Item
2.01
Completion
of Acquisition or Disposition of Assets
On
January 23, 2008, Lightview, Inc., a Nevada corporation (“PUBCO-NV”), was merged
with and into Geeks On Call Holdings, Inc., a Delaware corporation, for the
purpose of changing its state of incorporation to Delaware from Nevada (the
“Reincorporation”), all pursuant to a Certificate of Ownership and Merger dated
January 23, 2008, approved by stockholders on January 23, 2008 and filed with
the Secretary of State of Delaware on January 23, 2008. Under the terms of
the
Certificate of Ownership and Merger, each share of PUBCO-NV’s capital stock was
exchanged for 1.43333333 shares of Geeks On Call Holdings, Inc.’s common
stock (with fractional shares rounded up to the nearest whole share). Geeks
On
Call Holdings, Inc. was the surviving entity (the “Company”).
The
Merger
On
February
8, 2008
,
the
Company
,
entered
into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”)
by and among
the
Company
,
Geeks
On Call America, Inc., a privately held
Delaware
corporation (“Geeks On Call”), and Geeks On Call Acquisition Corp., a newly
formed, wholly-owned Delaware subsidiary of
the
Company
(“Acquisition Sub”). Upon closing of the merger transaction contemplated under
the Merger Agreement (the “Merger”), Acquisition Sub merged with and into Geeks
On Call, and Geeks On Call, as the surviving corporation, became a wholly-owned
subsidiary of
the
Company
.
The
merger was consummated on February
8,
2008.
Pursuant
to the terms and conditions of the Merger Agreement:
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At
the closing of the Merger, each share of Geeks On Call’s common stock
issued and outstanding immediately prior to the closing of the Merger
was
exchanged for the right
to
receive 2.115868
shares
of
the Company’s common stock. To the extent that there are fractional
shares, such fractional shares were rounded up to the nearest whole
share.
Accordingly, an aggregate of 8,000,000 shares of the Company’s common
stock were issued to the holders of Geeks On Call’s common
stock.
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Immediately
following the closing of the Merger, under the terms of an Agreement
of
Conveyance, Transfer and Assignment of Assets and Assumption of
Obligations,
the
Company
transferred
all of its pre-Merger assets and liabilities to its wholly-owned
subsidiary,
Lightview
Holdings,
Inc. (“SplitCo”). Thereafter pursuant to a Split-Off Agreement,
the
Company
transferred
all of its outstanding capital stock of SplitCo to a major stockholder
of
the
Company
in
exchange for cancellation of
2,866,667
shares
of
the
Company
’s
common stock held by such stockholder (with fractional shares rounded
up to the nearest whole share) (the “Split-Off”), which left 2,150,000
shares of the Company’s common stock held by existing stockholders of the
Company.
These
shares constituted the part of the Company’s “public float” prior to the
Merger that will continue to represent the shares of the Company’s common
stock eligible for resale without further registration by the holders
thereof.
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In
connection with the closing of the Merger, the Company issued 300
units in
a private placement (the “Private Placement”), consisting of an aggregate
of 3,000,000 shares of the Company’s common stock and five-year warrants
to purchase an aggregate of an additional 1,500,000 shares of common
stock
at an initial cash exercise price of $1.50 per share, at $10,000
per unit.
In the event that the Company is not in material compliance with
its
registration obligations set forth on Exhibit A to the Subscription
Agreement entered into with the investors in the Private Placement,
then
the investors have a cashless exercise option upon exercising their
warrants. A registered broker dealer firm (the “Placement Agent”) served
as the Company’s exclusive placement agent in the Private
Placement.
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Upon
the closing of the Merger,
Ryan
Goldstein and
Daniel
Kominars
resigned
as the
officers
and
directors
of
the Company and simultaneously therewith a new board of directors
comprised
of seven members
was
appointed. The new board of directors consists of the
six
current members of the board of directors of Geeks On Call, Richard
T.
Cole, Ronald W. Pickett, James Weathers, Jim Johnsen, Steve
Sanford
and
Robert P. Crabb
.
Mr.
Douglas
Glenn
was also appointed to the board of directors of the Company upon
consummation of the Merger.
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Each
of the Company, Geeks On Call and Acquisition Sub provided customary
representations and warranties, pre-closing covenants and closing
conditions in the Merger Agreement.
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The
foregoing description of the Merger Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the Merger
Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by
reference.
Following
(i) the closing of the Merger, (ii) the closing of the Private Placement for
$3,000,000, and (iii) the Company’s cancellation of
2,866,667
shares
in
the Split-Off, there were 13,150,000 shares of the Company’s common stock issued
and outstanding. Approximately 60.8% of such issued and outstanding shares
were
held by the former stockholders of Geeks On Call and approximately 22.8% were
held by the investors in the Private Placement. The foregoing percentages
exclude warrants to purchase the Company’s common stock issued to investors and
the Placement Agent in connection with the Private Placement and 3,000,000
shares of the Company’s common stock reserved for issuance under the Company’s
2008 Equity Incentive Plan.
Neither
the Company nor Geeks On Call had any options or warrants to purchase shares
of
capital stock outstanding immediately prior to the closing of the Merger.
However, immediately prior to the Merger, the Company adopted an equity
incentive plan and reserved 3,000,000 shares for issuance as incentive awards
to
officers, directors, employees and other qualified persons and following the
Merger the Company issued options to purchase an aggregate of 2,375,000 shares
of the Company’s common stock under such plan to Richard T. Cole, Ronald W.
Pickett, Richard Artese, Keith Wesp, Robert Crabb, Douglas Glenn and
an
employee of the Company,
Rhoneil
Hernandez.
The
shares of the Company’s common stock issued to former holders of Geeks On Call’s
capital stock in connection with the Merger, and the shares of the Company’s
common stock and warrants issued in the Private Placement, were not registered
under the Securities Act of 1933, as amended (the “Securities Act”), in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act and Regulation D promulgated under that section, which exempt transactions
by an issuer not involving a public offering. These securities may not be
offered or sold in the United States absent registration or an applicable
exemption from the registration requirements. Certificates representing these
shares contain a legend stating the same.
On
February
8
,
2008,
we entered
into a consulting agreement with the Placement Agent to
assist us in formulating potential business and acquisition strategies, assist
us in evaluating potential financing strategies and provide us with general
business advice and business development strategies. The term of the agreement
will be six months. The Placement Agent will receive 150,000 unregistered
shares
of our common stock upon consummation of the Merger as a fee for providing
us
the foregoing services.
The
Company intends to issue up to 400,000 unregistered shares of its common stock
and up to $250,000 in cash to engage an investor relations and public relations
firm for the twelve months following the closing of the Merger.
As
of the
date of the Merger Agreement there were no material relationships between the
Company or any of its affiliates and Geeks On Call, other than in respect of
the
Merger Agreement.
Changes
Resulting from the Merger
.
The
Company intends to carry on Geeks On Call’s business as its sole line of
business. The Company has relocated its executive offices to 814 Kempsville
Road, Suite 106, Norfolk, Virginia 23502 and its telephone number is (757)
466-3448.
The
Merger and its related transactions were approved by the holders of a requisite
number of shares of Geeks On Call’s capital stock pursuant to a written consent
dated as of
February
8
,
2008.
Under
Delaware
corporate law, Geeks On Call’s stockholders who did not vote in favor of the
Merger may demand in writing, pursuant to the exercise of their appraisal
rights, that Geeks On Call pay them the fair value of their shares.
Determination of fair value is based on many relevant factors, except that
a
court may disregard any appreciation or depreciation resulting from the
anticipation or accomplishment of the Merger. As of
February
11
,
2008,
no holders of shares of Geeks On Call’s common stock had indicated their
intention to seek appraisal of their shares.
Changes
to the Board of Directors and Executive Officers.
Upon
the
closing of the Merger, the then-current
officers
and
directors
of the
Company resigned and were replaced by new officers and directors. Immediately
following the closing of the Merger, the Company’s board of directors was
reconstituted to consist of Richard T. Cole, Ronald W. Pickett, James Weathers,
Jim Johnsen, Steve Sanford, Robert P. Crabb and Douglas Glenn. Following the
Merger, the Company’s officers consisted of the officers of Geeks On Call
immediately prior to the Merger.
All
directors hold office for one-year terms until the election and qualification
of
their successors. Officers are elected by the board of directors and serve
at
the discretion of the board.
Accounting
Treatment.
The
Merger is being accounted for as a reverse-merger and recapitalization of Geeks
On Call for financial reporting purposes. Consequently, the assets and
liabilities and the operations that will be reflected in the historical
financial statements prior to the Merger will be those of Geeks On Call and
will
be recorded at the historical cost basis of Geeks On Call, and the consolidated
financial statements after completion of the Merger will include the assets
and
liabilities of the Company and Geeks On Call, historical operations of Geeks
On
Call and operations of the Company from the closing date of the Merger.
Tax
Treatment; Small Business Issuer.
The
Split-Off will result in taxable income to the Company in an amount equal to
the
difference between the fair market value of the assets transferred and the
Company’s tax basis in the assets. Any gain recognized, to the extent not offset
by the Company’s net operating loss carry-forwards, if any, will be subject to
federal income tax at regular corporate income tax rates.
The
Company will continue to be a “smaller reporting company,” as defined under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), following the
Merger.
Description
of Our Company
PUBCO-NV
was incorporated as a Nevada corporation on December 22, 2006 to engage in
the
sale and branding of laser devices used in low level laser therapy for a wide
range of applications.
On
January 23, 2008, PUBCO-NV merged into the Company for the sole purpose of
reincorporating in the State of Delaware. Immediately following the Merger
and
the Private Placement, the existing assets and liabilities of the Company were
disposed of pursuant to the Split-Off.
Geeks
On
Call was formed in
Virginia
in
June
2001
and provides quick response on-site computer solutions and telephone technical
support (including services, on-going support and training) primarily to small
businesses (i.e., with 15 or fewer employees) and residential computer users
in
the United States.
On
December 6, 2007, Geeks On Call reincorporated from Virginia into
Delaware.
After
the
Merger, the Company succeeded to the business of Geeks On Call as its sole
line
of business.
Description
of Our Business
As
used in this Current Report on Form 8-K, all references to “we,” “our” and “us”
for periods prior to the closing of the Merger refer to Geeks On Call and for
periods subsequent to the closing of the Merger refer to the Company and its
subsidiaries.
DESCRIPTION
OF BUSINESS
Overview
We
were
formed in June 2001 and provide quick-response, on-site computer solutions
and
telephone technical support (including services, on-going support and training)
primarily to small businesses (i.e., with 15 or fewer employees) and residential
computer users in the United States. On-site solutions are provided through
a
network of independent franchised service providers, known as “Geeks,”
conducting business under the trade names “1-800-905-GEEK,” and “Geeks On Call.”
