PART I
This annual report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the Company, us, our future performance, our beliefs and our Management's assumptions. In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict or assess. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the filing of this Form 10-K, whether as a result of new information, future events, changes in assumptions or otherwise.
Unless the context otherwise requires, throughout this Annual Report on Form 10-K the words “Company,” “we,” “us” and “our” refer to Eyes on the Go, Inc. “EOTG” refers to the corporation that conducted our business prior to the Merger and became our wholly owned subsidiary by virtue of the Merger.
Overview
In January 2012, we introduced a service to provide online streaming video and audio images from bars, performances spaces, restaurants and clubs to consumers via a website called “Gander.tv.” We have developed a proprietary software program that runs on computer platforms at customers’ facilities that streams video images and sound from multiple cameras and microphones and makes them available to consumers on the Gander.tv website. In some cases, it is possible to utilize customers’ existing video and audio equipment. The Company has entered into a hosting agreement for the consolidation and storage of these video and audio images and their presentation to consumers via the Gander.tv website. We began selling this service in January 2012 in anticipation of the completion of the Gander.tv website, and by the end of March 2012 we had installed our first beta site in New York City. Over the course of the year and by December 31, 2012, we had installed a total of 36 venues in the New York Metropolitan area. We launched the Gander.tv web site in beta mode in mid-March 2012 and released from beta mode in the end of November 2012. We began generating revenue in November of 2012. The Company enhanced the software applications during the beta period including testing and then offering all eCommerce functions for billing certain services to the public.
The company now has a suite of applications that provide the following functionality to the entertainment venue owner and to the consumer.
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Performances are streamed live performances and while transmitting, also recorded and stored on the hosted servers at Amazon.
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Recorded segments are stored and are curated by the company’s Program Managers and are available in a library where they can be selected for streaming during off hours, or during times when the venue owner does not want to stream live performances.
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Broadcasts events are streamed live and recorded as directed by the venue owners on their scheduled times. These events are streamed live and recorded and available for the consumer anytime on the future.
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A dedicated web page is provided to each venue where the Company highlights the venue name, logo, address, map, description and provides a video player window. All recorded events are also made available as a thumbnail listing under the video window.
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Broadcast events are made available as pay-per-view, meaning that the Company, the venue and the performer agree on a ticket price, which Gander.tv then makes available to the consumer during the live performance and later as a stored recorded event. The Company performs all of the eCommerce functions and accepts credit cards and PayPal for payment. The Company shares the proceeds on negotiated terms with the venue and the performer. These events can also be offered as Private Events, where the Company provides an access code to the venue and performer for their distribution to select parties for viewing.
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Live and recorded broadcasts can be shared through certain social media web sites including Facebook. The Company also allows for embedded video on other third party web sites, including those of the venue and the performer. The Company has programmed a “chat” function through Facebook to its web pages featuring these events, where consumers can make comments.
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The Company offers social media marketing services where it provides graphics, creates special web sites for events, and performs postings, Tweets and other forms of communication to expand the reach to consumers by informing them of upcoming or recorded events.
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We market directly with our own sales force through direct marketing efforts using leads that are generated internally and as well as introductions made through the Sysco, Inc. sales force and support the design and manage the implementation, customization and maintenance of our services with our back office customer support staff. For more information on our relationship with Sysco, Inc. and its subsidiary, iCare, see “Our History – Marketing and Sales – iCare Agreement,” below. We rely on third parties for equipment necessary to render our services including the on-site Controller, cameras and microphones and for installation and on-site maintenance services. The Company has developed certain proprietary software applications as well as modified licensed software. We market primarily to business owners and managers in the entertainment and hospitality industries, as well as to performers and promoters. The address of the Company is 40 Fulton Street, 24
th
Floor, New York, NY 10038; its telephone number is (888) 666-3597.
Our History
Prior to the Merger
We were incorporated in Delaware on March 5, 2008, for the purpose of acquiring Mutual Exchange International, Inc., a Florida corporation (“Mutual”).
Mutual was incorporated on July 16, 1990, in the State of Florida as All-Pro Marketing, Inc. On March 10, 1998, it changed its name to All-Pro Sports Marketing, Inc. and on June 12, 1998, it again changed its name to Mutual Exchange International, Inc.
On January 2, 2007, the Circuit Court of the Eleventh Circuit in and for Dade County, Florida, appointed a receiver over the business of Mutual (Case No. 06-25824 CA 23) and on January 2, 2007, that court issued an order approving the issuance of 100 million shares of the voting preferred stock of Mutual (the “Voting Preferred Stock”) to Mark Rentschler to compensate him for services theretofore rendered to Mutual. Shortly thereafter, he was elected as Mutual’s president, secretary and sole director.
In 2007 Mark E. Astrom became the controlling stockholder of Mutual through his indirect ownership of the Voting Preferred Stock, which a corporation of which he was the sole stockholder acquired from Mr. Rentschler. Upon the acquisition of the Voting Preferred Stock, Mr. Astrom became Mutual’s President and sole director and remained as such until Mutual was merged with and into the Company in 2008. In 2008, Mr. Astrom acquired 320 million shares of Mutual’s common stock for $36,000.
On March 13, 2008, Mutual merged with and into the Company. In connection with the merger, one share of the common stock of the Company was issued for each 10 shares of Mutual’s common stock and the Voting Preferred Stock was exchanged for 5 million shares of the Company’s Series C Preferred Stock (the “Series C Preferred Stock”). Upon the consummation of this merger, Mr. Astrom became our sole director and president. He remained our president, sole director and controlling stockholder, until, contemporaneously with the merger described below, two additional directors were added to our board of directors, Mr. Astrom ceased to be our president and he reduced his holdings in the Company to 5,000 shares of Common Stock. In November 2009, the Company and Mr. Astrom entered into an employment agreement (the “Employment Agreement”), which terminated effective November 30, 2010, under which 500 million shares of Common Stock paid as compensation for his services were issued at his direction to a corporation of which he was the sole stockholder. For a description of this employment agreement and transactions involving these shares, see “Directors, Executive Officers and Control Persons – Related Party Transactions – Employment Agreement.”
Effective November 4, 2009, we implemented a 1-for-20 reverse split of our common stock and on November 25, 2009, the Series C Preferred Stock was exchanged for 1 share of our Series A Preferred Stock (the “Series A Preferred Stock”), which had 75% of the voting power of the Company. This share of Series A Preferred Stock has been returned to the Company and cancelled (see “Directors, Executive Officers and Control Persons – Related Party Transactions – Exchange Transaction”). For a description of the Series A Preferred Stock and Series C Preferred Stock, see “Description of Securities – Series A Preferred Stock.”
