ITEM 1 - BUSINESS
General
Entremetrix Corporation, a Nevada corporation (“we” or the “Company”) was originally incorporated as McGinnis-Powell & Sons, Inc., under the laws of the state of Montana on July 29, 1983. Our name was changed to Missouri River Gold and Gem Corp., in September 1984. In 1985, we conducted a public offering of our common stock pursuant to a Regulation A exemption from registration under the Securities Act of 1933. In August 1986, we acquired 100% of the outstanding stock of American Dental Manufacturing, Inc., a California corporation, and changed our name to American Dental Products Manufacturing, Inc., a California corporation. On June 12, 1990, we changed our name to Missouri River and Gold Gem Corporation. In June 2000, we filed a Form 10-SB with the business plan to locate and consummate a merger or acquisition with a private entity. On March 8, 2004, we acquired all of the issued and outstanding common stock of EnStruxis, Inc., a Nevada corporation. As a result of this transaction EnStruxis became our wholly-owned subsidiary and we changed our name to Entremetrix Corporation. On March 7, 2006, we filed an election to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”), which became effective on the date of filing.
As a BDC, we focus on the development of opportunities to invest in eligible portfolio companies providing early stage capital, strategic guidance and operational support. We also provide structural support services for small businesses including financial guidance in areas of treasury management, general accounting oversight and capital formation, employee-related administration and regulatory compliance as well as handling of such areas as payroll, benefits and insurance operations, regulatory filings and overall HR guidance as the client’s “Administrative Employer”, and strategic guidance in the areas of sales strategy and automation. The determination of which eligible portfolio companies we invest in will be made in the sole discretion of our board of directors without shareholder approval and such investments may deviate significantly from our historic operations.
Our strategy is to expand into several key U.S. markets offering our core support services and cultivating investment opportunities within a growing client base. We expect to grow through direct sales development in selected local U.S. markets and will continue to develop and
evaluate investment and acquisition opportunities in these same local markets of similar firms offering services that complement and support our target clients and investment opportunities.
Our Enstruxis, Inc. Portfolio Company
Our support services include providing “Administrative Employer” and strategic guidance services to small business owners. We believe our administrative employer services allow small business owners to outsource the employee-related administrative and regulatory duties in order to concentrate on their core business competencies and growth. When we provide administrative employer services for our clients or portfolio companies we usually do so under a monthly contract. The services related to employee administration, payroll, taxes and benefits are bundled with our fee and invoiced to our clients each pay period. We deliver our invoice and payroll to our clients the day before the client’s “pay day.” This practice differs from the administrative employer or the payroll service industry, which generally invoices and demands payment prior to payroll delivery. Our practice, however, creates a collection risk from our small business clients. To minimize this risk, we extend the “payroll float” to clients we determined to be credit worthy, although there is no assurances that our determination is accurate, or that our efforts to reduce such risks would be successful.
Our extension of credit to certain of our clients requires us to demand a higher profit margin than is common to the administrative employer industry to compensate us for this higher level of risk. This risk of collection, from time to time, creates a working capital deficit for us, which may materially affect our business operations and finances. For clients who we determine are not credit worthy, we will require either payment in advance or cash on delivery upon rendering of our services, similar to the standard practice of the administrative employer and payroll service industry for all clients.
Because we are a service provider, our primary operating costs and expenses are staff and management payroll, salaries, and benefits. Our sales and general administrative expenses aside from the foregoing include rent for office space, computer equipment and software services and insurance. We currently have no copyrights, trademarks or patents, but expect to pursue copyright and trademark protection for some of our marketing programs and materials. Our business generally is not impacted by seasonal changes.
We do not anticipate performing any significant product research and development.
We do anticipate purchasing or leasing operational facilities in the next twelve months; however, if such a purchase were contemplated it would be subject to our receipt of sufficient income from operations or funds from borrowings or stock sales to enable such purchases or leases.
The number of employees required to operate our business is currently three full-time employees and one part-time employee.
Regulation as a BDC
Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on the operations of BDC’s. Among other things, the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters, and it requires that a majority of the BDC’s directors be persons other than “interested persons,” as defined under the 1940 Act. The
1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to withdraw its election as, a BDC unless so authorized by the vote of the holders of a majority of its outstanding voting securities. BDC’s are not required to maintain fundamental investment policies relating to diversification and concentration of investments within a single industry.
Generally, a BDC must be primarily engaged in the business of furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such portfolio companies are termed “eligible portfolio companies.” More specifically, in order to qualify as a BDC, a company must (1) be a domestic company; (2) have registered a class of its equity securities or have filed a registration statement with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934; (3) operate for the purpose of investing in the securities of certain types of portfolio companies, namely immature or emerging companies and businesses suffering or just recovering from financial distress; (4) extend significant managerial assistance to such portfolio companies; and (5) have a majority of “disinterested” directors (as defined in the 1940 Act).
An eligible portfolio company is, generally, a U.S. company that is not an investment company and that (1) does not have a class of securities registered on an exchange or included in the Federal Reserve Board’s over-the-counter margin list; or (2) is actively controlled by a BDC and has an affiliate of a BDC on its board of directors; or (3) meets such other criteria as may be established by the Securities and Exchange Commission. Control under the 1940 Act is generally presumed to exist where a BDC owns 25% of the outstanding voting securities of the company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies. Moreover, the 1940 Act limits the type of assets that BDC’s may acquire to “qualifying assets” and certain assets necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than 70% of the value of the BDC’s assets consist of qualifying assets. Qualifying assets include: (1) securities of companies that were eligible portfolio companies at the time the BDC acquired their securities; (2) securities of bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies; (3) securities received in exchange for or distributed in or with respect to any of the foregoing; and (4) cash items, government securities and high-quality short-term debt. The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets. These restrictions include limiting purchases to transactions not involving a public offering and acquiring securities from either the portfolio company or its officers, directors, or affiliates.
A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the investment.
A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in which it invests. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted does provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. The portfolio company does not have to accept the BDC’s offer of managerial assistance, and if they do accept may be required to pay prevailing market rates for the services.
We have one wholly-owned subsidiary, Enstruxis, Inc., a Nevada corporation, which is an eligible portfolio company. We have investments in two other eligible portfolio companies, PreVantix and Advanced Nitride Devices. We are actively seeking additional quality eligible portfolio companies in which to make an investment and provide managerial assistance.
Employees
The number of employees required to operate our business is currently three full-time employees and one part-time employee. We scale our staffing based on sales growth and our business need. This flexibility allows us to scale up or down based on need.
ITEM 1A
ITEM 1A - RISK FACTORS
On at least an annual basis, we are required to provide our shareholders with a statement of risk factors and other considerations for their review. These risk factors and other considerations include:
We have a limited operating history.
Since June of 1990, we had been a non-operating company until our acquisition of EnStruxis, Inc. in March of 2004. Therefore, we have a limited operating history and our business and prospects must be considered in light of the risks and uncertainties to which early stage companies in rapidly evolving industries such as professional employment services are exposed. We cannot provide assurances that our business strategy will be successful or that we will successfully address those risks and the risks described herein.
•
If we are unable to secure future capital, we will be unable to continue our operations.
•
Our business has not been historically profitable in the past and it may not be profitable in the future. We may incur losses on a quarterly or annual basis for a number of reasons, some within and others outside our control. (See “Potential Fluctuation in Our Quarterly Performance.”) The growth of our business will require the commitment of substantial capital resources. If funds are not available from operations, we will need additional funds. We may seek such additional funding through public and private financing, including debt or equity financing. Adequate funds for these purposes, whether through financial markets or from other sources, may not be available when we need them. Even if funds are available, the terms under which the funds are available to us may not be acceptable to us. Insufficient funds may require us to delay, reduce or eliminate some or all of our planned activities.
To successfully execute our current strategy, we will need to improve our working capital position. The report of our independent auditors accompanying our financial statements includes an explanatory paragraph indicating there is a substantial doubt about the Company’s ability to continue as a going concern due to recurring losses. We plan to overcome the circumstances that impact our ability to remain a going concern through a combination of increased revenues and decreased costs, with interim cash flow deficiencies being addressed through additional equity financing.
We will likely experience fluctuation in our quarterly performance.
Quarterly operating results can fluctuate significantly depending on a number of factors, any one of which could have a material adverse effect on our results of operations. The factors include: the timing of services announcements and subsequent introductions of new or enhanced services by us and by our competitors, the market acceptance of our services, changes in our prices and in our competitors’ prices, the timing of expenditures for staffing and related support costs, the extent and success of advertising, and changes in general economic conditions.
We may experience significant quarterly fluctuations in revenues and operating expenses as we introduce new services, especially as we enter the BDC business. Furthermore, quarterly results are not necessarily indicative of future performance for any particular period.
Since our competitors have greater financial and marketing resources than we do, we may experience a reduction in market share and revenues.
The markets for our products and services are highly competitive and rapidly changing. Some of our current and prospective competitors have significantly greater financial, technical, marketing resources than we do. Our ability to compete in our markets depends on a number of factors, some within and others outside our control. These factors include: the frequency and success of product and services introductions by us and by our competitors, the selling prices of our products and services and of our competitors’ products and services, the performance of our products and of our competitors’ products, product distribution by us and by our competitors, our marketing ability and the marketing ability of our competitors, and the quality of customer support offered by us and by our competitors.
Any increase in health insurance premiums, unemployment taxes, and workers’ compensation rates will have a significant effect on our future financial performance.
Health insurance premiums, state unemployment taxes, and workers’ compensation rates are, in part, determined by our claims experience, and comprise a significant portion of our direct costs. We employ risk management procedures in an attempt to control claims incidence and structure our benefits contracts to provide as much cost stability as possible. However, should we experience a large increase in claims activity, the unemployment taxes, health insurance premiums, or workers’ compensation insurance rates we pay could increase. Our ability to incorporate such increases into service fees to clients is generally constrained by contractual agreements with our clients. Consequently, we could experience a delay before such increases could be reflected in the service fees we charge. As a result, such increases could have a material adverse effect on our financial condition or results of operations.
We carry substantial liability for worksite employee payroll and benefits costs.
Under our client service agreements, we become a co-employer of worksite employees and we assume the obligations to pay the salaries, wages, and related benefits costs and payroll taxes of such worksite employees. We assume such obligations as a principal, not merely as an agent of the client company. Our obligations include responsibility for (a) payment of the salaries and wages for work performed by worksite employees, regardless of whether the client company makes timely payment to us of the associated service fee; and (2) providing benefits to worksite employees even if the costs incurred by us to provide such benefits exceed the fees paid by the client company. If a client company does not pay us, or if the costs of benefits provided to worksite employees exceed the fees paid by a client company, our ultimate liability for worksite employee payroll and benefits costs could have a material adverse effect on our financial condition or results of operations.
