ITEM 1: DESCRIPTION OF BUSINESS
Cautionary Factors That May Affect Future Results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
The disclosure and analysis set forth herein contains certain forward looking statements, particularly statements relating to future actions, performance or results of current and anticipated products and services, sales efforts, expenditures, and financial results. From time to time, the Company also provides forward-looking statements in other publicly-released materials, both written and oral. Forward-looking statements provide current expectations or forecasts of future events such as new products or services, product approvals, revenues, and financial performance. These statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipates,” “intends,” “plans,” “expects,” “will,” and other words and phrases of similar meaning. In all cases, a broad variety of assumptions can affect the realization of the expectations or forecasts in those statements. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially.
The Company undertakes no obligation to update any forward-looking statements, but investors are advised to consult any further disclosures by the Company on this subject in its subsequent filings pursuant to the Securities Exchange Act of 1934. Furthermore, as permitted by the Private Securities Litigation Reform Act of 1995, the Company provides these cautionary statements identifying risk factors, listed below, that could cause the Company’s actual results to differ materially from expected and historical results. It is not possible to foresee or identify all such factors. Consequently, this list should not be considered an exhaustive statement of all potential risks, uncertainties and inaccurate assumptions.
CORPORATE ORGANIZATION
Secure Networks, Inc. was initially formed in the state of Utah on February 4, 2004, and was subsequently reincorporated in Delaware on February 14, 2007 as Secure Netwerks, Inc. Secure Netwerks was a wholly-owned subsidiary of SportsNuts, Inc., a Delaware corporation traded on the OTC Electronic Bulletin Board that files reports with the Securities and Exchange Commission under Sections
13(a) and 15(d) of the Securities Exchange Act of 1934. On March 1, 2007, the shares of Secure Netwerks were spun-off to the shareholders of SportsNuts, Inc. As of March 24, 2010, Secure Netwerks had 266 shareholders of record.
THE BUSINESS OF SECURE NETWERKS
Overview
Secure Netwerks is a computer and technology hardware reseller to businesses and other organizations. Most of our clients are small and medium sized organizations, although we do attempt to market our products and services to larger organizations. We also outsource technology-related services to provide a full solution basket of technology products and services including hardware, software, network development and services. Our clients consist of some retail purchasers and small to medium-
sized organizations, operating mostly in North America, but do have occasional clients in Europe. Our website is located at www.securenetwerks .com.
Every company is different, and we treat every company differently depending on their needs assessment. Our assessment of client technology needs does not just involve building technology systems. We focus on the business strategies of our clients. The highlights of Secure Netwerk’s approach include a phase, often around eight weeks, entitled Technology Discovery Session (TDS), that identifies the data, technical, business and functional requirements, creates a conceptual design of the overall solution, develops a visual prototype of the application, and delivers a solution roadmap for implementation.
We first focus on collecting current hardware, software and procedures, business processes, personnel requirements and any other additional information that is deemed necessary. We then document the collected information to the extent required to adequately define the desired result. Subsequently, we focus on developing the future hardware, software and procedures to support the technology drivers for the organization. As part of this approach, we identify gaps between the client’s technology and their desired technology. We identify improvement / effectiveness measures that will assist the organization in achieving its current and future vision.
Many client organizations not only need the information technology products that we sell, but they need some of the services our partner provides. Acadia Technologies, Inc. is our partner that provides these services including installation, network design, website development, website hosting, and telephony networking. We pay Acadia Technologies $30 an hour per service person, and 50% of the profit received for the service provided to our clients. We do not have a written agreement with Acadia Technologies, Inc., but continue to work together on projects. We have maintained a relationship with Acadia Technologies since we started our business in February, 2004. We pay Acadia Technologies 50% of the profit we receive from each client Acadia Technologies refers to us. Historically, Acadia Technologies has referred approximately 25% of our clients to us. Acadia Technologies only gets paid when we get paid by our clients.
Our Approach
Sales and Marketing. We focus our sales and marketing efforts primarily in the
intermountain west region including Utah, Montana, Wyoming, Idaho, Nevada, New Mexico, and Colorado. Our direct sales and support personnel provide new account creation and management, enhanced communications and long-term relationship-building with our existing and potential customers. Given the current need of businesses and other organizations in the western United States for information
technology hardware and related services, we do not anticipate expanding our sales and marketing to other regions of the United States in the near future.
Each of our salesperson’s compensation is commission-based. Sales leads are derived from
individual business contacts and customer referrals from strategic partners, as well as available industry research and reports. We do not have any written or oral agreements with strategic partners to provide referrals. Most of our referrals from strategic partners have come from our service partner, Acadia Technologies Incorporated. When Acadia Technologies’ clients need computer hardware or software, they refer the business to Secure Netwerks.
Our sales efforts are intended to focus on the business drivers of our clients’ technology initiatives and needs. We utilize our experienced sales personnel as well as outside consultants as part of our team approach to sales. These outside consultants include the staff of Acadia Technologies Incorporated and various independent technology technicians. We use outside consultants for approximately one-half of our clients. We have no agreements with outside consultants because each project is negotiated separately and the outside consultants are engaged for each specific project. Our sales personnel participate in training programs designed by our suppliers to provide new information about new and upgraded products. These training programs also assist our sales personnel on the latest industry innovations and sales techniques.
Products and Outsourced Services
We bring value to our clients that purchase computer equipment by introducing them to our strategic partners, including technology service providers, equipment leasing providers and programmers in the information technology industry. Our relationships with these strategic partners allow us to offer a comprehensive and cost-effective technology solution to almost any organization. Through Secure Netwerks and its partners, our clients can access the following range of hardware sales and services:
·
Technology Hardware sales. We are a valued-added reseller of the following computer
and computer-related products:
o
Hardware: Intel-based servers, personal computers and laptops supporting Windows, Macintosh, Unix, Linux, and Novell operating systems.
o
Peripherals: Printers, monitors, personal digital assistants, handheld scanners, and other computer equipment related to the operation of computers, servers, laptops, photocopiers, scanners, projectors, audio-visual systems, routers, firewalls, OEM computer equipment, security and conference cameras and security systems
o
Software: Microsoft Windows and Apple Macintosh retail boxed products that relate to the operation of computer, servers, and laptops. Those software products include the operating system sold separately as well as with the original hardware.
All of the products sold by Secure Netwerks are manufactured by others. We have not experienced any difficulties in obtaining requested hardware or software from the manufacturers, and consequently do not anticipate any difficulties in obtaining such hardware or software for future sales contracts. We are a value-added reseller because we bring value to each sale by analyzing the needs of each client and educating the client on the features and benefits of each of the products we sell.
·
Telecommunication Systems Services and Integration. We have seen an increase in the number of our clients needing communications devices that interact with networks and e-mail servers. We provide a service that includes mobile phone and wireless device support. In addition, we can also provide voice-over internet protocol access for our clients that want to enhance the use of their network services and minimize their long distance telephone charges. Voice-over internet allows customers to take their phone numbers and
voicemail wherever they go, and place and transfer calls between branch offices with cost effective long distance charges. Calls can be routed through the Internet connection to each office. We offer many types of telephones and telephone systems including wireless, standard desktop phones, and computer based software phones.
·
Outsourced Equipment Leasing. Power4Financial LLC, our strategic partner, provides outsourced leasing services for our clients that want to purchase hardware from us using lease financing. We typically charge our clients between 1% and 2% of the total lease value for this service as an arrangement fee. We do not have an agreement with Power4Financial, but plan to continue to use their equipment leasing services for our clients. When we refer clients to Power4Financial, our primary income comes from the sale of the equipment that will be financed under the lease. We are only paid for the equipment and the 1% to 2% arrangement fee after the lease is approved and the lease funds the purchase of the equipment.
