ITEM 1.
BUSINESS
Unless the context otherwise requires, “Vault”, "MoneyFlow", "Company", "we", "us" and "our" refer to Vault America, Inc., and its subsidiaries combined.
Overview
Vault America, Inc. (“Vault”), formerly MoneyFlow Systems International Inc., ("MoneyFlow") was incorporated on April 25, 2001 under the laws of the State of Nevada. Security Bancorp Inc. ("Security Bancorp"), our wholly owned subsidiary, was organized on August 3, 1992 in Alberta, Canada and was inactive until January 5, 1999 when it changed its name to Security Bancorp Inc. and began operations under the name CA$H STATION(R). In July, 2001, Security Bancorp and MoneyFlow approved a share exchange agreement whereby MoneyFlow issued 14,000,000 shares of its common stock in exchange for 100% of the issued and outstanding shares of Security Bancorp. In connection with this agreement, Security Bancorp became a wholly owned subsidiary of MoneyFlow. On April 1, 2002, MoneyFlow formed a wholly owned Canadian subsidiary, Intercash POS Systems Ltd., ("Intercash") through which MoneyFlow conducted its Point-of-Sale business. Point-of-Sale terminals allow customers to use their debit and credit cards to make purchases and obtain cash on the premises of businesses. On August 31, 2004, MoneyFlow sold the majority of its Point-of-Sale business to BP Financial Corp. for approximately $258,000 in cash pursuant to a purchase and sale agreement, and Intercash is no longer an operating subsidiary of MoneyFlow. The Point-of-Sale terminals that were not part of the sale are being managed by Security Bancorp, and the Company does not plan to sell any new terminals.
Since May, 1999, Security Bancorp has been successful in supplying, installing, maintaining and managing ATM machines which it places on the premises of property owners and businesses for the purpose and convenience of dispensing cash and other services. As of October 31, 2008, Security Bancorp operates over 200 ATMs in five Canadian Provinces. Security Bancorp is a member of the Automated Teller Machine Industry Association (ATMIA) which serves the industry in Canada and the United States. Security Bancorp has placed ATMs in convenience stores, grocery stores, service stations, hotels, motels, hospitals, night clubs, casinos, restaurants, truck stores, airports and many other locations. Security Bancorp's ATMs accept VISA, Mastercard, Interac, Maestro, Cirrus, Circuit and American Express (Canada). Security Bancorp has a website located at http://www.cashstation.net. Security Bancorp operates its ATMs under the trademark "CA$H STATION(R)."
In October 2004, MoneyFlow acquired Interglobe Investigation Services Inc. ("Interglobe"), organized on August 3, 1992 in British Columbia, pursuant to a share exchange agreement whereby MoneyFlow issued 500,000 shares of its common stock in exchange for 100% of the issued and outstanding shares of Interglobe, and Interglobe became a subsidiary of MoneyFlow. Interglobe provides security consulting services and related products and services to companies and individuals, and also supplies and installs custom remote access digital surveillance systems. Subsequent to the acquisition, during the second quarter of the 2005 fiscal year, MoneyFlow elected to divest itself of the physical surveillance part of the business. MoneyFlow continues to operate its digital surveillance business under the name Interglobe Security.
Our ATM Business
While we intend to expand the focus of our business to include our new security products and services business, as provided by Interglobe and described in "New Focus on Security Products and Services" below, during fiscal year 2007 substantially all of our revenue was generated by our ATM business, which is described below.
The ATM Market
In 1996 and 1997, deregulation of the banking system in Canada and the United States provided an opportunity for private investors and businesses to own, place, operate and collect transaction fees from customers for providing the convenience of a bank machine on their premises. Prior to this deregulation, only financial institutions could access the Interac network, which allows consumers to withdraw cash at an ATM that is not owned by their financial institution.
In Canada, technology became available in 1997 to enable the private ownership of ATMs and investors and businesses have purchased a significant number of ATMs since 1997. Private ATMs have become common in various types of locations, including convenience stores, bars, hotels, grocery stores, nightclubs, service stations and other locations. These systems are generally placed where there is deemed to be sufficient traffic to support the economics of the investment of purchasing and operating the ATM. Competition among ATM manufacturers has steadily reduced the cost of privately owned ATMs over the last couple of years. The current cost is approximately CDN$5,000. New security technology advances and greater volume of sales helps to make prices lower.
Charges for use of an ATM vary. Generally, fees range from $1 to $2 and in some cases a 10% charge is levied, based upon the amount of money withdrawn. The average amount of money withdrawn per transaction ranges from $50 to $74.
The Financial Transaction Industry
Security Bancorp has connection services and software licensing agreements with Open Solutions Ltd., a direct subscriber to Interac Association, operator of a proprietary electronic financial transaction exchange. Security Bancorp's agreements with Open Solutions give it access to Interac. Through access to Interac, Security Bancorp's customers can (for a fee) use their ATM cards, debit cards and credit cards at ATMs and Point-of-Sale machines not owned by their bank or credit card company.
Security Bancorp's customers pay a fee, or surcharge, for the use of its ATMs machines.
Our Approach to Sales, Service and Operations
Security Bancorp sells, services and operates ATMs in Canada. Each time an ATM card, debit card or credit card is used in one of our machines, a fee is charged. Transaction fees accounted for approximately 74% of MoneyFlow's revenue during fiscal year 2008. Sales of ATMs terminals generated most of the remainder of MoneyFlow's revenue during fiscal year 2008.
Security Bancorp enters into a transaction processing agreement with each client who acquires an ATM and each business owner who allows Security Bancorp to place an ATM at its business that is owned by Security Bancorp. The processing agreement typically has an initial term of 5 years and grants to the client a non-exclusive, non-transferable, revocable license to use the software needed to operate the ATM. The currency used to supply the machine is provided by the machine owner who is responsible for maintenance and supplies in the machine. Machines owned by Security Bancorp are supplied by the owner of the business where the ATM is located.
Typically, retail, food, hospitality and other businesses are interested in having an ATM on their premises for the convenience of their customers and to encourage spending on the premises.
As of October 31, 2008, Security Bancorp has placed and holds under management ATMs at over 160 locations across Canada, primarily in the provinces of Ontario, Alberta, Saskatchewan, British Columbia and Manitoba. We are also building a presence in certain other targeted Canadian provinces.
During 2008, Vault used two suppliers for the ATMs it sold - Tranax Technologies and Hyosung. One supplier, Tranax Technologies, accounted for most of Vault’s product purchases in fiscal year 2005. Management believes that Vault will be able to continue its relationship with these suppliers. However, if Vault is not able to continue its relationship with one or more of these suppliers, management believes that financial transaction hardware and software is readily available from alternate suppliers.
All of Vault’s ATM transactions are currently processed by Open Solutions. However, Interac Association continues to add new members and management believes enough competition exists among Interac members to allow Vault to find an alternative provider to process its transactions if its contracts with Open Solutions are terminated or not renewed.
Security Bancorp owns some of the ATMs that it manages. However, Security Bancorp holds these ATMs as inventory and intends to sell them to appropriate buyers in the ordinary course of business. The business reason for placing an ATM that has not yet been sold is to secure a location MoneyFlow thinks is desirable before it gets taken by a competitor. In addition, when the Company places (owns) the ATM it receives a larger portion of the transaction revenue than if the ATM were sold to (owned by) the location.
In January 2002, MoneyFlow entered into a new Connection Services Agreement with Open Solutions Inc. to facilitate ATM transactions. This agreement's current term expires in 2007 and is renewable for successive two year terms. Security Bancorp pays Open Solutions Inc; a fee for each transaction processed and also pays a one-time fee for each ATM terminal connected to Open Solution’s transaction processing network.
These agreements enable Security Bancorp to acquire, sell, service and manage ATM and related financial transactions.
