Item 1. Description of Business
Business Development
Priviam, Inc. was incorporated in the state of New Jersey on April 6, 2000 as Segway VI Corp. The company has undergone the following name changes: on August 13, 2003 to 3DLP International Inc., on April 19 2004 to Futomic Industries Inc.; on February 19, 2007, to EncryptaKey, Inc. and finally on August 1, 2008 to Priviam, Inc.
On August 1, 2008, Priviam filed a Restated Certificate of Incorporation (the “Restated Certificate:”) to (i) change the Company’s name from EncryptaKey, Inc. to Priviam, Inc.; (ii) increase the number of authorized shares of common stock, par value $0.0001 per share (the “Common Stock”), of the Company from 100,000,000 shares to 500,000,000 shares; and (iii) authorize a reverse stock split at a ratio of one (1) for 3.25 of the issued and outstanding shares of Common Stock of the Company. The changes reflected by the Restated Certificate are effective as of August 1, 2008.
Previously, we were engaged in the research, development and distribution of various technologies including a 3D Adapter for the Sony Playstation II, and an incomplete 3D Laser projection system to display 3D images. On June 20, 2005, we sold our video game related technologies to SplitFish Gameware Inc. of Edmonton, Canada, a company owned by Mr. Ken Tetterington who was formerly our principal shareholder, officer and director. As a result of this transaction, we are no longer in the video game hardware business. The primary reason for exiting this business was to allow us to focus on our other business, the research and development of smart card technology related to the biometric security industry. However, we lacked the funding to pursue this line of business and were forced to delay it until we are able to acquire the necessary capital to proceed. At present, and for the foreseeable future, our smart card related security business plan remains on hold.
The Company is in the business of developing and marketing identity and data security technologies that enable the highest level of secure commercial and financial transaction both in person and over the internet, providing an effective shield to identity theft.
Business and Plan of Operation
We have completed our technology development and pilot system, which we call “PriviCom,” which functions so as to allow a user to (1) manage his finances, (2) shop online, and (3) access his home or work computer remotely and securely. The PriviCom hardware device is based on low cost Commercial off the Shelf (COTS) hardware which we procure from third party vendors and do not require manufacturing by Priviam. As we enter into established pilot programs and product / service launch we have created a product offering and delivery model which substantially reduces our financial challenges regarding deployment. Priviam is now postured to be able to deliver a viable product to market. The PriviCom hardware utilizes biometric and non-biometric data to secure personal and financial information.
We believe that our Priviam technology has the potential to effectively address a number of security issues plaguing financial institutions and individuals alike. Industry research suggests that identity fraud, bank and credit card fraud and corporate espionage costs have risen to $100B and is ever increasing.
The PriviCom biometric USB “Thumb Drive” provides a pad which will read and verify a user’s thumbprint without the need of login. Our lower cost non-biometric version uses several levels of encrypted login and does not require biometrics. The USB drives can be any available size with a minimum of 1 Gigabyte and are programmed with the proprietary operating system along with additional space (several Gigabytes if required) for holding user data. This flash drive will be partitioned so that the data is kept separate from the operating system. The system is designed so that all attempts to physically access the flash drive will be futile. Further, attempts to hack the data from a lost or stolen Priviam will be fruitless as the user’s fingerprint and or multi level encrypted login is required to replicate the unique access code.
When an end-user receives or purchases a PriviCom USB drive, he or she will first load it with personal and financial information. This will be done by plugging PriviCom directly into the USB port of the user’s personal computer. The computer will then reboot to PriviCom’s proprietary operating system and will connect through our web portal to the user’s financial institutions to download information or perform online financial activities. Once the device is set up with the user’s fingerprint, thereafter PriviCom will know who has logged on because a unique key will have been created using biometric data from the user’s fingerprint as well as his or her login name and password. This will not be able to be duplicated by anyone but the user because of the universal uniqueness of the user’s thumbprint.
Our plan is for Government institutions, financial institutions, Corporate enterprise users, medical institutions and online retailers to insert our server systems to their current systems to recognize users authenticated with PriviCom. We believe that they will do so because of PriviCom’s ability to reduce fraudulent transactions in general, particularly those based on identity theft. There can be no assurance that we will be successful in convincing financial institutions and online retailers to allow their online transaction systems to work with PriviCom.
In addition to providing secure transactions for online financial and retail purchase transactions, we also intend for PriviCom to allow a user to securely access home or work computers over the internet as an alternative to storing sensitive information on a portable laptop. We believe that secure remote access features will appeal to our target customers because the ability to remotely access home and work computers greatly reduces the security risks associated with the potential for having a laptop containing sensitive information on the internal hard drive lost or stolen while traveling. Because sensitive information will no longer need to be kept on the laptop in order for PriviCom users to have access to the information, there is no security risk if the laptop is lost or stolen. Users can remotely and securely access their computers either from laptops or public terminals. No information ever resides on the hard drive of the laptop or terminal, nor is it transmitted over the internet. Therefore, it cannot be intercepted or mined later.
We further believe that with our follow on product PriviCom could potentially supplant traditional credit cards in many face to face retail purchase transactions because of its security features. Despite the recent growth of online retail purchase transactions, a vast number of credit card sales are still face-to-face, Point-of-Service (POS) transactions. We intend to design PriviCom such that once a user’s credit card information is loaded into PriviCom as described above, it can be used for secure POS transactions, provided the retailer has the appropriate hardware and software systems to recognize PriviCom.
Our long term goal with our technology is to have systems in widespread use that will allow a user, when paying for merchandise at a retail counter, to pull out his PriviCom instead of reaching for a credit card. We believe such a use has considerable potential because, whereas credit cards can be lost or stolen and used by others to run up charges, PriviCom will not be able to be used by anyone but the primary user because of the built in biometric security features. In order to pay for merchandise, a user would place his or her thumb on the thumb pad of the PriviCom. PriviCom would read and verify that the thumb print matches the one on file for the registered user. This unlocks PriviCom and allows the user to select which credit or debit card he wishes to use in order to pay for the merchandise, just as if the user was sitting at his or her desktop computer making an online purchase. The user will then press a transmit button while holding PriviCom near the sensor pad of an Automated Teller Machine or Wireless POS Terminal. PriviCom’s low power active RFID transmitter then transmits the requisite information to confirm payment with the merchant and the bank. We have not yet designed or built, even in the prototype phase, the hardware devices and supporting software systems that would allow Priviam to be used in POS transactions. There can be no assurance that we will be able to do so or that we would be able to convince any retail or financial institutions to adopt such systems.
Our first product has been fully developed along with security and provisioning servers, all based on commercially available hardware. In order to launch our product and services, we anticipate that, provided we are successful in raising $1,000,000, we will be able to enter into mass deployment of the system and enter into several pilot programs during 2009. We do not require any facilities or equipment capable of manufacturing PriviCom in commercial quantities, with several vendors in final vetting, we have not yet entered into a finalized contract with a third party vendor.
We have successfully built and tested a pre-production version of our proprietary operating system and successfully installed it on several USB flash drives. We have demonstrated our pilot system to several interested clients during the Fourth Quarter of 2008. We were pleased with the acceptance of our pre-production system. We displayed a working prototype at the Consumer Electronics Show in Las Vegas during the 4th Quarter of 2006. We were pleased with the acceptance of our prototype and were recognized by the trade show organizers with the Best of Show - New Innovations award.
We currently have pilot program interest from Government institutions and Defense prime contractors, financial banking institutions and medical service institutions though we do not presently have any customers or contracts for sales or licensing of any product using PriviCom technology. There can be no assurance that there will be any market demand for any product we may develop.
We currently have forecasted the expenditure of approximately $1.6 million during the next twelve months in order to pilot and launch PriviCom, on sales and marketing, on general and administrative expenses, and for working capital requirements, including the anticipated cost of compliance with the reporting requirements of the Securities Exchange Act of 1934. These estimates do not include any unanticipated capital requirements that may be needed should we identify any products or business acquisitions that may add value to our current products.
The completion of our business plan for the next 12 months is contingent upon us obtaining that financing. If we are unable to obtain sufficient financing, our business plan will be significantly impaired. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds. Without the necessary financing, we will not be able to pursue our plan of operations until such time as the necessary funds are raised. There can be no assurance that additional financing will be available to us when needed or, if available that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional funding on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease operation of our business.
In the long-term, our ability to continue as a going concern is dependent upon successful and sufficient market acceptance of our product offerings and any new product offerings that we may introduce, the continuing successful development of our products and related technologies, and finally achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution of equity interest of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments.
After the close of the reporting period, on February 5, 2007, we entered into an Asset Purchase Agreement with Owen Consulting Inc., a Nevada Corporation. Pursuant to that agreement, we acquired assets consisting of all right, title and interest in server hardware and software in exchange for 636,120 shares of our restricted common stock. The equipment and software we acquired will allow us to continue development of our primary product.
In August of 2008 we entered into an asset purchase agreement with Nexicon, Inc. a Nevada corporation. Pursuant to that agreement, we acquired assets consisting of all right, title and interest in server hardware and software in exchange for 5,000,000 shares of our restricted common stock. The equipment and software we acquired will allow us to continue development of our primary product. We do not anticipate that we will need to acquire a plant or purchase any additional, significant equipment during 2009.
Industry Overview
As computer use migrates towards a networked environment, and our economy shifts towards information as a primary asset, individuals and organizations are becoming more concerned with protecting individual privacy and ensuring the security of information maintained on personal computers, the Internet, and corporate networks.
Traditional processes for authenticating and identifying individuals have long histories, but inherent weaknesses. Criminals and imposters can easily compromise these processes by falsifying credentials by forging a signature, altering a photograph on a driver’s license or passport, or stealing a credit card. Imposters can use the compromised credentials to gain unauthorized access to confidential information, such as medical data and financial records, and cause significant harm. Traditional authentication and identification methodologies can also be cumbersome and inefficient to use. Individuals are required to remember several passwords and PINs for the multitude of access, credit and membership cards they carry. The costs incurred by organizations to administer these traditional processes can be significant.