·
Application Programming. Depending upon the budget, timetable, and business rules that govern a project, we partner with local and offshore programmers to build customized enterprise applications. Customized enterprise applications are necessary because our clients have different business needs. For example, a university has different needs from a newspaper company. These programmers customize products for the specific needs of each business. Our programming partners are proficient in MySQLTM, OracleTM, and SequelTM database applications, as well as PHPTM, JAVATM, and MicrosoftTM .NET web application programming languages.
·
Outsourced Technology Service. Acadia Technologies Incorporated, a Utah based service provider, provides service solutions to our clients. We have a close working relationship with Acadia Technologies. Acadia Technologies has experience providing desktop support, network and hardware maintenance, as well as building complex local area and wide area network configurations for small and large businesses.
Principal Suppliers
We do not have any written agreements with our principal suppliers. Purchases are made by credit card, cash or check on delivery, or on account with suppliers where credit has been established. Below is a summary of our principal product suppliers and the terms for the purchase of goods:
Supplier
Terms
Ingram Micro, Inc.
Credit account, Balance due 30 days from order date
Wintec Industries, Inc.
Credit account, Balance due 30 days from order date
Tech Data Corporation
Credit card, Cash or check on delivery
Synnex Corporation
Credit account, Balance due 30 days from order date
Tessco Technologies Incorporated
Credit account, Balance due 30 days from order date
We work hard to foster close relationships with these vendors and maintain a high level of accreditation for the benefit of our customers. These Principal Suppliers sell their products to us at a wholesale price, and we sell to our clients at a retail price. We are quoted specific prices either by telephone or by the use of the websites of these principal suppliers. Prices vary as they are quoted to us, and are not set. There are no price discount indicators. We search each supplier for the best price. Our agreements with these principal suppliers give us terms and conditions for our payment obligations for the computer hardware and software we resell to our customers. We must pay the principal amount we owe
each supplier within 30 days of the invoice from the supplier. In the even that we do not pay the invoice within the 30 day time period, our suppliers charge between 8% and 12% per annum for late payments.
Research and Development
We attempt to stay abreast of changes in the information technology industry and also attempt to increase the level of product knowledge of our current staff. During the calendar year 2009, our two full-time employees, two part-time employees, and other project-based contract personnel received approximately 100 hours of training. Other research and development activities include the use of instructional collateral materials. We estimate that we have spent approximately 200 hours in each of our two prior fiscal years on research and development activities. None of the expenses associated with these activities has been borne directly by our customers.
GOVERNMENT REGULATION
The business of Secure Netwerks is not currently subject to substantial federal, state, or local government regulation. We are not subject to any significant environmental laws or regulations, and do not anticipate excessive levels of U.S. federal or state government regulation of our business. Secure Netwerks is subject to standard taxation rates for sales, income, and other activities in the United States and does not pay taxes overseas.
COMPETITION
There are thousands of resellers of technology hardware and software with similar products and service offerings as Secure Netwerks. Because our business is small and our resources are relatively limited, we do not focus our business development activities on larger organizations due to the longer sales cycle involved. Although we do not focus on larger organizations, we sell to any size of organization. We believe that many larger organizations already have deeply discounted hardware suppliers.
There are several different kinds of computer retailers within the industry including:
·
Computer dealers: We believe computer dealers often focus on a few main brands of hardware, usually offering only a minimum supply of software, and variable amounts of service and support. We have found that their prices are usually higher than the larger stores and we are unable to substantiate whether or not their service and support is effective, although we believe that we are very competitive with our service and support;
·
Online retailers: Online retailers market computer-related products for very low prices. Some of our competitors in this category include Ebay, Buy.com and Amazon.com. We believe that although the prices are low for products purchased from online retailers, service and support is limited.
·
Larger hardware resellers: Larger hardware resellers that market to organizational customers are able to offer very low prices in bulk. We believe that larger hardware resellers focus their sales efforts on large companies and not on our market focus of small and medium-sized businesses.
·
Retail stores and computer superstores: Retail stores and computer superstores typically offer good walk-in service, with aggressive pricing, and minimal support; and
·
Mail order: Mail order companies offer aggressive pricing. It is our opinion that, for the purely price-driven buyer, who buys products and expects no service, mail order and retail providers of basic computer hardware provide good options for the customer.
We believe that we are different from our competitors because we are focused on providing
solutions for small and medium-sized businesses that need diverse products, service and support. We advise our clients on what products they need to attain their goals for their businesses. Many of our competitors also focus on small and medium-sized businesses. We believe that we are competitive with other computer resellers because of our service and support we provide.
Many of our current and potential competitors have longer operating histories and other resources substantially more valuable than ours. As a result, our competitors may be able to adapt more quickly to changing customer needs. Our competitors may attempt to increase their presence in the market by forming strategic alliances with other competitors, offering better service to our customers or by giving better prices then we are able to provide. In order to compete with increasing competition, we may experience a decrease in our profit margin from sales. We believe that new competitors will be able to enter without much difficulty due to the low barriers to entry into this type of business. There can be no assurance that we will be able to compete with our competitors in the future.
ITEM 1A
ITEM 1A RISK FACTORS
Operating Risks
Our Independent Auditors Have Expressed Uncertainty About Our Ability to Continue as a Going Concern, Which May Dissuade Others From Doing Business With Us. Our independent auditors have raised substantial doubt about our ability to continue as a going concern. Because other organizations that seek to do business with Secure Netwerks often request a copy of our audit report, their perception of our company may be negatively influenced. For example, we may not be able to obtain invoice payment terms and price discounts from equipment manufacturers because we may be viewed as a credit risk, which could lead to a loss of sales opportunities if we do not have sufficient cash flow to pay for our inventory upon receipt or cannot make a profit on the sale of such equipment without such discounts. To date, no manufacturers have discontinued their discount programs with us, but we cannot assure you that such manufacturers will continue to provide us discounts in the future.
We Risk Losing Some of Our Key Personnel Because of Our Fluctuating Revenues and Cash Flows . Secure Netwerks’ success depends, in large part, upon the talents and skills of its management and key personnel, principally Chene Gardner, our Chief Executive Officer, and Clayton Barlow and Jonathon Bish, our principal salespersons. Our sales force is paid variable amounts based largely upon sales receipts, and therefore their incomes can fluctuate substantially from month to month.. To the extent that any of our key personnel are unable or refuse to continue their association with Secure Netwerks, a suitable replacement would have to be found. We do not have employment agreements with
any of our personnel and therefore we do not have restrictions on the ability of former employees to compete with us. Further, we do not have key man life insurance on any person in our company and could not therefore be compensated for the loss of any individual due to death or disability. We cannot assure you that we would be able to find suitable replacements for our existing management personnel or technical personnel or that we could retain such replacements for an affordable amount.
Our Chief Executive Does Not Work Exclusively for Secure Netwerks and May Face Time Conflicts Which Could Compromise His Availability to Manage Our Company. Chene Gardner, our Chief Executive Officer, is also the controller for SportsNuts, Inc. the Chief Executive Officer and Chief Financial Officer for Cancer Therapeutics, Inc. His role in these organizations puts substantial constraints on his time which may detract from his ability to manage the business of Secure Netwerks effectively. Mr. Gardner spends approximately one third of his time working for Secure Netwerks. We cannot assure you that Mr. Gardner will be able to avoid scheduling and time conflicts in the future, which may impair his performance as our Chief Executive Officer.
