options and similar equity instruments in
accordance with SFAS No. 123(R), "Share-Based Payment". SFAS 123(R) requires the
recognition of the cost of employee services received in exchange for an award
of equity instruments in the financial statements and is measured based on the
grant date fair value of the award. SFAS 123(R) also requires the stock option
compensation expense to be recognized over the period during which an employee
is required to provide service in exchange for the award (usually the vesting
period).
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EXTENSIONS, INC. (FORMERLY MILLENNIUM NATIONAL EVENTS, INC.)
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-26
Financial Statements:
Balance Sheets F-27
Statements of Loss F-28
Statements of Shareholders Equity F-29
Statements of Cash Flows F-30
Notes to Financial Statements F-31 to F-40
F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholder of
Extensions, Inc.
We have audited the accompanying consolidated balance sheets of Extensions,
Inc. (a development stage company) and subsidiaries as of December 31, 2008 and
2007, and the related consolidated statements of operations, consolidated
statements of stockholders' equity and consolidated statements of cash flows for
each of the years then ended and for the period from inception February 19,
1997 through December 31, 2008. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (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. The Company is not
required to have, nor were we engaged to perform an audit of the Company's
internal control over its financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Extensions, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
results of its consolidated operations and consolidated cash flows for each of
the years then ended and for the period from inception February 19, 1997 through
December 31, 2008 in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
consolidated financial statements conditions exist which raise substantial doubt
about the Company's ability to continue as a going concern unless it is able to
generate sufficient cash flows to meet its obligations and sustain its
operations. Those conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Gruber & Company, LLC
April 14, 2009
Lake Saint Louis, Missouri
F-26
EXTENSIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2008 2007
-------------- --------------
Current Assets
Cash $ 17,950 $ 20,976
-------------- --------------
Total Current Assets 17,950 20,976
Intangible Assets 100,000 -
-------------- --------------
Total Assets $ 117,950 $ 20,976
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Advances from related party 72,254
Notes payable 10,000 -
-------------- --------------
Total Current Liabilities 82,254 -
Total Liabilities 82,254 -
Stockholders' Equity
Common shares:
Authorized shares 1,000,000,000,
$0.0001 par value: 889,619,940
and 62,874,853 shares outstanding
at December 31, 2008 and
December 31, 2007, respectively 88,961 6,287
Preferred shares:
$.0.001 par value: 2,000,000 and -0-
shares outstanding at December 31,
2008 and December 31, 2007,
respectively 2,000
Additional Paid-in Capital 280,621 151,651
Deficit Accumulated During
Development Stage (335,886) (136,962)
-------------- --------------
Total Stockholders' Equity 35,696 20,976
-------------- --------------
Total Liabilities and Stockholders' Equity $ 117,950 $ 20,976
============== ==============
The accompanying notes are an integral part of these financial statements
F-27
EXTENSIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
From
Inception
(February
19, 1997)
Year Ended Year Ended Through
December December December
31, 2008 31, 2007 31, 2008
------------- ------------ -----------
REVENUES $ -- $ -- $ --
GENERAL AND ADMINISTRATIVE EXPENSES
Administrative Expenses 175,624 75,709 251,333
Impairment Loss -- 33,953 61,253
------------- ------------ -----------
175,624 109,662 312,586
------------- ------------ -----------
LOSS FROM OPERATIONS (175,624) (109,662) (312,586)
Loss on Sale of Marketable Securities (23,300) (23,300)
------------- ------------ -----------
NET LOSS $ (198,924) $ (109,662) $ (335,886)
============= ============ ===========
(LOSS) PER SHARE $ (0.001) $ (0.005)
============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING 146,539,172 20,623,533
The accompanying notes are an integral part of these financial statements
F-28
EXTENSIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Class A Preferred Stock Common Stock Paid-in Retained
Shares Value Shares Value Capital Earnings Total
------------- ------------ ------------- --------- ------------ ---------- ----------
Balance at December 31, 2004 - - - - -
Common stock issued $ 27,300 $ 3 $ 27,297 $ - $ 27,300
Net income -
------------- ------------ ------------- --------- ------------ ---------- ----------
Balance at December 31, 2005 - 27,300 3 27,297 - 27,300
Net income (27,300) (27,300)
------------- ------------ ------------- --------- ------------ ---------- ----------
Balance at December 31, 2006 - 27,300 3 27,297 (27,300) -
Additional original shareholders 33,953 3 33,950 33,953
Common stock issued 12,813,600 1,281 77,904 79,185
Preferred stock issued 1,000,000 10,000 7,500 17,500
Conversion of preferred stock (1,000,000) (10,000) 50,000,000 5,000 5,000 -
Net loss (109,662) (109,662)
------------- ------------ ------------- --------- ------------ ---------- ----------
Balance at December 31, 2007 - 62,874,853 6,287 151,651 (136,962) 20,976
Shares issued for services 20,006,144 2,000 54,144 56,144
Shares issued for patents 10,000,000 1,000 99,000 100,000
Shares issued for cash 1,600,000 160 57,340 57,500
Conversion of common stock 2,000,000 2,000 (50,000,000) (5,000) 3,000 -
Common stock dividend 845,138,943 84,514 (84,514) -
Net loss (198,924) (198,924)
Balance at December 31, 2008 2,000,000 2,000 $889,619,940 $ 88,961 $ 280,621 $(335,886) $ 35,696
============= ============ ============= ========= ============ ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements
F-29
EXTENSIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
From
Inception
(February
19, 1997)
For the Years Ended Through
December 31, December 31,
2008 2007 2008
------------ ----------- --------------
CASH FLOWS FROM OPERATIONS
Net Income (loss) $ (198,924) $ (109,662) $ (335,886)
Adjustments to reconcile net loss to
cash used in operating activities:
Common stock issued for royalty
payments 25,000 25,000
Common stock issued for services 31,144 31,144
Non-cash expense - Impairment Loss - 33,953 61,253
Loss from sale of marketable
securities 23,300 23,300
------------ ----------- --------------
Net Cash Used by Operating
Activities (119,480) (75,709) (195,189)
------------ ----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable
securities 31,954 31,954
------------ ----------- --------------
Net cash used in investing
activities 31,954 - 31,954
------------ ----------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party 17,000 17,000
Issuance of notes payable 10,000 10,000
Proceeds from issuance of common
stock 57,500 96,685 154,185
------------ ----------- --------------
Net cash provided from financing
activities 84,500 96,685 181,185
------------ ----------- --------------
Net increase (decrease) in cash (3,026) 20,976 17,950
Cash at beginning of period 20,976 - -
------------ ----------- --------------
Cash at end of period $ 17,950 $ 20,976 $ 17,950
============ =========== ==============
Supplemental cash flow information:
Stock issued for accounts payable $ - $ 50,000 $ 50,000
============ =========== ==============
Non-cash investing and financing
activities:
Marketable securities contributed $ 52,254 $ -
Common shares issued for patents 100,000 -
The accompanying notes are an integral part of these financial statements
F-30
EXTENSIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a "going concern", which assume that the
company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the company's ability to
continue as a "going concern". The company incurred indeterminate net losses
prior to October 1, 2003, has a liquidity problem, and requires additional
financing in order to finance its business activities on an ongoing basis. The
company is actively pursuing alternative financing and has had discussions with
various third parties, although no firm commitments have been obtained. The
company's future capital requirements will depend on numerous factors including,
but not limited to, continued progress in developing its ongoing business plan
as a cancer support website.
