Item 1. Description of Business
SearchHelp, Inc. was incorporated in the State of Delaware on September 5, 2001 and completed its initial public offering on July 23, 2003. During the fiscal year ended December 31, 2008, the Company acquired 100% of the stock of EchoMetrix, Inc, a wholly owned subsidiary.
Business Summary
The Company develops software services committed to real-time online protection and family safety. The Company develops and sells software products that offer parental controls that enable parents, both in home and remotely, to monitor and regulate their child’s computer activities. The Company, through the newly acquired EchoMetrix division, also offers technology to corporations, within various verticals, to help management analyze real-time, natural language expressions and measure sentiment and behavior in digital content, such as blogs, forums, emails, instant messaging and soon mobile text.
Business Strategy and Products
SearchHelp is in the electronic publishing business with the added benefit that all of its content is User Generated Content (“UGC”). To effectively achieve a strong position in this market the Company has initiated a significant program that will leverage its existing powerful Parental Control Software programs with a new distribution strategy, a new management team with proven expertise in this market and a new market intelligence software package, the “Pulse”, that once in the marketplace will allow users to effectively manipulate its unique unfiltered teen market data.
Sentry Products
The Company’s original core business was built around a series of software products designed to monitor and protect children from inappropriate activity on the Internet. This web based award winning robust software “captures” everything a teen does on their computer, monitors for key triggers that suggest inappropriate activity and takes a variety of actions predetermined by the parent that range from immediate alerts (mobile text messages and emails), to reports, logs and shutting down the computer.
As part of the installation of this Parental Control software the parent agrees that the Company may use all of the data that it “sees” in the aggregate without identifying the source for other purposes. This parental complicity provides the Company with a data base of millions of lines of teen IM and Blog content and in turn, provides an incredible unique insight into the unfiltered mind of the U.S. teen audience. The Company does not know of any other unfiltered sources of teen data.
Pulse
The Company’s next product (which has not generated any revenue for the fiscal years ended 2008 and 2007) called Pulse, monitors this teen data in real time, and not only provides instantaneous customized summaries, but it also has the ability to contextualize all the aggregated teen content. Pulse identifies, evaluates, and graphically displays a wide spectrum of analytic information relating to the type, tone, grade, frequency of communications, impressions, needs, desires, hopes, dreams and wants of this teen audience who live on the web. The core of the Pulse platform is comprised of the Company’s proprietary unfiltered database and the computational algorithms that parse, assess, measure, analyze and report on the real-time digital activity.
The Company’s Pulse provides marketers with a deep and instantaneous insight into the target teen audience, providing an understanding of what is important to them. This understanding allows the construction of compelling and effective advertising messages. With a better understanding of the teen customer, effective marketing strategies and tactics can be formulated to meet the marketer's objectives.
Marketing
SearchHelp is currently marketing all of the Parental Control programs online through a number of web sites and landing pages. These web sites primarily point back to our main site www.sentryparentalcontrols.com . Currently we are rated as the 175,000 most visited site in the U.S on alexa.com, we receive an average of 800 unique visits daily (unique is defined as never visited before), the average page views from our visitors is 3.54 which is down recently but still considered very high and a 28% bounce rate on Google Analytics. Our U.K. distribution through www.sentryparentalcontrols.co.uk is rated as the 18,000 most visited website in the U.K. The contents of any website mentioned in this Report are not incorporated herein.
Currently, we are downloading between 50 and 100 new downloads daily, with a minimal advertising budget and of the users who install the free trial 10% become convert to paid users; this is a combination of the three products offered on the web (Sentry Total, Basic, and Lite).
The Company released its new 2008 beta Version of its Sentry products during the fourth quarter of 2007. This new version is a complete rebuild, which has been in development since early 2007. The new product, Sentry Total Family Protection (“Suite”) replaces the combined features set of both our Sentry At Home and Sentry Remote products which the Company believes exceeds the feature set of all other major competitors. We also introduced Sentry Lite, a free version of our Sentry at Home software with far fewer features, to introduce parents to parental control software with the intent that parents upgrade to our fee based products once they see the value parental control software offers.
The market sensitivity and awareness continues to be enhanced by the very real but inflammatory stories that show up almost daily on the news and daily TV magazine shows. The Internet can be a very dangerous place for kids. The Company plans a major distribution change going forward. It plans to focus less on distributing the product through its “Sentry” brand name and more on utilizing brands of more established companies. The Company will offer its Sentry product as a White Labeled product to Companies that already have a brand. Our White Labeled product will have the functionality of the Sentry product and the look and feel of the White Label Partner. We believe this change in distribution should make it easier to increase distribution of the Senty product with minimal cost.
In October 2007, we signed a sales and distribution agreement with Celltec Limited (“Celltec”) to deliver Sentry products throughout the United Kingdom and the Republic of Ireland. We began shipping product under this agreement during the first quarter of 2008 on a non-consignment basis. Celltec has hired Brazen, a UK PR agency to create a national distribution and awareness campaign, which was launched on April 14, 2008.
To generate market awareness in advance of the release of the Pulse and to establish the Company’s position as an authority in the teen knowledge market, the Company will leverage its unique asset real time knowledge about the teen market.
Competition
The Company competes for business with other companies that have child-monitoring software that includes the following: NetNanny (ContentWatch, Inc.), Cybersitter (Solid Oak Software, Inc. (US)), CyberPatrol (SurfControl), McAfee Parental Controls (Networks Associates Technology, Inc.), Norton Parental Controls (Symantec Corporation), FilterPak (S4F, Inc.), Cyber Sentinel (Security Software Systems, Inc.), and Cyber Snoop (Pearl Software, Inc.).
The Company has to respond promptly and effectively to the challenges of technological change, evolving standards and the Company's competitors' innovations by continuing to enhance the Company's products and services, as well as the Company's sales and marketing channels.
The current market for marketing intelligence is highly competitive and evolving rapidly. Although we believe the Company’s core asset, the unfiltered data base of teen IM and Internet content is unique, it is clear that the target audience has a number of alternative sources for marketing intelligence. While the Company believes that the combination of its teen data file and real-time contextual and linguistic analysis is unique, it will compete with the existing providers of digital marketing intelligence and related analytical products and services. The marketing intelligence industry is a “cottage industry” with many vendors providing customized one time services and studies.
Economic Dependency
The Company sells its products on line and through distributors to major retailers throughout the United States. At December 31, 2008, one customer accounted for 100% of the accounts receivable. At December 31, 2007, two customers, each of which accounted for more than 10% of the Company’s accounts receivable, accounted for 97% of total accounts receivable in the aggregate.
In 2008, one customer accounted for 56% of the Company’s sales. In 2007, the three largest customers, each of which accounted for more than 10% of the Company’s sales, accounted for 98% of total sales in the aggregate. In 2007, the Company, for reasons of convenience, consistency and economy of scale, purchased its entire inventory from one vendor. This risk is mitigated to a great extent by the extensive availability of similar vendors at competitive prices throughout the United States.
Intellectual Property
To date, we have filed a provisional patent for the Company’s Sentry Product and look to file additional protection measures, such as, trademark, trade name or copyright protection in any jurisdiction in which it operates. We intend to file to protect its trademarks and trade names in selected jurisdictions. We therefore rely on trade secret laws and confidentiality provisions in our agreements to prevent the unauthorized disclosure and use of our intellectual property.
Employees
As of April 14, 2009, the Company had seven full time employees and two part time employees.
Item 1A.
Item 1A. Risk Factors.
IF WE CONTINUE OUR HISTORY OF LOSSES, WE MAY BE UNABLE TO CONTINUE OUR OPERATIONS
We incurred net losses of $5,190,030 and of $6,761,492 for the years ended December 31, 2008 and 2007 (as restated), respectively. Since inception, we have an accumulated deficit of $22,849,549. As a result, as of December 31, 2008, we had a stockholders’ deficit of $3,627,571 and a working capital deficiency of $3,802,349. We cannot be certain whether we will ever make a profit, or, if we do, that we will be able to continue earning a significant amount of revenues or making a profit. If we continue to lose money, our stock price could decline or we may be forced to discontinue our operations, either of which may result in you losing a portion or all of your investment.
WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS AS A GOING CONCERN.
The report of our independent auditors for the fiscal year ended December 31, 2008 was issued under the assumption that we would continue as a going concern. As discussed in Note 1 to our financial statements for the fiscal year December 31, 2008, we have experienced operating losses over the past two years resulting in an accumulated deficit. Our independent auditors believe, based on our financial results as of December 31, 2008, that such results raised substantial doubts about our ability to continue as a going concern. The financial statements included in the Annual Report on Form 10-K do not include any adjustments to asset values or recorded liability amounts that might be necessary in the event we are unable to continue as a going concern. If we are in fact unable to continue as a going concern, you may lose your entire investment.
IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, OUR BUSINESS MAY FAIL OR OUR OPERATING RESULTS AND OUR STOCK PRICE MAY BE MATERIALLY ADVERSELY AFFECTED
The Company's cash on hand at December 31, 2008 totaled $25,217. The Company will need additional financing to meet its obligations and to continue its business. The Company is exploring alternative sources of financing, including institutional and non-institutional debt, equity, which will be highly dilutive to the current stockholders, joint venture arrangements or a combination of any or all of the foregoing. No arrangements have been entered into. The Company will need to raise at least a minimum of $500,000 by May 30, 2009 in order to continue operations and an additional $2,000,000 after that in order to enable the Company to generate sufficient revenues to cover all of its present and future costs and expenses.
If we are not able to raise funds, we may not be able to successfully develop and market our products and our business will most likely fail.
AS WE RAISE ADDITIONAL CAPITAL, YOUR PERCENTAGE OWNERSHIP INTEREST IN SEARCHHELP WILL LIKELY BE REDUCED
The raising of additional financing would in all likelihood result in dilution or reduction in the value of our securities. Our ability to operate is dependent upon obtaining sufficient capital. Accordingly, we anticipate that we will, at the appropriate time, increase our capital base, which increase may include the sale of securities with a priority to the common stock. These sales will reduce your percentage of ownership.
OUR INABILITY TO RETAIN AND ATTRACT KEY PERSONNEL COULD SERIOUSLY HARM OUR BUSINESS AND ADVERSELY AFFECT OUR ABILITY TO DEVELOP OUR PRODUCTS
We believe that our future success will depend on the abilities and continued service of our senior management and executive officers, particularly our Chief Executive Officer and Chief Operating Officer and those persons involved in the research and development of our products. If we are unable to attract additional qualified employees, researchers and consultants, we may be unable to successfully finalize and market our products and other future products being developed.
OUR SENTRY PARENTAL CONTROL SOFTWARE TECHNOLOGY AND STRATEGY MAY NOT BE SUCCESSFUL
Our success will depend almost entirely upon the acceptance of our products and services by parents with children under the age of 17, elementary and middle schools, media companies and households. Market acceptance will depend upon several factors, particularly the determination by parents that they need and want to monitor and protect their children while on the Internet and the determination by schools that they want to educate and inform families about the need for monitoring and knowing what their children do while on the Internet. A number of factors may inhibit acceptance, including the existence of competing products, our inability to convince families that they need to pay for the products and services that we will offer, or failure by households and service companies to use our products. If our products are not accepted by the market, we may have to curtail our business operations, which could have a material negative effect on operating results and most likely result in a lower stock price.
THE COMMERCIALIZATION OF OUR NEW TECHNOLOGY AND STRATEGY MAY NOT BE SUCCESSFUL
Our success will depend upon the acceptance of our products and services by advertisers and marketers. Market acceptance will depend upon several factors, particularly the determination by businesses that they need and want accurate, relevant, real time, and objective marketing intelligence. A number of factors may inhibit acceptance, including our inability to convince businesses that they need to pay for the products and services that we will offer. If our products are not accepted by the market, we may have to curtail our business operations, which could have a material negative effect on operating results and most likely result in a lower stock price.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS
We will compete, in our current and proposed businesses, with other companies, some of which have far greater marketing and financial resources and experience than we do. We cannot guarantee that we will be able to penetrate our primary market and be able to compete at a profit. In addition to established competitors, there is ease of market entry for other companies that choose to compete with us. Effective competition could result in price reductions, reduced margins or have other negative implications, any of which could adversely affect our business and chances for success. Competition is likely to increase significantly as new companies enter the market and current competitors expand their services. Many of these potential competitors are likely to enjoy substantial competitive advantages, including: larger technical staffs, greater name recognition, larger customer bases and substantially greater financial, marketing, technical and other resources. To be competitive, we must respond promptly and effectively to the challenges of technological change, evolving standards and competitors’ innovations by continuing to enhance our services and sales and marketing channels. Any pricing pressures, reduced margins or loss of market share resulting from increased competition, or our failure to compete effectively, could seriously damage our business and chances for success.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY
We must continually implement and improve our products and/or services, operations, operating procedures and quality controls on a timely basis, as well as expand, train, motivate and manage our work force in order to accommodate anticipated growth and compete effectively in our market segment. Successful implementation of our strategy also requires that we establish and manage a competent, dedicated work force and employ additional key employees in corporate management, product design, client service and sales. We can give no assurance that our personnel, systems, procedures and controls will be adequate to support our existing and future operations. If we fail to implement and improve these operations, there could be a material, adverse effect on our business, operating results and financial condition.
IF WE DO NOT CONTINUALLY UPDATE OUR PRODUCTS, THEY MAY BECOME OBSOLETE AND WE MAY NOT BE ABLE TO COMPETE WITH OTHER COMPANIES
Internet technology, software applications and related infrastructure are rapidly evolving. Our ability to compete depends on the continuing development of our technologies and products. We cannot assure you that we will be able to keep pace with technological advances or that our products will not become obsolete. We cannot assure you that competitors will not develop related or similar products and bring them to market before we do, or do so more successfully, or that they will not develop technologies and products more effective than any that we have developed or are developing. If that happens, our business, prospects, results of operations and financial condition will be materially adversely affected.
OUR BUSINESS IS CONCENTRATED, MAKING OUR OPERATIONS SENSITIVE TO ECONOMIC FLUCTUATIONS
Because of our extremely limited financial resources, it is unlikely that we will be able to further diversify our operations. Therefore, we will be subject to economic fluctuations within our industry. If our business does not succeed, you could lose all or part of your investment.
IF WE DO NOT SUCCEED IN OUR EXPANSION STRATEGY, WE MAY NOT ACHIEVE THE RESULTS WE PROJECT
Our business strategy is designed to expand the sales of our products and services. Our ability to implement our plan will depend primarily on the ability to attract customers and the availability of qualified and cost-effective sales personnel. There are no firm agreements for employment of additional marketing personnel, and we can give you no assurance that any of our expansion plans will be successful or that we will be able to establish additional favorable relationships for the marketing and sales of our products and services. We also cannot be certain when, if ever, we will be able to hire the appropriate marketing personnel and to establish additional merchandising relationships.