Our Business is Inherently Risky Because of Fluctuations in Cash Receipts From Our Customers. The information technology hardware business is inherently risky. Gross profit margins for basic computer hardware are generally small and therefore we seek to sell more sophisticated and customized equipment which generally requires deep relationships with larger organizations. These larger organizations are themselves customarily subject to budget constraints regarding capital equipment purchases which can cause our cash receipts to fluctuate depending on the budget cycle for a particular institutional customer. If our sales and outsourced services do not generate enough cash flow to meet our operating expenses (such as debt service, capital expenditures, and legal and accounting fees), our ability to develop and expand our business and become profitable will be adversely affected. We have periodically experienced cash flow difficulties which have resulted in an accumulated deficit of $­­­­­­352,528 as of December 31, 2009.
We Risk Losing Business Due to In-House Technology Personnel. We have found an increasing tendency of medium sized businesses to rely on internal personnel to service and maintain computer networks, even if such personnel are not properly trained to perform the tasks required. Because these persons may not be adequately trained, they may not be aware of the needs of their businesses to acquire updated equipment. In addition, even though these persons remain the point of contact for our sales personnel, they are typically unable to make purchasing decisions regarding computer equipment without securing permission from management or another department who may be resistant to such purchases without having interface with a trained sales representative. Finally, internal technology personnel can also themselves be resistant to bids for service projects because they may feel threatened by specialized outside service technicians who are generally more skilled and may detect errors in the manner in which systems and networks have been managed by in-house personnel in the past. If the trend of relying on internal technology personnel continues, we may not be able to secure agreements with medium-sized organizations or may be forced to dramatically change our sales techniques which have no guarantee of success.
Our Business Could be Adversely Affected From Cheaper Outsourced Services Provided Overseas. We are facing increasing competition from outsourced lower overhead firms in India, Russia, and other rapidly developing technology sectors around the world. These firms also have access to low-cost personnel who are fluent in English and are proficient in software languages, which enable them to bid for service projects at a substantially reduced rate from what we are able to provide. Although there are certain configuration, testing and setup services which are difficult to provide remotely, we cannot assure you that such firms will not be able to provide such services in the future and that our revenues will not be adversely affected.
We will Require Additional Financing for Expansion and other Functions Which Might Only be Procured on Disadvantageous Terms. We will likely require substantial additional capital in the future for expansion, business development, marketing, computer software and systems, overhead, administrative, and other expenses such as additional payroll and employee training. We cannot assure you that we will be able to raise additional funds or that financing will be available to Secure Netwerks on acceptable terms. Lack of additional funds could negatively affect our business, particularly if we do not possess sufficient cash or are not provided credit facilities to purchase equipment in connection with a large customer order.
You Could be Adversely Impacted from Any Additional Financing We Receive Due to Dilution or Restrictive Covenants. Your investment in Secure Netwerks could be negatively affected because of certain factors which may accompany any financing. For example, we may issue our equity securities or securities convertible into our equity at an effective price which causes substantial dilution to your ownership in Secure Netwerks. Any such financing may also contain provisions which may restrict our ability to consummate certain transactions such as a pledge or sale of our assets, an extension of credit, or borrowings, all of which may impair the operation of our business.
We Compete With Substantially Larger Companies That May be Better Positioned to Win Larger and More Profitable Contracts. In attempting to market our services to medium and larger organizations, we compete with substantially larger companies which have greater name recognition and financial resources to price their services and, in particular, computer products which are purchased through them. Accordingly, we may not be able to effectively compete for larger outsourcing and purchasing contracts unless and until we possess additional financial, marketing, and technical resources.
We May Lose Our Status as an Authorized Reseller Which Could Prevent Us From Selling Certain Computer Equipment. Secure Netwerks success and its outsourced service contracts are substantially dependent upon our ability to deliver our clients high quality products which requires that we continue as an authorized reseller for manufacturers. These manufacturers typically have various conditions which must be met in order to retain such reseller authorization, such as product proficiency
certifications, licenses, and volume purchases. Because computer equipment and related software is constantly being modified and upgraded, we may lose our status as an authorized reseller because we have not provided sufficient ongoing training to our employees. Furthermore, we could also lose such status because we lack the financial capacity to secure large volume orders. Where we purchase equipment from a wholesale reseller instead of the manufacturer, we do not control whether or not our suppliers continue to sell us such wholesale products. Any substantial interruption in our ability to supply discounted products to our clients would have a material adverse effect on our business, operating results, and financial condition.
Investment Risks
A Purchase of Secure Netwerks Shares is a Speculative Investment Because We Have a Limited Operating History and a History of Losses. Secure Netwerks’ shares are a speculative investment. To date, Secure Netwerks has generated net losses and we cannot guarantee that we will ever generate a profit in the future. As of December 31, 2009, Secure Netwerks has an accumulated deficit of $352,528. Secure Netwerks is not guaranteed to continue to make sales of computer products or related outsourced services. If Secure Netwerks continues to generate losses and we are unsuccessful at decreasing Secure Netwerks’ operating costs or raising investment capital, it is unlikely that Secure Netwerks would be able to meet its financial obligations and you could lose your entire investment.
No Active Market. Although the Company’s shares are traded on the NASD Electronic Bulletin Board, the Company believes that the public trading price may be an inaccurate representation of the value of the Company because there is little or no trading volume in the Company’s shares and no analysts or NASD market makers actively follow the Company.
We Have Never Issued a Dividend and You May Never Receive a Dividend in the Future and Must Rely Solely on a Possible Increase in the Value of Your Shares to Achieve any Return on Your Investment in Lieu of Dividend Income. Secure Netwerks has never issued a dividend and we do not anticipate paying dividends on our common stock in the foreseeable future. Consequently, you should not rely on an investment in Secure Netwerks if you require dividend income. Any return on your investment in Secure Netwerks will come from the potential appreciation in the value of your shares, which is inherently uncertain and unpredictable. Furthermore, we may also be restricted from paying dividends in the future pursuant to subsequent financing arrangements or pursuant to Delaware law.
Because Our Liability is Limited, Neither You nor Secure Netwerks May be Able to Hold Management Liable for Certain Breaches of Duty. Secure Netwerks has adopted provisions in its Certificate of Incorporation which limit the liability of our officers and directors and provisions in our bylaws which provide for indemnification by Secure Netwerks of our officers and directors to the fullest extent permitted by Delaware corporate law. Secure Netwerks’ Certificate of Incorporation generally provide that its directors shall have no personal liability to Secure Netwerks or its stockholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit your ability to hold directors liable for breaches of fiduciary duty.
You Could be Diluted from the Issuance of Additional Common and Preferred Stock. Presently, Secure Netwerks has 500,000 shares of common stock outstanding and no shares of preferred stock outstanding. Secure Netwerks is authorized to issue up to 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. To the extent of such authorization, the Secure Netwerks board of
directors will have the ability, without seeking shareholder approval, to issue additional shares of common stock in the future for such consideration as the board may consider sufficient. The issuance of additional common stock in the future may reduce your proportionate ownership and voting power.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
Secure Netwerks’ headquarters are located within a 5,600 square foot facility in South Jordan, Utah. Acadia Properties, LLC, a Utah limited liability company controlled by Kenneth Denos, a member of the board of directors of Secure Netwerks, holds a leasehold interest in the premises, with a written lease agreement commencing March, 2006 at a rate of $10,500 per month. We utilize approximately one-eighth of these premises for our operations. We have recently executed a month-to-month sublease with Acadia Properties, LLC for use of this facility and its common areas for Secure Netwerks’ operations in exchange for $900 per month.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4:
ITEM 4: SUBMISSION ON MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5:
ITEM 5: MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
(a)
Market for Common Equity and Related Stockholder Matters.
(1)
Market Information.
