Item 1. Description of Business
Company Overview
Since January of 2005, we have operated an Internet based publishing platform designed to compile, catalogue, distribute and make functional, financial content and data related to that content. Due to certain regulatory changes in the securities and financial industries following the Sarbanes-Oxley Act of 2002, as well as the most recent global financial crisis, our ability to find paying customers for our services has been severely challenged, and in spite of our best efforts, it would not be a misstatement to describe the AudioStocks.com business as a failed enterprise.
With the above in mind, in calendar year 2008, particularly in the latter half of the year, we underwent numerous changes, not the least of which was completely divesting ourselves of the Audiostocks.com business.
The presentation below will discuss (i) in brief, AudioStocks.com, as a legacy operation, (ii) the transaction which effected our divestiture of the AudioStocks.com business and (iii) our present operations, which are based exclusively on the StockVert.com vertical search engine platform.
In addition, as we discuss further below, we are devoting a considerable amount of effort to finding qualified business candidates to merge with or to otherwise acquire. We believe this strategy will bring more value to our shareholders than simply continuing in the same direction we have been over the past few years.
It is critical that anyone who has any interest in (i) our present business, (ii) the likelihood of our success with our present business and operational plan or (iii) the success of any succeeding enterprise should we be able to execute on our plan to find candidates to merge with or acquire (as described below) carefully read this Form 10-K Report (the “Report”) and all of the disclosures and Exhibits referred to and described herein.
Our present corporate headquarters are located at 2038 Corte Del Nogal, Suite 110, Carlsbad, California 92011. Our telephone number at our corporate head office is (760) 804-8844.
Corporate History
We were originally incorporated under the laws of the State of Delaware on January 22, 2002, as Jupiter Processing Inc. On January 13, 2005, we changed our name to Audiostocks, Inc. Our fiscal year end is December 31.
Legacy Business: AudioStock.com
Audiostocks.com was designed to be a financial media and technology company for publicly traded small and micro capitalization companies, providing the latest fact-based information to current and prospective shareholders. Audiostocks.com content was to be made available online to individuals, financial professionals, investment research professionals and portfolio managers. All recipients of Audiostocks content received Audiostocks content because they filled out a user request form and requested to receive Audiostocks content. Audiostocks.com never offered investment advice, nor was Audiostocks.com a broker or dealer in securities. All information posted on the Audistocks.com website was provided by the client companies or was originated by Audiostocks.com in direct cooperation with a client company, approved by the client company before posting.
Due to certain regulatory changes in the securities and financial industries following the Sarbanes-Oxley Act of 2002, as well as the most recent global financial crisis, our ability to find customers for our services has been severely challenged, and in spite of our best efforts, it would not be a misstatement to describe the AudioStocks.com business as a failed enterprise.
Sale of the Audiostocks.com Business
In the third calendar quarter of 2008, we concluded that the Audiostocks.com business was underperforming and that our efforts would be better focused on adopting a new strategy - to develop our StockVert.com business and to aggressively seek business candidates to acquire or merge with.
With respect to the merger or acquisition candidates we are pursuing, while we would prefer that they be in a business which is related to the business we are presently focused on, we will certainly consider candidates in other fields, particularly if they historically, or are highly likely to in the future: (i) consistently generate revenues or (ii) consistently generate profits; or (iii) are in a business which is related to new US national government priorities such as alternative fuels, alternative energy, nanotechnology or biotechnology.
Beginning September 1, 2008, we commenced a radical re-structuring process and the below narrative, the balance of the Form 10-K Report and the attached and incorporated disclosures describe our progress thus far:
The Asset Sale Transaction and Related Transactions
On September 30, 2008, because of the failure of our AudioStocks.com business, including the fact that our liabilities exceeded our existing and potential future asset value, we entered into a transaction (the “Asset Sale Transaction”) to begin to execute our restructuring strategy. The Asset Sale Transaction, along with certain related transactions, was described in our Form 10-Q, filed with the SEC on the 19th of November 2008 and in a subsequently filed Form 8-K, filed on January 21, 2009. The underlying documents related to these transactions were filed as Exhibits in the Form 10-Q, filed with the SEC on the 19th of November 2008 and in a subsequently filed Form 8-K, filed on January 21, 2009.
On September 30, 2008 we entered into an asset sale agreement with Dao Information Systems, Inc. (“Dao”). Dao purchased all assets associated with our Audiostocks.com business division (the “AudioStocks Business”) which included the existing licensing rights and all interests associated with the Audiostocks Business and related software. As consideration for the sale of our AudioStocks Business, we sold certain liabilities and receivables associated with the AudioStocks Business to Dao. We also agreed to sell our rights to the proceeds from the eventual sale of certain shares of stock held by us related to the AudioStocks Business division (the “AudioStocks Shares”). Pursuant to the terms of the Asset Sale Transaction, the proceeds from the eventual sale of the AudioStocks Shares were to be used by Dao to pay down liabilities assigned to Dao in the Asset Sale Transaction.
Dao is 100% owned by Dao Information Systems, LLC whose managing member and 60% owner is Luis Leung, the president of Audiostocks, Inc.
As a part of the transaction related to the sale of the AudioStocks Business, we executed a License Consent Agreement (the “LCA”) with BCGU, LLC (“BCGU”). The LCA was attached as Exhibit 10.1 to a Form 8-K filed with the SEC on January 21, 2009.
On September 30, 2008, we entered into settlement agreements with four consultants for the final settlement of certain liabilities related to past software development services (the “Software Settlement Agreements” (the first two of which were attached as Exhibits in a Form 10-Q filed for the period ended September 30, 2008 and the third and fourth are attached hereto as Exhibits 11.1.1 and 11.1.2)) related to the AudioStocks Business. Pursuant to the terms of the Software Settlement Agreements, we agreed to issue a total of 92,687 shares of our restricted common stock as a final settlement of all amounts claimed to be due and owing pursuant to the past software development services for the AudioStocks Business.
On September 30, 2008, we entered into settlement agreements with two separate investors (the “Investors Settlement Agreements”) for the final settlement of certain liabilities related to existing convertible promissory notes totaling $22,500 (the “Investor Notes”) and warrants to purchase up to a total of 30,001 shares of our common stock (the “Investor Warrants”). Pursuant to the terms of the Investor Settlement Agreements (see Exhibit 10.5 in our Form 10-Q filed for the period ended September 30, 2008), we agreed to issue a total of 30,001 shares of our restricted common stock as a final settlement of all amounts claimed to be due and owing pursuant to Investor Notes and Investor Warrants. No Investor Notes and Investor Warrants remain issued or outstanding at this time.
On September 30, 2008, we entered into a settlement agreement with our president, Luis J. Leung, for the settlement of $94,010 related to salary currently owed to Mr. Leung (the “Employee Settlement Agreement,” attached as Exhibit 10.6 to our Form 10-Q for the period ended September 30, 2008). Pursuant to the terms of the Employee Settlement Agreement, we agreed to issue a total of 1,750,309 shares of our restricted common stock as a final settlement of such amount owed pursuant to Mr. Leung’s employment agreement. Due to the issuance of stock the company incurred an additional stock based compensation expense of $1,218,722.
On October 1, 2008, we entered into a second agreement with Mr. Leung which was an omnibus settlement agreement of all liabilities owed to him by the Company. We have attached this agreement as Exhibit 11.1.3 to this Form 10-K Report.
On November 25, 2008, we executed a First Amended Licensing Consent Agreement which amended LCA and provided consideration to BCGU in the form of the Company’s Preferred Series A and Preferred Series B shares. The Preferred Series A and B shares were previously designated with the State of Nevada on July 1, 2007, and until the November 25, 2008 transaction with BCGU, none of our Preferred Series A and B shares had been validly issued. The designation of the Company’s Preferred Series A and B stock was previously described in Exhibit 3.1.3 in the Company’s Form 10-Q filing, filed with the SEC on November 14, 2007. The Preferred Series A shares provide the holder of the same with certain voting rights, among other rights, that may equal, when cast, a majority of the votes which could be cast at a meeting of the Company’s shareholders. The Preferred Series A are convertible on a one-for-one basis into our common stock, at the option of the holder. The Preferred Series B shares provide the holder with a significant dividend right, among other rights, which in the case of the issuance related to the execution of the First Amended License Consent Agreement, was designed to equal the percentage due to BCGU from revenues the Company generated from assets BCGU had licensed to the Company and which were being assigned to Dao Information Systems, Inc. under the First Amended License Consent Agreement.
On November 30, 2008 we again amended the LCA, including the First Amended Licensing Consent Agreement, and entered into a Second Amended License Consent Agreement with BCGU in order to legally release us from more than $240,000 in obligations which was due and owing at the time of the sale of the AudioStocks Business. We have attached this agreement as Exhibit 11.1.4 to this Form 10-K Report.
Relevant Transactions That Occurred After December 31, 2008 to Present
On January 15, 2009, BCGU, the holder of our Series B Preferred stock, agreed to exchange it’s Series B Preferred stock for 3,624,888 of our common shares. A copy of this agreement is included as Exhibit 11.1.8 to this Form 10-K Report.
On February 27, 2009, Noctua Fund LP acquired an option to purchase a total of 2,250,617 Company common shares from Luis Leung, president, for $40,000. This option expires on February 27, 2012.
As a result of the January 15, 2009 transaction with BCGU involving the exchange of our Series B Preferred stock for common stock, and due to a provision in the designation of our Series B Preferred stock, on March 19, 2009, our board of directors (the “Board”) voted to cancel our Series B Preferred stock and amend our Article of Incorporation (the “Articles”) to reflect this cancellation. A copy of the amendment to our Articles is included as Exhibit 11.1.5 to this Form 10-K Report.
On March 6, 2009, we had approximately $162 in cash on hand. We required significantly more cash to pay our auditors in order to file this Form 10-K Report. On March 6, 2009, we were able
to reach an agreement with Noctua Fund LP whereby Noctua Fund LP agreed to purchase $10,000 in Preferred shares in a class which was to be called our Series C Preferred class of stock. In order to designate a Series C Preferred class of stock, we sought and received consent from our Series A Preferred stock owners.
On March 19, 2009, pursuant to Article 6.3 of our Articles of Incorporation, our Board voted to designate a Series C class of Preferred stock.
On March 23, 2009, the Secretary of State of the State of Delaware received an amendment to our Articles of Incorporation to designate a Series C class of Preferred stock. A total of 150 shares of the Series C Preferred stock are to be designated, and in consideration of a $10,000 investment made on March 6, 2009, Noctua Fund LP is to be issued 100 of our Series C Preferred stock once the State of Delaware has accepted our newly amended Articles of Incorporation. A copy of the designation of the Series C Preferred class of stock is included as Exhibit 11.1.6 to this Form 10-K Report. It is important that one carefully read the Series C Preferred stock designation and the newly amended Articles as the Series C Preferred stock provides the holder of the Series C Preferred stock with a priority dividend and other certain rights with are superior to other holders of our equity.