These financial statements do not reflect adjustments that would be
necessary if the company were unable to continue as a "going concern". While
management believes that the actions already taken, or planned, will mitigate
the adverse conditions and events which raise doubt about the validity of the
"going concern" assumption used in preparing these financial statements, there
can be no assurance that these actions will be successful. If the company were
unable to continue as a "going concern", then substantial adjustments would be
necessary to the carrying values of assets, the reported amounts of its
liabilities, the reported revenues and expenses, and the balance sheet
classifications used.
Organization and Basis of Presentation
The company was incorporated under the laws of the State of Nevada on
February 19, 1997. The company ceased all operating activities during the
period from October 1, 2003 to December 31, 2005 and was considered dormant.
Since October 6, 2006, the company is in the development stage, and has not
commenced planned principal operations. The company also was delinquent on its
filing with the Secretary of State for Nevada and as a result was not a
corporation in good standing until October 30, 2006. The company's common
shares are listed for trading on the Pink Sheets under the symbol MNEI.
Prior to approximately October 1, 2003, Millennium National Events, Inc.
was an operating company with its common shares listed for trading on the OTCBB
market. The company failed to remain current on its SEC filing requirements and
as a result was demoted to the Pink Sheets. The company has not filed any
periodic reports since the report filed for the third quarter of 2003.
Subsequently, the Company ceased all business operations and has been dormant
since approximately October 1, 2003. During the same period, all the Company's
officers and directors ceased acting on behalf of the Company and abandoned
their obligations to the Company and its shareholders. As a result, the Company
was considered to be dormant from October 1, 2003 to December 31, 2005.
On August 18, 2006, a complaint was filed in the Superior Court for Washoe
County, Nevada seeking the appointment for custodian for the Company under
Nevada Revised Statutes 78.347(2). On October 6,
F-31
2006, a custodian was appointed to the Company and commenced an investigation of
the assets, liabilities, business, management, condition and liabilities of the
Company.
As a result of the investigation by the Custodian, a report was prepared
and filed with the Court, finding that there were no apparent assets,
liabilities, or business of the company existing or enforceable, that there
were 27,300,000 common shares and no preferred shares issued and outstanding and
that the company was in revoked status under Nevada law. The accompanying
financial statements were prepared on the basis of that investigation, as
approved by the Court.
Further, based on his investigation, the custodian has been unable to
locate any assets belonging to the company, and no records of any valid
remaining liabilities, liens, judgments, warrants, options, or other claims
against the Company or its stock.
In the event that any liabilities, liens, judgments, warrants, options, or
other claims against the Company arise, these will be recorded when discovered.
On August 8, 2007, the company filed amended and restated Articles of
Incorporation with the Nevada Secretary of State, reversing its shares on a
1:1,000 basis and changing its name from Millennium National Events, Inc. to
Extensions, Inc.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Extensions, Inc. a Nevada corporation and its wholly owned subsidiaries and are
prepared in accordance with accounting principles generally accepted in the
United States. The accompanying financial statements reflect the results of
operations and financial condition of the following:
Newswire, Inc.
Litego, Inc.
Cancer.im
Nature of Business
The Company is developing several social support networks developed off an
intellectual property platform including the Company's cancer social support
network which will be an interactive online community dedicated to serving the
specific needs of cancer patients, and their family, friends and caregivers.
The site when completed will allow cancer patients the ability to research their
disease and assist in finding, organizing and managing their own cancer support
network. The goal of these support networks is to assist the cancer patient in
conserving needed energy by lightening the burden associated with their own
daily trials and tribulations, with the hope that the energy conserved can be
leveraged into a higher level of patient activity and a stronger determination
to fight the disease. The primary components of the Company's cancer social
support network will be content, community, and Micro Support Networks, (MSN's)
each of which serves as a gateway and complementary resource to the other.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Extensions, Inc. (formerly
Millennium National Events, Inc.) (a development stage company) is presented to
assist in understanding the Company's financial statements. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
F-32
Cash and Cash Equivalents
For purposes of the statement of cash flows, the company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Loss Per Share
Basic loss per share has been computed by dividing the loss for the year
applicable to the common stockholders by the weighted average number of common
shares outstanding during the periods. The earnings per share data has been
calculated to reflect the 1:1,000 split on August 24, 2007 retroactively to the
earliest date reported upon. Similarly, the loss per share calculation for 2008
included the impact of the 19:1 common stock dividend which occurred in December
2008. There were no common equivalent shares outstanding at December 31, 2007 or
2006.
Concentration of Credit Risk
The company has no significant off-balance sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements.
Stock Based Compensation
Common stock, warrants and options issued for services by non-employees is
accounted for based on the fair market value at the date the services are
performed. If the services are to be performed over a period of time the value
is amortized over the life of the period that services are performed.
We account for our stock option plan in accordance with the provisions of
SFAS No. 123, "Accounting for Stock Based Compensation." SFAS No. 123 permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of the grant.
Fair Value of Financial Instruments
The carrying value of current assets and liabilities reasonably
approximates their fair value due to their short maturity periods. The carrying
value of our debt obligations reasonably approximates there fair value at the
stated interest rate approximates current market interest rates of debt with
similar terms that is available to us.