Competition in the ATM Business
Banks and other financial institutions typically maintain ATMs at their own branch locations but can service any location. Security Bancorp and its primary competitors described below place ATMs solely in private businesses such as grocery stores, convenience stores, service stations, bars, nightclubs and hotels. Although Security Bancorp competes directly with banks and other financial institutions in placing its ATMs, its management does not view banks and other financial institutions as its primary competition as historically they have not selected prime private business locations. Security Bancorp and its primary competitors compete by locating the most attractive locations for their machines based on expected transaction volume and making arrangements with the owners of those properties to place ATMs there before a competitor can take that location. Location is the most important factor in the success of an ATM because ATMs depend on consumer traffic to generate large volumes of ATM transactions. If Security Bancorp cannot secure prime locations for its ATMs, it will likely lose those locations to its competitors, which negatively impacts Security Bancorp's growth. Management believes that only a finite number of prime locations exist for the placement of its machines and once they are gone, Security Bancorp must settle for less profitable locations. Security Bancorp's competitors offer very similar services to those of Security Bancorp. Security Bancorp may offer discounted fees in comparison to its competitors and offers a distinctive product or service due to its ability to offer video surveillance systems in conjunction with the installation of an ATM.
The ATM industry remains fragmented with an estimated 150 ATM operators in Canada. Consolidation is taking place in the industry, resulting in fewer small operators and a couple of operations having grown to a significant size.
The following list represents the competitors of whom the management of MoneyFlow is aware:
Direct Cash Income Trust is currently the largest Canadian company in the private ATM business, with approximately 3500 machines in operation. Its distribution covers major centers in Canada.
Laser Cash is an Ontario-based organization with in excess of 650 ATMs distributed, primarily in Eastern Canada.
Frisco Bay is a well established security system and ATM supply and maintenance company. We estimate that their installed base of ATM systems exceeds 1000 units.
Cash-n-Go, based in Edmonton Alberta, has over 1000 ATMs in operation, primarily from the manufacturer Triton. It recently acquired a micro-switch to facilitate partial processing of its transactions.
EZE ATM operating from the Toronto area has an estimated 3,000 plus ATMs in operation.
Cash-line, headquartered in Victoria, B.C., has in excess of 600 systems in service.
Security Products and Services
In early 2003, MoneyFlow introduced a new product, the Remote Access Digital Surveillance System, a remote access digital recording system (the "Digital Surveillance System"). Images recorded by a digital video recorder, or DVR, may be viewed remotely over the Internet, and MoneyFlow offers a variety of cameras that can operate both indoors and outdoors and offer pan, tilt and zoom functions suitable for a variety of surveillance needs. DVRs, CCTV cameras and related software can be combined in a variety of pre-packaged or custom configurations in a variety of price ranges. MoneyFlow began marketing this product to retail and commercial businesses, homes, industrial facilities, government facilities and educational facilities as a method of deterring criminal activity, reducing losses, and providing passive monitoring of both indoor and outdoor areas. MoneyFlow assembles, tests and sells the Digital Surveillance System to its customers. The Digital Surveillance System is also leased to customers through third parties.
Competition in the Security Industry
We face competition for our security product, the Digital Surveillance System. In Canada, our competitors include ADT, Honeywell, GE and smaller companies which distribute surveillance products. The products offered by these competitors are similar to the Digital Surveillance System, although management believes that the Digital Surveillance System offers a level of quality and available features equivalent to the other products on the market as of the date of this filing. Management also believes that MoneyFlow's history of controlling the cost of the Digital Surveillance System and providing a range of systems at various price points is a key factor in the product being competitive with similar products offered by our competitors.
Trademarks and Licenses
Our registered Canadian trademarks are: "CA$H STATION" and "CASH FOR YOUR CUSTOMERS WHEN AND WHERE THEY NEED IT", both of which are owned by our subsidiary, Security Bancorp. We believe that these trademarks are known and recognized within our market and are valuable to our business. We intend to vigorously enforce all violations of our trademarks as we believe the goodwill associated with them is important to the development of our business. All trademarks and trade names used in this Form 10-K are the property of their respective owners.
Employees
We currently have five employees.
Government Regulations and Legal Considerations
As of the date of this filing, there are no pervasive regulations of our ATM and Point-of-Sale business. Due to the nature of Interglobe's business, its operations are subject to a variety of laws, regulations and licensing requirements, including laws requiring registration of security officers and requiring certain levels of insurance and bonding. We believe Interglobe's operations are in substantial compliance with applicable laws, regulations and other requirements. The nature of the services provided by Interglobe exposes it to potentially greater risks of liability for employee acts, injuries or omissions than may be posed by other service businesses, and, although Interglobe attempts to manage these risks through employee screening, training and supervision, there can be no assurance that a successful claim would not exceed any insurance coverage and thus have an adverse effect on our business.
ITEM 1A.
ITEM 1A.
Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and this Item is not applicable to the Company or we are not required to provide the information required under this item.
ITEM 1B.
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 2.
ITEM 2.
PROPERTIES
Vault’s principal offices are located at Suite N, 7003 - Fifth Street SE, Calgary, Alberta T2H 2G2, telephone number (403) 319-0236. These offices consist of 3,746 square feet, and the monthly rental fee is CDN $1,968 (approximately US $1,614) plus taxes and operating costs, with rent increasing yearly by CDN $0.48 (approximately US $0.45) per square foot of gross leasable area. Interglobe leases a virtual office facility on a month-to-month basis for approximately $156 (CDN $190) plus additional usage fees.
The Company's management believes that all facilities occupied by the Company are adequate for present requirements, and that the Company's current equipment is in good condition and is suitable for the operations involved.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
The Company currently has a pending lawsuit against a former employee for the misappropriation or destruction of information that was proprietary to the Company and its business, as well as the breach of his employment contract. The Company is seeking damages in the amount of $1,250,000.
The Company has successfully defeated a counterclaim which had been advanced by the former employee and Vault America no longer has any liability with respect to such action, however, the action is still pending against the Company’s subsidiary. The Company is vigorously working on defeating this counterclaim.
Management, based on consultation with its legal counsel, believes that there will not be any liability to the Company from this counterclaim.
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 the fiscal year ended October 31, 2008.
PART II
ITEM 5.
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MoneyFlow had 3,144,324 shares of common stock outstanding as of January 29, 2009.
Number of Shareholders
The number of beneficial shareholders of record of the Common Stock of the Company as of the close of business on January 29, 2009 was approximately 61.
Dividend Policy
To date, the Company has no cash dividends on its Common Stock, and does not expect to pay cash dividends in the near term. The Company intends to retain future earnings, if any, to provide funds for operation and growth of its business.
Market Information
Our common stock is currently traded on the National Association of Securities Dealers Automated Quotation System Over the Counter Bulletin Board ("OTCBB") under the symbol "VAMA.OB." There is limited trading activity in our securities, and there can be no assurance a regular trading market for our common stock will be sustained. We began trading on the OTCBB on October 11, 2002. The following table sets forth, for the periods indicated, the bid price range of our common stock, giving retroactive effect to our fifty to one reverse stock split, which occurred in February 2008. Prior to the reverse stock split, our common stock was traded under the symbols "MFLW.OB."
Fiscal Period
Average Low
Average High
Fourth Quarter 2008
$0.30
$.050
Third Quarter 2008
$0.30
$050
Second Quarter 2008
$1.50
$1.65
First Quarter 2008
$1.50
$1.65
Fourth Quarter 2007
$1.00
$1.65
Third Quarter 2007
$1.25
$1.65
Second Quarter 2007
$1.5
$2.25
First Quarter 2007
$1.5
$1.65
Such market quotations reflect the high bid and low prices as reflected by the OTCBB or by prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions.
Disclosure of Equity Compensation Plans
The Company maintains the 2004 Benefit Plan (the "Benefit Plan"), pursuant to which it may grant equity awards to eligible persons. The Benefit Plan allows the Board of Directors to issue shares of MoneyFlow common stock or grant options to purchase shares of MoneyFlow common stock to employees, consultants and advisors of the Company or its subsidiaries. As of January 29, 2008, no options had been granted or shares issued under the Benefit Plan. Pursuant to the Company's previous plan, the 2002 Stock Option Plan, 537,500 shares of common stock were issued to the Company's directors and employees of Security Bancorp on December 10, 2004. Subsequent to that date, the 2002 Stock Option Plan was discontinued and the Company maintains only the Benefit Plan as of the date of this filing. The table below lists information on our equity compensation plans as of October 31, 2008.
Plan Category
Number of securities to be issued upon exercise of outstanding options, warrants and rights (#)
Weighted-average exercise price of outstanding options, warrants and rights ($)
Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by shareholders
N/A
N/A
1,800,000
Equity compensation plans not approved by shareholders
N/A
N/A
N/A
Total
N/A
N/A
1,800,000
Recent Sales of Unregistered Securities
During the fiscal year ended October 31, 2008, and more particularly, in February 2008 and March 2008 the Company issued certain officers and directors 3,000,000 restricted common shares and 600 restricted Preferred A shares.