A number of technologies and strategies have been developed in the Information Security industry in recent years to address these concerns, including encryption methods, firewalls, intrusion detection tools, access permission systems, passwords, identification cards or tokens, magnetic strip cards, digital certificates, bootable thumb drives, and single sign-on applications. However, the effectiveness of each of these technologies and strategies is dependent upon the most critical and vulnerable component of the security process - positive personal identification and authentication of the individual seeking access.
With the growth of electronic commerce and the realities of business operations, access points to the Internet and enterprise networks have increased significantly, and now include desktops, home PCs, mobile laptops, and hand-held devices including cellular phones. Computer industry leaders have called for the end of passwords as a means to access computers and networks. This is due to the fact that using passwords as the primary method of verifying the identity of users (remote and local) is subject to a number of security weaknesses. Passwords are frequently shared. Passwords are often written down and placed where others can see them. Common passwords like a pet’s name or spouse’s name can be guessed. More complex passwords can be broken in minutes through sophisticated “dictionary” attacks based on tools that are easily available from Internet websites. Attempts to increase security by requiring complex passwords comprised of letters, numbers, and symbols are often met with significant resistance by users. For large organizations, there is also a measurable cost of managing forgotten and expired passwords relating to administration overhead and lost employee productivity.
Financial organizations, government agencies, corporations, and other organizations performing computer-based electronic transactions have sought a simple and secure way of digitally authenticating identities. The use of biometric authentication represents a cost-effective means of providing positive proof of identity when approving computer-based transactions. The resultant audit trail of events links certain events to an individual’s unique biometric characteristics. Similar identification techniques can be applied to point-of-service purchases at retail locations when paired with credit cards or other instruments.
We believe that a sustainable market is developing for higher assurance authentication technologies used in information security, data privacy, and electronic access control applications. There are several factors that we believe will contribute to the growth of this industry:
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Highly publicized security breaches in computer networks and Internet sites, which have been traced to the vulnerability of password-based authentication systems by hackers and unauthorized access by disgruntled employees.
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The growth of e-commerce as a medium for business and consumer transactions, which requires the implementation of technologies that facilitate the positive identification of anonymous parties.
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The cost and inconvenience of using multiple or complex passwords that are frequently changed. Businesses are realizing true cost and time savings by implementing password alternatives for user authentication.
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The information technology industry is beginning to utilize advanced solutions to protect computer information. The primary means of protecting computer information is data encryption, which requires protection of the encryption “keys” used to lock up the data. Today, these keys are generally stored in computers or smart cards and are commonly protected by PINs or passwords. We believe biometrics will play an increasingly important role in protecting these keys from unauthorized access.
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IT industry leaders such as Microsoft, Citrix, Computer Associates, Dell, Hewlett Packard, Novell, MPC Computers, IBM, and Intel are supporting the integration of biometrics within their system platforms and have publicly announced that information security is a top corporate focus.
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Falling prices for biometric collection devices, such as fingerprint sensors, digital cameras, microphones, etc., and improvements in accuracy, performance, and acceptance of this technology have made integration of biometrics for physical access, desktop PCs, and portable computers a cost effective security alternative for the public sector and commercial market.
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New biometric devices, such as silicon chip-based fingerprint sensors and iris recognition cameras, are now widely available from name-brand commercial vendors such as Targus and Panasonic.
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The April 12, 2007 issue of the Wall Street Journal reported: “A majority of Americans have said they are comfortable with the use of biometric identification. In a survey published in February, Unisys found that 63% of those polled were worried about identity fraud and 69% said they would prefer that banks, credit-card companies, health-care providers, and government organizations adopt biometrics over smart-card readers, security tokens or passwords.”
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Legislation and regulations adoption-such as the landmark Health Insurance Portability and Accountability Act (HIPPA) healthcare regulations, the Gramm-Leach-Bliley Financial Modernization Act-require that customer information, data, and financial records be kept secured, and outline substantial penalties for failure to do so. The FDA regulation 21CFR Part 11 requires positive authentication of digital signatures placed on electronic records created within regulated industries such as pharmaceutical manufacturing.
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The BioAPI Consortium, a group of over 120 organizations from the biometrics industry, government and information technology vendors, was successful in having the BioAPI Specification accepted as an official standard by the American National Standards Institute (ANSI). This specification defines a single industry-standard specification for connecting biometric devices to computer systems and is expected to encourage implementation of biometrics by facilitating the interoperability of different biometric technologies. This standard is now before the International Organization for Standards (ISO) for balloting to become an international standard.
Evolution of Biometric Authentication and Identification Processes
The inadequacies of traditional authentication and identification processes, coupled with more stringent security requirements and an increasingly global economy and mobile population, have in recent years contributed to the increased focus on the development of biometrics for Information Security. Biometrics is the automated use of unique physiological characteristics of individuals, such as fingerprints, palm prints, faces or irises, to determine or verify an individual’s identity. The individual’s biometric characteristic is captured and encoded and then compared against previously encoded biometric data stored in an electronic database to determine or verify the individual’s identity. Because biometrics technology utilizes an unchanging, unique characteristic of a person that cannot be lost, stolen, shared or forgotten, it has the capability to be more accurate, convenient and cost-effective than traditional methodologies.
Fingerprints have been, and we believe will continue to be, the most widely used biometric because they are relatively simple to capture, are relatively non-intrusive, and benefit from a substantial existing infrastructure that employs fingerprints for identification. The American National Standard Institute and the National Institute of Standards and Technology have standardized a common format, called ANSI/NIST, which is used to describe and classify fingerprints.
Growth Expected in the Market for Fingerprint Biometrics Products and Solutions
The market for fingerprint biometrics solutions is expected to increase in coming years. Advances in technology and widespread deployment of biometric systems are resulting in both increased public awareness and acceptance of biometric solutions and the establishment of an infrastructure that we believe will expedite the adoption of other fingerprint biometrics solutions. Fingerprint biometric solutions have become much more sophisticated and capable of application in a number of other environments. Several initiatives requiring increased spending on other fingerprint biometrics solutions have already begun. For example, numerous foreign jurisdictions around the world have begun to establish national identification card programs, which will require the issuance of smart ID cards with embedded fingerprint information for each citizen.
Foreign jurisdictions such as Hong Kong, Italy, Morocco, the United Kingdom and Thailand have implemented or are in the process of implementing national identification programs. In addition, countries such as Venezuela have begun to use fingerprint biometrics systems to streamline the voting process and prevent fraud in local and national elections. Moreover, consumers have also begun to embrace biometrics authentication, particularly for the purposes of providing increased security on laptops, cell phones and other smart handheld devices that are beginning to store increasing amounts of personal information.
Market for Our Products and Services
We plan on marketing our products and services to both institutions and end consumers. While we believe that our institutional customers will push our products through to the end user, the inverse is also true - demand from end users will encourage large entities to embrace our products and services. Both markets will be driven by a need to protect the privacy of their electronic information.
Individual Users
With the ongoing explosion of identity theft and financial fraud in the United States, individuals are now, more than ever, looking for a way to protect their identity and their private information from both online and more traditional theft. Priviam provides a comprehensive solution to the information security issues facing individuals today. We will initially provide security for online transactions, point-of-service retail transactions, internet access, access to financial data and medical records, physical access to buildings and vehicles, and access to desktop or laptop computers. A myriad of other possible future applications suggests that our technology could become the cornerstone for an individual’s complete security solution in the future.
Institutional Users
The key to Priviam’s widespread acceptance and use is the adoption of our technology, products, and services by large, institutional organizations such as financial institutions, internet portals, government agencies, large corporations, and healthcare organizations. They are highly motivated to secure their data and transactions as they book billions of dollars of losses each year as a result of fraud. If they adapt their infrastructure to allow us to provide the solution to their information security issues, it will drive large numbers of individuals who use their products and services to adapt and accept our security solutions as well.
Financial Institutions
The finance industry is initially our primary target market. The nature of the transactions in this industry, both online and face to face, and the level and number of fraudulent transactions in the finance industry make it a perfect fit with our Priviam technology. Priviam will allow users to securely access and manage their bank accounts, stock portfolios, and other financial information.
Corporate Customers
With the ever increasing amount of data to process, companies of every shape and size are struggling with how to best secure their information from internal and external threats. Priviam provides the solution to this problem. Priviam provides intellectual property protection, SOX compliance, secure remote workforce connections, and support for existing network infrastructure designed to protect critical systems. The remote workforce connection application is particularly appealing to corporations as the modern workforce continues to become more mobile each year. When employees log in to a company’s computer network, or even has the capability to do so, that company’s network and the data contained thereon are at risk. By utilizing Priviam, companies can provide a significantly higher level of protection for their data and improved tracking of data access, thus preventing significant losses from fraud, hacking, and sabotage.
Government Agencies
Government agencies, like other large organizations, are concerned with protecting sensitive data, allowing secure access from remote computers, and protecting major systems from malicious attack. The PriviCom solution may enable individuals secure access to various electronic government information and services. In the future, this could evolve into electronic voting, passports, national identity cards or access to social security records. Within the United States government, there are several agencies that could benefit from the PriviCom solution, including Law enforcement (police departments, CIA, FBI, etc.); Homeland Security; Internal Revenue Service; Social Security Administration; and Department of Veterans Affairs. Other national governments around the world have similar agencies, which could similarly benefit from our products and services.
Healthcare Organizations
Constantly seeking ways to bring greater efficiencies to the healthcare market, many companies are offering technical solutions covering every aspect of the healthcare value chain. Because of HIPAA (Health Insurance Portability and Protection Act), one area receiving increasing attention is the Electronic Medical Record (EMR).