OUR OFFICERS AND DIRECTORS HAVE LIMITED LIABILITY AGAINST LAWSUITS
SearchHelp is a Delaware corporation. Delaware law permits the indemnification of officers and directors against expenses incurred in successfully defending against a claim. Delaware law also authorizes Delaware corporations to indemnify their officers and directors against expenses and liabilities incurred because of their being or having been an officer or director. Our organizational documents provide for this indemnification to the fullest extent permitted by law.
OUR COMPANY IS A PARTY TO VARIOUS LITIGATION
We have been engaged in various litigations (See Litigation section below). We could be subject to future litigations that could materially affect our ability to operate our Business.
RISKS RELATED TO OUR SECURITIES
ISSUANCE OF PREFERRED STOCK COULD HURT HOLDERS OF COMMON STOCK
Our board of directors is authorized by our charter to create and issue preferred stock. The rights of holders of preferred stock take precedence over the rights of holders of common stock. Between February 2007 and December 31, 2007, we created a class of 1,526,718 Series A 7% of cumulative preferred stock, since that date, we have sold an aggregate of 901,237 shares of Series “A” preferred stock and may issue additional shares of our Series “A” preferred stock at any time. The preferred stock has a preference or liquidation of $2.62. The rights of future preferred stockholders could delay, defer or prevent a change of control of SearchHelp, even if the holders of common stock are in favor of that change of control, as well as enjoy preferential treatment on matters like distributions, liquidation preferences and voting.
OUR STOCK PRICE HAS BEEN VOLATILE
Our stock price fluctuated between $0.05 and $0.25 for the year ended December 31, 2008 and between $0.08 and $0.45 for the year ended December 31, 2007. The price of our shares may fluctuate significantly despite the absence of any apparent reason. In addition, our stock is thinly traded, leading to even greater volatility. You should expect this volatility to continue. The price of our common stock may be subject to considerable fluctuations as a result of various factors, including but not limited to:
• Technological innovations or commercialization of new products by our competitors;
• The release of research reports by securities analysts;
• Disputes concerning patents or proprietary rights;
• Financial results of other firms, particularly those in our industry; and
• Economic and other external factors.
The Company’s Common Stock does not currently have an active or liquid public market. As a result, even if the Securities are registered, investors may find it difficult to sell them. There can be no assurance that a liquid market for the Securities will ever develop in the United States, or elsewhere, or that if such a market does develop, that it will continue; or that the trading price of the Securities will not be subject to significant price fluctuations. Investors may also find it difficult to obtain accurate information and quotations as to the price of the Company’s securities. Accordingly, an investment in the Securities should only be considered by those investors who do not require liquidity and can afford to suffer a total loss of their investment. An investor should consider consulting with professional advisers before making such an investment.
OUR SHARES ARE CLASSIFIED AS “PENNY STOCK” AND BECAUSE “PENNY STOCK” RULES WILL APPLY, YOU MAY FIND IT DIFFICULT TO SELL YOUR SHARES
A “penny stock” is a common stock that is not listed on a national securities exchange and trades for less than $5.00 per share. Additional disclosure is required in connection with trades in a penny stock. These disclosure requirements may have the effect of reducing the level of trading activity in our common stock, making the market for the shares of common stock illiquid.
THERE WILL BE A SIGNIFICANT NUMBER OF SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE AND THIS MAY HURT THE MARKET PRICE OF THE SHARES
The market price of our shares could decline as a result of sales, or the perception that sales could occur, of a large number of shares available in the public market. Such sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. At December 31, 2008, we had a total of 71,787,304 shares of common stock outstanding, but there were also 39,141,611 shares that could be acquired upon the conversion or exercise of outstanding preferred stock, notes, options and warrants. Upon the conversion or exercise of these securities, your interest in SearchHelp will be diluted.
WE HAVE NEVER PAID ANY CASH DIVIDENDS
SearchHelp has never paid any cash dividends on its shares of common stock and there are presently no plans being considered that would result in the payment of cash dividends.
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Properties.
The Company leases an executive office consisting of 1,868 square feet at 6800 Jericho Turnpike, Suite 208E, Syosset, New York 11791. The lease commenced on July 31, 2006 and has a five year and two month term. The current rent is $4,401 per month ($52,812 per year) and increases approximately 3% per annum. The Company has a security deposit with its landlord of $8,406.
A subsidiary of the Company had a lease that expired in August 2008, for 1,404 square feet of office space at 56 Roland Street, Boston, Massachusetts. The annual rent is $28,704. The Company has a security deposit with its landlord of $4,000. The subsidiary ceased operations early in 2008 and closed the office in Boston.
Rent expense was $61,953 and $82,279 for the years ended December 31, 2008 and 2007, respectively.
We believe that our facilities are adequate for our current and near-term needs.
Item 3.
Item 3. Legal Proceedings.
AmberAlertAgent Development Company, LLC
On February 20, 2007, SearchHelp was served with a complaint that was filed in the Superior Court of California in San Diego County on February 8, 2007, entitled AmberAlertAgent Development Co., LLC, a California Limited Liability Company; Perkins, Brinson, Ho, LLC, a California Limited Liability Company; Philip Dizon, an individual; Edward Sullivan, an individual; Gil Amelio, an individual; Richard A. Weintraub, an individual; Carl Perkins, an individual; and Duane Brinson, an individual v. Searchhelp, Inc., a Delaware Corporation; and Does 1-20. The claims against the Company arise out of an Exchange Agreement entered into between AmberAlertAgent, Inc. (“AAA”), certain of the plaintiffs and the Company pursuant to which the Company purchased all the issued and outstanding shares of AAA in exchange for 1.5 million shares in the Company. The shares in the Company acquired by the plaintiffs are being held in escrow until plaintiffs complete the development of software, and provided certain other services, as set forth in a Consulting Agreement between plaintiffs and the Company.
On August 2, 2007, the Company and the plaintiffs signed a Settlement Agreement and Mutual Release whereby all legal actions were dismissed. Under the terms of the Settlement Agreement, SearchHelp placed $10,000 into escrow and released to the plaintiffs an aggregate of 1.375 million shares of the Company's common stock which were previously being held in escrow. The remaining 125,000 shares which were previously held in escrow were returned to the Company and retired. In addition, pursuant to the Settlement Agreement, SearchHelp and Amber Alert Agent entered into a License Agreement pursuant to which the Company received a perpetual, royalty-free, worldwide, and non-exclusive license to use, including to reproduce, perform, display, distribute, and create derivative works from, certain Sentry Predator Locator software and all related documentation. An additional $10,000 was placed in escrow for payment of transition services to be provided by the plaintiffs to assist the Company in migrating the software onto the Company's servers. The source code for the licensed software was also placed into escrow. All escrowed items will be released upon the successful transition of the software. In February 2009, the Company, AmberAlertAgent Development Co., LLC, all of the plaintiffs and the Escrow Agent reached a settlement agreement, and $9,500 of the funds were released to the Company and $9,500 was released to the Plaintiffs in accordance with the Settlement Agreement. $1,000 was paid to the escrow agent for escrow fees and the source codes were delivered to Plaintiffs in accordance with the Settlement Agreement.
Joseph Carrizzo
During the first quarter of 2007, Joseph Carrizzo resigned as the Company’s President and a director. The Company attempted to negotiate the terms of a separation agreement with Mr. Carrizzo. On March 20, 2007, the Company received a letter from Mr. Carrizzo in which he formally advised the Company that he was terminating his employment as a result of the Company’s alleged material breach of his employment agreement. The Company contends that Mr. Carrizzo voluntarily terminated his employment with the Company.
On May 22, 2008, a settlement agreement was reached between the Company and Mr. Carrizzo, whereby the Company has agreed to pay Mr. Carrizzo $150,000 and issue 1,275,000 of the Company’s restricted common shares in full and complete settlement of all monetary and non-monetary claims by Mr. Carrizzo. Pursuant to the settlement agreement, 3,270,000 options granted to Mr. Carrizzo were cancelled A cash payment of $10,000 was made immediately upon execution of the settlement agreement and $5,000 per month commencing thirty days after the initial payment is due until the full amount is paid. If the Company raises $500,000 in additional equity financing in a single transaction, a one time accelerated payment of $20,000 is to be made to Mr. Carrizzo. If the Company raises an additional $500,000 in a single transaction, an additional $20,000 accelerated payment is to be made. The common shares payment was delivered in two stock certificates on May 28, 2008. The first 625,000 shares issued are restricted until the shares are registered. The second payment of 650,000 common shares are subject to the first stipulation and have an additional legend that prohibits their resale prior to March 1, 2009.
Charles Davis
On May 23, 2008, the Company responded to a letter dated May 22, 2008 and sent a notification to return personal and intellectual property belonging to the Company from the former Chief Technology Officer, Charles Davis. Mr. Davis claims independent rights to use technology owned and developed by SearchHelp, Inc and EchoMetrix. The Company maintains that Mr. Davis is in violation of his confidentiality obligations and has demanded all records, software and data owned by SearchHelp, Inc and subsidiaries to be returned to the Company immediately. Mr. Davis was charged with larceny based on a complaint filed by the Company and the case is being prosecuted by the Nassau County District Attorney's office.
Freifeld
On or about November 2008, the plaintiffs, Freifelds brought an action against the Company seeking summary judgement in lieu of complaint on two debt conversions. The plaintiffs converted their notes and received the Company’s stock certificates in November 2008. Subsequently, the plaintiffs brought suit, requesting repayment of their converted notes. The Company has retained legal counsel and has filed pre-answer motion for summary judgement for the Company. The Plaintiffs have moved for summary judgment in lieu of a complaint and we cross-moved for summary judgment. The Court has indicated that it is going to set the matter down for an evidentiary hearing. No date has been set.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of 2008.
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters.
SearchHelp's public offering was completed on July 23, 2003. A total of 2,474,000 units were sold in the public offering. Each unit consisted of one share of Common Stock, one Class A Warrant, exercisable for five years, to purchase one share of Common Stock at $0.75 per share ("Class A Warrant") and one Class B Warrant, exercisable for seven years, to purchase one share of Common Stock at $1.75 per share ("Class B Warrant"). The Common Stock, Class A Warrants and Class B Warrants are quoted on the OTC Bulletin Board and trade under the symbol SHLP, SHLPW and SHLPZ respectively.
On December 31, 2007, we extended the term to exercise the Class A Warrant from December 31, 2007 to March 31, 2008. The exercise price of the Class A Warrant was lowered on from $0.75 to $0.17 per share of our common stock, and we reduced the exercise price of our Class B Warrant from $1.50 to $0.22 per share of our common stock. All other terms and conditions of the Warrants remained the same.
On December 31, 2007, we also extended the term to exercise Placement Agents’ Class A Warrant from December 31, 2007 to December 31, 2008. The exercise price of the Class A Warrant was lowered from $0.985 to $0.17 per share of our common stock, and we reduced the exercise price of our Class B Warrant from $2.285 to $0.17 per share of our common stock. All other terms and conditions of the Warrants remained the same.
On March 25, 2008, we extended the term to exercise the Class A Warrant from March 31, 2008 to July 31, 2008. All other terms and conditions of the Warrants remained the same and became effective on June 11, 2008 when the Company received a Notice of Effectiveness from the Securities and Exchange Commission
On August 28, 2008, the Company extended the term to exercise the Class A Warrant from August 31, 2008 to March 31, 2009. All other terms and conditions of the Warrants remained the same and became effective on October 8, 2008 when the Company received a Notice of Effectiveness from the Securities and Exchange Commission.
On March 26, 2009 we filed an 8-K that we intend to extend the terms to exercise the Class A Warrant from March 31, 2009 to June 30, 2010 and to extend the term of the Class B Warrant from December 31, 2009 to June 30, 2010. The Company will file a Post Effective Amendment No. 4 to its Registration Statement on Form S-1 (“Post Effective Amendment”). The extended date will become effective upon the date on which the Securities and Exchange Commission declares the Post-Effective Amendment.
As of April 13, 2009, the Company had outstanding 74,538,976 shares of its Common Stock, par value $0.0001 per share, 2,469,000 Class A Warrants and 2,474,000 Class B Warrants. 5,000 of the Class A Warrants have been exercised, and none of the Class B Warrants have been exercised. Also outstanding were a placement agent warrant to purchase 247,400 units comprised of one share of common stock, one Class A Warrant and one Class B Warrant.
Additionally outstanding were various placement agent warrants to purchase a total of 569,700 shares of the Company's Common Stock at a purchase prices ranging from $0.30 per share to $0.50 per share.
Price Range of Common Stock
The following table shows the high and low bid prices of the Company’s Common Stock as quoted on the OTC Bulletin Board by quarter during each of our last two fiscal years ended December 31, 2008 and 2007. These quotes reflect inter-dealer prices, without retail markup, markdown or commissions and may not represent actual transactions. The information below was obtained from those organizations, for the respective periods.
The high and low bid prices for shares of the Company’s Common Stock on April 13, 2009 was $0.08 per share, respectively, based upon bids that represent prices quoted by broker-dealers on the OTC Bulletin Board.
Holders
As of April 13, 2009, there were approximately 718 holders of record of the Company's common stock, approximately 22 holders of record of the Company's Class A Warrants and approximately 42 holders of record of the Company's Class B Warrants.
Dividends
Since its organization, the Company has not paid any cash dividends on its common stock, nor does it plan to do so in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information regarding the status of our existing equity compensation plans at December 31, 2008.
The number of securities remaining available for future issuance under equity compensation plans approved by security holders totaled 450,000 shares at December 31, 2008.
SALES OF UNREGISTERED SECURITIES FOR THE FOURTH QUARTER
On October 3, 2008, the Company issued 872,825 shares of its common stock upon the conversion of $100,000 of the Company’s 10% convertible notes and accrued interest of $39,492.
On October 16, 2008, the Company, through a private sale, issued 200,000 shares of its restricted common stock as a result of a promissory note issued for $100,000.
On October 31 2008, the Company, through a private sale, issued 100,000 shares of its restricted common stock as a result of a promissory note issued for $50,000.
On October 31, 2008, the Company, through a private sale, issued 600,000 shares of its restricted common stock as a result of a promissory note issued for $300,000.
On November 18, 2008, the Company issued 1,400,000 shares of the Company’s restricted common stock as bonuses to consultants and directors and are valued at approximately $126,000.
On December 4, 2008, the Company issued 119,131 shares of the Company’s restricted common stock as payment in kind for interest due for the months of August, September and October 2008 on the Company’s 10% convertible notes.
On December 29, 2008, the Company issued 91,059 shares of the Company’s restricted common stock as payment in kind for interest due for the months of November and December 2008 on the Company’s 10% convertible notes.
The above shares of common stock were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act.
Item 6.
Item 6. - Selected Financial Data
N/A
Item 7.
Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations
Readers are cautioned that certain statements contained herein are forward-looking statements and should be read in conjunction with our disclosures under the heading "Forward-Looking Statements" on page 1. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. This discussion also should be read in conjunction with the notes to our consolidated financial statements contained in Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of SearchHelp, Inc.