Item 6.
Item 6.
Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and this Item is not applicable to the Company.
Item 7.
Item 7.
Management's Discussion And Analysis Of Financial Condition And Results Of Operations
Results of Operations
Through its operating subsidiaries, Security Bancorp, Inc. ("SBI") and Interglobe Ltd. (“ITL”), Vault America, Inc. ("Vault" or the "Company") has supplied, installed, maintained and managed Automated Teller Machines ("ATMs") and transaction processing services for card holders using these devices. The machines are placed on the premises of businesses for the purpose and convenience of dispensing cash and other services to the public and the merchant.
Interglobe originally developed its own Remote Access Digital Video Recorder, which is the central feature of this surveillance system. Sales of these systems have declined over the last year due to a very competitive environment and the difficulty retaining installation staff due largely to the booming commodities economy. It has become difficult to keep qualified installers of the systems employed and, as a consequence, the Company has decided to discontinue its efforts to sell and install the systems and concentrate more of its efforts to the ATM business. On October 31, 2008, the Company decided to cease all operations for Interglobe, Ltd. As a result, the results of operations are included in discontinued operations in the Company’s consolidated statements of operations. In addition, there are no longer any assets or liabilities for Interglobe, Ltd. as of October 31, 2008.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, we have identified several accounting principles that we believe are key to an understanding of our financial statements. These important accounting policies require management's most difficult, subjective judgments.
Principles of Consolidation
The consolidated financial statements include the accounts of Vault America, Inc. and its wholly-owned Canadian subsidiaries, Security Bancorp, Inc., and Interglobe, Ltd.
All material inter-company accounts and transactions have been eliminated.
Revenue Recognition Policy
The Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectibility is probable. Sales are recorded net of sales discounts. The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB 101). Our revenues are recorded under the following categories:
Revenue from the sale of Automated Teller Machines is recognized when the earning process is complete and the risk and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon the delivery, activation and acceptance of the units by our customers.
Revenue from transaction and service fees are earned daily and are electronically transferred to the Company from the processors.
Stock Issued for Non-Cash Transactions
It is the Company’s policy to value stock issued for non-cash transactions, such as services, at the fair market value of the goods or services received or the consideration granted, whichever is more readily determinable, at the date the transaction is negotiated.
Preferred “A” stock that is issued for non-cash transactions, such as services, at the fair market value of the goods or services received or the consideration granted, whichever is more readily determinable, at the date the transaction is negotiated and by applying the conversion feature of one share of preferred “A” stock into 100 shares of common stock.
There were 3,000,000 shares of common stock, with an aggregate value of $450,000 issued to three officers and board members of the Company as compensation.
There were 600 shares of Preferred “A” Stock, with an aggregate value of $9,000 issued to employees of the Company as compensation.
There were 3,000,000 stock options, with a value of $410,100 issued to employees and directors of the Company as compensation.
No new stock was issued during the year ended October 31, 2007
Stock Based Compensation
Effective November 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment: An Amendment of FASB Statements No. 123 and 95” using the modified prospective method. Under this method, compensation cost is recognized on or after the effective date for the portion of outstanding awards, for which the requisite service has not yet been rendered, based on the grant date fair value of those awards. For stock-based awards issued on or after November 1, 2005, the Company recognizes the compensation cost on a straight-line basis over the requisite service period for the entire award. Measurement and attribution of compensation cost for awards that are unvested as of the effective date of SFAS No. 123(R) are based on the same estimate of the grant-date or modification-date fair value and the same attribution method used previously under SFAS No. 12.
Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.
Allowance for Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is charged against income in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectibility is determined to be potentially impaired (bankruptcy, lack of contact, age of account balance, etc.).
Inventories
Inventories are valued at the lower of cost or market. Cost is determined as follows:
Automated Teller Machines held for resale - actual cost for the machine purchased.
Automated Teller Machines- former placements - actual cost for the machine purchased less accumulated depreciation. Depreciation is computed on the straight line basis over 10 years.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance, and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
The Company depreciates property and equipment as follows:
Financial statement reporting - straight line method as follows:
Furniture and fixtures
10 years
Computer equipment
5 years
Telephone equipment
5 years
Automobile
5 years
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, “Accounting for Income Taxes.” As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Foreign Currency Translation
The financial statements of our Canadian subsidiaries are measured using the Canadian dollar as the functional currency. Assets, liabilities and equity accounts of the companies are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at the average rate in effect during the year. The resulting cumulative translation adjustment has been recorded as a separate component of stockholders' equity. The financial statements are presented in United States of America dollars.
Shipping and Handling Costs
The Company's policy is to classify shipping and handling costs as part of cost of sales in the statement of operations.
Stock Split and Restatement of Common Stock
On March 10, 2008, the Company affected a 50:1 reverse stock split of the Company’s common stock. The stock split has been retroactively recorded in the financial statements as if it occurred at the date of inception.
Selected Financial Information
Results of Operations
Year ended October 31, 2008 compared to year ended October 31, 2007.
Revenues. Revenues from operations for the year ended October 31, 2008 were $577,645 as compared to revenues of $569,546 for the year ended October 31, 2007, an increase of $8,099 or approximately 1%. The changes in revenues are summarized as follows:
A decrease in sales of machines and terminals of:
$
( 8,539)
An increase in transaction and service fees of:
23,788
In addition, revenues are affected by the offset of the changes in foreign currency transactions due to the weakening dollar.
Cost of Sales and Gross Profit (Loss)
Cost of Sales and Gross Profit. The cost of sales decreased by $36,772 to $7,160 for the year ended October 31, 2008, as compared to $43,932 for the year ended October 31, 2007. The decrease in the cost of sales is a direct result of the decreases in revenue.
There was a gross profit for the year ended October 31, 2008 of $8,752 compared to a gross loss of $19,481 for the year ended October 31, 2007. This change is primarily due to a competitive market environment contributing to lower sales, and the discontinuance of operations of Interglobe, Ltd.
Selling, general and administrative expenses
Selling, General and Administration Expenses. Selling, general and administrative expenses decreased by $11,274 to $518,119 for the year ended October 31, 2008, as compared to $529,393 for the year ended October 31, 2007, approximately a 2% decrease. This decrease is attributable to a cutback in overall expenditures by the company, namely advertising and salaries. It is also attributable to a decrease in depreciation due to several items being fully depreciated either in the current or prior years. These decreases are offset by the changes in foreign currency transactions due to the weakening dollar.
Loss from Continuing Operations. We had a net loss from continuing operations of $815,428 for the year ended October 31, 2008 compared to $3,419 for the year ended October 31, 2007. This increase is due to the issuance of common stock, preferred stock, and stock options for consulting and legal fees of $869,100, offset by the changes in foreign currency transactions due to the weakening dollar.
Loss from Discontinued Operations. We had a net loss from discontinued operations of $74,295 for the year ended October 31, 2008, compared to $17,767 for the year ended October 31, 2007. This increase is primarily due to the write-off of the company’s inventory during the year ended October 31, 2008.
Corporation Income Taxes. Corporation income tax for the years ended October 31, 2008 and 2007 was $-0-. No income tax expense was due for the years ended October 31, 2008 and 2007 due to the operating losses.
Foreign Currencies. The key foreign currencies in which we effect transactions are the Canadian dollar and the United States dollar. For the year ended October 31, 2008, the average exchange rate was 1.02557 United States dollars to Canadian dollars. This is a 7% decrease from the year ended October 31, 2007 in which the average exchange rate was 1.10149 United States dollars to Canadian dollars.
Capital and Sources of Liquidity. We currently have no material commitments for capital expenditures and have no material fixed expenses per year.
Working capital is summarized and compared as follows:
On November 5, 2008, the Company completed the sale of the ATM assets of its wholly owned subsidiary, Security Bancorp, Inc. for a total purchase price of $1,200,000. To date, the Company has received approximately $1,050,000 of that amount, which represents the purchase price, less an industry-standard hold-back amount. The Company is in the process of researching and identifying new internal business prospects as well as potential external business opportunities designed to grow the Company and add Shareholder value. A case-by-case decision will be made whether to continue to research or pursue any given potential business scenario.