As a major employer, our operations are affected by numerous federal, state, and local laws related to labor, tax, and employment matters.
By entering into a co-employer relationship with employees assigned to work at client company locations, we assume certain obligations and responsibilities as an employer under these laws. However, many of these laws (such as the Employee Retirement Income Security Act (“ERISA”) and federal and state employment tax laws) do not specifically address the obligations and responsibilities of non-traditional employers such as “Administrative Employers” and the definition of “employer” under these laws is not uniform. Additionally, some of the states in which we operate have not addressed the “Administrative Employer” relationship for purposes of compliance with applicable state laws governing the employer/employee relationship. If these other federal or state laws are ultimately applied to our “Administrative Employer” relationship with our worksite employees in a manner adverse to the Company, such an application could have a material adverse effect on the Company’s financial condition or results of operations.
Laws vary from state to state relating to the regulation of the “Administrative Employer”, but generally provide for monitoring the fiscal responsibility of “Administrative employer” and, in some cases, codify and clarify the co-employment relationship for unemployment, workers’ compensation, and other purposes under state law. There can be no assurance that we will be able to satisfy licensing requirements of other applicable relations for all states. Additionally, there can be no assurance that we will be able to renew our licenses in all states.
The maintenance of health and workers’ compensation insurance plans that cover worksite employees is a significant part of our business.
The current health and workers’ compensation contracts are provided by vendors with whom we have an established relationship, and on terms that we believe to be favorable. While we believe that replacement contracts could be secured on competitive terms without causing significant disruption to our business, there can be no assurance in this regard.
We are dependent upon a three major customers for a significant percentage of our sales, and the loss of these key customers would materially reduce our revenues.
We have three major customers, which represents 41% of our total revenues for the year ended December 31, 2006. Our dependence on these key customers means that the loss of one or more of these, or any reduction in their work orders would materially reduce our revenues. We expect that sales of our services to these key customers will continue to contribute materially to our revenues in the foreseeable future. The loss of, or a significant reduction in purchases by these key customers could harm our business, financial condition and results of operations.
If our operations continue to result in a net loss, negative working capital and a decline in net worth, and we are unable to obtain needed funding, we may be forced to discontinue operations.
For several recent periods, up through the present, we had a net loss, negative working capital and a decline in net worth, which raise substantial doubt about our ability to continue as a going concern. Our ability to continue operations will depend on positive cash flow, if any, from future operations and on our ability to raise additional funds through equity or debt financing. If we are unable to achieve the necessary product sales or raise or obtain needed funding, we may be forced to discontinue operations.
We have never paid any dividends on our common stock.
We have not paid any cash dividends on our common stock to date and we do not anticipate paying cash dividends in the foreseeable future.
Since we have limited experience with portfolio investment companies we may encounter problems that would negatively impact our financial condition.
Our experience with portfolio investments is limited and we may encounter problems or underlying liabilities with our portfolio companies that would put our investment or our business at risk. We may in our effort to correct or reverse these problems encounter significant accounting or legal expense that would deplete our working capital. These corrective efforts would adversely impact our working capital. We may also incorrectly estimate the value of our investments which would require a subsequent restatement or require an updated valuation due to our lack of experience with portfolio investments.
Our common stock may be affected by limited trading volume and may fluctuate significantly.
There has been a limited public market for our common stock and there can be no assurance an active trading market for our common stock will develop. This could adversely affect our shareholders' ability to sell our common stock in short time periods or possibly at all. Our common stock has experienced and is likely to experience significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance. Our stock price could fluctuate significantly in the future based upon any number of factors such as: general stock market trends; announcements of developments related to our business; fluctuations in our operating results; announcements of technological innovations, new products or enhancements by us or our competitors; general conditions in the markets we serve; general conditions in the U.S. economy; developments in patents or other intellectual property rights; and developments in our relationships with our customers and suppliers. Substantial fluctuations in our stock price could significantly reduce the price of our stock.
Our common stock is traded on the "Over-the-Counter Bulletin Board," which may make it more difficult for investors to resell their shares due to suitability requirements.
Our common stock is currently traded on the Over the Counter Bulletin Board (OTCBB) where we expect it to remain in the foreseeable future. Broker-dealers often decline to trade in OTCBB stocks given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.
Our share ownership is concentrated.
Our officers, directors and principal stockholders, together with their affiliates, beneficially own approximately 72% of the Company’s voting shares. As a result, these stockholders, if they act together, will exert significant influence over all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation or sale of all or substantially all of assets, as well as any charter amendment and other matters requiring stockholder approval. In addition, these stockholders may dictate
the day to day management of the business. This concentration of ownership may delay or prevent a change in control and may have a negative impact on the market price of the Company’s common stock by discouraging third party investors. In addition, the interests of these stockholders may not always coincide with the interests of the Company’s other stockholders.
We may change our investment policies without further shareholder approval.
Although we are limited by the Investment Company Act of 1940 with respect to the percentage of our assets that must be invested in qualified investment companies, we are not limited with respect to the minimum standard that any investment company must meet, neither are we limited to the industries in which those investment companies must operate. We may make investments without shareholder approval and such investments may deviate significantly from our historic operations. Any change in our investment policy or selection of investments could adversely affect our stock price, liquidity, and the ability of our shareholders to sell their stock.
Our investments may not generate sufficient income to cover our operations.
We intend to make investments in qualified companies that will provide the greatest overall return on our investment. However, certain of those investments may fail, in which case we will not receive any return on our investment. In addition, our investments may not generate income either in the immediate future or at all. As a result, we may have to sell additional stock or borrow money to cover our operating expenses. The effect of such actions could cause our stock price to decline or, if we are not successful in raising additional capital, we could cease to continue as a going concern.
Our officers and directors have the ability to exercise significant influence over matters submitted for stockholder approval and their interests may differ from other stockholders.
Our executive officers and directors have the ability to appoint a majority to the Board of Directors. Accordingly, our directors and executive officers, whether acting alone or together, may have significant influence in determining the outcome of any corporate transaction or other matter submitted to our Board for approval, including issuing common and preferred stock, appointing officers, which could have a material impact on mergers, acquisitions, consolidations and the sale of all or substantially all of our assets, and the power to prevent or cause a change in control. The interests of these board members may differ from the interests of the other stockholders.
Our board of directors will value our portfolio investments.
There is typically no public market of equity securities of the small privately held companies in which we intend to invest. As a result, the valuation of the equity securities in our portfolio is likely to be stated at fair value as determined by the good faith estimate of our Board of Directors. In the absence of a readily ascertainable market value, the estimated value of our portfolio of securities may differ significantly, favorably or unfavorably, from the values that would be placed on the portfolio if a ready market for the equity securities existed.
We plan to target portfolio companies that are development stage companies dependent upon the successful commercialization of their goods or services. Each of our investments in portfolio companies is subject to a high degree of risk, and we may lose all of our investment in a portfolio company if it is not successful.
We will be investing in development stage companies that we believe can benefit from our expertise in structural support and market entry. Development stage companies are subject to all of the risks associated with new businesses. These risks include the risk that new business opportunity cannot become commercially viable, may not work, or become obsolete. We cannot assure that any of our investments in our portfolio companies will be successful. Our portfolio companies will be competing with larger, established companies with greater access to, and resources for, further development requiring capital resources beyond our ability. We may lose our entire investment in any or all of our portfolio companies. Even if our portfolio companies are able to develop commercially viable products, the market for new products and services is highly competitive and rapidly changing. Commercial success is difficult to predict and the marketing efforts of our expected portfolio companies may not be successful.
The securities we hold in our portfolio companies may be subject to restriction on resale, and we may not be able to sell the securities we hold for amounts equal to their recorded value, if at all.
Some of our portfolio companies may become thinly traded public companies or remain private companies. As a result, substantially all of the securities we hold in our portfolio companies are subject to legal restrictions on resale. Furthermore, our ability to sell the securities in our portfolio may be limited by, and subject to, the lack of or limited nature of a trading market for such securities. Therefore, we cannot assure you that we will be able to sell our portfolio company securities for amounts equal to the values that we have ascribed to them or at the time we desire to sell.
We are subject to substantive SEC regulations as a business development company.
Securities and tax laws and regulations governing our activities may change in ways adverse to our and our shareholders' interests, and interpretations of these laws and regulations may change with unpredictable consequences. Any change in the laws or regulations that govern our business could have an adverse impact on us or on our operations. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ Market rules, are creating additional expense and uncertainty for publicly held companies in general, and for business development companies in particular. These new or changed laws, regulations and standards are subject to varying interpretations in many cases because of their lack of specificity, and as a result, their application in practice may evolve over time, which may well result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We have made very few investments into other companies.
Although we have one wholly-owned subsidiary, and have advanced a small amount of expenses in two other companies, we have very few assets. We need to raise capital before we can make substantive investments into, and offer managerial assistance to, other companies. We may not be successful in raising capital. If we are successful in raising capital, we may make investments that turn out to be worthless.
We have never had any annual net profit and there is no assurance that we will be able to achieve the financing necessary to enable us to precede with the development of our business plan.
We have never generated an annual net profit. Our primary activity to date has been development of our business plan, which has changed since our inception. Our success is dependent upon the successful development of our business model as a business development company, as to which there is no assurance. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business. These include, but are not limited to, inadequate funding, competition, and investment development. Our failure to meet any of these conditions would have a materially adverse effect upon us and may force us to reduce or curtail operations. We may not ever be profitable.
We need to raise capital in order to fulfill our business plan.
To date we have relied on private funding from our founders and directors and short-term borrowing to fund operations. We have generated no revenues and have extremely limited cash liquidity and capital resources. Any equity financings could result in dilution to our stockholders. Debt financing may result in high interest expense. Any financing, if available, may be on unfavorable terms. If adequate funds are not obtained, we may be required to reduce or curtail operations.
The services of our directors, officers and key staff are essential to our future success.
We are dependent for the selection, structuring, closing and monitoring of our investments on the diligence and skill of Scott W. Absher, our Chief Executive Officer and George R. LeFevre, our Chief Financial Officer. Any loss or interruption of our key personnel's services could adversely affect our ability to develop our business plan. Our future success depends to a significant extent on the continued service and coordination of our senior management team and we cannot assure you we would be able to find an appropriate replacement for key personnel. We have no employment agreements or life insurance on Mr. Absher or Mr. LeFevre.