Syosset, New York
We have audited the accompanying consolidated balance sheets of SearchHelp, Inc. and Subsidiaries as of December 31, 2008 and 2007 (as restated), and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years ended December 31, 2008 and December 31, 2007 (as restated). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SearchHelp, Inc. and Subsidiaries at December 31, 2008 and December 31, 2007 (as restated), and the results of their operations and their cash flows for the year ended December 31, 2008 and December 31, 2007 (as restated) in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has negative working capital and a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The financial statements for the year ended December 31, 2007 have been restated (see Note 2).
/s/ Sherb & Company LLP
New York, New York
April 14,
SEARCHHELP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
See notes to consolidated financial statements
SEARCHHELP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIT
See notes to consolidated financial statements
SEARCHHELP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to consolidated financial statements
SEARCHHELP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Restated)
See notes to consolidated financial statements
SEARCHHELP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements
SEARCHHELP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
See notes to consolidated financial statements
SEARCHHELP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008 and 2007 (Restated)
NOTE 1 - DESCRIPTION OF BUSINESS AND GOING CONCERN
SearchHelp, Inc. develops software services committed to real-time online protection and family safety. The Company develops and sells software products that offer parental controls that enable parents, both in home and remotely, to monitor and regulate their child’s computer activities. The Company, through the newly acquired EchoMetrix division, also offers technology to corporations, within various verticals, to help management analyze real-time, natural language express and measure sentiment and behavior in digital content, such as blogs, forums, emails, instant messaging and mobile text.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the financial statements, the Company incurred net losses of $5,190,030 and $6,761,492 for the years ended December 31, 2008 and 2007 (restated), respectively. In addition, the Company had negative working capital of $3,802,349 and an accumulated deficit of $22,849,549 at December 31, 2008.
These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses. The plan includes, among other things, implementing numerous online sales campaigns of parental control software, and concentrating on the new EchoMetrix division. The Company has spent part of 2007 and all of 2008 developing the EchoMetrix Technology. The remainder of 2008 will be spent signing beta users and prepare for EchoMetrix version 2.0 which is expected to be completed early in 2009.
If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company will need additional financing to continue to operate. As the Company increases sales from its products and services, the Company expects to increase cash flows from operations. The Company has been successful in raising financing from equity and debt transactions. During 2008, the Company raised approximately $848,000 from the private placement of common stock and warrants, and issuance of debt, and a total of $1,488,000 of the 10% short term promissory notes have been converted into common stock. During 2007, the Company raised $2,174,800 from the private placement of common stock, 7% convertible preferred stock and warrants, and an additional $460,000 principal amount of 10% short term promissory notes.
The accompanying consolidated financial statements have been prepared, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
NOTE 2 -PRIOR PERIOD ADJUSTMENT:
In the fourth Quarter 2007 and first Quarter 2008, the Company amended the conversion provisions, and warrant exercising price under its 10% convertible notes by significantly reducing the conversion price of the debt and warrant exercise price with the conversion price reduction being contingent upon the concurrent exercising of the warrant to purchases the Company’s common stock. The Company did not record the interest expense and increase to additional paid in capital associated with the accounting for the modification in accordance with U.S. generally accepted accounting principles.
The following adjustments are a result of an accounting change by the Company to properly reflect the accounting for the modification of the conversion price of the Company’s convertible notes, and the reduction in the related warrant exercise pursuant to FAS 123 ( R).
The Company recorded as of December 31, 2007, an increase to additional paid in capital and net loss by $497,000, thus having no effect on the balance sheet in 2007. The effect on the first quarter ended March 31, 2008 was an debit to interest expense of $985,500 and the corresponding credit was to additional paid in capital.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Presentation:
SearchHelp, Inc. is organized as a single reporting unit and believes that it operates as a single business. References in this report to “SearchHelp”, the “Company”, “we”, “us” or “our” refers to SearchHelp Inc. and its consolidated subsidiaries. All intercompany transactions have been eliminated in consolidation.
(b) Revenue Recognition:
The Company recognizes revenues in accordance with the SEC, Staff Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”). Under SAB 104 revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable and collectability is reasonably assured. Software products and services revenue is derived via three distinct methods: direct non- consignment sales, consignment sales and online Internet sales: (i) revenue in the form of direct non- consignment sales of merchandise are recognized when title passes to the customer, typically upon shipment, less an estimated reserve if return privileges exist; (ii) revenue from consignment sales of software is recognized when proof of sale to the end user is received; (iii) revenue from online Internet sales is recognized upon the settlement of credit card charges, typically within three days of the sale. There were n consignment sales recognized in the fiscal year ended December 31, 2008.
(c) Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
(d) Earnings Per Share:
The Company utilizes Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive. Such securities, shown below, presented on a common share equivalent basis and outstanding as of December 31, 2008 and 2007 have been excluded from the per share computations:
(e) Stock Based Compensation:
Effective January 1, 2006, the Company’s 2004 Stock Plan and options granted outside of the Plan are accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.
(f) Advertising Costs:
The Company expenses ordinary advertising and promotion costs as incurred. Advertising and promotion costs were $82,574 and $211,870 for the years ended December 31, 2008 and 2007, respectively.
(g) Software Development Costs:
Research and development costs are expensed as incurred. No research and development costs were incurred during the years ended December 31, 2008 and 2007.
In accordance with the provisions of SFAS No. 86, "Accounting for the costs of computer software to be sold or otherwise marketed", software development costs are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for release to customers. For the year ended December 31, 2008, the Company capitalized $108,957 of software development costs. No development costs were capitalized for the year ended December 31, 2007. The software costs are amortized on a straight line basis over the estimated useful life of three years. Amortization expense for the years ended December 31, 2008 and 2007 was $22,043 and $231,383 respectively.
(h) Long-Lived Assets
In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, we review long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. In such circumstances, we will estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will recognize an impairment loss to adjust to the fair value of the asset. On December 31, 2007 we determined the future sales of our Sentry Predator Locator product, net of the cost of those sales, would not be sufficient to recover any amount of the unamortized costs. As a result, we recorded an impairment to software development costs of $1,269,260 for the fiscal year ended December 31, 2007.
(i) Cash Equivalents:
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a remaining maturity of three months or less, when purchased, to be cash equivalents.
(j) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the amount the Company expects to collect. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of $250 and $99,303 at December 31, 2008, and 2007, respectively.
(k) Fair Value of Financial Instruments:
The Company’s financial instruments are cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable, due to executive stockholders and obligations under capital leases. The carrying amounts of accounts receivable, inventories, and accounts payable and accrued expenses approximates fair value due to the short term nature of these financial instruments. The carrying value of due to executive stockholders reflects fair value as the terms reflect market conditions at each balance sheet date. The recorded values of notes payable and obligations under capital leases approximate their fair values, as interest approximates market rates.
(l) Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company from time to time may maintain cash balances, which exceed the Federal Depository Insurance Coverage limit. The Company performs periodic reviews of the relative credit rating of its bank to lower its risk. Concentrations of credit risk with respect to accounts receivable are limited because a number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk.
(m) Inventories:
The Company's inventory consists entirely of finished, packaged software products and is valued at lower of cost or market price. Cost is determined on a first-in, first-out (“FIFO”) basis. All inventory was written off in the fiscal year ended December 31, 2008 and a loss on the write off of $219,669 is included in the statement of operations in the cost of sales line item.
(n) Shipping and Handling Costs:
The Company’s shipping and handling costs are included in cost of sales for all periods presented. Shipping and handling costs were $7,715 and $18,611 for the years ending December 31, 2008, and December 31, 2007, respectively.
(o) Property and Equipment and Depreciation:
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided for over the estimated useful lives of the related asset using the straight-line method. The estimated useful lives for significant property and equipment categories are as follows:
Furniture and fixtures
5 years
Data processing equipment
3 to 5 years
Telecommunication equipment
5 years
Purchased software
3 years
(p) Goodwill Intangible Assets and Amortization:
Under the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill is to be tested for impairment at least annually at the reporting unit level. In accordance with SFAS 142, we performed impairment tests on goodwill and purchased intangible assets from the acquisition of ETP on June 8, 2005. The goodwill and other intangible assets were written off after the Company performed these impairment tests and determined that the fair value of the goodwill and other intangible assets exceeded its carrying value. Fair value was determined by estimates of future cash flows. At December 31, 2007, we determined our projections for cash flow from the acquired assets was insufficient to support the goodwill and other intangible assets as assets and that an immediate impairment write-off was in order. Pursuant to the impairment tests, goodwill and unamortized intangibles totaling $998,580 were written off as of December 31, 2007. No impairment charges resulted from this evaluation for the year ended December 31, 2008.
In April of 2008, the Company purchased all of the stock of EchoMetrix Inc., in exchange for 300,000 shares of the Company’s common stock. The acquisition resulted in $373 of cash, and the difference between the purchase price and the net assets acquired was recorded as an intangible asset, approximately $38,627. The Company is amortizing the intangible over a twelve month period. Intangible assets subject to amortization are amortized on a straight-line basis over their estimated useful lives. The amortization expense for the years ended December 31, 2008 and 2007 was $28,970 and $64,933 respectively.
(q) Deferred Financing Costs:
The Company incurred financing costs related to its borrowings. Such costs are deferred and amortized generally by the straight-line method over the life of the underlying borrowings. In case the amount is repaid before maturity, the related unamortized amount is written off in the statement of operations. The Company amortized $67,403 and $164,586 of deferred financing costs for the years ended December 31, 2008 and 2007, respectively.
(r) Recently Issued Accounting Pronouncements Affecting The Company:
On October 10, 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. This FASB Staff Position (FSP) clarifies the application of FASB Statement No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. Statement 157 was issued in September 2006, and is effective for financial assets and financial liabilities for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted SFAS 157-3 and determined that it had minimal impact, if any, as of December 31, 2008 and for the year then ended. The Company will continue to evaluate the impact, if any, of SFAS 157-3 on our financial statements.
On September 16, 2008, the FASB issued final Staff Position (FSP) No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” to address the question of whether instruments granted in share-based payment transactions are participating securities prior to vesting. The FSP determines that unvested share-based payment awards that contain rights to dividend payments should be included in earnings per share calculations. The guidance will be effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the requirements of (FSP) No. EITF 03-6-1, as well as the impact of the adoption on our consolidated financial statements.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants. Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will adopt FSP APB 14-1 beginning in the first quarter of fiscal 2010, and this standard must be applied on a retrospective basis. We are evaluating the impact the adoption of FSP APB 14-1 will have on our consolidated financial position and results of operations.
In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, The Hierarchy of Generally Accepted Accounting Principles. This standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS No. 162 is effective 60 days following approval by the U.S. Securities and Exchange Commission (“SEC”) of the Public Company Accounting Oversight Board’s amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect SFAS No. 162 to have a material impact on the preparation of our consolidated financial statements.
In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161"). SFAS 161 requires enhanced disclosures regarding an entity's derivative and hedging activities. These enhanced disclosures include information regarding how and why an entity uses derivative instruments; how derivative instruments and related hedge items are accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", and its related interpretations; and how derivative instruments and related hedge items affect an entity's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS 161 will not have a material impact on our financial position, results of operations or liquidity since we currently do not enter into derivatives or other hedging instruments.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
NOTE 4 - EMPLOYEE STOCK COMPENSATION
The Company’s 2004 Stock Plan (the “Plan”), which is stockholder approved, permits the grant of share options and shares to its employees for up to 1,500,000 shares of Common Stock as stock compensation. All stock options under the Plan are granted at the fair market value of the Common Stock at the grant date. Employee stock options generally vest ratably over a three-year period and generally expire 5 years from the grant date. Additionally, the Company grants options and shares to its employees outside the Plan.
Accounting for Employee Awards:
Effective January 1, 2006, the Company’s Plan and options granted outside of the Plan are accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within SEC Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views regarding the interaction between FAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.
In adopting FAS 123(R), the Company applied the modified prospective approach to transition. Under the modified prospective approach, the provisions of FAS 123(R) are to be applied to new awards and to outstanding awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123.
As a result of the adoption of FAS 123(R), the Company's results for the years ended December 31, 2008 and 2007 include share-based compensation expense totaling approximately $288,374 and $334,767, respectively, which have been included in the general and administrative expenses line item. No income tax benefit has been recognized in the income statement for share-based compensation arrangements as the Company has provided a 100% valuation allowance on its’ net deferred tax asset.
Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. The Company has not adjusted the expense by estimated forfeitures, as required by FAS 123(R) for employee options, since the forfeiture rate based upon historical data was determined to be immaterial.
The fair value of options at the date of grant is estimated using the Black-Scholes option pricing model. During the years ended December 31, 2008 and 2007, the assumptions made in calculating the fair values of options are as follows:
Accounting for Non-employee Awards:
The Company previously accounted for options granted to its non-employee consultants using the fair value cost in accordance with FAS 123 and EITF No. 96-18. The adoption of FAS 123(R) and SAB 107 as of January 1, 2006, had no material impact on the accounting for non-employee awards. The Company continues to utilize the additional guidance set forth in EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees” (“EITF 96-18”).
Stock compensation expense related to non-employee options was approximately $193,333 and $78,000 for the years ended December 31, 2008 and 2007, respectively. These amounts are included in the Consolidated Statements of Operations within the general and administrative expenses line item.
There were 4,500,000 and 2,280,000 non-employee stock options granted in the years ended December 31, 2008 and 2007, respectively.
The following table represents our stock options granted, exercised, and forfeited during 2008.
As of December 31, 2008, there was $422,349 of unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately 2.0 years.
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, at cost less accumulated depreciation, at December 31:
Depreciation charged to operations amounted to $63,129 and $33,886 for the years ended December 31, 2008 and 2007, respectively. Property and equipment include gross assets acquired under capital leases of $195,325 and $159,013 at December 31, 2008 and 2007, respectively. Capital leases are included as a component of data processing equipment. Amortization of assets under capital leases is included in depreciation expense.
NOTE 6 - NOTES PAYABLE - BANK
The Company has a $50,000 revolving line of credit and a $5,000 overdraft privilege with a bank. At December 31, 2008 and 2007, $49,007 and $49,697 of the line has been utilized. At December 31, 2008 and 2007, $0 and $5,000 of the overdraft privilege has also been utilized. Interest on borrowings is charged at 2.25% above the bank's prevailing prime rate (7.25 % at December 31, 2008 and 9.50% at December 31, 2007). Interest of $1,139 and $3,250 was charged to operations for the years ended December 31, 2008 and 2007, respectively. The debt is guaranteed personally by the former CEO of the Company and is collateralized by marketable securities owned by him which had a fair market value of approximately $35,000 at December 31, 2008.