From doctors and nurses to technicians and billing clerks, roughly 150 different people have access to at least part of a patient's records during hospitalization. More than 600,000 payers, providers and other entities handle the billing and payment of healthcare transactions. Because of the potential productivity gains, the number one goal for the National Coordinator for Health Information Technology is to build a national electronic health information infrastructure capable of offering Electronic Medical Records (EMR) for most Americans within the next seven years. Priviam believes it can be an important part of that infrastructure.
Other significant segments of the healthcare industry in which we believe Priviam could provide a solution to information access and security issues are hospitals and medical centers; large physician medical groups; claims processing firms; physician offices; and individual patients.
Competition
MasterCard PayPass is a new contactless way to pay. By tapping a card, key fob, or mobile phone, consumers can pay at retail checkout locations. PayPass uses a hidden embedded computer chip and radio frequency antennae. After consumers tap their PayPass at checkout, payment details are sent wirelessly to the MasterCard network, and payment confirmation is sent back. Speed and convenience are the hallmarks of this product. However, should someone steal or find a consumer’s PayPass , there is nothing to prevent them from making charges with the device until the consumer reports it stolen. MasterCard compensates by offering the same liability protection they offer with all their cards.
StealthSurfer is a Windows PC compatible key-sized USB device that is preloaded with Firefox, Anonymizer, RoboForm , and Thunderbird software configured and integrated for optimum privacy. Users insert the device into a computer’s USB port - home computer, laptop, or public terminal - and the computer reboots to the operating system stored on StealthSurfer. Thereafter, all information is run through the StealthSurfer - not the computer’s traditional memory and storage mediums. When using StealthSurfer, all sensitive Internet files such as cookies, internet history, and cache are stored on the StealthSurfer USB device instead of the user’s computer. Password protection maintains the user’s data's privacy and security. StealthSurfer conceals the user’s web surfing habits, files, and visited web sites from anyone who has physical access to the user’s computer as a way of blocking identity theft. StealthSurfer keeps surfing information encrypted, hidden, and anonymous - it protects identities. Passwords are stored on the StealthSurfer with 3DES encryption and allows users to log on to web sites quickly and easily. Advanced and secure E-mail programs are included in StealthSurfer to your portable private email.
Dell, Hewlett-Packard, Sony, IBM, and a myriad of other computer manufacturers now build laptops and even desktop computers with biometric authentication available. Only users with fingerprints, which have been authorized for use on that machine, will be allowed access to the computer, eliminating the need for passwords and allaying many data security concerns. The April 12, 2007 Wall Street Journal reported that approximately 10% of new laptops sold in the United States come equipped with fingerprint sensors.
Sony produces two additional products that offer competitive solutions for information security concerns. The first is a Micro Vault Fingerprint Access USB Flash Drive. It works as any other flash drive, but a fingerprint scan is required to access the information on the flash drive. The FIU-810 Personal Puppy Suite Fingerprint Identity Token Bundle is also a fingerprint access USB flash drive. The FIU-810, however, can be used to log in to Windows, effectively requiring biometric authentication for computer access. It also encrypts files and replaces all of your online IDs and passwords so that your fingerprint scan is required to access internet sites.
Most certainly, Priviam will face formidable competitive challenges in the near and long term as we compete with other companies who have significantly greater resources than ourselves. While each of these companies, and many others like them, are offering unique solutions to some of the problems facing the information security industry, Priviam offers the highest level of online and in-person identity protection currently known to be available. With five levels of authentication made up of something you have (the key), something you know (user name, password and symbol) and something you are (biometric finger print), Priviam allows users to make credit card purchases, conduct online financial transactions, and access, view and transmit sensitive personal or corporate data with complete confidence.
Major Customers
There is no dependence on one or a few major customers.
Patents, Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor Contracts
On September 28, 2006, we entered into an Asset Purchase Agreement with Owen Consulting LLC, a California limited liability company. Pursuant to that agreement, we acquired assets consisting of all right, title and interest in technology commonly known as the PriviCom Secure Communication Portal and memorialized in a patent application pending before the Patent and Trademark Office as application no. 60745514, filed April 24, 2006, titled “Invisidesk Private Communication, Authentication and Connection Portal” and the related intellectual property. The patent is still pending and has not yet been granted.
In addition to our intellectual property as contained in US patent application number 60745514 and follow on related patent applications, Priviam is in the patent application process of several new and improved patents related to our expanded product and service offerings.
Research and Development
We did not incur any research and development expenditures in the fiscal year ended December 31, 2008. We incurred research and development expenditures in the fiscal year ended December 31, 2006 of approximately $890,000, all of which was related to our Priviam technology. During 2009 we anticipate spending approximately $250,000 of our total anticipated capital needs of approximately $1.4 million on further research and development of our Priviam technology. The focus of these expenditures during 2009 will be further work on pilot programs and product launch.
Sales and Marketing
We have begun promoting and marketing our products through multiple channels in order to develop pilot projects in our various verticals. We plan to direct our initial marketing effort to target Government services and agencies, corporate enterprise services, financial services, medical data service, and merchant services along with internet retailers. We have and will continue to demonstrate the feasibility of our products to our potential customers via pilot projects. We anticipate we will expend approximately $200,000 during 2009 on sales and marketing activities, including the salaries of any new or existing employees and consultants involved in sales and marketing.
Compliance with Environmental Laws
We did not incur any costs in connection with the compliance with any federal, state, or local environmental laws.
Employees
We currently have two full-time employees. We believe that our relations with our employees are good.
Item 1A.
Item 1A. Risk Factors
You should carefully consider the following risk factors and other information in this report before deciding to become a shareholder of our common stock. Your investment in our common stock is highly speculative and involves a high degree of risk. You should not invest in our common stock unless you can afford to lose your entire investment and you are not dependent on the funds you are investing.
Because we have a limited operating history, you may not be able to accurately evaluate our operations.
We have had limited operations to date and have never generated revenue. Therefore, we have a limited operating history upon which to evaluate the merits of investing in the Company. Because we are in the early stages of operating our business, we are subject to many of the same risks inherent in the operation of a business with a limited operating history, including the potential inability to continue as a going concern.
We are dependent on outside financing for continuation of our operations.
Because we have never generated revenue and currently operate at a significant loss, we are completely dependent on the continued availability of financing in order to continue our business. There can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future. Our failure to obtain future financing or to produce levels of revenue to meet our financial needs could result in our inability to continue as a going concern and, as a result, investors in the Company could lose their entire investment.
Our business will not grow unless the market for biometric products and services expands both domestically and internationally.
Our revenues will be derived from the sale of biometric products and services. Biometric products have not gained widespread commercial acceptance. We cannot accurately predict the future growth rate, if any, or the ultimate size of the biometric technology market. The expansion of the market for our anticipated products depends on a number of factors including without limitation:
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national or international events which may affect the need for or interest in biometric products or services;
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the cost, performance and reliability of our products and services and those of our competitors;
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customers’ perception of the perceived benefit of biometric products and services and their satisfaction with our products and services;
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public perceptions of the intrusiveness of these products and services and the manner in which firms are using the information collected;
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public perceptions regarding the confidentiality of private information;
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proposed or enacted legislation related to privacy of information; and
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marketing efforts and publicity regarding these products and services.
The Technologies We Have Developed May Not Gain Market Acceptance.
Our biometric products utilize new technologies. As with any new technologies, in order for us to be successful, these technologies must gain market acceptance. Since the technologies that we are introducing to the marketplace will encroach upon markets that presently utilize or are serviced by products from competing technologies, meaningful commercial markets may not develop for our technologies.
We May Not Be Able To Compete Successfully.
Although our biometric products represents a new technology, and although at present time we are aware of only a limited number of companies that have publicly disclosed their attempts to develop a similar technology, we anticipate that a number of companies are or will attempt to develop technologies/products that compete or will compete with our technologies. Further, even if we are first to market with a technology of this type, and even if the technology is protected by patents or otherwise, because of the vast market of such a product, we anticipate that the market will be flooded by a variety of competitors, many of which will offer a range of products in areas other than those in which we compete, which may make our competitors more attractive to prospective customers. In addition, many if not all of our competitors and potential competitors will initially be larger and have greater financial resources than we do. Some of the companies with which we may now be in competition, or with which we may compete in the future, have or may have more extensive research, marketing and manufacturing capabilities and significantly greater technical and personnel resources than we do, and may be better positioned to continue to improve their technology in order to compete in an evolving industry. Further, technology in this industry may evolve rapidly once an initially successful product is introduced, making timely product innovations and use of new technologies essential to our success in the marketplace. The introduction by our competitors of products with improved technologies or features may render any product we initially market obsolete and unmarketable. If we do not have available to us products that respond to industry changes in a timely manner, or if our products do not perform well, our business and financial condition will be adversely affected.
Certain groups have publicly objected to the use of biometric products for some applications on civil liberties grounds and legislation has been proposed to regulate the use of biometric security products.
From time to time, biometrics technologies have been the focus of organizations and individuals seeking to curtail or eliminate such technologies on the grounds that they may be used to diminish personal privacy rights. If such initiatives result in restrictive legislation, the market for biometric solutions may be adversely affected. Even if biometric solutions gain wide market acceptance, our products and services may not adequately address the requirements of the market and may not gain wide market acceptance.
We may face intense competition from other biometric solution providers as well as identification and security systems providers.
A significant number of established and startup companies are marketing or developing software and hardware for facial and/or fingerprint biometric products and applications that may compete with our proposed offerings.