We
provide
telephone
technical support in markets where on-site support is not available. Our on-site
support services include troubleshooting, maintaining, upgrading and networking
computers, and service programs, designed to establish a long-term relationship
with the customer. Additionally, we provide training and consulting to computer
users at their home or business location. Our concept is to bring
state-of-the-art computer solutions directly to end users at their locations
and
eliminate the inconvenience of traveling to a traditional retailer or depot
service center and the associated overhead in operating such facilities. Through
a combination of on-site services and telephone technical support, we can
now develop relationships with consumers and small to medium size businesses,
who need support anywhere at anytime.
Mission
Our
mission and vision is to be a leading provider of professional onsite enterprise
class technology solutions to the small to medium-size business and residential
markets. Our goal is to build an international brand name and brand loyalty
in
the computer services industry by providing quick-response, on-site computer
solutions and telephone technical support primarily to small businesses (i.e.,
with 15 or fewer employees) and residential computer users and then expand
our
business model to markets outside of the United States. Small business owners
and residential customers both generally share similar traits
with
regard to their immediate and future computer support needs. We believe that
this segment of computer users is underserved or poorly served by larger
competitors in the computer service industry. We believe that by bringing the
same or better high quality technical services and support to small business
that usually only larger companies can afford
,
we
level the playing field for the small business entrepreneur. We seek to
establish a competitive advantage in our markets with a decentralized service
approach by becoming one of the first national competitors to provide
consistently high-quality, on-site computer solutions to small businesses and
residential computer users at reasonable prices.
Growth
Strategy
Our
strategy is to capitalize on the increasing demand for the convenience of
on-site computer solutions by establishing operations in every major U.S.
metropolitan market, thereby positioning ourselves as a national brand name
in
the multi-billion dollar computer-services industry. We intend to implement
this
strategy through franchised or company-owned operations to build a nationwide
network of industry-certified technicians. As of November 30, 2007, we have
granted 304 franchises, of which 269 are operational in the following markets:
Atlanta (GA), Baltimore (MD), Boston (MA), Charleston (SC), Charlotte (NC),
Chicago (IL), Colorado Springs (CO), Dallas/Ft. Worth (TX), Denver/Boulder
(CO),
Raleigh/Durham (NC), Hampton Roads (VA), Harrisburg (PA), Hartford (CT), Houston
(TX), Jacksonville (FL), Kansas City (MO), Los Angeles (CA), Miami (FL),
Minneapolis (MN), Myrtle Beach (SC), New York City (NY), Orlando (FL),
Philadelphia (PA), Phoenix (AZ), Pittsburgh (PA), Portland (OR), Richmond (VA),
Sacramento (CA), San Diego (CA), San Francisco (CA), Tampa (FL), Washington
D.C.
and West Palm Beach (FL).
Revenue
Potential
We
anticipate that revenues will be derived from (i) fees from service contracts,
(ii) fees from service calls, (iii) fees from preventative maintenance services,
(iv) fees from computer system upgrades, (v) initial franchise fees, (vi)
franchise advertising funds, (vii) franchise telemarketing services, and (viii)
franchise royalties. For example, we anticipate a service fee structure that
estimates approximately $250 for the average service call fee and $150 for
the
average monthly service contract.
Every
Geeks On Call technician is industry certified and tested for skills and
competency. Technicians regularly remove malware, viruses, and spam from
computers at a cost of $99 to $500 per call depending on the duration and
complexity of the affliction. Technicians routinely serve as the outsourced
IT
department of the small and medium sized business community by providing managed
services. Managed service agreements provide a stable platform of recurring
revenue to the franchisee and may be as inexpensive as $1,200 per year or as
elaborate as $100,000 per year. Most typically managed service agreements are
in
the $5,000 per year range, where the technician is on call for problems and
proactively visits the customer once or twice per month.
We
currently derive the majority of our revenue from franchise royalty of eleven
percent (11%). We do not currently have any company owned operations. Management
intends to use a significant portion of the proceeds from the Private
Placement
to
develop company owned operations in major metropolitan markets where we have
no
franchisee representation. Management believes that the company owned operations
will operate at a substantially greater margin. We intend to establish company
owned operations in major markets within the next 24 months
,
although there can be no assurance that we will be successful in achieving
our
goal
.
Our
management intends to augment our established franchise system with a sales
team to sell products offered as a result of an exclusive private
label/marketing agreement with Telkonet pursuant to which we will purchase
from
Telkonet a private label powerline communications product that will allow us
to
provide powerline internet connectivity to the small and medium size business
community and the residential marketplace. The Telkonet products to be marketed
by us under the trade name Geek Link System will enable us to deliver state
of
the art networking connectivity, virtually eliminating the need to pull
additional Cat 5 cable in office buildings and homes. Management believes that
this potential cost savings and elimination of the need for CAT 5 cabling along
with the exclusivity accorded Geeks On Call will result in a substantial
increase over existing revenue and at a much greater profit. The Geek Link
System will be sold to customers through our existing network of franchisees.
It
is our intent to hire additional sales representatives and technicians to market
Geek Link System products in metropolitan areas outside of our present foot
print of 33 cities throughout the U.S.
Franchise
Operations
We
grant
1-800-905-GEEK
TM
franchises to qualified candidates to operate a computer services and solutions
business using our business model and system for delivering computer services
and related products (the “Geeks On Call System”). Franchisees enter into a
10-year franchise agreement with us and, for a Single Franchise territory,
pay
an initial franchise fee of $25,000. If we agree to grant a franchisee the
exclusive right to develop and operate three (3) or more franchise units
in a
defined market, the franchisee can elect to sign an Area Development Agreement
(“ADA”). The ADA fee is $22,000 for each of the first two franchises, $18,000
for each of the franchises three through five, and $16,000 for each of the
franchises six and above. When the franchise agreement for each territory
under
an ADA is signed, an additional franchise fee of $3,000 is owed. Once a
franchise agreement is signed, the franchisee pays an Initial Advertising
Fee of
$15,000. Once the territory is operating, each franchisee pays an ongoing
royalty fee of eleven percent (11%) of the franchisee’s gross revenue and an
advertising allowance of $275 weekly.
The
license of the Geeks On Call System to franchisees includes the right and
obligation to use our service marks and logos in conjunction with mandatory
standardized business procedures and methods of operation. The licensed Geeks
On
Call System includes initial training in business operations, a cooperative
advertising program (funded through contributions made by both franchisee and
us), methods of advertising and promotion developed by us and standardized
operating manuals which assist franchisees in the operation of their
businesses.
Quality
Control
One
of
the cornerstones to building brand equity is quality control. This is especially
true when growing the brand through franchising. In this regard, we carefully
monitor both our operations and our franchisees for quality of service, employee
appearance, customer satisfaction, training of personnel and conformity to
the
Geeks On Call System methods and procedures. Our current policy is to conduct
background checks on all franchisees and employees and requires our
franchisees to conduct background checks on their employees. Only industry
certified, trained and tested technicians work on computers. Acceptable
certifications may be issued by CompTia and/or Microsoft, which management
believes to be the highest industry standards. Currently, all quality control
processes are managed through our headquarters in Norfolk, Virginia. Quality
control staff inspects each franchisee’s business operations on a periodic basis
and requires each franchisee to bring its operations into compliance with our
performance standards, if necessary. As we continue to expand geographically,
we
may maintain Company-operated offices in each geographic region serviced by
us
and/or our franchisees and staff these offices with regional managers, who
will perform the quality control function.
Franchise
Regulation
Our
offer
and sale of franchises is subject to regulation by both federal and state law.
These laws and regulations require us to prepare a franchise disclosure document
and, in certain states, to register the franchise disclosure document with
appropriate state authorities as may be required prior to offering and selling
franchises in those states. The common and statutory law of many states impose
restrictions on the content and/or enforceability of the franchise agreement,
including non-competition provisions and the termination or non-renewal of
a
franchise. We are taking steps we believe are appropriate to comply with such
laws and regulations. There are substantial legal and other costs attendant
to
compliance with such laws and regulations.
Advertising
and Marketing
The
foundation of our marketing strategy for building brand recognition is to
satisfy customer demands for computer solutions based on
superior
customer
service. Our marketing goal is to build brand loyalty and become the computer
users’
support
and services company of choice by offering directly and through our franchised
operations:
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consumer
confidence: selecting only sales and service oriented Comptia A+
or
Microsoft Certified
technicians
and training
them
to be customer friendly and provide the highest possible quality
service;
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convenience:
offering on-site support and service plans and other value-added
services
and products made available at the customer’s location;
and
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reasonable
prices: simple flat rate pricing and easy to understand service agreements
and contracts.
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We
intend
to reach our goal of creating brand loyalty through:
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brand
recognition and identity: utilizing only consumer friendly trademarks
filed with the U.S. Patent and Trademark Office in conjunction with
a
direct marketing web site and yellow page advertising for residential
customers;
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market
penetration: aggressively advertising to small businesses utilizing
telemarketing and face to face sales techniques unique for this
industry;
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customer
advantages: educational seminars and content available to customers
free
of charge;
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image
building: local and national advertising and marketing mix with public
relations program and customer focused campaigns to a
cquire
and retain new customers
;
and
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partnerships:
establishing
alliances with communications and Internet Service Providers and
other
relevant third-party vendors to enable us and our franchisees to
provide value-added services to our customers.
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Intellectual
Property
We
have
aggressively sought to establish and protect our intellectual property and
currently hold multiple registered trademarks with the United States Patent
& Trademark Office (“USPTO”), including the name Geeks On Call®. We have
filed applications for additional marks with the USPTO, including
1-800-905-GEEK
TM
,
and
have also received registration of the Geeks On Call® mark in Canada and have
filed the appropriate applications for same mark in the European Union in
anticipation of our expansion.
Competition
The
computer services industry is characterized by intense competition among
numerous service providers (Geek Squad®, FireDog, etc.), computer retailers
(e.g., CompUSATM) and others. The dominant national competitor is Geek Squad®, a
division of Best Buy, Inc., a national computer and electronics retailer,
which
has a presence in most major markets. Most of our competitors are more
established than we are, with substantially greater marketing, financial,
personnel and other resources than are currently available to us. We have
studied the business model of each of these competitors and believe that
our
current business model, which is focused on franchising, is more effective
than
the models of our competitors. We believe that our business model and
marketing strategy will result in greater market penetration and thereby
produce
higher revenue for us and our franchisees. However, there are few significant
barriers to entry into the industry or to the adoption by competitors of
some or
all of our marketing or operational strategies.
Leases
We
lease
our Norfolk headquarters, consisting of approximately 9,961 square feet of
office space, at $13,569 per month, including heat, utilities and janitorial
services. The lease expires in November 2012. We believe that these offices
are
adequate for our current needs. However, depending upon the expansion of our
operations, we may require additional office space for our headquarters and/or
our telemarketing call center.