NOTE 7 - NOTE PAYABLE - EQUIPMENT
On July 12, 2006, the Company entered into a secured loan agreement with GE Commercial Finance for the purchase of $21,262 of communications equipment related to the Company’s corporate office space. This loan has a five-year term with monthly payments of $433 including interest at the rate of 8.15% per annum and is secured by the equipment purchased. The outstanding balance at December 31, 2008 and 2007 was $12,406 and $16,407 respectively, of which $4,341 and $4,002 is included in current liabilities. Future principal payments under the secured loan payable as of December 31, 2008 for each of the next three years are $4,341, $4,708 and $3,357, respectively.
NOTE 8 - OBLIGATIONS UNDER CAPITAL LEASE
On July 17, 2006 the Company entered into an equipment lease agreement with Citicorp Vendor Finance for the purchase of $87,098 of computer equipment related to the Company’s products. The lease has a five-year term and a $1 purchase option. The Company is accounting for this obligation as a capital lease. Assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the asset. The assets are depreciated over the lower of their related lease terms or their estimated useful lives.
On September 16, 2007 the Company entered into an equipment lease agreement with GE Capital for the purchase of $71,914 of computer equipment. The lease has a three-year term and a $1 purchase option. The Company is accounting for this obligation as a capital lease. Assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the asset. The assets are depreciated over the lower of their related lease terms or their estimated useful lives.
On February 28, 2008 the Company entered into an equipment lease agreement with GE Capital for the purchase of $36,312 of computer equipment. The lease has a three-year term and a $1 purchase option. The Company is accounting for this obligation as a capital lease. Assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair market value of the asset. The assets are depreciated over the lower of their related lease terms or their estimated useful lives.
Depreciation for assets under capital leases for the years ended December 31, 2008 and 2007 amounted to $51,478 and $23,413, respectively, and is included in depreciation expense.
The following is a summary of assets held under capital leases at December 31, 2008 and 2007:
The minimum future lease payments under the capital lease as of December 31, 2008 for each of the next three years and in the aggregate are:
In January 2009, the Company prepaid the Citicorp Vendor Finance lease for servers for $50,000 in lieu of the remaining payments totaling $75,260.
NOTE 9 - 10% CONVERTIBLE NOTES PAYABLE
During 2005 and 2006, the Company raised capital via a private placement to accredited investors of units (“Units”), each Unit consisting of (a) a 10% convertible note with the original principal amount of $10,000 and (b) warrants to purchase 10,000 shares of common stock, exercisable at $0.50 per share, for $10,000 per Unit. The convertible notes mature in two years from the date of issue, if not converted earlier. As of December 31, 2008 all of the 10% convertible notes outstanding were in default. The default provision requires an additional 2% interest per annum until the loans are repaid or converted. The 2% default penalty totaled $21,402 and is included in interest expense on the consolidated statement of operations and in accrued expenses on the consolidated balance sheet as of December 31, 2008. The Notes are convertible at any time at the option of the holder into Common Stock at the conversion rate of $0.40 per share. The Company raised a gross amount of $2,895,000 from the offerings. The Company allocated the proceeds received between the debt and the warrant based upon their relative fair values. The resulting discount is accreted over a two year period, the life of the note, using the effective interest method. If the debt is converted earlier than the maturity date, the unamortized amount will be charged to operations at that time. When comparing the fair value of the notes to the note value there was a beneficial conversion feature. This amount was recorded as a discount to the notes and is accreted over the two year life of the note using the effective interest method. For the years ended December 31, 2008 and 2007, an aggregate of $ 96,567 and $347,726 was charged to interest expense for the effective interest method, respectively.
As stated in Note 2, the Company modified certain terms of the notes, including a lower conversion price and a lower exercise price on the warrants. As a result of this modification, the Company recorded an additional $497,000 for the year ended December 31, 2007 in interest expense and a corresponding credit to additional paid in capital. The modification of the notes in the fiscal quarter ended March 31, 2008 resulted in additional interest expense of $985,000 with a credit to additional paid in capital. The modification of notes in the fourth quarter of fiscal year 2008 resulted in additional interest expense of $104,311 with the offset recorded to additional paid in capital.
As reflected on the balance sheets at December 31, 2008 and 2007, the note value, net of discount, was $668,000 and $2,059,433 respectively. As of December 31, 2008, $2,152,000 principal amount of notes were converted into common stock and $75,000 of principal was paid.
As of December 31, 2008 the notes are classified as current due to the fact that they are in default for the non payment by the maturity date.
NOTE 10 - SHORT TERM BRIDGE NOTES PAYABLE
On October 31, 2006 the Company began a private placement to accredited investors of 10% short term promissory notes. These notes are payable the earlier of one year from the issue date or when the Company raises a certain minimum amount in its next qualified financing as defined. The notes bear an interest rate of 10% per annum, payable on maturity and the holders received restricted shares of the Company’s common stock equal to the face value of their note. Additionally, these notes are secured by a pledge of the Company’s common stock owned by its former Chief Executive Officer.
As of December 31, 2007, the Company has raised a gross amount of $285,000 from these promissory notes and issued 285,000 restricted shares of the Company’s common stock to the note holders. These shares were valued at the fair market value on the date of each note, less an approximate 10% discount (to give effect to the lack of liquidity for such shares), for an aggregate total of $85,095 which was recorded as a discount to the notes with a corresponding credit to common stock and additional paid in capital. This discount is accreted over the one year life of the note using the straight line method. If the debt is repaid earlier than the maturity date, the unamortized amount will be charged to operations at that time. As of December 31, 2008, a total of $285,000 of the 10% short term promissory notes have been repaid or converted into common stock.
On October 4, 2007, the Company issued a short term promissory note in the principal amount of $150,000. This note was payable on June 30, 2008 and bears an interest rate equal to the prime rate plus three percent, 10.25% per annum at December 31, 2007 and is payable at the end of the term. This note is in default at December 31, 2008.
On November 7, 2007 the Company began a private placement to accredited investors of 10% short term promissory notes. These notes are payable the earlier of August 15, 2008 or when the Company raises $1,000,000 in its next qualified financing as defined. The notes bear interest at a rate of 10% per annum, payable at the end of the term. The principal amounts of the notes are convertible into the Company’s common stock by the holder, at any time prior to the repayment of the principal, at the rate of $0.15 per share. As of December 31, 2007, the Company raised a total gross amount of $300,000, from these notes. As of December 31, 2008, the total of $300,000 is outstanding and currently in default for non payment of principal on maturity date.
During 2008, the Company began separate private placements to accredited investors of 10% short term promissory notes. These notes have maturity dates ranging from a period of three months to twelve months, bear interest at a rate of 10% per annum, payable at the end of the term. The Company raised a total of $990,000 from these promissory notes and issued 1,835,000 restricted shares of the Company’s common stock to the note holders. The principal amounts of the notes are convertible into the Company’s common stock by the holder, at any time prior to the repayment of the principal, at rates ranging from $0.14 to $0.20 per share. These shares were valued at the fair market value on the date of each note. As a result of the issuance of these convertible notes and related restricted shares and warrants, the Company recorded a total discount of $310,749 with a corresponding credit to common stock and additional paid in capital. The discount is accreted over the term of the note using the straight line method. In 2008, the Company amortized a total of $251,470 of the discount. As of December 31, 2008, the Company has repaid $150,000 of these notes. As of December 31, 2008, a total of $840,000 of these short term promissory notes are currently outstanding.
As of December 31, 2008, the Company’s bridge loan payable principal balance amounted to $1,290,000, of which $710,000 were in default as of year end.
NOTE 11 - DUE TO EXECUTIVE STOCKHOLDERS AND AFFILIATES
(a) Due to stockholders
At December 31, 2008 and 2007, the Company was indebted to its former CEO, William Bozsnyak, in the amounts of $163,718 and $45,719, respectively, for working capital advances made to the Company. On August 31, 2007, Mr. Bozsnyak converted $550,500 of working capital loans into 1,196,742 restricted shares of the Company’s common stock and 105,057 shares of the Company’s Convertible Series A Preferred Stock. Subsequent to Board acceptance and approval, on September 7, 2007 the Company issued the respective shares and an entry was made to reduce loans payable to stockholder for $550,500 with a corresponding credit to common stock, preferred stock and additional paid in capital.
For the years ended December 31, 2008 and 2007, interest expense was charged in the amounts of $10,639 and $44,620, respectively. The interest rate used in this calculation is the same interest rate paid to the Company’s short term lender under the revolving line of credit described in Note 5, 7.25% at December 31, 2008 and 9.50% at December 31, 2007. At December 31, 2007 and 2006, $163,092 and $152,453 in accrued interest was due to Mr. Bozsnyak, respectively.
The Company also owed Mr. Bozsnyak $1,297 and $7,987 as of December 31, 2008 and 2007, respectively, for travel expenses and online advertising incurred on behalf of the Company. Additionally, at December 31, 2007, Brian O’Connor, a stockholder and director, is owed $419, respectively, for travel expenses incurred on behalf of the Company.
At December 31, 2008 and 2007, $463,271 and $170,683, respectively, was owed for unpaid salaries and accrued vacation to Mr. Bozsnyak, Mr. Caruso, Mr. Supinsky and Mr. O’Connor. A total of $88,997 and $16,250 was owed to Mr. Bozsnyak at December 31, 2008 and 2007, respectively as equity compensation per his employment agreement.
At December 31, 2008 and 2007, the Company owed $14,000 and $4,366, respectively, to the chairman of the audit and compensation committees, who is a shareholder.
(b) Due to affiliates
The President of ETP has a minority interest in three affiliated companies. Based upon cash flow needs, there are loans made to and/or from one of these affiliates as well as from the President of ETP directly. As of December 31, 2008 and 2007, the Company owed one of these affiliates $47,671 and $47,907, respectively.
NOTE 12 - ECONOMIC DEPENDENCY
The Company sells its products on line and through distributors to major retailers throughout the United States. At December 31, 2008, one customer accounted for 100% of the accounts receivable. At December 31, 2007, two customers, each of which accounted for more than 10% of the Company’s accounts receivable, accounted for 97% of total accounts receivable in the aggregate.
In 2008, one customer accounted for 56% of the Company’s sales. In 2007, the three largest customers, each of which accounted for more than 10% of the Company’s sales, accounted for 98% of total sales in the aggregate. In 2007 the Company, for reasons of convenience, consistency and economy of scale, purchased its entire inventory from one vendor. This risk is mitigated to a great extent by the extensive availability of similar vendors at competitive prices throughout the United States.
NOTE 13 - INCOME TAXES
The tax effect of the temporary differences that give rise to deferred tax assets are presented below:
At December 31, 2008 and 2007, a 100% valuation allowance was recorded to reduce the Company’s net deferred tax asset to $0. The Company could not determine that it was more likely than not that the deferred tax asset resulting from net operating loss carryforwards would be realized.
The Company has generated net operating loss carryforwards aggregating approximately $14,900,000 at December 31, 2008 for federal and state income tax purposes. These carryforwards are available to offset future taxable income and expire at various dates through 2028.
A reconciliation of the difference between the expected tax rate using the statutory federal tax rate (34%) and the Company’s effective tax rate is as follows:
NOTE 14 - EQUITY TRANSACTIONS
On January 12, 2007, the Company issued 44,960 shares of the Company's restricted common stock as payment in kind for interest due for the month of December 2006 on the Company’s 10% convertible notes.
On February 7, 2007 and February 8, 2007, the Company, through a private sale, sold an aggregate of 209,924 shares of its Series A 7% Convertible Preferred Stock and warrants to purchase an aggregate of 524,810 shares of the Company’s common stock at an exercise price of $.26 per share and received net proceeds of $550,000. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock. The exercise price of the warrants approximates the net cost of the common stock received after conversion. The fair value of the warrants of $183,684 was determined using the Black-Scholes option-pricing model and is considered a deemed dividend on the Series A Preferred Stock. Due to the cumulative deficit, dividends of $183,684 were recorded against additional paid-in capital.
On February 9, 2007, the Company issued 10,000 restricted shares of the Company’s common stock in connection with its short term promissory notes. These shares were valued at the fair market value of $0.43, less an approximate 10% discount (to give effect to the lack of liquidity for such shares) or at $0.39 per share. A total of $3,870 was recorded as a discount to the note and is accreted over the one year life of the note. If the debt is retired earlier than the maturity date, the unamortized amount will be charged to operations at that time.
On February 12, 2007, the Company issued 42,409 shares of the Company's restricted common stock as payment in kind for interest due for the month of January 2007 on the Company’s 10% convertible notes.
On February 20, 2007, the Company, through a private sale, sold an aggregate of 190,840 shares of Series A 7% Convertible Preferred Stock and warrants to purchase an aggregate of 477,100 shares of the Company’s common stock at an exercise price of $.26 per share and received net proceeds of $500,000. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock. The exercise price of the warrants approximates the net cost of the common stock received after conversion. The fair value of the warrants of $147,901 was determined using the Black-Scholes option-pricing model and is considered a deemed dividend on the Series A Preferred Stock. Due to the cumulative deficit, dividends of $147,901 were recorded against additional paid-in capital.
On March 5, 2007, the Company issued 50,000 shares of the Company's restricted common stock upon the conversion of $20,000 principal amount of the Company’s 10% convertible notes.
On March 8, 2007, the Company issued 29,929 shares of the Company's restricted common stock as payment in kind for interest due for the month of February 2007 on the Company’s 10% convertible notes.
On March 9, 2007, the Company issued an aggregate of 13,736 shares of its Series A 7% Convertible Preferred Stock and warrants to purchase an aggregate of 34,340 shares of the Company’s common stock at an exercise price of $.26 per share in satisfaction of short term bridge notes and accrued interest totaling $35,988. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock. The exercise price of the warrants approximates the net cost of the common stock received after conversion. The fair value of the warrants of $8,928 was determined using the Black-Scholes option-pricing model and is considered a deemed dividend on the Series A Preferred Stock. Due to the cumulative deficit, dividends of $8,928 were recorded against additional paid-in capital.
On April 4, 2007, the Company issued 36,310 shares of the Company's restricted common stock as payment in kind for interest due for the month of March 2007 on the Company’s 10% convertible notes.
On May 4, 2007, the Company issued 41,317 shares of the Company's restricted common stock as payment in kind for interest due for the month of April 2007 on the Company’s 10% convertible notes.
On May 17, 2007, the Company, through a private sale, sold an aggregate of 95,420 shares of Series A 7% Convertible Preferred Stock and received net proceeds of $250,000. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock.
On June 1, 2007, the Company, through a private sale, sold an aggregate of 95,420 shares of Series A 7% Convertible Preferred Stock and received net proceeds of $250,000. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock.
On June 5, 2007, the Company issued 53,401 shares of the Company's restricted common stock as payment in kind for interest due for the month of May 2007 on the Company’s 10% convertible notes.
On July 5, 2007, the Company issued 62,820 shares of the Company's restricted common stock as payment in kind for interest due for the month of June 2007 on the Company’s 10% convertible notes.