The biometric security market is a rapidly evolving and intensely competitive, and we believe that additional significant long-term competitors will continue to enter the market. We expect competition in the biometrics markets to increase and intensify in the near term. Companies competing with us may introduce products that are targeted at our target markets and competitively priced, have increased performance or functionality or incorporate technological advances we have not yet developed or implemented. Some present and potential competitors have financial, marketing, research, and manufacturing resources substantially greater than ours. Other players in the biometric do have the potential to directly compete with us. Among these companies are Sagem Morpho, Inc., Cogent, NEC, Printrak International, Inc., (a Motorola company), and Saflink. However, these companies primarily focus on networked-based, or computer based systems that require a sophisticated computer-based infrastructure to operate. Our company’s products are embedded and self contained and do not require a computer to operate.
The biometrics industry is characterized by rapid technological change and requires introduction of new and enhanced products at competitive prices.
In order to compete effectively in the biometrics market, we must continually design, develop and market new and enhanced products at competitive prices and we must have the resources available to invest in significant research and development activities. Our future success will depend upon our ability to address the changing and sophisticated needs of the marketplace. Frequently, technical development programs in the biometric industry require assessments to be made of the future directions of technology and technology markets generally, which are inherently risky and difficult to predict. Delays in introducing new products, services and enhancements, the failure to choose correctly among technical alternatives or the failure to offer innovative products and services at competitive prices may cause customers to forego purchases of our products and services and purchase those of our competitors, and could adversely affect our business operations, financial results and stock price.
If we are unable to establish and maintain relationships with retailers and insurance providers or attract franchisees, we may not be able to continue our operations
We intend to establish relationships with retailers and insurance providers. However, there is intense competition for these relationships and we may not be able to attract and retain these groups’ interest in light of competitors with larger budgets and pre-existing relationships. In addition, if we are unable to develop a market for our products, it will be very difficult, if not impossible, to attract franchisees interested in selling our products.
Our operating results and revenue may be subject to fluctuations caused by many economic factors associated with our industry and the markets for our products and services, which, in turn, may individually and collectively affect our revenue, profitability and cash flow in adverse and unpredictable ways.
Quarterly and annual results of operations may be affected by a number of factors associated with our industry and the markets for our products and services, including those listed below, which in turn could adversely affect our revenue, profitability and cash flow in the future.
Our operating results may vary and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control. These factors include the following:
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the size, timing and shipment of individual orders for our products;
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changes in our operating expenses;
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the timing of personnel departures and new hires and the rate at which new personnel become productive;
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the timing of the introduction or enhancement of our products and our competitors’ products;
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customers deferring their orders in anticipation of the introduction of new products by us or our competitors;
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market acceptance of new products;
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changes in the mix of products sold;
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changes in product pricing, including changes in our competitors’ pricing policies;
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development and performance of our direct and indirect distribution channels and changes in the mix of vertical markets to which we sell our products;
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the amount and timing of charges relating to restructurings and the impairment or loss of value of some of our assets, especially goodwill and intangible assets; and
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general economic conditions.
To be competitive we may need to acquire other companies or purchase or license technology from third parties in order to introduce new products and services or enhance our existing products and services.
We may not be able to find businesses that have the technology we need and, if we find such businesses, may not be able to purchase or license the technology on commercially favorable terms or at all. Once we have completed an acquisition or technology license, the acquired business or our relationship with the licensor may not be successful. In addition, acquisitions and technology licenses are difficult to identify and complete for a number of reasons, including the cost of potential transactions, competition among prospective buyers and licensees and the need for regulatory approvals. In order to finance a potential transaction, we may need to raise additional funds by selling our stock or borrowing money. We may not be able to find financing on favorable terms, and the sale of our stock may result in the dilution of our existing stockholders.
Some of our anticipated products may have long and unpredictable sales cycles, which may impact our quarterly operating results.
Transactions for some of our anticipated products often involve large expenditures by our customers. The sales cycles for these transactions can be long and unpredictable due to a number of uncertainties such as:
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customers’ willingness to invest potentially substantial resources and modify their network infrastructures to take advantage of our products;
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customers’ budgetary constraints;
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the need to educate potential customers about our products’ capabilities;
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the timing of customers’ budget cycles;
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delays caused by customers’ internal review processes; and
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for sales to government customers, governmental regulatory, approval and purchasing requirements.
During times when the global economy experiences weakness or uncertainty, we may have difficulty selling our products and services.
The global economy, especially the technology sector, can be volatile, and an economic slowdown can have serious negative consequences for our business and operating results. For example, during a period of economic weakness or uncertainty, current or potential customers may defer purchases, go out of business or have insufficient capital to buy or pay for our products and services. During the last several years, we have observed that many companies have reduced their budgets for information technology products and services, which may reduce or eliminate some potential sales of our products and services.
If we fail to become competitive, then we may fail to gain market share for our products and services.
We have seen increased competition in our market in recent years, and we expect this trend to continue. A number of competitive factors could cause us to lose potential sales or to sell our products and services at lower prices or at reduced margins, including, among others:
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Some of our competitors offer e-security products with features and functionality that our products do not currently offer. In addition, potential customers may perceive some of our competitors’ products and services as being more convenient and easier to use than ours.
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Some computer and software companies that have not traditionally offered e-security products are now offering free or low-cost e-security products and functionality bundled with their own computer and software products.
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Some of our current and potential competitors have greater financial, marketing and technical resources than we do, allowing them to leverage an installed customer base and distribution network, adapt more quickly to new technologies and changes in customer requirements, or devote greater resources to the promotion and sale of their products and services than we can.
We depend heavily on key, talented employees in a competitive labor market.
Our success depends on our ability to attract, motivate and retain skilled personnel especially in the areas of management, sales and engineering. We compete with other companies for a small pool of highly qualified employees. Although we believe that our compensation plans are competitive, we may not be able to hire and retain the employees we need.
If the market for e-security solutions does not continue to grow, then demand for our products and services may decrease.
The market for some of our e-security solutions is continuing to develop, and demand for our products and services depends on, among other things:
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the perceived ability of our products and services to address real customer problems;
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the perceived quality, price, ease-of-use and interoperability of our products and services as compared to those of our competitors;
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the market’s perception of how easy or difficult it is to deploy our products, especially in complex, heterogeneous network environments;
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the continued evolution of electronic commerce as a viable means of conducting business;
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market acceptance and use of new technologies and standards;
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the ability of network infrastructures to support an increasing number of users and services;
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the public’s perception of the need for secure electronic commerce and communications over both wired and wireless computer networks;
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the U.S. government’s continued focus on e-security as a means to counteract terrorism and other hostile acts;
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the pace of technological change and our ability to keep up with these changes;
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the market’s perception of our products’ ability to address the e-security aspects of various laws; and
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general economic conditions, which, among other things, influence how much money our customers and potential customers are willing to allocate to their information technology budgets.
Unless we keep up with the ongoing changes in e-security technology and standards, our anticipated products and services could become obsolete.
Our success depends in part upon our ability to introduce new, competitively priced products and solutions with features that meet changing market requirements, all in a timely and cost-effective manner. A number of factors, including the following, could have a negative impact on the success of our products and services:
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quality, reliability or security failures, which could result in product returns, delays in collecting accounts receivable, unexpected service or warranty expenses, reduced orders and a decline in our competitive position;
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delays or difficulties in the development of our products and services;
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our competitors’ introduction of new products or services ahead of our new products or services, or their introduction of superior or cheaper products or services;
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the availability of free, unpatented implementations of encryption algorithms and security protocols;
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the market’s failure to accept new technologies, including consumer authentication, connected authentication devices, biometric devices, enterprise strong authentication, web access management and digital certificates;
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our failure to include features in our products, or obtain industry and governmental certifications, that our customers or U.S. or foreign government regulators may require;
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our failure to anticipate changes in customers’ requirements; and
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the implementation of industry or government standards that are inconsistent with the technology embodied in our products and services.
International sales make up a significant portion of our business.
We intend to expand our international operations and international sales and marketing activities. For example, we expect to expand our operations and marketing activities throughout Asia, Europe, Latin America and South America. Expansion in these international markets can require significant and continued management attention and resources. We may also need to tailor some of our other services for a particular market and to enter into international distribution and operating relationships. We have limited experience in localizing our services and in developing international distribution or operating relationships. We may not succeed in expanding our services into international markets. Failure to do so could harm our business. In addition, there are risks inherent in doing business on an international basis, including, among others:
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foreign regulatory requirements and the burdens of complying with a wide variety of foreign laws;
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legal uncertainty regarding liability and the costs of resolving or litigating a dispute internationally;
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difficulties in the enforcement of intellectual property rights;
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export and import restrictions on cryptographic technology and products incorporating that technology;
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difficulties and delays in establishing international distribution channels;
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the need to tailor or “localize” our products in order to compete in particular international markets and to comply with foreign laws;
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difficulties in collecting international accounts receivable;
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fluctuations in currency exchange rates;
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potentially adverse tax consequences, including restrictions on the repatriation of earnings;
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tariffs and other trade barriers; and
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political instability.
We rely on patents to protect our proprietary rights in our technology, but patents may not provide complete protection:
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It is possible that any patent that we or our licensors hold might be invalidated, circumvented, challenged or terminated.
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It is possible that patent examiners might reject the claims described in our pending or future patent applications.
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The laws of some countries in which our products are now, or may in the future be, developed or sold may not protect our products and intellectual property rights to the same extent as the laws of the United States.
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All patents expire after a period of years. When each of our patents expires, other companies may develop and sell products based on our previously patented technology.
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During the life of a patent, third parties may design and sell “work-around” solutions that accomplish the goals of our patented inventions but do not infringe the patents themselves.
We must establish and maintain strategic relationships.