During 2009 and 2010, we took preliminary measures towards establishing a business in the areas of DNA imaging and commercial printing. The printing line of business was to be operated both independently and as a symbiotic component of the DNA imaging business. We established a business plan and took steps towards developing both lines of business, one of which was the acquisition of a plan for the development of the printing line of business from Spaceport, a California business trust (“Spaceport”), in which Mr. Astrom held a controlling interest. In November 2010, after we concluded that we would not be able to establish either line of business, we abandoned the business plan. From that time until May 1, 2011, we conducted no business and were a “shell company,” as that term is defined in Rule 405 under the Securities Act. For further information respecting transactions between Mark E. Astrom and the Company and between Spaceport and the Company, see “Directors, Executive Officers and Control Persons – Related Party Transactions.”
Effective February 2, 2010, we implemented a 1-for-500 reverse stock split (the “Reverse Split”) of our issued and outstanding common stock (with no change to the amount of our authorized common stock or the par value). As a result of the Reverse Split, the number of our issued and outstanding shares of common stock was reduced to 1,960,210. Immediately following the Reverse Split, we issued 499 million shares of Common Stock to Mark E. Astrom, pursuant to the provisions of the Employment Agreement, which required us to protect the shares of common stock that had been issued to under that agreement from reduction by virtue of the Reverse Split. See “Directors, Executive Officers and Control Persons – Related Party Transactions – Employment Agreement.”
The Merger
As of May 1, 2011, we entered into a Plan and Agreement of Merger by and among ourselves, Eyes Enterprises, Inc., a Delaware corporation and our wholly owned subsidiary, and EOTG, under which Enterprises was merged with and into EOTG, with EOTG being the surviving corporation. As incidents of this merger, we changed our corporate name to “Eyes on the Go, Inc.” and EOTG changed its corporate name to “Eyes Enterprises, Inc.” As a result of the Merger, we are no longer considered a shell company. In connection with the Merger, we issued 360,600,000 shares of Common Stock to the holders of the common stock of EOTG and Mark E. Astrom transferred 500,008,000 shares of Common Stock owned by him to said holders, ratably in accordance with their respective interests in EOTG. As a result of the Merger, Christopher Carey and Mary Weaver Carey, his wife, who are officers and directors of the Company, Blazej Kesy, who is a director of the Company and an officer of Enterprises, and Christopher Carey, Jr., who is the son of Mr. Carey and Ms. Carey, became our controlling stockholders.
Also in connection with the Merger:
We completed a private placement with four investors (the “Private Placement”) of 92,500,000 shares of Common Stock for proceeds of $152,991 in cash and payment for services under Securities Purchase Agreements. We also entered into Registration Rights Agreements with these investors, pursuant to which we filed and pursued to effectiveness a registration statement under the Securities Act covering the shares issued in the Private Placement.
We issued 55,000,000 shares of Common Stock to Fritz-MacDonald Capital, LLC (“Fritz”), and its designee. On January 23, 2010, EOTG executed and delivered an asset purchase agreement with Fritz, whereby it acquired all of the rights to the name “Eyes on the Go”; a related website, domain and URL; all assets represented in the pilot site; and all marketing and sales materials (the “Purchased Assets”). EOTG was then contemplating the Merger and agreed with Fritz that it would obtain a covenant of the Company in the Merger Agreement to issue and deliver to Fritz and/or its designees 55 million shares of Common Stock and to agree to register these shares under the Securities Act. The Merger Agreement contained a covenant to this effect, and accordingly, after the consummation of the Merger, 50,000,000 shares of Common Stock were issued to Fritz and 5,000,000 shares of Common Stock were issue to its designee. The Company also entered into Registration Rights Agreements with Fritz and its designee, in substantially the same form as were entered into with respect to the Private Placement. In connection with the purchase, Fritz was granted a security interest in the Purchased Assets until such time as the Common Stock is so registered, after which all liens or claims on the Purchased Assets will be released.
Mark E. Astrom, who was then our president and sole director, entered into an Exchange Agreement with us, under which one share of our Series A Preferred Stock and $288,706 of our indebtedness to him was exchanged for a secured promissory note of the Company, dated May 1, 2011, payable to him in the principal amount of $473,933.65 and bearing interest at the rate of 0.55% per annum. The promissory note is due May 1, 2012, is subject to acceleration in the event of certain events of default and contains a covenant under which we are required to prevent Enterprises from granting liens upon its property, except for purchase money security interests. On August 15, 2011, the promissory note was amended to reduce its principal amount to $185,227.00, including the effect of a payment of $97,943. For further information, see “Directors, Executive Officers and Control Persons – Related Party Transactions – Exchange Agreement.”
On May 10, 2011, we filed with the Secretary of State of the State of Delaware (i) a Certificate of Merger Consummating the Merger and (ii) a Certificate of Amendment to our Certificate of Incorporation changing our name from “Avenue Exchange Corp.” to “Eyes on the Go, Inc.” As a result of the Merger, our business became that of designing, implementing and providing services for the remote real-time monitoring of, and the control of equipment and devices located at, businesses and other facilities via computers, wireless handheld devices and television equipment using the internet, through our website, www.eyesonthego.com, or internal communications and we ceased to be a “shell company,” as that term is defined in Rule 405 under the Securities Act. Since the consummation of the Merger, our business has developed so as to offer streaming video and audio images from bars, restaurants and clubs to consumers via our “Gander.tv” website. For more detailed information as to our business, see “Our Business.”
Our Common Stock is quoted on Pink Sheets under the symbol “AXCG.OTCQB.”
Our Business
In January 2012, we introduced our Gander.tv service. This service provides online streaming video and audio images from bars, restaurants, performance spaces and clubs to consumers via a website called “Gander.tv.” We have developed a proprietary software program that runs on computer platforms at customers’ facilities that streams video images and sound from multiple cameras and microphones or soundboards and makes them available to consumers on the Gander.tv website. In some cases, it is possible to utilize customers’ existing video and audio equipment. The Company has entered into a hosting agreement for the consolidation of these video and audio images and their presentation to consumers via the Gander.tv website. We will rely on third parties for the implementation services and for onsite maintenance. We have installed 36 sites in the New York Metropolitan area and have signed contracts for another 4 sites, which will be implemented by the end of April 2013. We have developed website applications for Gander.tv that enable our customers to schedule live broadcasts, or to post previously recorded segments which would be shown during slow or down times. In addition, we have introduced a pay-per-view application that enable our customers to schedule and broadcast shows and performances for a fee determined by the Company, our customers and the performers for each show and performance in the form of an online ticket paid by major credit card or PayPal®. The purchase of an on-line ticket will entitle the purchaser to watch the live performance and have future unlimited access to the recording. The service is targeted to the performance of music, spoken word, plays and musicals, comedy, karaoke, and other performances determined by the customer. The Company will collect these fees and will remit an agreed portion of the fees to the customer. The customer will be responsible for contracts with performers, including the terms for broadcasting and releases.
The Gander.tv website was released in beta mode in mid-March 2012. We launched to the general public by the end of March 2012. Each venue has a dedicated web page that allows for personalization including logos, description of venue, hours of operation, address and a map showing the location of the venue and a video player window. In addition, all pervious broadcast events are listed as thumbnail form on the venue page. Except for pay-per-view or private event performances, access to the Gander.tv website is free to consumers. The Company provides for enhanced functions to consumers who sign up for free membership including personalized web pages with highlighted favorites.