ITEM 1B
ITEM 1B - UNRESOLVED STAFF COMMENTS
This Item is not applicable to us as we are not an accelerated filer, a large accelerated filer, or a well-seasoned issuer; however, we have not received written comments from the Commission staff regarding our periodic or current reports under the Securities Exchange Act of 1934 within the last 180 days before the end of our last fiscal year.
ITEM 2
ITEM 2 - PROPERTIES
We currently leases approximately 240 square feet of office space located at 18101 Von Karman Avenue, Irvine, California under a month-to-month lease agreement. The monthly lease payments are $1,300 per month. We intend to continue to lease the property on a month-to-month basis for the foreseeable future.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
Beginning on June 1, 2005, we started making monthly payments to Richard McKinley per the terms of our settlement agreement with him. We were obligated to pay him a total of $350,000 over thirty-six (36) months, and have paid approximately $56,000. On June 6, 2006, we filed a Complaint in the Superior Court of the State of California, County of Orange, Case No. 06CC06802, alleging breach of the settlement agreement by Mr. McKinley. Accordingly, we have stopped making payments to him. Mr. McKinley has not answered our Complaint
but has filed a Demurrer. On or about January 5, 2007, Mr. McKinley moved to obtain right to attach orders against Messrs. Lefevre, Absher and the Company for the amount of $163,111.08 resulting from the alleged breach of the Settlement Agreement. The court granted Mr. McKinley’s motion based on his posting of a bond. However, as of this date, we have not been served with any formal orders from the court nor has Mr. McKinley posted the required bond in order to perfect the right to attach orders.
Trial is presently set for July 23, 2007 and the parties have been ordered to participate in a mandatory settlement conference on June 15, 2007. We have been fully cooperative during this litigation and intend to aggressively prosecute our claims.
Other than as set forth above, in the ordinary course of business, we may be from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no events that are required to be reported under this Item.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Since April 23, 2002, we have been eligible to participate in the OTC Bulletin Board, an electronic quotation medium for securities traded outside of the NASDAQ Stock Market, and prices for our common stock were published on the OTC Bulletin under the trading symbol “MRGG” through May 6, 2004. Subsequently on May 7, 2004, in conjunction with the name change to EntreMetrix Corporation, our OTCBB trading symbol changed to “ERMX”. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. This market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock.
The following table sets forth the high and low bid information for each quarter within the two most recent fiscal years, as provided by the Nasdaq Stock Markets, Inc. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
Holders
The number of holders of record of shares of our common stock is three hundred fifty-four (354).
Dividend Policy
There have been no cash dividends declared on our common stock. Dividends are declared at the sole discretion of our Board of Directors.
Stock Option Plan.
2004 Stock Option Plan
On September 16, 2004, our Board of Directors adopted the 2004 Stock Option Plan (the “2004 Plan”). Under the 2004 Plan, 7,000,000 shares of common stock were authorized for issuance as Incentive Stock Options (ISOs), Non-Incentive Stock Options, stock awards and stock bonuses to our key employees, officers, directors or consultants.
The purchase price of the common stock subject to each Incentive Stock Option shall not be less than 85% of the fair market value (as determined in the 2004 Plan), of such common stock at the time such option is granted. The purchase price of the common stock subject to each Non-Incentive Stock Option shall be determined at the time such option is granted. The options vest immediately and expire ten years from the date of grant or five years if ISO is granted. Prices for options granted to employees who own greater than 10% or more of the Company’s stock is at least 110% of the market value at date of grant. At December 31, 2006, no stock options or awards had been granted.
The 2004 Plan shall terminate ten years from the earlier of the date of its adoption by the Board of Directors or the date on which the 2004 Plan was approved by the affirmative vote of the holders of a majority of the outstanding shares of our capital stock entitled to vote thereon, and no option shall be granted after termination of the 2004 Plan. Subject to certain restrictions, the 2004 Plan may at any time be terminated and from time to time be modified or amended by the affirmative vote of the holders of a majority of the outstanding shares of our capital stock present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of California. We have not granted any shares of our common stock under the 2004 Plan.
As of December 31, 2006, the 2004 Plan information is as follows:
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
Weighted-average exercise price of outstanding options, warrants and rights
(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by security holders
n/a
7,000,000
Equity compensation plans not approved by security holders
n/a
Total
n/a
7,000,000
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
(1) These numbers reflect unaudited pro forma financials
ITEM 7
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclaimer Regarding Forward Looking Statements
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
We focus on the development of opportunities to invest in eligible portfolio companies providing early stage capital, strategic guidance and operational support. We also provide structural support services for small businesses including financial guidance in areas of treasury management, general accounting oversight and capital formation, employee-related administration and regulatory compliance, as well as handling of such areas as payroll, benefits and insurance operations, regulatory filings and overall HR guidance as the client’s “Administrative Employer,” and strategic guidance in the areas of sales strategy and automation.
Our principal objective is long-term capital appreciation. We may invest in debt securities of these companies, or may acquire an equity interest in the form of common or preferred stock, warrants or options to acquire stock or the right to convert the debt securities into stock. We may invest alone, or as part of a larger investment group. Consistent with our status as a BDC and the purposes of the regulatory framework for BDC’s under the 1940 Act, we will offer to provide managerial assistance, potentially in the form of a consulting agreement or in the form of a board of director’s seat, to the developing companies in which we invest.
In addition, we may acquire either a minority or controlling interest in mature companies in a roll-up strategy. It is anticipated that any acquisitions will be primarily in exchange for our common stock, or a combination of cash and stock. The principal objective of acquisitions pursuant to a roll-up strategy would be to consolidate an industry and either sell the acquired entities as a larger unit, or take the unit public through an initial public offering, spin-off to our shareholders, or reverse merger into a publicly traded shell corporation.
We operate as an internally managed investment company whereby our officers and employees conduct our operations under the general supervision of our Board of Directors. We have not elected to qualify to be taxed as a regulated investment company as defined under Subchapter M of the Internal Revenue Code.
Our common stock trades on the over the counter bulletin board under the symbol “ERMX.”
Our financial statements have been prepared assuming we will continue as a going concern. Because we have historically incurred operating losses, and expect those losses to continue in the future, our Certified Public Accountants included an explanatory paragraph in their report raising substantial doubt about our ability to continue as a going concern.
Investment Strategy
We intend to make strategic investments in private technology, life science, manufacturing and business service companies which offer unique market opportunities. Our
Investment Committee has adopted a charter to evaluate each opportunity for criteria including market viability, market uniqueness, management’s ability, and the added value that the Company can bring to the enhance the value of the prospective portfolio company. The Investment Committee’s assessment will also include a review of the prospective portfolio company’s readiness and ability to utilize the Company’s BDC status to aid it in going public, and make best use of the Company’s support tools and services. The prospective portfolio company will also need to comply with the Company’s requirement as a BDC to provision significant managerial oversight, guidance and structural support including participation on the board of directors.
Our Enstruxis, Inc. Portfolio Company
Our strategy is to expand into several key U.S. markets offering our core support services and cultivating investment opportunities within a growing client base. We expect to grow through direct sales development in selected local U.S. markets and will continue to develop and evaluate investment and acquisition opportunities in these same local markets of similar firms offering services that complement and support our target clients and investment opportunities.
Our support services include providing “Administrative Employer” and strategic guidance services to small business owners. We believe our administrative employer services allow small business owners to outsource the employee-related administrative and regulatory duties in order to concentrate on their core business competencies and growth. When we provide administrative employer services for our clients or portfolio companies we usually do so under a monthly contract. The services related to employee administration, payroll, taxes and benefits are bundled with our fee and invoiced to our clients each pay period. We deliver our invoice and payroll to our clients the day before the client’s “pay day.” This practice differs from the administrative employer or the payroll service industry, which generally invoices and demands payment prior to payroll delivery. Our practice, however, creates a collection risk from our small business clients. To minimize this risk, we extend the “payroll float” to clients we determined to be credit worthy, although there is no assurances that our determination is accurate, or that our efforts to reduce such risks would be successful.
Our extension of credit to certain of our clients requires us to demand a higher profit margin than is common to the administrative employer industry to compensate us for this higher level of risk. This risk of collection, from time to time, creates a working capital deficit for us, which may materially affect our business operations and finances. For clients who we determine are not credit worthy, we will require either payment in advance or cash on delivery upon rendering of our services, similar to the standard practice of the administrative employer and payroll service industry for all clients.
Because we are a service provider, our primary operating costs and expenses are staff and management payroll, salaries, and benefits. Our sales and general administrative expenses aside from the foregoing include rent for office space, computer equipment and software services and insurance. We currently have no copyrights, trademarks or patents, but expect to pursue copyright and trademark protection for some of our marketing programs and materials. Our business generally is not impacted by seasonal changes.
We do not anticipate performing any significant product research and development.
We do anticipate purchasing or leasing operational facilities in the next twelve months; however, if such a purchase were contemplated it would be subject to our receipt of sufficient income from operations or funds from borrowings or stock sales to enable such purchases or leases.
The number of employees required to operate our business is currently 3 full-time and 1 part-time employees. We scale our staffing based on sales growth leading top client need. This flexibility allows us to scale up or down based on need.
Regulation as a BDC
Although the 1940 Act exempts a BDC from registration under that Act, it contains significant limitations on the operations of BDC’s. Among other things, the 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates, principal underwriters and affiliates of its affiliates or underwriters, and it requires that a majority of the BDC’s directors be persons other than “interested persons,” as defined under the 1940 Act. The 1940 Act also prohibits a BDC from changing the nature of its business so as to cease to be, or to withdraw its election as, a BDC unless so authorized by the vote of the holders of a majority of its outstanding voting securities. BDC’s are not required to maintain fundamental investment policies relating to diversification and concentration of investments within a single industry.
Generally, a BDC must be primarily engaged in the business of furnishing capital and providing managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such portfolio companies are termed “eligible portfolio companies.” More specifically, in order to qualify as a BDC, a company must (1) be a domestic company; (2) have registered a class of its equity securities or have filed a registration statement with the Securities and Exchange Commission pursuant to Section 12 of the Securities Exchange Act of 1934; (3) operate for the purpose of investing in the securities of certain types of portfolio companies, namely immature or emerging companies and businesses suffering or just recovering from financial distress; (4) extend significant managerial assistance to such portfolio companies; and (5) have a majority of “disinterested” directors (as defined in the 1940 Act).