Our net cash provided by operations was $50,041 for the year ended October 31, 2008. For the year ended October 31, 2008, we had a net loss from continuing operations of $815,428 and a net loss from discontinued operations of $74,295. These included non-cash items such as depreciation in the amount of $17,346, an
impairment of inventory in the amount of $61,135, a provision for doubtful accounts of $3,653, a gain on the disposal of fixed assets of $485, and compensation paid with common stock, preferred stock, and stock options of $869,100. Net cash was provided by a decrease in inventories of $20,571 and prepaid expenses and deposits of $1,714. These were offset by an increase in accounts and other receivables of $160, and a decrease in accounts payable and accrued expenses of $32,685 and G.S.T. and P.S.T. payable of $425.
Our net cash used by operations was $736 for the year ended October 31, 2007. For the year ended October 31, 2008 we had a net loss from continuing operations of $3,419 and a net loss from discontinued operations of $17,767. These included non-cash items such as depreciation in the amount of $24,711, an impairment of inventory in the amount of $6,102, a provision for doubtful accounts of $3,459, and a loss on the disposal of fixed assets of $127. Net cash was used as a result of an increase in inventories of $14,594, a decrease in accounts payable and accrued expenses of $8,154, and a decrease in G.S.T. and P.S.T. payable of $2,485. These were offset by a decrease in accounts and other receivables of $8,217 and a decrease in prepaid expenses and deposits of $3,067.
Our net cash used by investing activities was $4,483 and $15,458 for the years ended October 31, 2008 and 2007, respectively, which was for the purchase of property and equipment.
Our net cash used by financing activities was $1,169 and $5,945 for the years ended October 31, 2008 and 2007, respectively. This was due to the repayment of a capital lease of $1,169 for the year ended October 31, 2008, and the repayment of a note payable of $3,809 and a capital lease of $2,136 for the year ended October 31, 2007.
Other than as disclosed herein the Company is not party to any financial arrangements or obligations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The Company's Form 10-K, any Form 10-Q or any Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may contain forward-looking statements which reflect the Company's current views with respect to future events and financial performance. The words "believe," "expect," "anticipate," "intends," "estimate," "forecast," "project," and similar expressions identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Such "forward-looking statements" are subject to risks and uncertainties set forth from time to time in the Company's SEC reports and are generally set forth below and particularly discussed in the Company's Form 10-K for the year ended October 31, 2008.
Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company's views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Risk Factors
You should consider the following discussion of risks as well as other information regarding our operations. The risks and uncertainties described below are not the only ones. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
·
Our ongoing reporting obligations as a public company have resulted and may continue to result in ongoing operating losses.
·
We have increased our reliance on sales of our new surveillance products to reach profitability, and to date this product has not been accepted by the market and there is no assurance that it will be accepted by the market.
·
We are selling fewer ATM terminals, which are resulting in a decline in revenues from these sources, and are instead focusing on enhancing fee revenue and sales of our new surveillance products.
·
If we have to comply with any new government regulations, or if old government regulations are reenacted, we may not be able to comply with them or we may have to spend large amounts of resources to meet these new regulations, which we may not have the resources to do, and which may result in a loss of revenue and reduced profitability.
·
Our need for additional financing is uncertain, as is our ability to acquire further financing if required.
·
Because several of our competitors are much larger than we are, we may not be able to compete effectively and gain additional market share, and we face additional competition as banks have recently been re-entering the market to place ATMs at non-banking locations.
·
We depend on key management personnel and the loss of any of them would seriously disrupt our operations.
·
Our operations are not diversified and we will not have the benefit of reducing our financial risks by relying on other revenues.
·
We depend on the revenues generated by our wholly-owned subsidiaries, Security Bancorp Inc. and Interglobe Investigation Services Inc. Should they fail to continue producing revenues to fund our operations; we would have to seek alternative methods of financing such as selling our stock or borrowing money.
·
There is a limited market for our common stock.
·
Our common stock is subject to penny stock regulation.
·
Our auditors have expressed substantial doubt about our ability to continue as a going concern.
Item 7a.
Item 7a.
Quantitative And Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and this Item is not applicable to the Company or we are not required to provide the information required under this item.
Item 8.
Item 8.
Financial Statements And Supplementary Data
The information required by this Item is submitted as a separate section of this Form 10-K. See Item 15.
Item 9.
Item 9.
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
None.
Item 9a.
Item 9a.
Controls And Procedures
(a)
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days of the filing date of this report. Based on that evaluation, our principal executive officer and our principal financial officer concluded that the design and operation of our disclosure controls and procedures were effective to ensure that information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
(b)
In addition, there have been no changes in our internal control over financial reporting identified in connection with the elevation that occurred during the last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Item 9b.
Item 9b.
Other Information
Vault previously reported on its Form 8-K filed on November 12, 2008, that the Company completed the sale of the ATM assets of its wholly owned subsidiary, Security Bancorp, Inc. for a total purchase price of $1,200,000.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance
The names of our directors and executive officers, their ages, and certain other information about them are set forth below:
Name
Age
Position
Term Began
Harold F. Schultz
Chairman of the Board, President, CEO, CFO
April, 2001
Darwyn Ross
Director
July, 2004
Harold F. Schultz, Chairman of the Board, President, CEO and CFO. Mr. Schultz is a founding shareholder of MoneyFlow as well as serving as its President and Chief Executive Officer since MoneyFlow was formed in 2001. Mr. Schultz is also President, CEO and a Director of Security Bancorp Inc., Vault’s wholly owned subsidiary. Mr. Schultz has been President of Security Bancorp Inc. since 1999. Mr. Schultz has over 40 years experience in the areas of construction, real estate and the oil and gas industry. Prior to joining Security Bancorp Inc., Mr. Schultz was Chairman of Enviro FX, Inc., a publicly traded Canadian company, from 1996 until 1998. Mr. Schultz has been President of Advance Contracting Services Ltd., a private holding company, since 1972. Mr. Schultz is a member of the 400 Club, a founder of the Lakeview Community Association and many other community organizations.
Ross, Director. Mr. Ross became a director of MoneyFlow in July of 2004. Mr. Ross has been practicing law since 1986. He began his legal career at Paterson Ross in 1986, and moved to Sisson Warren Sinclair in 2002. Since 2004, Mr. Ross has practiced from his own firm. From 2000 to 2002, Mr. Ross served as a director of Delta Capital Technologies Corp., a publicly traded corporation.
Conflicts of Interest Policy
Vault has adopted a policy that any transactions with directors, officers or entities of which they are also officers or directors or in which they have a financial interest, will only be on terms consistent with industry standards. These transactions must also be approved by a majority of the disinterested directors of Vault’s Board of Directors.
Board Committees, Meetings and Compensation
The Company's business affairs are managed by the Board. During the fiscal year ending October 31, 2008, the Board of Directors held two meetings at which time no director then in office attended fewer than 100% of the aggregate number of meetings of the Board of Directors. None of the Directors currently receive any cash compensation for their service on the Board, although they may receive, at the Company's discretion, restricted stock as compensation for their service on the Board. The Company does not currently have any standing committees. As of the date of this filing, the entire Board fulfills the functions of the Audit Committee. The Board has determined that none of the directors are "audit committee financial experts" as such term is defined in Item 401(e) of Regulation S-B. Due to the small size of the Company, the Board believes an audit committee financial expert is not necessary, but the Board may seek an audit committee financial expert for the Board in the future if the Company's needs change. The Company does not have a nominating committee, and the Board believes such a committee is not necessary due to the small size of the Board and the absence to date of any director candidates recommended by shareholders. Currently, the entire Board participates in the consideration of director nominees. The Board of Directors does not have a formal policy with regard to the consideration of any director candidates recommended by stockholders, the minimum qualification of director candidates or the process for identifying and evaluating director nominees. To date, the Company has not received any director candidates recommended by its stockholders and consequently the Board of Directors has believed that it could appropriately address any such recommendations received without a formal policy. Although the Company does not have a formal policy regarding attendance by members of the Board of Directors at annual meetings of stockholders, directors are encouraged to attend annual meetings
Stockholder Communications with the Board of Directors
Stockholders may communicate with the full Board, or any individual directors, by sending such written communication to the following address:
Corporate Secretary
Vault America, Inc.
PO Box 359 Stn. Main
Okotoks, Alberta T1S1A6
Any written communications received by the Corporate Secretary will be forwarded to the appropriate directors.