Our sources of revenue for Gander.tv services online streaming video and audio website include installation fees to cover basic installation services. The Company retains ownership of all hardware and software including the on-site controller, cameras and microphones. We also receive monthly recurring revenue for providing these services; including all video and audio image storage and access to consumers, which is in the range of $150.00 to $300.00 per month depending upon the number of components installed. In addition, the Company receives a portion of the pay-per-view fees charged to the consumer as a revenue sharing arrangement with the venues. We are generating fees for providing social media marketing services including graphics, creating web pages and landing pages, and posting and other communications to the consumers. The Company expects to generate future revenue through video and banner ad placement, through promotional programs and venue placement fees, and with select consumer product sponsorships. The Company launched the pay-per-view functions in the end of 2012, and has conducted a few hundred test events. The Company received varying percentages after credit card fees in the range of 25 – 50% of ticket prices.
We market directly with our own sales force, using leads that are generated internally and by Sysco through its iCare marketing program and other third parties. We support the sales once closed with Program Managers who engage with the client and coordinate Company efforts including the coordination of the installation,, design and customize venue pages, coordinate streaming live schedule , schedule and program broadcast events, develop and execute social media marketing programs for venue and performers, and provide maintenance of systems components. We rely on third parties for the equipment necessary including the controller, cameras and microphones to render our services and for on-site installation and maintenance services. We are increasing our sales efforts.
We are marketing our Gander.tv services primarily to business owners and managers in the entertainment and hospitality industries, which comprises restaurants, bars, nightclubs, and performance spaces. Our video streaming services are adaptable to other businesses and industry segments and, at some time in the future, we may seek to promote our services in these areas.
We commenced operations in August 2010 as a development-stage company; as of the first quarter of 2011, we no longer met the criteria for a development stage company.
The Company believes that it has taken advantage of new technologies at lower costs to provide a competitive proprietary platform for streaming live and recorded video to its web site. This lower cost is enabling the Company to provide a very competitive alternative to venues and performers to market themselves via the Internet. The Company has also developed robust and innovative application to leverage the video streams for marketing purposes and for revenue. Other factors enhancing the interest in its services include the wide spread and growing use of social media by consumers to view events, learn about venues they would like to visit and performers that they are interested in, or as fans to experience performances by favorite groups while not being able to attend in person. The availability of faster bandwidth, the expanding market and capabilities of mobile devices are all creating greater demand for the company’s services, where approximately 40% of viewing is done on mobile devices.
The Company intends to continue to sell and add locations to its Gander.tv business through direct marketing to bars, restaurants, nightclubs, performance spaces, and other prospects while it initiates and implements its relationship with Sysco through its iCare marketing program and to add functionality for enhanced operations to its website. The Company will continue to execute its sales plan. See “Marketing and Sales – Sales Plan.”
For more information about our businesses, see “Gander.tv Online Streaming Video and Audio Service.” For information respecting our corporate history, see “Business – Our History.”
Marketing and Sales
Sales Plan
Our principal market is the entertainment and hospitality industries. Our Gander.tv streaming live and recorded video services provide benefits to owners and managers of facilities in this industry, including:
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Streaming live and recorded performance events which create a positive and compelling image to consumers who may want to attend shows or visit these venues.
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Utilizing these live and recorded images via social media to broaden their reach to consumers to learn about and connect with these venues in a positive manner.
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Providing a service to performers to expand their reach and communicate to their fans who can’t attend the live performance.
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Allowing the performers and their promoters to leverage social media marketing and the services of the Company to expand their reach and fan base.
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Providing additional revenue and profit by broadcasting events as a pay-per-view, or through charging for private video access to events.
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Enhancing the relationship between the venue and their contract customers by providing streaming video during events.
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Eventually, providing additional revenue and profit through sharing advertising and sponsorship fees attributable to the venue events and traffic.
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We are concentrating our initial marketing efforts on the following potential customers within the entertainment and hospitality industries:
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86,000 full service restaurants
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148,000 limited service restaurants
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42,000 drinking establishments
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489,000 accommodation and food service facilities
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Our sales and marketing efforts are conducted by in-house employees, using leads that are generated internally, to introduce our services and generate sales with potential customers. In addition, the Company receives leads from iCare directly as a result of iCare’s services rendered under an agreement between the Company and iCare and indirectly as a result of contacts that the Company makes at trade shows that the Company is entitled to attend under the terms of this agreement. See “iCare Agreement,” below. As the revenues of the Company permit, it intends to use its internal resources to supplement the leads provided by iCare. The Company believes that leads through its internal selling efforts along with leads provided pursuant to the agreement with iCare will be sufficient for the level of marketing that the Company will be able to conduct in light of its present and future staffing. Using the leads that are generated by iCare or internally, our sales personnel will make initial contact with, and make an initial presentation to, a prospect and if the prospect is interested in our services, perform a site survey and consultation to determine the configuration of components that best meets the prospect’s requirements. For example, we would determine where cameras and microphones should be situated and what additional components are needed including monitors, remote controllers and interfaces to existing soundboards for higher quality audio. These personnel will then confer with our engineers and develop a proposed agreement covering the equipment to be installed, the installation fee, the customized features to be provided, the monthly monitoring fee and social media marketing services and present it to the prospect. There is no minimum contract period. Upon the signing of the agreement, the sales person takes an impression of a credit card in order to charge the initial and monthly fees.
The Company maintains back office customer support personnel called Program Managers(PM’s) who coordinate with our sales personnel and the customers to confirm the equipment to be installed and the specific customization of the venue page, an overview of the content and streaming schedule and upcoming broadcast events and potential social media marketing services. The Operations Department coordinates ordering and delivery of all equipment, and schedules the onsite installation through a third-party contractor, who receives a portion of our installation fee. Once equipment is installed, the Company holds a strategic planning session with the customer and plans are developed for streaming schedules, potential broadcast events and supporting social media marketing plans. . After the system is installed the customer is charged for installation fees. After the system is operating for two weeks, and is fully tested, the customer is charged for the first monthly fee. The Company provides 30 days of social media marketing services to acquire traffic and views and then determines the level of ongoing marketing desired by the customer and charges accordingly.
We intend to minimize the use of outside sales representatives and, consequently, we expect to pay limited sales commissions to third parties. Sales efforts will be organized by territory, with the Company focusing on a rollout of sales personnel across major market areas in the United States over a 24- to 48-month period, which commenced in January 2012 in the New York Metropolitan area. This includes the five boroughs of New York City and Northern New Jersey. During this 24- to 48-month period, depending on our financial resources, we are planning to expand our sales and marketing staff to more than 50 persons in order to penetrate into 25 key markets throughout the United States; once we have attained this level, we intend to add sales and marketing staff as required. No assurance can be given that the Company will be able to meet this goal, because the Company will require substantial capital in order to develop its business. See “Liquidity and Capital Resources.”