The Company’s Common Stock is listed on the NASD Electronic Bulletin Board (“Bulletin Board”) under the symbol “SEWK.” The Company’s stock has been traded on the Bulletin Board since approximately March, 2007. As of March 24, 2010, there was no active public market for the Company’s Common Stock. The following table sets forth, for the periods indicated, the high and low closing sales prices, as to Bulletin Board prices of shares of the Company’s Common Stock during the calendar year ended December 31, 2009:
High
Low
Fourth Quarter 2009
$ 0.10
$ 0.012
Third Quarter 2009
$ 0.023
$ 0.023
Second Quarter 2009
$ 0.011
$ 0.011
First Quarter 2009
$ 0.14
$ 0.011
The following table sets forth, for the periods indicated, the high and low closing sales prices, as to Bulletin Board prices of shares of the Company’s Common Stock during the calendar year ended December 31, 2008:
High
Low
Fourth Quarter 2008
$ 0.06
$ 0.06
Third Quarter 2008
$ 0.51
$ 0.06
Second Quarter 2008
$ 0.073
$ 0.073
First Quarter 2008
$ 0.073
$ 0.073
We do not have any warrants or options issued or outstanding.
(2) Holders.
As of March 24, 2010, the Company had approximately 266 holders of record of its Common Stock.
(3)
Dividends.
The Company has not paid any cash dividends on its Common Stock since inception and does not anticipate paying cash dividends in the foreseeable future. The Company anticipates that any future earnings will be retained for use in developing and/or expanding the business.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company we are not required to provide this information
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You should read the following discussion of the company’s financial condition and results of operations in conjunction with the audited financial statements and related notes included in this registration statement. This discussion may contain forward-looking statements, including, without limitation, statements regarding our expectations, beliefs, intentions, or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes,” or similar language. Actual results could differ materially from those projected in the forward looking statements. You should carefully consider the information set forth above under Item 1 of this Part I under the caption “Risk Factors” in addition to the other information set forth in this registration statement. We caution you that Secure Netwerks’ business and financial performance is subject to substantial risks and uncertainties.
Overview
Secure Netwerks is a reseller of technology-related hardware and software, including laptops, desktops, networking devices, telecommunication systems and networks, servers and software. We also provide our clients with some outsourced services necessary to install, educate, run and operate the hardware that we sell our clients. Our clients consist of small to large organizations. Currently, we sell hardware and outsourced services to an average of 9 clients each month and 43% of our clients have purchased product more than one time over the course of the past calendar year. You can learn more about our business at our website located at www.securenetwerks.com.
Results of Operations
Following is our discussion of the relevant items affecting results of operations for the years ended December 31, 2009 and 2008.
Revenues. Our products and services are broken down into two categories for revenue recognition purposes - (i) off-the-shelf hardware/software product sales, and (ii) outsourced information technology services. Our revenue recognition policy for these categories is as follows:
Revenue is recognized upon completion of services or delivery of goods where the sales price is fixed or determinable and collectibility is reasonably assured. Advance customer payments are recorded as deferred revenue until such time as they are recognized.
Product sales are derived from the resale of off-the-shelf hardware and software packages. Product sales are not warranted by Secure Netwerks and may be subject only to warranties that may be provided by the product manufacturer. Therefore, product warranties have no effect on the financial statements. We have no sales arrangements encompassing multiple deliverables.
Secure Netwerks generated net revenues of $194,958 for the year ended December 31, 2009, representing a 26% decrease compared to $261,956 in net revenues during the year ended December 31, 2008. During 2009 and 2008, we received $173,985 and $187,889, respectively, in gross revenues from software and hardware product resales and equipment leasing, and $20,973 and $74,067, respectively, in gross revenues from information technology and other miscellaneous services. The decrease in revenues for the year ended December 31, 2009 is mainly the result of four large sales of computer hardware and telephone systems which were associated with equipment leases during 2008. These transactions contributed approximately $68,791.70 in revenues during 2008. Although Secure Netwerks continues to pursue equipment leases, these transactions are sporadic and no large leases materialized during 2009. We do not anticipate that gross revenues from our base product and services will decrease. Our business model and objective is to receive recurring revenue from established clients. In addition, we procure and resell hardware and software packages to our clients as well as single transaction customers. Sales of software and hardware products are inherently unpredictable, but we anticipate that revenues from this activity will become more consistent as we grow our client base. Over the past twelve months, we have provided hardware sales, outsourced networking, programming, website design and hosting services for 17 clients on a continuous basis and approximately 33 clients for one-time projects.
Cost of Sales. Expenses which comprise cost of sales are the wholesale cost of hardware, software, any accompanying licenses, product sales commissions, and commissions paid in connection with information technology consulting contracts. Also included in cost of sales are personnel and materials costs to administer these information technology services. As more organizations utilize our technology services, future expenses included in cost of goods sold will increase as well as potential fee sharing expenses to organizations that assist us in providing these services.
Cost of sales for the year ended December 31, 2009 was $152,496, a 25% decrease from $204,450 during the year ended December 31, 2008. The decrease is mainly the result of decreased sales and the related need to purchase products. The cost of sales will fluctuate in the future depending on the sales mix of hardware sales and service revenue. Total cost of sales was 78% of revenues in both 2009 and 2008. As the company provides more services, cost of sales will decrease as the margins on services is much better than margins on hardware sales.
Salaries and Consulting Expenses. Salaries and consulting expenses consist of salaries and benefits, company paid payroll taxes and outside consulting expenses. Salaries and consulting expenses for the year ended December 31, 2009 were $16,366 compared to $22,808 during the year ended December 31, 2008. No major changes were expected to salaries and consulting expenses as the Company has pushed sales commission incentives rather than base salaries. Salaries and consulting expenses could increase if the Company hires additional personnel.
Professional Fees. Professional fees for the year ended December 31, 2009 were $20,273, representing a 1% increase compared to $20,057 during the year ended December 31, 2008. No change was expected in professional fees as the Company will continue to have audits and reviews of the financial statements.
Selling, General and Administrative Expenses. Selling, general and administrative expenses have been comprised of advertising; bad debts; occupancy and office expenses; equipment leases; travel
and other miscellaneous administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2009 were $25,492, a 42% decrease from $43,631 during the year ended December 31, 2008. The decrease is mainly the result of fewer accounts receivable write offs during 2009. For the years ended December 31, 2009 and 2008, bad debts expense was $5,552 and $15,305, respectively. Although the Company is now reviewing new customers more closely for credit worthiness, the struggling economy has increased the risk of bad debts. Furthermore, we endeavor to decrease certain costs associated with rent and occupancy-related expense.
Other Income (Expense). We incurred net other expense of $33,113 for the year ended December 31, 2009 compared to net other expense of $32,512 during the year ended December 31, 2008. Other expenses incurred were comprised primarily of interest expenses related to credit cards as well as promissory notes issued by the Company. Other income in this category is comprised of finance charge income billed to late paying customers. We do not anticipate any major changes in other income and expenses.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Personnel
Secure Netwerks has two full-time employees, one part-time employee, and other project-based contract personnel that we utilize to carry out our business. We utilize contract personnel on a continuous basis, primarily in connection with service contracts which require a high level of specialization for one or more of the service components offered. We expect to hire more full-time employees in the future. Although competition for technology sales personnel in the metropolitan Salt Lake City area is intense, because we offer competitive compensation and maintain a productive and collegial work environmental, we don’t believe we will have significant difficulty retaining additional employees or contract personnel in the future.
Liquidity and Capital Resources
Since inception, the Company has financed its operations through a series of loans, credit accounts with hardware vendors, and the use of Company credit to procure goods and services. As of
December 31, 2009, Secure Netwerks’ primary source of liquidity consisted of $441 in cash and cash equivalents. We may seek to secure additional debt or equity capital to finance substantial business development initiatives or acquire another hardware reseller. At present, however, we have no plans to seek any such additional capital or to engage in any business development or acquisition activity.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND PUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide this information.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONTENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders’ Deficit
Statements of Cash Flows
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Secure Netwerks, Inc.