An eligible portfolio company is, generally, a U.S. company that is not an investment company and that (1) does not have a class of securities registered on an exchange or included in the Federal Reserve Board’s over-the-counter margin list; or (2) is actively controlled by a BDC and has an affiliate of a BDC on its board of directors; or (3) meets such other criteria as may be established by the Securities and Exchange Commission. Control under the 1940 Act is generally presumed to exist where a BDC owns 25% of the outstanding voting securities of the company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from investing in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies. Moreover, the 1940 Act limits the type of assets that BDC’s may acquire to “qualifying assets” and certain assets necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than 70% of the value of the BDC’s assets consist of qualifying assets. Qualifying assets include: (1) securities of companies that were eligible portfolio companies at the time the BDC acquired their securities; (2) securities of bankrupt or insolvent companies that were eligible at the time of the BDC’s initial acquisition of their securities but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies; (3) securities received in exchange for or distributed in or with respect to any of the foregoing; and (4) cash items, government securities and high-quality short-term debt. The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets. These restrictions include limiting purchases to transactions not involving a public offering and acquiring securities from either the portfolio company or its officers, directors, or affiliates.
A BDC is permitted to invest in the securities of public companies and other investments that are not qualifying assets, but those kinds of investments may not exceed 30% of the BDC’s total asset value at the time of the investment.
A BDC must make significant managerial assistance available to the issuers of eligible portfolio securities in which it invests. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted does provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. The portfolio company does not have to accept the BDC’s offer of managerial assistance, and if they do accept may be required to pay prevailing market rates for the services.
We have one wholly-owned subsidiary, Enstruxis, Inc., a Nevada corporation, which is an eligible portfolio company. We have investments in two other eligible portfolio companies, PreVantix and Advanced Nitride Devices. We are actively seeking additional quality eligible portfolio companies in which to make an investment and provide managerial assistance.
Results of Operations for the Three Months Ended December 31, 2006 and 2005
Introduction
Our revenues for the fourth quarter of 2006 were $1,182,514, compared to $1,762,680 for the same quarter in 2005, a decrease of approximately 33%.
Revenues and Loss from Operations
Our revenue, cost of revenue, selling, general and administrative expenses, and loss from operations for the three months ended December 31, 2006, as compared to the three months ended December 31, 2005 and September 30, 2006, are as follows:
3 Months Ended December 31, 2006
3 Months Ended December 31, 2005
Percentage
Change
3 Months Ended
September 30,
Revenue
$
1,182,514
$
1,762,680
(32.9)
%
$
1,396,767
Cost of revenue
1,113,420
1,630,988
(31.7)
%
1,329,115
Selling, general and administrative expenses
323,395
231,315
(39.8)
%
189,695
Loss from operations
$
254,301
$
99,623
155.3
%
$
(122,043)
During the three month periods ended December 31, 2006 and 2005 and September 30, 2006, we incurred a cost of revenue of $1,113,420, $1,630,988, and $1,329,115, respectively. These all represent a relatively similar amount as a percentage of revenues of between 92% and 95%.
Selling, general and administrative expenses were $323,395, $231,315, and $189,695, respectively, for the three month periods ended December 31, 2006 and 2005, and the three months ended September 30, 2006. The major expenses incurred during the three months ended December 31, 2006 and 2005 and September 30, 2006 were:
3 Months Ended December 31, 2006
3 Months Ended December 31, 2005
3 Months Ended
September 30,
Major Expenses:
Rent
$
6,286
9,254
$
4,719
Commissions
(1,701)
4,295
Computer & Software Expenses
2,513
2,513
2,685
Salary & Wages
49,500
47,500
44,000
Accounting Fees
16,000
17,600
14,000
Legal Fees
8,991
27,026
31,313
Penalties
(22,657)
70,567
6,019
Stock Related Fees
3,402
2,317
6,933
Consulting
245,000
47,700
Total Major Expenses
307,333
181,071
158,000
Total General and Administrative Expenses
323,395
231,315
189,695
Other Income and Expenses and Net Loss
Our other income and expenses and net loss for the three months ended December 31, 2006 and 2005, as compared to the three months ended September 30, 2006 are as follows:
3 Months Ended
December 31,
3 Months Ended
December 31, 2005
Percentage
Change
3 Months
Ended
September 30,
Interest and other income
$
$
46,010
(99.9)
%
$
Interest expense
(9,107)
(206,658)
(95.6)
%
(8,378)
Total other income (expenses)
(9,106)
(160,648)
(94.3)
%
(8,179)
Net income (loss)
$
(263,408)
$
(260,271)
1.2
%
$
(130,222)
Results of Operations for the Years ended December 31, 2006 and 2005
Introduction
In 2006, our revenues were $6,202,040, compared to $7,642,216, a decrease of almost 19%.
Revenues and Loss from Operations
Our revenue, cost of revenue, selling, general and administrative expenses, and loss from operations for the year ended December 31, 2006 as compared to the year ended December 31, 2005 are as follows:
Year Ended December 31, 2006
Year Ended December 31, 2005
Percentage
Change
Revenue
$
6,202,040
$
7,642,216
(18.8)%
Cost of Revenue
5,892,912
7,171,067
(17.8)%
Selling general and administrative expenses
677,697
856,950
(20.9)%
Loss from Operations
$
(368,569)
$
(385,801)
(4.5)%
Revenues for the year ended December 31, 2006 were $6,202,040 compared to revenues of $7,642,216 in the year ended December 31, 2005. This resulted in a decrease in revenues of $1,440,176, from the same period one year ago. All of our revenue was generated by our wholly-owned subsidiary Enstruxis, for administrative support services. The decrease in revenue was due to limited expenditure on sales staff and support in our efforts to raise capital under our new BDC structure and 1E offering. As a result we were unsuccessful in retaining clients in Enstruxis.
Cost of revenues for the year ended December 31, 2006 was $5,892,912, a decrease of $1,278,155 from $7,171,067 for the same period ended December 31, 2005. The decrease in cost of revenues was primarily due to the fixed costs associated with the decrease in revenue compared to last year. Fixed costs primarily include and are not limited to client federal and state payroll taxes, workers compensation, 401K, and union benefits.
General and administrative expenses were $677,697 and $859,950, respectively, for the years ended December 31, 2006 and 2005. The major expenses incurred during each of the years were:
Year Ended December 31, 2006
Year Ended December 31, 2005
Percentage
Change
Major Expenses:
Rent
$
21,605
$
61,861
(65.1)
%
Commissions
23,740
(96.6)
%
Computer & Software Expenses
17,530
17,292
1.4
%
Salary & Wages
168,500
461,906
(63.5)
%
Accounting Fees
43,700
41,300
5.8
%
Legal Fees
43,442
38,791
12.0
%
Penalties
(12,573)
74,356
(116.9)
%
Stock Related Fees
18,059
5,732
215.1
%
Consulting
292,700
100.0
%
Total Major Expenses
593,767
724,978
(18.1)
%
Total General and Administrative Expenses
677,697
859,950
(21.2)
%
Total general and administrative expenses were $677,697 for the year ended December 31, 2006 versus $856,950 for the year ended December 31, 2005, which resulted in a decrease of $179,253. General and administrative expenses consist primarily of salaries, and related costs for executive, sales finance and other administrative personnel, and the cost of facilities and related spending. The overall decrease in general and administrative expenses was primarily due to the decrease in salary and wages of $168,500 in 2006, compared to $461,906 the prior year period. The decrease of $293,406 was due to the officers and employees taking significant salary reductions and not accruing salaries. In addition there was a decrease of $86,929, and $40,256 in penalty and rent expense during the twelve months ending December 31, 2006, compared to the same prior period. The decrease in rent expense was due to the elimination of office space rented due to the decrease in employees and staff. There was also a 96.6% decrease in commission expense in 2006 compared to 2005. These decreases were partially offset by increases in stock related and legal fees of $12,327, and $4,651 respectively. In addition, increases in accounting and computer/software expense increased $2,400, and $238, for the year ending December 31, 2006, and 2005 respectively.
Other Income and Expenses and Net Loss
Our other income and expenses and net loss for the years ended December 31, 2006 and 2005 are as follows:
Year Ended December 31, 2006
Year Ended December 31, 2005
Percentage
Change
Interest and other income
46,073
(99.6)
%
Interest expense
(41,972)
(250,605)
(83.3)
%
Total other income (expenses)
(41,769)
(204,532)
(79.6)
%
Net income (loss)
$
(411,138)
(591,133)
(30.4)
%
During the twelve months ended December 31, 2006, our total other expenses decreased by 79.6% compared to the twelve months ended December 31, 2005. The decrease was primarily the result of a $208,633 and $45,870 decrease in interest expense and interest/other income in 2006 compared to 2005. The net loss for the year ended December 31, 2006 was $411,138, versus a net loss of $591,133 for the year ended December 31, 2005. This resulted in a 30.4% change in net loss of $179,995.
Liquidity and Capital Resources
Introduction
During the twelve months ended December 31, 2006, we did not generate positive cash flow. As a result, we funded our operations by using cash on hand and through cash generated from the sale of our common stock.
A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through additional equity and/or debt financing. Since inception, we have financed our cash flow requirements through issuances of common stock. As we expand our activities, we may continue to experience net negative cash flows from operations, pending receipt of sales revenues.
Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings and bank borrowings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the event we cannot obtain the necessary capital to pursue our strategic plan, we may have to cease or significantly curtail our operations. This would materially impact our ability to continue operations.
We believe that existing capital and anticipated funds from operations will not be sufficient to sustain operations and planned expansion over the next twelve months. We anticipate substantial increases in our cash requirements; which will require additional capital generated from either the sale of common stock, the sale of preferred stock, or debt financing. Consequently, we will be required to seek additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities. No assurance can be made that such financing would be
We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and
rapidly evolving markets. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
Our cash, total current assets, total assets, total current liabilities, and total liabilities as of December 31, 2006, as compared to December 31, 2005 and September 30, 2006, were as follows:
December 31,
December 31,
September 30,
Cash
$
45,755
$
120,994
$
113,923
Accounts receivable
70,937
37,146
75,920
Prepaid expenses
24,565
19,623
23,391
Total current assets
141,257
177,763
213,234
Total assets
147,901
187,826
220,429
Total current liabilities
615,656
903,960
838,982
Total liabilities
1,049,768
1,131,640
1,103,888
Cash Requirements
As of December 31, 2006, we had a working deficit of $474,399. Our cash obligations are anticipated to increase substantially over the next 12 months. The cash would be utilized for operational expenses and general working capital. Funds will also be utilized for continued legal and professional fees as a result of continuing litigation and reserve or deposit requirements which are a result of our administrative support business of Enstruxis. We intend for these funding requirements to be fulfilled through either equity or debt financing.