The sales team for each key market will include a Business Development Manager and a number of Program Managers, depending upon the number of signed accounts and venue locations. New installations are coordinated by the Operations Department that relies on third parties for installation and maintenance services. All web site customization and social media marketing services are centrally located in our headquarters in New York City. The Program Managers work with the social media department to customize the Gander.tv venue pages and web site, and to produce graphics, web and landing pages and to conduct social media postings and other communications. The sales team will be headed nationally by a Vice President of Sales, with regional sales managers being added as sales staff is hired and markets are developed. The
Vice President of Sales and the regional managers will also be responsible for identifying and making sales presentations to corporate accounts with multiple locations.
iCare Agreement
On April 1, 2011, we entered into an agreement with iCare Marketing, Inc. (“iCare”), a wholly owned subsidiary of Sysco Corporation (“Sysco”). Sysco sells markets and distributes food products to restaurants, healthcare and educational facilities, lodging establishments and others. Of Sysco’s 400,000 customers, approximately 150,000 are in our target market. According to Sysco, iCare provides non-competitive services and products to Sysco’s customers as a way for Sysco to differentiate itself with its customers and provide additional value in their relationships. iCare markets, among others, products and services designed to help its customers increase sales, hire and retain employees and streamline and protect business operations.
iCare is making our services available to Sysco’s customers through approximately 8,500 Sysco sales personnel located in 100 operating areas, by using its good faith efforts to communicate the benefits of these services to these customers. These efforts include personal communications, coverage in Sysco’s publications, inclusion on Sysco’s home webpage or elsewhere on its website and inclusion in iCare’s program brochure. We also have access to meetings and conferences held by iCare or Sysco and to Sysco’s trade show events. The Company has made a presentation promoting its services at one of these events and will make additional presentations at other Sysco events as it deems appropriate. Under the agreement, we are obligated to provide our services to customers produced by iCare at prices 20% lower than the prices charged to customers who purchase our services directly from us, to make financing available to customers produced by iCare who elect to enter into two- or three-year contracts with us and to accept credit cards or “normal credit terms of net 15 days” on billing.
Under the iCare Agreement, we may use certain of Sysco’s service marks and trademarks, as determined by iCare, during the term of the agreement, in promoting our services to Sysco’s customers and iCare may use our trademarks, logos and other branding elements in offering and promoting our services to these customers.
Under this agreement, we may not offer or promote any of our services through a direct competitor of Sysco and iCare will not offer or promote any of services offered by certain of our competitors if those services are the subject of this agreement.
We are obligated to make the following payments to iCare under this agreement: 5% of the gross revenues received from any Sysco customer; an integration fee of $100,000, $50,000 of which has been paid in cash and the balance of which has been discharged by the company’s issuance of 15,861,372 shares of its common stock to iCare, which have been valued in our financial statements at $22,205; $250 per trade show event that we attend; and an amount to be determined for additional promotions and marketing programs. This agreement has an initial 4-year term and will be extended for successive 1-year terms unless a party gives notice of termination 90 days prior to the end of the initial term or an extension.
After payment of the integration fee in late October 2011, iCare initiated its marketing of our services. We met with the President of iCare and developed a plan for the introduction of our service to the Sysco organization and its customers. As a result of these meetings, we determined to commence our marketing operations in the New York Metro area. In particular, we will participate in local trade shows and events, provide information about our service to the local Sysco sales force and its customers through the release of a Power Point presentation and other sales materials to the Sysco’s local sales force and make presentations at sales meetings. The Company is meeting with prospective customers introduced by iCare. Of the 150,000 Sysco customers that are in our target market, approximately 4,000 are in in the New York Metro area.
We believe that the services provided to us by iCare will enable us to expand more quickly than we could using our internal resources alone, but we are not yet certain whether the Sysco sales organization will perceive the value of our services, the extent to which it will market our services and whether it will be able to produce leads in an amount sufficient to enable us to meet our sales goals.
Gander.tv Online Streaming Live and Recorded Video Service
Software and Hardware
The Company has developed proprietary software that runs on computer platforms installed at customers’ locations that consolidates video images for communication over the Internet to our leased server space. This platform is an off-the-shelf industrial computer that we acquire from two manufacturers. The Company makes minor alterations in these computers in order for them to work with its system. We install off-the-shelf cameras and microphones, choosing from a number of manufacturers.
We have developed additional proprietary software that resides on leased server space and retrieves the video and audio images from the platforms at customers’ locations and records and stores these images for future access by the Gander.tv website for viewing by consumers. We have utilized existing software tools at the website for video and audio playing, web page administration, and eCommerce transaction processing. We believe that there is sufficient supply of components in the market to satisfy our implementation requirements. We also believe that we can lease server space at reasonable prices to meet foreseeable demand. The Company intends to pursue components and alternatives that will improve performance and reduce costs.
Ongoing Services to Customers
Once the equipment installation is complete, we provide customization services to each customer to set up its web page to reflect the specifics of its location, including a unique description, logo, and hours of operation, address and map and video player window. All recorded broadcast events are listed as thumbnail images on the venue page and the consumer can click on the image and be linked to the recorded event. We strategize with clients on the use of the system, the plan for looping content from a library of recorded events, the schedule of broadcast events, the potential of leveraging social media marketing services to increase viewership and the potential of broadcasting events as pay-per-view or private view. The Company then releases the venue for viewing by consumers and provides ongoing support for problem determination and administrative functions. Our Program Managers assist customers in selecting performances for broadcasting and the potential as pay-per-view and selecting the price that will maximize return on each event.
Maintenance
Our monthly fee includes reprograming software and system maintenance, which we perform. We also provide on-site system maintenance through the third-party contractor that performed the initial installation. Monthly service fees cover the replacement of any failed component, except when the failure is externally caused.
Competition
There are a number of web-based competitors providing streaming online video and audio services. The most significant of these are YouTube
®
, Ustream
®
and LiveStream
®
. In all cases, these companies rely on the customers to provide the systems and components to stream video and audio to their websites. These companies are not focused on any specific industry and their websites are filled with many individual video and audio links including many at home performances. None of these competitors provides a pay-per-view option to its customers or a prerecorded segment for play during down times. They operate as utilities, providing the capability of streaming video, and do not provide support services including social media marketing.
There are a number of small web providers including BarSceneLive,com that have installed video cameras in bars. We do not believe that any of them has the capacity to become a competitive threat and none of them provides the functionality of our systems installation, website, pay-per-view or prerecorded segment play.
There are a few websites that provide a utility for performers to post their own generated videos for a pay-per-view fee. Sites such as Stageit.com are providing this utility and rely on the performer to create the content for posting to the site. This site is focused on the performer and not the venue. This approach to the market is very different from ours and we do not believe that it is a competitive threat.
We are seeking to establish a market niche in providing innovative services involving the streaming of video and audio to owners of entertainment and hospitality facilities that will both enhance their presence on the internet while providing alternate sources of income through the pay-per-view application. Our approach is to offer a low-cost alternative to a potential customer’s establishing these services for themselves or through any competitors. We believe that our focus on connecting to social media sites and leveraging social networking will greatly increase internet traffic and eventually consumers at customers’ facilities and will distinguish us from competitors.