Code of Ethics
The Company has not yet established a code of ethics comprising written standards that are reasonably designed to deter wrongdoing and to promote the behavior described in Item 406 of Regulation S-B promulgated by the Securities and Exchange Commission. The Board does not believe such a code is necessary at this stage in the Company's development.
Indemnification of Officers and Directors.
We have the authority under the Nevada General Corporation Law to indemnify our directors and officers to the extent provided for in such statute. Set forth below is a discussion of Nevada law regarding indemnification which we believe discloses the material aspects of such law on this subject. The Nevada law provides, in part, that a corporation may indemnify a director or officer or other person who was, is or is threatened to be made a named defendant or respondent in a proceeding because such person is or was a director, officer, employee or agent of the corporation, if it is determined that such person:
·
conducted himself in good faith;
·
reasonably believed, in the case of conduct in his official capacity as a director or officer of the corporation, that his conduct was in the corporation's best interest and, in all other cases, that his conduct was at least not opposed to the corporation's best interests; and
·
in the case of any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful.
A corporation may indemnify a person under the Nevada law against judgments, penalties, including excise and similar taxes, fines, settlement, unreasonable expenses actually incurred by the person in connection with the proceeding. If the person is found liable to the corporation or is found liable on the basis that personal benefit was improperly received by the person, the indemnification is limited to reasonable expenses actually incurred by the person in connection with the proceeding, and shall not be made in respect of any proceeding in which the person shall have been found liable for willful or intentional misconduct in the performance of his duty to the corporation. The corporation may also pay or reimburse expenses incurred by a person in connection with his appearance as witness or other participation in a proceeding at a time when he is not a named defendant or respondent in the proceeding.
Our Articles of Incorporation provides that none of our directors shall be personally liable to us or our stockholders for monetary damages for an act or omission in such directors' capacity as a director; provided, however, that the liability of such director is not limited to the extent that such director is found liable for (a) a breach of the directors' duty of loyalty to us or our stockholders, (b) an act or omission not in good faith that constitutes a breach of duty of the director to us or an act or omission that involves intentional misconduct or a knowing violation of the law, (c) a transaction from which the director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office, or (d) an act or omission for which the liability of the director is expressly provided under Nevada law. Limitations on liability provided for in our Articles of Incorporation do not restrict the availability of non-monetary remedies and do not affect a director's responsibility under any other law, such as the federal securities laws or state or federal environmental laws.
We believe that these provisions will assist us in attracting and retaining qualified individuals to serve as executive officers and directors. The inclusion of these provisions in our Articles of Incorporation may have the effect of reducing a likelihood of derivative litigation against our directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of case, even though such an action, if successful, might otherwise have benefitted us or our stockholders.
Our Bylaws provide that we will indemnify our directors to the fullest extent provided by Nevada General Corporation Law and we may, if and to the extent authorized by our board of directors, so indemnify our officers and other persons whom we have the power to indemnify against liability, reasonable expense or other matters.
Insofar as indemnification for liabilities arising under the Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by such director, officer, or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors, executive officers and persons who own more than 10% of the Company's stock (collectively, "Reporting Persons") to file with the SEC initial reports of ownership and changes in ownership of the Company's common stock. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended October 31, 2008, all Reporting Persons timely complied with all applicable filing requirements.
Item 11.
Item 11.
Executive Compensation
SUMMARY COMPENSATION TABLE
Members of the Board of Directors do not receive any cash compensation for their service as Directors but the Company may determine to pay Directors a per meeting fee in the future if these Directors are not separately compensated by Vault for other services and the Company may award restricted stock to Directors from time to time. All expenses for meeting attendance or out of pocket expenses connected directly with their Board representation will be reimbursed by Vault.
Director liability insurance may be provided to all members of the Board of Directors. Vault has not yet obtained such insurance and does not have any specifics for available cost and coverage. Vault does not have a specific time frame to obtain the insurance. No differentiation is made in the compensation of "outside directors" and those officers of Vault serving in that capacity
Item 12.
Item 12.
Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
There were 3,144,324 common shares outstanding as of January 29, 2009. The following tabulates holdings of shares of MoneyFlow by each person who, subject to the above, as of January 29, 2009, holds of record or is known by Management to own beneficially more than 5.0% of the common shares and, in addition, by all directors and officers of Vault individually and as a group.
(1)
Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the voting) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a security whether through a contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, each person indicated above has sole power to vote, or dispose or direct the disposition of all shares beneficially owned, subject to applicable community property laws.
(2)
Denotes officer or director of Vault.
(3)
Certain shares beneficially owned by Mr. Schultz are held of record by Advance Contracting Services Ltd., an entity owned and controlled by Mr. Schultz, President of Vault MoneyFlow.
Item 13.
Item 13.
Certain Relationships And Related Transactions, And Director Independence
Since inception, Vault, through its wholly owned subsidiary, Security Bancorp Inc., has had an arrangement with Advance Contracting Services Ltd., whose sole shareholder, officer and director is Harold F. Schultz, President of MoneyFlow. As part of this arrangement, Security Bancorp pays a monthly management fee to Advance in the amount of CDN$5,000 (approximately US$4,650) for Mr. Schultz's services to Security Bancorp. No written agreement has been entered into and this arrangement is terminable at will.
Item 14.
Item 14.
Principal Accountant Fees And Services
The following table presents fees for professional services rendered by Weaver & Martin, LLC, for the audit of the Company's annual consolidated financial statements for fiscal 2007 and 2008.
Audit Fees
$
30,000
$
30,000
Audit related fees
$
$
Tax fees
$
$
All other fees
$
$
Total fees
$
30,000
$
30,000
The Board pre-approves all auditing and permitted non-audit services to be performed for the Company by its independent auditor, including the fees and terms of those services.
PART IV
Item 15.
Item 15.
Exhibits, Financial Statement Schedules
The Following Documents are filed as Part of this Report
1. Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Exhibits
The following exhibits are filed with, or incorporated by reference into this report.
Exhibit No.
Description
2.11
Acquisition Agreement dated as of July 15, 2001 between MoneyFlow Systems International Inc. and Security Bancorp Inc.
3.11
Articles of Incorporation
3.21
Bylaws
3.35
Certificate of Amendment, dated July 15, 2004
4.34
2002 Stock Option Plan, dated July 31, 2002
4.48
10.12
2004 Benefit Plan, dated July 24, 2004
Connection Services Agreement dated December 20, 2001 with TCS Canada, Ltd.
10.22
Agreement for Credit Card Processing Services dated November 15, 2001 with TCS Canada, Ltd.
10.52
Letter Agreement dated July 26, 2001 with Hypercom Canada, Ltd., as amended and assumed by Letter Agreement dated February 7, 2003 with Rycom, Inc.
10.93
Letter Agreement dated January 17, 2003 with 1st SB Partners Ltd.
10.104
Director's Loan dated February 24, 2003
10.116
Agreement for the Purchase and Sale of Assets dated August 31, 2004 between Intercash POS Systems Inc. and BP Financial Corp.
10.127
Share Exchange Agreement dated October 28, 2004 among MoneyFlow Systems International Inc., Interglobe Investigation Services Inc. and the shareholders of Interglobe Investigation Services Inc.
21.19
Subsidiaries of the Company.
24.17
Power of Attorney (see signature page of the Annual Report on Form 10-K).
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer and Principal Financial Officer
Section 1350 Certification
99.19
Consent of Independent Registered Public Accounting Firm
_______________
1. Incorporated by reference from the Company's Form SB-2, filed with the SEC on December 11, 2001.
2. Incorporated by reference from the Company's Form SB-2/A, filed with the SEC on June 11, 2002.
3. Incorporated by reference from the Company's Form 10-KSB, filed with the SEC on February 14, 2003.
4. Incorporated by reference from the Company's Form 10-QSB, filed with the SEC on September 15, 2003.
5. Incorporated by reference from the Company's Form 10-QSB, filed with the SEC on September 14, 2004.
6. Incorporated by reference from the Company's Form 8-K, filed with the SEC on October 26, 2004.
7. Incorporated by reference from the Company's Form 8-K, filed with the SEC on November 1, 2004.
8. Incorporated by reference from the Company's Form S-8, filed with the SEC on November 23, 2004.
9. Filed herewith.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VAULT AMERICA, INC.,
a Nevada corporation
Date: January 29, 2009
By: _/s/ Harold F. Schultz________________________
Harold F. Schultz
Chairman of the Board, President, Chief Financial
Officer and Chief Executive Officer
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:
Signature
Title
Date
/s/ Harold F. Schultz
Harold F. Schultz
Chairman of the Board, President, Chief Financial Officer and Chief Executive Officer
January 29, 2009
/s/ Darwyn Ross
Darwyn Ross
Director
January 29, 2009
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Vault America, Inc. and Subsidiaries
Formerly known as Moneyflow Systems International, Inc.