Long-lived Assets
We review the carrying value of long-lived assets at each balance sheet
date if indication of impairment exists. Recoverability is assessed using
undiscounted cash flows based upon historical results
F-33
and current projections of earnings before interest and taxes. Impairment is
measured using discounted cash flows of future operating results based upon a
rate that corresponds to the cost of capital. Impairments are recognized in
operating results to the extent that carrying value exceeds discounted cash
flows of future operations
Patents
Patents consist of three Provisional Patents assigned by related parties.
The Company issued 10,000,000 shares of its common stock valued by management to
be $50,000 and the Provisional Patents were recorded as other assets. Patents
are amortized over their useful lives. See Note 11.
NOTE 3 - INCOME TAXES
The company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires recognition of deferred
income tax assets and liabilities for expected future income tax consequences,
based on enacted tax laws, of temporary differences between the financial
reporting and tax bases of assets and liabilities.
NOTE 4 - EARNINGS PER SHARE
The Company has reported its earnings per share in accordance with SFAS No.
128, "Earnings Per Share." Basic net income per common share is based on the
weighted average number of shares outstanding during the period. Diluted net
income per common share is based on the weighted average number of shares
outstanding during the period, including common stock equivalents.
Stock options and warrants account for the entire difference between basic
average common shares outstanding and diluted average common shares outstanding.
For purposes of computing diluted net income per common share, weighted average
common share equivalents do not include stock options and warrants with an
exercise price that exceeds the average fair market value of the company's
common stock for the period.
NOTE 5 - DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is common with a
development stage company, the company has had recurring losses during its
development stage. The company's financial statements are prepared using
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the company does not have significant cash
or other material assets, nor does it have an established source of revenues
sufficient to cover its operating costs and to allow it to continue as a going
concern. In the interim, shareholders of the company have committed to meeting
its minimal operating expenses.
NOTE 6 - COMMITMENTS
Since January 1, 2006 all activities of the company have been conducted by
corporate officers from either their homes or business offices. Currently,
there are no outstanding debts owed by the company for the use of these
facilities and there are no commitments for future use of the facilities.
NOTE 7 - COMMON STOCK AND PREFERRED A SHARES
F-34
Common stock
The Company's authorized Common Equity Consists of 1,000,000,000 shares of
common stock $.001 par value. 10,000,000 shares of preferred stock, $0.0001 par
value. During the year, the company issued 1,000,000 Class A preferred shares
to an investor for $17,500. These shares were convertible into common shares at
the rate of 50 common shares for each share of preferred stock on August 24,
2007, following the reverse split. The shares were converted into 50,000,000
shares of common stock. On August 27, 2007, the Company issued 7,000,000 shares
of its common shares in exchange for a third party assuming $50,000 of the
company's obligations. On December 04, 2007, the Company issued 2,113,600
shares of its common stock to its chief executive officer in exchange for
$10,685 in cash, and on December 27, 2007, the Company issued 3,700,000 shares
of its common stock for $18,500 in cash.
Common stock activity for the year ended December 31, 2008 was as follows:
On January 1, 2008 the Company issued 10,000,000 shares of common stock
valued at $25,000 to related parties for the development period lessee minimum
royalty due under the domain lease agreement for www.ext.com. See Note 10.
On January 1, 2008 the Company issued 10,000,000 shares of common stock
valued at $25,000 to related parties for the development of a business plan.
On March 17, 2008 the Company issued 1,500,000 shares of common stock for
cash in the amount of $7,500.
On May 15, 2008 the Company issued 10,000,000 shares of common stock valued
$100,000 to related parties for the assignment of three Provisional Patents.
See Note 11.
On September 25, 2008 the Company issued 6,144 shares of common stock
valued at $6,144 for services performed.
On October 31, 2008 the Company issued 100,000 shares of common stock for
cash in the amount of $50,000.
On December 2, 2008 the Company converted 50,000,000 shares of common stock
in exchange for 2,000,000 shares of the Company's Preferred A Convertible
Shares.
On December 23, 2008 the Company's Board of Directors authorized a stock
dividend of nineteen shares for each share held by the stockholders on December
2, 2008. A total of 845,138,943 additional shares were issued as a result of
the stock dividend.
Preferred Class A Stock
The Company's authorized preferred stock consists of 10,000,000 shares of
preferred stock, $0.001 par value. During the year ended December 31, 2007, the
company issued 1,000,000 Class A preferred shares to an investor for $17,500.
These shares were convertible into common shares at the rate of 50 common shares
for each share of preferred stock on August 24, 2007, following the reverse
split. The shares were converted into 50,000,000 shares of common stock.
F-35
On December 2, 2008 the Company's Board of Directors approved the exchange
of 50,000,000 shares of common stock, owned by a related party, for 2,000,000
shares of Preferred Class A Stock.
NOTE 8 - NEW ACCOUNTING STANDARDS
In December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51" and is effective
for fiscal years beginning after December 5, 2008. This Statement establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. The Company is
currently assessing the impact the adoption of this pronouncement will have on
the Company's financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised) "Business
Combinations". SFAS 141 (Revised) is effective for fiscal years beginning after
December 13, 2008. This Statement establishes principles and requirements for
how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. The Statement also provides guidance
for recognizing and measuring the goodwill acquired in the business combination
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The Company is currently assessing the impact the adoption of this
pronouncement will have on the Company's financial statements.
In December 2007, the SEC issued SAB 110 Share-Based Payment. SAB 110
amends and replaces Question 6 of Section D.2 of Topic 14, "Share-Based
Payment," of the Staff Accounting Bulletin series. Question 6 of Section D.2 of
Topic 14 expresses the views of the staff regarding the use of the "simplified"
method in developing an estimate of the expected term of "plain vanilla" share
options and allows usage of the "simplified" method for share option grants
prior to December 31, 2007. SAB 110 allows public companies which do not have
historically sufficient experience to provide a reasonable estimate to continue
use of the "simplified" method for estimating the expected term of "plain
vanilla" share option grants after December 31, 2007. SAB 110 is effective
January 1, 2008. We currently use the "simplified" method to estimate the
expected term for share option grants as we do not have enough historical
experience to provide a reasonable estimate. We will continue to use the
"simplified" method until we have enough historical experience to provide a
reasonable estimate of expected term in accordance with SAB 110. We do not
expect SAB 110 will have a material impact on our balance sheets, statements of
operations and cash flows.
We adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, (SFAS
157) on January 1, 2008, which became effective for fiscal periods beginning
after November 15, 2007. SFAS 157 defines fair value, establishes a framework
for using fair value to measure assets and liabilities, and expands disclosure
about fair value measurements. SFAS 157 applies whenever other statements
require or permit assets or liabilities to be measured at fair value. The
adoption of SFAS 157 did not have an impact on our financial statements.
We adopted SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of FASB Statement No. 115 (SFAS No.
159) on January 1, 2008, which became effective for fiscal periods beginning
after November 15, 2007. This standard permits entities to choose to measure
many financial instruments and certain other items at fair value. While SFAS No.
159 became effective for our 2008 fiscal year, we did not elect the fair value
measurement option for any of our financial assets or liabilities.
F-36
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS
161). This statement changes the disclosure requirements for derivative
instruments and hedging activities. SFAS 161 requires enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS 133 and its
related interpretations, and (c) how derivative instruments and related hedged
items affect an entity's financial position, financial performance, and cash
flows. SFAS 161 is effective as of the beginning of our 2009 fiscal year. We are
currently evaluating the potential impact, if any, of the adoption of SFAS 161
on our financial statements.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3
amends the factors that should be considered in developing renewal or extension
assumptions that are used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets and requires enhanced related disclosures. FSP 142-3 must be applied
prospectively to all intangible assets acquired as of and subsequent to fiscal
years beginning after December 15, 2008. We are currently evaluating the impact
that FSP 142-3 will have on our financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of
accounting principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).
This Statement will be effective November 15, 2008. We currently adhere to the
hierarchy of GAAP as presented in SFAS 162 and do not expect its adoption will
have a material impact on its results of operations and financial condition.
We have considered all other recently issued accounting pronouncements and
do not believe the adoption of such pronouncements will have a material impact
on our consolidated financial statements.
NOTE 9 - NOTE PAYABLE
On September 25, 2008, the Company issued a promissory note to an
individual in the amount of $10,000. The note is unsecured and is due on
September 25, 2009 with interest at 8% per annum.
NOTE 10 - DOMAIN LEASE AGREEMENTS
www.ext.com
On January 4, 2008, the Company entered into a domain lease agreement with
a related party. The lease allows the Company to develop the domain name
www.ext.com for the purpose of developing a social support network. The lease
will remain in effect until May 31, 2014, unless terminated by either party.
The monthly royalty to be paid to the lessor is based on the following
formula:
a. $1 per registered member per month, (defined as any member who
has logged on in any 91 day period of time), plus a 5% royalty on the
gross revenues derived by any sales, ad
F-37
placements and or development agreements within the www.ext.com domain
and any and all sub and sub-sub.ext.com domains for the period from
June 1, 2009 to May 31, 2010.
b. $1.50 per registered member per month plus 6% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2010 to May 31, 2011.
c. $2 per registered member per month plus a 7% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2011 to May 31, 2012.
d. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
e. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
f. $3 per registered member per month plus a 9% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2013 to May 31, 2014.
Between the period of the signing of the agreement and until May 31, 2009,
"The Development Period", the lessee minimum royalty due to the lessor will be
$50,000 or at the lessor's option 10,000,000 shares of the Company's common
stock. On January 4, 2008, the lessor was issued 10,000,000 shares of the
Company's common stock. The value of the common shares issued was determined by
management to be $50,000 and was recorded as lease expense.
Beginning June 1, 2009 the minimum annual royalty will be $1,000,000.
Beginning June 1, 2010 the minimum annual royalty will be $5,000,000.
Beginning June 1, 2011 the minimum annual royalty will be $10,000,000.
Beginning June 1, 2012 the minimum annual royalty will be $15,000,000.
Beginning June 1, 2013 the minimum annual royalty will be $20,000,000.
If the Company fails to make a royalty payment within thirty days of the
due date, the Company will be in default of the lease agreement. If the default
is not cured within thirty day, then the lessor may terminate the agreement and
all obligations.
If the Company terminates the agreement a termination fee of $2,000,000
will be due to the lessor.
On January 4, 2008, the Company entered into a domain lease agreement with
a related party. The lease allows the Company to develop the domain name
www.cancer.im for the purpose of developing a social support network. The lease
will remain in effect until May 31, 2014, unless terminated by either party.
The monthly royalty to be paid to the lessor is based on the following
formula:
F-38
g. $1 per registered member per month, (defined as any member who
has logged on in any 91 day period of time), plus a 5% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period from June 1, 2009 to May 31,
2010.
h. $1.50 per registered member per month plus 6% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2010 to May 31, 2011.
i. $2 per registered member per month plus a 7% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2011 to May 31, 2012.
j. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
k. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
l. $3 per registered member per month plus a 9% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2013 to May 31, 2014.
If the Company fails to make a royalty payment within thirty days of the
due date, the Company will be in default of the lease agreement. If the default
is not cured within thirty day, then the lessor may terminate the agreement and
all obligations.
If the Company terminates the agreement a termination fee of $2,000,000
will be due to the lessor.
NOTE 11 - PATENTS
On May 15, 2008 the Company received an assignment of the rights, title and
interest in the inventions and patent rights of three Provisional Patent Claims
registered in the United States. The Company will pursue the Provisional Patent
Claims and the assignor will authorize and request the Commissioner of Patents
and Trademarks to record the Company as the owner of the Patents. The
Provisional Patents are described as follows:
Title Provisional Patent Number
Caused Based Social Support network 61038124
Volunteer Appreciation and Monetization
Of Goodwill at the Point of Impact 61038087
F-39
The Creation of a Mission Adaptive Plan
as an Experienced Based Navigation
System in Converting Social Networks
and Their Activity Into a user Generated
Content Based Search Engine 61052407
The Provisional Patents were assigned by related parties and the Company
issued 10,000,000 shares of its common stock. The value of the common stock was
determined by management to be $100,000 and the Provisional Patents were
recorded as other assets.
NOTE 12 - OTHER RELATED PARTY TRANSACTIONS
The Company has received advances from a shareholder totaling $72,254 at
December 31, 2008. The advances are non-interest bearing. The advances are
recorded as current liabilities.