However, the nature of the internet and the proliferation of web based services may create or enhance ease of entry for competitors in the future. Some of these competitors may be better financed and have more resources than we will. There may also be sudden and unexpected new technologies or improvements in existing technologies that may make our approach and proprietary systems obsolete.
Research and Development
The Company has secured a small number of development staff to create our proprietary software for Gander.tv. We will continue to add resources as additional capital and cash flow permit. The Company’s efforts in this area will focus on increasing the functionality and features of its services, improving its software and the equipment that is furnished to its customers and developing additional uses for video images.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Report, before making an investment decision. If any of the
events associated with the risk factors described below
actually occurs, our business, financial condition or results of operations could suffer
or we could be unable to continue to operate. In that case, the trading price of our
Common Stock could decline, and you could
lose all or
a
part of your investment. You should read the section entitled
“Forward Looking Statements”
for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.
Risk
Factors Related to Our Business
We have
had
operating losses and there can be no assurance that we can achieve or maintain profitability.
We have had operating losses since we commenced business in August 2010 and cannot assure that we will achieve profitability. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability. Our failure to do so would adversely affect our business, including our ability to raise additional funds.
We have only a few customers and there can be no assurance that we can obtain customers in sufficient number for us to become profitable.
We presently have only 36 customers and our ability to become profitable and maintain operations depends on our obtaining new customers in the near future. While we are continuing to market our services (see “iCare Agreement”), no assurance can be given that we will be successful in obtaining customers in the number required for us to become profitable and remain in business.
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our financial statements as of December 31, 2012, have been prepared under the assumption that we will continue as a going concern for the next 12 months. Our independent registered public accounting firm has issued a report on these financial statements that includes a paragraph referring to our stockholders’ deficiency, net losses and negative cash flows and expressing substantial doubt as to our ability to continue as a going concern. Our ability to continue as a going concern is dependent, among other things, upon our ability to obtain additional equity financing or other capital and, ultimately, to generate additional revenue and become profitable. Our financial
statements do not include any adjustments that might result from the outcome of this uncertainty. We are evaluating the possibility of raising funds through public or private equity financings, and will continue to do so. However, if adequate funds are not available to us when needed, and we are unable to enter into a relationship that will give us access to sources of cash, we will be required to curtail our operations, which would in turn raise further doubt about our ability to continue as a going concern.
Contracts with our customers are not for any fixed period.
Our contracts with our customers have no fixed term and may be canceled at the will of our customers. If a material number of customers were to cancel their contracts (which could occur, among other things, because of changes in technology or adverse publicity about the company), the Company’s revenues and income would be materially reduced and if a large number of customers were to cancel their contracts, the Company might not be able to continue to operate.
Key components of our business strategy are
the licensing of software and services from Amazon and the use of the marketing services from iCare.
We rely on licensed software and contracted services in order to sell and perform our services and, in particular, those provided to us under an agreement between us and Amazon, under which we license Wowza software and contract for server storage, web site hosting and processing systems. We could experience a material loss of revenues if this agreement were to be terminated, or if we were unable to receive ongoing services to support operations, or obtain such license and services from another provider or develop them in-house, or acquire such equipment from other sources. The services for which we charge our monthly fee depend in turn upon the software that we license, the services that we receive under this agreement and if any of them were not available, our business would be disrupted until we were able to obtain them. If we were to lose the software licensed and the services rendered under this agreement, our business would be adversely affected and could be destroyed if such loss continued for more than one or two days. No assurance can be given that we could timely replace or develop such software or services, or license them on acceptable terms, or that new software or services would have the same level of functionality as the software and services that we are now licensing from Amazon.
With respect to marketing, we will rely on services to be provided under an agreement between us and iCare Marketing, Inc. (“iCare”), a subsidiary of Sysco Corporation, to provide
prospective purchasers of our services in the restaurant, entertainment and hospitality business to our sales staff. No assurance can be given that iCare will provide the flow of prospects that, together with prospects generated internally and from other sources, are required to attain our sale goals. iCare has the right to terminate this agreement on 90 days’ notice, with or without cause. If this agreement were terminated for nonpayment or any other reason, we would be adversely affected because a source of prospects would no longer exist and we might not be able to replace iCare with another provider of similar prospects. For further information respecting our agreement with iCare, see “Description of Business – Sales.”
The acceptance of our
services
in the marketplace is affected by
customers’
preferences and perceived needs.
Our success depends on our ability to provide unique and compelling reasons for our prospective customers to purchase our services. There is no assurance that we will be able to do so, or that if we do so, there will be sufficient demand for our services. There is also no assurance that we will be able successfully and timely to evaluate and adapt our services to changes in customers’ requirements.
We depend on independent contractors for products and services without which we cannot operate. A discontinued, inadequate or interrupted supply of these products and services would adversely affect us.
We depend upon independent manufacturers and vendors for key products used in providing our services and upon independent contractors for installation of our systems. A discontinued supply of these products, or a diminution of their quality, would adversely affect us. A loss of these products would cause us to search for replacement components which may require alterations to our software which could take an extended period. See “Risk Factors – Key components of our business strategy are the licensing of software and services from Amazon and the use of the marketing services from iCare.”
While we believe that iCare will be able to produce sales leads, no assurance can be given that iCare will do so in the volume necessary for us to enter into contracts sufficient in number to operate our business profitably nor do we know, at this stage of the development of our business, the rate at which we will be able to turn these sales leads into contracts. The failure of iCare to produce such leads could impair our marketing plans and could make it difficult for us to meet our sales plan,
Except for our agreements with Amazon and iCare, we do not have long-term contracts with any providers of these products or services and any of these providers may unilaterally terminate its relationship with us at any time or upon short notice. While we believe that there is an adequate supply of these products and services, to the extent we were to experience a delay in replacing any of these providers, our business would be harmed.
Our dependence on foreign manufacturing and supply sources could result in disruptions to our operations in
certain
events
and such disruptions may adversely affect us.
We obtain substantially all of the products used in providing our services directly or indirectly from manufacturers that manufacture primarily in Asia. Any of the following could disrupt our supply of these products, increase our costs, decrease our profits or impact our ability to provide services to our customers:
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financial instability of one or more of our manufacturers or vendors;
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political unrest, terrorism and economic instability that results in the disruption of trade in foreign countries from which products are manufactured or supplied;
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the imposition of new regulations relating to imports, duties, taxes, and other charges on imported products;
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occurrences of natural disasters, unusual weather conditions or epidemics;
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changes in the United States customs procedures concerning the importation of technology products;
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unforeseen delays in customs clearance of any goods;
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disruptions in the global transportation network such as port strikes, world trade restrictions or armed conflicts;
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the application of foreign intellectual property laws;
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the ability of our manufacturers or vendors to secure sufficient credit to finance their operations, including the acquisition of raw materials; and
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exchange rate fluctuations between the U .S. dollar and the local currencies of foreign manufacturers or vendors.