We have audited the accompanying consolidated balance sheets of Vault America, Inc. and Subsidiaries as of October 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. Vault America, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
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 control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits of the financial statements include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vault America, Inc. and Subsidiaries as of October 31, 2008 and 2007, and the results of its consolidated operations, stockholders’ equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Weaver & Martin, LLC
Kansas City, Missouri
January 29, 2009
F - 1
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 2008 AND 2007
October 31, 2008
October 31, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$ 81,254
$ 91,657
Accounts receivable, net of allowance for
doubtful accounts of $5,377 and $6,678
2,075
5,568
Inventories
98,135
182,476
Rent security deposit
2,588
-
Prepaid expenses and other current assets
2,621
3,645
TOTAL CURRENT ASSETS
186,673
283,346
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $68,620 and
$80,997
14,280
24,023
OTHER ASSETS
Rent security deposit
-
3,278
TOTAL ASSETS
$ 200,953
$ 310,647
(Continued)
F - 2
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
OCTOBER 31, 2008 AND 2007
October 31, 2008
October 31, 2007
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 28,201
$ 60,886
G.S.T. and P.S.T. payable
Note payable, automobile
-
1,169
TOTAL CURRENT LIABILITIES
28,313
62,592
STOCKHOLDERS’ EQUITY
Preferred “A” stock, par value $.001 per share;
Authorized, 70,000 shares;
Issued and outstanding, 790 shares at December 31, 2008
and 190 at December 31, 2007
Preferred “B” stock, par value $.001 per share;
Authorized, 1,000 shares;
Issued and outstanding, 1,000 shares at December 31,
2008 and 2007
Common stock, par value $.001 per share;
Authorized, 50,000,000 shares;
Issued and outstanding, 3,144,324 shares at December 31,
2008 and 144,324 shares at December 31, 2007
10,276
7,276
Paid in capital in excess of par value of stock
3,530,489
2,664,389
Accumulated deficit
( 3,410,425)
( 2,520,702)
Accumulated other comprehensive income
(primarily cumulative translation adjustment)
51,289
106,081
181,640
257,055
Less cost of common stock in treasury, 12,000 shares
( 9,000)
( 9,000)
TOTAL STOCKHOLDERS’ EQUITY
172,640
248,055
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 200,953
$ 310,647
F - 3
See accompanying notes.
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 2008 AND 2007
REVENUES
Sales of machines and terminals
$ 15,912
$ 24,451
Fees
513,874
490,086
Maintenance fees
40,967
44,806
Other revenue
6,892
10,203
TOTAL REVENUES
577,645
569,546
COST AND EXPENSES
Cost of sales
7,160
43,932
Consulting and legal fees, paid with common stock
and options to purchase common stock
869,100
-
Selling, general and administrative expenses
518,119
529,393
TOTAL COST AND EXPENSES
1,394,379
573,325
(LOSS) FROM CONTINUING OPERATIONS
( 816,734)
( 3,779)
OTHER INCOME (EXPENSE):
Interest expense
( 17)
( 269)
Interest income
-
(Loss) on disposition of assets
1,323
( 127)
TOTAL OTHER INCOME (EXPENSE), NET
1,306
(LOSS) FROM CONTINUING OPERATIONS BEFORE CORPORATION INCOME TAXES
( 815,428)
( 3,419)
CORPORATION INCOME TAXES
-
-
NET (LOSS) FROM CONTINUING OPERATIONS
( 815,428)
( 3,419)
NET (LOSS) FROM DISCONTINUED OPERATIONS
( 74,295)
( 17,767)
NET (LOSS)
$ ( 889,723)
$ (21,186)
NET (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE- BASIC AND DILUTED
$ ( 0.43)
$ ( 0.02)
NET (LOSS) FROM DISCONTINUED OPERATIONS PER COMMON SHARE - Basic and diluted
$ (0.04)
$ ( 0.12)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - Basic and diluted
1,903,228
144,324
See accompanying notes.
F - 4
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
FOR THE YEARS ENDED OCTOBER 31, 2008 AND 2007
NET (LOSS)
$ ( 889,723)
$ ( 21,186)
OTHER COMPREHENSIVE INCOME
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
( 54,792)
37,708
NET COMPREHENSIVE INCOME (LOSS)
$ ( 944,515)
$ 16,522
See accompanying notes.
F - 5
VAULT AMERICAN, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2008 AND 2007
F - 6
F - 7
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 2008 AND 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations
$ ( 815,428)
$ ( 3,419)
Net (loss) from discontinued operations
( 74,295)
( 17,767)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation
17,346
24,711
Inventory impairment
61,135
6,102
Provision for doubtful accounts
3,653
3,459
(Gain) Loss on disposal of fixed assets
( 485)
Compensation paid with common stock, preferred stock,
and stock options
869,100
-
Changes in operating assets and liabilities:
Accounts and other receivables
( 160)
8,217
Inventories
20,571
( 14,594)
Prepaid expenses and deposits
1,714
3,067
Accounts payable and accrued expenses
( 32,685)
( 8,154)
G.S.T and P.S.T. payable
( 425)
( 2,485)
Net cash provided by operating activities
50,041
( 736)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
( 4,483)
( 15,458)
Net cash (used) by investing activities
( 4,483)
( 15,458)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable
-
( 3,809)
Repayment on capital lease
( 1,169)
( 2,136)
Net cash (used) by financing activities
( 1,169)
( 5,945)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
( 54,792)
37,708
(Continued)
F - 8
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 2008 AND 2007
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
$ ( 10,403)
$ 15,569
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
91,657
76,088
CASH AND CASH EQUIVALENTS,
END OF PERIOD
$ 81,254
$ 91,657
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest
$ 17
$ 269
Taxes
$ -
$ -
NON-CASH INVESTING ACTIVITIES
Issuance of common stock, preferred stock and stock
options for director and officer compensation
$ 869,100
$ -
See accompanying notes
F - 9
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and History of Company - Moneyflow Systems International Inc. (hereinafter referred to as the Company) was organized on April 25, 2001, under the laws of the State of Nevada. The Company operates as a holding company for acquisitions of subsidiaries.
Security Bancorp Inc. (hereinafter referred to as SBI) was organized on August 3, 1992, in Alberta, Canada and was inactive until January 5, 1999 when it changed its name to Security Bancorp Inc. and began operations under the trademark name of CA$H STATION. SBI is headquartered in Calgary, Canada and is in business to supply, install, maintain and manage Automated Teller Machines (ATM'S) and other Electronic Funds Transfer Devices and to provide transaction processing services for these devices. The machines are placed on the premises of property owners and businesses for the purpose and convenience of dispensing cash and other services to the public.
Interglobe Ltd. (hereinafter referred to as ITL) began operating on March 16, 2005 and was incorporated in Alberta, Canada on April 13, 2005. ITL was in business to supply, install and maintain surveillance equipment and is the successor to the surveillance operations. On October 31, 2008, ITL discontinued its operations.
Foreign Currency Translation - The financial statements of SBI and ITL are measured using the Canadian dollar as the functional currency. Assets, liabilities and equity accounts of SBI and ITL are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders' equity. The financial statements are presented in United States of America dollars.
Principles of Consolidation - The consolidated financial statements include the accounts of Moneyflow Systems International Inc. and its wholly-owned Canadian subsidiaries, Security Bancorp Inc. and Interglobe LTD.
All material inter-company accounts and transactions have been eliminated.
Revenue Recognition Policy - The Company recognizes revenue when persuasive evidence of an arrangement exists, title transfer has occurred, the price is fixed or readily determinable, and collectibility is probable. Sales are recorded net of sales discounts. The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements." Revenues are recorded as follows:
Revenue from the sale of Automated Teller Machines and Surveillance Systems is recognized when the earning process is complete and the risk and rewards of ownership have transferred to the customer, which is generally considered to have occurred upon the delivery of the units to the customer and the acceptance and activation of the units by the customer.