F-40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) designed to ensure
that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
the Company in its reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company's management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
The Company's management evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in the Securities Exchange Act of
1934 Rules 13a-15(e) or 15d-15(e)) as of December 31, 2008. Based on that
evaluation, the Company's chief executive officer and chief financial officer
concluded that, as of that date, the Company's disclosure controls and
procedures, were not effective at a reasonable assurance level, due to the
identification of a material weakness, as discussed further below under
Management's Report on Internal Control over Financial Reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Section
13a-15(f) of the Securities Exchange Act of 1934, as amended). Internal control
over financial reporting is a process designed by, or under the supervision of,
the Company's CEO who is also the company's CFO to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Company's financial statements for external reporting purposes in conformity
with U.S. generally accepted accounting principles and include those policies
and procedures that (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and disposition of the
assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on the financial statements.
As of December 31, 2008, management conducted an assessment of the
effectiveness of the Company's internal control over financial reporting based
on the framework established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on the criteria established by COSO management concluded that the
41
Company's internal control over financial reporting was not effective as of
December 31, 2007, as a result of the identification of the material weakness
described below.
A material weakness is a deficiency or combination of deficiencies in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis.
Management does not expect that the Company's disclosure controls and
procedures or its internal control over financial reporting will prevent or
detect all errors and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control system's objectives will be met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Controls can also be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the controls. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of
compliance with associated policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
The Company's management has identified a material weakness in the
effectiveness of internal control over financial reporting related to a shortage
of resources in the accounting department required to close its books and
records effectively at each reporting date, obtain the necessary information
from operational departments and to complete the work necessary to file its
financial reports timely.
This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the
Securities Exchange Commission that permit the company to provide only
management's report in this annual report.
MANAGEMENT'S REMEDIATION PLAN
Management determined that a material weakness existed due to a lack of an
adequate number of personnel in the accounting department. This weakness was
first identified in 2007, and additional resources were hired to perform
controls and to aid in the timeliness of the financial statement closing process
leading to the correct preparation, review, presentation of and disclosures in
our consolidated statements. However, the Company was unable to retain the
additional resources through the entirety of 2008 and again has hired temporary
contractors to help perform certain accounting functions, until management can
employ a more permanent solution. Management cannot assure that, as
circumstances change, any additional material weakness will not be identified.
Management believes that the Company's disclosure controls and procedures,
including internal control over financial reporting, have further improved due
to the intensified review of all accounting and financial transactions by the
board of directors, and the changes described above. We have hired certain
resources in the accounting and finance departments and we will make additional
changes in the future, as we deem necessary. We cannot assure you that, as
circumstances change, any additional material weakness will not be identified.
42
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As noted above, during 2008 management and the board of directors
intensified its review of all accounting and financial transactions as a further
effort to strengthen internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. In addition, during the
year we have hired additional temporary financial personnel to assist with our
financial reporting duties. These actions, in addition to the other actions
taken in the previous two years, lead us to conclude that our internal controls
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act have improved
substantially but are still subject to one or more material weaknesses.
There were no other changes in our internal control over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,
during our most recently completed fiscal year that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The persons below served as directors and executive officers of the Company
as of December 31, 2008. Executive officers of the Company are elected by the
Board of Directors, and serve for a term of one year and until their successors
have been elected and qualified or until their earlier resignation or removal by
the Board of Directors. There are no family relationships among any of the
directors and executive officers of the Company.
Name Age Position
------------------ --- ------------
Crawford Shaw 74 CEO/Director
BB Tuley 73 CFO/Director
Craig Reed 56 Director
Dr. Mahesh Konajai 64 Director
Crawford Shaw, 74, a director and the Company's Chairman of the Board,
--------------
Chief Executive Officer and President, has been an international lawyer,
financier and management consultant in the past thirty years. Previously, Mr.
Shaw was a partner with Shaw and Reed, practicing in the areas of international
law and finance. At Shaw and Reed, which he founded, Mr. Shaw served as legal,
financial and management consultant to several small and medium sized private
and public companies. Mr. Shaw is also a director of Paper Free Medical
Solutions. Mr. Shaw graduated from Yale College in 1958 and Yale Law School in
1961. He is a former Fellow of the Association of the Bar of the City of New
York and is the current Editor of A Lawyer's Guide to International Business
Transactions, published by the American Bar Association and the American Law
Institute. Mr. Shaw is a member of the New York Bar and was admitted to practice
before the Appellate Division and Court of Appeals in New York, as well as the
43
United States Court for the Southern District of New York and the States Court
of International Trade.
B. B. Tuley, 73, graduated with a BBA from Southern Methodist University.
-------------
He later conducted graduate studies at the University of Dallas and Georgia
State University. From there he began an audit and tax accounting career with
Ernst & Young (Arther Young & Company) in Dallas, Texas from 1962 to 1968. He
then continued his professional career through 1974 with East Texas Motor
Freight Lines, Inc. as assistant to the Chairman of the Board followed by a
promotion to CFO. From there he became CFO of Refrigerated Transport, Inc., an
AMEX company based in Atlanta, GA, where he was instrumental in obtaining a $20
million private placement for the company. In 1978, he rejoined Ernst & Young
(Arthur Young & Company) as a tax partner and established and served as
partner-in-charge of the Emerging Business Group in Dallas. He then joined
Michaels Stores, Inc., an AMEX company, in 1984 as CFO and assistant to the
chairman and vice-chairman of the Board. In 1986 he was promoted to President
and CEO. For the next 4 years, Michaels grew from 40 stores and $100 million in
annual revenue to 120 stores and almost $400 million in annual revenue. In 1990,
he left Michaels to perform turnaround and interim management services. From
1990 to today his turnarounds include Silk Greenhouse, Inc., Pic 'N Pay Stores,
Inc, Hedstrom Corporation, Muzak LLC, and NexPak Corp. He currently operates his
own turnaround consulting company, The Equity Enhancement Group in Dallas,
Texas.
Craig C. Reed, 56, graduated in 1976 with a Bachelor of Science from the
---------------
University of Massachusetts followed in 1982 with by a Masters of Business
Administration from the Arthur D. Little Management Education Institute in
Cambridge, MA. From 1977 to 1981 he served the US Navy, achieving the rank of
Lieutenant. He continued his Naval service through the Navy Reserve until 1994,
when he retired. His banking career began in 1982 as Controller of the First
National Bank of Boston's Luxembourg Branch. From here he moved to Associate
Director of Fearnley Finance AG in 1986 where he conducted project finance and
advisory services. Later, in 1988, he was General Director of Pentagoet, SA in
Paris, where he continued his project finance and financial engineering
services. In 1992, he moved to Saint Petersburg, Russia where he created the
first western (Swiss/US/Russian) bank in the city. He served as Director until
1994. In 1995, he joined Loze Associes as their Director of International
Operations where he structured and managed offshore funds totaling $100 million.