Employees
As
of
November 30, 2007, we employed 48 full-time employees. With a portion of
the proceeds of the Private Placement, we anticipate employing approximately
110
to 150 full-time employees in the near future.
Legal
Proceedings
There
is
no current or pending litigation involving us which would have a material impact
on our operations, nor, to the knowledge of our management, is any such
litigation threatened.
Forward-Looking
Statements
This
Current Report on Form 8-K and other written reports and oral statements made
from time to time by us may contain so-called “forward-looking statements,” all
of which are subject to risks and uncertainties. Forward-looking statements
can
be identified by the use of words such as “expects,” “plans,” “will,”
“forecasts,” “projects,” “intends,” “estimates,” and other words of similar
meaning. One can identify them by the fact that they do not relate strictly
to
historical or current facts. These statements are likely to address our growth
strategy, financial results and product and development programs. One must
carefully consider any such statement and should understand that many factors
could cause actual results to differ from our forward looking statements. These
factors may include inaccurate assumptions and a broad variety of other risks
and uncertainties, including some that are known and some that are not. No
forward looking statement can be guaranteed and actual future results may vary
materially.
Information
regarding market and industry statistics contained in this Report is included
based on information available to us that we believe is accurate. It is
generally based on industry and other publications that are not produced for
purposes of securities offerings or economic analysis. We have not reviewed
or
included data from all sources, and cannot assure investors of the accuracy
or
completeness of the data included in this Report. Forecasts and other
forward-looking information obtained from these sources are subject to the
same
qualifications and the additional uncertainties accompanying any estimates
of
future market size, revenue and market acceptance of products and services.
We
do not assume any obligation to update any forward-looking statement. As a
result, investors should not place undue reliance on these forward-looking
statements.
Management’s
Discussion and Analysis or Plan of Operation
This
discussion should be read in conjunction with the other sections of this Current
Report on Form 8-K, including “Risk Factors,” “Description of Business” and the
Financial Statements attached hereto as Item 9.01 and the related exhibits.
The
various sections of this discussion contain a number of forward-looking
statements, all of which are based on our current expectations and could be
affected by the uncertainties and risk factors described throughout this Report
as well as other matters over which we have no control. See “Forward-Looking
Statements.” Our actual results may differ materially.
Overview
Pioneer
of On-Site IT Support.
With
our
formation in June 2001, we believe that we have helped pioneer the on-site
residential IT service concept to address a huge need. We were among the first
companies to utilize national advertising and unique automotive detailing to
promote our services. Recognizable by our branded midnight-blue
Chrysler PT Cruisers, we have been recognized in 2007 and in prior years for
our
growth by
Franchise
Times
and
Entrepreneur
Magazine
.
Our
franchise owners and IT professionals also serve as experts for news stories,
and have been featured in
USA
Today, NBC Nightly News,
and
hundreds of local newspapers and television.
Franchise
Growth.
Since
we
began franchising in 2001, each small business franchisee has worked as an
entrepreneur by growing their businesses in the communities where they live
and
work. They build their businesses one satisfied customer at a time. As of
November 30, 2007, we have granted more than 300 independently-owned
and-operated Geeks On Call franchises that support customers in 33 cities
across
the U.S.
Small
Business Expansion.
Today,
we
have expanded our quick-response, IT services and solutions to advise and
support small businesses. Through our network of Comptia A+ and Microsoft
certified IT professionals, we provide small businesses with a competitive
edge
through technology support previously only available to large enterprise
business. As business owners ourselves, our franchisees understand that IT
is as
mission-critical to a small business as it is to a large enterprise, thus
leveling the playing field for entrepreneurs and small business throughout
the
country.
Services.
Our
certified IT professionals provide a vast array of services including system
security and online privacy solutions, hardware and software repairs and
troubleshooting, wireless equipment and network installations, spyware and
virus
prevention and removal, data backups and transfers, and other value-added
products and services from technology partners Telkonet, CA (formerly Computer
Associates) and Gateway among others.
Our
mission and vision is to be a leading provider of professional onsite enterprise
technology solutions to the small to medium business and residential markets
in
the United States. We are focused on the development of opportunities to help
our franchisees grow their business and drive revenue through additional channel
opportunities. In order to successfully fulfill the mission and vision, our
franchise partners must be well positioned within their geographic markets
to
leverage opportunities. In support of this effort we are committed to the
development of enhanced national brand recognition, public relations,
small-medium sized business market segmentation, compelling sales campaigns
and
support collateral materials.
We
recently completed a national tour of our franchisees to introduce changes
in
our Preferred Partner Program including our relationship with CA (formerly
Computer Associates) to provide a variety of software products, the addition
of
business-class computers from Gateway, and the exclusive private labeling of
a
revolutionary new powerline networking product — “GeekLink System” — by our
newest partner Telkonet, Inc.
It
is our
goal to seek out additional strategic partners with compelling products and
services and attractive margin potential that provide our franchise partners
with a competitive edge in the marketplace. One of our overarching business
goals and primary objectives is to find new and innovative ways to help our
franchise partners build their business and increase their
profitability.
Use
Of Proceeds
After
deducting estimated placement agent fees and estimated offering expenses
payable
by us, we received net proceeds of $2,441,400 from the sale of Units in the
Private Placement.
We
intend
to use the net proceeds of the Private Placement as follows:
|
|
|
Amount
|
|
Percent
|
|
|
Purchase
of Geek Link System Inventory
|
|
$
|
500,000
|
|
|
20.48
|
%
|
|
Hiring
of Additional Sales Representatives and Technicians
|
|
|
1,000,000
|
|
|
40.96
|
|
|
Repayment
of Existing Indebtedness
|
|
|
300,000
|
|
|
12.29
|
|
|
Retention
of Investor Relations and Public Relations Firm
|
|
|
250,000
|
|
|
10.24
|
|
|
General
Working Capital
|
|
|
391,400
|
|
|
16.03
|
|
|
Total
|
|
$
|
2,441,400
|
|
|
100.00
|
%
|
Our
management will have discretion and flexibility in applying a substantial
portion of the net proceeds of the Private Placement. Pending any uses, as
described above, we intend to invest the net proceeds from the Private Placement
in short-term, interest bearing, investment grade securities.
The
amounts and timing of our actual expenditures will depend upon numerous factors,
including the progress of our efforts. The foregoing discussion represents
our
best estimate of our allocation of the net proceeds of the Private Placement
based upon current plans and estimates regarding anticipated expenditures.
Actual expenditures may vary substantially from these estimates and we may
find
it necessary or advisable to reallocate the net proceeds within the
above-described uses or for other purposes.
Results
of Operations
Our
revenues are derived primarily from royalties and advertising fees earned
from
operating franchises and fees earned from the sales of franchise
territories. Fees from the sale of franchises are recognized in income in
the
period that substantially all services and conditions relating to the sale
under
our franchise agreement have been performed, typically the period in which
the
franchisee has completed and passed our rigorous training class.
Three
Months Ended November 30, 2007 Compared to
the
Three
Months Ended November 30, 2006
Revenues
During
the quarter ended November 30, 2007 we recognized revenues of $1,605,071,
as
compared to revenues of $1,663,272 during the quarter ended November 30,
2006,
representing a decrease of approximately 3%. This decrease is primarily
attributable to a reduction in the number of active operating franchises
and
corresponding royalty revenues.
Operating
Loss
Operating
expenses, which consist of selling, general and administrative expenses,
advertising and depreciation and amortization totaled $2,013,106 for the
quarter
ended November 30, 2007, as compared to $1,843,407 for the quarter ended
November 30, 2006, representing an increase of approximately 9%. Our operating
loss for the quarter ended November 30, 2007 was $408,035 as compared to an
operating cost of $180,135 for the quarter ended November 30, 2006, representing
an increase of approximately 127%. Our operating loss increased due to increased
selling, general and administrative expenses and advertising expenses as
explained below.
Selling,
General & Administrative
Selling,
General and Administrative expenses which consist of salaries, commissions,
professional fees and overhead expenses, increased $35,425 or 4
%
to
$978,021 for the quarter ended November 30, 2007, as compared to $942,596
for the quarter ended November 30, 2006. The increase is primarily attributable
to professional fees directly related to the Merger and travel costs associated
with a national tour of the franchise network for the introduction, promotion,
and delivery of new products from strategic partners to the franchise system.
Advertising
Advertising
expenses increased $142,609 or 17% to $998,699 for the quarter ended November
30, 2007, as compared to $856,090 for the quarter ended November 30, 2006.
This
increase was attributable to franchises sold in prior quarters which became
operational this quarter.
Depreciation
and Amortization
Depreciation
and amortization expense totaled $36,386 during the three months ended November
30, 2007, as compared to $44,721 during the three months ended November 30,
2006. The decrease is a result from the reduction in depreciable assets as
being
fully depreciated.
Net
Cash Used in Operating Activities
Cash
utilized in operating activities was $118,625 for
the three months ended November 30, 2007, as compared to $197,261 for the
three
months ended November 30, 2006. The decrease was primarily due to a decrease
in
direct costs related to franchise operations.
Net
Cash Used in Investing
Activities
Net
cash used in investing activities totaled $43,243
for the three months ended November 30, 2007, as compared to $62,534 for
the
three months ended November 30, 2006. A decrease in the repayments of loans
to
franchisees and others was mainly attributable for the decline.
Net
Cash Used in and Provided by Financing
Activities
Net
cash used in financing activities totaled
$13,477 for the three months ended November 30, 2007, as compared to cash
provided by financing activities of $369,729 for the three months ended November
30, 2006. The reason for the decrease is that we had not sold any debt or
equity instruments as of November 30, 2007.
Year
Ended August 31, 2007 Compared to the Year Ended August 31,
2006
Franchise
Sales
In
fiscal
year 2007 we reevaluated our franchise sales strategy. The decision was made
to
focus on selling franchise territories in markets that were already established.
This change in strategy resulted in the opening of fewer new territories but
in
more desirable geographic markets. We believe that our franchisees could reach
profitability faster by building out their operations in more strategic target
markets where the customer demographics coincides with our marketing
strategy.
Revenues
During
the fiscal year ended August 31, 2007 we recognized revenues of $7,107,854,
as
compared to revenues of $8,069,884 during the prior year ended August 31, 2006,
representing a decrease of approximately 12%. This decrease is primarily
attributable to a reduction in the number of active operating franchises and
corresponding royalty revenues.
Operating
Loss
Operating
expenses, which consist of selling, general and administrative expenses,
advertising expenses and depreciation and amortization totaled $8,199,214 for
the fiscal year ended August 31, 2007, as compared to $9,645,200 for the fiscal
year ended August 31, 2006, representing a decrease of approximately 15%. Our
operating loss for the fiscal year ended August 31, 2007 was $1,091,360 as
compared to an operating loss of $1,575,316 for the fiscal year ended August
31,
2006, representing a decrease of approximately 31%. Our operating loss decreased
due to a reduction of corporate and administrative overhead including staff
and
payroll expenses.