On July 13, 2007, the Company, through a private sale, sold an aggregate of 95,420 shares of Series A 7% Convertible Preferred Stock and warrants to purchase an aggregate of 954,200 shares of the Company’s common stock at an exercise price of $.20 per share and received net proceeds of $250,000. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock. The fair value of the warrants of $200,382 was determined using the Black-Scholes option-pricing model and is considered a deemed dividend on the Series A Preferred Stock. Due to the cumulative deficit, dividends of $200,382 were recorded against additional paid-in capital.
On July 31, 2007, the Company, through a private sale, sold an aggregate of 384,615 shares of the Company's restricted common stock and warrants to purchase an aggregate of 384,615 shares of the Company’s common stock at an exercise price of $.26 per share and received net proceeds of $100,000. The exercise price of the warrants approximates the net cost of the common stock received.
On August 5, 2007, the Company issued 80,977 shares of the Company's restricted common stock as payment in kind for interest due for the month of July 2007 on the Company’s 10% convertible notes.
On August 25, 2007, the Company retired 125,000 shares of the Company's common stock for $10,000 as part of the Settlement Agreement and Mutual Release with AmberAlertAgent Development Co., LLC (see Note 15 below).
On September 5, 2007, the Company issued 79,958 shares of the Company's restricted common stock as payment in kind for interest due for the month of August 2007 on the Company’s 10% convertible notes.
On September 7, 2007, the Company issued 1,196,742 restricted common shares and 105,057 shares of Series A 7% Convertible Preferred Stock to the CEO in satisfaction of loans made to the Company of $550,500. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock. An entry was made to reduce loans payable to shareholder for $550,500 with a corresponding credit to common stock, preferred stock and additional paid in capital.
On September 11, 2007, the Company, through a private sale, sold an aggregate of 95,420 shares of Series A 7% Convertible Preferred Stock and warrants to purchase an aggregate of 954,200 shares of the Company’s common stock at an exercise price of $.20 per share and received net proceeds of $250,000. Each share of Series A 7% Convertible Preferred Stock can be converted, at any time, into ten shares of the Company’s common stock. The fair value of the warrants of $152,672 was determined using the Black-Scholes option-pricing model and is considered a deemed dividend on the Series A Preferred Stock. Due to the cumulative deficit, dividends of $152,672 were recorded against additional paid-in capital.
On October 5, 2007, the Company issued 74,825 shares of the Company’s restricted common stock as payment in kind for interest due for the month of September 2007 on the Company’s 10% convertible notes.
On November 7, 2007 the Company began a private placement to accredited investors of 10% short term promissory notes. These notes are payable the earlier of August 15, 2008 or when the Company raises $1,000,000 in its next qualified financing as defined. The notes bear interest at a rate of 10% per annum, payable at the end of the term. The principal amounts of the notes are convertible into the Company’s common stock by the holder, at any time prior to the repayment of the principal, at the rate of $0.15 per share. As of December 31, 2007, the Company has raised a total gross amount of $300,000, from these notes.
On November 8, 2007, the Company issued 66,667 shares of the Company’s restricted common stock upon the conversion of $10,000 of the Company’s 10% convertible notes.
On December 5, 2007, the Company issued 102,978 shares of the Company’s restricted common stock as payment in kind for interest due for the month of October 2007 on the Company’s 10% convertible notes.
On December 10, 2007, the Company issued 140,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $17,800.
On December 12, 2007, the Company issued 2,397,563 shares of the Company’s restricted common stock upon the conversion of $330,000 of the Company’s 10% convertible notes.
On December 14, 2007, the Company issued 812,500 shares of the Company’s restricted common stock upon the conversion of $130,000 of the Company’s 10% convertible notes.
On December 18, 2007, the Company issued 357,143 shares of the Company’s restricted common stock upon the conversion of $50,000 of the Company’s 10% convertible notes.
On December 18, 2007, the Company issued 50,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $7,000.
On December 27, 2007, the Company issued 187,500 shares of the Company’s restricted common stock upon the conversion of $30,000 of the Company’s 10% convertible notes.
On December 28, 2007, the Company issued 398,333 shares of the Company’s restricted common stock upon the conversion of $44,000 of the Company’s 10% convertible notes.
On December 31, 2007, the Company issued 98,099 shares of the Company’s restricted common stock as payment in kind for interest due for the month of November 2007 on the Company’s 10% convertible notes.
On December 31, 2007, the Company issued 312,500 shares of the Company’s restricted common stock upon the conversion of $50,000 of the Company’s 10% convertible notes.
On January 3, 2008, the Company issued 277,778 shares of the Company’s restricted common stock upon the conversion of $25,000 of the Company’s 10% convertible notes.
On January 3, 2008, the Company issued 25,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $2,250.
On January 3, 2008, the Company issued 1,250,000 shares of the Company’s restricted common stock as bonuses to employees and directors and are valued at $162,500.
On January 3, 2008, the Company issued 150,000 shares of the Company’s restricted common stock to a marketing and promotions company for services to be rendered in 2008. These shares were valued at the fair market value of $0.21, less an approximate 10% discount (to give effect to the lack of liquidity for such shares) or at $0.19 per share. A total of $28,500 was charged to operations with a corresponding credit to additional paid in capital.
On January 8, 2008, the Company issued 180,000 shares of the Company’s restricted common stock for consulting and marketing services rendered for $0.16 per share. $28,800 was charged to operations with a corresponding credit to additional paid in capital.
On January 8, 2008, the Company issued 666,666 shares of the Company’s restricted common stock upon the conversion of $100,000 of the Company’s 10% convertible notes.
On January 8, 2008, the Company issued 105,811 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $8,466.
On January 10, 2008, the Company issued 25,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $3,000.
On January 11, 2008, the Company issued 7,646,668 shares of the Company’s restricted common stock upon the conversion of $692,000 of the Company’s 10% convertible notes.
On January 11, 2008, the Company issued 692,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $55,360.
On January 15, 2008, the Company issued 208,333 shares of the Company’s restricted common stock upon the conversion of $25,000 of the Company’s 10% convertible notes.
On January 15, 2008, the Company issued 25,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $2,000.
On January 17, 2008, the Company issued 83,333 shares of the Company’s restricted common stock upon the conversion of $12,500 of the Company’s 10% convertible notes.
On January 17, 2008, the Company issued 12,500 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $1,000.
On January 23, 2008, the Company issued 276,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $24,000.
On January 28, 2008, the Company issued 80,000 shares of the Company’s restricted common stock upon the conversion of $12,000 of the Company’s 10% convertible notes.
On January 28, 2008, the Company issued 12,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $960.
On January 31, 2008, the Company issued 83,333 shares of the Company’s restricted common stock upon the conversion of $12,500 of the Company’s 10% convertible notes.
On January 31, 2008, the Company issued 12,500 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $1,000.
On February 1, 2008, the Company issued 357,143 shares of the Company’s restricted common stock upon the conversion of $50,000 of the Company’s 10% convertible notes.
On February 1, 2008, the Company issued 50,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $4,000.
On February 5, 2008, the Company issued 83,333 shares of the Company’s restricted common stock upon the conversion of $10,000 of the Company’s 10% convertible notes.
On February 5, 2008, the Company issued 175,000 shares of restricted common stock in connection with the issuance of promissory notes amounting to $175,000.
On February 12, 2008, the Company issued 71,429 shares of the Company’s restricted common stock upon the conversion of $10,000 of the Company’s 10% convertible notes.
On February 13, 2008, the Company issued 1,158,334 shares of the Company’s restricted common stock upon the conversion of $139,000 of the Company’s 10% convertible notes.
On February 14, 2008, the Company issued 416,667 shares of the Company’s restricted common stock upon the conversion of $50,000 of the Company’s 10% convertible notes.
On February 14, 2008, the Company issued 50,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $6,000.
On February 19, 2008, the Company issued 276,190 shares of the Company’s restricted common stock upon the conversion of $40,000 of the Company’s 10% convertible notes.
On February 20, 2008, the Company issued 41,667 shares of the Company’s restricted common stock upon the conversion of $5,000 of the Company’s 10% convertible notes.
On February 21, 2008, the Company issued 41,667 shares of the Company’s restricted common stock upon the conversion of $5,000 of the Company’s 10% convertible notes.
On February 28, 2008, the Company, through a private sale, sold 714,286 shares of its common stock at an exercise price of $.14 per share and received net proceeds of $100,000.
On March 10, 2008, the Company, through a private sale, sold 128,571 shares of its common stock at an exercise price of $.14 per share and received net proceeds of $18,000.
On March 14, 2008, the Company, through a private sale, sold an aggregate of 714,286 shares of its common stock at an exercise price of $.14 per share and received net proceeds of $100,000.
On March 20, 2008, the Company issued 416,667 shares of the Company’s restricted common stock upon the conversion of $50,000 of the Company’s 10% convertible notes.
On March 24, 2008, the Company issued 375,000 shares of the Company’s restricted common stock upon the conversion of $45,000 of the Company’s 10% convertible notes.
On March 26, 2008, the Company issued 416,667 shares of the Company’s restricted common stock upon the conversion of $50,000 of the Company’s 10% convertible notes.
On March 31, 2008, the Company issued 83,333 shares of the Company’s restricted common stock upon the conversion of $10,000 of the Company’s 10% convertible notes.
On April 10, 2008, the Company issued 1,753,847 shares of its common stock pursuant to a cashless warrant exercise, recording a $120,000 charge to stock compensation expense. Due to the fact that upon exercise of the warrant, the price was reduced from $0.47 to $0.01, the Company recorded an additional $117,000 to record this modification.
On April 17, 2008, the Company issued 50,000 shares of its restricted common stock in connection with the issuance of $50,000 promissory note.
On May 12, 2008, the Company, through a private sale, sold 142,857 shares of its restricted common stock at a price of $.14 per share and received net proceeds of $20,000.
On May 14, 2008, the Company issued 300,000 shares of its common stock as part of the purchase of Echometrix, Inc. (See Note 3) and recorded the net purchase price as an intangible asset.
On May 20, 2008, the Company, through a private sale, sold 500,000 shares of its restricted common stock at a price of $.14 per share and received net proceeds of $70,000.
On May 28, 2008, the Company, issued 1,275,000 shares of its restricted common stock as part of a legal settlement (See Note 15) and recorded a corresponding charge to the statement of operations of $165,750.
On June 9, 2008, the Company, through a private sale, sold 71,429 shares of its restricted common stock at a price of $.14 per share and received net proceeds of $10,000.
On June 17, 2008, the Company issued 238,675 shares of the Company’s common stock upon the conversion of $25,000 of the Company’s 10% convertible notes and accrued interest of approximately $6,000.
On June 30 2008, the Company, through a private sale, sold 41,429 shares of its restricted common stock at a price of $.14 per share and received net proceeds of $5,800.
On July 11, 2008, the Company issued 70,000 shares of its restricted common stock in connection with the issuance of a $35,000 promissory note.
On July 25, 2008, the Company issued 400,000 shares of its restricted common stock in connection with the issuance of a $200,000 promissory note.
On September 4, 2008, the Company through a private sale, issued 240,000 shares of its restricted common stock as a result of a promissory note issued for $80,000.
On September 30, 2008, the Company issued 357,583 shares of the Company’s common stock upon the conversion of $45,000 of the Company’s 10% convertible notes and accrued interest of $596.
On October 3, 2008, the Company issued 872,825 shares of its common stock upon the conversion of $100,000 of the Company’s 10% convertible notes and accrued interest of $39,492.
On October 16, 2008, the Company, through a private sale, issued 200,000 shares of its restricted common stock as a result of a promissory note issued for $100,000.
On October 31 2008, the Company, through a private sale, issued 100,000 shares of its restricted common stock as a result of a promissory note issued for $50,000.
On October 31, 2008, the Company, through a private sale, issued 600,000 shares of its restricted common stock as a result of a promissory note issued for $300,000.
On November 18, 2008, the Company issued 1,400,000 shares of the Company’s restricted common stock as compensation to consultants and directors and are valued at approximately $126,000.
As of December 31, 2008 the Company issued 742,867 shares of the Company’s restricted common stock as payment in kind for interest due from December 2007 through December 2008 on the Company’s 10% convertible notes.
Warrants:
During 2003, as part of its initial sale of its securities to the public, the Company sold Class A warrants, exercisable for five years, to acquire 2,474,000 common shares at $0.75 per share and Class B warrants, exercisable for seven years, to acquire 2,474,000 common shares at $1.75 per share. As additional compensation to the placement agent who placed the Company’s securities, the agent and its designees received rights to acquire 247,000 units of the Company’s securities for $0.985 each for five years. Each unit is comprised of one share of common stock, a warrant to acquire one share of common stock at $0.985 and another warrant to acquire a common share at $2.285 per share. Warrants to acquire 172,800 shares of the Company’s common stock at $0.30 per share were issued to a placement agent exercisable for five years as part of his compensation for his services in the Company’s private placement of its securities in 2004.
On December 31, 2007, we extended the term to exercise the Class A Warrant from December 31, 2007 to March 31, 2008. The exercise price of the Class A Warrant was lowered on from $0.75 to $0.17 per share of our common stock, and we reduced the exercise price of our Class B Warrant from $1.50 to $0.22 per share of our common stock. All other terms and conditions of the Warrants remained the same.
On December 31, 2007, we also extended the term to exercise Placement Agents’ Class A Warrant from December 31, 2007 to December 31, 2008. The exercise price of the Class A Warrant was lowered from $0.985 to $0.17 per share of our common stock, and we reduced the exercise price of our Class B Warrant from $2.285 to $0.17 per share of our common stock. All other terms and conditions of the Warrants remained the same.
On March 25, 2008, we extended the term to exercise the Class A Warrant from March 31, 2008 to July 31, 2008. All other terms and conditions of the Warrants remained the same and became effective on June 11, 2008 when the Company received a Notice of Effectiveness from the Securities and Exchange Commission
On August 28, 2008, the Company extended the term to exercise the Class A Warrant from August 31, 2008 to March 31, 2009. All other terms and conditions of the Warrants remained the same and became effective on October 8, 2008 when the Company received a Notice of Effectiveness from the Securities and Exchange Commission.
On March 26, 2009 the Company filed an 8-K stating that it intends to extend the terms to exercise the Class A Warrant from March 31, 2009 to June 30, 2010 and to extend the term of the Class B Warrant from December 31, 2009 to June 30, 2010. The Company will file a Post Effective Amendment No. 4 to its Registration Statement on Form S-1 (“Post Effective Amendment”). The extended date will become effective upon the date on which the Securities and Exchange Commission declares the Post-Effective Amendment.
During 2005 and 2006, the Company raised capital via a private placement to accredited investors of units (“Units”), each Unit consisting of (a) a 10% convertible note with the original principal amount of $10,000 and (b) warrants to purchase 10,000 shares of common stock, exercisable at $0.50 per share, for $10,000 per Unit.