Related Party Transactions in the Sale of the Audiostocks.com Business
In the Form 10-Q filed on November 19, 2008, we stated that the managing member of Dao Information Systems, LLC was Luis Leung, the president of Audiostocks, Inc. We also believe it is important to disclose that there were additional related parties in the Asset Sale Transaction and the transactions that were related to the sale of the AudioStocks Business.
Dao’s managing member and 60% owner is Luis Leung, the president of Audiostocks, Inc.
Dao is 40% owned by Noctua Fund LP. Mark L. Baum and James B. Panther II are limited partners in Noctua Fund LP, and through Noctua Fund Manager LLC, manage the investments of Noctua Fund LP.
As was previously disclosed in Schedule 13D filings dated December 4, 2006, entities owned or controlled by Mark L. Baum and James B. Panther II, each own and control one-half of BCGU LLC, which directly owns 15,284,479 of our common shares or approximately 66.45% of our common shares.
In addition to his interests in BCGU, Mark L. Baum (i) individually owns 1,846,706 of our common shares, a number equal to just over 8% of our common shares, and (ii) through another affiliated entity, owns an additional 500,000 of our common shares or approximately 2.2% of our common shares.
Mark L. Baum is a licensed attorney in the State of California and through The Baum Law Firm PC, from time-to-time over the past four years, has provided the Company with certain legal services. Mark L. Baum is the administrative manager of the general partner of Meaux Street
Partners LP, a holder of approximately $25,000 in our debt, incurred by the Company from legal services rendered by Mr. Baum.
In addition to his interest in BCGU’s 15,284,479 common shares, through entities he beneficially owns, James B. Panther II owns and controls approximately 1,776,195 or 7.7 percent of our outstanding common shares.
Current Operations: StockVert.com
Stockvert.com is a vertical search engine in the financial information space. StockVert collects and indexes information from thousands of sources. The information managed by the platform includes profiles for publicly traded companies and their executives and directors. All information is correlated to allow a richer search experience. The objective of the site is to provide its users with a platform through which they can perform due diligence on companies (and their executives) before investing on them.
The platform also works as a tool through which executives can make their profiles available for recruiters and potential employers.
The revenue model for this platform is similar to that of typical search engines such as Google and Yahoo. Companies interested in marketing with Stockvert.com would pay for higher rankings and better positioning in search results.
Recent research published by multiple sources indicates that the Online Advertising market is estimated to reach 50 billion dollars by 2011. Currently, the Internet accounts for approximately 20% of overall media consumption in the U.S., but advertisers invest only 7.5% of their budget online. There is a very good potential for marketplace growth as advertisers bridge this gap. There are also inherent risks related to this marketspace, such as a global advertising market contraction, as well as the risk related to other search engine giants such as Google and Yahoo extending their capabilities into the financial vertical search engine space.
Competition
The market for our Internet products and services is relatively new and has been highly fragmented, but we have seen a trend toward consolidation of the market in recent months. We compete intensely with other companies providing similar services to us. Many of those services are commodity-like and not easily differentiated. Our competition includes direct competitors such as CEOCast.com, Stockgroup Information Systems, Inc., and www.WallStreet.net, as well as general-purpose Internet portals such as Yahoo! and AOL, who provide financial and investment research information. Our competition in the advertising market includes other financial and business related Websites such as Thestreet.com and Globeandmail.com. We expect our competitors to remain strong as the Internet industry further consolidates.
Nearly all of our competitors are much better funded and are far better positioned to be effective in the market for the services we wish to sell, especially given our weak intellectual and financial resources.
Employees
We currently have one full time employee, Luis Leung. Mr. Leung receives no salary. Mr. Leung presently owns 2,250,617 of our common shares; however, on February 27, 2009, Noctua Fund LP acquired an option to purchase a total of 2,250,617 Company common shares from Luis Leung for $40,000. This option expires on February 27, 2012.
We hire independent contract labor on an as needed basis. We have not entered into a collective bargaining agreement with any union. We have not experienced any work stoppages and consider the relations with the individuals that work for us to be good.
Section 17(b) Disclosures
Section 17(b) of the Securities Act of 1933 requires certain disclosures by any person that publishes, gives publicity to, or circulates any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer. In the event Section 17(b) applies, certain disclosures must be made regarding the compensation received including the nature of the compensation, the amount of the compensation and the source of the compensation.
Regulatory Issues
Aside from the above 17(b) disclosures, we do not believe we are subject to governmental regulation in our Internet publishing efforts, nor do we know of any pending legislation or regulation which may impose regulatory requirements on our Internet activities. We believe that we are in compliance in all material respects with all laws, rules, regulations and requirements that affect our business, and that compliance with such laws, rules, regulations and requirements does not impose a material impediment on our ability to conduct our business.
Subsidiaries
We own no subsidiaries at this time.
Item 1A.
Item 1A. Risk Factors and Cautionary Statement Regarding Forward-Looking Information
The following factors should be considered carefully in evaluating Audiostocks and its business. We have a limited operating history upon which an evaluation of our current business and prospects can be based. Our limited operating history makes it difficult for you to judge our prospects. We have reported losses for each fiscal year since we became incorporated. You should consider any purchase of our shares in light of the risks, expenses and problems frequently encountered by all companies in the early stages of its corporate development, such as lack of capital, difficulty attracting high quality personnel, lack of market exposure, and uncertainty about the viability of our business plan.
The risks described below may materially impact your investment in our company or may in the future, and, in some cases already do, materially affect us and our business, financial condition and results of operations and could likely result in a total loss of your investment. You should carefully consider these factors with respect to your investment in our securities.
RISKS RELATED TO OUR BUSINESS
We have not generated any significant revenues and may never achieve profitability.
We are a development stage company and, to date, have not generated any significant revenues. We cannot assure you that we can achieve or sustain profitability in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether our product development can be completed, and if it will achieve market acceptance. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.
Liquidity and capital resources are uncertain.
You should be cautioned that there can be no assurance that revenue, margins, and profitability will increase. There can be no assurance that we will be successful in raising a sufficient amount of additional capital or in internally generating a sufficient amount of capital to meet our operational requirements.
Our ability to continue as a going concern is uncertain.
In view of our liquidity conditions, our ability to continue as a going concern is uncertain and dependent upon achieving a profitable level of operations and, if necessary, on our ability to obtain necessary financing to fund ongoing operations. As well, our ability to absorb a large unforeseen expenditure or other disaster is limited by our current lack of capital resources. Our auditors' report also discusses substantial doubt about our ability to continue as a going concern.
Computer equipment problems and failures could adversely affect our business.
Problems or failures in Internet-related equipment, including file servers, computers and software, could result in interruptions or slower response times for our Web-based services, which could reduce the attractiveness of our Website, financial tools or investor relations services to advertisers and users. Should such interruptions continue for an extended period we could lose significant business and reputation. Equipment problems and failures could result from a number of causes, including an increase in the number of users of our Website, computer viruses, outside programmers penetrating and disrupting software systems, human error, fires, floods, power and telecommunications failures and internal breakdowns. In addition, any disruption in Internet access and data feeds provided by third parties could have a material and adverse effect on our businesses. Our limited resources do not currently permit us to maintain an off-site disaster recovery facility. As a result, if we experience a major disaster such as a fire, theft, or intentional destruction of our computer equipment, it could have catastrophic results for our business.
Our computer systems may not be able to accommodate increases in the number of users of our services.
In the past, our Website has experienced significant increases in traffic when there is noteworthy business or financial news stories. In addition, the number of our users has continued to increase over time as we continue to seek further increases in our user base. Consequently, our Website must accommodate a high volume of traffic and deliver frequently updated information. Our Website has in the past and may in the future experience slower response times or other problems for a variety of reasons.
We may not be able to compete successfully against current and future competitors.
We currently compete with several other companies offering similar services. Many of these companies have significantly greater financial resources, name recognition, and technical and marketing resources, and virtually all of them are seeking to improve their technology, products and services. We can not assure you that we will have the financial resources or the technological expertise to successfully meet this competition. Increased competition could result in price reductions, reduced margins, or loss of market share, any of which would adversely affect our business.
We are significantly influenced by our officers, directors and entities affiliated with them.
In the aggregate, ownership of Audiostocks shares by management, and /or entities affiliated with management, represents a majority of our present issued and outstanding shares of common stock. These shareholders, if acting together, will be able to significantly influence all matters requiring approval by shareholders, including the election of directors and the approval of mergers or other business combinations.
We license some of our software from a third party licensor.
We do not own and currently license many parts of the software we use, which we procure from a third party licensor. The use of this software currently provides us with all of our opportunities to realize revenues. In the event we lose the license rights to this software, our business operations will be severely hindered and may result in a loss all revenue streams.
We are highly dependent on revenue referrals.
We currently obtain a significant number of our business referrals through third party referral sources. They may not continue to provide referrals to us and we may not be able to establish relationships with new referral sources to ensure a steady flow of clients companies. Our inability to acquire suitable referrals in the future or the loss of our current referral source and our failure to replace them may result in a loss of all revenue streams.
We may not be unable to protect the intellectual property rights upon which our business relies.
We have pursued or may pursue certain trademarks, and we have brand names and certain subscriber lists which make up the intellectual property we view as important to our business. It may be possible for a third party to copy or otherwise obtain or use our intellectual property without authorization or to develop similar technology independently. There can also be no assurance that our business activities will not infringe upon the proprietary rights of others, nor that other parties will not assert infringement claims against us, including claims that by, directly or indirectly, providing hyperlink text links to Websites operated by third parties, we have infringed upon the proprietary rights of other third parties. Due to the global nature of the Internet, there can be no assurance that obtaining trademark protection in the United States will prevent infringements on our trademarks by parties in other countries.
We may be held liable for online information or services provided by us or third parties.
Because materials may be downloaded by the public on Internet services offered by us or the Internet access providers with whom we have relationships, and because third party information may be posted by third parties on our Website through discussion forums and otherwise, there is the potential that claims will be made against us for defamation, negligence, copyright or trademark infringement or other theories. The imposition of liability based on such claims could materially and adversely affect us.
Even to the extent such claims do not result in liability, we could incur significant costs in investigating and defending against such claims. The imposition on us of potential liability for information or services carried on or disseminated through our Website could require implementation of measures to reduce exposure to such liability, which may require the expenditure of substantial resources and limit the attractiveness of services to members and users.