Sources and Uses of Cash
Operations
Net cash provided by and (used in) operating activities for the twelve months ended December 31, 2006 and 2005 were $(319,324) and $(25,131), respectively. For the twelve months ended December 31, 2006, the net loss of $411,138 was offset by deferred compensation, provision for bad debt, and depreciation of $245,000, $13,500, and $3,228 respectively. However net cash flow used in operating activities increased due to a decrease in Accounts payable/ accrued expenses, and deferred revenue of $105,070, and $12,802, respectively. There were also increases in accounts receivable, other receivables, and prepaid expenses/other assets of $39,975, $1,994, and $12,258, respectively.
Investing
Net cash provided by investing activities for the twelve months ended December 31, 2006 and 2005 was zero, and $350 respectively.
Financing
Net cash provided and (used in) financing activities for the twelve months ended December 31, 2006 and 2005, were $244,085 and $29,639, respectively. For the twelve months ended December 31, 2006, the net cash provided was from proceeds from the exercise stock warrants and proceeds from sale of stock of $500 and $250,000, respectively. This was slightly offset by repayment to related parties of $4,000 and repurchase of common stock of $2,415.
Debt Instruments, Guarantees, and Related Covenants
Our debt instruments primarily consist of note and loan payables detailed in Note 6 of our financial statements. In addition guarantees are entered into from time to time but no liabilities have been recorded for these obligations on our balance sheet as of December 31, 2006.
Critical Accounting Policies
Our accounting policies are fully described in Note 2 to our consolidated financial statements. The following describes the general application of accounting principles that impact our consolidated financial statements.
Our results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debt, inventories, investments, intangible assets, income taxes, financing operations, and contingencies and litigation.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Accounts Receivable. We review our outstanding receivables and make judgments on their collectibles based on per client assessment of risk. Allowances are made when collection becomes doubtful and provisions are made during periodic review of all outstanding invoices.
Revenue Recognition. Our primary source of revenue comes from services rendered in our subsidiary Enstruxis, Inc. We recognize revenue based on gross payroll, payroll taxes, workers compensation, benefits, administrative and delivery fees from our clients. Any income received prior to a payroll date is classified as deferred revenue. In addition we recognize all amounts as a principal in consideration of the fact that we are at risk for payment of all direct costs as a co-employer whether or not our clients pay timely or at all.
Income Taxes. Our income tax expense involve using the deferred tax assets and liabilities included on the balance sheet. These tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities.
Property and Equipment. We value our property and Equipment at cost and follow the depreciation straight-line method of 3 to 5 years for computer, software, and office equipment, and 5 to 7 years for furniture and fixtures. All maintenance and repair costs are expensed as incurred.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is deemed by our management to be material to investors.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since we have very few assets and only one eligible portfolio company, there is no quantitative information, as of the end of December 31, 2006, about market risk that has any impact on our present business. Once we begin making investments in eligible portfolio companies we anticipate there will be market risk sensitive instruments and we will disclose the applicable market risk information at that time.
Our primary financial instruments are cash in banks and money market instruments. We do not believe that these instruments are subject to material potential near-term losses in future earnings from reasonably possible near-term changes in market rates or prices. We do not have derivative financial instruments for speculative or trading purposes. We are not currently exposed to any material currency exchange risk.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants
Consolidated Balance Sheet as of December 31, 2006 and 2005 		
Consolidated Statement of Operations for the fiscal year ended December 31, 2006, 2005 and 2004
Statement of Changes in Stockholders’ Equity for the fiscal ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2006, 2005 and 2004
Notes to Financial Statements
-
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no events required to be reported by this Item 9.
ITEM 9A
ITEM 9A - CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this annual report (the “Evaluation Date”), have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the Evaluation Date.
ITEM 9B
ITEM 9B - OTHER INFORMATION
All information required to be filed on a Form 8-K during the three months ended December 31, 2006 was filed with the Commission on a Form 8-K.
PART III
ITEM 10
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNACE
The following table sets forth the names and ages of the current directors and executive officers of the Company, the principal offices and positions with the Company held by each person and the date such person became a director or executive officer of the Company. The executive officers of the Company are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers.
Name
Age
Position(s)
Scott Absher
Chief Executive Officer and Director (2004)
George LeFevre
Chief Financial Officer, Secretary, and Director (2004)
Mark Absher
Director
Richard Granieri
Director
Patrick Shane
Director
Scott Absher has served as a director and our Chief Executive Officer since our reverse merger with EnStruxis in February 2004. Since December 2000, Mr. Absher has also been a co-founder and Managing Partner of NeoTactix, a company focused on mergers, acquisitions, and structural guidance for small public companies. From 1993 to1997, Mr. Absher was the President of Management Resources, a company that specialized in business process outsourcing, including human resources services. Mr. Absher is a graduate of The Moody Bible Institute in Chicago, Illinois.
George LeFevre has served as a director, our Chief Financial Officer and Secretary since our reverse merger with EnStruxis in February 2004. In 2005, Mr. LeFevre was hired as Chief Executive Officer of MotivNation, Inc., a company that specializes in the specialty automotive industry. Mr. LeFevre is also a co-founder of NeoTactix, a company focused on mergers, acquisitions, and structural guidance for small public companies. From 1998 to 2000, Mr. LeFevre assisted with the formation and funding of PTM Molecular Biosystems. He was the Chief of Finance and key officer for strategic business ventures. Mr. LeFevre received a Bachelor of Science in Business Administration Finance from California State University, Long Beach.
Mark Absher has served as our director since January 24, 2006. Mr. Absher is currently working for LifeWay Christian Resources as their Staff Attorney. From 1997 to 2004, Mr. Absher served as Corporate Counsel for The National Community Foundation based in Brentwood, Tennessee. From 1990 to 1996, Mr. Absher served as Corporate Counsel for TTC Illinois which provided management support services to the transportation industry. Mr. Absher
holds an undergraduate Bachelor of Arts degree and a Juris Doctorate Degree from The John Marshall Law School in Chicago. Mr. Absher is a former law clerk for the Illinois Appellate Court and for the 7th Circuit Federal bankruptcy court in Chicago.
Richard Granieri has served as our director since February 21, 2006. Mr. Granieri is an Independent Business Consultant for private and public companies. Mr. Granieri has an extensive background with communications and marketing to the financial community. Mr. Granieri has held a series 6, 7, and 24 licenses and managed investment portfolios with Schneider Securities. He has managed retail brokerage office, investor relations, private placements and investment banking activities. Mr. Granieri attended Cal Poly San Luis Obispo majoring in Engineering.
Patrick Shane has served as our director since February 21, 2006. Mr. Shane has worked in business finance for over 25 years with a focus on corporate finance, advising small and micro-cap companies on the U.S. public financial markets for the last 15 years. His professional network extends through Europe and Asia and produces significant merger and investment opportunities for U.S. clients. Mr. Shane has established an extensive network within the investment banking community, including a broad range of institutional funds. Prior to specializing in the equities market, Mr. Shane served as a senior financial and marketing executive with ASCAP, the world’s largest music performing rights organization. Mr. Shane holds a B.S. degree in Finance from the University of Central Florida, Orlando.
Audit Committee
We presently do not have an audit committee of the Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10 percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10 percent shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, none of the required parties are delinquent in their 16(a) filings.
Code of Ethics
We have not adopted a written code of ethics, primarily because we believe and understand that our officers and directors adhere to and follow ethical standards without the necessity of a written policy.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
The following tables set forth certain information about compensation paid, earned or accrued for services by (i) our Chief Executive Officer and (ii) all other executive officers who earned in excess of $100,000 in the fiscal year ended December 31, 2006 (“Named Executive Officers”):
Name and
Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($) *
Option Awards
($) *
Non-Equity Incentive Plan Compensation ($)
Nonqualified Deferred Compensation ($)
All Other
Compensation
($)
Total
($)
Scott Absher (1)(2)
$60,000
$60,000
Director and CEO
$155,000
$155,000
George LeFevre (1)(2)
$18,500
$18,500
Director, CFO, Secretary
$142,500
$142,500
*
Based upon the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“FAS”) No. 123R, Share Based Payment. Our policy and assumptions made in valuation of share based payments are contained in Note 2 to our December 31, 2006 financial statements.
(1)
There was no compensation for any officers or directors for the year ending December 31, 2004.
(2)
Amounts stated were the combined amounts of actual cash received and salaries accrued for that year. The following are the accrued salaries:
a.
Scott Absher
i.
(2005): $120,000 in accrued salary, which was later settled in exchange for 6,000,000 shares of our common stock at a discounted rate of $0.01 per share.
ii.
(2006): There were no accrued salaries
b.
George LeFevre
i.
(2005): $120,000 in accrued salary, which was later settled in exchange for 6,000,000 shares of our common stock at a discounted rate of $0.01 per share.
ii.
(2006): There were no accrued salaries.
Employment Contracts
We currently do not have any employment agreements with our officers.
Other Compensation
There are no annuity, pension or retirement benefits proposed to be paid to our officers, directors, or employees in the event of retirement at normal retirement date as there was no existing plan as of December 31, 2006, provided for or contributed to by us.
Director Compensation
Name
Fees Earned or Paid in Cash
($)
Stock Awards
($) *
Option Awards
($) *
Non-Equity Incentive Plan Compensation
($)
Nonqualified Deferred Compensation Earnings
($)
All Other Compensation
($)
Total
($)
Scott Absher
George LeFevre
Mark Absher
Richard Granieri
Patrick Shane
*
Based upon the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“FAS”) No. 123R, Share Based Payment. Our policy and assumptions made in valuation of share based payments are contained in Note 2 to our December 31, 2006 financial statements.
The compensation of each of our directors is fully furnished in the Summary Compensation Table above.
Directors of the Company who are also employees do not receive cash compensation for their services as directors or members of the committees of the board of directors. All directors may be reimbursed for their reasonable expenses incurred in connection with attending meetings of the board of directors or management committees. In addition, we intend to issue to any new directors options to purchase 500,000 shares of our common stock at an exercise price and terms to be determined.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information concerning outstanding stock awards held by the Named Executive Officers as of December 31, 2006:
Option Awards
Stock Awards
Name
Number of Securities Underlying Unexercised Options
(#)
Exercisable
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested
(#)
Market Value of Shares or Units of Stock That Have Not Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
Scott Absher
N/A
N/A
George LeFevre
N/A
N/A
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of March 27, 2007, certain information with respect to our equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company’s outstanding equity securities; and (iii) all Directors and Executive Officers as a group.