From here, he became a Senior Consultant for Philips Consumer Communications in
Le Mans, France. From 1997 to 2002, Mr. Reed worked for Phillips Petroleum
Company in Perth, Australia and Barlesville, Oklahoma. In 2002, he moved to
Houston, Texas as Senior Logistics Consultant, and later Contracts Manager, for
ConocoPhillips Petroleum.
Dr. Mahesh Konajai, 64, completed his residency in Internal Medicine in
--------------------
1979 at the University of Alabama in Birmingham, Alabama; completed fellowship
in Hematology in 1980 at the University of Georgia; and a fellowship in Medical
Oncology at the University of Texas MD Anderson Hospital and Tumor Institute' He
later joined the faculty of MD Anderson and perused a research program in Bone
Marrow Transplantation and advanced chemotherapy of GI cancers. In 1983 Dr.
Konajia established the Julie and Ben Rogers Cancer Institute , and in 1997
established the Beaumont Cancer Institute. In 2004 Dr. Konajia was awarded a
faculty position at the SVYASA Yoga University in Bangalore, India and received
a diploma in Ayurveda from Ayurvedic Institute of America.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, as amended, requires the Company's
officers and directors and persons who own more than 10% of the Company's
outstanding Common Stock to file reports of ownership with the Securities and
Exchange Commission ("SEC"). Directors, officers, and greater than 10%
44
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on a review of Forms 3, 4, and 5 and amendments thereto
furnished to the Company during and for the Company's year ended December 31,
2008, we believe Mr. Shaw, Mr. Tuley, Mr. Reed, Dr. Konajai, CMR Trust and CSR
Trust failed to timely file Form 3, and Mr. Shaw failed to timely file a Form 4.
There were no other directors, officers or more than 10% stockholders of the
Company who failed to timely file a Form 3, 4 or 5.
CODE OF ETHICS
On June 10, 2008, the Board of Directors adopted a code of ethics that
applies to all of our officers and employees, including our principal executive
officer, principal financial officer, principal accounting officer and
controller. Our Code of Ethics establishes standards and guidelines to assist
the directors, officers, and employees in complying with both the Company's
corporate policies and with the law and will be posted at our website
www.Ext.com. Persons desiring a copy of our Code of Ethics will be provided one
at no cost upon submitting a written request to the Company.
CORPORATE GOVERNANCE
On June 10, 2008, the Board of Directors adopted a Corporate Governance
Charter that applies to all of our officers and employees, including our
principal executive officer, principal financial officer, principal accounting
officer and controller. Our Corporate Governance Charter establishes standards
and guidelines to assist the directors, officers, and employees in complying
with both the Company's corporate policies and with the law and will be posted
at our website www.Ext.com. Persons desiring a copy of our Code of Ethics will
be provided one at no cost upon submitting a written request to the Company.
AUDIT COMMITTEE
On June 10, 2008, the Board of Directors adopted an Audit Committee Charter
established in accordance with Section 3(a)(58)(A) of the Exchange Act. BB
Tuley serves on the Company's Audit Committee chairman; the company will be
seeking independent directors to serve on this committee. Mr. Tuley has been
designated as the chairman and financial expert on the Audit Committee. The
Company defines "independent" as that term is defined in Rule 4200(a)(15) of the
Nasdaq listing standards.
The audit committee was formed on June 10, 2008. The Board of Directors has
adopted a written charter for the audit committee law and will be posted at our
website www.Ext.com. Persons desiring a copy of our Code of Ethics will be
provided one at no cost upon submitting a written request to the Company.
COMPENSATION COMMITTEE
On June 10, 2008, the Board of Directors established a compensation
committee. Our Compensation committee establishes standards and guidelines to
assist the directors in establishing compensation due to the officers of our
corporation. Our Compensation committee consists of Dr. Mahesh Kanojia.
45
ITEM 11. EXECUTIVE COMPENSATION
NAMED EXECUTIVE OFFICERS
- --------------------------
The following table identifies our principal executive officer, our
principal financial officer, and our most highly paid executive officers during
the most recently completed fiscal year who, for purposes of this Item 11 only,
are referred to herein as the "Named Executive Officers."
Name Corporate Office
------------- -----------------------
Crawford Shaw Chief Executive Officer
BB Tuley Chief Financial Officer
SUMMARY COMPENSATION TABLE
The following table sets out the compensation received for the last two
full fiscal years, or such other period as we have been in existence, in respect
to each of the Named Executive Officers.
ALL OTHER
NAME AND OPTION COMPEN-
PRINCIPAL FISCAL SALARY BONUS AWARDS SATION
POSITION YEAR ($) ($) ($) ($) TOTAL ($)
- ------------- ------- ------- ------ ------- ---------- ---------
Crawford Shaw 2008 0 0 0 0 0
2007(1) 0 0 0 0 0
BB Tuley 2008(2) 0 0 0 0 0
(1) From August 1, 2007.
(2) From June 10, 2008.
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis describes the material
elements of compensation for the executive officers identified in the Summary
Compensation Table contained above.
The Compensation Committee of our Board of Directors (the "Committee")
reviews and approves the total direct compensation packages for each of our
executive officers. Notably the salary and other benefits payable to our named
executive officers are set forth in employment agreements which are discussed
below. Stock option grants, as applicable to certain of the named executive
officers, are approved by the full board of directors.
CASH COMPENSATION PAYABLE TO OUR NAMED EXECUTIVE OFFICERS.
None
EMPLOYMENT AGREEMENTS WITH OUR NAMED EXECUTIVE OFFICERS.
We have entered into employment agreements with any of our Named Executive
Officers. Each of our executive officers is paid a salary for their services and
certain of our executive officers have been granted stock options in
consideration for their services. When the Compensation Committee considers
salaries for our executives, it does so by evaluating their responsibilities,
experience, the competitive marketplace, and our financial resources and
projections. Pursuant to its Charter, our Compensation Committee reviews and
approves the terms of the compensation granted to our executive officers.