Even if we obtain general liability insurance, it will not cover all potential claims to which we are exposed or may not be adequate to indemnify us for all liability that may be imposed. In any event, even if we obtain general liability insurance, any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition.
Government regulation and legal uncertainties relating to the web could hinder the popularity of Internet services.
There are currently few laws or regulations that specifically regulate communications or commerce on the web. However, laws and regulations may be adopted in the future that address issues such as user privacy, pricing, and the characteristics and quality of products and services. Several telecommunications companies have petitioned the federal communications commission to regulate Internet service providers and online services providers in a manner similar to long distance telephone carriers and to impose access fees on these companies. This could increase the cost of transmitting data over the Internet. Moreover, it may take years to determine the extent to which existing laws relating to issues such as property ownership, libel and personal privacy are applicable to the web. Any new laws or regulations relating to the web could adversely affect our business.
We are highly dependent on activity levels in the securities market.
Our business is dependent upon the health of the financial markets. Some of the financial data and information market demand is dependent on activity levels in the securities markets. In the event that the U.S. or international financial markets suffer a prolonged downturn that results in a significant decline in investor activity, our revenue levels could be materially adversely affected.
Our business and revenues may be affected by restrictions on use of third party information.
We post news clippings from other third party news websites on the StockVert.com website with links to the source site. Most publishers currently encourage this practice. To the extent that a large majority of news publishers prohibit posting of their stories on our Websites or begin charging royalty fees for such stories, our Website traffic could decrease or our costs could increase, thereby adversely impacting our profitability.
We could face liability for the information displayed on our Website.
We may be subjected to claims for defamation, negligence, and copyright or trademark infringement relating to the information we publish on our web site. These types of claims have been brought, sometimes successfully, against online services in the past. We could also be subjected to claims based upon the content that is accessible from our Website through links to other websites.
We may attempt to raise additional capital through the sale of additional common stock in the near future. Future issuances of common stock may dilute your position in us.
Our stock price is highly vulnerable to buying and selling pressures. As there is a limited market for our common stock, there may be considerable volatility in our stock price due to selling and buying pressures. Future sales of shares by our existing or future shareholders could cause the market price of our common stock to decline.
Our Board has authorized and issued preferred shares.
Our Board has the authority to issue certain preferred shares with rights, preferences and/or privileges senior to or on parity with the rights of the holders of common stock. The potential consequences to our investors include, but are not limited to, a loss of perceived value of the stock in the market, a loss of voting powers and a loss of future earnings and dividends, if and when dividends are declared.
Future sales of our equity securities will dilute current investors.
To fully execute our long-term business plan, we will need to raise debt and equity capital in the future. We will need to raise additional equity capital as we raise additional debt capital to keep our debt to equity ratio in a range acceptable to the financial institutions providing debt capital. Such additional equity capital when and if it is raised would result in an investor being diluted.
If we grow very rapidly, this will place strains on our management team and other company resources.
We plan to grow rapidly and significantly expanded our operations. This growth will place a significant strain on our management systems and resources. We will not be able to implement our business strategy in a rapidly evolving market without an effective planning and management process. We will not be able to increase revenues unless we continue to improve our transaction-processing, operational, financial and managerial controls and reporting systems and procedures, expand, train and manage our work force and manage multiple relationships with third parties.
INVESTMENT RISKS
Our common stock price is likely to be highly volatile.
The market price for our common stock is likely to be highly volatile. We cannot assure you that our common stock will trade at the same levels of other stock in our industry. The following factors will add to our common stock price's volatility:
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our ability to execute our business plan and significantly grow our business;
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our ability to further develop and enhance our services and products;
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our ability to generate a market and recognition for our products and services;
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increased competition from competitors who offer competing services;
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our financial condition and results of our operations;
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actual or anticipated variations in our quarterly operating results;
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new sales formats or new products or services offered by us, or our competitors;
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conditions or trends in our industry in general;
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announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures;
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our capital commitments;
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additions or departures of our key personnel; and
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sales of our common stock.
Many of these factors are beyond our control. These factors may decrease the market price of our common stock, regardless of our operating performance.
Trading of our stock may be restricted by the SEC's penny stock regulations which may limit a stockholder's ability to buy and sell our stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are currently covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock. Future issuances of shares may adversely impact the value of our stock.
Investors may face significant restrictions on the resale of our stock due to state blue sky laws.
Each state has its own securities laws, often called “blue sky laws,” which (1) limit sales of stock to a state's residents unless the stock is registered in that state or qualifies for an exemption from registration and (2) govern the reporting requirements for broker-dealers and stock brokers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, and the broker must be registered in that state, or otherwise be exempt from registration. We do not know whether our stock will be registered under the laws of any states. A determination regarding registration will be made by the broker-dealers, if any, who agree to serve as the market-makers for our stock. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities.
Accordingly, investors should consider the secondary market for our securities to be a limited one. Investors may be unable to resell their stock, or may be unable to resell it without the significant expense of state registration or qualification.
Investors may face significant restrictions on the resale of our stock due to federal regulations of penny stock.
Our stock differs from many stocks, in that it is a “penny stock.” The Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks.” These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange Act of 1934, as amended.
Because our securities probably constitute "penny stock" within the meaning of the rules, the rules would apply to us and our securities. The rules may further affect the ability of owners of our stock to sell their securities in any market that may develop for them. There may be a limited market for penny stocks, due to the regulatory burdens on broker-dealers. The market among dealers may not be active. Investors in penny stock often are unable to sell stock back to the dealer that sold them the stock. The mark-ups or commissions charged by the broker-dealers may be greater than any profit a seller may make. Because of large dealer spreads, investors may be unable to sell the stock immediately back to the dealer at the same price the dealer sold the stock to the investor. In some cases, the stock may fall quickly in value. Investors may be unable to reap any profit from any sale of the stock, if they can sell it at all.
Stockholders should be aware that, according to the Securities and Exchange Commission Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include:
·
control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
·
manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
·
"boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
·
excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
·
the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
Shares eligible for future sale by our current shareholders may decrease the price of our common stock.
If our shareholders sell substantial amounts of our common stock in the public market following future offerings, then the market price of our common stock could fall. Restrictions under the securities laws limit the number of shares of common stock available for sale in the public market.
Cautionary Statement Concerning
Forward-Looking Statements
Some of the statements in this annual Report are forward looking statements, which are subject to risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. Forward-looking statements are only predictions. The forward-looking events discussed in this annual Report, the documents to which we refer you and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. For these statements, we claim the protection of the “bespeaks caution” doctrine. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.
Item 2.
Item 2. Description of Property
Intellectual Property, Proprietary Rights And Domain Names
We own the domain name www.StockVert.com. It is our intention to purchase additional domain names in the future as the nature of our business, and the products and services we offer, continues to expand. We believe our rental and ownership of these domain names gives us adequate protection over them and we intend to continue to keep them in our possession.
We have no plans to register any trademarks as of the date of this Form 10-K Report. We may pursue other trademarks in the future.
We protect our other intellectual property through a combination of trademark law, trade secret protection and confidentiality agreements with our employees, customers, independent contractors, agents and vendors. We pursue the registration of our domain names, trademarks and service marks in the United States and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our services and products are made available on-line. We create some of our own content and obtain the balance of our content from third parties. It is possible that we could become subject to infringement actions based upon the content obtained from these third parties. In addition, others may use this content and we may be subject to claims from our licensors. We currently have no patents or patents pending and do not anticipate that patents will become a significant part of our intellectual property in the future. We enter into confidentiality agreements with our employees and independent consultants and have instituted procedures to control access to and distribution of our technology, documentation and other proprietary information and the proprietary information of others from whom we license content. The steps we take to protect our proprietary rights may not be adequate and third parties may infringe or misappropriate our trademarks, service marks and similar proprietary rights. In addition, other parties may assert claims of infringement of intellectual property or alter proprietary rights against us. The legal status of intellectual property on the Internet is currently subject to various uncertainties as legal precedents have not been set and are still to be determined in many areas of Internet law.
Real Property
At present, we do not own any property. Our executive offices currently consist of shared leased office space located at: 2038 Corte Del Nogal, Suite 110, Carlsbad, California 92011 and our phone number is 760-804-8844. We are currently re-negotiating our lease terms. We believe there is an adequate supply of suitable office space in surrounding areas on terms acceptable to us.
Item 3.
Item 3. Legal Proceedings
None.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock is currently traded over the counter and is listed on the OTC Bulletin Board under the symbol "AUIO" and began trading in 2008.
Our stock is extremely thinly traded and there is not an active market for our stock.
The ownership of our securities is extremely concentrated, and presently, there is very little market support for our common stock.
The most recent closing bid price for our common stock was on April 9, 2009 at $1.01 per share. The trading price of our common stock may be volatile with dramatic changes over short periods. The trading price may reflect imbalances in the supply and demand for shares of the Company, market reaction to perceived changes in the industry in which we sell products and services, general economic conditions, and other factors. Investors are cautioned that the trading price of the common stock can change dramatically based on changing market perceptions that may be unrelated to us and our activities.
Holders
As of December 31, 2008 there were approximately 177 record holders of our common stock.
Dividends
We have declared one stock dividend in January 2005 for 99 shares of our common stock to each shareholder of record. We do not contemplate paying dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained to retire debt and for the operation of the business.
Securities Authorized for Issuance Under Equity Compensation Plans.
None.
Recent Sales of Unregistered Securities:
During January 2002 to December 2004, the Company issued 51,439 shares of common stock for services valued at $0.001 per share.
During January 2005, the Board approved a 200 to 1 reverse split. Our financial statements were retroactively restated for the relevant period to reflect this change.
During January 2005, the Company issued 72 shares of common stock due to the 200 to 1 reverse split.
During January 2005, the Company issued 17,148,561 shares of common stock for services valued at $0.001 per share.
During January 2005, the Company issued 16,236 shares of common stock as a dividend valued at $0.001 per share.
During July 2007, the Company reacquired and immediately retired 800,000 shares of common stock valued at $0.03 per share.
During July 2007, the Company reacquired and immediately retired 24,281 shares of common stock at par value
During July 2007, the Company issued 420,308 shares of common stock as officer compensation valued at $0.001 per share.
During October 2007, the Company issued 1,000 shares of common stock in exchange of cash valued at $0.75 per share.
During October 2007, the Company issued 609,755 shares of common stock pursuant to a stock exchange agreement valued at $0.22 per share.
During April 2008, the Company issued 80,000 shares of common stock in lieu of wages valued at $.50 per share.