Revenue from transaction and service fees are earned daily and are electronically transferred to SBI from the processors.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable - Accounts receivable are reported at the customers' outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.
F - 10
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for Doubtful Accounts - The allowance for doubtful accounts on accounts receivable is charged to income in amounts sufficient to maintain the allowance for doubtful accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectibility is determined to be permanently impaired (bankruptcy, lack of contact, age of account balance, etc.).
Inventories - Inventories are valued at the lower of cost or market. Cost is determined as follows:
Automated Teller Machines - actual cost for the machine purchased.
Automated Teller Machines - placements - actual cost for the machine purchased less accumulated depreciation. Depreciation is computed on the straight line basis over 10 years.
Property and Equipment - Property and equipment are stated at cost. Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expensed. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income.
The Companies depreciate the property and equipment as follows:
Financial statement reporting - straight-line method as follows:
Furniture and fixtures
10 years
Computer equipment
5 years
Telephone equipment
5 years
Automobile
5 years
Depreciation expense was $17,346 and $24,711 for the years ended October 31, 2008 and 2007, respectively.
Warranty Reserve - SBI provides a twelve month warranty provision on sales to cover anticipated repairs and/or replacement. The warranty reserve as of October 31, 2008 was $0.
Long-Lived Assets - The Company recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. In such circumstances, those assets are written down to estimated fair value. Long-lived assets consist primarily of fixed assets.
Common Stock Issued for Non-Cash Transactions - It is the Company’s policy to value stock issued for non-cash transactions, such as services, at the fair market value of the goods or services received or the consideration granted, whichever is more readily determinable, at the date the transaction is negotiated.
F - 11
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Treasury Stock - The Company intends to hold repurchased shares in Treasury for general corporate purposes, including issuances under the employee stock option plan. The Company accounts for the Treasury stock using the cost method.
Stock Based Compensation - Effective November 1, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment: An Amendment of FASB Statements No. 123 and 95” using the modified prospective method. Under this method, compensation cost is recognized on or after the effective date for the portion of outstanding awards, for which the requisite service has not yet been rendered, based on the grant date fair value of those awards. For stock-based awards issued on or after November 1, 2005, the Company recognizes the compensation cost on a straight-line basis over the requisite service period for the entire award. Measurement and attribution of compensation cost for awards that are unvested as of the effective date of SFAS No. 123(R) are based on the same estimate of the grant-date or modification-date fair value and the same attribution method used previously under SFAS No. 12.
Shipping and Handling Costs - The Company's policy is to classify shipping and handling costs as part of cost of goods sold in the statement of operations.
Advertising - The Company expenses all advertising as incurred. Advertising expenses for the years ended October 31, 2008 and 2007 were $0 and $5,941 respectively.
Income Taxes - Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB Statement No. 109, "Accounting for Income Taxes". As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
Net Income (Loss) Per Share - The Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 128, any anti-dilutive effects on net earnings (loss) per share are excluded.
Accounting Estimates - Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.
F - 12
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Corporation Income Taxes - No corporation income tax expense was due for the years ended October 31, 2008 and 2007 due to the availability of net operating loss carry forward from current and prior years.
Concentration of Credit Risk
Financial Instruments - which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its temporary cash investments in reputable financial institutions.
Concentrations of credit risk with respect to accounts receivable are limited due to the number of customers comprising the Company's customer base and their dispersion across different geographic areas. The Company routinely assesses the financial strength of its customers and normally does not require collateral to support its receivables.
Recent Accounting Pronouncements
In September 2006, the Securities and Exchange Commission staff (“SEC”) issued SAB 108. SAB 108 was issued to provide consistency to how companies quantify financial statement misstatements. SAB 108 establishes an approach that requires companies to quantify misstatements in financial statements based on effects of the misstatement on both the consolidated balance sheet and statement of operations and the related financial statement disclosures. Additionally, companies must evaluate the cumulative effect of errors existing in prior years that previously had been considered immaterial. We adopted SAB 108 in connection with the preparation of our annual financial statements for the years ended October 31, 2008 and 2007 and found no adjustments necessary.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, rather, its application will be made pursuant to other accounting pronouncements that require or permit fair value measurements. SFAS No.157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS No. 157 are to be applied prospectively upon adoption, except for limited specified exceptions. We are evaluating the requirements of SFAS No. 157 and do not expect the adoption to have a material impact on our consolidated balance sheet or statement of operations.
F - 13
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 and will be adopted by us on November 1, 2007. We do not expect the adoption of FIN 48 to have a material impact on our consolidated balance sheet or statement of operations.
Reclassifications - Certain 2007 amounts have been reclassified to conform to 2008 presentations.
2.
INVENTORIES
Inventories are comprised of the following:
Automated Teller Machines
$ 78,073
$ 104,211
Surveillance Equipment
-
68,191
Parts and supplies
20,062
10,074
Total
$ 98,135
$ 182,476
3.
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Furniture and fixtures
$ 24,372
$ 30,867
Computer equipment
31,732
40,406
Telephone equipment (Capital lease)
8,742
10,007
Automobile
18,054
22,865
Total property and equipment
82,900
104,145
Less accumulated depreciation
( 68,620)
( 80,122)
Property and equipment, net
$ 14,280
$ 24,023
4.
INCOME TAXES
Pretax Income (Loss)
United States of America
$ ( 1,036,542)
$ ( 2,249)
Canadian
18,348
( 18,937)
Total
$ ( 1,018,194)
$ ( 21,186)
Provision (Benefit)
The provision (benefit) for/or refund of income taxes for the years ended October 31, 2008 and 2007 consist of the following:
F - 14
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
4.
INCOME TAXES (CONTINUED)
Current
United States of America
$ -
$ -
Canadian
-
-
Deferred
United States of America
-
-
Canadian
-
-
Total provision (benefit)
$ -
$ -
Deferred Tax Components
Significant components of the Company’s deferred tax assets are as follows at October 31, 2008:
US Companies in US Dollars
Canadian Companies In US Dollars
Total
In US Dollars
Net operating loss carryforwards
$ 810,000
$ 353,000
$ 1,163,000
Property and equipment related
-
( 11,000)
( 11,000)
810,000
342,000
1,152,000
Less valuation allowance
( 810,000)
( 342,000)
( 1,152,000)
Net deferred tax assets
$ -
$ -
$ -
Summary of valuation allowance:
Balance, beginning of year
$ 810,000
$ 792,000
Increase for the year
342,000
18,000
Balance, end of year
$ 1,152,000
$ 810,000
In assessing the realizability of deferred assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Net Operating Loss Carryforwards
United States Corporation Income Taxes
Year of Loss
Amount
Expiration Date
October 31, 2001
$ 178,000
October 31, 2021
October 31, 2002
549,000
October 31, 2022
October 31, 2004
29,000
October 31, 2024
October 31, 2005
587,000
October 31, 2025
October 31, 2006
-
October 31, 2026
October 31, 2007
2,000
October 31, 2027
October 31, 2008
967,000
October 31,2028
$ 2,312,000
F - 15
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
4.
INCOME TAXES (CONTINUED)
5.
COMMITMENTS AND CONTINGENCIES
Lease
The Company had a signed lease extension which expires on November 30, 2008, and will not be renewed subsequent to that date. Future minimum lease payments excluding taxes and expenses are as follows:
October 31, 2009
$ 2,809
Rent expense including rental costs and taxes was $32,520 and $28,057 for the years ended October 31, 2008 and 2007, respectively.
6.
EMPLOYEE STOCK OPTIONS
On July 24, 2004, the Company adopted the 2004 Benefit Plan of Moneyflow Systems International Inc. (the “Plan”). Under the Plan, the Company may issue stock, or grant options to acquire the Company’s common stock, par value $0.001, from time to time to employees of the Company or its subsidiaries. In addition, at the discretion of the Board or Directors, benefits may from time to time be granted under this Plan to other individuals, including consultants or advisors, who contribute to the success of the Company or its subsidiaries, but are not employees of the Company or its subsidiaries, provided that bona fide services shall be rendered by consultants and advisors and such services must not be in connection with the offer or sale of securities in a capital raising-transaction.