South Jordan, Utah
We have audited the accompanying balance sheets of Secure Netwerks, Inc. as of December 31, 2009 and 2008 and the related statement of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Secure Netwerks, Inc. as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company has negative working capital, negative cash flows from operations and recurring operating losses which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Chisholm, Bierwolf, Nilson & Morrill LLC
Bountiful, Utah
March 31, 2010
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Secure Netwerks, Inc. (the Company) was formed in the state of Utah on February 4, 2004, with authorized common stock of 10,000,000 shares. The Company was subsequently reincorporated in the State of Delaware on February 14, 2006 with authorized common stock of 100,000,000 shares and authorized preferred stock of 10,000,000 shares. Both classes of stock have a par value of $0.001 per share.
The Company was created as a wholly owned subsidiary of SportsNuts, Inc. to be a computer and technology hardware and software reseller. In addition to supplying the computer hardware needs of SportsNuts, Secure Netwerks has since provided its hardware sales and services to organizations in a variety of industries.
Effective March 1, 2007, the Company was spun off from SportsNuts, Inc. and each shareholder of SportsNuts received stock in the Company on a pro rata basis.
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements. The following policies are considered to be significant:
a. Accounting Method
The Company recognizes income and expenses based on the accrual method of accounting. The Company has elected a calendar year-end.
b. Cash and Cash Equivalents
Cash equivalents are generally comprised of certain highly liquid investments with original maturities of less than three months.
c. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
d. Basic and Fully Diluted Net Loss per Share of Common Stock
In accordance with Financial Accounting Standards No. ASC 260, “Earnings per Share,” basic net loss per common share is based on the weighted average number of shares
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Basic and Fully Diluted Net Loss per Share of Common Stock (Continued)
outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. There are no common stock equivalents as of December 31, 2009 and 2008.
e.
Allowance for Doubtful Accounts Receivable
Accounts receivable are recorded net of the allowance for doubtful accounts. The Company generally offers 15-day credit terms on sales to its customers and requires no collateral. The Company maintains an allowance for doubtful accounts which is determined based on a number of factors, including each customer’s financial condition, general economic trends and management judgment. As of December 31, 2009 and 2008, the allowance for doubtful accounts was $-0- and $1,996, respectively. Bad debt expense was $5,552 and $15,305, for the years ended December 31, 2009 and 2008, respectively.
f.
Inventories
Inventories are stated at the lower of average cost or market value. When there is evidence that the inventories value is less than original cost, the inventory is reduced to market value. Inventories consist of computer hardware of $2,890 and $4,837 at December 31, 2009 and 2008, respectively.
g.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When assets are disposed of, the cost and accumulated depreciation (net book value of the assets) are eliminated and any resultant gain or loss reflected accordingly. Betterments and improvements are capitalized over their estimated useful lives whereas repairs and maintenance expenditures on the assets are charged to expense as incurred.
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
h. Revenue Recognition
Products and services provided by the Company are broken down into two main categories for revenue recognition purposes, they are: off-the-shelf hardware/software sales and technology related services. The revenue recognition policy for these categories is as follows:
Revenue is recognized upon completion of services or delivery of goods where the sales price is fixed or determinable and collectibility is reasonably assured. Advance customer payments are recorded as deferred revenue until such time as they are recognized. The Company does not offer any cash rebates. Returns or discounts, if any, are netted against gross revenues. For the years ended December 31, 2009 and 2008, sales are recorded net of the allowance for returns and discounts of $-0-. Product sales were solely derived from the resale of off-the-shelf hardware and software packages. Product sales are not warranted by the Company and may be subject only to warranties that may be provided by the product manufacturer.
i.
Recent Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. (See FAS 167 effective date below.)
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
i.
Recent Accounting Pronouncements (continued)
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. (See FAS 166 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. (See EITF 09-1 effective date below.)
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15,2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
i.
Recent Accounting Pronouncements (continued)
investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15,2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15,2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, FASB issued ASC 105-10 (Prior authoritative literature: SFAS No. 168, "The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162").FASB ASC 105-10 establishes the FASB Accounting Standards Codification TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. FASB ASC 105-10 is effective for financial statements issued for fiscal years and interim periods ending after September 15, 2009. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending December 31, 2009. Adoption of FASB ASC 105-10 did not have a material effect on the Company’s financial statements.
In June 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”) which amends the consolidation guidance applicable to a variable interest entity (“VIE”). This standard also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is therefore required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. Previously, the standard required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. This standard is effective for fiscal years beginning after November 15, 2009, and for interim periods within those fiscal years. Early adoption is prohibited. Adoption of FASB ASC 810-10-65 did not have a material impact on the Company’s financial statements.
In June 2009, the FASB ASC 860-10 (Prior authoritative literature: issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140”), which eliminates the concept of a qualifying special-purpose entity (“QSPE”), clarifies and amends the de-recognition criteria for a transfer to be accounted for as a sale, amends and clarifies the unit of account eligible for sale accounting and requires that a transferor initially measure at fair value and recognize all assets obtained and liabilities incurred as a result of a transfer of an entire financial asset or group of financial assets accounted for as a sale. This standard is effective for fiscal years beginning after November 15, 2009. Adoption of FASB ASC 860-10 did not have a material impact on the Company’s financial statements.
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
i.
Recent Accounting Pronouncements (continued)
In May 2009, FASB issued FASB ASC 855-10 (Prior authoritative literature: SFAS No. 165, "Subsequent Events"). FASB ASC 855-10 establishes principles and requirements for the reporting of events or transactions that occur after the balance sheet date, but before financial statements are issued or are available to be issued. FASB ASC 855-10 is effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009. As such, the Company adopted these provisions at the beginning of the interim period ended June 30, 2009.
In April 2009, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 164, “Not-for-Profit Entities: Mergers and Acquisitions”) which governs the information that a not-for-profit entity should provide in its financial reports about a combination with one or more other not-for-profit entities, businesses or nonprofit activities and sets out the principles and requirements for how a not-for-profit entity should determine whether a combination is in fact a merger or an acquisition. This standard is effective for mergers occurring on or after Dec. 15, 2009 and for acquisitions where the acquisition date is on or after the beginning of the first annual reporting period, beginning on or after Dec. 15, 2009. This standard does not apply to the Company since the Company is considered a for-profit entity
In May 2008, the FASB issued FASB ASC 944 (Prior authoritative literature: SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60"). FASB ASC 944 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company does not believe this standard will have any impact on the financial statements.
In March 2008, the FASB issued FASB ASC 815-10 (Prior authoritative literature: SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”), which is effective January 1, 2009. FASB ASC 815-10 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity’s financial position, financial performance, and cash flows. Among other things, this standard requires disclosures of the fair values of derivative instruments and associated gains and losses in a tabular formant. This standard is not currently applicable to the Company since we do not have derivative instruments or engage in hedging activity.
In December, 2007, the FASB issued FASB ASC 810-10-65 (Prior authoritative literature: SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB No. 51). FASB ASC 810-10-65 will change the accounting and reporting for minority interests which will be characterized as noncontrolling interests and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest shareholders. This standard is effective for fiscal years and interim periods within those
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
i.
Recent Accounting Pronouncements (continued)
fiscal years beginning on or after December 15, 2008. The Company adopted this standard beginning January 1, 2009 and does not believe it has a material impact in its financial statements.
In December, 2007, the FASB issued FASB ASC 805 (Prior authoritative literature: SFAS No. 141(R), “Business Combinations”), which established the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. FASB ASC 805 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. FASB ASC 805 is effective the first annual reporting period beginning on or after December 15, 2008. The Company adopted this standard beginning January 1, 2009 and does not believe it has a material impact in its financial statements.