On January 29, 2007, warrants were issued to a consultant to acquire 900,000 shares of the Company’s common stock at $0.47 per share, exercisable for five years, as part of the compensation and further incentive for the consultant to devote his best efforts to the performance of services specified under a 3-year consulting agreement dated January 29, 2007. The warrants vest in three equal amounts of 300,000 warrants on each of the following dates January 29, 2008, January 29, 2009 and January 29, 2010 provided that the consultant is still retained by the Company. These shares were valued at $216,000, the fair value of warrant at the date of issue. This amount is being accreted over the vesting period of the warrants using the straight line method. For the years ended December 31, 2008 and 2007, a total of $72,000 and $66,000, respectively, was charged to operations with a corresponding credit to additional paid in capital.
In April 2008, the Company lowered the exercise price of 900,000 shares from $0.47 to $0.01 and the options were exercised on a cashless basis. As a result of the price modification, the Company recorded compensation expense amounting to $117,000. Upon exercise, the Company recorded $9,000 to compensation expense and a corresponding credit to common stock and additional paid in capital.
On January 29, 2007, warrants were issued to a consultant to acquire 1,000,000 shares of the Company’s common stock at $0.47 per share, exercisable for five years, as further incentive for the consultant to devote his best efforts to the performance of services specified under a 3-year consulting agreement dated January 29, 2007. The warrants vest when the consultant has achieved $2,000,000 in net direct and indirect sales, as defined, in any one calendar year provided that the consultant is still retained by the Company. The fair value of warrant will be charged to operations with a corresponding credit to additional paid in capital on the date the sales target is achieved. In April 2008, 853,847 shares of common stock were issued on a cashless basis resulting in a $111,000 charge to compensation and a corresponding credit to common stock and additional paid in capital.
On February 16, 2007, a warrant was issued to a placement agent to acquire 224,000 common shares at $0.50 per share exercisable for three years as part of the compensation for services rendered in the Company’s private placement of its 10% convertible notes. A total of $51,520, the fair value of warrant at the date of issue, was capitalized as deferred financing costs with a corresponding credit to additional paid in capital. This amount is being accreted over the remaining life of the notes associated with the placement agent using the straight line method.
On February 16, 2007, a warrant was issued to a placement agent to acquire 87,500 common shares at $0.36 per share exercisable for three years as part of the compensation for services rendered in the Company’s private placement of its 10% short term promissory notes. A total of $22,750, the fair value of warrant at the date of issue, was capitalized as deferred financing costs with a corresponding credit to additional paid in capital. This amount is being accreted over the remaining life of the notes associated with the placement agent using the straight line method.
For the year ended December 31, 2007, 190,000 warrants were exercised. On December 10, 2007, the Company issued 140,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $17,800. On December 18, 2007, the Company issued 50,000 shares of the Company’s restricted common stock upon the exercise of warrants issued with the Company’s 10% convertible notes and received net proceeds of $7,000.
On August 15, 2008, a warrant was issued to a consultant to acquire 400,000 common shares at $0.15 per share exercisable for three years as part of the compensation for consulting services rendered. A total of $44,000 (the fair value of the warrant on the date of issue) was recorded as consulting expense.
During the fiscal year ended December 31, 2008, the Company issued 2,871,400 warrants in connection with sales of its restricted common stock. All warrants have a three year term and are exercisable at a range of $0.14 to $0.35 per share.
For the year ended December 31, 2008, 3,080,276 of warrants were exercised for total proceeds of approximately $114,000.
NOTE 15 - COMMITMENTS AND CONTINGENCIES.
(a) Legal Proceedings
AmberAlertAgent Development Company, LLC
On February 20, 2007, SearchHelp was served with a complaint that was filed in the Superior Court of California in San Diego County on February 8, 2007, entitled AmberAlertAgent Development Co., LLC, a California Limited Liability Company; Perkins, Brinson, Ho, LLC, a California Limited Liability Company; Philip Dizon, an individual; Edward Sullivan, an individual; Gil Amelio, an individual; Richard A. Weintraub, an individual; Carl Perkins, an individual; and Duane Brinson, an individual v. Searchhelp, Inc., a Delaware Corporation; and Does 1-20. The claims against the Company arise out of an Exchange Agreement entered into between AmberAlertAgent, Inc. (“AAA”), certain of the plaintiffs and the Company pursuant to which the Company purchased all the issued and outstanding shares of AAA in exchange for 1.5 million shares in the Company. The shares in the Company acquired by the plaintiffs are being held in escrow until plaintiffs complete the development of software, and provided certain other services, as set forth in a Consulting Agreement between plaintiffs and the Company.
On August 2, 2007, the Company and the plaintiffs signed a Settlement Agreement and Mutual Release whereby all legal actions were dismissed. Under the terms of the Settlement Agreement, SearchHelp placed $10,000 into escrow and released to the plaintiffs an aggregate of 1.375 million shares of the Company's common stock which were previously being held in escrow. The remaining 125,000 shares which were previously held in escrow were returned to the Company and retired. In addition, pursuant to the Settlement Agreement, SearchHelp and Amber Alert Agent entered into a License Agreement pursuant to which the Company received a perpetual, royalty-free, worldwide, and non-exclusive license to use, including to reproduce, perform, display, distribute, and create derivative works from, certain Sentry Predator Locator software and all related documentation. An additional $10,000 was placed in escrow for payment of transition services to be provided by the plaintiffs to assist the Company in migrating the software onto the Company's servers. The source code for the licensed software was also placed into escrow. All escrowed items will be released upon the successful transition of the software. In February 2009, the Company, AmberAlertAgent Development Co., LLC, all of the plaintiffs and the Escrow Agent reached a settlement agreement, and $9,500 of the funds were released to the Company and $9,500 was released to the Plaintiffs in accordance with the Settlement Agreement. $1,000 was paid to the escrow agent for escrow fees and the source codes were delivered to Plaintiffs in accordance with the Settlement Agreement.
Joseph Carrizzo
During the first quarter of 2007, Joseph Carrizzo resigned as the Company’s President and a director. The Company attempted to negotiate the terms of a separation agreement with Mr. Carrizzo. On March 20, 2007, the Company received a letter from Mr. Carrizzo in which he formally advised the Company that he was terminating his employment as a result of the Company’s alleged material breach of his employment agreement. The Company contends that Mr. Carrizzo voluntarily terminated his employment with the Company.
On May 22, 2008, a settlement agreement was reached between the Company and Mr. Carrizzo, whereby the Company has agreed to pay Mr. Carrizzo $150,000 and issue 1,275,000 of the Company’s restricted common shares in full and complete settlement of all monetary and non-monetary claims by Mr. Carrizzo. Mr. Carrizzo turned in and the Company terminated 3,270,000 options as part of the settlement. A cash payment of $10,000 was made immediately upon execution of the settlement agreement and $5,000 per month commencing thirty days after the initial payment is due until the full amount is paid. If the Company raises $500,000 in additional equity financing in a single transaction, a one time accelerated payment of $20,000 is to be made to Mr. Carrizzo. If the Company raises an additional $500,000 in a single transaction, an additional $20,000 accelerated payment is to be made. . The common shares payment was delivered in two stock certificates on May 28, 2008. The first 625,000 shares issued are restricted until such time as when the Company files a registration statement that is declared effective by the SEC. The second payment of 650,000 common shares are subject to the first stipulation and have an additional legend that prohibits their resale prior to March 1, 2009.
Charles Davis
On May 23, 2008, the Company responded to a letter dated May 22, 2008 and sent a notification to return personal and intellectual property belonging to the Company from the former Chief Technology Officer, Charles Davis. Mr. Davis claims independent rights to use technology owned and developed by SearchHelp, Inc and Echometrix. The Company maintains that Mr. Davis is in violation of his confidentiality obligations and has demanded all records, software and data owned by SearchHelp, Inc and subsidiaries to be returned to the Company immediately. Mr. Davis was charged with larceny based on a complaint filed by the Company and the case is being prosecuted by the Nassau County District Attorney's office.
Freifeld
On or about November 2008, the plaintiffs, Freifelds brought an action against the Company seeking summary judgement in lieu of complaint on two debt conversions. The plaintiffs converted their notes and received the Company’s stock certificates in November 2008. Subsequently, the plaintiffs brought suit, requesting repayment of their converted notes. The Company has retained legal counsel and has filed pre-answer motion for summary judgement for the Company. The Plaintiffs have moved for summary judgment in lieu of a complaint and we cross-moved for summary judgment. The Court has indicated that it is going to set the matter down for an evidentiary hearing. No date has been set. As of April 14, 2009, management has determined that the possibility that summary judgement for the plaintiffs is remote.
(b) Leases
The Company signed a new operating lease beginning July 31, 2006 for its corporate office space located in Syosset, New York. The lease has a term of five years and two months and expires on September 30, 2011. The following is a schedule by year of future minimum rental payments required under the lease agreement:
Rent expense was $61,953 and $82,279 for the years ended December 31, 2008 and 2007, respectively.
NOTE 16 - SUBSEQUENT EVENTS
On February 10, 2009, William Bozsnyak resigned as the Chief Executive Officer and Chairman of SearchHelp, Inc. (the “Company”). Mr. Bozsnyak will continue to serve as a member of the Company’s Board of Directors and will become the Company’s Secretary.
On February 10, 2009 (the “Separation Agreement Effective Date”), in connection with Mr. Bozsnyak’s resignation as Chief Executive Officer and Chairman of the Company, the Company entered into a separation agreement with Mr. Bozsnyak (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Bozsnyak will remain a director of the Company. In addition, Mr. Bozsnyak will become the Secretary of the Company until March 31, 2010, subject to termination by Mr. Bozsnyak upon 30 days’ written notice. Pursuant to the Separation Agreement, the Company acknowledged that it owes Mr. Bozsnyak an aggregate of $616,046.52 for accrued salary, principal and interest on personal loans, and options, and the Company agreed to pay the amounts due to Mr. Bozsnyak in accordance with the schedule set forth therein, including $10,000 upon execution of the Separation Agreement, $10,000 within ten days of execution of the Separation Agreement, and $8,000 per month commencing the week of March 6, 2009 and continuing for a period not to exceed three years, which may be accelerated under certain conditions as set forth therein. Mr. Bozsnyak has also agreed to convert the remaining monies owed into common stock at a conversion rate of $0.14 per share. The Company also agreed to grant Mr. Bozsnyak options to purchase shares of the Company’s common stock in the amount of $20,833 per month until December 31, 2009 at an exercise price equal to the ninety day volume weighted average price, to allow Mr. Bozsnyak to name an additional Board member for a period of three years from the Separation Agreement Effective Date (or until the Company generates a net annual profit in excess of $4 million, and subject to the unanimous approval of the Board of Directors), and to reimburse Mr. Bozsnyak for health insurance expenses in the amount of up to $2,500 per month for a period of 36 months, if Mr. Bozsnyak requires health insurance. Pursuant to the Separation Agreement, Mr. Bozsnyak will retain 1,895,556 vested options for a period of three years from the Separation Agreement Effective Date; all other unvested options were cancelled.
On February 10, 2009, Jeffrey Greene was appointed to serve as the Company’s Chief Executive Officer. Mr. Greene, 61 has spent the last 30 years as a CEO/COO starting, restarting and rehabilitating businesses in banking, technology, entertainment and most recently the wireless space. Greene started down this path after serving as the Chairman of Citicorp Information Management Services, which was one of the largest resellers of marketing intelligence to the packaged goods industry. He later became the President of Island Trading Company the owner of 74 entertainment properties including Island Records. As President of the Pharmacy Fund he raised over $2 Billion in the securitized asset back market while reselling pharmaceutical information to the key manufacturers.
On February 10, 2009, the Company entered into an employment agreement with Mr. Greene (the “Greene Employment Agreement”), pursuant to which Mr. Greene will serve as the Company’s Chief Executive Officer and on the Company’s Board of Directors, effective upon the resignation of the prior Chief Executive Officer, which resignation occurred on February 10, 2009 (the “Greene Effective Date”). The Greene Employment Agreement has a term of three years, subject to earlier termination as provided therein, and may be extended beyond the initial three year term by mutual agreement of the Company and Mr. Greene (the “Greene Term”). Pursuant to the Greene Employment Agreement, Mr. Greene will receive a base salary of $240,000, which may be increased up to $300,000 during the first year of the Greene Term if certain milestones are achieved. Commencing one year from the Greene Effective Date, all salary increases or bonus payments will be in the sole discretion of the Company’s Board of Directors. Pursuant to the Greene Employment Agreement, the Company agreed to grant Mr. Greene a) one million five hundred thousand options, vesting over a three year period from the effective date on a cashless basis (if still employed) at an exercise price equal to the thirty day volume weighted average price set on the effective date; b) three million five hundred thousand warrants to purchase the Company’s common stock at an exercise price of ten cents expiring February 10, 2014; and c) four million performance based stock options, which will vest based on the achievement of certain milestones.
The Greene Employment Agreement may be terminated by the Company for Good Cause (as defined therein), in which event Mr. Greene shall have no right to any further base salary or other benefits or bonus, and Mr. Greene shall forfeit all non-vested options, warrants and stock, and any warrant, option, or cash bonus granted within 180 days. If the Company terminates the Greene Employment Agreement (other than for Good Cause), Mr. Greene shall be entitled to a severance payment equal to one month’s salary during year one of the Term, two months’ salary during year two of the Term, and three months’ salary during year three of the Term.
The Greene Employment Agreement may also be terminated by Mr. Greene, in the event of a Material Breach (as defined therein, including the termination by the Company for reasons other than Good Cause) by the Company. If Mr. Greene terminates the Greene Employment Agreement as a result of a Material Breach by the Company, the Company shall continue to provide Mr. Greene with his base salary and benefits for a period of three months. If Mr. Greene terminates the Greene Employment Agreement for a reason other than a Material Breach by the Company, Mr. Greene shall forfeit any warrant, option, or cash bonus granted within 180 days.
On February 9, 2009, Peter Sealey was appointed to the Company’s Board of Directors and will serve as its Chairman.
On February 9, 2009, the Company entered into an agreement with Mr. Sealey (the “Sealey Agreement”), pursuant to which Mr. Sealey will serve as the Company’s Non-Executive Chairman, effective upon the resignation of the prior chairman (which resignation occurred February 10, 2009) (the “Sealey Agreement Date”). The Sealey Agreement has a one year term, subject to earlier termination as provided therein, and may be extended upon a proxy shareholder approval, or if an annual shareholder meeting and/or meeting do not occur, by mutual agreement between Mr. Sealey and the Board of Directors. Pursuant to the Sealey Agreement, the Company agreed to grant Mr. Sealey, on the Sealey Agreement Date, 500,000 fully vested five year warrants to purchase shares of the Company’s common stock at an exercise price that is the lesser of $0.10 or the 30 day volume average weighted average price. The Warrants may be exercised on a cashless basis so long as Mr. Sealey serves as the Company’s Non-Executive Chairman. The Company also agreed to grant Mr. Sealey 2,500,000 performance based stock options which shall vest based upon the achievement of certain milestones.