46
Crawford Shaw: On August 1, 2007, we entered into an employment agreement
--------------
with our Chief Executive Officer and Chairman of the Board, Crawford Shaw. The
agreement is for an initial three year term and may be automatically extended
for additional one year terms. Pursuant to the agreement Mr. Shaw will receives
an annual salary of $75,000 to commence once the company launches a fully
operational version of the www.ext.com website and is profitable.
BB Tuley: Mr. Tuley joined the Company on June 10, 2008. To date we have
---------
not paid Mr. Tuley any compensation for his services as CFO, and have not
negotiated his compensation structure.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2007
OPTION AWARDS
---------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING OPTION OPTION
UNEXERCISED OPTIONS (#) EXERCISE EXPIRATION
NAME EXERCISABLE UNEXERCISABLE PRICE ($) DATE
- ------------- --------------- ----------------- --------- ----------
Crawford Shaw 0 0 N/A N/A
BB Tuley 0 0 N/A N/A
OPTION EXERCISES AND STOCK VESTED
None of our executive officers exercised any stock options, SARs or similar
instruments during the fiscal year ended December 31, 2007, or subsequently.
None of our current executive officers serving were granted restricted common
stock that was subject to a vesting schedule during our fiscal year ended
December 31, 2007, or subsequently.
PENSION BENEFITS
Extensions, Inc. has no defined benefit plans, supplemental executive
retirement plans or actuarial plans.
NONQUALIFIED DEFINED CONTRIBUTION AND OTHER DEFERRED COMPENSATION PLANS
Extensions, Inc. does not have any nonqualified defined contribution or
deferred compensation plans.
DIRECTOR COMPENSATION
In December 2007 the Board adopted resolutions whereby each board member
receives $100 for participating in Board meetings and is reimbursed for travel
and related expenses if the meeting is attended in person.
The following table reflects the compensation of our directors for our
fiscal year ended December 31, 2008:
47
DIRECTOR COMPENSATION
EARNED OR
NAME PAID IN CASH OPTION AWARDS TOTAL
- ------------------- ------------- -------------- ------
Crawford Shaw $ 400 $ 0 $ 400
BB Tuley $ 400 $ 0 $ 400
Craig Reed $ 400 $ 0 $ 400
Dr. Mahesh Konajai
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The number of shares outstanding of the Company's Common Stock at April 14,
2009was 889,619,940. The following table sets forth the beneficial ownership
of all classes of the Company's equity securities as of December 31, 2008 by
each Director and each Executive Officer of the Company, by all Directors and
Executive Officers as a group, and sets forth the number of shares of Common
Stock owned by each person who owned of record, or was known to own
beneficially, more than 5% of the outstanding shares of Common Stock.
AMOUNT AND
NATURE OF PERCENTAGE OF
NAME AND ADDRESS BENEFICIAL BENEFICIAL
OF BENEFICIAL OWNER OWNERSHIP OWNERSHIP CLASS
CSR TRUST 152,000,000 17.10% Common
C/O Cutler Law Group 1,000,000 50% Preferred A
3206 W. Wimbledon,
Augusta, GA 30909
CMR TRUST 152,000,000 17.10% Common
C/O Cutler Law Group 1,000,000 50% Preferred A
3206 W. Wimbledon,
Augusta, GA 30909
BTR NEST LLC 85,000,000 9.60% Common
770 South Post Oak Lane
#330
Houston, TX 77056
MATTHEW DAHSE 80,000,000 9.00% Common
770 South Post Oak Lane
#330
Houston, TX 77056
ELAINE SELAN 80,000,000 9.00% Common
909 Marina Parkway
# 160
Alameda, CA 94501
48
ELLEN REYNOLDS 70,000,000 7.90% Common
770 South Post Oak Lane
#330
Houston, TX 77056
CHRIS RYAN 70,000,000 7.90% Common
770 South Post Oak Lane
#330
Houston, TX 77056
CRAWFORD SHAW, CEO 42,272,000 4.75% Common
BB TULEY, CFO 0 - -
CRAIG REED, DIRECTOR 0 - -
DR. MAHESH KONAJAI, DIRECTOR 0 - -
All Officers & Directors
as a Group (4 persons) 42,272,000 4.75% Common
The number of shares beneficially owned is determined in accordance with
Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rule, beneficial ownership includes any shares as to which the selling
stockholders has sole or shared voting power or investment power and also any
shares, which the selling stockholders has the right to acquire within 60 days.
The actual number of shares of common stock outstanding may increase prior to
the effectiveness of this registration statement due to penalty shares which may
be issued.
CHANGES IN CONTROL
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE .
There have not been any transactions, or proposed transactions, during the
last two years, to which the Company was or is to be a party, in which any
Company director or executive officer, any nominee for election as a director,
any security holder owning beneficially more than five percent of the common
stock of the Registrant, or any member of the immediate family of the
aforementioned persons had or is to have a direct or indirect material interest,
except as follows:
SHARE DIVIDEND
On December 9, 2008 The Company decided that is was in the best interest of
the current shareholders to issue a 1 for 19 common share dividend and realized
that there were not enough common
49
shares authorized for this to occur. In the interest of accomplishing the
dividend the board approached the trustee of the largest shareholder who agreed
to convert 50,000,000 shares of Common stock for the issuance of 2,000,0000
shares of Convertible Preferred A shares. Prior to the dividend there were
44,480,997 common shares available to receive the 1 for 19 dividends. On
December 29, 2008 the company issued a total of 845,138,943 additional common
shares to reflect the 1 for 19 dividend of the 44,480,997 eligible common
shares. None of the 2,000,000 Preferred A convertible shares received any
dividend or common shares.
DOMAIN LEASE AGREEMENT: WWW.EXT.COM
On January 4, 2008, the Company entered into a domain lease agreement with
CSR Trust and SMR Trust, 17% shareholders of the Company and irrevocable trusts
held by the children of Chris Ryan, a 7.9% shareholder. The lease allows the
Company to develop the domain name www.ext.com for the purpose of developing a
social support network. The lease will remain in effect until May 31, 2014,
unless terminated by either party.
The monthly royalty to be paid to the lessor is based on the following
formula:
a. $1 per registered member per month, (defined as any member who
has logged on in any 91 day period of time), plus a 5% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period from June 1, 2009 to May 31,
2010.
b. $1.50 per registered member per month plus 6% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2010 to May 31, 2011.
c. $2 per registered member per month plus a 7% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2011 to May 31, 2012.
d. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
e. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
f. $3 per registered member per month plus a 9% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.ext.com domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2013 to May 31, 2014.