Name and Address (1)
Nature of Affiliation
Common Stock Ownership
Percentage of Common Stock Ownership (2)
Scott Absher
Chief Executive Officer and Director
20,450,000
35.9%
George LeFevre
Chief Financial Officer, Secretary and Director
20,450,000
35.9%
Richard Granieri
Director
65,000
<1%
Patrick Shane
Director
0%
Mark Absher
Director
0%
All executive officers, directors, and beneficial owners as a group
40,965,000
71.9%
(1)
Unless stated otherwise, the address of each affiliate is 18101 Von Karman Ave., Suite 330, Irvine, California 92612.
(2)
Unless otherwise indicated, based on 56,987,865 shares of common stock issued and outstanding. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
The issuer is not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the issuer, other than as set forth above. The issuer is not aware of any person who controls the issuer as specified in section 2(a)(1) of the Investment Company Act of 1940. There are no classes of stock other than common stock issued or outstanding. Other than as set forth herein, there are no options, warrants, or other rights to acquire common stock outstanding. We do not have an investment advisor.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
NeoTactix, Inc. Consulting Agreement
On April 20, 2004, we entered into a Business Consulting Agreement with NeoTactix (NTX) pursuant to which Neotactix agreed to provide certain business consulting services, in exchange for 4,900,000 shares of our common stock. The Company and NTX agreed that the compensation shares issued by us to affiliates of NTX shall be cancelled and returned to us if, prior to October 31, 2005, NTX had not achieved certain benchmarks pursuant to the agreement. On October 5, 2005, our Board of Directors extended the agreement for one year to commence on October 31, 2006.
On August 26, 2004, our Board elected both managing partners of NeoTactix, Scott Absher and George LeFevre, to our Board of Directors. In addition, our board of directors elected Scott Absher as our CEO, and George LeFevre as our CFO and Secretary. The original agreement with NeoTactix still stands and will be reviewed as of the expiration date.
On October 5, 2005, our Board approved a one year extension to the consulting agreement to expire December 31, 2006. We wrote-down the deferred consulting services, offset against additional paid in capital, to $245,000 or $0.05 per share which was the closing market price on October 5, 2005. As of December 31, 2005, none of the benchmarks had occurred. The services were deferred until performance committed.
On October 20, 2006, our Board approved an amendment to the Business Consulting Agreement dated April 20, 2004. According to the amended agreement, NeoTactix was deemed to have fully performed all services required of it, in consideration of same. We expensed previously deferred consulting and compensation fees in full.
Scott Absher and George LeFevre
In December 2002, Scott Absher (CEO) and George LeFevre (CFO) loaned us $84,475 for start up capital. This note vested on December 31, 2006 and is anticipated to be restructured.
On July 18, 2006, Scott Absher and George LeFevre each agreed to assume half of the total legal fees payable to the attorney for the total amount of $170,432. The amounts were converted into notes payable accruing interest at 8% per annum, due on December 17, 2007.
Richard McKinley (former officer)
On May 23, 2005, a $350,000 note was made concerning a settlement agreement reached between us and Richard McKinley. The note was to be paid over thirty-six (36) months with the first payment occurring on June 1, 2005, and without any interest accrued to the unpaid balance, and was to be secured by personal promissory note by both Scott Absher and George Lefevre.
On June 6, 2006, we filed a lawsuit against one of our former officers for breach of contract on a settlement agreement signed May 23, 2005. As of December 31, 2006, this matter remains in motion with the Orange County Courts. We are holding any payments due to the same officer on a prior settlement agreement, due to the breach of the contract.
MotivNation Inc.
We provides structural support services for MotivNation, Inc., which George Lefevre serves as a Director and CEO. In addition Jay Isco is the CFO of MotivNation, and participates as a part-time employee of ours.
Richardson and Patel
On July 18, 2006, Richardson and Patel, our former attorney, agreed to cancel 1,000,000 shares of the retaining 2,000,000 shares to us (see note 20 in the financial statements).
ITEM 14
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
During the fiscal years ended December 31, 2006 and 2005, Spector & Wong, LLP billed us $33,000 and $33,000, respectively, in fees for professional services for the audit of our annual financial statements and review of financial statements included in our Forms 10-K and 10-Q.
Audit - Related Fees
During the fiscal years ended December 31, 2006 and 2005, Spector & Wong, LLP billed us $zero and $zero, respectively, in fees for assurance and related services related to the performance of the audit and review of our financial statements.
Tax Fees
During the fiscal years ended December 31, 2006 and 2005, Spector & Wong, LLP billed us $2,000 and $5,500 respectively, in fees for professional services for tax planning and preparation.
All Other Fees
During the fiscal years ended December 31, 2006 and 2005, Spector & Wong, LLP did not bill us for any other fees.
PART IV
ITEM 15
ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following financial statements are filed as part of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheet as of December 31, 2006 and 2005 		
Consolidated Statement of Operations for the fiscal year ended December 31, 2006, 2005 and 2004
Statement of Changes in Stockholders’ Equity for the fiscal ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2006, 2005 and 2004
Notes to Financial Statements
-
(a)(2)
Financial Statement Schedules
We do not have any financial statement schedules required to be supplied under this Item.
3.1 (1)
Articles of Incorporation
3.2 (1)
Articles of Amendment dated September 17, 1984
3.3 (1)
Restated Articles of Incorporation dated August 7, 1986
3.4 (1)
Certificate of Amendment to Articles dated May 26, 1990
3.5 (2)
Amendment to Articles of Incorporation changing name to Entremetrix Corporation dated May 6, 2004
3.6 (1)
Bylaws
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1
Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1)
Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 10-SB12G filed on August 21, 2001.
(2)
Incorporated by reference from Exhibit 3.5 to the issuer’s Quarterly Report on Form 10-Q filed on May 22, 2006.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Entremetrix Corporation
Dated: April 17, 2007
/s/ Scott Absher 		
By: Scott Absher 		
Its: 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.
Dated: April 17, 2007
/s/ Scott Absher 		
By: Scott Absher, Chief Executive
Officer and Director
Dated: April 17, 2007
/s/ George LeFevre 		
By: George LeFevre, Chief Financial Officer, 		
Secretary and Director
Dated: April 17, 2007
/s/ Mark Absher 		
By: Mark Absher, Director
Dated: April 17, 2007
/s/Richard Granieri 		
By: Richard Granieri, Director
Dated: April 17, 2007
/s/ Patrick Shane 		
By: Patrick Shane, Director
HAROLD Y. SPECTOR, CPA
SPECTOR & WONG, LLP
80 SOUTH LAKE AVENUE
CAROL S. WONG, CPA
Certified Public Accountants
SUITE 723
(888) 584-5577
PASADENA, CA 91101
FAX (626) 584-6447
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of EntreMetrix Corporation
We have audited the accompanying consolidated balance sheets of EntreMetrix Corporation (formerly known as Missouri River and Gold Gem Corp.) as of December 31, 2006, and 2005, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2006, 2005 and 2004. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positions of EntreMetrix Corporation as of December 31, 2006, and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006, 2005, and 2004 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company's operating losses and working capital deficiency raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Spector & Wong, LLP
Pasadena, California
April 5, 2007
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
CONSOLIDATED BALANCE SHEETS
As of December 31, 2006, and 2005
See notes to consolidated financial statements
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
Revenues
$ 6,202,040
$ 7,642,216
$ 10,614,729
Cost and Expenses
Cost of revenue
5,892,912
7,171,067
9,785,957
Selling, general and administrative expenses
677,697
856,950
1,096,520
6,570,609
8,028,017
10,882,477
Operating loss
(368,569)
(385,801)
(267,748)
Other Income (Expenses):
Interest and Other Income
46,073
Embezzlement loss
-
-
(5,423)
Interest and Other Expenses
(41,972)
(250,605)
(36,168)
Total Other Income (Expenses)
(41,769)
(204,532)
(41,445)
Net loss before Income Taxes
(410,338)
(590,333)
(309,193)
Provision for Taxes
Net Loss
$ (411,138)
$ (591,133)
$ (309,993)
Net loss per share, Basic and Diluted
$ (0.01)
$ (0.01)
$ (0.01)
Weighted Average Number of Shares
57,487,865
54,155,581
30,406,832
See notes to consolidated financial statements
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For years ended December 31, 2006, 2005, and 2004
See notes to consolidated financial statements
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss
$ (411,138)
$ (591,133)
$ (309,993)
Adjustments to reoncile net loss to net cash used in
operating activities:
Depreciation and amortization
3,228
11,456
7,309
Provision for bad debt
13,500
-
-
Issuance of stocks for services
-
240,000
140,000
Issuance of warrants for debt
-
41,802
-
Amortization of deferred compensation
-
10,508
-
Gain on disposal of property and equipment
-
(126)
-
Wrote-off property and equipment
-
-
35,071
Deferred compensation
245,000
-
-
(Increase) Decrease in:
Accounts receivable
(39,975)
(27,150)
40,157
Other receivable
(1,994)
Prepaid expenses and other assets
(12,258)
18,398
17,203
Deposits
2,185
-
-
Increase (Decrease) in:
Accounts payable and accrued expenses
(105,070)
258,312
52,710
Deferred revenue
(12,802)
12,802
(12,580)
Net Cash Flows Used in Operating Activities
(319,324)
(25,131)
(30,123)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment
-
-
(8,674)
Proceeds from disposal of property and equipment
-
-
Cash Increase due to reverse acquisition by Entremetrix
-
-
19,171
Net Cash Flows Provided by Investing Activities
-
10,497
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment to related parties
(4,000)
(81,611)
-
Proceeds from exercising stock warrants
-
-
Proceeds from sale of stock
250,000
Repurchase of common stock
(2,415)
(13,750)
-
Net proceeds from notes payable to related parties
-
124,000
76,574
Net Cash Provided by Financing Activities
244,085
28,639
76,574
NET INCREASE (DECREASE) IN CASH
(75,239)
3,858
56,948
CASH AT BEGINNING OF YEAR
120,994
117,136
60,188
CASH AT END OF YEAR
$ 45,755
$ 120,994
$ 117,136
Supplemental Disclosure of Cash Flow Information:
Interest paid
$ 14,880
$ 9,885
$ 22,731
Taxes paid
$ -
$ 1,600
$ -
Noncash Investment and Financing Activities:
Assumption of accounts payable by related parties
$ 170,432
$ -
$ -
Addition of debt to retire common shares and accrued interest
$ -
$ 191,988
$ -
Common stock to be retired for non-vesting deferred bonuses
$ -
$ 69,492
$ -
Write-down deferred consulting services
$ -
$ 1,225,000
$ -
Issuance of common shares for deferred consulting services
$ -
$ -
$ 1,470,000
Issuance of common shares for deferred bonuses
$ -
$ -
$ 80,000
Conversion of accrued expenses into notes payable
$ -
$ -
$ 5,064
Issuance of common shares for reverse merger
$ -
$ -
$ 23,174
See notes to consolidated financial statements
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
EntreMetrix Corporation, (“EntreMetrix”) was incorporated in the state of Nevada on July 17, 2002. Entremetrix is a Business Development Corporation (BDC) focusing on the development of opportunities to invest in eligible portfolio companies providing early stage capital, strategic guidance and operational support. EntreMetrix also provides human resource management services including payroll processing, workers compensation and payroll tax filings for small to medium size business.