The Company may terminate the Sealey Agreement for Good Cause (as defined therein), in which event Mr. Sealey shall forfeit any non-vested options, warrants, or stock and any warrant, option or cash bonus received within 180 days. The Sealey Agreement may also be terminated by Mr. Sealey, in the event of a Material Breach (as defined therein, including the termination by the Company for reasons other than Good Cause) by the Company. If Mr. Sealey terminates the Sealey Agreement for a reason other than a Material Breach by the Company, Mr. Sealey shall forfeit any warrant, option, or cash bonus granted within 180 days.
Equity
On January 6, 2009 the Company issued 775,000 shares of the Company’s restricted common stock as bonuses to employees and directors and are valued at approximately $109,000.
On January 7, 2009, the Company, through a private sale, issued 200,000 shares of its restricted common stock as a result of a promissory note issued for $50,000.
On January 15, 2009, the Company, through a private sale, issued 200,000 shares of its restricted common stock as a result of a promissory note issued for $50,000.
On February 1, 2009, the Company, through a private sale, issued 50,000 shares of its restricted common stock as a result of a promissory note issued for $50,000.
On February 2, 2009, the Company, through a private sale, issued 100,000 shares of its restricted common stock as a result of a promissory note issued for $50,000.
On February 2, 2009, the Company, through a private sale, issued 250,000 shares of its restricted common stock as a result of a promissory note issued for $125,000.
On February 19, 2009, the Company, through a private sale, issued 25,000 shares of its restricted common stock as a result of a promissory note issued for $25,000.
On March 5, 2009, the Company, through a private sale issued 1,000,000 shares of its restricted common stock as a result of promissory notes issued for $500,000.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A(T).
Item 9A(T). Controls and Procedures
Internal Controls
Evaluation of our Disclosure Controls and Internal Controls
Under the supervision and with the participation of our senior management, including our chief executive and financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this annual report (the “Evaluation Date”). The disclosure controls and procedures are intended to insure that the information relating to us, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management has concluded that based on their evaluation that our internal control over financial reporting was not effective as of December 31, 2008.
Management's Annual Report on Internal Controls and Procedures.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework.
Based upon our assessment and the COSO criteria, management concluded that our internal control over financial reporting was not effective as of December 31, 2008 due to a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
More specifically, the material weakness relates to a lack of sufficient personnel with appropriate knowledge, experience and training in U.S. GAAP resulting in a lack of sufficient analysis and documentation of the application of U.S. GAAP to transactions, including but not limited to accounting for modification of debt.
Due to our small size, limited financial resources, and turnover of our Chief Financial Officer, who has been the only individual involved in our accounting and financial reporting, there has been no segregation of duties within the accounting function. This lack of segregation of duties represents a material weakness.
In efforts to address this material weakness, we are planning to add additional personnel to the internal accounting operation.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Controls. There were no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, 2008, that have materially affected, or are reasonably like to materially affect, our internal controls over financial reporting.
The Company's management does not expect that the Company's disclosure controls or the Company's internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are 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, have been detected. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be detected.
Item 9B.
Item 9B. Other Information.
Not Applicable.
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act.
The Company has a seven-member board of directors. The identity of each of our directors and executive officers and their principal occupations for the past five years are as follows.
Year
Name
Age
Position
Began Service
William Bozsnyak (1)
Former Chairman and Chief Executive Officer
Peter Sealey (1)
Chairman of the Board
Jeffrey Greene (1)
Chief Executive Officer
Erica Zalbert
Chief Financial Officer
Brian O’Connor (2)
Director
Frank Chester
Director
Randy S. Zelin
Director
William Bozsnyak, 48, is the founder, chief executive officer and chairman of the board of SearchHelp. After a successful career in the financial services industry, Mr. Bozsnyak created a local Internet portal in 1998 which focused on meeting the advertising needs of small businesses that were not being met on a national level. In addition to his current duties, Mr. Bozsnyak has served SearchHelp in several capacities since its inception in January 2001 including treasurer, chief financial officer and vice president. Prior to forming SearchHelp, Mr. Bozsnyak began his career with J.P. Morgan Securities Inc. in 1982 and rose to become a vice president in its Institutional Fixed Income Sales Department. In 1993, he left Morgan to join UBS Securities Inc. as vice president of its Global Fixed Income Department. In this role, he was responsible for the sale of U.S. fixed income securities to major institutional U.S. firms. Mr. Bozsnyak graduated in 1982 from the New York Institute of Technology with a Bachelor’s in Business Administration and a minor in Finance. Effective February 10, 2009, Mr. Bozsnyak continues to serve on the Company’s board of directors and as the Company’s Secretary.
Peter Sealey, 66, is the Chairman of the board of SearchHelp effective February 10, 2009, and is the CEO and founder of The Sausalito Group, Inc., a diversified management consulting firm based in Sausalito, CA and offering capabilities in business and marketing strategy, brand identity, market research, advertising services, business development, and expert witness testimony. Peter held numerous positions at the Coca-Cola Company and became its first CMO in 1990. In addition, Mr. Sealey has served as a management consultant for numerous leading firms including VeriSign, The General Motors Corporation, The Coca-Cola Company, Sony New Technologies, Inc., the Anheuser-Busch Company, Visa U.S.A., United Parcel Service, ImproveNet, Johnson & Johnson, Hewlett-Packard, The Eastman Kodak Company, and Nokia. He serves, or has served, on the Boards of Advisors of Intent MediaWorks, FaceBook.com, Veoh Networks, Log Savvy, Inc., DiStreams, Inc., HomeGain.com, Space.com, AgentWare, Learning Framework, NetOyster, Zinio & eVoice.com. He is a special partner in DigaComm Ventures, LLC.
Jeffrey Greene, 62, is the Chief Executive Officer of SearchHelp effective February 10, 2009. Prior to joining SearchHelp, Mr. Greene spent the last 30 years as a CEO/COO starting, restarting and rehabilitating businesses in banking, technology, entertainment and most recently the wireless industry space. Greene served as the Chairman of Citicorp Information Management Services, which was one of the largest resellers of marketing intelligence to the packaged goods industry. He later became the President of Island Trading Company, the owner of 74 entertainment properties including Island Records. As President of the Pharmacy Fund, a major “factor” of third party pharmacy receivables, he raised over $2 Billion in the securitized asset backed securities market while reselling pharmaceutical information to the key manufacturers.
Erica Zalbert, 34, became the Chief Financial Officer of SearchHelp, Inc. in May 2008. Prior to joining the Company, Ms. Zalbert, was employed with Cambridge Who's Who Publishing, Inc., as Controller. Ms. Zalbert established its accounting department from the ground up, overseeing the internal accounting of all merged who's who entities, consolidated their financial reporting, captured daily and weekly revenues, managed the payroll process, and implemented a Microsoft-based Solomon accounting system. Ms. Zalbert's professional career in finance and accounting began when she joined PricewaterhouseCoopers as an Associate in 1998, and leaving in 2003.During her tenure, she conducted audits for a diversified clientele in the manufacturing, distribution, retail, telecommunications, advertising, mortgage banking, education, and not-for profit sectors. From 2003 to 2006, Ms. Zalbert held the position of Vice President of Financial Reporting for Newtek Business Services (NASDAQ: NEWT). Her responsibilities included reviewing financials for the parent company and 60+ subsidiaries, inter-company analysis, and SEC and regulatory reports. Ms. Zalbert maintained stock compensation schedules, segment accounting and auditing schedules, and performed FIN 46 analysis. She revamped the department, transitioning the records of 25 Newtek companies from a consulting firm to in-house staff, implementing MAS 500 accounting software and FRX reporting software. Ms. Zalbert earned a BBA in Accounting from Hofstra University and is a Certified Public Accountant.
Brian O’Connor, 62, is a director of SearchHelp, and the former Chief Operating Officer. From 1998 until joining SearchHelp in June 2005, Mr. O’Connor was President of ETP and founder of Worldwide Commerce Exchange and Ann’s Boston Brownie Company. Mr. O’Connor was formerly the vice president for North American and Asia Pacific Sales for Polaroid Corporation from 1989 to 1998. In this capacity, he was responsible for sales and marketing of Polaroid’s U.S. business, generating over $1.1 billion in sales with over 900 employees. While at Polaroid, he also established an international consumer sales group in Asia, Japan, South America, Africa and the Middle East for Polaroid component products. Mr. O’Connor currently serves on the board of directors of the Dana Farber Cancer Institute and the Jimmy Fund Advisory Council. Formerly, he served on the board of directors of the Carroll School for Dyslexic Children and The New England Sports Museum. Mr. O’Connor resigned from his position as Chief Operating Officer in December 2008, but retains his position as a director.
Frank Chester, 60, was a member of the New York Stock exchange for twenty four years, with experience on the floor for almost forty years. During his years as a member, he owned a seat for fifteen years until the exchange became a public entity. When the exchange became public the seat was exchanged for stock and cash. Mr. Chester helped to start two brokerage firms become active members on the floor. Mr. Chester graduated from Villanova University in 1970 with a Bachelor of Science in Business Administration. He has been a guest on such television programs as CNBC, Fox Business, and Bloomberg radio.
Randy S. Zelin, 45, is a director of SearchHelp. An experienced attorney in private practice and a former Nassau County, NY Assistant District Attorney, Mr. Zelin concentrates in the areas of criminal defense and securities litigation. From June 2000 to present, Mr. Zelin serves as President of Randy Scott Zelin, P.C., a law firm in Westbury, New York. He is a graduate of Hofstra University (B.A. 1984) and the Touro College Jacob D. Fuchsberg Law Center (J.D. 1987). He is of counsel to Pryor & Mandelup, LLP, a distinguished bankruptcy, reorganization, and civil practice, where he maintains his office. Mr. Zelin is admitted to practice in New York, New Jersey, and in the U.S. District Courts for the Southern, Eastern, and Northern Districts of New York, and the U.S. Court of Appeals for the Second Circuit. Mr. Zelin is a member of the Nassau County Bar Association and the National Association of Criminal Defense Lawyers. He has lectured at continuing legal education programs on criminal law and procedure and has taught as a guest instructor in various local law schools’ trial advocacy programs as well as for the National Institute for Trial Advocacy. He also appears regularly on CNN Headline news to discuss noteworthy trials and criminal justice issues.
Each director holds office until the next annual stockholders meeting or until a successor is duly elected or appointed. Officers are appointed to their positions, and continue in such positions, at the discretion of the directors.
(1)
Effective February 10, 2009, the Company and Mr. Bozsnyak entered into a Separation Agreement pursuant to which he resigned as the Chairman of the Board and as Chief Executive Officer. He will retain his position as Secretary and as a director of SearchHelp. In connection with Mr. Bozsnyak’s resignation, Mr. Sealey was appointed the Chairman of the Board of SearchHelp and Mr. Greene became the Chief Executive Officer of SearchHelp.
(2)
Effective December 15, 2008, Mr. Brian O’Connor resigned as the Company’s Chief Operating Officer. He will retain his position as a director of SearchHelp.
Audit Committee
On April 2, 2003 the Board of Directors established an Audit Committee, which consists of one director, who must be an independent director, as defined in the Charter for the Audit Committee. The Audit Committee consisted of David Barnes, as Chairman, until his resignation on March 26, 2009. Members of the Committee are appointed by the Board of Directors and serve one-year terms. Members may be removed by the Board of Directors at any time with or without cause. Upon the removal or resignation of a member, the Board of Directors may appoint a successor to serve the remainder of the unexpired term. The Audit Committee will meet at least four times annually with the independent auditors and more frequently as circumstances dictate.
The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to:
·
the integrity of the financial reports and other financial information provided by us to the public or any governmental body;
·
our compliance with legal and regulatory requirements
·
our systems of internal controls regarding finance, accounting and legal compliance;
·
the qualifications and independence of our independent auditors;
·
the performance of our internal audit function and independent auditors;
·
our auditing, accounting, and financial reporting processes generally; and
·
the performance of such other functions as the Board of Directors may assign from time to time.
The Audit Committee has the authority to:
·
make recommendations to the Board of Directors regarding the appointment or replacement of independent public accountants;
·
confer with our independent public accountants regarding the scope, method and results of the audit of our books and accounts;
·
review our financial reporting process and the management recommendations made by our independent public accountants;
·
recommend and implement any desired changes to our audit procedures; and
·
perform such other duties as the Board of Directors may from time to time direct.
Audit Committee Financial Expert
The Company does not have a financial expert, as defined in paragraph (d) (2)(5)(ii) of Item 407 of Regulation S-K.
Code of Ethics
Our board of directors adopted a Code of Ethics that covers all executive officers of our company and its subsidiaries. The Code of Ethics requires that senior management avoid conflicts of interest; maintain the confidentiality of information relating to our company; engage in transactions in shares of our common stock only in compliance with applicable laws and regulations and the requirements set forth in the Code of Ethics; and comply with other requirements which are intended to ensure that such officers conduct business in an honest and ethical manner and otherwise act with integrity and in the best interest of our company.
All our executive officers are required to affirm in writing that they have reviewed and understand the Code of Ethics.
Any amendment of our Code of Ethics or waiver thereof applicable to any of our principal executive officer, principal financial officer and controller, principal accounting officer or persons performing similar functions will be disclosed on our website within 5 days of the date of such amendment or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will also be disclosed. A copy of our Code of Ethics is incorporated by reference to the Company’s form 10-KSB filed with the Securities and Exchange Commission on March 16, 2004.
Indebtedness of Executive Officers and Directors
No executive officer, director or any member of these individuals’ immediate families or any corporation or organization with whom any of these individuals is an affiliate is or has been indebted to us since the beginning of our last fiscal year.
Family Relationships
There are no family relationships among our executive officers and directors.
Legal Proceedings
During the past five years, no officer or director of the Company has:
·
been convicted in or is currently subject to a pending a criminal proceeding;
·
been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any Federal or state securities or banking laws including, without limitation, in any way limiting involvement in any business activity, or finding any violation with respect to such law; nor
·
has any bankruptcy petition been filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy or for the two years prior thereto.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires all of SearchHelp’s officers and directors, and persons who own more than ten percent of a registered class of SearchHelp’s equity securities, to file reports of ownership and changes in ownership of equity securities of SearchHelp with the SEC and any applicable stock exchange. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish SearchHelp with copies of all Section 16(a) forms that they file. Based solely upon a review of Forms 3, 4, and 5 furnished to SearchHelp during 2008 SearchHelp believes that none of its officers, directors and greater than 10% beneficial owners failed to file timely such Forms on a timely basis during the most recent fiscal year except that Erica Zalbert and Randy Zelin each filed a Form 3 late. David Barnes, William Bozsnyak and Randy Zelin each filed a Form 4 late.
Item 11.