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These and other factors beyond our control could interrupt our manufacturers’ production in offshore facilities, influence the ability of our manufacturers or vendors to export products cost-effectively or at all, inhibit our and our manufacturers’ or vendors’ ability to produce or provide certain materials, interrupt our supply chain or delay receipt of the products necessary to provide our services into the United States, any of which could have an adverse effect on our business, financial conditions and operations.
We may be adversely affected by the fluctuation in product prices.
The prices of the products required to provide our services may be volatile as the result of events such as market fluctuations or changes in governmental regulation. Increases in these prices could ultimately result in increases in the cost of providing our services and could, in turn, adversely affect our revenue and profits.
We have limited control over our independent manufacturers and vendors and we may experience delays, product recalls or loss of
revenues if their
products do
not meet our quality standards.
We depend on independent manufacturers to provide products in a timely manner that meet our quality standards. Their failure to do so may cause us to miss installation dates or result in diminished quality of service. Such failure may in turn result in cancellation of orders from our customers or in decreased demand for our services, either of which could have a material adverse effect on our sales, reputation, results of operations and financial condition.
Our business is impacted by general economic conditions and related uncertainties affecting markets in which we operate.
A change in economic conditions, in particular a recession or a significant drop in the growth of our economy, could adversely impact our business. These conditions could result in reduced demand for our services, increased order cancellations and termination of service agreements by customers, increased risk of failure of our customers and a subsequent loss in revenue and increased pressure on the prices for our services.
Currency exchange rate fluctuations and other supplier-related risks could increase our expenses.
The products required to render our services are manufactured by independent domestic and foreign manufacturers, with the largest concentration in Asia. Difficulties encountered by these suppliers, such as fire, accident, natural disasters, outbreaks of contagious diseases or economic and political instability could halt or disrupt production of these products. Also, the prices that we pay to these suppliers could increase if raw materials, labor or other costs increase. In addition, restrictive actions by foreign governments, a strengthening of foreign currencies versus the U.S. dollar or changes in import duties or import or export restrictions could increase the prices for these products. If we are unable to pass these cost increases along to our customers, profitability could be adversely affected.
We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, result
in
our failure to gain
market share and, as a result,
to increase our
revenues and attain profitability.
The video streaming market is highly competitive. We compete with other service providers, most, if not all, of whom have greater financial resources and larger customer bases than we have and have better access to sources of capital than we do. As a result, these competitors may be able to:
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adapt to changes in customer requirements more quickly;
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take advantage of acquisition and other opportunities more readily;
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undertake greater research and development activities;
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devote greater resources to the marketing and sale of their products; and
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adopt more aggressive pricing strategies than ours.
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For further information respecting our competitive position see “Description of Business – Gander.tv Online Streaming Video and Audio System – Competition.”
Failure to adequately protect intellectual property rights
could adversely affect our business.
We license distinctive software for utilization with the products that are used in providing our services and believe that having the use of this software is an important factor in marketing and providing our services. We believe that the intellectual property that we license and our licensors’ intellectual property rights are important to our success and to improving our competitive position. If our licensors were to fail to pursue or were to be unsuccessful in pursuing claims of infringement against a third party who infringes such software or if a third party were to be successful in defending a claim of infringement by a licensor with respect to such software, we could be adversely affected. In addition, actions that we and our licensors take to protect
intellectual property rights may not be adequate to prevent misuse or imitation of this software by third parties or to prevent them from seeking to block sales of our services based on claims that these services violate their intellectual proprietary rights.
Our business depends substantially on the continuing efforts of our senior management and other key
personnel, and our business could
be severely disrupted if we
were to lose
their services.
Our future success heavily depends on the continued service of our senior management and other key employees, the loss of any of whom could adversely affect our ability to execute our business strategy. In particular, we rely on the expertise and experience of Christopher Carey, our Chairman and Chief Executive Officer and Acting Chief Financial Officer, Mary Weaver Carey, our Vice President of Operations, and Jamie Karczewski, our Vice President Development. If one or more of our senior executives were unable or unwilling to continue to work for us in their present positions, we may have to spend a considerable amount of time and resources searching, recruiting, and integrating their replacements, which would substantially divert management’s attention from and severely disrupt our business. We could face difficulties in retaining our present senior management and, if we were to lose any of them, in attracting and retaining their replacements because we are not presently in a position to pay competitive compensation and our future is uncertain. Moreover, if any of our senior executives were to join a competitor or form a competing company, we could lose customers, suppliers, know-how, and key employees.
Our Chief Executive Officer is not devoting his full time to our business.
Our Chief Executive Officer, Christopher Carey is not devoting his full time to our business and has other employment. For further information as to the amount of time that Mr. Carey is presently devoting to the Company, see “Related Party Transactions—Agreement with Carey Advisors.” While the Company expects that as the business of the Company develops, he will devote increasing amounts of time to the Company, he is obligated to do so and no assurance can be given that he will ever devote his full time to the Company; likewise, no assurance can be given that Ms. Carey will continue to devote her full time to the Company. Failure of these persons to devote sufficient amounts of time to the Company’s business would materially adversely affect the implementation of the Company’s business plan and could result in the Company’s inability to continue as a going concern.
In order to
grow, we
will need
additional financing.
If we cannot meet our future capital requirements, our business will suffer
or we will be unable to continue to operate.
Our stockholders may be adversely affected by the terms of such financing.
Since we commenced business, our primary methods to obtain the cash necessary for our operating needs were investments made by our Chief Executive Officer and Founder and a group of initial investors and through a private placement. We need to raise additional funds in the future through public or private debt or equity financings in order to continue operations and in particular to fund operating losses; increase our sales and marketing capacities; take advantage of opportunities for internal expansion or acquisitions; hire, train and retain employees; develop new services and the products necessary to provide them; and respond to economic and competitive pressures. While we have undertaken measures to increase sales and cash flow, control product and installation costs and operate efficiently, we will not be able to grow and become profitable without additional outside capital. The Company believes that it will require capital in the form of equity or borrowed money of approximately $1,000,000 during the next 12 months. The Company’s current liquidity presents a material risk to investors because the Company does not currently have sufficient funds to pay its expected obligations in the future. See “Liquidity and Capital Resources.” The Company is seeking additional capital, it recently received a commitment for financing from investors but there are no assurance that they will fund the entire amount of the commitment, nor that they will continue to fund at all. There can be no assurances that the Company will find additional investors nor that any such commitment will be forthcoming or, if so, in what amounts.
If adequate funds are not available or are not available on acceptable terms, our operating results and financial condition may suffer, our stock price may decline and we may not be able to
continue as a going business. We can give no assurance that we will be able to obtain such capital in sufficient amounts or on acceptable terms.
Additional financing that was secured in February 2013 was in the form of a Convertible Debenture, and if converted will result in the dilution of existing shareholder. If our additional capital needs are met through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and may be further diluted.
We could be sued for improper disclosure or misuse of images and data from video streaming.