In March 2007, FASB ASC 715-60 (Prior authoritative literature: EITF Issue No. 06-10, "Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements”). FASB ASC 715-60 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. FASB ASC 715-60 is effective for fiscal years beginning after December 15, 2007. The adoption of FASB ASC 715-60 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
In February 2007, FASB ASC 825-10 (Prior authoritative literature: Statement of Financial Accounting Standards No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 ,”) was issued. This standard allows a company to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. The provisions of this standard were effective as of the beginning of fiscal year 2008, with early adoption permitted. The adoption of FASB ASC 825-10 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
In September 2006, the FASB issued FASB ASC 820-10 (Prior authoritative literature: FASB Statement 157, “Fair Value Measurements”). FASB ASC 820-10 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. FASB ASC 820-10 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, FASB ASC 820-10 does not require any new fair value measurements. However, for some entities, the application of FASB ASC 820-10 will change current practice. The changes to current practice resulting from the application of FASB ASC 820-10 relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. The provisions of FASB ASC 820-10 are effective as of January 1, 2008, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. However, delayed application of this statement is permitted for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
i.
Recent Accounting Pronouncements (continued)
statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of FASB ASC 820-10 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
In June 2006, FASB issued FASB ASC 740-10 (Prior authoritative literature: FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes”. FASB ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FASB ASC 740-10 is effective for fiscal years beginning after December 15, 2006. The adoption of FASB ASC 740-10 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
j. Income Taxes
The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)). FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained will be sustained upon examination based upon the technical merits of the position. If the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
At December 31, 2009, the Company had net operating loss carryforwards of approximately $120,000 which may be offset against future taxable income through 2029. No tax benefit has been reported in the financial statements because the potential
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Income Taxes (continued)
tax benefits of the net operating loss carryforwards are offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to future use.
Net deferred tax assets consist of the following components as of December 31, 2009 and 2008:
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 34% to pretax income from continuing operations for the years ended December 31, 2009 and 2008 due to the following:
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Income Taxes (continued)
At December 31, 2009, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.
The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of December 31, 2009 and 2008, the Company had no accrued interest or penalties related to uncertain tax positions.
The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2009, 2008 and 2007.
k. Gain on Settlement of Debt
The gain on settlement of debt arises from the write-off of certain old accounts and notes payable by the Company pursuant to a legal opinion from the Company’s attorney and CEO. The gain on settlement of debt associated with these write-offs amounted to $-0- and $480, respectively at December 31, 2009 and 2008.
l.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risks consist of cash and cash equivalents. The Company places cash and cash equivalents at well known quality financial institutions. Cash and cash equivalents at banks are insured by the Federal Deposit Insurance Corporation for up to $250,000. The Company did not have any cash or cash equivalents in excess of this amount at December 31, 2009 and 2008.
m.
Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and has determined that there are no such events that would have a material impact on the financial statements.
NOTE 3 -
RELATED PARTY TRANSACTIONS
The Company issued certain promissory notes to individuals as disclosed in Note 5. The individuals consist of an officer of the Company and a director of the Company. The Company received advances of $3,000 and $4,378, respectively; and made payments on these advances of $-0- during the years ended December 31, 2009 and 2008.
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 4 -
NOTES PAYABLE
Accrued interest at December 31, 2009 and 2008 was $34,315 and $27,736, respectively.
NOTE 5 - NOTES PAYABLE - RELATED PARTIES
Accrued interest at December 31, 2009 and 2008 was $106,027 and $82,749, respectively.
NOTE 6 - EQUITY TRANSACTIONS
500,000 common shares of Secure Networks, Inc. (Utah) were issued to the incorporator upon incorporation which included the assumption of $25,196 in liabilities resulting in an additional paid-in capital deficit of $25,696 upon issuance.
500,000 common shares of Secure Netwerks, Inc. (Delaware) were issued on the basis of 1-for-1 for all of the outstanding shares of Secure Networks, Inc. (Utah) as part of the Company’s reincorporation into the State of Delaware. All references to shares issued and outstanding in the financial statements have been retroactively restated to reflect the effects of this change in capital structure.
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 6 - EQUITY TRANSACTIONS (Continued)
On February 14, 2006, the Board of Directors approved the Company’s amended and restated Articles of Incorporation (Amendment). The Amendment increases the authorized shares of common stock from 10,000,000 to 100,000,000 shares. The Amendment also provides for a new class of preferred stock with 10,000,000 shares authorized. The rights and preferences of the preferred stock have yet to be determined. Both common and preferred stock have a par value of $0.001.
NOTE 7 - FINANCIAL INSTRUMENTS
On January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value Measurements.” This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
-
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
-
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
NOTE 8 -
GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has a working capital deficit, negative cash flows from operations and has sustained net losses from inception which have resulted in an accumulated deficit at December 31, 2009 of approximately $353,000 and has experienced periodic cash flow difficulties, all of which raise substantial doubt regarding the Company’s ability to continue as a going concern.
To date the Company has funded its operations through a combination of loans. The Company anticipates another net loss for the year ended December 31, 2010 and with the expected cash requirements for the coming year, there is substantial doubt as to the Company’s ability to continue operations.
The Company believes these conditions have resulted from the inherent risks associated with small startup technology-oriented companies. Such risks include, but are not limited to, the ability to (i) generate revenues and sales of its products and services at levels sufficient to cover its costs and provide a return for investors, (ii) attract additional capital in order to finance growth, (iii) further develop and successfully market commercial
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 8 -
GOING CONCERN (Continued)
products and services, and (iv) successfully compete with other comparable companies having financial, production and marketing resources significantly greater than those of the Company.
The Company is attempting to improve these conditions by way of financial assistance through issuances of additional equity and by generating revenues through sales of products and services.
NOTE 9 -
LOANS RECEIVABLE - RELATED PARTIES
From time to time, the Company makes advances to employees. These advances have been recorded as Loans receivable - related parties and amounted to $10,450 and $9,197 as of December 31, 2009 and 2008, respectively.
NOTE 10 -
COMMITMENTS & CONTINGENICES
The Company has a month to month lease agreement which is currently in the amount of $900 per month. Rent expense was $10,800 for the years ended December 31, 2009 and 2008.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Major Customers
The Company had 4 and 3 customers, respectively, who represented 10% or more of total sales for the years ended December 31, 2009 and 2008.
As of December 31, 2009 none of the Company’s accounts receivable was due from these customers. The loss of these customers, although not anticipated, could have a material impact on the Company’s present and future operations.
SECURE NETWERKS, INC.
Notes to the Financial Statements
December 31, 2009 and 2008
NOTE 11 - CONCENTRATIONS OF CREDIT RISK (Continued)
Major Suppliers
The Company had 2 vendors who represented 10% or more of the total purchases for the years ended December 31, 2009 and 2008.
The loss of these vendors could have a temporary impact on operations; however, alternate suppliers are readily available that the Company feels could quickly fill the void, should it ever need to.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A:
ITEM 9A: CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, to allow for timely decisions regarding required disclosure.
As of December 31, 2009, the end of our fiscal year covered by this report, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report. Our board of directors has only one member. We do not have a formal audit committee.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2009, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Inherent limitations on effectiveness of controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, 2009 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B:
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
Name
Age
Position(1)
Walter Pera
Chairman of the Board
Chene Gardner
Chief Executive Officer, Chief Financial Officer and Director
Kenneth I. Denos
Director
(1) Officers hold their position at the pleasure of the board of directors, absent any employment agreement.