During January 2009, the Company issued 5,497,885 common shares described below:
·
1,812,444 common shares in exchange of 50 of our Series B Preferred stock
·
1,812,444 common shares in exchange of 50 of our Series B Preferred stock
·
1,750,309 common shares in lieu of salary valued at $.75 per share
·
17,398 common shares at $1.00 per share as a part of settlement agreement and for the relief of certain debts owed by the Company
·
73,669 common shares at $1.00 per share as a part of settlement agreement and for the relief of certain debts owed by the Company
·
1,620 common shares at $1.00 per share as a part of settlement agreement and for the relief of certain debts owed by the Company
·
16,667 common shares at $.75 per share as a part of settlement agreement and for the relief of certain debts owed by the Company related to a January 1, 2008 private placement agreement
·
13,334 common shares at $.75 per share as a part of settlement agreement and for the relief of certain debts owed by the Company related to a January 1, 2008 private placement agreement
All of the issuances of securities described above were deemed to be exempt from registration in reliance on Section 4(2) of the Securities Act of 1933 as transactions by an issuer not involving a public offering. We made the determination that each investor had enough knowledge and experience in finance and business matters to evaluate the risks and merits of the investment. There was no general solicitation or general advertising used to market the securities. We provided each investor with disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information. A legend was placed on the stock certificates stating that the securities have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption there from.
Discussion of our Present Liabilities
At the time of the Asset Sale Agreement, the company assigned $418,089 in liabilities (the “Assigned Liabilities”) to Dao Information Systems, Inc. (“Dao”). These Assigned Liabilities consisted of promissory notes, accounts payable and other accrued liabilities. Pursuant to the Asset Sale Agreement, these Assigned Liabilities were removed from our balance sheet; however the legal obligation to satisfy some of these debts remains with the Company.
Of the Assigned Liabilities, we have been legally relieved of this entire amount except for (i) approximately $8,500 due to our independent auditor, (ii) approximately $76,000 due in secured convertible promissory notes due to Black Forest International LLC (“BFI”) and (iii) approximately $5,500 in unsecured debt due to BFI.
To be clear … BFI has not legally released the Company from these obligations and although Dao has promised to pay these BFI obligations, because of the poor and limited credit history of Dao, we may ultimately be made to pay these BFI obligations, some of which are discussed below.
As previously disclosed with the SEC in our Form 10-Q filed on May 15, 2008, on March 17, 2008, we issued an 8% convertible promissory note to BFI for $7,500 which was received by the Company in cash from BFI. We were in default on this note and pursuant to the Asset Sale Agreement the obligation to satisfy this note was assigned to Dao.
As previously disclosed with the SEC in our Form 10-Q filed on May 15, 2008, on June 1, 2008, we issued an 8% convertible promissory note to BFI for $19,000 which was received by the Company in cash from BFI. We were in default on this note and pursuant to the Asset Sale Agreement the obligation to satisfy this note has been assigned to Dao.
Both of the above convertible promissory notes, along with another secured convertible promissory note we issued to BFI in the amount of $50,000 (disclosed in our Form 10-KSB for the period ended December 31, 2007 and in Note 3 of this Form 10-K Report) and a smaller approximately $5,500 unsecured obligation owed to BFI: (i) are presently held by Noctua Fund LP and (iii) are therefore, due, owing and payable to Noctua Fund LP.
All of the obligations owed to BFI are in default.
On January 1, 2008, the Company entered into a private offering with certain investors for the purchase of Convertible Debentures and associated Series A Warrants. The Warrants were exercisable at the date of issuance, have an exercise price of $0.90 per share and a two (2) year term. During January 2008, 10% Convertible Debentures were issued for a total of $22,500, in exchange of cash as part of this transaction. The Convertible Debentures were due and payable one year from their issuance and are convertible into common stock at the price of $0.75 per share. In January of this year, we negotiated an agreement with the holders of the 10% Convertible Debentures and issued them a total of 30,001 common shares in exchange for the 10% Convertible Debentures. None of the Convertible Debentures and Series A Warrants are outstanding.
On July 1, 2008, we consolidated all obligations due and owing to The Baum Law Firm PC and Mark L. Baum, Esq., for legal services rendered to the Company over the past four years, and issued to Meaux Street Partners LP a 10% promissory note for $25,000. This 10% promissory note to Meaux Street Partners LP remains due, payable and outstanding.
Item 6.
Item 6. Management’s Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes included in this Form 10-K Report. This Form 10-K Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The statements contained in this Report that are not historic in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are forward-looking statements based on current expectations and assumptions.
Various risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from expectations include, but are not limited to, those set forth under the section “Risk Factors” set forth in this Form 10-K Report.
The forward-looking events discussed in this Report, the documents to which we refer you and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. For these statements, we claim the protection of the “bespeaks caution” doctrine. All forward-looking statements in this document are based on information currently available to us as of the date of this Report, and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
Critical Accounting Policies
Our critical and significant accounting policies, including the assumptions and judgments underlying them, are disclosed in the Notes to the Financial Statements. These policies have been consistently applied in all material respects and address such matters as revenue recognition and depreciation methods. The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. The accounting treatment of a particular transaction is specifically dictated by accounting principles, generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any viable alternative would not produce a materially different result. See our audited financial statements and notes thereto which contain accounting policies and other disclosures required by accounting principles, generally accepted in the United States of America.
Plan of Operation
Stockvert.com is a vertical search engine in the financial information space. It collects and indexes information from thousands of sources. The information managed by the platform includes profiles for publicly traded companies and their executives and directors. All information is correlated to allow a richer search experience. The objective of the site is to provide its users with a platform through which they can perform due diligence on companies (and their executives) before investing on them.
The platform also works as a tool through which executives can make their profiles available for recruiters and potential employers.
The revenue model for this platform is similar to that of typical search engines such as Google and Yahoo. Companies interested in marketing with Stockvert.com would pay for higher rankings and better positioning in search results.
Recent research published by multiple sources indicates that the Online Advertising market is estimated to reach 50 billion dollars by 2011. Currently, the Internet accounts for approximately 20% of overall media consumption in the U.S., but advertisers invest only 7.5% of their budget online. There is a very good potential for marketplace growth as advertisers bridge this gap. There are also inherent risks related to this marketspace, such as a global advertising market contraction, as well as the risk related to other search engine giants such as Google and Yahoo extending their capabilities into the financial vertical search engine space.
Competition
The market for our Internet products and services is relatively new and has been highly fragmented, but we have seen a trend toward consolidation of the market in recent months. We compete intensely with other companies providing similar services to us. Many of those services are commodity-like and not easily differentiated. Our competition includes direct competitors such as CEOCast.com, Stockgroup Information Systems, Inc., and www.WallStreet.net, as well as general-purpose Internet portals such as Yahoo! and AOL, who provide financial and investment research information. Our competition in the advertising market includes other financial and business related Websites such as Thestreet.com and Globeandmail.com. We expect our competitors to remain strong as the Internet industry further consolidates.
Nearly all of our competitors are much better funded and are far better positioned to be effective in the market for the services we wish to sell, especially given our weak intellectual and financial resources.
Liquidity and Capital Resources
At December 31, 2008, we had $4,389 cash on hand as compared to $27,181 on hand at December 31, 2007. For both years ended December 31, 2008 and 2007 the company produced $0 of cash inflow from operating activities. During the year ended December 31, 2008 the company had cash inflows of $135,893 due to revenue from discontinued operations as compared to $426,950 produced during the year ended December 31, 2007.
As of the date of this Report, we require additional capital investments or borrowed funds to meet cash flow projections and carry forward our business objectives. There can be no assurance that we will be able to raise capital from outside sources in sufficient amounts to fund our new business.
We may continue to seek additional capital over the next 12 months from the additional sale of our securities. The amount and timing of our future capital requirements will depend upon many factors, including the level of funding received by us, anticipated private placements of our common stock, the level of funding obtained through other financing sources, and the timing of such funding. In the event we are unable to raise additional capital, we will be unable to expand operations as desired.
We intend to retain any future earnings, if any, to retire any existing debt, finance the expansion of our business and any necessary capital expenditures and for general corporate purposes.
Inflation
Although management expects that our operations will be influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ending December 31, 2008.
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The history of losses and the inability for the Company to produce substantial cash flow has raised doubt about our ability to continue as a going concern.
Expenses
Our total expenses from continuing operations for the year ending December 31, 2008 were $1,283,827 as compared to $5,869 for the year ending December 31, 2007. Total expenses for discontinued operations for the year ending December 31, 2008 were $1,363,189 as compared to $3,574,189 for the year ending December 31, 2007. General and administrative expenses for the year ending December 31, 2008 totaled $18,921 as compared to $0 for the year ending December 31, 2007. Professional consulting fees for continuing operations for the year ended December 31 2008 amounted to $3,650 as compared to $0 for the year ending December 31, 2007. .
Results of Operations for the Year Ended December 31, 2008.
We had no revenues from continuing operations for both years ended December 31, 2008 and 2007. We had $909,368 in total revenues from discontinued operations for the year ended December 31, 2008 as compared to $3,587,802 in total revenues from discontinued operations for the year ended December 31, 2007. Total operating expenses for the year ended December 31, 2008 amounted to $1,283,827 as compared to total operating expenses for the year ended December 31, 2007 of $5,869. Losses from discontinued operations totaled $3,095,042 for the year ended December 31, 2008 and $13,613 for the year ended December 31, 2007. Total loss for the year ended December 31, 2008 was $4,423,626 as compared to total income for the year ended December 31, 2007 of $3,661.
Item 7.
Item 7. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of AudioStocks, Inc.
We have audited the accompanying balance sheets of AudioStocks, Inc. as of December 31, 2008 and 2007, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AudioStocks, Inc. at December 31, 2008 and 2007, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that AudioStocks, Inc. will continue as a going concern. As discussed in Note 2 to the financial statements, AudioStocks, Inc. has a significant working capital deficit and is dependent of financing to continue operations. These issues raise substantial doubt about the company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Chisholm, Bierwolf, Nilson & Morrill
Chisholm, Bierwolf, Nilson & Morrill, LLC
Bountiful, UT
April 7,
AUDIOSTOCKS, INC
STATEMENTS OF STOCKHOLDERS'' EQUITY (DEFICIT)
From December 31, 2006 through December 31, 2008
AUDIOSTOCKS, INC.
Notes to the Financial Statements
December 31, 2008 and 2007
NOTE 1.
SUMMARY OF ACCOUNTING POLICIES
a. Organization
Audiostocks, Inc. (the Company) was incorporated in the state of Delaware on January 15, 2002 as Jupiter Processing, Inc.. On January 13, 2005, the Company changed its name to Audiostocks, Inc.