In the event that images or data from our video streaming services were improperly disclosed or misused, the subjects thereof could sue us and, if their lawsuits were successful, the amounts thereof could have a material adverse effect on our financial condition. The Company will take measures to reduce the likelihood of such lawsuits by installing video systems only in public areas of a customers’ facilities, leaving private areas, such as bathrooms and dressing rooms, unmonitored, and by retaining images and data on its system only with the approval of its customers. Nevertheless, no assurance can be given that such lawsuits will not be brought and, if so, that the Company will be able successfully to defend them.
Risk Factors Related to Ownership of Our Common
Stock
Christopher Carey and Mary Weaver Carey, his wife, who are officers of the Company, , and Christopher Carey, Jr., who is the son of Mr. Carey and Ms. Carey,
collectively have voting control over
all
matters submitted to a vote of the stockholders, and they may take actions that conflict with the interests of our other stockholders.
These persons beneficially own shares of our outstanding Common Stock representing more than 50% of the votes eligible to be cast by stockholders in the election of directors and on other matters. Accordingly, they have power to control all matters requiring the approval of our stockholders, including the election of directors and the approval of mergers and other significant corporate transactions. Their interests could conflict with the interests of our other stockholders.
Our Common Stock is quoted on
Pink Sheets, which may limit
its
liquidity and price more than if
it
were quoted or
listed
on
a national securities exchange, the NASDAQ Stock Market or the OTC Bulletin Board.
Our Common Stock is currently quoted on Pink Sheets, an inter-dealer automated quotation system for equity securities which provides a significantly more limited market and may limit the liquidity and price of our Common Stock more greatly than would be the case if it were listed or quoted on a national securities exchange, the NASDAQ Stock Market or the OTC Bulletin Board. Some investors may perceive our Common Stock to be less attractive because it is quoted on Pink Sheets. In addition, as a company quoted on Pink Sheets, we may not attract the extensive analyst coverage that is received by companies listed or quoted elsewhere. Further, institutional and other investors may have investment guidelines that restrict or prohibit their investing in securities quoted on the Pink Sheets. These factors may have an adverse impact on the trading and price of our Common Stock and a long-term adverse impact on our ability to raise capital.
Because we became
a company whose shares are publicly traded
by means of a
“reverse merger,”
we may not attract the attention of major brokerage firms.
We became a company whose shares are publicly traded through a “reverse merger.” Securities analysts of major brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our Common Stock. There is no assurance that brokerage firms will be interested in conducting secondary offerings on behalf of our Company or in privately placing our securities with their customers.
Sales of our
Common Stock
in the public market could lower
its
price and impair our ability to raise funds in securities offerings.
If our stockholders sell substantial amounts of their Common Stock in the public markets, or if it is perceived that such sales may occur, the price of our Common Stock could fall and make it more difficult for us to sell equity, or equity-related securities at a price that we deem appropriate.
The trading price of our
Common Stock
may decrease due to factors beyond our control.
The securities markets, and in particular the market for securities quoted on Pink Sheets, have from time to time experienced extreme price and volume fluctuations which have often been unrelated to the financial performance of the companies listed or quoted thereon. These fluctuations may adversely affect the market price of our Common Stock and make it more difficult for us to sell equity, or equity-related securities at a price that we deem appropriate.
The market price of our Common Stock may also fluctuate significantly in response to the following factors, many of which are unpredictable or beyond our control, regardless of our actual performance: variations in our quarterly operating results; changes in general economic conditions; changes in market valuations of similar companies; announcements by us or our competitors of significant new contracts, acquisitions, strategic partnerships or joint ventures, or capital commitments; loss of a major supplier, customer, partner or joint venture participant post-merger; and the addition or loss of key management personnel. As a result, our stockholders may be unable to sell their shares, or may be forced to sell them at a loss.
The market price for our Common
Stock may be
particularly volatile given our status as a relatively unknown company with a small and thinly traded public float,
a
limited operating history, a
lack of profits
and an uncertain future. You may be unable to sell your
Common Stock
at or above your purchase price, which may result in substantial losses to you.
The market for our Common Stock may be subject to significant price volatility for the indefinite future for a number of reasons. As a consequence of the thin and sporadic trading in our Common Stock, the trading of relatively small quantities of shares by our stockholders may disproportionately affect their price. Also, the price for our Common Stock could decline precipitously in the event that a large number of shares were sold without commensurate demand. In addition, we are a speculative or “risky” investment due to our limited operating history, our lack of profits and our uncertain future. As a consequence, investors may be inclined to sell their shares more quickly and at lower prices than would be the case with the stock of a less risky issuer. We can make no predictions as to the future prices for shares of our Common Stock.
No Dividends.
We do not intend to pay dividends for the foreseeable future, and you must rely on increases in the market prices of our
Common Stock
for returns on your investment.
If you are seeking cash dividends, you should not purchase our Common Stock.
For the foreseeable future, we intend to retain our earnings, if any, to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our Common Stock. Accordingly, investors must be prepared to rely on sales of their Common Stock after price appreciation to earn an investment return, but no assurance can be given that the price of our Common Stock will appreciate or, if it does, that it will remain at or above the level to which it has appreciated. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, capital needs, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our
Common Stock.
The SEC has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exemptions. If our Common Stock is or becomes a “penny stock”, we may be subject to Rule 15g-9 under the Exchange Act, or the so-called “Penny Stock Rule,” which imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouses). For transactions subject to Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers, and in turn the ability of our stockholders, to sell our Common Stock.
For any transaction involving a penny stock, unless exempt, a disclosure schedule prepared by the SEC relating to the penny stock market must be delivered prior to any transaction. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information as to the limited market for penny stock.
There can be no assurance that shares of our Common Stock would qualify for exemption from the Penny Stock Rule. In any event, even if our Common Stock were to be exempt from the Penny Stock Rule, Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest, would be applicable.
Since we will be an issuer of “penny stock,”
the protection provided by the federal securities laws relating to forward looking statements will not apply to us.
Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, since the Company will be an issuer of penny stock, it will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements necessary to make the statements not misleading. Such an action could adversely affect our financial condition.
Our Common Stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.
Under a regulation of the SEC known as “Rule 144,” a person who has beneficially owned restricted securities of an issuer and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will be 6 months or 1 year, depending on various factors. The holding period for our Common Stock would be 1 year if our Common Stock could be sold under Rule 144. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company (other than a business combination related shell company) or that has been at any time previously a shell company. The SEC defines a shell company as a company that has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents; or
(iii) assets consisting of any amount of cash and cash equivalents and nominal other assets. Until the Reverse Merger, we were a shell company.
The SEC has provided an exception to this unavailability if
and for as long as
the following conditions are met:
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The issuer of the securities that was formerly a shell company has ceased to be a shell company,
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The issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
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The issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and
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At least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company known as “Form 10 Information.”
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Although we have filed Form 10 Information with the SEC in September 2011, stockholders who receive our restricted securities will not be able to sell them pursuant to Rule 144 without registration until we have met the other requirements of this exception and then for only as long as we continue to meet those requirements and are not a shell company. No assurance can be given that we will meet these requirements or that, if we have met them, we will continue to do so, or that we will not again be a shell company.