Walter Pera, age 65, is the Chairman of the board of directors of Secure Netwerks. Mr. Pera was appinted as Chairman of the board of directors of Secure Netwerks in March, 2004. Mr. Pera has been the Chairman of the board of directors of Secure Netwerks since its inception. Mr. Pera also serves as the President of RTW Management, Inc., a transportation provider and management company, and has served in this capacity since September 2003. Mr. Pera is also the President and principal of 32 Enterprises LLC which owns Exchange night club, operating in Salt Lake City, Utah, and has served in this capacity since February 2007. Mr. Pera was President of EcourseMaster Inc., an internet-based education company specializing in developing and deploying specialized training over the internet for
corporate clients from March 2001 until April 2003. Mr. Pera holds a Bachelor of Science degree in electrical engineering from Colorado State University, and a Masters in Business Administration from
Brigham Young University. Mr. Pera served in the United States Navy from 1962 to 1966. Mr. Pera is not a director of any other company filing reports pursuant to the Securities Exchange Act of 1934.
Chene Gardner, age 45, is the Chief Executive Officer and Chief Financial Officer of Secure Netwerks and a member of the Secure Netwerks board of directors. Mr. Gardner was appointed Chief Executive Officer, Chief Financial Officer and member of the board of directors of Secure Netwerks in March, 2004. Mr. Gardner has been the Chief Financial Officer of Secure Netwerks since its inception. Mr. Gardner also serves as the financial controller for SportsNuts, Inc., the ex-parent corporation of Secure Netwerks, and has served in this capacity since September, 1999. Mr. Gardner has been the Chief Financial Officer and member of the board of directors of Cancer Therapeutics, Inc., a cancer biotherapy company since May 2004. Mr. Gardner has served as the Chief Executive Officer of Global Networks, Inc., an advertising company from March, 2005 until December, 2009. Mr. Gardner has also served as the Chief Financial Officer and member of the board of directors of Synerteck, Inc., an IT service provider and a filer or reports pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 from April, 2001 until December 2005. From January, 1997 to September, 1999, Mr. Gardner served as Financial Manager for Aluminum Builders, Inc., a producer of various home improvement items. Mr. Gardner also has five years of auditing and accounting experience with the firm of Deloitte & Touche LLP from June 1990 to August, 1995, serving clients in the banking, manufacturing, and retail industries. Mr. Gardner holds Bachelor and Master of Accounting degrees from Weber State University. Mr. Gardner is not a director of any other company filing reports pursuant to the Securities Exchange Act of 1934.
Kenneth I. Denos, age 42, has been a member of the board of directors of Secure Netwerks since its formation in March, 2004. Mr. Denos serves and Deputy Chairman of the Board of London Pacific & Partners, Inc., a healthcare and hospitality services company. Mr. Denos has served as the Chief Executive Officer and a director of SportsNuts, Inc., the parent corporation of Secure Netwerks and a filer or reports pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934. Mr. Denos has served as a member of the SportsNuts, Inc. board of directors from April, 1999 until January, 2005 and has served as its Chief Executive Officer from March, 2000 until January, 2005. From April, 1999 until March, 2000, he served as Executive Vice President and General Counsel for SportsNuts. From November, 1998 until April, 1999, he served as Executive Vice President of SportsNuts.com, Inc., a privately held corporation in which a controlling interest was acquired by SportsNuts, Inc. (the parent corporation of Secure Netwerks ) in April, 1999. From May 2007 until October 2009, Mr. Denos has served as the Chief Executive Officer of MCC Global N.V. (FSE:IQF2), an Amsterdam-based business advisory firm. From June, 2005 until June, 2009, Mr. Denos has served as the member of the board of directors of Moore, Clayton Capital Advisors, Inc., an investment advisor to Equus Total Return, Inc. (NYSE:EQS) and registered pursuant to the Investment Advisors Act of 1940. Mr. Denos has been the CEO of Equus Total Return, Inc (NYSE:EQS), registered investment company pursuant to the Investment Company Act of 1940, from August, 2007 until June, 2009. In March, 2008, he was appointed to the board of directors of Equus Total Return and continues to serve in this capacity. From January, 2004 until October, 2005, Mr. Denos served on the board of directors of Healthcare Enterprise Group PLC (LSE:HCEG), a London-based healthcare products distribution firm. From February, 2005 until February, 2007, Mr. Denos served on the board of directors of Tersus Energy PLC (LSE:TER), a London-based alternative/renewable energy company. From March 2001 until December 2005, Mr. Denos also served as a Synerteck Incorporated member of the board of directors, a filer or reports pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934. From March, 1996 until November, 1998, Mr. Denos was an attorney with the Salt Lake City-based law firm of Jones, Waldo, Holbrook & McDonough, P.C. Mr. Denos is a licensed attorney in the State of Utah and is a member of the American Bar Association. Mr. Denos holds a Bachelor of Science degree in Business Finance and Political Science, a Master of Business Administration Degree, and a Juris Doctor, all received from the
University of Utah. Other than SportsNuts, Inc., Mr. Denos is not a director of any other company filing reports pursuant to the Securities Exchange Act of 1934.
Compensation of Directors
Although we anticipate compensating the members of the Secure Netwerks board of directors in the future at industry levels, the current members are not paid cash compensation for their service as directors. Each director may be reimbursed for certain expenses incurred in attending board of directors
and committee meetings. We are contemplating the issuance of stock or stock options of shares of Secure Netwerks to our directors for their service on the Secure Netwerks board of directors.
Board of Directors Meetings and Committees
Although various items were reviewed and approved by the board of directors during 2009, the board of directors held no formal meetings during the fiscal year ended December 31, 2009.
Secure Netwerks does not have Audit or Compensation Committees of the board of directors because each director of Secure Netwerks reviews the financial statements and independent audits of Secure Netwerks.
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers and senior financial officers (including our chief executive officer, chief financial officer and any person performing similar functions). A copy of our code of ethics is publicly available on our website at www.securenetwerks.com under the caption ­­­­“INVESTORS." If we make any substantive amendments to our code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our chief executive officer, chief financial officer, chief accounting officer or controller, we will disclose the nature of such amendment or waiver in a report on Form 8-K.
Section 16(a) Beneficial Ownership Reporting Compliance
We are required to identify each person who was an officer, director or beneficial owner of more than 10% of our registered equity securities during our most recent fiscal year and who failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934.
For the 2009 fiscal year we are unaware of any officer, director or beneficial owner of more that 10% of our registered equity securities who failed to file reports on a timely basis in accordance with Section 16(a) of the Securities Exchange Act of 1934.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and long-term compensation for services rendered in all capacities during the fiscal year ended December 31, 2009, 2008 and 2007 by Chene Gardner our Chief Executive Officer and Chief Financial Officer. Mr. Gardner was appointed as Chief Executive Officer and Chief Financial Officer in March, 2004. No other executive officer of Secure Netwerks received more than $100,000 in total salary and bonus. Although Secure Netwerks may, in the future, adopt a stock option plan or a stock bonus plan, no such plans exist.
Summary Compensation Table
Employment Agreements
None of our executive officers are subject to an employment agreement with Secure Netwerks.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
On March 1, 2007, Secure Netwerks was spun-off of SportsNuts, Inc., a Delaware corporation traded on the OTC Electronic Bulletin Board and a filer of reports pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934. As of March 1, 2007 all of the shareholders of SportsNuts received their pro-rata ownership of Secure Netwerks. Secure Netwerks has no shares of preferred stock, options, warrants, rights or other instruments convertible into shares of common stock outstanding.
Beneficial Ownership of Secure Netwerks
The following table sets forth certain information regarding the beneficial ownership of Secure Netwerks’ common stock (par value $0.001 per share) as of March 25, 2009 by (i) each person (or group of affiliated persons) who is known by us to beneficially own more than 5% of the outstanding shares of Secure Netwerks’ common stock, (ii) each person who has served as a director or executive officer of Secure Netwerks from 2006 to 2008, and (iii) all persons who have served as a director or executive officer of Secure Netwerks during such years as a group. As of such date, Secure Netwerks had 500,000 shares of common stock outstanding. Unless indicated otherwise, the address for each officer, director, and 5% shareholder is c/o Secure Netwerks, 10757 South River Front Parkway, Suite 125, South Jordan, Utah 84095.