On February 25, 2004, EntreMetrix entered into a Stock Purchase Agreement with Missouri River and Gold Germ Corp (“MRGG”). It is agreed that MRGG will issue to the shareholder of EntreMetrix 19,752,460 shares of common stock of MRGG in exchange of 100% of the registered and fully paid up capital of EntreMetrix. The closing date of this exchange transaction was March 8, 2004.
As a result of the acquisition, the former shareholder of EntreMetrix holds a majority interest (80%) in the combined entity (“the Company”). Generally accepted accounting principles require in certain circumstances that a company whose stockholders retain the majority voting interest in the combined business to be treated as the acquirer for financial reporting purposes. Accordingly, the acquisition has been accounted for as a “reverse acquisition” whereby EntreMetrix is deemed to have purchased MRGG. However, MRGG remains the legal entity and the Registrant for Securities and Exchange Commission (SEC) reporting purposes. The historical financial statements prior to March 8, 2004 are those of EntreMetrix. All shares and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of EntreMetrix. After acquiring, the Company changed its name to EntreMetrix Corporation.
On March 7, 2006 the Company filed form N-54A with the SEC to become a Business Development Company (“BDC”) pursuant to section 54 of the Investment Company Act of 1940. The Company’s election provides a platform for the Company to assist eligible, smaller companies, selected by the Company, with guidance, counselling, and financial assistance to help those companies execute their business plans.
EntreMetrix plans to use its Business Development Corporation status to aid its eligible portfolio companies with early stage capital, strategic guidance and operation support. EntreMetrix intends to use its status as a Business Development Company to bring its support and experience for small businesses full circle. The Company plans to leverage its support tools and services to cultivate and support a number of portfolio investment scenarios which they expect to increase the Company’s net asset value. The Company further intends to accelerate its Business Development platform by using its expertise in capital formation, strategic growth and pubic market entry to benefit its eligible portfolio companies.
The Company will also leverage its expertise to provide a unique advantage to its eligible portfolio companies, including the possibility of creating a liquid for the companies’ securities. In the development of liquidity opportunities with its eligible portfolio companies EntreMetrix plans to forge shareholder participation in the investment and transaction flow through the
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
distribution of equity to its shareholders for any of the transactions that result in the creation of a liquid market for eligible portfolio companies’ securities. The Company’s plan includes equity distribution of each portfolio company to EntreMetrix shareholders of record at the time of a public market entry of the Company’s portfolio investments.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
Principle of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of EntreMetrix Corporation and its subsidiaries after elimination of all intercompany accounts and transactions. Certain prior period balances have been reclassified to conform to the current period presentation.
Use of estimates The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates.
Revenue Recognition The Company recognizes revenue when service is rendered, providing that collectibility is reasonably assured. Revenue consists primarily of gross payroll, payroll taxes, workers compensation, benefits, administrative fees and delivery fees. Amounts received prior to the payroll service date are classified as deferred revenue.
In accordance with Emerging Issues Task Force (EITF) Issue No. 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent," the Company recognizes all amounts billed to its BPO as gross revenue because the Company is at risk for the payment of its direct costs, whether or not the Company's customers pay the Company on a timely basis or at all, and the Company assumes a significant amount of other risks and liabilities as a co-employer of its worksite employees, and employer of its temporary employees, and therefore, is deemed to be a principal in regard to these services.
Allowance for Doubtful Accounts Management of the Company makes judgments as to its ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all outstanding invoices. Bad debt expense for the years ended December 31, 2006 and 2005 are $13,500 and $17,809, respectively.
Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments The carrying amounts of the financial instruments have been estimated by management to approximate fair value.
Property and Equipment Property and Equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Depreciation is computed on the straight-line method
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on the following estimated useful lives of the assets: 3 to 5 years for computer, software and office equipment, and 5 to 7 years for furniture and fixtures.
Income Taxes: Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.
Effective January 1, 2003, the Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company has no federal income tax liability. Instead, the stockholder is liable for individual income taxes on the respective share of the Company’s taxable income.
The S-corporation election was terminated upon the reverse merger disclosed in Note 19.
Net Loss Per Share Basic net loss per share includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted net loss per share does not differ from basic net loss per share since potential shares of common stock are anti-dilutive for all periods presented. Potential shares consist of stock warrants.
New Accounting Standards: In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation 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. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of FIN 48 to have a material impact on its consolidated financial statements.
In September 2006, the FASB issued Financial Accounting Standards (“FAS”) No. 157, Fair Value Measurements. FAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of the statement will change current practice. FAS No. 157 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the impact of this standard.
In September 2006, the Securities and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin No. 108 ("SAB 108"), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. The stated purpose of SAB 108 is to provide consistency between how registrants quantify financial statement misstatements.
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to the issuance of SAB 108, there have been two widely-used methods, known as the "roll-over" and "iron curtain" methods, of quantifying the effects of financial statement misstatements. The roll-over method quantifies the amount by which the current year income statement is misstated while the iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Neither of these methods considers the impact of misstatements on the financial statements as a whole.
SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of the Company's financial statements and the related financial statement disclosures. This approach is referred to as the "dual approach" as it requires quantification of errors under both the roll-over and iron curtain methods.
SAB 108 allows registrants to initially apply the dual approach by either retroactively adjusting prior financial statements as if the dual approach had always been used, or by recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of January 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.
The Company will initially apply SAB 108 using the cumulative effect transition method in connection with the preparation of the annual financial statements for the year ending December 31, 2006. The Company does not believe the adoption of SAB 108 will have a significant effect on its consolidated financial statements.
The FASB has also issued FAS 155, Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140, FAS 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140, and FAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, but they will not be applicable to the current operations of the Company. Therefore a description and the impact on the Company’s operations and financial position for each of the pronouncements above have not been disclosed.
NOTE 3 - GOING CONCERN
The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses and may have insufficient funds to grow its business in the future. The Company can give no assurance that it will achieve profitability or be capable of sustaining profitable operations. As a result, operations in the near future are expected to continue to use working capital.
Management of the Company is actively increasing marketing efforts to increase revenues. The ability of the Company to continue as a going concern is dependent on its ability to meet its
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
financing arrangement and the success of its future operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
On May 26, 2006, the Company filed an Offering Circular with the SEC to sell up to $5 million of the Company’s common stock. As of December 31, 2006, the Company sold 1 million shares for a total consideration of $250,000.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2006, and 2005 consisted of the following:
NOTE 5 - OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 2006, and 2005 consisted of the following:
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE TO RELATED PARTIES
Notes Payable to related parties at December 31, 2006, and 2005 consists of the following:
a.
The Company is negotiating with the related parties for the payment.
b. On July 18, 2006, a former attorney of the Company agreed to cancel 1,000,000 shares of the retaining 2,000,000 shares to the Company (see note 20). The CEO and the CFO of the Company each agreed to assume half of the total legal fees payable to the attorney for the total amount of $170,432. The amounts were converted into notes payable accruing interest at 8% per annum, due on December 17, 2007.
c. On May 20, 2005, the Company entered into a Bridge Loan Agreement with Infinity Capital Partners, LLC (“ICP”, a related party), to borrow funds up to $250,000 with the interest payable monthly at 12% per annum and due on December 15, 2005. The Company did not fulfill the payment on December 15, 2005; as a result, a new agreement was made between the parties. According to the new agreement, a $10,000 penalty was incurred and added to the loan principal, and the loan will continue to bear an interest at 12% per annum on the balance through December 31, 2006. In addition, the Company also failed to raise additional $200,000 in funding from outside interest pursuant to the Agreement; the Company is contingently liable to issue 3,500,000 restricted shares to the Lender for consideration. The shares were valued at $0.04 per share on December 31, 2005, and the total amount of $140,000 was accrued and charged to interest expense. If the loan is not paid in full on or before the extended due date, an additional 10% penalty will be applied and the interest would be payable monthly. As of December 31, 2006, the 3,500,000 restricted shares had not yet been issued, and the Company is negotiating for the payment.
d.
The note is in default due to a pending litigation. (See note 17)
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS’ EQUITY
2006 Sale of Stock
On May 26, 2006, the Company filed a Form 1-E Offering Circular with the Commission to sell up to $5 million of the Company’s common stocks. The shares are without restriction legend pursuant to an exemption from registration provided by Regulation E promulgated under the Securities Act of 1933. The offering begins on June 13, 2006 and expires after one year. The offering began terminated and amended any time before the expiration date. On July 7, 2006, the Company sold an aggregate of 1 million shares to two accredited investors for aggregate consideration of $250,000.
Deferred Consulting
On April 20, 2004, the Company and NeoTactix (NTX) entered into a Business Consulting Agreement pursuant to which NeoTactix agreed to provide certain business consulting services to the Company as specified in the Agreement. In exchange for such services, the Company agreed to issue 4,900,000 shares of the Company’s common stock. The Company and NTX agree that the compensation shares issued the Company to affiliates of NTX shall be cancelled and returned to the Company if, prior to October 31, 2005, the Company has not achieved certain benchmarks pursuant to the Agreement.
On October 5, 2005, the Board approved a one year extension to the consulting agreement to expire December 31, 2006. The Company wrote-down the deferred consulting services, offset against additional paid in capital, to $245,000 or $0.05 per share which was the closing market price on October 5, 2005. As of December 31, 2005, none of the benchmarks has occurred. The services were deferred until performance committed.
On October 20, 2006, the Board approved an amendment to the Business Consulting Agreement dated April 20, 2004. According, to the amended agreement, NeoTactix was deemed to have fully performed all services required of it, in consideration of same. The Company expensed previously deferred consulting and compensation fees in full.