We need to create relationships with third parties, including some of our competitors, to ensure that our products will interoperate with the third parties’ products. If our products do not work with third-party products used by our customers and potential customers, then our products could lose or fail to achieve market acceptance. We may not be able to find appropriate strategic partners or may not be able to enter into relationships on commercially favorable terms. Furthermore, the relationships we do enter into may not be successful. Because our strategic relationships are generally non-exclusive, our strategic partners may decide to pursue alternative technologies or to develop alternative products in addition to or instead of our products, either on their own or in collaboration with our competitors.
Security technologies are under constant attack.
The strength of our cryptographic and other e-security technologies is constantly being tested by computer professionals, academics and “hackers.” Any significant advance in the techniques for attacking e-security solutions could make some or all of our products obsolete or unmarketable. If a third party successfully “hacks” any of our products and makes its findings public, then we may need to dedicate engineering and other resources to eliminate the published vulnerabilities. Customers could require that we replace some or all of their Priviam authenticators with authenticators that are more secure. If we are required to make these replacements or if we cannot address the vulnerabilities in our products in a timely fashion, then our business and operating results could be adversely impacted. In addition, our customers and potential customers could perceive our products as unreliable, making it more difficult for us to sell our products.
We may incur significant expenses and damages because of liability claims.
An actual or perceived breach of network or data security at our facilities or at a customer’s facilities could result in a product liability claim against us. A substantial product liability claim against us could harm our operating results and financial condition. In addition, any actual or perceived breach of network or data security, whether or not caused by the failure of one of our products, could hurt our reputation and cause potential customers to turn to our competitors’ products.
Failure to Achieve and Maintain Internal Controls in Accordance with Sections 302 and 404(a) of the Sarbanes-Oxley Act of 2002 Could Have A Material Adverse Effect on Our Business and Stock Price.
If we fail to maintain adequate internal controls or fail to implement required new or improved controls, as such control standards are modified, supplemented or amended from time to time; we may not be able to assert that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud. If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price. We have examined and evaluated our internal control procedures to satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act, as required for our Annual Report on Form 10-K for the year ending December 31, 2008.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our consolidated financial statements as of December 31, 2008 have been prepared under the assumption that we will continue as a going concern for the year ending December 31, 2008. Our independent registered public accounting firm has issued a report dated April 14, 2009 that included an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern without additional capital or financing becoming available. Our ability to continue as a going concern ultimately depends on our ability to generate a profit which is likely dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
RISKS RELATING TO OUR COMMON STOCK
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
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technological innovations or new products and services by us or our competitors;
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intellectual property disputes;
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additions or departures of key personnel;
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sales of our common stock (particularly following effectiveness of the resale registration statement required to be filed in connection with the Private Placement);
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our ability to execute our business plan;
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operating results that fall below expectations;
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loss of any strategic relationship;
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industry developments;
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economic and other external factors; and
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period-to-period fluctuations in our financial results.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Stock.
We have never paid dividends and do not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as our board of directors may consider relevant. If we do not pay dividends, a return on an investment in our common stock will only occur if our stock price appreciates.
Our common stock may be deemed a “penny stock”, which would make it more difficult for our investors to sell their shares.
Our common stock may be subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act of 1934. The penny stock rules apply to non-NASDAQ companies whose common stock trades at less than $5.00 per share or that have tangible net worth of less than $5.0 million ($2.0 million if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities are limited. Remaining subject to the penny stock rules for any significant period could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
Furthermore, for companies whose securities are traded in the OTC Bulletin Board, it is more difficult to obtain accurate quotations, obtain coverage for significant news events because major wire services generally do not publish press releases about such companies and obtain needed capital.
Sales of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options, the market price of our common stock could fall. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Additional stock offerings may dilute current stockholders .
Given our expansion plans and our expectation that we may need additional capital and personnel, we may need to issue additional shares of capital stock or securities convertible or exercisable for shares of capital stock, including preferred stock, options or warrants. The issuance of additional capital stock may dilute the ownership of our current stockholders.
Being a public company will increase our administrative costs and may add other burdens .
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, rules implemented by the Securities and Exchange Commission, or SEC, and new listing requirements of the Nasdaq National Market have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly those serving on our audit committee.
Item 2.
Item 2. Description of Property
We currently have a 12 month lease of our executive offices, consisting of 256 square feet, located at 19200 Von Karman Ave., Suite 500, Irvine, CA, at a cost of $1,476 per month. We believe our facilities are adequate for our current needs.
Item 3.
Item 3. Legal Proceedings
Other than as noted below, we are not a party to any pending legal proceeding nor is the property of the Company subject to a pending legal proceeding that is not in the ordinary course of business or otherwise material to the financial statements of the Company’s business.
Priviam, Inc., a New Jersey corporation, formerly known as EncryptaKey, Inc., a New Jersey corporation vs. Kelly Owen, Owen Consulting LLC, and EncryptaKey, Inc., a Nevada corporation.
The case as filed on July 23, 2008 in the Superior Court of the State of California, In and For the County of Orange, Santa Ana, California. Case No. 30-2008-00109638. Judge assigned is Judge David Chaffee, Department C17. Case was filed on July 23, 2008. The trial date is September 21, 2009. Claims in the case are breach of fiduciary duty against Kelly Owen, conversion against all three named defendants, fraud- concealment against Kelly Owen, and an action for an accounting. Relief sought is rescission of agreement, monetary damages in excess of $3 million, and rights to IP. We claim that Owen absconded with investment funds of EK- New Jersey and then attempted to undo his duties to corporation (Owen was sole officer and director) by trying to return some shares and take IP back into control.
We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted to our security holders for a vote, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 2008.
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
There is presently no public market for our common stock.
As of April 15, 2009, we had 44,193,528 shares of common stock issued and outstanding and approximately 76 holders of record of our common stock.
Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain earnings, if any, to support our growth strategy and do not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion.
Securities Authorized for Issuance under Equity Compensation Plans
No securities have been authorized for issuance under an equity compensation plan as of December 31, 2008.
Recent Sales of Unregistered Securities
On August 28, 2008, the Company entered into a technology asset purchase agreement with Nexicon, Inc., pursuant to which the Company acquired all right, title and interest in the NexiOne device and all intellectual property related thereto in exchange for 5,000,000 shares of the Company’s common stock.
Item 6.
Item 6. Selected Financial Data.
Not Applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Plan of Operation
We are still in our relative infancy as a viable commercial entity, and consequently our focus has been on the identification of our market needs, the development of products and services to meet those needs, and the branding of our company and services. Please see “Description of Business and Plan of Operation,” above.
The Company has sufficient funds to complete initial product development within a three month period and sustain its operations six months beyond product development completion. The Company anticipates additional funding required during the product rollout cycle for operations growth and customer pilot programs.
Product research and development performed during the duration of this plan will address scalability issues of database and hardware over the short term. On a more long range basis, research and development will continue in the same areas as that which produced the Company’s product and services, with an eye to spin-offs from the technology for future projects and fine-tuning of the present system. There are several modules in the works to expand the utility of the device. There will be continued perfection of the PriviCom device, including finalizing the programming of the Associated Portal and the operating system.
There are no plans for the purchase of significant capital equipment for the first six months of the research and development phase. Additional capital equipment purchases are scheduled as funding permits. These purchases are related to telecom services expansion of the current infrastructure systems and biometric hardware devices required for customer fulfillment.
Employee growth will be minimal during the next twelve months and will increase significantly after completion of additional financing. The company anticipates the addition of 18 to 25 employees by the first part of 2010.
Results of Operations for the Years Ended December 31, 2008 and 2007
We generated no income and incurred expenses of $107,487 for the year ended December 31, 2008, for a net loss of $48,009 after a forgiveness of debt.
Results of Operations for the Years Ended December 31, 2007 and 2006
We generated no income and incurred no expenses for the year ended December 31, 2007, for a net loss of $2,231,657 after loss of discontinued operations of $2,231,657 is included. We generated no revenue and expenses of $1,143,949 for the year ended December 31, 2006, for a net loss of $1,055,117 after a Gain on Forgiveness of Debt of $88,832 is included. Our losses were significantly greater in 2007 than in 2006 due primarily to discontinuing operations.
Liquidity and Capital Resources
As of December 31, 2008 we had current assets of $21,121. Our total liabilities as of December 31, 2006 were $1,264,429. Thus, our working capital as of December 31, 2007 was $0. As discussed in “Description of Business and Plan of Operation, above, we anticipated no revenue in 2008 and expenditures of approximately $500,000 to $1,000,000 for Portal equipment software and infrastructure through December 31, 2008.
Cash flows provided by financing activities during the year ended December 31, 2007 consisted of $720,000 for proceeds related to the sale of common stock plus $1,204,952 for Loans to Related Parties, resulting in a total of $1,924,951 in cash provided by Financing Activities. Cash used by Investment Activities was $61,224 for the year ended December 31, 2007, and Net Cash Used by Operating Activities was $2,172,729.
We relied on proceeds of private sales of our common stock to fund our operations during the year ended December 31, 2007. We will need to raise additional funds over the next twelve months, through borrowing or through sales o securities, in order to continue to pursue our business plan in 2008.
Off Balance Sheet Arrangements
As of December 31, 2008, there were no off balance sheet arrangements.
Going Concern
We have incurred an accumulated total net loss of $3,760,062 for the period from inception (June 24, 2003) through December 31, 2008 and are not presently generating any revenue. We do not anticipate generating any revenue in 2008. Our future is dependent upon successful and sufficient market acceptance of our product offerings and any new product offerings that we may introduce, the continuing successful development of our products and related technologies, and finally achieving a profitable level of operations. We plan to seek additional financing in a private equity offering to secure funding for our operations. There can be no assurance that such additional financing will be available to us on acceptable terms or at all. These factors, among others, raise substantial doubt about our ability to continue as a going concern.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their three to five most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following accounting policies fit this definition.
Accounting Basis
The statements were prepared following generally accepted accounting principles of the United States of America as consistently applied.