(1) For each shareholder, the calculation of percentage of beneficial ownership is based upon 500,000 shares of Common Stock outstanding as of March 25, 2010, and shares of Common Stock subject to options, warrants and/or conversion rights held by the shareholder that are currently exercisable or exercisable within 60 days, which are deemed to be outstanding and to be beneficially owned by the shareholder holding such options, warrants, or conversion rights. The percentage ownership of any shareholder is determined by assuming that the shareholder has exercised all options, warrants and conversion rights to obtain additional securities and that no other shareholder has exercised such rights. Except as otherwise indicated below, the persons and entity named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to applicable community property laws.
(2) Chief Executive Officer, Chief Financial Officer and Director of Secure Netwerks.
(3) Chairman of the Board of Directors of Secure Netwerks.
(4) Director of Secure Netwerks. Includes 8,242 shares of Common Stock of Secure Netwerks held directly by Mr. Denos. Because Mr. Denos is a member of the Board of Directors of Moore, Clayton & Co., Inc. (“MCC”), this number also includes 4,415 shares held directly by MCC.
(5) Shareholder of Secure Netwerks. Includes 103,033 shares held directly by Prestbury Investment Holdings Limited (“PIHL”).
(6) Principal of PIHL and, together with Mr. Nicholas Leslau, the controlling shareholders of PIHL. Includes 103,033 shares of Common Stock of Secure Netwerks held directly by PIHL.
(7) Principal of PIHL and, together with Mr. Nigel Wray, the controlling shareholders of PIHL. Includes 103,.033 shares of Common Stock of Secure Netwerks held directly by PIHL.
(8) Shareholder of Secure Netwerks. Includes 50,584 shares of Common Stock held directly by Gardner Management, Inc. Profit Sharing Plan and Trust.
(9) Shareholder of Secure Netwerks. Includes 4,415 shares of Common Stock held directly by MCC.
(10) Shareholder of Secure Netwerks. Includes 24,699 shares of Common Stock held directly by Mr. Shell and 10,303 shares of Common Stock held by Kelli Shell, the wife of Mr. Shell.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Upon the formation of Secure Netwerks in March 2004, SportsNuts paid $0 for 500,000 shares of Secure Netwerks common stock and up until March 1, 2007, Secure Netwerks’ sole shareholder. The consideration paid by SportsNuts in receiving the shares of Secure Netwerks was in exchange for the assumption of $25,196 in liabilities resulting in an additional paid in capital deficit of $25,696 upon issuance.
Secure Netwerks is subject to a month-to-month sublease with Acadia Properties, LLC, for the use of office and hardware facilities. We pay Acadia Properties, LLC a rental fee of $900 per month, which may increase as our business grows. Secure Netwerks’ rental fee is based on exclusive usage of approximately one-eighth of the office space of Acadia Properties, LLC, which pays an aggregate rental rate of $10,500 per month and is comparable to rents charged to other subtenants of Acadia Properties, LLC. We utilize these facilities for the operation of our day-to-day business. As Secure Netwerks grows and expands, we may seek alternative arrangements for our executive offices and operations elsewhere in the Salt Lake City metropolitan area. Kenneth Denos is a principal of Acadia Properties, LLC and is a director of Secure Netwerks.
As of June 10, 2004, $80,000 was loaned to Secure Netwerks in the form of the payment of outstanding liabilities on behalf of the Company, and on January 1, 2005, Secure Netwerks issued 4 promissory notes to the following individuals to formalize these non-cash payments in the prior year:
·
Chene Gardner ($6,250), the Chief Executive Officer of Secure Netwerks;
·
Kenneth Denos ($25,000), Director of Secure Netwerks;
·
John Thomas ($25,000), Secure Netwerks’ corporate counsel; and
·
Travis Pera ($23,750), son of Walter Pera, Chairman of the board of directors of Secure Netwerks.
The notes each mature upon demand, are unsecured, and bear interest at the rate of ten percent per annum.
ITEM 14:
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Change in Auditors
On or about January 1, 2009, we were notified that effective January 1, 2009, the audit partner of Bouwhuis, Morrill & Company, LLC (“BMC”) our auditors, joined Chisholm, Bierwolf & Nilson, LLC (“CBN”) which became Chisholm, Bierwolf, Nilson & Morrill, LLC (“CBNM”). As a result, BMC resigned as our independent registered public accounting firm and CBNM was formally engaged as our new independent registered public accounting firm. The decision to retain CBNM as our certifying public accountant was authorized and approved by our board of directors.
During the period from the engagement of the former auditors through the date of the resignation of the former auditors, including the registrant’s most recent fiscal year and the subsequent interim period, there were no disagreements with the former auditors, whether or not resolved, on any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedure, which, if not resolved to the former auditor’s satisfaction, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report.
The reports of BMC did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
Fees Billed For Audit and Non-Audit Services
The following table represents the aggregate fees billed for professional audit services rendered to the Company by Chisholm, Bierwolf, Nilson & Morrill, LLC for 2009, and Bouwhuis, Morrill & Company, LLC, for 2008 for the audit of the Company’s annual financial statements for the years ended December 31, 2009 and 2008, and all fees billed for other services rendered by BMC during those periods.
(1) Audit Fees. These are fees for professional services for the audit of the Company’s annual financial statements, and for the review of the financial statements included in the Company’s filings on Form 10-KSB, and for services that are normally provided in connection with statutory and regulatory filings or engagements.
(2) Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of the Company’s financial statements.
(3) Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.
(4) All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.
ITEM 15:
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Documents Filed as a Part of this Report
(1)
Financial Statements
See “Item 8 - Financial Statements Required by Form 10-K”
(2)
Financial Statement Schedules
The following Financial Statement Schedules of the Company, together with the report of
Bouwhuis Morrill & Company, LLC, the Company’s independent registered public accounting firm, thereon are filed as part of this Report on Form 10-K as listed below and should be read in conjunction with the consolidated financial statements of the Company:
Report of Chisholm, Bierwolf, Nilson & Morrill, LLC, Independent Accountants, on Financial Statement Schedules for 2008.
Report of Bouwhuis Morrill & Company, LLC, Independent Accountants, on Financial Statement Schedules for 2007.
(3)
Exhibits
See “Index to Exhibits.”
(b)
Reports on Form 8-K
No reports on Form 8-K were filed during the year ended December 31, 2009.
ITEM 1. INDEX TO EXHIBITS
Exhibit
Number
Title of Document
3.1
Certificate of Incorporation of Secure Netwerks, Inc., a Delaware corporation.(1)
3.2
Bylaws of Secure Netwerks, Inc., a Delaware corporation.(2)
10.1
Sublease Agreement between the Registrant and Acadia Properties, LLC (3)
10.2
Form Purchase Contract (4)
10.3
Promissory Note Issued to Chene Gardner (5)
10.4
Promissory Note Issued to Travis Pera (6)
10.5
Promissory Note Issued to John Thomas (7)
10.6
Promissory Note Issued to Kenneth Denos (8)
10.7
Equipment Lease between Secure Netwerks and Velocity Capital LLC (9)
23.1
Consent of Bouwhuis, Morrill & Company, LLC. (10)
Certification by Chief Executive Officer and Chief Financial Officer, Chene
Gardner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Executive Officer and Chief Financial Officer, Chene Gardner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(2)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(3)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(4)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(5)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(6)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(7)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(8)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(9)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
(10)
Filed as an Exhibit to the Company’s Registration Statement on Form 10 SB12G, deemed effective by the Commission on January 17, 2007.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.