Between the period of the signing of the agreement and until May 31, 2009,
"The Development Period", the lessee minimum royalty due to the lessor will be
$50,000 or at the lessor's option 10,000,000 shares of the Company's common
stock. On January 4, 2008, the lessor was issued 10,000,000 shares of the
Company's common stock. The value of the common shares issued was determined by
management to be $50,000 and was recorded as lease expense.
Beginning June 1, 2009 the minimum annual royalty will be $1,000,000.
Beginning June 1, 2010 the minimum annual royalty will be $5,000,000.
50
Beginning June 1, 2011 the minimum annual royalty will be $10,000,000.
Beginning June 1, 2012 the minimum annual royalty will be $15,000,000.
Beginning June 1, 2013 the minimum annual royalty will be $20,000,000.
If the Company fails to make a royalty payment within thirty days of the
due date, the Company will be in default of the lease agreement. If the default
is not cured within thirty day, then the lessor may terminate the agreement and
all obligations.
If the Company terminates the agreement a termination fee of $2,000,000
will be due to the lessor.
On January 4, 2008, the Company entered into a domain lease agreement with
a related party. The lease allows the Company to develop the domain name
www.cancer.im for the purpose of developing a social support network. The lease
will remain in effect until May 31, 2014, unless terminated by either party.
The monthly royalty to be paid to the lessor is based on the following
formula:
g. $1 per registered member per month, (defined as any member who
has logged on in any 91 day period of time), plus a 5% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period from June 1, 2009 to May 31,
2010.
h. $1.50 per registered member per month plus 6% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2010 to May 31, 2011.
i. $2 per registered member per month plus a 7% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2011 to May 31, 2012.
j. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
k. $2.50 per registered member per month plus a 8% royalty on the
gross revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2012 to May 31, 2013.
l. $3 per registered member per month plus a 9% royalty on the gross
revenues derived by any sales, ad placements and or development
agreements within the www.cancer.im domain and any and all sub and
sub-sub.ext.com domains for the period June 1, 2013 to May 31, 2014.
If the Company fails to make a royalty payment within thirty days of the
due date, the Company will be in default of the lease agreement. If the default
is not cured within thirty day, then the lessor may terminate the agreement and
all obligations.
If the Company terminates the agreement a termination fee of $2,000,000
will be due to the lessor.
51
DIRECTOR INDEPENDENCE
Our Board of Directors currently consists of Crawford Shaw, B. B. Tuley,
Craig Reed and Dr. Mahesh Konajia. The Company defines "independent" as that
term is defined in Rule 4200(a) (15) of the Nasdaq listing standards. Craig Reed
and Dr. Mahesh Konajia are independent and neither have any material
relationship with the Company that might interfere with his exercise of
independent judgment.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees paid to Gruber & Company LLC, the
Company's independent public accounting firm, for the fiscal years ended
December 31, 2008 and 2007.
2008 2007
------ ------
Audit fees $5,000 $5,000
Audit-related fees - -
Tax fees* - -
All other fees - -
------ ------
TOTAL $5,000 $5,000
AUDIT COMMITTEE'S PRE-APPROVAL PRACTICE
Section 10A(i) of the Securities Exchange Act of 1934 prohibits our
auditors from performing audit services for us as well as any services not
considered to be "audit services" unless such services are pre-approved by the
Audit Committee of the Board of Directors, or unless the services meet certain
de minimis standards. The Audit Committee's charter provides that the Audit
Committee must:
- Pre-approve all audit services that the auditor may provide to us
or any subsidiary (including, without limitation, providing comfort
letters in connection with securities underwritings or statutory
audits) as required by Sec.10A(i)(1)(A) of the Securities Exchange Act
of 1934 (as amended by the Sarbanes-Oxley Act of 2002).
- Pre-approve all non-audit services (other than certain de minimis
services described in Sec.10A(i)(1)(B) of the Securities Exchange Act
of 1934 (as amended by the Sarbanes-Oxley Act of 2002)) that the
auditors propose to provide to us or any of its subsidiaries.
The Audit Committee considers at its meetings, when appropriate, whether to
approve any audit services or non-audit services. In some cases, management may
present the request; in other cases, the auditors may present the request.
52
PART IV
ITEM 15. EXHIBITS
NO. DESCRIPTION
3.1 Articles of Incorporation filed June 14, 1999. (Incorporated by reference
from Form 10SB12G filed June 24, 1999)
3.2 Articles of Amendment to the Articles of Incorporation filed February 17,
2007. (Incorporated by reference from Form 10-K filed April 15, 2009)
3.3 Certificate of Designation of Convertible Preferred A Shares. (Incorporated
by reference from Form 10-K filed April 15, 2009)
10.1 Employment Agreement with Crawford Shaw. (Incorporated by reference from
Form 10-K filed April 15, 2009)
10.2 Consulting Agreement with Chris Ryan. (Incorporated by reference from Form
10-K filed April 15, 2009)
10.3 Consulting Agreement with Matt Dahse. (Incorporated by reference from Form
10-K filed April 15, 2009)
10.4 Domain lease Agreement www.ext.com. (Incorporated by reference from Form
10-K filed April 15, 2009)
10.5 Provisional Patent acquisition agreement. (Incorporated by reference from
Form 10-K filed April 15, 2009) 10.5 Provisional Patent acquisition
agreement
31.1 Certification of Principal Executive Officer Pursuant to Exchange Act Rules
13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith.
31.2 Certification of Principal Financial Officer Pursuant to Exchange Act Rules
13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith.
32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith.
32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith.
99.1 Audit Committee Charter (Incorporated by reference from Forrn 10QSB for
period ending June 30, 2008)
99.2 Corporate Governance Charter (Incorporated by reference from Forrn 10QSB
for period ending June 30, 2008)
99.3 Compensation Committee Charter (Incorporated by reference from Forrn 10QSB
for period ending June 30, 2008)
53
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXTENSIONS, INC
Date: June 18, 2009 By: /s/ Crawford Shaw
----------------------------
Crawford Shaw,
Principal Executive Officer
Date: June 18, 2009 By: /s/ BB Tuley
----------------------------
BB Tuley,
Chief Financial Officer,
Principal Accounting Officer
54