The Plan is administered by the Company’s Board of Directors and the Company has reserved a total of 2,500,000 shares of common stock under the Plan. Options granted under this Plan will have terms, vesting and expiration dates as determined by the Plan’s Administrator at the time of grant.
On March 31, 2008, the Company issued 3,000,000 options to the employees and directors of the Company. The expense associated with these options was $410,100.
There was no option activity for the year ended October 31, 2007.
F - 16
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
7.
STOCK SPLIT
On March 7, 2008 and March 8, 2008, the Company issued 30,000 shares of Preferred A Stock to the employees and directors of the Company. The Company then approved a 50 to 1 reverse split for the Preferred A Stock. A summary of the Preferred A Stock is as follows:
Before 50 to 1 Split
After 50 to 1 Split
Balance at January 31, 2008
9,500
Shares issued to employees and directors
30,000
Balance, at March 8, 2008
39,500
On March 10, 2008, the Company approved a 50 to 1 reverse split on the Common Stock as follows:
Before 50 to 1 Split
After 50 to 1 Split
Outstanding at January 31, 2008 and 2007
7,216,203
Outstanding at March 10, 2008 and 2007
144,324
8.
COMMON STOCK
During the year ended October 31, 2008, the Company had the following transactions in relation to shares of common stock:
3,000,000 shares of common stock were issued to three officers and board members of the company as compensation, with an aggregate value of $450,000.
During the year ended October 31, 2007, the Company had the following transactions in relation to shares of common stock:
25,000 free trading shares were sold by a current shareholder to the Company’s President, Hal Schultz.
There were no stock transactions during the year ended October 31, 2007.
9.
PREFERRED STOCK
On May 27, 2004, the Board of Directors authorized creation of 5,000,000 Preferred “A” stock with a par value of $0.001 per share and 5,000,000 Preferred “B” stock with a par value of $0.001 per share.
Preferred “A” stock carries the following preferences:
F - 17
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
9.
PREFERRED STOCK (CONTINUED)
(a) Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Company, the holders of Preferred A Series I shares will be entitled to receive, prior and in preference to any distribution of any assets or surplus funds to the holders of Common Stock, liquidation amounts equal to the sum of (i) the Original issue Price ($.25 per share), plus (ii) all declared but unpaid dividends (the “Senior Preferential Amount”). After payment of the Senior Preferential Amount, liquidation proceeds will be shared prorate by the holders of the Common Stock and the Preferred A Series I shares on an as converted basis.
(b) Voluntary Conversion. The holders of the Preferred A Series I shares will have, at the option of the holder, the right to convert one share of Preferred A Series I shares stock, at any time, into one hundred shares of Common Stock.
(c) Automatic Conversion. The Preferred A Series I shares will be converted automatically into Common Stock, at the applicable Conversion ratio, (i) upon the closing of an underwritten public offering of shares of the Common Stock of the Company in an offering of not less than $20,000,000 (prior to underwriting commissions and expenses), (ii) upon the closing of a Sale of the Company that is not deemed a dissolution under the liquidation preference provisions above, or (iii) in the event that the holders of a majority of the Preferred A Series I shares consent to convert into Common Stock.
(d) Anti-dilution Protection. The Conversion Price will be subject to proportional adjustment for stock splits, stock dividends, recapitalizations and the like. The Preferred A Series I shares also will be subject to adjustment to prevent dilution in the event that the Company issues additional equity securities (or warrants or rights to purchase Common Stock or securities convertible into Common Stock) at purchase price less that the applicable Conversion Price. Such adjustment will be on a standard, broad based weighted average basis. The Conversion Price will not be adjusted for issuances of equity securities upon the exercise or conversion of presently outstanding securities, or on the future issuance of stock options to employees, as approved by the Company’s Board of Directors and certain other strategic issuances.
(e) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other shares or securities, cash and/or any other property, then in any such case the Preferred A Series I Shares shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of shares, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Shares is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Preferred Shares shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.
F - 18
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
9.
PREFERRED STOCK (CONTINUED)
(f) Dividends. No cash dividends may be declared on the Common Stock unless or until a like dividend in an amount equal to or greater than the dividend has been declared on the Preferred A Series I shares (dividends shall be compared on a Common Stock equivalent basis).
(g) Reacquired Shares. Any Preferred A Series I Shares purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation, and upon the taking of any action required by applicable law, become authorized but unissued preferred shares and may be reissued as part of a new series of preferred shares to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.
(h) Amendment. The Articles of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Preferred A Series I Shares so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding Series A Preferred Shares voting together as a single class.
(i) Board Rights. So long as the Preferred A Series I shares Investors collectively hold at least 10,000 shares of Preferred A Series I shares, a representative of such group, selected by the Preferred A Series I shares Investors, shall be entitle to be elected to the Company’s Board of Directors.
Preferred “B” stock carries the following preferences:
(a) Voting Rights. The holders of Preferred B Series I shares shall not be entitled to vote on any matters on which shareholders of common shares of the corporation shall be entitled to vote, with the express exception of the right of the holders of Preferred B Series I shares to have a representative of the holders elected to the Board of Directors as set out in paragraph (d) of this section.
(b) Reacquired Shares. Any Preferred Series I Shares purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation, and upon the taking of any action required by applicable law, become authorized but unissued preferred shares and may be reissued as part of a new series of preferred shares to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.
(c) Amendment. The Articles of Incorporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Preferred B Series I Shares so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding Series B Preferred Shares voting together as a single class.
(d) Board Rights. So long as the holders of Preferred B Series I shares collectively hold at least 1,000 shares of Preferred B Series I shares, a representative of such group, selected by the Preferred B Series I shares shall be entitled to be elected to the Company’s Board of Directors.
F - 19
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
9.
PREFERRED STOCK (CONTINUED)
During the year ended October 31, 2008, the Company had the following transactions in relation to shares of Preferred “A” stock:
The Company issued 600 shares of Preferred “A” stock, with an aggregate value of $9,000 to employees of the Company.
During the year ended October 31, 2007 no Preferred “A” stock was issued.
There was no issuance of Preferred “B” stock during the years ended October 31, 2008 and 2007.
10.
PENDING LITIGATION
The Company currently has a pending lawsuit against a former employee for the misappropriation or destruction of information that was proprietary to the Company and its business, as well as the breach of his employment contract. The Company is seeking damages in the amount of $1,250,000.
The former employee has a pending counterclaim against the Company in response to the above lawsuit in the amount of $1,050,000. The Company is vigorously working on defeating this counterclaim. Management, based on consultation with its legal counsel, believes that there will not be any liability to the Company from this counterclaim.
At any given time, the Company is involved with various types of litigation which arise in the normal course of conducting business. Although there is a possibility that the Company may be held liable or receive damages, an estimated range of potential loss or damages to be received cannot be determined at this time but it is not believed to have a material impact on the financial condition of the Company.
11.
DISCONTINUED OPERATIONS
On October 31, 2008, the Company decided to cease all operations for Interglobe, Ltd. As a result, the results of operations are included in discontinued operations in the Company’s consolidated statements of operations. In addition, there are no longer any assets or liabilities for Interglobe, Ltd. as of October 31, 2008.
The following Interglobe, Ltd. Amounts have been segregated from continuing operations and reported as discontinued operations:
Revenues
$ 6,164
$ 28,182
Costs and expenses
80,459
( 45,949)
Net (loss) from discontinued operations
before income taxes
( 74,295)
( 17,767)
Income taxes
-
-
Net (loss) from discontinued operations
$ ( 74,295)
$ ( 17,767)
F - 20
VAULT AMERICA, INC. AND SUBSIDIARIES
FORMERLY KNOWN AS
MONEYFLOW SYSTEMS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008
12.
SUBSEQUENT EVENT
On November 5, 2008, the Company announced that it had successfully completed the sale of the ATM assets of its wholly owned subsidiary, Security Bancorp, Inc. The terms of the agreement will result in a total cash payment of $1.2 million Canadian dollars, subject to standard industry terms of operations performance and a pre-negotiated holdback equal to 10% of the purchase price. Upon expiration of the performance term, the holdback funds will be released to the Company.
The purchase price is allocated as follows:
ATM contracts
$ 1,112,551
SBI-owned ATM's on location
53,449
ATM's in house inventory
15,000
ATM parts inventory
15,000
Furniture and office equipment
4,000
$ 1,200,000
F - 21