2004 Stock Plan
On September 16, 2004, the Board of Directors approved a 2004 Stock Plan (the Plan) pursuant to which there shall be 7,000,000 shares of common stock reserved for issuance and under which the Company may issue incentive stock options (ISO), nonqualified stock options, stock awards and stock bonuses to officers, directors and employees. The price of the options granted pursuant to the plan shall not be less than 85% of the fair market value of the shares on the date of grant. The options vest immediately and expire after ten years from the date of grant or after five years if ISO is granted. Prices for options granted to employees who own greater than 10% or more of the Company’s stock is at least 110% of the market value at date of grant. At December 31, 2006 and 2005, no stock options or awards were granted.
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Stock Bonuses
As of December 31, 2006, there were 6,949,233 shares of common stock pending to be cancelled due to non-compliance of the vesting conditions stated in the restricted stock bonus agreements dated in September 2004.
In September 2004, the Board of Directors approved the issuance of 2,000,000 unregistered shares of common stock to each of the four employees and entered into a Restricted Stock Bonus Agreement with each of these employees. Each Restricted Stock Bonus Agreement provides for certain vesting conditions, a lock-up agreement, a first refusal right of the Company with respect to certain proposed transfers, a drag-along right of the Company in connection with certain corporate transactions, and a 5-year market stand-off agreement prohibiting transfers for up to 180 days following the effective date of any registration statement of the Company. If the employee does not meet the vesting conditions pursuant to the Agreement by December 31, 2005, then a pro rata portion of the restricted shares shall be vested based on the formula provided by the Agreement. All restricted shares that do not vest as of December 31, 2005 shall be automatically rescinded and cancelled. Each employee may vote the stock received to the extent any unvested shares are rescinded and cancelled. The shares were valued $0.01 per share or $80,000 of total. As of December 31, 2005, 1,050,767 shares were vested and the Company recognized $10,508 in compensation. The balance of 6,949,233 shares in the amount of $69,492 will be rescinded and cancelled in 2007.
Shares for Debt Agreement
On April 1 and July 25, 2005, the Board of Directors of the Company ratified and approved the issuance of 6,000,000 unregistered shares of common stock to each of the Company’s CEO and CFO, and the Company entered into a shares for Debt Agreement with each of them on the same date. The consideration received by the Company consisted of $60,000 in services rendered by each of the two officers during the period from January 1, 2005 through March 31, 2005, and April 1, 2005 through June 30, 2005, respectively, and a full release from any other claims for compensation relating to such period.
On November 2, 2004, the Board of Directors approved the issuance of 6,000,000 unregistered shares of common stock to each of the officers and directors, and the Company entered into a Shares for Debt Agreement with each of them on the same date. The consideration received by the Company consisted of $60,000 in services rendered or to be rendered by each of the officers during the period from October 1, 2004 through December 31, 2004, and a full release from any other claims for compensation relating to such period.
Stock Warrants
On May 20, 2005, the Company granted warrants to a creditor to purchase up to 1,500,000 shares of the Company’s Common stock in consideration for the issuance of the debt of $114,000 disclosed in Note 6. The warrants are exercisable at $0.10 per share and expire after two years. The warrants were valued at $39,998 using the Black-Scholes option pricing model and were amortized over the term of the note.
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 30, 2005, the Company granted warrants to a related party to purchase up to 50,000 shares of the Company’s common stock pursuant to the note agreement dated December 11, 2002. The warrants were exercised in 2006 and the Company received $500 in cash. The warrants were valued and expensed at $1,804 using the Black-Scholes option price model.
Stock Repurchase
On July 8, 2005, the Board of Directors authorized the Company to repurchase up to two million of its outstanding shares of common stock from time to time over the next twelve months, depending on market conditions, share price and other factors. During the period, the Company repurchased 194,000 shares in the open market, at an average price of $0.09 per share, for total consideration of $16,165. Treasury stock is accounted for under the cost method. The stock repurchase plan expired on July 8, 2006.
NOTE 8 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share:
As the Company incurred net losses for the year ended December 31, 2006, the effect of dilutive securities totaling 442,258 equivalent shares has been excluded from the calculation of dilutive net loss per share because their effects were anti-dilutive.
As the Company incurred net loss for the year ended December 31, 2005, the effect of dilutive securities totaling 3,125 equivalent shares has been executed from the calculation of dilutive net loss per share because their effect was anti-dilutive.
The Company has no dilutive items for years ended December 31, 2004.
NOTE 9 - INCOME TAXES
Provision of income tax consists of a minimum state franchise tax of $800 for each of the year ended December 31, 2006, and 2005.
As of December 31, 2006, the Company has net operating loss carryforwards, approximately of $1,361,559 to reduce future federal and state taxable income. To the extent not utilized, the carryforwards will begin to expire through 2026 for federal tax purposes and through 2016 for state tax purposes. The Company’s ability to utilize its net operating loss carryforwards is
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
uncertain and thus a valuation reserve has been provided against the Company’s net deferred tax assets.
The deferred tax assets as of December 31, 2006, 2005, and 2004 consist of the following:
NOTE 10 - MAJOR CUSTOMERS AND BUSINESS CONCENTRATION
During the year ended December 31, 2006, three major customers accounted for $2,582,467 or 42% of total revenue.
During the year ended December 31, 2005, three major customers accounted for $3,168,470 or 41% of total revenue.
During the year ended December 31, 2004, three major customers accounted for $4,654,940 or 44% of total revenue.
The Company places its cash and cash equivalents with high quality financial institutions. At times, cash balances may be in excess of the FDIC insurance limits. Management considers the risk minimal.
NOTE 11 - LEASE COMMITTMENTS
The Company leases office facilities on a month-to-month basis. As of January 1, 2006, the Company reduced its monthly payments from $5,355 to $1,300 plus the cost of parking spaces, by leasing fewer offices in the same facility. Rent expenses for the years ended December 31, 2006, 2005, and 2004 were $21,605, $61,861, and $64,174, respectively.
NOTE 12 - SEGMENT INFORMATION
SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” requires that enterprises to disclose information about its operating segments when it presents a complete set of financial statements. Since the Company has only one segment; accordingly, detailed information of the reportable segment is not presented.
NOTE 13 - TERMINATION OF BUSINESS COMBINATION
In March 2003, the Company announced to be acquired by a subsidiary of Kaire Holding, Inc. (“Kaire”), a publicly-held company, for $2,750,000. The acquisition was reversed and unwound on February 25, 2004.
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SETTLEMENT OF ACCOUNTS RECEIVABLE
On March 9, 2004, the Company entered into an agreement with a client to purchase 4,500,000 shares of ABED common stock to satisfy a portion of the Accounts Receivable owning by the Company. The purchase price for the shares shall be the cancellation of a portion of the retained liabilities in the amount of $30,000. The transaction was cancelled in the second quarter. The Company did not receive any stocks. The account of $50,153 was written-off.
NOTE 15 - FORGIVENESS OF DEBT
During 2005, a former attorney agreed to forgive the balance of $45,884 owed by the Company. The Company included this gain in Other Income.
NOTE 16 - GUARANTEES
The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company’s businesses or assets; and (ii) certain agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising our of their employment relationship.
The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of December 31, 2006.
NOTE 17 - LEGAL PROCEEDINGS
On August 19, 2004, a civil complaint for breach of contract, declaratory relief, fraud, rescission and appointment of a receiver was filed against the Company with Superior Court of the State of California for the County of Orange. The complaint was filed by the former president of the Company who was terminated by the Board of Directors on August 3, 2004 for misappropriation of assets. The Board of Directors also cancelled the shares issued to the former president in connection with the reverse merger as disclosed in Note 4. The court denied a broad temporary restraining order, but granted a limited order. Under the limited order, the Company may not cancel the former president’s stocks, issue new stock without the Court’s consent, or incur any expenditure, liability, obligation or issue any check, draft or other instrument unless such instrument bears the signature of the former president as wells as an officer or director of the Company. The limited order has expired; the Company is allowed to issue new stock, incur any expenditure, liability, obligation or issue any check, draft or other instrument except to cancel the former president’s stocks. The Company filed a counter claim alleging that the former president had no legal right for 66% of those shares or 13,036,742 shares which would be used for future acquisitions and corporate endeavors pursuant to an oral agreement. The Company also alleged the former president for breach of fiduciary duty and misappropriation of the Company’s assets.
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 23, 2005, the Company entered into a settlement agreement with the former president and his wife to discontinue the civil complaint against the Company. The Company agreed to pay a sum of $350,000 to the former president who, in return, agreed to file a dismissal of the entire action, with prejudice, as to all defendants identified in the agreement, returned the remaining 18,652,710 shares of the Company’s common stock and all property and documents still in their control and possession, and forgave any notes and accrued interest owed by the Company to him. The settlement is payable over thirty-six (36) months with the first payment due on June 1, 2005, without any interest accrued to the unpaid balance, and secured by personal promissory note by both the CEO and the CFO of the Company. The Company also agreed to file a dismissal of the cross-complaint against the former president and his wife.
The Company accounts for these transactions using a constructive retirement approach and charged the excess of the net settlement amount over the par value to paid-in capital.
On June 6, 2006, the Company filed a lawsuit against the former officer of the Company for breach of contract on a settlement agreement signed May 23, 2005. As of December 31, 2006, this matter remains in motion with the Orange County Courts. The Company is holding any payments due to the same officer on a prior settlement agreement, due to the breach of the contract.
NOTE 18 - RISK MANAGEMENT
The Company is expected to various risks of loss related torts; theft of, damage to and destruction of assets, error and omissions and natural disasters for which EntreMetrix does not renew its commercial insurance in 2006.
NOTE 19 - ACQUISITION
Pursuant to terms of a Stock Purchase Agreement dated February 25, 2004, the Company purchased all of the issued and outstanding shares of EntreMetrix in consideration for the issuance of 19,752,460 shares of the Company’s common stock to the shareholder of EntreMetrix.
The acquisition is a reverse takeover transaction whereby EntreMetrix is identified as the acquirer (accounting parent) of EntreMetrix Corporation. The purchase price of EntreMetrix Corporation is assumed to be equal to its book value and no goodwill is recorded on the
ENTREMETRIX CORPORATION (FKA MISSOURI RIVER AND GOLD GEM CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transaction. The amount ascribed to the shares issued to the shareholder of EntreMetrix represents the net book value of MRGG at date of closing March 8, 2004.
Details of the net liabilities acquired at book value at the acquisition dates are as follows:
Current assets
$ 19,171
Less: Liabilities
-
$ 19.171
Supplemental Information for EntreMetrix Inc. (Formerly known as Missouri River and Gold Gem Corp):
Summary Balance Sheets
Stockholders’ Equity
Summary Statements of Operations
NOTE 20 - SUBSEQUENT EVENT
The Company cancelled 1,000,000 shares of common stock in connection with the settlement of all claims and disputes with and the former attorney.