We will incur increased costs as a result of being a public company, which could affect our profitability and operating results.
We are obligated to file annual, quarterly and current reports with the SEC pursuant to the Exchange Act. In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the new rules subsequently implemented by the SEC and the Public Company Accounting Oversight Board (the “PCAOB”) have imposed various new requirements on public companies, including requiring changes in corporate governance practices. We expect these rules and regulations to increase our legal and financial compliance costs and to make some of our activities more time-consuming and costly. We expect to spend at least $100,000, and perhaps substantially more, in legal and accounting expenses annually to comply with our reporting obligations and Sarbanes-Oxley. These costs could affect our profitability and our results of operations. As indicated below, the so-called “Jobs Act” has relieved us of certain obligations with respect to reporting.
Because our
Common Stock
is not registered under the Exchange Act, we will not be subject to the federal proxy rules and our directors, executive offices and 10% beneficial holders will not be subject to Section 16 of the Exchange Act. In addition, our reporting obligations under Section 15(d) of the Exchange Act may be suspended automatically if we have fewer than 300
stockholders of record on the first day of a
fiscal year.
Our Common Stock is not registered under the Exchange Act and we do not intend to register our Common Stock thereunder for the foreseeable future. However, we will register our Common Stock thereunder if we have, after the last day of our fiscal year, total assets of more than $10,000,000 and 2,000 record holders or 500 record holders who are not accredited investors, in accordance with Section 12(g) of the
Exchange Act. As of the date of this Report, we have approximately 84 stockholders of record and assets of $40,321. We are currently required to file annual, quarterly, and current reports pursuant to Section 15(d) of the Exchange Act. However, we will not be subject to Section 14 of the Exchange Act, which, among other things, prohibits companies that have securities registered under the Exchange Act from soliciting proxies or consents from stockholders without filing with the SEC and furnishing to them a proxy or information statement, and in the case of a proxy solicitation a form of proxy, complying with the SEC’s rules. In addition, as long as our Common Stock is not registered under Section 12 of the Exchange Act, our directors, executive officers and beneficial holders of 10% or more of our outstanding Common Stock and other equity securities will not be subject to Section 16 of the Exchange Act. Section 16(a) of the Exchange Act requires these persons to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports providing information concerning their ownership of Common Stock and other equity securities. Such information will be available only through such periodic reports that we file and registration statements that we may file with the SEC. Furthermore, as long as our Common Stock is not registered under the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange Act will be suspended if, on the first day of any fiscal year (other than a fiscal year in which a registration statement under the Securities Act has become effective), we have fewer than 300 stockholders of record. This suspension is automatic and does not require any filing with the SEC. In this event, we may cease providing periodic reports and current or periodic information, including operational and financial information, may not be available with respect to our results of operations.
The provisions of the JOBS Act have reduced the information that we are required to disclose, which could adversely affect our stock price.
Under the recently enacted Jumpstart Our Business Startups Act (the “Jobs Act”), the information that we are required to disclose has been reduced in a number of ways.
Before the adoption of the Jobs Act, we were required to register our Common Stock under the Exchange Act within 120 days after the last day of our first fiscal year in which we had total assets exceeding $1,000,000 and 500 record holders of our Common Stock; the Jobs Act has changed this requirement such that we must register our Common Stock under the Exchange Act within 120 days after the last day of our first fiscal year in which we had total assets exceeding $10,000,000 and 2,000 record holders or 500 record holders who are not accredited investors. As a result, we are now required to register our Common Stock under the Exchange Act substantially later than previously.
As a company that had gross revenues of less than $1 billion during our last fiscal year, we are an “emerging growth company,” as defined in the Jobs Act (an “EGC”). We will retain that status until the earliest of (A) the last day of the fiscal year which we have total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (B) the last day of the fiscal year of following the fifth anniversary of the date of the first sale of our Common Stock pursuant to an effective registration statement under the Securities Act (December 20, 2016); (C) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (D) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act or any successor thereto. As an EGC, we are relieved from certain significant requirements.
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We are excluded from Section 404(b) of Sarbanes-Oxley, which otherwise would have required our auditors to attest to and report on our internal control over financial reporting. The JOBS Act also amended Section 103(a)(3) of Sarbanes-Oxley to provide that (i) any new rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or changes to the auditor’s report to include auditor discussion and analysis (each of which is currently under consideration by the PCAOB) shall not apply to an audit of an EGC and (ii) any other future rules adopted by the PCAOB will not apply to our audits unless the SEC determines otherwise.
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The JOBS Act amended Section 7(a) of the Securities Act to provide that we need not present more than two years of audited financial statements in an initial public offering registration statement and in any other registration statement, need not present selected financial data pursuant to Item 301 of Regulation S-K for any period prior to the earliest audited period presented in connection with such initial public offering. In addition, we are not required to comply with any new or revised financial accounting standard until such date as a private company (i.e., a company that is not an “issuer” as defined by Section 2(a) of Sarbanes-Oxley) is required to comply
with such new or revised accounting standard. Corresponding changes have been made to the Exchange Act, which relates to periodic reporting requirements, which would be applicable to us if we were required to comply with them. Also, as long as we are an EGC, we may comply with Item 402 of Regulation S-K, which requires extensive quantitative and qualitative disclosure regarding executive compensation, by disclosing the more limited information required of a “smaller reporting company.”
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In the event that we register our Common Stock under the Exchange Act, the JOBS Act will also exempt us from the following additional compensation-related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: (i) the advisory vote on executive compensation required by Section 14A(a) of the Exchange Act, (ii) the requirements of Section 14A(b) of the Exchange Act relating to stockholder advisory votes on “golden parachute” compensation, (iii) the requirements of Section 14(i) of the Exchange Act as to disclosure relating to the relationship between executive compensation and our financial performance, and the requirement of Section 953(b)(1)of the Dodd-Frank Act, which will require disclosure as to the relationship between the compensation of our chief executive officer and median employee pay.
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Since we are not required, among other things, to file reports under Section 13 of the Exchange Act or to comply with the proxy requirements of Section 14 of the Exchange Act until such registration occurs or to comply with certain provisions of Sarbanes-Oxley and the Dodd-Frank Act and certain provisions and reporting requirements of or under the Securities Act and the Exchange Act or to comply with new or revised financial accounting standards as long as we are an EGC, and our officers, directors and 10% stockholders are not required to file reports under Section 16(a) of the Exchange Act until such registration occurs, the Jobs Act has had the effect of reducing the amount of information that we and our officers, directors and 10% stockholders are required to provide for the foreseeable future.
As a result of such reduced disclosure, our stock price may be adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.
The Company is currently leasing office space from GSM Systems, Inc. at their offices at 40 Fulton Street, New York, NY. All space costs are included in an agreement with GSM Systems, Inc. whereby they have agreed to a payment of restricted common shares equal to 5 million for each 6 months of space use. The Company intends to acquire additional office space as its business grows.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings nor is any of our property the subject of any pending legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