Item 11. Executive Compensation
Each of our named executive officers has entered into a three year employment agreement with SearchHelp. Pursuant to the respective employment agreement, each executive officer receives an annual base salary, a non-ISO option grant, paid health insurance and three to five weeks of vacation annually. The employment agreements require the named executive officers to maintain the confidentiality of SearchHelp information and subject them to non-competition and non-solicitation restrictions during their employment.
The following table shows the compensation earned by each of the named executive officers for the years ended December 31, 2008 and 2007.
(1) Salary represents base salary earned in 2008 and 2007.
(2) Represents the amount recognized by SearchHelp for financial statement reporting purposes in accordance with FAS 123R
(3) Includes $100,000 to Mr. Bozsnyak paid quarterly in options to purchase our common stock (see 8 below).The named executive officers’ other compensation included a $12,000 vehicle allowance (through June 2007) for Mr. O’Connor .
(4) Represents the amount recognized by SearchHelp for financial statement reporting purposes in accordance with FAS 123R for 1,000,000 options granted to Mr. Bozsnyak on May 1, 2005, pursuant to his employment agreement.
(5) Ms. Zalbert commenced employment with SearchHelp as our Chief Financial Officer in May 2008. Her compensation amounts reflect her compensation for the period during which she served in this position.
(6) Includes the receipt of options on August 1, 2007 in lieu of cash.
(7) Represents the amount recognized by SearchHelp for financial statement reporting purposes in accordance with FAS 123R for 900,000 options granted to Mr. O’Connor on June 8, 2005, pursuant to his employment agreement.
(8) On January 29, 2007, we amended the terms of Mr. Bozsnyak's employment agreement. Under the terms of the amendment, (i) the term of the employment agreement was extended until December 31, 2009, (ii) beginning on January 1, 2007, Mr. Bozsnyak's base salary was increased to $250,000 per annum, of which $150,000 is payable in cash and, until such time as we have cash flow in excess of $1 million for two consecutive quarters, $100,000 shall be paid quarterly in options to purchase our common stock (iii) in the event we acquire another company, Mr. Bozsnyak will receive a number of options to purchase our shares, as the Board shall determine to be sufficient to compensate Mr. Bozsnyak for his efforts in connection with such transaction, at the then current market value and (iv) continued compensation under the terms of Mr. Bozsnyak for a period of five years after a change of control.
(9) Includes compensation through his resignation as Chief Operating Officer on December 15, 2008.
The following table shows outstanding option awards held by each of the named executive officers as of December 31, 2008.
(1)
No options were exercised in 2008 by any named executive officers.
(2)
Option granted May 1, 2005 pursuant to Mr. Bozsnyak’s employment agreement that vests based on continued employment through May 1, 2007, subject to earlier vesting upon certain circumstances.
(3)
Award granted June 8, 2005 pursuant to Mr. O’Connor’s employment agreement that vests based on continued employment through June 8, 2007, subject to earlier vesting upon certain circumstances.
(4)
Options granted on August 1, 2007 in lieu of cash payment of accrued salaries.
(5)
Quarterly option granted pursuant to Mr. Bozsnyak’s employment agreement (see Summary Compensation Table, (11) above)
Stock Plan
The Company’s 2004 Stock Plan (the “Plan”), which is shareholder approved, permits the grant of share options and shares to its employees for up to 1,500,000 shares of Common Stock as stock compensation. All stock options under the 2004 Stock Plan are granted at the fair market value of the Common Stock at the grant date. Employee stock options vest ratably over a three-year period and generally expire 5 years from the grant date. Additionally, the Company grants options and shares to its employees outside the Plan under the same general terms.
Director Compensation
Directors who are employees of the Company do not receive any fees for their service on the Board. We use a combination of cash and equity-based incentive compensation to attract and retain qualified candidates to serve on our Board. Our non-employee directors receive annual equity compensation in the form of restricted shares of the Company's common stock or options to purchase shares of the Company's common stock.
(1)
No options were exercised in 2007 by any directors.
(2)
Mr. Zelin joined the Board in 2007.
(3)
Represents amounts recognized by SearchHelp for financial statement reporting purposes of 450,000 shares of restricted common stock.
Item 12.
Item 12. -Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information, as of April 13, 2009, with respect to the beneficial ownership of our Common Stock by each: (i) holder of more than five percent (5%) of the outstanding shares of our Common Stock; (ii) our executive officers and directors; and (iii) all our executive officers and directors as a group. The Company's issued and outstanding voting securities at the close of business on April 13, 2009, consisted of 74,538,976 shares of Common Stock. Unless otherwise indicated, the address of each of the named persons is care of SearchHelp, Inc., 6800 Jericho Turnpike, Suite 208E, Syosset, New York 11791.
* less than one percent
(1) Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of the Company's common stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within 60 days from the date on which beneficial ownership is to be determined, upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not those held by any other person) and which are exercisable within such 60 day period, have been exercised.
(2) Consists of 8,114,694 shares of common stock and options to acquire 1,895,556 shares of common stock. Also includes 3,300,000 shares of common stock held by Mr. Bozsnyak’s wife.
(3)
Consists of 1,816,667 shares of common stock and options to acquire 1,307,601 shares of common stock. Also includes 1,150,000 shares of common stock held by Mr. O’Connor’s wife.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Due to stockholders
At December 31, 2008 and 2007, the Company was indebted to its former CEO, William Bozsnyak, in the amounts of $163,718 and $45,719, respectively, for working capital advances made to the Company. On August 31, 2007, Mr. Bozsnyak converted $550,500 of working capital loans into 1,196,742 restricted shares of the Company’s common stock and 105,057 shares of the Company’s Convertible Series A Preferred Stock. For the years ended December 31, 2008 and 2007, interest expense was charged in the amounts of $10,639 and $44,620, respectively. The interest rate used in this calculation is the same interest rate paid to the Company’s short term lender under the revolving line of credit described in Note 5, 7.25% at December 31, 2008 and 9.50% at December 31, 2007. At December 31, 2008 and 2007, $163,092 and $152,453 in accrued interest was due to Mr. Bozsnyak, respectively.
The Company also owed Mr. Bozsnyak $1,297 and $7,987 as of December 31, 2008 and 2007, respectively, for travel expenses and online advertising incurred on behalf of the Company.
Due to affiliates
The President of ETP has a minority interest in three affiliated companies. Based upon cash flow needs, there are loans made to and/or from one of these affiliates as well as from the President of ETP directly. As of December 31, 2008 and 2007, the Company owed one of these affiliates $47,671 and $47,907, respectively.
Director Independence
None of the directors of the Company are directors of other companies with securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such act or any company registered under the Investment Company Act of 1940.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees:
Year ended December 31, 2008 - $ 50,000
Year ended December 31, 2007 - $ 45,000
Fees billed for audit of year end consolidated financial statements and annual reports.
Audit-Related Fees:
Year ended December 31, 2008 - $ 28,500
Year ended December 31, 2007 - $ 33,000
Fees billed for quarterly review of unaudited consolidated financial statements and interim reports
Tax Fees:
Year ended December 31, 2008 - NONE
Year ended December 31, 2007 - NONE
All Other Fees:
Year ended December 31, 2008 - NONE
Year ended December 31, 2007 - NONE
Audit Committee Pre-Approval Policies and Procedures
We currently do not have an audit committee.
Item 15.
Item 15. Exhibits
Exhibit No.
Description of Exhibit
3(i)(a)
Certificate of Incorporation of the Company*
3(i)(b)
Certificate of Amendment effective April 26, 2005 (Incorporated herein by reference to Form 8-K filed May 2, 2005)
3(ii)
By-laws of the Company*
3(iii)
Form of Certificate Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series A 7% Convertible Preferred Stock, $0.0001 par value.
(Incorporated herein by reference to Form 8-K filed February 13, 2007)
3(iv)
Amended By-Laws of the Company (Incorporated herein by reference to Form 8-K filed March 4, 2009)
4.1
Specimen Common Stock Certificate of the Company*
4.2
Specimen Class A Warrant Certificate of the Company*
4.3
Specimen Class B Warrant Certificate of the Company*
Opinion re: Legality (Incorporated herein by reference to Post-Effective Amendment No. 4 to our Form SB-2 filed with the Securities and Exchange Commission on May 10, 2004 -File No. 33-97687).
10.3
Warrant Agreement, dated January 22, 2003, between the Company and American Stock Transfer and Trust Company*
10.4
Placement Agent Registration Rights Agreement, dated January 22, 2003, between the Company and Robert M. Cohen & Co, Inc.*
10.5
Form of Placement Agent Warrant*
10.6
Company 2004 Stock Plan, dated January 1, 2004. **
10.7
Participation Agreement, dated February 3, 2004, between the Company and Environmental Commercial Technology Corp. **
10.8
Letter Agreement, dated February 3, 2004, between the Company and BioNeutral Laboratories Corporation USA. **
10.9
Letter Agreement, dated February 3, 2004, between the Company and BioNeutral Laboratories Corporation (Worldwide) Limited. **
10.10
Settlement Agreement, dated October 20, 2005, between SearchHelp, Inc. and BioNeutral Laboratories Corporation USA. (filed herewith)
10.11
Registration Rights Agreement, dated November 7, 2003, by and between the Company and S.G. Martin Securities LLC.**
10.12
Software Purchase and Service Agreement, dated as of August 15, 2003, by and between the Company and Edocusign, Inc. **
10.13
Employment Agreement, dated April 26, 2005, between the Company and Joseph Carrizzo
(Incorporated herein by reference to Form 8-K filed April 28, 2005)
10.14
Securities Purchase Agreement by and among the Shareholders of E-Top-Pics, Inc. and the Company dated as of April 26, 2005.
(Incorporated herein by reference to Form 8-K filed June 14, 2005)
10.15
Employment Agreement, dated May 1, 2005, between the Company and William Bozsnyak
(Incorporated herein by reference to Form 8-K filed May 3, 2005)
10.16
Employment Agreement, dated May 1, 2005, between the Company and Brian O’Connor (Incorporated herein by reference to Form 8-K filed June 14, 2005)
10.17
Accounts Receivable Purchase Agreement, dated September 15, 2005, between E-Top-Pics, Inc. and Commercial Capital Lending, LLC (Incorporated herein by reference to Form 8-K filed September 21, 2005)
10.18
Secured Guaranty, dated September 15, 2005, between SearchHelp, Inc. and Commercial Capital Lending, LLC
(Incorporated herein by reference to Form 8-K filed September 21, 2005)
10.19
Supply Agreement, dated September 27, 2005, between E-Top-Pics, Inc. and Fuji Photo Film U.S.A., Inc.
(Incorporated herein by reference to Form 8-K filed October 3, 2005)
10.20
Exchange Agreement dated as of November 2, 2005, among SearchHelp, Inc., AmberAlertAgent, Inc. (“AAA”) and the stockholders of AAA
(incorporated herein by reference to 8-K filed November 10, 2005)
10.21
Consulting Agreement, dated November 2, 2005, among SearchHelp, Inc., AmberAlertAgent Development Company, LLC, and certain principals of AmberAlertAgent Development Company, LLC. ***
10.22
Employment agreement, dated April 24, 2006 between the Company and John Caruso
(Incorporated herein by reference to Form 8-K filed May 8, 2006)
10.23
Lease Agreement, dated June 1, 2006, between the Company and RA 6800 Jericho Turnpike LLC
(Incorporated herein by reference to Form 8-K filed June 12, 2006)
10.24
Settlement Agreement, dated July 14, 2006 between the Company and BioNeutral Laboratories Corporation USA
(Incorporated herein by reference to Form 8-K filed July 20, 2006)
10.25
Amendment to Employment Agreement, dated January 29, 2007, between the Company and William Bozsnyak ****
10.26
Series A Preferred Stock Purchase Agreement dated February 7, 2007 by and between the Registrant and Edward Kaplan.
(Incorporated herein by reference to Form 8-K filed February 13, 2007)
10.27
Series A Preferred Stock Purchase Agreement dated February 8, 2007 by and between the Registrant and The LAM Opportunity Fund, LTD.
(Incorporated herein by reference to Form 8-K filed February 13, 2007)
10.28
Series A Preferred Stock Purchase Agreement dated February 8, 2007 by and between the Registrant and Lewis Opportunity Fund, LP.
(Incorporated herein by reference to Form 8-K filed February 13, 2007)
10.29
Series A Preferred Stock Purchase Agreement dated February 20, 2007 by and between the Registrant and The LAM Opportunity Fund, LTD.
(incorporated herein by reference to Form 8-K filed February 26, 2007)
10.30
Series A Preferred Stock Purchase Agreement dated February 20, 2007 by and between the Registrant and Lewis Opportunity Fund, LP.
(Incorporated herein by reference to Form 8-K filed February 26, 2007)
10.31
Series A Preferred Stock Purchase Agreement dated March 9, 2007 by and between the Registrant and Michael Zuhoski.
(Incorporated herein by reference to Form 8-K filed June 6, 2007)
10.32
Series A Preferred Stock Purchase Agreement dated March 9, 2007 by and between the Registrant and Diane Supinsky.
(Incorporated herein by reference to Form 8-K filed June 6, 2007)
10.33
Series A Preferred Stock Purchase Agreement dated May 16, 2007 by and between the
Registrant and Lewis Opportunity Fund, LP.
(Incorporated herein by reference to Form 8-K filed June 6, 2007)
10.34
Series A Preferred Stock Purchase Agreement dated May 16, 2007 by and between the Registrant and The LAM Opportunity Fund, LTD.
(incorporated herein by reference to Form 8-K filed June 6, 2007)
10.35
Series A Preferred Stock Purchase Agreement dated June 1, 2007 by and between the Registrant and Lewis Opportunity Fund, LP.
(Incorporated herein by reference to Form 8-K filed June 6, 2007)
10.36
Separation Agreement between the Company and Mr. William Bozsnyak dated February 10, 2009.
10.37
Employment agreement, dated February 10, 2009 between the Company and Jeffrey Greene.
10.38
Employment agreement, dated February 10, 2009 between the Company and Peter Sealey.
Code of Ethics of the Company.**
List of Subsidiaries***
*
Incorporated herein by reference to the Company’s Form SB-2 filed with the Securities and Exchange Commission (File No. 33-97687).
**
Incorporated herein by reference to the Company’s Form 10-KSB filed with the Securities and Exchange Commission on March 16, 2004.
***
Incorporated herein by reference to the Company’s Form 10-KSB filed with the Securities and Exchange Commission on April 17, 2006
****
Incorporated herein by reference to the Company’s Form 10-KSB filed with the Securities and Exchange Commission on April 11,
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SearchHelp, Inc.
(Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ William Bozsnyak
William Bozsnyak
Director
April 14, 2009
/s/ Peter Sealey
Peter Sealey
Chairman
April 14, 2009
s/ Frank Chester
Frank Chester
Director
April 14, 2009
/s/ Randy S. Zelin
Randy S. Zelin
Director
April 14, 2009
/s/ Brian O'Connor
Brian O'Connor
Director
April 14,