Selling,
General & Administrative
Selling,
General and Administrative expenses which consist of salaries, commissions,
professional fees and overhead expenses, decreased by $663,420 or 14 % to
$4,035,662 for the fiscal year ended August 31, 2007, as compared to $4,699,082
for the fiscal year ended August 31, 2006. The decrease is consistent with
our
overall change in sales strategy and reduction in overhead costs.
Advertising
Advertising
and Marketing expenses decreased by $760,316 or 16% to $3,993,017 for the fiscal
year ended August 31, 2007, as compared to $4,753,333 for the fiscal year ended
August 31, 2006. This decrease was a direct result in the change of our
franchise sales strategy which resulted in the opening of fewer new territories
but in more desirable geographic markets and the dissolution of a number of
previously unprofitable territories.
Depreciation
and
Amortization
Depreciation
and amortization expenses totaled $170,535 for the fiscal year ended August
31,
2007, as compared to $192,785 for the fiscal year ended August 31, 2006,
representing a decrease of 12%. The decrease is a result of a reduction in
depreciable assets due to certain fixed assets being fully depreciated during
the current year.
Net Cash Used in Operating
Activities
Cash
utilized in operating activites was $498,137 during the year ended August
31,
2007, as compared to $1,452,010 during the year ended August 31, 2006. The
decrease is primarily attributable to a reduction in direct costs associated
with our operations.
Net
Cash Used in Investing Activities
Net
cash
used in investing activities totaled $519,964 for the year ended August
31,
2007, as compared to $99,778 for the year ended August 31, 2006. The increase
is
directly related to repayment of loans to franchisees and others.
Net
Cash Provided by Financing Activities
Net
cash
provided by financing activities totaled $631,091 for the year ended August
31,
2007, as compared to $1,091,610 for the year ended August 31, 2006. The
reason for the decrease is that we did not need to utilize additional line
of credit and we did not issue additional securities as of August 31,
2007.
Liquidity
and Capital Resources
As
of
November 30, 2007, we had cash of $105,501 as compared to $280,846 as of
August
31, 2007. This decrease is attributable to the working capital needed to
facilitate the operations of our franchise business.
As
of
August 31, 2007 we had cash of $280,846 as compared to $667,856 as of August
31,
2006. This decrease is also attributable to the working capital needed to
facilitate the operations of our franchise business. We have historically
met
our liquidity requirements from a variety of sources, including private
placements which over the years has netted us proceeds of $4,971,000 and
establishing a line of credit with a banking facility in the amount of $700,000,
of which $200,000 is currently outstanding and will be paid off with
proceeds from the current Private Placement funding.
We
may
need to raise additional capital in the future to fund our operating
requirements. We expect that revenues from franchise operations coupled with
the
funds from the Private Placement will fund our operations for a period of 12
months. Our operating capital requirements include the planned costs to operate
our business, including amounts required to fund working capital and capital
expenditures.
No
assurance can be given that any source of additional cash will be available
to
us. If no source of additional cash is available to us, we may have to
significantly reduce the scope of our operations or possibly seek court
protection from creditors or cease business operations altogether.
Off-Balance
Sheet Arrangements
Since
our
inception, except for standard operating leases, we have not engaged in any
off-balance sheet arrangements, including the use of structured finance, special
purpose entities or variable interest entities.
Risk
Factors
There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals. If any of these risks actually occur, our business,
financial condition or results of operation may be materially adversely
affected. In such case, the trading price of our common stock could decline
and
investors could lose all or part of their investment.
Risks
Relating to Our Business
We
have a limited operating history and have sustained recurring
losses.
Geeks
On
Call America, Inc. was formed in June 2001 and has not reported a net profit
for
any year. For the quarter ended November 30, 2007, we reported a net loss
of
$424,818 on revenues of $1,605,071. For the quarter ended November 30, 2006,
we
reported a net loss of $187,782 on revenues of $1,663,272. For the
year
ended
August
31,
2007, we reported a net loss of
$1,147,654
on revenues of
$7,107,854.
For the year ended August 31, 2006, we reported a net loss of $1,567,527
on revenues of
$8,069,884.
Our
financial data is of limited value in projecting our future operating results
and there can be no assurance that we will show a net profit at any time.
Our
future viability, profitability and growth depends upon our ability to
successfully operate and expand our operations. Our prospects in the United
States as well as markets outside of the United States must be considered
in
light of the risk, expenses and difficulties frequently encountered in the
expansion of business into new markets where our brand is not well known,
particularly in the fast paced computer services industry, and ease of market
entry. There can be no assurance that any of our efforts will prove successful
or that we will not continue to incur operating losses in the
future.
Our
expansion plans outside the U.S. may not succeed.
We
have
current plans to expand into Canada and we are considering other markets outside
the United States, including the United Kingdom and other countries within
the
European Union. Any expansion to markets outside the United States will present
different and successive risks, expenses and difficulties with regard to
applying or modifying our business model to different countries and regions
of
the world. In addition, certain countries regulate the offer of franchises
and
certain aspects of the franchisor/franchisee relationship and such foreign
regulations may prevent or delay our expansion plans abroad. There can be no
assurance that any of our efforts to expand outside the U.S. will prove
successful, that we will not continue to incur operating losses in the future
as
a result of these efforts or that such efforts will not have a material adverse
impact on us.
We
will need additional financing to execute our business plan and fund operations,
which additional financing may not be available.
We
have
limited funds. Even with the proceeds of the Private Placement, we may not
be
able to execute our current business plan and fund business operations long
enough to achieve profitability. Part of our expansion plan is for us to open
and operate Company-owned businesses. This will require us to hire, train and
supervise technicians and managers. Our ultimate success may depend upon our
ability to raise additional capital. There can be no assurance that additional
funds will be available when needed from any source or, if available, will
be
available on terms that are acceptable to us.
We
may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. Future
financings through equity investments are likely to be dilutive to existing
stockholders. Also, the terms of securities we may issue in future capital
transactions may be more favorable for our subsequent investors. Newly issued
securities may include preferences, superior voting rights, the issuance of
warrants or other derivative securities, and the issuances of incentive awards
under equity employee incentive plans, which may have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities
we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets and the fact that we are not profitable, which could impact
the
availability or cost of future financings. If the amount of capital we are
able
to raise from financing activities, together with our revenues from operations,
is not sufficient to satisfy our capital needs, even to the extent that we
reduce our operations accordingly, we may be required to cease operations.
We
are dependent upon key personnel whose loss may adversely impact our business.
We
rely
heavily on the expertise, experience and continued services of our senior
management, especially Richard T. Cole, who will continue as our Chairman and
Chief Executive Officer. The loss of Mr. Cole, or an inability to attract or
retain other key individuals, could materially adversely affect us. We seek
to
compensate and motivate our executives, as well as other employees, through
competitive salaries and bonus plans, but there can be no assurance that these
programs will allow us to retain key employees or hire new key employees. As
a
result, if Mr. Cole were to leave, we could face substantial difficulty in
hiring a qualified successor and could experience a loss in productivity while
any such successor obtains the necessary training and experience.
Upon
consummation
of the
Merger,
we
entered
into
employment agreements with Richard T. Cole, Richard Artese and Keith Wesp.
However, there can be no assurance that the terms of these employment agreements
will be sufficient to retain Messrs. Cole, Artese and Wesp.
We
are dependent upon our managers and skilled professional
technicians.
Our
success depends, in part, on the availability of technically qualified persons
who are willing to service our customer base at earning and income levels
consistent with industry standards. Our success in managing and expanding our
business will depend upon (a) our ability to attract, hire and incorporate
managers for our operations and (b) the ability of our franchisees to hire,
train and supervise additional personnel and deal with turnover. There is no
assurance that either we can attract, hire and maintain experienced managers
for our operations or that our franchisees can attract and retain such
technically qualified persons. Moreover, if the supply of this labor pool is
reduced in the future for reasons within or outside our control, then the
expenses for our operations could be substantially increased without our
receiving offsetting increased revenues.
Our
industry is extremely competitive.
The
computer services industry is characterized by intense competition among
numerous service providers (Geek Squad®, FireDog, etc.), computer retailers
(e.g., CompUSATM) and others. Most of these competitors are more established
than we are, with substantially greater marketing, financial, personnel and
other resources than are currently available to us. There are few significant
barriers to entry into the industry or to the adoption by competitors of some
or
all of our marketing or operational strategies.
We
have risks associated with franchised operations.
Our
ability to successfully franchise additional businesses will depend on various
factors, including the financial and other capabilities of the franchisees,
our
ability to manage expansion into new markets and economic and business
conditions generally. There is also a “ramp-up” period before we expect a new
business to achieve our targeted level of performance. This is due to higher
operating costs caused by start-up and other temporary inefficiencies associated
with opening new businesses, such as lack of market familiarity and acceptance
when we enter a new market, and training of personnel. Further, there can be
no
assurance that our franchisees will successfully develop or operate their
franchises in a manner consistent with our concepts and standards or will have
the business abilities or access to financial resources necessary to generate
sufficient revenues. There is no assurance that we will be able to sell a
sufficient number of franchises to meet our revenue and growth plans, nor is
there any assurance that our franchise training programs and procedures will
be
effective in enabling franchisees to run successful computer solutions
businesses. Because our operating results are closely tied to the success of
our
franchisees, the failure of one or more of these franchisees could adversely
affect our operating results. Franchisees are independent contractors and are
not employees. How well each of our franchisees operates is outside of our
direct control. Although we have developed criteria to evaluate and screen
prospective franchisees, we are limited in the amount of control we can exercise
over our franchisees and the quality of franchised operations may be diminished
by any number of factors beyond our control. Franchisees may not have the
business acumen or financial resources necessary to successfully operate
businesses in a manner consistent with our standards and requirements and may
not hire and train qualified personnel. Poor operations may affect each
franchisee’s sales. Our image and reputation, and the image and reputation of
other franchisees, may suffer materially and system-wide sales could
significantly decline if our franchisees do not operate successfully.
Risk
of franchisee default.
Many
of
our franchisees depend on financing from banks and other financial institutions
in order to finance their franchise. Some of our franchisees may be highly
leveraged, and if they are unable to service their indebtedness, such failure
could adversely affect their ability to maintain their operations, and/or meet
their contractual obligations to us, including royalty payments, which may
have
an adverse effect on our operating performance.
We
are subject to government regulation which can result in increased costs, delays
and limits on our operating flexibility.
We
must
comply with federal and state laws that regulate the offer and sale of
franchises and certain aspects of the franchisor/franchisee relationship.