Prior to September 30th, 2008 the Company’s primary business operations were focused around Audiostocks.com, a financial media and technology business for publicly traded small and micro capitalization companies, providing the latest fact-based information to current and prospective shareholders. Audiostocks.com content is available online to individuals, financial professionals, investment research professionals and portfolio managers. All readers of Audiostocks content receive Audiostocks content because they have filled out a user request form and have requested to receive Audiostocks content. Audiostocks.com does not offer investment advice, nor is Audiostocks.com a broker or dealer in securities. All information posted on the Audistocks.com website is provided by the client companies or is originated by Audiostocks.com in direct cooperation with a client company and approved by the client company before posting. The results from operations of the Audiostocks.com business division have been restated in the financial statements as discontinued operations.
In the third calendar quarter of 2008, we concluded that the Audiostocks.com business was underperforming and that our efforts would be better focused on adopting a new strategy - to develop our StockVert.com business and to aggressively seek business candidates to acquire or merge with.
Stockvert.com is a vertical search engine in the financial information space. It collects and indexes information from thousands of sources. The information managed by the platform includes profiles for publicly traded companies and their executives and directors. All information is correlated to allow a richer search experience. The objective of the site is to provide its users with a platform through which they can perform due diligence on companies (and their executives) before investing on them.
The platform also works as a tool through which executives can make their profiles available for recruiters and potential employers.
The revenue model for this platform is similar to that of typical search engines such as Google and Yahoo. Companies interested in marketing with Stockvert.com would pay for higher rankings and better positioning in search results.
b. Accounting Method
The Company's policy is to use the accrual method of accounting to prepare and present financial statements, which conform to generally accepted accounting principles ("GAAP'). The company has elected a December 31, year-end.
c. Revenues
Service revenue was recognized on a straight-line basis, over the contractual term of the arrangement. Revenues related to contracts paid with restricted stock were booked at fair market value. Revenue on services described above is recognized when the four revenue recognition requirements of SAB 104 have been met. The company’s revenue recognition policy is consistent with the requirements of Statement of Position (SOP) 97-2, Software Revenue Recognition and Staff Accounting Bulletin 104 (SAB 104). In general, the company records revenue when it is realized, or realizable and earned. The company considers revenue to be realized or realizable and earned when the following revenue recognition requirements are met: persuasive evidence of an arrangement exists, which is a customer contract; the products or services have been provided to the customer; the sales price is fixed or determinable within the contract; and collectability is probable. Recognition of revenues that do not meet the four criteria mentioned above is deferred to future periods.
d. Licensing Expense and Licensing Fees Payable - Related Party
All software and intellectual property previously used by Audiostocks, Inc belonged to BCGU, LLC a related party. A Licensing Agreement between the Company and BCGU, LLC was executed in consideration for the use of Licensor’s software used by the Audiostocks, Inc. The Licensing Expense consists of 59.5% of contract revenues, with rare exceptions. These Licensing Expenses are pursuant to the Company’s Licensing Agreement with BCGU, LLC and exceptions are documented through a contract addendum. Whenever the contract is paid with restricted stock, the Licensing Expense is booked using the stock’s fair market value. Payment of the licensing fees are made in the form of restricted stock and therefore mark to market adjustments are necessary related to the expense and the associated liabilities as well. Licensing Expenses were deferred to reflect the length of the contract using the same criteria described in the Revenues section, above. Operations related to this expense were discontinued during the year ended December 31, 2008, as part of the asset sale agreement. As part of the Asset Sale Agreement, BCGU, LLC signed a licensing consent agreement and received 4 million shares of Preferred stock valued at $3,000,000 (see note 4 for further disclosure).
e. Marketable Securities and Other Comprehensive Income
A significant portion of payments for the service contracts is received in form of restricted stock from those companies purchasing our services. The restriction of all stock received is typically one year for non-reporting companies and six months for reporting companies. Before such securities are sold in the marketplace, they must either be registered with the SEC or they must be exempted from the SEC’s registration requirements by meeting the requirements of Rule 144. Rule 144 allows public resale of restricted and control securities if a number of conditions are met. Our accounting policy is to book all restricted and publicly tradable securities under Securities Available for Sale and, as such, are carried at fair value based on quoted market prices.
Unrealized holding gains and losses for Securities Available for Sale are excluded from earnings and reported as a separate component of stockholder’s equity as Other Comprehensive Income. Realized and unrealized gains and losses for securities classified as available-for-sale are included in the statement of operations and cash flow statement, respectively. The change in value of marketable securities is included in the operating portion of the Cash Flow statement because of the nature of our business in which we receive stock as compensation and make payments of liabilities in the same form. Therefore, the changes to marketable securities that we receive as compensation is not reflected in the investing portion of our Cash Flow statement. All restricted stock received in exchange for services are marked to market at the end of the accounting period. Likewise, licensing fees recorded in conjunction with revenues are also marked to market. The adjustment to the value of such restricted stock takes into consideration the value of the stock as of the last day of the accounting period in question and a Discount Factor (“Discount”). The factors that are considered when calculating the Discount are: Trading Market, Liquidity, Volatility and Financial Performance.
As of December 31, 2008, the company owned $0 in form of Restricted Stock and $211,294 as of December 31, 2007, based upon the fair value of the marketable securities, all of which was received in consideration for services rendered by the Company.
The balance of $0 in Securities Available for sale on the Balance Sheet reflects a $0 mark to market adjustment. Without such adjustment, the ending balance in Securities Available for Sale would have been $0.
Changes in value of restricted securities are accounted for in other comprehensive income, without impacting the income statement, until the securities are disposed of. Upon disposal, the changes accumulated in other comprehensive income are to be recognized in income.
Marketable securities classified as available for sale consisted of the following as of December 31, 2008:
Marketable Securities
Cost
Accumulated Unrealized Gain/Loss
Gain (Loss) on Sale of Securities
Market Value
Balance as of 12/31/2007
$ 1,961,935
$ (1,092,116)
$ (658,625)
$ 211,194
Market Adjustments 12/31/08
-
(431,330)
-
(431,330)
Minus Securities Sold
875,676
(1,613,384)
-
(737,708)
Gain(Loss) on Sale of Securities
(164,476)
(164,476)
Securities Purchased
-
-
-
-
Securities Received
449,325
(426,109)
-
23,216
Minus Payments in Form of Securities
712,483
(336,171)
-
376,312
Positions as of 12/31/08
$ 823,101
$ -
$ (823,101)
$ -
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
g. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of the asset.
In accordance with American Institute of Certified Public Accountants Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” the Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. Costs incurred in the preliminary project stage are expensed. All direct external costs incurred to develop internal-use software during the development stage are capitalized and amortized using the straight-line method over the remaining estimated useful lives. Costs such as maintenance and training are expensed as incurred.
Property Plant and Equipment, net:
Computer Software and Hardware
180,726
174,508
Furniture and Equipment
30,735
20,105
Building and Improvements
2,508
2,508
Work in Progress
-
5,661
213,969
202,782
Accumulated Depreciation
(48,403)
(5,869)
$ 165,566
$ 196,913
h. Earnings Per Share
Net earnings (loss) per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), “Earnings per share.” Basic net earnings per share is based upon the weighted average number of common shares outstanding. Fully diluted earnings per share are computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
There are two convertible securities in the Company’s books as of December 31, 2008 and 2007.
For the year ended December 31, 2007 the stock equivalents for these convertible securities is 250,000 shares. The common stock equivalents resulting from the issuance of these stock options have not been included in the per share calculations in 2008 because such inclusion would be anti-dilutive.
i. Comprehensive Income
Statement of financial accounting standards No. 130, Reporting comprehensive income (SFAS No. 130), establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity, except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in financial statements that are displayed with the same prominence as other financial statements
j. Provision for Income Taxes
We account for income taxes according to the provisions of SFAS No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109 requires recognition of deferred tax assets and liabilities to reflect the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities. Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) is an interpretation of SFAS 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS 109. FIN 48 requires a company to determine whether it is more likely than not that the tax position will be sustained, will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of FIN 48, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FIN 48.
The components of income tax expense are as follows:
Federal taxes
-
1,771
State taxes
-
Benefit of utilization of operating loss carryforward
44,467
-
Change in Valuation Allowance
(44,467)
-
Income Tax Expense
-
2,244
As of December 31, 2008 we had a NOL carryforward of $130,784.
Deferred tax assets and the valuation account are as follows at December 31, 2008 and 2007:
NOL Carryforward
44,467
-
Valuation Allowance
(44,467)
-
Net deferred tax assets
-
-
k. Recent Accounting Pronouncements
In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60." Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB 163 is not expected to have a material impact on the Company's financial position.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS No. 162 identifies the sources of accounting principles and provides entities with a framework for selecting the principles used in preparation of financial statements that are presented in conformity with GAAP. The current GAAP hierarchy has been criticized because it is directed to the auditor rather than the entity, it is complex, and it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board believes the GAAP hierarchy should be directed to entities because it is the entity (not its auditors) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. SFAS 162 is effective 60 days following the SEC's approval of PCAOB Auditing Standard No. 6, Evaluating Consistency of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have a material impact on the Company's financial position.
In March 2008, the FSAB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We do not anticipate a material impact upon adoption.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. We do not anticipate a material impact upon adoption.
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. We do not anticipate a material impact upon adoption.
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. We do not anticipate a material impact upon adoption.
k. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. In these financial statements assets and liabilities involve extensive reliance on management’s estimates. Actual results could differ from those estimates.
l. Financial Instruments
The Company has adopted SFAS No. 157, “Fair Value Measurements”, for financial assets and liabilities. FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”, delays, for one year, the effective date of SFAS No. 157 for non-financial assets and liabilities, except those that are recognized or disclosed in the financial statements on at least an annual basis. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:
·
Level 1 - Quoted prices in active markets for identical assets or liabilities.
·
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
·
Level 3 - Unobservable inputs based on the Company’s assumptions.
SFAS No. 157 requires the use of observable market data if such data is available without undue cost and effort. The Company’s adoption of SFAS No. 157 did not result in any changes to the accounting for its financial assets and liabilities.
The recorded amounts of financial instruments, including cash equivalents accounts payable and accrued expenses, and long-term debt approximate their market values as of December 31, 2008 and 2007.
m. Commitments
The Company does not have any rental commitments or operating leases.
At the time of the Asset Sale Agreement (see Note 4), the company assigned $418,089 in liabilities to Dao Information Systems, Inc. These liabilities consisted of promissory notes, accounts payable and other accrued liabilities. Pursuant to the asset sale these liabilities were removed from our balance sheet, however the legal obligation to satisfy these debts remained with the company.
n. Convertible Notes
In accordance with EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features of Contingently Adjustable,” we calculated the value of the beneficial conversion feature embedded in the Convertible Notes. Since the note is contingently convertible, the intrinsic value of the beneficial conversion feature is not recorded until the note becomes convertible.
Convertible notes are split into two components: a debt component and a component representing the embedded derivatives in the debt. The debt component represents the Company’s liability for future interest coupon payments and the redemption amount. The embedded derivatives represent the value of the option that debtholders have to convert into ordinary shares of the Company. Due to the number of shares that may be required to be issued upon conversion of the Convertible Notes is indeterminate, the embedded conversion option of the Convertible Notes are accounted for as a derivative instrument liabilities rather than equity debt as in accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled In, a Company’s Own Common Stock.
The debt component of the convertible note is measured at amortized cost and therefore increases as the present value of the interest coupon payments and redemption amount increases, with a corresponding charge to finance cost - other than interest. The debt component decreases by the cash interest coupon payments made. The embedded derivatives are measured at fair value at each balance sheet date, and the change in the fair value is recognized in the income statement.
o. Investments
The Company determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. Trading securities are carried at quoted fair value, with unrealized gains and losses included in earnings. Available-for-sale securities are carried at quoted fair value, with unrealized gains and losses reported in shareholders’ equity as a component of accumulated other comprehensive income. Other investments that do not have readily determinable fair values are stated at cost and are reported in other assets. Realized gains and losses are determined using the specific identification method and are included in interest and other income, net.
p. Accounts Receivable
We must make judgments about the collectability of our accounts receivable to be able to present them at their net realizable value on the balance sheet. We analyze the aging of our customer accounts and review historical bad debt problems. From this analysis, we record an estimated allowance for receivables that we believe will ultimately become uncollectible. As of December 31, 2008, we had no allowance for bad debts since we deemed that 100% of the amount in Accounts Receivable is collectible.
q. Deferred Costs
Deferred fees are intangible assets that are accounted for under SFAS 142. These deferred fees are the deferral of the expenses in order to reflect the length of contracts. The deferral criterion is described in the Revenues section, above.
r. Concentration of Risk
Financial instruments which potentially subject the Company to concentrations of credit risk are cash and marketable securities. The Company places its cash with financial institutions deemed by management to be of high credit quality. The amount on deposit in any one institution that exceeds federally insured limits is subject to credit risk. All of the Company’s investment in marketable securities are considered “available-for-sale” and are carried at their fair value, with unrealized gains and losses (net of income taxes) that are temporary in nature recorded in accumulated other comprehensive income (loss) in the accompanying balance sheets. The fair values of the Company’s investments in marketable securities are determined based on market quotations.
NOTE 2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a significant working capital deficit in past years and is dependant upon outside financing to continue operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management’s plans to raise necessary funds from shareholders to satisfy the expense requirements of the Company and eventually derive revenues there from.
NOTE 3. CONVERTIBLE DEBENTURE
In accordance with Emerging Issues Task Force No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, we recognize the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert his debt into common stock at a price per share that is less than the trading price to the public on the day the loan is made to the Company. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of debentures and related accruing interest is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the interest method.
On July 1, 2007 a $50,000 8% Convertible Debenture was issued in exchange of cash to a related party. The note and accrued interest is due and payable at the option of the holder: (i) on January 1, 2008; or (ii) upon the successful completion of Audiostocks, Inc corporate financing exceeding three hundred thousand dollars. The note is convertible into common stock at the price of $0.15 per share. The conversion price is subject to proportional adjustment for reclassification, stock splits, combinations and dividends. At the time of the note agreement date, there was no determinable stock price, therefore there is no beneficial conversion feature that applies to this debenture. This convertible debenture was assigned to a related party on September 30, 2008 as part of an asset sale (see Note 4 for further disclosure related to the transaction).
On July 1, 2007 a $25,000 0% Convertible Debenture was issued in exchange of cash, which was used to purchase and retire shares from a shareholder. This note was amended on July 1, 2008, to reflect a 10% interest rate and maturity date of December 31, 2008. The note is due and payable on December 31, 2008. It is convertible into common stock at the price of $0.15 per share. The conversion price is subject to proportional adjustment for reclassification, stock splits, combinations and dividends. At the time of the note agreement date, there was no determinable stock price, therefore there is no beneficial conversion feature that applies to this debenture.
On March 17, 2008 a $7,500 8% Convertible Debenture was issued in exchange of cash to a related party. The note and accrued interest is due and payable at the option of the holder: (i) on September 17, 2008; or (ii) upon the successful completion of Audiostocks, Inc corporate financing exceeding three hundred thousand dollars. The note is convertible into common stock at the price of $0.15 per share. The conversion price is subject to proportional adjustment for reclassification, stock splits, combinations and dividends. At the time of the note agreement date, the Company recorded a $7,500 discount, which represents the intrinsic value of the beneficial conversion feature. The discount of $7,500 was amortized over the life of the note. This convertible debenture was assigned to a related party on September 30, 2008 as part of an asset sale (see Note 4 for further disclosure related to the transaction).
On June 1, 2008 a $19,000 8% Convertible Debenture was issued in exchange of cash to a related party. The note and accrued interest is due and payable at the option of the holder: (i) on December 1, 2008; or (ii) upon the successful completion of Audiostocks, Inc. corporate financing exceeding three hundred thousand dollars. The note is convertible into common stock at the price of $0.15 per share. The conversion price is subject to proportional adjustment for reclassification, stock splits, combinations and dividends. At the time of the note agreement date, the Company recorded a $12,667 discount, which represents the intrinsic value of the beneficial conversion feature. The discount of $12,667 was amortized over the life of the note. This convertible debenture was assigned to a related party on September 30, 2008 as part of an asset sale (see Note 4 for further disclosure related to the transaction).
On July 1, 2008, we consolidated all obligations due and owing to The Baum Law Firm PC and Mark L. Baum, Esq.,a related party, for legal services rendered to the Company, and issued to Meaux Street Partners LP, a related party, a 10% promissory note for $25,000. The note is due and payable on December 31, 2008. It is convertible into common stock at the price of $0.15 per share. The conversion price is subject to proportional adjustment for reclassification, stock splits, combinations and dividends. At the time of the note agreement date, the Company recorded a $16,667 discount, which represents the intrinsic value of the beneficial conversion feature. The discount of $16,667 is being amortized over the life of the note. For full disclosure of related party transactions please see Note 10.
NOTE 4. ASSET SALE, ASSIGNMENT OF DEBT AND DISCONTNUED OPERATIONS - RELATED PARTY TRANSACTION
On September 30, 2008 the Company entered into an asset sale agreement (the “Asset Sale Agreement”) with a related party, Dao Information Systems, Inc (the “Buyer”). The Buyer purchased all assets associated with the Company’s Audiostocks.com business division (the “AudioStocks Business”) which includes the existing licensing rights and all interests associated with the Audiostocks Business and related software. As consideration for the sale of AudioStocks Business, the Company assigned certain liabilities, receivables and securities available for sale associated with the AudioStocks Business to the buyer and recorded a loss on the sale of assets of $2,641,226. This loss consisted of liabilities assigned to the Buyer in the amount of $418,089, assets valued at $59,315 and the issuance of preferred stock valued at $3,000,000 to the license holder BCGU, LLC for the transfer of the license agreement to the Buyer. The Company also agreed to sell its rights to the proceeds from the eventual sale of certain shares of stock held by the Company related to the AudioStocks Business division (the “AudioStocks Shares”). Pursuant to the terms of the Asset Sale Agreement, the proceeds from the eventual sale of the AudioStocks Shares will be used by the Buyer to pay down the liabilities that were assigned to the Buyer in the Asset Sale Agreement.
The sale of the Audiostocks Business will impact future cash flows, as the company will no longer rely on any cash inflows from that business division. Management’s plan to generate future cash flow will come from raising additional capital through equity or debt instruments and relying on revenues generated from the StockVert.com business division. The ongoing development of StockVert.com is our primary opportunity for cash flow and profits. There are no significant past, present or expected upcoming cash uses as a result of the sale of the Audiostocks Business.
The Company has Accounts Payable to Related Parties consisting of monies borrowed during the year of 2008 to the Company from Dao Information Systems, Inc. in the amount of $14,833. The Company has made $7,376 in payments to or on behalf of Dao Information Systems, Inc. related to the monies borrowed for the years ended December 31, 2008. At December 31, 2008 $7,457 was due to Dao Information Systems, Inc. Dao Information Systems, Inc is 100% owned by Dao Information Systems, LLC of which the managing member is Luis Leung, Mr. Leung is our President.
The accompanying pro-forma balance sheet and statement of operations for the year ended December 31, 2008 and 2007 presents the results of the Company excluding the operations of its Audiostocks.com business division, as if such operations had been disposed of at the beginning of the period.
Pro-forma information is not necessarily indicative of what the financial condition of Audiostocks, Inc would have been had the sale of the Audiostocks.com business division had been completed on the date assumed, nor is such information necessarily indicative of the future financial condition or results of operations of Audiostocks, Inc.
The following pro-forma condensed balance sheet has been prepared assuming the sale took place as of January 1, 2007.
The following pro-forma condensed statement of operations represents the approximate pro-forma effect assuming the sale of the business division had occurred on January 1, 2007.
NOTE 5. PRIVATE OFFERING MEMORANDUM
On January 1, 2008, the Company entered into a Private Offering (the “PPM”) with certain investors for the private purchase of Convertible Debentures and associated detachable Series A Warrants. The Warrants are exercisable at the date of issuance, have an exercise price of $0.90 per shares and have a two (2) year term.
During January 2008, 10% Convertible Debentures were issued for $22,500, in exchange of cash as part of the PPM. The notes are due and payable one year from their issuance. They are convertible into common stock at the price of $0.75 per share. The conversion price is subject to proportional adjustment for reclassification, stock splits, combinations and dividends. We believe no beneficial conversion feature applies to these debentures.
The Series A Warrants associated with the Convertible Debentures are exercisable for the purchase of 30,000 shares. The warrants have a fair market value of $11,070. The warrants were valued using the Black-Scholes model with the following assumptions:
Risk free interest rate
3.22%
Expected life of conversion feature in years
Expected volatility
100%
Dividend per share
$0.00
On September 30, 2008 the Company cancelled the convertible debentures and warrants related to the PPM and agreed to the issuance of 30,001 shares of common stock pursuant to a settlement with the PPM investors.
NOTE 6. COMMON STOCK
During July 2007, the Company reacquired and immediately retired 800,000 shares of common stock valued at $0.03 per share.
During July 2007, the Company reacquired and immediately retired 24,281 shares of common stock at no value.
During July 2007, the Company issued 420,308 shares of common stock as officer compensation valued at $0.001 per share.
During October 2007, the Company issued 1,000 shares of common stock in exchange of cash valued at $0.75 per share.
During October 2007, the Company issued 609,755 shares of common stock as a stock exchange agreement valued at $0.22 per share.
During April of 2008, the company issued 80,000 shares of common stock as a result of a conversion of officer compensation to common stock valued at $0.50 per share.
During September 2008, the Company agreed to the issuance of 92,687 shares of common stock as settlement of certain debts for services provided valued at $92,687.
During September 2008, the Company agreed to the issuance of 30,001 shares of common stock pursuant to a settlement of certain convertible promissory notes issued to two separate noteholders valued at a total of $22,500. As part of the conversion, outstanding warrants to purchase up 30,001 shares were cancelled.
During September 2008, the Company agreed to the issuance of 1,750,309 shares of common stock as a conversion of accrued officer salary of $94,010 and additional stock based compensation expense of $1,218,722.
NOTE 7. PREFERRED STOCK
During November of 2008, the Company issued 4,000,000 shares of Series A Preferred stock as part of a licensing consent agreement valued at $0.75 a share.
During November of 2008, the Company issued 100 shares of Series B Preferred stock as part of a licensing consent agreement.
NOTE 8. CAPITAL STRUCTURE
The stockholders' equity section of the Company contains the following classes of capital stock as of December 31, 2008:
Common stock, $0.001 par value; 50,000,000 shares authorized: 19,376,087 shares issued and outstanding.
Preferred stock, $0.001 par value; 5,000,000 shares authorized, 4,000,100 shares issued and outstanding.
The Preferred Series A shares (“Series A”) provide the holder of the same with certain voting rights, among other rights, that may equal, when cast, a majority of the votes which could be cast at a meeting of the Company’s shareholders. The Series A holders have such number of votes as is determined by multiplying (a) the number of shares of Series A held by such holder, (b) the number of issued and outstanding shares of the Company’s Series A and common stock on a fully diluted basis as at the record date for the vote and (c) .0000002. Series A have no express dividend right, and are convertible into common shares at a ratio of 1:1.
The Preferred Series B shares provide the holder with a significant dividend right (59.5% of gross revenues), among other rights, which in the case of the issuance related to the execution of the First Amended License Consent Agreement, was designed to equal the percentage due to BCGU from revenues the Company generated from assets BCGU had licensed to the Company and which were being assigned to Dao Information Systems, Inc. under the First Amended License Consent Agreement. These shares carry no voting rights and are not convertible into common shares.
NOTE 9. ISSUANCE OF SHARES FOR SERVICES - STOCK OPTIONS
The company has a nonqualified stock option plan, which provides for the granting of options to key employees, consultants, and non-employee's directors of the Company. These issuances shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, or whichever is more readily determinable. The Company has elected to account for the stock option plan in accordance with paragraph 30 of SFAS 123R where the compensation to employees should be recognized over the period(s) in which the related employee services are rendered. In accordance with paragraph 19 of SFAS 123R the fair value of a stock option granted is estimated using an option-pricing model. As of December 31, 2008 and 2007 no stock options were outstanding.
NOTE 10. RELATED PARTY TRANSACTIONS
See Note 4 and this Form 10-K Report for related party disclosures throughout.
The Company has a liability to Related Parties consisting of Convertible Debentures issued Meaux Street Partners, LP in the amount of $25,000 and $0 for the years ended December 31, 2008 and 2007 respectively. Mark Baum, our attorney and a significant shareholder, is the administrative manager of the general partner of Meaux Street Partners, LP. During the year end December 31, 2008 and 2007, no payments were made to Meaux Street Partners, LP or to Mark L. Baum.
At December 31, 2007, the Company had Accounts Payable to Related Parties consisting of monies borrowed to the Company from Luis Leung in the amount of $15,000, no payments were made during the year ended December 31, 2007 to satisfy this accounts payable balance. During the year ended December 31, 2008 the company was loaned an additional $26,241 from Mr. Leung that was used to pay for miscellaneous operating expenses. During the year ended December 31, 2008 the Company paid a total of $22,736 to Mr. Leung to satisfy a portion of these debts, the remaining amount due to Mr. Leung, $18,505, was assigned to a related party as a result of the asset sale agreement (see Note 4 for further disclosure). At December 31, 2008 no Accounts Payable were due to Mr. Leung. Mr. Leung is our President.
The Company has Accounts Payable to Related Parties consisting of licensing fees payable to BCGU, LLC in the amount of $0 and $267,362 as at December 31, 2008 and 2007 respectively. During the years ended December 31, 2008 and 2007 the Company made payments in the form of available for sale securities and cash to BCGU, LLC in the amount of $5,130 and $639,593 respectively. As a result of the asset sale agreement (see Note 4 for further disclosure), these payables have been assigned to another related party and 4,000,000 million shares of Series A preferred stock valued at $3,000,000 was issued to BCGU along with 100 shares of Series B Preferred stock. The software platform previously used by the Company is licensed from BCGU, LLC and BCGU, LLC is the majority shareholder in the Company.
As a result of a cash investment, the Company had a liability to Related Parties consisting of Convertible Debentures issued to Black Forest International, LLC (“BFI”) in the amount of $0 and $50,000 as at December 31, 2008 and 2007 respectively. During the years ended December 31, 2008 and 2007 the Company made no payments to BFI. As a result of the asset sale agreement (see Note 4 for further disclosure), these notes have been assigned to another related party. We remain legally indebted to BFI, and its assignee, Noctua Fund LP, for the notes. The notes are in default. BFI is managed by BCGU, LLC. The software platform previously used by the Company is licensed from BCGU, LLC and BCGU, LLC is the majority shareholder in the Company.
During the year ended December 31, 2008 the Company entered into an asset sale agreement with a related party, Dao Information Systems, Inc (“Dao”). Dao purchased all assets associated with the Company’s Audiostocks.com business division which includes the existing licensing rights and all interests associated with the Audiostocks.com business and related software. As consideration for the sale of AudioStocks.com business, the Company assigned liabilities to Dao in the amount of $418,089 and assets valued at $59,315. See Note 4 for further disclosure regarding this transaction. The Company has Accounts Payable to Dao consisting of monies borrowed during the year of 2008 to the Company from Dao in the amount of $14,833. The Company has made $7,376 in payments to or on behalf of Dao related to the monies borrowed for the years ended December 31, 2008. At December 31, 2008 $7,457 was due to Dao Information Systems, Inc. Dao Information Systems, Inc is 100% owned by Dao Information Systems, LLC of which the managing member is Luis Leung, Mr. Leung is our President.
NOTE 11. SUBSEQUENT EVENTS
The following events occurred subsequent to December 31, 2008.
On January 15, 2009, BCGU, the holder of our Series B Preferred stock, agreed to exchange it’s Series B Preferred stock for 3,624,888 of our common shares.
On February 27, 2009, Noctua Fund LP acquired an option to purchase a total of 2,250,617 Company common shares from Luis Leung, president, for $40,000. This option expires on February 27, 2012.
As a result of the January 15, 2009 transaction with BCGU involving the exchange of our Series B Preferred stock for common stock, and due to a provision in the designation of our Series B Preferred stock, on March 19, 2009, our board of directors (the “Board”) voted to cancel our Series B Preferred stock and amend our Article of Incorporation (the “Articles”) to reflect this cancellation. A copy of the amendment to our Articles is included as Exhibit 11.1.5 to this Form 10-K Report.
On March 6, 2009, we had approximately $162 in cash on hand. We required significantly more cash to pay our auditors in order to file this Form 10-K Report. On March 6, 2009, we were able to reach an agreement with Noctua Fund LP whereby Noctua Fund LP agreed to purchase $10,000 in Preferred shares in a class which was to be called our Series C Preferred class of stock. In order to designate a Series C Preferred class of stock, we sought and received consent from our Series A Preferred stock owners.
On March 19, 2009, pursuant to Article 6.3 of our Articles of Incorporation, our Board voted to designate a Series C class of Preferred stock.
On March 23, 2009, the Secretary of State of the State of Delaware received an amendment to our Articles of Incorporation to designate a Series C class of Preferred stock. A total of 150 shares of the Series C Preferred stock are to be designated, and in consideration of a $10,000 investment made on March 6, 2009, Noctua Fund LP is to be issued 100 of our Series C Preferred stock once the State of Delaware has accepted our newly amended Articles of Incorporation. A copy of the designation of the Series C Preferred class of stock is included as Exhibit 11.1.6 to this Form 10-K Report. It is important that one carefully read the Series C Preferred stock designation and the newly amended Articles as the Series C Preferred stock provides the holder of the Series C Preferred stock with a priority dividend and other certain rights with are superior to other holders of our equity. As of the date of this Report, the Series C Preferred stock has not been recorded and our Articles do not reflect the addition of these shares to our capital.
Item 8.
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 8A. Controls and Procedures.
Under the supervision and with the participation of our management, currently consisting of Luis J. Leung, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this annual report, and based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC filings. There were no significant changes in our internal control over financial reporting that could significantly affect this control since our last fiscal quarter.
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Item 8A(T). Management’s Report on Internal Control Over Financial Reporting.
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. It is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. It also can be circumvented by collusion or improper management override.
Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process certain safeguards to reduce, though not eliminate, this risk.
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that assessment, management believes that, as of December 31, 2008, the Company’s internal control over financial reporting was effective based on the COSO criteria, with the exception of the following:
There is a lack of segregation of duties relating to cash, receivables and safeguarding of assets.
Several of our procedures require additional documentation. It is our belief that those control procedures are being performed, however documentation of their execution is not available.
The Company intends to take a number of corrective actions to address the above mentioned material weakness as promptly as practicable.
During the year ended December 31, 2008, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 8B. Other Information.
None.
PART III
Item 9.