Management Certification
The financial statements herein are certified by the officers of the Company to present fairly, in all material respects, the financial position, results of operations and cash flows for the periods presented, in conformity with accounting principles generally accepted in the United States of America, consistently applied.
Fiscal Year
The Company operates on a December 31 st fiscal year end.
Research and Development Costs
Research and Development costs are expensed as incurred in accordance with generally accepted accounting principles. Costs in association with the development of a patented technology when computer software is developed will be capitalized when technological feasibility is established in accordance with financial accounting standard No. 86.
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, " Earnings per Share ". SFAS No. 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method.
The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table:
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid during the periods shown.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are carried at cost and depreciated on a straight-line basis over their useful lives. Office equipment is depreciated over five years.
Income Taxes
The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.
Recently Issued Accounting Pronouncements
Below is a listing of the most recent accounting standards SFAS 150-154 and their effect on the Company.
Statement No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (Issued 5/03)
This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
Statement No. 151 Inventory Costs -an amendment of ARB No. 43, Chapter 4 (Issued 11/04)
This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing , to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “…under some circumstances, items such as idle facility expense, excessive spoilage, double freight and re-handling costs may be so abnormal ass to require treatment as current period charges….” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.
Statement No. 152 Accounting for Real Estate Time-Sharing Transactions (an amendment of FASB Statements No. 66 and 67)
This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate , to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions .
This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects , states that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2.
Statement No. 153 Exchanges of Non-monetary Assets (an amendment of APB Opinion No. 29)
The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions , is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, includes certain exceptions to the principle. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assts and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.
Statement No. 154 Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB Statement No. 3)
This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.
The adoption of these new Statements is not expected to have a material effect on the Company’s current financial position, results or operations, or cash flows.
Item 8.
Item 8. Financial Statements and Supplementary Data
MOORE & ASSOCIATES, CHARTERED
ACCOUNTANTS AND ADVISORS
PCAOB REGISTERED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Priviam, Inc.
(formerly EncryptaKey, Inc.)
(A Development Stage Company)
We have audited the accompanying balance sheets of Priviam, Inc. (A Development Stage Company) as of December 31, 2008 and 2007, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2008 and 2007, and since inception from June 23, 2003 through December 31, 2008. 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 audit 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. 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 Priviam, Inc. (A Development Stage Company) as of December 31, 2008 and 2007, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2008 and 2007, and since inception from June 23, 2003 through December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has an accumulated deficit of $4,031,414 as of December 31, 2008, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Moore & Associates, Chartered
Moore & Associates Chartered
Las Vegas, Nevada
May 8,
6490 West Desert Inn Rd, Las Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501
The accompanying notes are an integral part of these statements
The accompanying notes are an integral part of these statements
Priviam, Inc.
(formerly EncryptaKey, Inc.)
(a Development Stage Company)
Statements of Stockholders' (Deficit)
On August 7, 2006 the Company exercised a 5:1 forward stock split that has been retroactively applied to this schedule thereby increasing the number of shares issued and decreasing the price per share.
On July 1, 2008 the Company executed a 1:3.25 reverse stock split that has been retroactively applied to this schedule thereby decreasing the number of share issued and increasing the price per share.
The accompanying notes are an integral part of these statements
The accompanying notes are an integral part of these statements
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Priviam, Inc. (the Company), was incorporated in the state of New Jersey on April 6, 2000 as Segway VI Corp. The company has undergone the following name changes: on August 13, 2003 to 3DLP International Inc., on April 19 2004 to Futomic Industries Inc.; on February 19, 2007, to EncryptaKey, Inc. and finally on July 1, 2008 to Priviam, Inc.
On August 15, 2003, the Company acquired Selectrics Corporation (Selectrics), a Delaware Corporation organized on June 24, 2003, in a one-for-one common stock exchange. This transaction resulted in a change of control and was treated as a reverse acquisition with EncryptaKey, Inc. being the surviving legal entity and Selectrics the surviving accounting acquirer. Accordingly, the equity accounts and accumulated deficits prior to the merger have been adjusted to reflect those of Selectrics. The Company is considered to be in the development stage.
The company is in the business of developing and marketing identity and data security technologies that enable the highest level of secure commercial and financial transaction both in person and over the internet, providing an effective shield to identity theft.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The relevant accounting policies and procedures are listed below.
Accounting Basis
The statements were prepared following generally accepted accounting principles of the United States of America consistently applied.
Fiscal Year
The Company operates on a December 31st fiscal year end.
Cash and cash equivalents
The Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 2008 and 2007.
Concentrations of Risks: Cash Balances
The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (FDIC). This government corporation insured balances up to $100,000 through October 13, 2008. As of October 14, 2008 all non-interest bearing transaction deposit accounts at an FDIC-insured institution, including all personal and business checking deposit accounts that do not earn interest, are fully insured for the entire amount in the deposit account. This unlimited insurance coverage is temporary and will remain in effect for participating institutions until December 31, 2009.
All other deposit accounts at FDIC-insured institutions are insured up to at least $250,000 per depositor until December 31, 2009. On January 1, 2010, FDIC deposit insurance for all deposit accounts, except for certain retirement accounts, will return to at least $100,000 per depositor. Insurance coverage for certain retirement accounts, which include all IRA deposit accounts, will remain at $250,000 per depositor.
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (Continued)
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2008 and 2007. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Research and Development Costs
Research and Development costs are expensed as incurred in accordance with generally accepted accounting principles. Costs in association with the development of a patented technology when computer software is developed will be capitalized when technological feasibility is established in accordance with financial accounting standard No. 86
Basic and Diluted Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, "Earnings per Share". SFAS No. 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method.
The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table:
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid during the periods shown.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES (Continued)
Property and Equipment
Property and equipment are carried at cost and depreciated on a straight-line basis over their useful lives. Computer Equipment is depreciated over three years and furniture is depreciated over five years.
Income Taxes
The Company follows Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
NOTE 3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of its assets and the liquidation of its liabilities in the normal course of business. However, the Company is in its development stage and has never generated revenues. The Company has accumulated a loss of $4,031,414 during its development stage. This raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.
Managements Plan
The Company continues to seek funding from its shareholders and other qualified investors to pursue its business plan.
NOTE 4. NOTES PAYABLE - SHAREHOLDERS
During the year ended December 31, 2007 the Company had received a total of $1,204,950 in loans from company shareholders that have been settled through the issue of 1,215,384 post-split shares of commons stock.
On July 1, 2008, the Company executed a promissory note for $225,000 due to SH Equity Partners, LLC, a related party. The principal balance must be repaid at the earlier of June 30, 2009 or upon receipt of $2 million in financing. The note bears no interest. The holder can elect to convert part or all of the debt into shares of common stock at a rate of $0.077 per share. The holder also received 2,225,000 warrants with a five year life and an exercise price of $0.01 per share. As of December 31, 2008, the principal balance was $225,000 net of debt discount totaling $112,500. During the year ended December 31, 2008, the Company recorded amortization of the fair value of the warrants and the beneficial conversion feature of $112,500.
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 5. STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized 20,000,000 shares of preferred stock at a $0.0001 par value and currently has zero shares of preferred stock issued and outstanding.
Common Stock
The Company is authorized to issue 500,000,000 shares of common stock, par value $0.0001 per share. As of December 31, 2008, there were 43,804,682 shares of common stock outstanding. On August 7, 2006, the Company exercised a 5 for 1 forward stock split. On July 1, 2008 the Company executed a 1 for 3.25 reverse stock split. All share amounts herein are adjusted to give effect to the stock split and have also been adjusted to reflect the adjusted equity resulting from the August 15, 2003 reverse merger.
During 2003, the Company issued 25,186,154 post-split shares of common stock in the following transactions:
·
On June 24, 2003, the Company issued 7,692,308 post-split shares to its founder for $3,002.
·
On August 15, 2003 the Company issued 17,493,846 common shares to execute the acquisition of Selectrics Corporation in a one for one share exchange for a value of $117,630. This acquisition was recorded as a reverse merger with Selectrics the surviving historical accounting company. Accordingly, the equity and accumulated deficit are adjusted to reflect Seletrics history.
During 2004, the Company issued 884,616 post-split shares of common stock in the following transactions:
·
On March 15, 2004, the Company issued 115,385 shares for $15,000 cash in a private placement.
·
On July 15, 2004 the Company issued 769,231 shares in a private placement for $250,000 cash.
During 2005, the Company received 14,355,385 common shares into its treasury from a shareholder for cash and other property valued at $43,207.
During 2006, the Company issued 3,625,826 shares of common stock in the following transactions:
·
On September 28, 2006, the Company entered into an Asset Purchase Agreement with Owen Consulting LLC to acquire the right, title and interest in technology commonly known as the EncryptaKey Secure communication Portal by issuing 1,692,308 shares of common stock at $0.0001 per share. The technology and associated intellectual property has been memorialized by patent application. However, it is still in development and the associated costs are expensed to research and development. Because of the limited public market for the Company stock, Par-value of the pre-split shares ($550) was used to record this transaction.
·
On December 12, 2006, the Company issued 1,933,538 common shares in a private offering at $0.30 per pre-split share for $1,385,200 and $500,000 subscriptions receivable. The Company extended the closing of the offering to February 7, 2007.
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 5. STOCKHOLDERS’ EQUITY (Continued)
During 2007, the Company issued 421,369 common shares in the following transactions:
·
On February 7, 2007 the Company issued 225,640 common shares in a private offering at $0.30 per pre-split share for $220,000 and received cash on outstanding subscription receivable in the amount of $500,000.
·
On February 7, 2007 the Company issued 195,729 common shares at $0.30 per pre-split share to purchase fixed assets valued at $190,836.