In
addition, to the extent that we expand our operations abroad, we will be
required to comply with foreign laws that regulate the offer of franchises
and
certain aspects of the franchisor/franchisee relationship. The common and
statutory law of many states impose restrictions on the content and/or
enforceability of the franchise agreement, including non-competition provisions
and the termination or non-renewal of a franchise. Some states require that
franchise materials be registered before franchises can be offered or sold
in
the state. There are substantial costs associated with complying with
such regulations, and the failure to comply with federal, state and/or foreign
laws, rules and regulations governing franchisors could have a material adverse
effect on us and on our franchisees. In addition, we are subject to federal,
state and local statutes, ordinance and regulations applicable to business
generally. The costs of compliance with such statutes and regulations and
timing
issues related to regulatory action and approval may have a material adverse
impact upon our financial condition and results of operations.
The need
to make certain disclosures related to the corporate restructuring resulting
from the Merger and other transactions related to the Private Placement may
cause us to delay our franchise filings in certain states, which, in turn,
would
prevent us from engaging in the offer and sale of new franchises until we
are
able to update our franchise disclosure documents. This delay may have a
material adverse impact upon our financial condition and results of operations.
The need to make certain disclosures related to the corporate restructuring
resulting from the Merger and the other transactions related to the Private
Placement may cause us to delay our franchise filings in certain states,
which,
in turn, would prevent us from engaging in the offer and sale of new franchises
until we are able to file our updated franchise disclosure
documents.
We
may not recover the advertising costs necessary to penetrate new
markets.
In
order
to open certain markets, we may be required to invest in advertising, marketing
and other related expenses, including yellow page advertising, prior to
franchisees beginning business operations and/or before there are enough
franchisees operating to cover the cost of such advertising and marketing.
Such
advertising costs may not be recovered through continued franchise sales and/or
franchisee operations and could have a material adverse effect on our financial
condition and results of operations.
Our
rebranding efforts may not succeed.
We
have
undertaken a significant rebranding effort as a result of perceived confusion
in
the computer services marketplace. The decision to change our tradename from
Geeks On Call® to 1-800-905-GEEK
TM
may not
prove successful or may further confuse consumers and result in lost business
opportunities and revenue. We may be required to invest in advertising,
marketing and other related expenses, to support the rebranding effort and
such
advertising and marketing costs may not be recovered through continued franchise
sales and/or franchisee operations and could have a material adverse effect
on
our financial condition and results of operations.
Our
failure or inability to enforce our trademarks or other proprietary rights
could
adversely affect our competitive position or the value of the
1-800-905-GEEK
TM
brand.
We
own
certain common law trademark rights and a number of federal trademark and
service mark registrations, and proprietary rights related to certain of our
core services. We have applied for but not yet obtained a registration for
the
1-800-905-GEEK
TM
trademark. We believe that our trademarks and other proprietary rights are
important to our success and our competitive position. We devote appropriate
resources to the protection of our trademarks and proprietary rights. The
protective actions that we take, however, may not be enough to prevent
unauthorized usage or limitation by others, which might cause us to incur
significant litigation costs and could harm our image or our brand or
competitive position.
We
also
cannot assure you that third parties will not claim that our trademarks or
offerings infringe the proprietary rights of third parties. Any such claim,
whether or not it has merit, could be time-consuming, result in costly
litigation, cause product delays or require us to enter into royalty or
licensing agreements. As a result, any such claim could have a material adverse
effect on our business, results of operations and financial
condition.
Government
regulation of the Geek Link System product could impair our ability to sell
such
product in certain markets.
It
is our
intent to utilize a portion of the proceeds of the
Private
Placement
to
purchase inventory of the “Geek Link System” private label powerline
communication product pursuant to our agreement with Telkonet and to hire
additional sales representatives and technicians to market Geek Link System
in
metropolitan areas outside of our present foot print of 33 cities throughout
the
U.S. The Geek Link System product will be subject to regulation by the Federal
Communications Commission (“FCC”). FCC rules permit the operation of unlicensed
digital devices that radiate radio frequency emissions if the manufacturer
complies with certain equipment authorization procedures, technical
requirements, marketing restrictions and product labeling requirements.
Differing technical requirements apply to “Class A” devices intended for use in
commercial settings, and “Class B” devices intended for residential use to which
more stringent standards apply. An independent, FCC-certified testing lab
has
verified that Telkonet’s iWire System
TM
product
suite (the technology which will serve as the basis for the Geek Link System
product) complies with the FCC technical requirements for Class A and Class
B
digital devices. No further testing of these devices is required and the
devices
may be manufactured and marketed for commercial and residential use. Additional
devices designed for commercial and residential use will be subject to the
FCC
rules for unlicensed digital devices. Moreover, if in the future the FCC
changes
its technical requirements for unlicensed digital devices, further testing
and/or modifications of devices may be necessary. Failure to comply with
any FCC
technical requirements could impair our ability to sell the Geek Link System
product in certain markets and could have a negative impact on our business
and
results of operations.
Infringement
by third parties on the proprietary technology incorporated to the Geek Link
System product, and development of substantially equivalent proprietary
technology by competitors could negatively impact our
business.
Our
success with respect to the sale and marketing of the Geek Link System product
depends partly on the patent and trade secret protection obtained by Telkonet
on
the technology incorporated to the Geek Link System product, Telkonet’s ability
to obtain future patents and licenses with respect to this technology, and
Telkonet’s ability to manufacture the Geek Link System product without
infringing on the proprietary rights of third parties. There can be no assurance
that the measures Telkonet has taken to protect its intellectual property,
including those integrated to its Telkonet iWire System
TM
product
suite (the technology which will serve as the basis for the Geek Link System
product), will prevent misappropriation or circumvention. In addition, there
can
be no assurance that any patent application, when filed, will result in an
issued patent, or that the existing patents, or any patents that may be issued
in the future, will provide significant protection against competing products.
Moreover, there can be no assurance that any patents issued to, or licensed
by,
Telkonet will not be infringed upon or circumvented by others. Infringement
by
third parties on Telkonet’s proprietary technology could negatively impact our
business.
Telkonet
also relies to a lesser extent on unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information, techniques or processes or that Telkonet
can
meaningfully protect its rights to such unpatented proprietary technology.
Development of substantially equivalent technology by Telkonet’s competitors
could negatively impact our business.
In
addition, the agreement pursuant to which Telkonet is obligated to supply the
Geek Link System product to us is terminable in the event that, among other
things, Telkonet determines in its reasonable business judgment that the Geek
Link System product infringes upon the rights of a third party. If Telkonet
is
unable to modify the Geek Link System product in the event of a claim of
infringement or is unable to come to a commercially reasonable agreement
pursuant to which it agrees to license the infringing technology from the third
party owner, Telkonet may elect to terminate the private label agreement with
us. If the private label agreement is terminated, we would be required to stop
selling the Geek Link System product which could negatively impact our revenue
and results of operations.
Products
sold by competitors could become more popular than the Geek Link System product
or render the Geek Link System product obsolete.
The
market for powerline communications products is highly competitive. These
include Linksys (a Cisco company), Intel, GE, Motorola, Netgear, Sony and
Samsung. In addition, there can be no assurance that other companies will not
develop powerline communications products that also compete with the Geek Link
System product in the future. Some of these competitors have longer operating
histories, greater name recognition and substantially greater financial,
technical, sales, marketing and other resources. These competitors may, among
other things, undertake more extensive marketing campaigns, adopt more
aggressive pricing policies, obtain more favorable pricing from suppliers and
manufacturers and exert more influence on the sales channel than us. As a
result, we may not be able to compete successfully with these potential
competitors and these potential competitors may develop or market technologies
and products that are more widely accepted than the Geek Link System product
or
that would render the Geek Link System product obsolete or noncompetitive.
If
any of these companies are successful in competing against us with respect
to
the Geek Link System product, our revenue could decline, our margins could
be
negatively impacted, and we could lose market share, any of which could
seriously harm our business and results of operations.
Risks
Relating to the Market and our
Common
Stock
We
may be unable to register for resale all of the common stock which were included
within the Units, in which case a stockholder will need to rely on an exemption
from the registration requirements in order to sell such shares of common
stock.
The
shares of common stock and warrants issued in connection with the Merger, the
Private Placement and the other transactions described herein are being issued
in reliance on an exemption from the registration requirements of the Securities
Act under Section 4(2) of the Securities Act and Regulation D promulgated under
the Securities Act. Consequently, theses securities will be subject to
restrictions on transfer under the Securities Act and may not be transferred
in
the absence of registration or the availability of a resale exemption. We are
obligated to file a “resale” registration statement with the SEC that covers all
of the common stock included within the Units sold in the Private Placement
(including the shares of common stock underlying the Warrants) within sixty
days
from the closing of the Private Placement and to use our best efforts to have
such “resale” registration statement declared effective by the SEC within 150
days from the closing of the Private Placement. Nevertheless, it is possible
that the SEC may not permit us to register all of such shares of common stock
for resale. In certain circumstances, the SEC may take the view that the Private
Placement requires us to register the issuance of the securities as a primary
offering. Without sufficient disclosure of this risk, rescission of the Private
Placement could be sought by investors or an offer of rescission may be mandated
by the SEC, which would result in a material adverse affect to us. To date,
the
SEC has not made any formal statements or proposed or adopted any new rules
or
regulations regarding Rule 415 promulgated under the Securities Act, as such
rule applies to resale registration statements. However, investors should be
aware of the risks that interpretive positions taken with respect to Rule 415,
or similar rules or regulations adopted subsequent to the date of this Current
Report on Form 8-K, could have on the manner in which the common stock may
be
registered or our ability to register the common stock for resale at all. If
we
are unable to register some or all of the common stock, such shares would only
be able to be sold pursuant to an exemption from registration under the
Securities Act, such as Rule 144, that permits the resale of securities by
non-affiliates following six months after the issuance of such
securities.
The
requirements of being a public company may strain our resources and distract
management.
As
a
public company, we are subject to the reporting requirements of the Exchange
Act
and the Sarbanes-Oxley Act of 2002. These requirements are extensive. The
Exchange Act requires that we file annual, quarterly and current reports with
respect to our business and financial condition. The Sarbanes-Oxley Act requires
that we maintain effective disclosure controls and procedures and internal
controls for financial reporting. In order to maintain and improve the
effectiveness of our disclosure controls and procedures and internal control
over financial reporting, significant resources and management oversight is
required. This may divert management’s attention from other business concerns,
which could have a material adverse effect on our business, financial condition
and results of operations.
As
a
public company, it may be time consuming, difficult and costly for us to develop
and implement the internal controls and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
controls and other finance personnel in order to develop and implement
appropriate internal controls and reporting procedures. If we are unable to
comply with the internal controls requirements of the Sarbanes-Oxley Act, we
may
not be able to obtain the independent accountant certifications required by
such
Act, if applicable.