Item 9. Directors, Executive Officers, Promoters And Control Persons; Compliance With Section 16(A) Of The Exchange Act
Executive Officer, Directors and Control Persons
The following table sets forth, as of the date of this Report, the name, age and position of our directors, executive officers and other significant employees:
Officer and Director
NAME
AGE
SINCE
POSITION
Luis Leung
President, Chief Executive Officer, Chief Financial Officer, Secretary and Director
The backgrounds of our directors, executive officers and significant employees are as follows:
Luis Leung, President, Chief Executive Officer, Chief Financial Officer, Secretary and Director
Mr. Leung is our President, Chief Executive Officer, Chief Financial Officer, Secretary and one of our Directors. Mr. Leung began his career in São Paulo, Brazil in 1988 with Smar Equipamentos Industrias Ltd as a Research and Development Software Engineer. In 1991 he was helped establish the company’s operations in the United States and was promoted to CIO and Comptroller. From 1994 to 1997 Mr. Leung helped structure operations and systems for the company’s headquarters as well as for its subsidiaries in Germany, France and Singapore. In 2004, Mr. Leung co-founded Scitus Corporation, a Microsoft VAR and ISV, and the Alba Spectrum Group a consulting company. The Alba Spectrum Group has operations in Chicago, Houston and São Paulo, Brazil. Its line of products includes Microsoft, SAP and Oracle. In 2001, Mr. Leung co-founded Advent Corporation, a software development company and Microsoft Partner. The company merged with Enterlogix Corporation in 1992. Enterlogix Corporation, after the merger, was the largest Microsoft Great Plains implementation practice in the state of Texas. In 1997, Mr. Leung started his consulting career at Hein + Associates LLP in Houston, TX as a Project Manager. In 1999 he was hired by Grant Thornton, LLP as a Consulting Manager and participated in several multi-country systems implementations. In 2000, he worked at eParners Inc as a CRM Practice Leader. Mr. Leung holds a Bachelors of Science from Instituto Tecnologico Aerospacial, Brazil
Audit Committee
We do not have an audit committee at this time.
Code of Ethics
Effective February 10, 2006, our Board adopted the Audiostocks, Inc. Code of Business Conduct and Ethics (see Exhibit 11.1.7 to this Form 10-K Report). The Board believes that our Code of Business Conduct and Ethics provides standards that are reasonably designed to deter wrongdoing and to promote the following: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submits to, the Securities and Exchange Commission; (3) compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons; and (4) accountability for adherence to the Code of Business Conduct and Ethics. We will provide a copy of our Code of Business Conduct and Ethics by mail to any person without charge upon written request to us at: 2038 Corte Del Nogal, Suite 110, Carlsbad, CA 92011.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and stockholders holding more than 10% of our outstanding common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership of our common stock. Executive officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. As of the date of this Report we believe our Directors, Officers and Stockholders holding more than 10% of our outstanding common stock have filed these reports.
Item 10.
Item 10. Executive Compensation
The following table sets forth the compensation paid to the Chief Executive Officer and to all other executive officers for services rendered, and to be rendered, for 2008.
(1) Mr. Luis Leung was appointed to the positions of President, Chief Executive Officer, Chief Financial Officer and Secretary on December 20, 2006. On October 1, 2008, Mr. Leung agreed to settle any and all amounts due and owing to him for a one-time payment of cash. Additionally, on February 27, 2009, Mr. Leung, for consideration, agreed to provide Noctua Fund LP with a four year option to purchase all of his shares in the Company for $40,000.
Aggregated Option Exercise In Last Fiscal Year And Fiscal Year End Option Values
Our executive officers were not issued any options which could have been exercised during the fiscal year ended December 31, 2008.
Directors' Compensation
All directors receive reimbursement for reasonable out-of-pocket expenses in attending Board meetings and for promoting our business. From time to time we may engage certain members of the Board to perform services on our behalf. In such cases, we compensate the members for their services at rates no more favorable than could be obtained from unaffiliated parties.
Compensation Committee
We have not formed an independent compensation committee.
Item 11.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial ownership of the 23,000,975 issued and outstanding shares of our common stock as of the date of this Report by the following persons:
Each person who is known to be the beneficial owner of more than five percent (5%) of our issued and outstanding shares of common stock;
Each of our Directors and executive Officers; and
All of our Directors and Officers as a group
Name And Address
Number Of Shares Beneficially Owned
Percentage Owned
BCGU LLC *
15,284,479
66.45%
Mark L. Baum **
2,346,706
10.2%
Luis Leung +
2,250,617
9.78%
James B. Panther II ***
1,776,195
7.72%
Total
21,657,997
94.15%
*The address for BCGU is 2038 Corte Del Nogal, Suite 110, Carlsbad, California 92011. BCGU LLC is owned equally by entities controlled by TBLF, LLC and Devkom International, LLC. TBLF, LLC is owned and controlled by Mark L. Baum and Devkom International, LLC is owned and controlled by James B. Panther, II and another minority individual owner.
**The address for Mark L. Baum is 1302 Waugh Drive, Suite 618, Houston, Texas 77019. This excludes Mr. Baum’s beneficial ownership of shares owned by BCGU, LLC.
*** These shares are held in the name of Devkom International, LLC, which is in part beneficially owned by James B. Panther II. Devkom International LLC’s address is 2785 Pacific Coast Hwy. Suite 105, Torrance, California 90505. This ownership interest excludes beneficial ownership of shares owned by BCGU, LLC.
+ The address for Luis Leung is 15818 Sweetrose Place, Houston, Texas 77095.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. The number of shares and the percentage beneficially owned by each individual listed above include shares that are subject to options held by that individual that are immediately exercisable or exercisable within 60 days from the date of this Report and the number of shares and the percentage beneficially owned by all officers and directors as a group includes shares subject to options held by all officers and directors as a group that are immediately exercisable or exercisable within 60 days from the date of this Report.
Item 12.
Item 12. Certain Relationships and Related Transactions.
In our Form 10-Q filed on November 19, 2008, we stated that the managing member of Dao Information Systems, LLC was Luis Leung, the president of Audiostocks, Inc. We also believe it is important to disclose that there were additional related parties in the Asset Sale Transaction and the transactions that were related to the sale of the AudioStocks Business.
Dao’s managing member and 60% owner is Luis Leung, the president of Audiostocks, Inc.
Dao is 40% owned by Noctua Fund LP. Mark L. Baum and James B. Panther II are limited partners in Noctua Fund LP, and through Noctua Fund Manager LLC, manage the investments of Noctua Fund LP.
As was previously disclosed in Schedule 13D filings dated December 4, 2006, entities owned and controlled by Mark L. Baum and James B. Panther II each own and control 50% of BCGU LLC, which directly owns 15,284,479 of our common shares or approximately 66.45% of our common shares.
Mark L. Baum individually or through entities he beneficially owns and controls owns 2,346,706 or just over 10% of our common shares. Mark L. Baum is a licensed attorney in the State of California and through The Baum Law Firm PC, from time-to-time over the past four years, has provided the Company with certain legal services. Mark L. Baum is also the administrative manager of the general partner of Meaux Street Partners LP, a holder of approximately $25,000 in our debt, incurred by the Company from legal services rendered by Mr. Baum.
Devkom International, LLC, which is in part beneficially owned and controlled by James B. Panther II, owns 1,812,444 of our common shares.
Item 13.
Item 13. Exhibits.
The following Exhibits have been previously filed in the below referenced filings or have been attached hereto, and in any case, as is stated on the cover of this Report, all of the below Exhibits are incorporated herein by reference.
Form 10-SB
10/19/2006
3.1.1
Certificate of Incorporation
3.1.2
Amended and Restated Certificate of Incorporation
3.2
Bylaws
Form 8-K
8/24/2007
10.1
Lock-Up and Leak Out Agreement with BCGU LLC
10.2
Lock-Up and Leak Out Agreement with Luis Leung
Amended Form 8-K
9/5/2007
10.1
Lock-Up and Leak Out Agreement with BCGU LLC
10.2
Lock-Up and Leak Out Agreement with Luis Leung
Form 10-QSB
11/14/2007
3.1.3
Certificate of Designation (Series A and B Preferred Stock)
Form 10-Q
11/19/2008
10.1
Asset Purchase Agreement
10.2
Meaux Street Partners LP 10% Convertible Promissory Note
10.3
The Sonkei Trust Amended 10% Convertible Promissory Note
10.4
September 30, 2008 Settlement Agreements with Peer and SixTech
10.5
September 30, 2008 Settlement Agreements with David F. Rubin and John Burkett
10.6
September 30, 2008 Settlement Agreement with Luis Leung
Form 8-K
1/21/2009
10.1
License Consent Agreement
10.2
First Amended License Consent Agreement
This Form 10-K Report
4/14/2009
11.1.1
September 30, 2008 Settlement Agreements with For Goodness
11.1.2
September 30, 2008 Settlement Agreements with Mathew Luchak
11.1.3
October 1, 2008 Omnibus Settlement Agreement with Luis Leung
11.1.4
November 30, 2008 Second Amended License Consent Agreement with BCGU
11.1.5
March 19, 2009 Amendment to the Articles of Incorporation
11.1.6
March 19, 2008 Designation of Series C Preferred Stock
11.1.7
Code of Ethics adopted on February 10, 2006
11.1.8
Share Exchange Agreement with BCGU
Item 14.
Item 14. Principal Accountant Fees and Services.
Appointment of Auditors
Our Board selected Chisholm, Bierwolf, Nilson & Morrill, LLC as our auditors for the year ended December 31, 2008 and 2007.
Audit Fees
Chisholm, Bierwolf, Nilson & Morrill, LLC billed us $20,500 in fees for review of our quarterly financial statements and annual audit for the year ended December 31, 2008.
Our present account balance with Chisholm, Bierwolf, Nilson & Morrill, LLC is $8,886.
Chisholm, Bierwolf, Nilson & Morrill, LLC billed us $18,000 in fees for review of our quarterly financial statements and annual audit for the year ended December 31, 2007.
Audit-Related Fees
We did not pay any fees to Chisholm, Bierwolf, Nilson & Morrill, LLC for assurance and related services that are not reported under Audit Fees above, during our fiscal years ending December 31, 2008 or December 31, 2007.
Taxes and All Other Fees
We did not pay any fees to Chisholm, Bierwolf, Nilson & Morrill, LLC for tax compliance, tax advice, tax planning or other work during our fiscal years ending December 31, 2008 or December 31, 2007.
On March 19, 2009, we paid $406 to the State of Delaware in order to (i) revive our corporate charter, (ii) amend our article of incorporation and (iii) designate a Series C Preferred class of stock.
Pre-Approval Policies and Procedures
We have implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, our Board pre-approves all services to be provided by Chisholm, Bierwolf, Nilson & Morrill, LLC and the estimated fees related to these services.
With respect to the audit of our financial statements as of December 31, 2008, and for the year then ended, none of the hours expended on Chisholm, Bierwolf, Nilson & Morrill, LLC’a engagement to audit those financial statements were attributed to work by persons other than Chisholm, Bierwolf, Nilson & Morrill, LLC’s full-time, permanent employees.
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
AUDIOSTOCKS, INC.
By: /s/ Luis Leung
Luis Leung
Chief Executive Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.
Signatures Title Date
/s/ Luis Leung President, Chief Executive Officer, April 09, 2009
Luis Leung Chief Financial Officer and Director