·
On November 15, 2007 the Company received 1,888,037 common shares for the sale of all assets with a net value of $191,386. The shares were returned to treasury stock. However, the shares are being held in physical certificate form by the Company pending the outcome of outstanding litigation.
During 2008, the Company issued 28,042,082 post-split common shares and cancelled 3,875,610 post-split common shares in the following transactions:
·
On March 31, 2008 the Company issued 1,215,384 common shares in settlement and release of $1,204,950 in notes payable.
·
On July 1, 2008 the Company issued 6,000,000 post-split common shares at $0.0001 par value for 19,500,000 pre-split shares or $1,950 for executive services.
·
On July1, 2008 the Company issued 7,692,308 post-split common shares at $0.0001 par value for 25,000,000 pre-split shares or $2,500 for the acquisition of certain program software assets.
·
On July 1, 2008 the Company received the return and cancelled 3,692,308 post-split common shares.
·
On July 1, 2008 the Company adjusted its Stockholders equity to reconcile with the transfer agent records by reducing the reported outstanding shares by 183,302 common shares.
·
On August 28, 2008 the Company issued 12,000,000 common shares at par-value of $1,200 for executive compensation; 5,000,000 common shares at par value of $500 to acquire certain program software assets; and issued 10,000 common shares at par value of $1 as an incentive to make a $5,000 loan to the company.
As of December 31, 2008, there have been no additional issuances of common stock
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 6. WARRANTS
The following is a summary of the status of all of the Company’s stock warrants as of December 31, 2008 and 2007 and changes during the years ended on those dates:
The following tables summarize information about stock warrants outstanding and exercisable at December 31, 2008:
The assumptions used in computing fair value of warrants are as follows:
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 7. COMMITMENTS AND CONTINGENCIES - RELATED PARTY
Research and Development with Owens Consulting, LLC
On September 28, 2006, the Company entered into an Asset Purchase Agreement with Owen Consulting, LLC, a California limited liability company with Mr. Kelly Owen, the Company’s CEO the principle member. Pursuant to that agreement, the Company issued 5,500,000 shares of common stock and acquired assets consisting of all right, title and interest in a biometric security technology commonly known as the EncryptaKey Secure Communication Portal as memorialized in a patent application.
On October 1, 2006 the Company entered into an associated consulting agreement with Owen Consulting, LLC to complete the development of the EncryptaKey Secure Communication Portal. The terms of the agreement required payment at the rate of $25.00 per hour for actual hours incurred for research and development. The project involved the efforts of over 100 programmers and technicians. As of December 31, 2006 the Company had been invoiced and paid $1,066,327 on this contract which had been expensed as Research and Development costs.
During the year of 2007 the company was invoiced and paid an additional $1,501,459 on this contract. The agreement was terminated with the sale of assets as described in note 7.
Contingency
On September 20, 2006, an Officer of the Company entered into a settlement agreement with an individual who was to be employed with the company as the result of a planned merger that was cancelled. The settlement agreement stipulated the issue of 4,000,000 common shares in settlement of all outstanding issues between the parties involved which included the Company. The Officer of the Company agreed to transfer shares from his personal holdings in settlement of this contingency.
NOTE 8. SALE OF ASSETS
On November 15, 2007 the Company sold all its assets to a related party for the return of 1,888,037 common shares valued at $191,386 and ended its consulting contract with Owen Consulting, LLC. The shares are held in treasury and have not been cancelled, pending the outcome of outstanding litigation.
NOTE 9. PROVISION FOR INCOME TAXES
The Company provides for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and liability approach in accounting for income taxes.
SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The total deferred tax asset is $827,654 as of December 31, 2008 which is calculated by multiplying a 22% estimated tax rate by the cumulative NOL of $3,762,062. The total valuation allowance is a comparable $827,654.
The provision for income taxes for the period ended December 31, 2008 and 2007 follows:
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 9. PROVISION FOR INCOME TAXES (Continued)
Below is a chart showing the estimated federal net operating losses and the years in which they will expire:
NOTE 10. THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Below is a listing of the most recent Statement of Financial Accounting Standards (SFAS) issued by the Financial Accounting Standards Board (FASB) SFAS 157-163 and their effect on the Company.
Statement No. 141 (revised 2007) - Business Combinations
In December 2007, the FASB revised SFAS No. 141 (revised 2007), Business Combinations. This revision changes the way the minority interest in a company is measured, recorded and reported in the parent companies financial statements to the end that a statement user can better evaluate the nature and financial effects of the business combination. The Company will adopt this statement beginning March 1, 2009.
It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.
Statement No. 154 - Accounting Changes and Error Corrections
In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154 (SFAS #154), “Accounting Changes and Error Corrections.” SFAS #154 requires retrospective application to prior-period financial statements of changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS #154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS #154 is not expected to have a material impact on the Company’s financial statements and disclosures.
Statement No. 157 - Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, to clarify how to measure fair value and to expand disclosures about fair value measurements. The expanded disclosures include the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value on earnings and is applicable whenever other standards require (or permit) assets and liabilities to be measured at fair value. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.
The adoption of this new Statement has not had a material effect on the Company’s current financial position, results or operations, or cash flows.
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 10. THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)
Statement No. 159 - The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No.
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. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entities first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value Measurements.
Adoption of this pronouncement has not had a material effect on the Company’s consolidated financial statements.
Statement No. 160 - Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51. A noncontrolling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements related to the noncontrolling or minority interest.
The Company will adopt this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.
Statement No. 161 - Disclosures about Derivative Instruments and Hedging Activities-an amendment to FASB No.
In March 2008, the FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.
The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows.
Statement No. 162 - The Hierarchy of Generally Accepted Accounting Principles
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards.
SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.
PRIVIAM, INC.
(Formerly EncryptaKey, Inc.)
(A Development Stage Company)
Notes to Financial Statements
NOTE 10. THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)
Statement No. 163 - Accounting for Financial Guarantee Insurance Contracts - and interpretation of FASB Statement No.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years.
SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.
Staff Accounting Bulletin No. 110
In December 2007, the SEC issued SAB No. 110 regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company's election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for “plain vanilla” share options and warrants, and will assess the impact of SAB 110 for fiscal year 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.
EITF 03-6-1
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position and results of operations if adopted.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Item 9A. Controls and Procedures
Evaluation and Conclusion of Disclosure Controls and Procedures
The Company conducted an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), as amended) as of December 31, 2008.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this Report were not effective as a result of a material weakness in internal control over financial reporting as of December 31, 2008 as discussed below.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f), as amended) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2008. Management’s assessment identified the following material weakness in internal control over financial reporting:
Management determined there was an insufficient number of personnel with appropriate technical accounting and SEC reporting expertise to adhere to certain control disciplines, and to evaluate and properly record certain non-routine and complex transactions.
Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2008 because of the material weakness described in the preceding paragraph. A material weakness in internal control over financial reporting is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The following information sets forth the names of our current directors and executive officers, their ages and their present positions.
Our executive officers and directors and their respective ages as of December 31, 2008 are as follows:
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Jack Musetti, President, Chief Executive Officer and Director
Louis Jack Musetti is Chairman of the Board of Directors, President and Chief Executive Officer of Priviam, Inc. since June 2008. Mr. Musetti has extensive executive level experience in business development and risk management combined with strong P&L, general management and strategic planning ability in both commercial and defense technology industries. Prior to joining Priviam, Mr. Musetti was CEO of Nanopower Technologies, a developer and manufacture of Radio Frequency Identification (RFID) Integrated Circuits, NASA/JPL MEMS Silicon Microgyro microelectronics and advanced CMOS design libraries.
Daniel Urrea, Chief Financial Officer and Director
Daniel Urrea is the Chief Financial Officer and Director of Priviam, Inc. He has held the top financial positions in both Sycom international, Inc. and Klaire International, Inc. In 1995 Mr. Urrea earned his Bachelor’s degree in Business Administration with a concentration in Finance from the Robert O. Anderson School of Business at the University of New Mexico.
Tommy Stiansen, Chief Technical Officer and Director
Tommy Stiansen is the Chief Technical Officer and Director of Priviam, Inc. He founded Pluto Communications in 2002. Tommy has help previous positions a Director of Research and Development at Combined Networks, AS, and in the technical project management at SAS. He has participated in several development environments within Unix and Linux. For the last four years he has specialized in development for billing and management solutions for telecom systems and in specialized network security.
Val Horvatich, Director
Val Horvatich is a Director of Priviam. He has extensive experience in the high tech sectors of defense and aerospace industries, covering ground vehicles, aviation and soldier related systems and electronics. He has held executive level positions in General Management, Operations and Engineering for BAE Systems, Inc., Armor Holdings, Inc. and United Defense Industries, and has successfully established and led startup businesses for three separate organizations. Mr. Horvatich also supported Mr. Musetti as an operations consultant during the successful start up and establishment of Mobile Dynamics, a developer of secured high-speed communications solutions for DoD. Recently, as Vice President and General Manager of Firetrace Aerospace, Mr. Horvatich established a firm industry lead position for this startup., taking sales to $15M/yr in eighteen months. Mr. Horvatich holds a B.S. in Engineering, Industrial Management from the California State University-San Jose.
Richard Urrea, Director
Richard Urrea is a Director of Priviam, Inc. Rick was the President of the oil-industry data communications firm Sycom International, Inc (1997-1999). While there he led the Company from the startup to the roll out of its national marketing plan and to the implementation of its manufacturing plan. In addition, he served as President of Klaire international, Ltd., a distributor of automotive parts in Latin America. Mr. Urrea received his Bachelor’s of Business Administration in Marketing and Business Broadcasting from Baylor University’s Hankhammer School of Business in 1989.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders or until removed from office in accordance with our bylaws.
Our executive officers are appointed by our board of directors and hold office until removed by the board.
Significant Employees
We have no significant employees other than our officers and directors.