If
we fail to establish and maintain an effective system of internal control,
we
may not be able to report our financial results accurately. Any inability to
report and file our financial results accurately and timely could harm our
reputation and adversely impact the trading price of our common
stock.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to
include
in each Annual Report on Form 10-K beginning with our fiscal year ending
August
31, 2008, management’s assessment of the effectiveness of our internal control
over financial reporting. Furthermore, beginning with our fiscal year ending
on
August 31, 2009 our independent registered public accounting firm will be
required to attest to whether management’s assessment of the effectiveness of
internal controls over financial reporting is fairly stated in all material
respects and separately report on whether it believes we maintained, in all
material respects, effective internal control over financial reporting. If
we
fail to timely complete the development of our internal controls and management
is unable to make this assessment, or, once required, if the independent
registered public accounting firm cannot timely attest to this assessment,
we
could be subject to regulatory sanctions and a loss of public confidence
in our
internal control and the reliability of our financial statements, which
ultimately could negatively impact our stock price.
Any
future material changes in our operations likely will require us to expand
and
possibly revise our disclosure controls and procedures, internal controls and
related corporate governance policies. In addition, the new and changed laws
and
regulations are subject to varying interpretations in many cases due to their
lack of specificity and, as a result, their application in practice may evolve
over time as new guidance is provided by regulatory and governing bodies. If
our
efforts to comply with new or changed laws and regulations differ from the
conduct intended by regulatory or governing bodies due to ambiguities or varying
interpretations of the law, we could be subject to regulatory sanctions, our
reputation may be harmed and our stock price may be adversely
affected.
Public
company compliance may make it more difficult to attract and retain officers
and
directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public companies. As
a
public company, we expect these new rules and regulations to increase our
compliance costs in 2008 and beyond and to make certain activities more time
consuming and costly than if we were not a public company. As a public company,
we also expect that these new rules and regulations may make it more difficult
and expensive for us to obtain director and officer liability insurance in
the
future and we may be required to accept reduced policy limits and coverage
or
incur substantially higher costs to obtain the same or similar coverage. As
a
result, it may be more difficult for us to attract and retain qualified persons
to serve on our board of directors or as executive officers.
Persons
associated with securities offerings, including consultants, may be deemed
to be
broker dealers.
In
the
event that any of our securities are offered without engaging a registered
broker-dealer we may face claims for rescission and other remedies. If any
claims or actions were to be brought against us relating to our lack of
compliance with the broker-dealer requirements, we could be subject to
penalties, required to pay fines, make damages payments or settlement payments,
or repurchase such securities. In addition, any claims or actions could force
us
to expend significant financial resources to defend ourselves, could divert
the
attention of our management from our core business and could harm our
reputation.
Our
stock price may be volatile in response to market and other
factors.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including but not limited to the following:
|
|
·
|
competitive
pricing pressures;
|
|
|
·
|
our
ability to obtain working capital
financing;
|
|
|
·
|
additions
or departures of key personnel;
|
|
|
·
|
limited
“public float” following the Merger, in the hands of a small number of
persons whose sales or lack of sales could result in positive or
negative
pricing pressure on the market price for our common
stock;
|
|
|
·
|
sales
of our common stock (particularly following effectiveness of the
resale
registration statement required to be filed in connection with the
Private
Placement);
|
|
|
·
|
our
ability to execute our business
plan;
|
|
|
·
|
operating
results that fall below
expectations;
|
|
|
·
|
loss
of any strategic relationship;
|
|
|
·
|
regulatory
developments;
|
|
|
·
|
economic
and other external factors; and
|
|
|
·
|
period-to-period
fluctuations in our financial
results.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common
stock.
We
have
never paid cash dividends on our common stock and do not anticipate doing so
in
the foreseeable future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors
affecting us at such time as our board of directors may consider relevant.
If we
do not pay dividends, our common stock may be less valuable because a return
on
investment will only occur if our stock price appreciates.
There
is currently no liquid trading market for our common stock and we cannot ensure
that one will ever develop or be sustained.
To
date
there has been no liquid trading market for our common stock. We cannot predict
how liquid the market for our common stock might become. We have listed our
common stock for trading on the OTC Bulletin Board and, as soon thereafter
as is
practicable, anticipate applying for listing of our common stock on either
the
American Stock Exchange, the Nasdaq Capital Market or other national securities
exchange, assuming that we can satisfy the initial listing standards for such
exchange. We currently do not satisfy the initial listing standards, and cannot
ensure that we will be able to satisfy such listing standards or that our common
stock will be accepted for listing on any such exchange. Should we fail to
satisfy the initial listing standards of such exchanges, or our common stock
is
otherwise rejected for listing and remain listed on the OTC Bulletin Board
or
suspended from the OTC Bulletin Board, the trading price of our common stock
could suffer and the trading market for our common stock may be less liquid
and
our common stock price may be subject to increased volatility.
Furthermore,
for companies whose securities are traded in the OTC Bulletin Board, it is
more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news and events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
In
addition, the price at which our common stock may be sold is very unpredictable
because there could be very few trades in our common stock. If our common
stock is thinly traded, a large block of shares traded can lead to a
dramatic fluctuation in the share price.
Our
common stock may be deemed a “penny stock”, which would make it more difficult
for our investors to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Securities Exchange Act of 1934. The penny stock rules apply to
companies whose common stock is not listed on the Nasdaq Stock Market or other
national securities exchange and trades at less than $5.00 per share or that
have tangible net worth of less than $5,000,000 ($2,000,000 if the company
has
been operating for three or more years). These rules require, among other
things, that brokers who trade penny stock to persons other than “established
customers” complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading
in
the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade penny stocks
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities
is
limited. If we remain subject to the penny stock rules for any significant
period, it could have an adverse effect on the market, if any, for our
securities. If our securities are subject to the penny stock rules, investors
will find it more difficult to dispose of our securities.
Offers
or availability for sale of a substantial number of shares of our common stock
may cause the price of our common stock to decline.
If
our
stockholders sell substantial amounts of our common stock in the public market,
or upon the expiration of any statutory holding period, under Rule 144, or
expiration of lock-up periods applicable to outstanding shares, or issued
upon
the exercise of outstanding options or warrants, it could create a circumstance
commonly referred to as an “overhang” and in anticipation of which the market
price of our common stock could fall. The existence of an overhang, whether
or
not sales have occurred or are occurring, also could make more difficult
our
ability to raise additional financing through the sale of equity or
equity-related securities in the future at a time and price that we deem
reasonable or appropriate. All of the shares of common stock issued to
our officers, directors, and greater than 10% stockholders in the Merger
are
subject to a lockup agreement prohibiting sales of such shares for a period
of 6
months following the date we file a “resale” registration statement with the SEC
that covers all of the common stock included within the Units sold in the
Private Placement (including the shares of common stock underlying the
warrants). Following such date, all of those shares will become freely tradable,
subject to securities laws and SEC regulations regarding sales by insiders.
In
addition, the shares of common stock sold in the Private Placement (including
the shares underlying the warrants) will be freely tradable upon the earlier
of:
(i) effectiveness of a registration statement covering such shares; and (ii)
the
date on which such shares may be sold without registration pursuant to Rule
144
under the Securities Act.
We
may apply the proceeds of the Private Placement to uses that ultimately do
not
improve our operating results or increase the value of our common
stock.
We
intend
to use the gross proceeds from the Private Placement, including proceeds
received upon the exercise of any warrants, to pay professional fees, including
costs and expenses incurred in connection with the Private Placement, to repay
indebtedness, to purchase inventory of the private label powerline communication
product pursuant to the agreement with Telkonet, to hire additional sales
representatives and technicians to market Geek Link System products in
metropolitan areas outside of our present foot print of 33 cities throughout
the
U.S., as well as for general working capital purposes. However, we do not have
more specific plans for the net proceeds from the Private Placement and our
management will have broad discretion in how we use these proceeds. These
proceeds could be applied in ways that do not improve our operating results
or
otherwise increase the value of our common stock.
As
a result of members of our management being our largest stockholders, they
can
exert significant control over our business and affairs and have actual or
potential interests that may depart from those of other
stockholders.
Our
executive management team own or control a significant percentage of our
common stock. Additionally, these figures do not reflect the increased
percentages that they may have in the event that they exercise any of the
options or warrants they may hold or in the future be granted, or if they
otherwise acquire additional shares of our common stock. The interests of such
persons may differ from the interests of other stockholders. As a result, in
addition to their positions with us, such persons will have significant
influence over and control all corporate actions requiring stockholder approval,
irrespective of how our other stockholders may vote, including the following
actions:
|
|
·
|
elect
or defeat the election of our
directors;
|
|
|
·
|
amend
or prevent amendment of our Certificate of Incorporation or
Bylaws;
|
|
|
·
|
effect
or prevent a merger, sale of assets or other corporate transaction;
and
|
|
|
·
|
control
the outcome of any other matter submitted to the shareholders for
vote.
|
In
addition, such persons’ stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which
in
turn could reduce our stock price or prevent our shareholders from realizing
a
premium over our stock price.
Exercise
of warrants may have a dilutive effect on our common
stock.
If
the
price per share of our common stock at the time of exercise of any warrants
or
options is in excess of the various exercise or conversion prices of such
convertible securities, exercise or conversion of such convertible securities
would have a dilutive effect on our common stock. As of
February
8
,
2008,
holders of our outstanding warrants would receive 1,740,000 shares of our common
stock at an exercise price of $1.50 per share. The amount of such dilution
that
may result from the exercise of the foregoing, however, cannot currently be
determined as it would depend on the difference between our common stock price
and the price at which such convertible securities were exercised at the time
of
such exercise. Any additional financing that we secure may require the granting
of rights, preferences or privileges senior to those of our common stock and
which result in additional dilution of the existing ownership interests of
our
common stockholders.
Security
Ownership of Certain Beneficial Owners and Management
The
following tables set forth certain information as of
February
8
,
2008
regarding the beneficial ownership of our common stock taking into account
the
consummation of the Merger, the closing of the Private Placement and the
consummation of the Split-Off by (i) each person or entity who, to our
knowledge, owns more than 5% of our common stock; (ii) our executive
officers named in the Summary Compensation Table below; (iii) each director;
and
(iv) all of our executive officers and directors as a group. Unless otherwise
indicated in the footnotes to the following table, each person named in the
table has sole voting and investment power and that person’s address is c/o 814
Kempsville Road, Suite 106, Norfolk, Virginia 23502. Shares of common stock
subject to options, warrants, or other rights currently exercisable or
exercisable within 60 days of
February
8
,
2008,
are deemed to be beneficially owned and outstanding for computing the share
ownership and percentage of the stockholder holding such options, warrants
or
other rights, but are not deemed outstanding for computing the percentage of
any
other stockholder.
|
Name of
Beneficial Owner
|
|
Number of Shares
Beneficially
Owned
|
|
Percentage
Beneficially
Owned
(1)(2)
|
|
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|
|
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|
|
|
|
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|
5%
Owners
:
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
RTC
Investments, LLC
(3)
|
|
|
|
|
|
20.65
|
%
|
|
|
|
|
|
|
|
|
|
|
Telkonet,
Inc.
(4)
|
|
|
2,
454,500
|
|
|
18.25
|
%
|
|
|
|
|
|
|
|
|
|
|
Executive
Officers and Directors
:
|
|
|
|
|
|
|
|
|
Name of
Beneficial Owner
|
|
Number of Shares
Beneficially
Owned
|
|
Percentage
Beneficially
Owned
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
Richard
T. Cole (3)(5)
|
|
|
970,071
|
|
|
7.21
|
%
|
|
|
|
|
|
|
|
|
|
|
Ronald
W. Pickett (4)(6)
|
|
|
100,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
James
Weathers (3)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
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|
Jim
Johnsen (3)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Steve
Sanford (3)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Robert
P. Crabb
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Artese (7)
|
|
|
4,761
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Wesp (8)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
Glenn
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors as a group (nine persons)
(3)(4)(5)(6)(7)(8)
|
|
|
1,074,832
|
|
|
7.99
|
%
|
__________________________
*Represents
less than 1%.
|
(1)
|
Based
on 13,150,000 shares of our common stock outstanding immediately
following
the Merger and the Private Placement and the cancellation of 2,666,667
shares of our common stock in the Split-Off and shares of common
stock
subject to options, warrants, or other rights currently exercisable
or
exercisable within 60 days of February 8,
2008.
|
|
(2)
|
Excludes:
(i) warrants to purchase 1,500,000 shares of common stock at an
exercise
price of $1.50 per share, issuable to investors in the Private
Placement,
(ii) warrants to purchase up to a maximum of 240,000 shares of
common
stock, issuable to the Placement Agent, and (iii) 3,000,000 shares
of
common stock reserved for issuance under our Equity Incentive
Plan.
|
|
(3)
|
Messrs.
Cole, Weathers, Sanford, and Johnsen own 8.33%, 44.68%, 3.90%, 2.77%,
respectively of RTC Investments, LLC.
|
|
(4)
|
Mr.
Pickett is the former Chief Executive Officer of Telkonet, Inc.,
and is
currently the Vice Chairman of Telkonet, Inc.’s board of
directors.
|
|
(5)
|
Includes
options to acquire 200,000 shares of our common stock that vest
immediately upon consummation of the Merger. Does not include options
to acquire 800,000 shares of our common stock that are not currently
exercisable.
|
|
(6)
|
Includes
options to acquire 100,000 shares of our common stock that vest
immediately upon consummation of the Merger. Does not include options
to
acquire 400,000 shares of our common stock that are not currently
exercisable.
|
|
(7)
|
Does not include options to acquire
250,000
shares of our common stock which are not currently
exercisable.
|
|
(8)
|
Does not include options to acquire
175,000
shares of our common stock which are not currently
exercisable.
|
Executive
Officers and Directors
Directors
and Executive Officers
The
following persons became our executive officers and directors upon effectiveness
of the Merger and hold the positions set forth opposite their respective
names.
|
Name
|
|
Age
|
|
Position with the Company
|
|
|
|
|
|
|
|
Richard
T. Cole
|
|
54
|
|
CEO,
Chairman of the Board
|
|
|
|
|
|
|
|
Ronald
W. Pickett
|
|
60
|
|
Vice-Chairman
of the Board
|
|
|
|
|
|
|
|
James
Weathers
|
|
53
|
|
Director
|
|
|
|
|
|
|
|
Jim
Johnsen
|
|
41
|
|
Director
|
|
|
|
|
|
|
|
Steve
Sanford
|
|
44
|
|
Director
|
|
|
|
|
|
|
|
Robert
P. Crabb
|
|
60
|
|
Director
and Secretary
|
|
|
|
|
|
|
|
Douglas
Glenn
|
|
41
|
|
Director
|
|
|
|
|
|
|
|
Richard
Artese
|
|
40
|
|
Vice
President and Chief Information Officer
|
|
|
|
|
|
|
|
Keith
Wesp
|
|
35
|
|
Controller
and Assistant Secretary
|
Richard
T. Cole,
CEO,
Chairman of the Board
.
Mr.
Cole is a co-founder of Geeks On Call and has served as its Chairman since
its
inception in June 2001. Mr. Cole also was the Managing Member of the Company’s
predecessor, Geeks On Call America, LLC. Prior to 2000, Mr. Cole was the
Managing Member of Beach Capital LLC. Mr. Cole previously served as President
of
American Outdoor Advertising, Inc. (a Landmark Communications, Inc. subsidiary)
from March 1997 until October 1999, and as President of FKM Advertising from
February 1994 until November 1996.
Ronald
W. Pickett
,
Vice-Chairman
of the Board
.
Mr.
Pickett has served as Vice-Chairman of the Board of Directors of Geeks On
Call
since October 2007. Mr. Pickett is the former Chief Executive Officer of
Telkonet, Inc., having served in such capacity between January 2003 and November
2007, and is currently the Vice-Chairman of Telkonet’s board of directors. In
addition, he has fostered the development of Telkonet since 1999 as the
Telkonet’s principal investor and co-Founder. He was the Founder, and for twenty
years served as the Chairman of the Board and President, of Medical Advisory
Systems, Inc. (a company providing international medical services and
pharmaceutical distribution) until its merger with Digital Angel Corporation
in
March 2002. A graduate of Gordon College, Mr. Pickett has engaged in various
entrepreneurial activities for 35 years.
Mr.
Pickett is also the President and a director of MSTI Holdings, Inc.
(OTCBB:MSHI).
James
Weathers,
Director
.
Mr.
Weathers has served as a Director of Geeks On Call since January 2005. Since
1986, Mr. Weathers has served as the President of Advanced Farms Technology
Co.
with papaya farming operations in Mexico and Jamaica. Mr. Weathers has been
the
President of Integrated Agriculture Inc., whose business is principally the
production of food products and the importation of products to North America
and
Europe, since 1980.
Jim
Johnsen,
Director
.
Mr.
Johnsen has served as a Director of Geeks On Call since April 2002. Mr. Johnsen
is a Managing Director of Johnsen, Fretty & Company, LLC, a boutique
investment bank based in Stamford, Connecticut, assisting middle-market
companies with a variety of challenges. Previously, he was Vice President at
Southport Partners, a boutique investment bank serving the technology
sector.
Steve
Sanford,
Director
.
Mr.
Sanford has served as a Director of Geeks On Call since January 2007, and
is the founder and President of InovaOne Studios, Inc. based in Atlanta,
Georgia.
Robert
P. Crabb
,
Director
and Secretary.
Mr.
Crabb
has served as a Director of Geeks On Call since October 2007. Mr. Crabb is
a
founder, former director, former chief marketing officer and former Secretary
of
Telkonet, Inc. He has over 35 years of sales, marketing and corporate management
experience, including 15 years in the insurance industry. His entrepreneurial
expertise also includes public company administration, financial consulting,
corporate management and commercial/residential real estate development. He
served as a noncommissioned officer in the United States Marine Corps
from
1966
to 1974.
Douglas
Glenn
,
Director
.
Mr.
Glenn served as a director of Geeks On Call from its inception in June 2001
until December 2005 and rejoined the Board of Directors in November 2007. He
served as the General Counsel and Secretary from its inception in June 2001
until December 2007. Since November 2007, he has served as Executive Vice
President and General Counsel of Hampton Roads Bankshares, Inc., and its
subsidiary, Bank Of Hampton Roads, based in Norfolk, Virginia. Mr. Glenn has
also served as a director of Hampton Roads Bankshares, Inc., since February
2006. Mr. Glenn is a shareholder in the Virginia Beach law firm of Pender &
Coward, P.C. located in Virginia Beach, Virginia, where he has practiced law
since 1991.
Richard
G. Artese,
Vice
President and CIO
.
Mr.
Artese has served as Vice President and Chief Information Officer of Geeks
On
Call since November 2005. From May 2005 to November 2005, Mr. Artese served
as
its Director of Technology. From August 2001 to August 2004 he worked as the
Managing Director Technology Consulting Group for Top Tier Management in New
York, New York and Norfolk, Virginia. From March 1998 to July 2001, he was
Senior Vice President and Chief Information Officer for Porter Novelli
International in New York, New York. From July 1995 to March 1998, he served
as
Director of Technology and Office Services for the Delta Consulting Group,
Inc.
of New York, New York.
Keith
Wesp,
Controller
and Assistant Secretary
.
Mr.
Wesp has served as the Controller and Assistant Secretary for Geeks On Call
since August 2001. From October 1995 until July 2001, Mr. Wesp worked for
Rothman and Vaughan, CPA’s, as an Accountant.
As
a
requirement to listing our common stock on the Nasdaq Capital Market or
other
exchange, we may need to add additional independent directors and increase
the
size of the board of directors. The board’s composition (and that of its
committees) will be subject to the corporate governance provisions of its
primary trading market, including the requirement for appointment of independent
directors in accordance with the Sarbanes-Oxley Act of 2002, and regulations
adopted by the SEC and FINRA pursuant thereto. We expect to adopt corporate
governance provisions that would be required of a Nasdaq company in the near
future. Neither independent directors nor corporate governance provisions are
required prior to listing on any exchange.
Employment
Agreements
On
February 8, 2008, we entered into employment agreements with Messrs. Cole,
Artese and Wesp. The following is a summary of the material terms of such
agreements.
Richard
Cole employment agreement.
On
February 8, 2008, we entered into an employment agreement with Richard Cole,
to
serve as our Chief Executive Officer. The term of the agreement is 5 years.
Mr. Cole will receive an annual base salary of $275,000, which may be increased
annually at the discretion of the board of directors; provided, however, that
Mr. Cole will receive an annual cost of living increase of not less than 3%
over
the prior year’s base salary. In addition to a base salary, Mr. Cole will be
eligible to receive a bonus tied to certain milestones, which amount is also
to
be determined by the board of directors. Mr. Cole will also receive a company
car to use during the term of his agreement.
If
Mr.
Cole’s employment is terminated without cause or if he resigns for good reason,
we will be obligated to pay him, as severance, his then current annual base
salary for eighteen months. If Mr. Cole is terminated with cause or if he
voluntarily resigns (other than for good reason), he is prohibited from
competing with us for eighteen months after the termination of his
employment.
Mr.
Cole also received immediately upon the consummation of the Merger
1,000,000 options with a six year term. Twenty percent of the options vested
immediately and 20% of the balance of the options will vest on each of the
next
four anniversaries of the date of grant. The options have an exercise price
of
$1.00 per share.
Richard
Artese employment agreement.
On
February 8, 2008, we entered into an employment agreement with Richard
Artese, to serve as our Vice President and Chief Information Officer. The
term of the agreement is five years. Mr. Artese will receive an annual base
salary of $150,000, which may be increased annually at the discretion of
the
board of directors. In addition to a base salary, Mr. Artese will be eligible
to
receive a bonus tied to certain milestones, which amount is also to be
determined by the board of directors; provided, however, that Mr. Artese
will
receive an annual cost of living increase of not less than 3% over the prior
year's base salary.
If
Mr.
Artese’s employment is terminated without cause or if he resigns for good
reason, we will be obligated to pay him, as severance, his then current annual
base salary for twelve months. If Mr. Artese is terminated with cause or if
he
voluntarily resigns (other than for good reason), he is prohibited from
competing with us for twelve months after the termination of his
employment.
Mr.
Artese also received immediately upon the consummation of the Merger
250,000
options
with a six year term. Twenty percent of the options will vest on each of the
first five anniversaries of the date of grant. The options have an exercise
price of $1.00 per share.
Keith
Wesp employment agreement.
On
February 8, 2008, we entered into an employment agreement with Keith Wesp,
to serve as our Controller. The term of the agreement is five
years.
Mr. Wesp will receive an annual base salary of $95,000, which may be increased
annually at the discretion of the board of directors of the Company. In addition
to a base salary, Mr. Wesp will be eligible to receive a bonus tied to certain
milestones, which amount is also to be determined by the board of directors.
If
Mr.
Wesp’s employment is terminated without cause or if he resigns for good reason,
we will be obligated to pay him, as severance, his then current annual base
salary for six months. If Mr. Wesp is terminated with cause or if he voluntarily
resigns (other than for good reason), he is prohibited from competing with
us
for six months after the termination of his employment.
Mr.
Wesp
will also be entitled to received immediately upon the consummation of the
Merger 175,000
options
with a six year term. Twenty percent of the options will vest on each of the
first five anniversaries of the date of grant. The options have an exercise
price of $1.00 per share.
Executive
Compensation
Summary
Compensation Table
The
table
below sets forth, for the last two fiscal years, the compensation earned by
our
Chief Executive Officer and our two most highly compensated executive
officers (together, the “Named Executive Officers”). Except as provided below,
none of our executive officers received annual compensation in excess of
$100,000 during the last two fiscal years.
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option
Awards
($)
|
|
All
Other Compensation
($)
|
|
Total
($)
|
|
|
Richard
T. Cole
|
|
|
2007
|
|
$
|
200,000
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
$
|
200,000
|
|
|
President
and CEO
|
|
|
2006
|
|
$
|
200,000
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Artese
|
|
|
2007
|
|
$
|
150,000
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
$
|
150,000
|
|
|
Chief
Information Officer
|
|
|
2006
|
|
$
|
125,000
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
$
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Wesp
|
|
|
2007
|
|
$
|
95,000
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
$
|
95,000
|
|
|
Controller
& Assistant Secretary
|
|
|
2006
|
|
$
|
75,000
|
|
$
|
0
|
|
|
0
|
|
|
0
|
|
|
75,000
|
|
Outstanding
Equity Awards at Fiscal Year-End
There
were no outstanding equity awards issued to our Named Executive Officers
as of
August 31, 2007 and as of November 30, 2007.
Director
Compensation
We
do not
currently compensate our directors for acting as such, although we may do
so in
the future, including with cash and/or equity. We reimburse our directors
for
reasonable expenses incurred in connection with their service as directors.
As
of November 30, 2007, none of our directors received any compensation from
us
for acting in such capacity
.
Board
of Directors and Corporate Governance
Upon
the
closing of the Merger,
Ryan
Goldstein and Daniel Kominars
resigned
as the
officers
and
directors
of
the
Company
and simultaneously therewith a new board of directors was appointed consisting
of Richard T. Cole, Ronald W. Pickett, James Weathers, Jim Johnsen, Steve
Sanford, Robert P. Crabb and Douglas Glenn.
Code
of Ethics
Prior
ro
being listed on a natioanl securities exchange, we intend to adopt a
written code of ethics that applies to our principal executive officer,
principal financial officer or controller, or persons performing similar
functions.
Board
Committees
We
intend
to appoint such persons to the board of directors and committees of the board
of
directors as are expected to be required to meet the corporate governance
requirements imposed by a national securities exchange, although we are not
required to comply with such requirements until we elect to seek listing on
a
securities exchange. We intend that a majority of our directors will be
independent directors, of which at least one director will qualify as an “audit
committee financial expert,” within the meaning of Item 407(d)(5) of Regulation
S-B, as promulgated by the SEC. Additionally, the board of directors is expected
to appoint an audit committee, nominating committee and compensation committee,
and to adopt charters relative to each such committee, in the near future.
We do
not currently have an “audit committee financial expert” since we currently do
not have an audit committee in place.
Equity
Incentive Plan
On
February
8
,
2008,
our board of directors and stockholders adopted the 2008 Equity Incentive Plan
(the “Plan”). The purpose of the Plan is to provide an incentive to attract and
retain directors, officers, consultants, advisors and employees whose services
are considered valuable, to encourage a sense of proprietorship and to stimulate
an active interest of such persons into our development and financial success.
Under the Plan, we are authorized to issue incentive stock options intended
to
qualify under Section 422 of the Code, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock and long term
incentive awards. The Plan will be administered by our board of directors until
such time as such authority has been delegated to a committee of the board
of
directors. On the closing date of the Merger, certain of our executive officers
and directors were granted options to purchase common stock exercisable at
$1.00
per share as follows:
|
Name
|
|
Shares
|
|
Vesting
Schedule
|
|
Expiration
|
|
Robert
T. Cole
|
|
1,000,000
|
|
20%
immediately and 20% on each of the first four anniversaries of
the grant
date
|
|
6
years from date of grant
|
|
Richard
W. Pickett
|
|
500,000
|
|
20%
immediately and 20% on each of the first four anniversaries of the
grant date
|
|
6
years from date of grant
|
|
Richard
Artese
|
|
250,000
|
|
20%
on each of the first five anniversaries of the grant date
|
|
6
years from date of grant
|
|
Keith
Wesp
|
|
175,000
|
|
20%
on each of the first five anniversaries of the grant date
|
|
6
years from date of grant
|
|
Douglas
Glenn
|
|
150,000
|
|
20%
on each of the first five anniversaries of the grant date
|
|
6
years from date of grant
|
|
Robert
Crabb
|
|
100,000
|
|
20%
on each of the first five anniversaries of the grant date
|
|
6
years from date of grant
|
Pursuant
to the terms of the Private Placement, for one year following the date that
the
“resale” registration statement covering the shares of common stock and the
shares of common stock underlying the warrants included within the Units
sold in
the Private Placement is declared effective by the SEC, we may not issue
options
to purchase shares of our common stock at an exercise price below $1.00 per
share.
Certain
Relationships and Related Transactions
Geeks
On
Call has an exclusive private label/marketing agreement with Telkonet pursuant
to which Geeks On Call will purchase from Telkonet a private label powerline
communications product that will allow Geeks On Call to provide powerline
internet connectivity to the small and medium size business community and the
residential marketplace. The Telkonet products marketed by Geeks On Call under
the trade name Geek Link System will enable us to deliver state of the art
networking connectivity, virtually eliminating the need to pull additional
Cat 5
cable in office buildings and homes. The Geek Link System will be sold to
customers through the Geeks On Call existing network of franchisees. It is
our
intent to hire additional sales representatives and technicians to market Geek
Link System products in metropolitan areas outside of our present foot print
of
33 cities throughout the U.S.
On
October 2, 2007, Telkonet, Geeks On Call and certain stockholders of Geeks
On
Call entered into an agreement whereby Telkonet acquired 1,160,043.435 shares
of
Geeks On Call’s common stock from existing stockholders. Mr. Ronald W. Pickett
and Mr. Robert P. Crabb, who each became members of our board
of directors upon consummation of the Merger, are the former Chief
Executive Officer and Secretary, respectively, of Telkonet. Mr. Pickett is
the current Vice Chairman of Telkonet. The aggregate purchase price for the
shares acquired by Telkonet is $4,500,000, which was payable, at Telkonet’s
option, through delivery to the selling stockholders of cash, Telkonet common
stock or a combination thereof. The purchase price was paid in shares of
Telkonet common stock based upon the average closing price of Telkonet on the
American Stock Exchange during the 10 trading days immediately preceding
closing. Messrs. Cole, Weathers and Glenn are among the stockholders who were
selling shares of common stock to Telkonet and received a portion of the
aggregate purchase price. Messrs. Cole, Weathers and Glenn received $577,500,
$2,075,600 and $285,447
of
the
aggregate purchase price, respectively.
Prior
to
the consummation of the Merger, the outstanding shares of Geeks On Call’s
preferred stock converted into shares of Geeks On Call’s common stock. All of
the outstanding shares of Geeks On Call’s Series B and Series C preferred stock
were held by RTC Investments, LLC, a Virginia limited liability company (“RTC”).
James and Michelle Weathers, are the majority members of RTC. Mr. Weathers
is
also a director of ours. Richard Cole, Geeks On Call's co-founder, and our
President and Chief Executive Officer, is the Managing Member of RTC. Frank
Santoro, a former Director of Geeks On Call, is also a member of RTC.
InovaOne
Studios, Inc. (“InovaOne”), owned by Steve Sanford, recently completed a
strategic study for Geeks On Call which resulted in Geeks On Call's rebranding
efforts; however, InovaOne’s work for Geeks On Call was completed before Mr.
Sanford was elected to Geeks On Call’s Board.
Douglas
Glenn Consulting Agreement.
On
February 8, 2008, we entered into a consulting agreement with Douglas
Glenn, a member of our board of directors. The term of the agreement is two
years. Mr. Glenn will receive an annual consulting fee of $50,000, which
is
payable in monthly installments. In the event we undergo a change of control,
the aggregate balance of consulting fee will become immediately due and
payable.
Mr.
Glenn also received immediately upon the consummation of the Merger
150,000 options with a six year term. Twenty percent of the options will vest
on
each of the first five anniversaries of the date of grant. The
options have an exercise price of $1.00 per share.
Board
Independence
We
do not
believe that any of our directors other than James Johnsen and James Weathers
is
an “independent director,” as that term is defined by applicable listing
standards of the Nasdaq Stock Market and SEC rules, including the rules relating
to the independence standards of an audit committee and the non-employee
director definition of Rule 16b-3 promulgated under the Exchange
Act.