Family Relationships
Other than as noted below, there are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers. Daniel Urrea and Richard Urrea, two of the Company's directors, are brothers.
Employment Agreements
On August 28, 2008, the Company entered into an employment agreement with Tommy Stianson, pursuant to which Mr. Stianson agreed to serve as the Company’s Chief Technology Officer. Pursuant to his employment agreement, Mr. Stianson is entitled to a base salary of $120,000, payment of which shall commence upon the Company completing a financing which results in gross proceeds of $500,000 to the Company. In addition, pursuant to his employment agreement, Mr. Stainson was issued an aggregate of 4,000,000 shares of the Company’s common stock. He is also entitled to an annual discretionary bonus. The term of his employment agreement is 3 years. In the event Mr. Stainson’s employment agreement is terminated, other than for cause and other than in a change of control transaction in which he is offered employment byu the successor company, Mr. Stianson shall be entitled to receive all compensation due to him for the remaining term of the agreement.
On August 28, 2008, the Company entered into an employment agreement with Daniel Urrea, pursuant to which Mr. Urrea agreed to serve as the Company’s Chief Financial Officer. Pursuant to his employment agreement, Mr. Urrea is entitled to a base salary of $60,000, payment of which shall commence upon the Company completing a financing which results in gross proceeds of $500,000 to the Company. In addition, pursuant to his employment agreement, Mr. Urrea was issued an aggregate of 4,000,000 shares of the Company’s common stock. He is also entitled to an annual discretionary bonus. The term of his employment agreement is 3 years. In the event Mr. Urrea’s employment agreement is terminated, other than for cause and other than in a change of control transaction in which he is offered employment byu the successor company, Mr. Urrea shall be entitled to receive all compensation due to him for the remaining term of the agreement.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present director, person nominated to become director, executive officer, or control person: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Audit Committee
We do not have a separately-designated standing audit committee. The entire board of directors performs the functions of an audit committee, but no written charter governs the actions of the board of directors when performing the functions of that would generally be performed by an audit committee. The board of directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the board of directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.
We do not have an audit committee financial expert because of the size of our company and our board of directors at this time. We believe that we do not require an audit committee financial expert at this time because we retain outside consultants who possess these attributes. .
Nominating Committee
We do not have a nominating committee. The board of directors acts as the nominating committee and members of the board participate in the discussions. We believe that, with a board currently composed of one individual, a separate nominating committee is not necessary. If the size of the board expands, the board will reconsider the need or desirability of a nominating committee.
Compensation Committee
We do not have a compensation committee. We believe that, with a board currently composed of one individual, a separate compensation is not necessary. If the size of the board expands, the board will reconsider the need or desirability of a compensation committee.
For the fiscal year ending December 31, 2008, the board of directors:
1.
Reviewed and discussed the audited financial statements with management, and
2.
Reviewed and discussed the written disclosures and the letter from our independent auditors on the matters relating to the auditor's independence.
Based upon the board of directors’ review and discussion of the matters above, the board of directors authorized inclusion of the audited financial statements for the year ended December 31, 2008 to be included in this Annual Report on Form 10-K and filed with the Securities and Exchange Commission.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of the issued and outstanding shares of Priviam common stock to file reports of initial ownership of common stock and other equity securities and subsequent changes in that ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no reports were required, during the fiscal year ended December 31, 2008 all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.
Code of Ethics Disclosure
We adopted a Code of Ethics for Financial Executives, which include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics was filed as an exhibit to the annual report on Form 10-KSB for the fiscal year ended December 31, 2005 and filed with the SEC on March 10, 2006.
Item 11.
Item 11. Executive Compensation
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended 2008, 2007 and 2006.
(1)
Mr. Shinderman resigned as our Chief Executive Officer and Chief Financial Officer on June 6, 2008. The information provided in the summary compensation table includes all compensation paid to Mr. Shinderman for the full fiscal year ended December 31, 2007.
(2)
Mr. Owen resigned as our Chief Executive Officer and Chief Financial Officer on November 27, 2007. The information provided in the summary compensation table includes all compensation paid to Mr. Owen for the full fiscal year ended December 31, 2006.
(3)
Mr. Schipperheijn resigned as our Chief Executive Officer and Chief Financial Officer on September 28, 2006. The information provided in the summary compensation table includes all compensation paid to Mr. Schipperheijn for the full fiscal year ended December 31, 2006 and 2005.
Narrative Disclosure to the Summary Compensation Table
Except as disclosed below, we did not compensate our executive officers for services rendered during the fiscal year ended December 31, 2008 or 2007.
The amounts disclosed as “All Other Compensation” relate to consulting fees earned by our executive officers for the periods indicated.
On October 1, 2006, we entered into a Consulting Agreement with Owen Consulting, LLC, an entity owned and controlled by our director and sole officer, Mr. Kelly Owen to provide consulting services to us, primarily related to the development of our Priviam technology and to run our operations. The Consulting Agreement is effective for a period of one year commencing October 1, 2006 and we have a right to cancellation anytime upon thirty (30) days written notice. Under the terms of the Consulting Agreement, Owen Consulting, LLC, is compensated for services rendered to us at a rate of $25 per hour. The total compensation paid to Owen Consulting, LLC, during the fiscal year ended December 31, 2006 was $890,000; approximately $20,000 per month of which went to Mr. Owen directly. This compensation is included in the summary compensation table above in “All Other Compensation.”
In addition, on September 28, 2006, we entered into an Asset Purchase Agreement with Owen Consulting LLC, pursuant to which we acquired technology called the “Priviam Secure Communication Portal” as described in a patent application pending before the Patent and Trademark Office as application no. 60745514, filed April 24, 2006, titled “Invisidesk Private Communication, Authentication and Connection Portal” and the related intellectual property in exchange for 5,500,000 shares of our restricted common stock. The aggregate fair value of these shares was computed in accordance with FAS 123R and is reported in the summary compensation table above in the column titled “All Other Compensation.”
At no time during the last fiscal year was any outstanding option repriced or otherwise modified. There was no tandem feature, reload feature, or tax-reimbursement feature associated with any of the stock options we granted to our executive officers or otherwise.
Compensation of Directors
During the year ended December 31, 2008, members of the Company's board of directors were granted shares of the Company's common stock as compensation for serving in the board. The shares granted to directors were as fallows:
Daniel Urrea
4,000,000 shares
Tommy Stianson
4,000,000 shares
Richard Urrea
4,000,000 shares
Val Horvatich
2,000,000 shares
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table identifies, as of April 15, 2009, the number and percentage of outstanding shares of Common Stock owned by (i) each person known to the Company who owns more than five percent of the outstanding Common Stock, (ii) each named executive officer and director, and (iii) and all executive officers and directors of the Company as a group:
Securities Authorized for Issuance Under Equity Compensation Plans .
None.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as disclosed below, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since the beginning of our last fiscal year or in any presently proposed transaction which, in either case, has or will materially affect us.
On September 28, 2006, we entered into an Asset Purchase Agreement with Owen Consulting LLC, a California limited liability company. Pursuant to that agreement, we acquired assets consisting of all right, title and interest in technology commonly known as the PriviCom Secure Communication Portal and memorialized in a patent application pending before the Patent and Trademark Office as application no. 60745514, filed April 24, 2006, titled “Invisidesk Private Communication, Authentication and Connection Portal” and the related intellectual property in exchange for 5,500,000 shares of our restricted common stock. Owen Consulting LLC is wholly owned and controlled by Mr. Owen, our former Chief Executive Officer and former Chief Financial Officer.
On October 1, 2006, we entered into a Consulting Agreement with Owen Consulting, LLC, an entity owned and controlled by our director and sole officer, Mr. Kelly Owen to provide consulting services to us, primarily related to the development of our Priviam technology and to run our operations. The Consulting Agreement is effective for a period of one year commencing October 1, 2006 and we have a right to cancellation anytime upon thirty (30) days written notice. Under the terms of the Consulting Agreement, Owen Consulting, LLC, is compensated for services rendered to us at a rate of $25 per hour. The total compensation paid to Owen Consulting, LLC, during the fiscal year ended December 31, 2006 was $890,000.
On February 5, 2007, we entered into an Asset Purchase Agreement with Owen Consulting Inc., a Nevada Corporation. Pursuant to that agreement, we acquired assets consisting of all right, title and interest in server hardware and software in exchange for 636,120 shares of our restricted common stock. Owen Consulting, Inc. is wholly owned and controlled by Mr. Owen.
Director Independence
Louis Jack Musetti is not considered to be independent under the listing standards of the Rules of NASDAQ, as set forth in the NASDAQ Manual.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed by our auditors for professional services rendered in connection with a review of the financial statements included in our quarterly reports on Form 10-QSB and the audit of our annual consolidated financial statements for the fiscal years ended December 31, 2008 and December 31, 2007 were approximately $13,500 and $10,500 respectively.
Audit-Related Fees
Our auditors did not bill any additional fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements.
Tax Fees
The aggregate fees billed by our auditors for professional services for tax compliance, tax advice, and tax planning were $0 and $0 for the fiscal years ended December 31, 2008 and 2007.
All Other Fees
The aggregate fees billed by our auditors for all other non-audit services, such as attending meetings and other miscellaneous financial consulting, for the fiscal years ended December 31, 2007 and 2006 were $0 and $0 respectively.
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
(1)
Incorporated by reference to Annual report on Form 10-KSB filed on April 17, 2007.
(2)
Incorporated by reference to Current report on Form 8-K filed on October 4, 2006.
(3)
Incorporated by reference to Current report on Form 8-K filed on February 9, 2007.
(4)
Incorporated by reference to Quarterly Report on Form 10-Q filed November 19, 2008.
(5)
incorporated by reference to Current Report on Form 8-K filed on August 7,
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: