As
filed with the Securities and Exchange Commission on April 18,
2008
Registration
No. 333-
____
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
GEEKS
ON CALL HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
7377
|
20-8097265
|
(State
or other jurisdiction
of
incorporation or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
No.)
|
814
Kempsville Road, Suite 106
Norfolk,
VA 23502
(757)
466-3448
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Richard
T. Cole
Chief
Executive Officer
814
Kempsville Road, Suite 106
Norfolk,
VA 23502
(757)
466-3448
(Name,
address, including zip code, and telephone number, including area code, of
agent
for service)
Copy
to:
Harvey
J. Kesner, Esq.
Haynes
and Boone, LLP
153
East 53
rd
Street, Suite 4900
New
York, NY 10022
Phone:
(212) 659-7300
Fax:
(212) 918-8989
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
Indicate
by a check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large
Accelerated Filer
o
|
Accelerated
Filer
o
|
|
|
Non-accelerated
Filer
o
|
Smaller
Reporting Company
x
|
(Do
not
check if a smaller reporting company)
CALCULATION
OF REGISTRATION FEE
Title
of each class of
securities
to be registered
|
|
Amount to be
Registered
(1)
|
|
Proposed maximum
offering price per
share
|
|
Proposed maximum
aggregate offering
price
|
|
Amount of
registration fee
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.001 per share
|
|
|
3,650,000
|
|
$
1.25
(2)
|
|
$
4,562,500
|
|
$
179.31
|
|
Common
stock, par value $0.001 per share, upon exercise of warrants
issued to
investors
|
|
|
1,825,000
|
|
$
1.25
(3)
|
|
$
2,281,250
|
|
$
89.65
|
|
Common
stock, par value $0.001 per share, upon exercise of warrants
issued to the
placement agent
|
|
|
292,000
|
|
$
1.25
(3)
|
|
$
365,000
|
|
$
14.34
|
|
Total
|
|
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5,767,000
|
|
|
|
|
$
7,208,750
|
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$
283.30
|
|
|
(1)
|
Pursuant
to Rule 416 under the Securities Act, the shares of common stock
offered
hereby also include an indeterminate number of additional shares
of common
stock as may from time to time become issuable by reason of anti-dilution
provisions, stock splits, stock dividends, recapitalizations or other
similar transactions.
|
|
(2)
|
With
respect to the shares of common stock offered by the selling stockholders
named herein, estimated at $1.25 per share, the average of the
high and
low prices of the common stock as reported on the OTC Bulletin
Board on April 15, 2008, for the purpose of calculating the
registration fee in accordance with Rule 457(c) under the Securities
Act.
|
|
(3)
|
Estimated
at $1.25 per share, the average of the high and low prices of the
common
stock as reported on the OTC Bulletin Board on April 15, 2008, for
the purpose of calculating the registration fee in accordance with
Rule
457(g)(3) under the Securities Act.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a),
MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and we are not soliciting an offer to buy these securities
in
any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED APRIL 18
, 2008
PRELIMINARY
PROSPECTUS
5,767,000
Shares
Geeks
On Call Holdings, Inc.
Common
Stock
This
prospectus relates to the sale by the selling stockholders identified in this
prospectus of up to 5,767,000 shares of our common stock, which includes (i)
3,650,000 shares issued to investors in a private placement and (ii) 2,117,000
shares issuable upon the exercise of warrants with an exercise price of $1.50
per share. All of these shares of our common stock are being offered for resale
by the selling stockholders.
The
prices at which the selling stockholders may sell shares will be determined
by
the prevailing market price for the shares or in negotiated transactions.
We
will not receive any proceeds from the sale of these shares by the selling
stockholders. However, we will receive proceeds from the exercise of the
warrants if they are exercised for cash by the selling
stockholders.
We
will
bear all costs relating to the registration of these shares of our common stock,
other than any selling stockholders’ legal or accounting costs or
commissions.
Our
common stock is quoted on the regulated quotation service of the OTC Bulletin
Board under the symbol “GOCH.OB”. The last reported sale price of our common
stock as reported by the OTC Bulletin Board on April 15, 2008, was $1.25
per
share.
Investing
in our common stock is highly speculative and involves a high degree of risk.
You should carefully consider the risks and uncertainties described under
the
heading “Risk Factors” beginning on page 4
of this prospectus
before making a decision to purchase our common
stock.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is
,
2008
TABLE
OF CONTENTS
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Page
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Prospectus
Summary
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1
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Special
Note Regarding Forward Looking Statements
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3
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Risk
Factors
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4
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Use
of Proceeds
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12
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Market
for Our Common Stock and Related Stockholder Matters
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12
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Dividend
Policy
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12
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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Business
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18
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Management
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21
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Executive
Compensation
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23
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Certain
Relationships and Related Transactions
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25
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Security
Ownership of Certain Beneficial Owners and Management
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26
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Selling
Stockholders
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28
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Description
of Securities
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34
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Plan
of Distribution
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38
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Legal
Matters
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40
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Experts
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40
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Where
You Can Find Additional Information
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40
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Index
to Financial Statements
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F-1
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You
should rely only on the information contained in this prospectus. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely
on
it. We are not making an offer to sell these securities in any jurisdiction
where an offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate only as of the date on the front cover
of this prospectus. Our business, financial condition, results of operations
and
prospects may have changed since that date.
PROSPECTUS
SUMMARY
The
following summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that may be important
to
you. You should read this entire prospectus carefully, including the sections
entitled “Risk Factors” and “Management’s Discussion and Analysis or Plan of
Operation” and our historical financial statements and related notes included
elsewhere in this prospectus. In this prospectus, unless otherwise noted,
the
terms “the Company,” “we,” “us,” “our,” and “Geeks On Call” refer to Geeks
On Call Holdings, Inc., and its subsidiaries
.
Overview
Our
wholly owned operating company, Geeks On Call America, Inc. was formed 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-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.
Our
History
We
were
incorporated as a Nevada corporation on December 22, 2006 under the name
Lightview, Inc. (“Lightview”) and operated as a development stage company.
On
January 23, 2008, Lightview merged with and into Geeks On Call Holdings,
Inc., a newly-formed wholly owned subsidiary of Lightview, for the sole
purpose of reincorporating in the State of Delaware.
On
February 8, 2008, we closed a reverse merger transaction pursuant to which
a
wholly owned subsidiary of ours merged with and into Geeks On Call America,
Inc., and Geeks On Call America, Inc., as the surviving corporation, became
a
wholly owned subsidiary of ours (the “Merger”). Immediately following the
closing of the Merger, we transferred all of our pre-merger operating assets
and
liabilities to another wholly owned subsidiary of ours, Lightview Holdings,
Inc., and then we transferred all of its outstanding capital stock to our
pre-Merger majority stockholders in exchange for cancellation of shares of
our common stock held by those stockholders.
Upon
consummation of the Merger, we succeeded to the business of Geeks On Call
America, Inc. as our sole line of business, and all of our
then-current officers and directors resigned and simultaneously therewith
a new
board of directors comprised of seven members was appointed. The new board
of
directors consists of the six members of the board of directors of Geeks
On Call
America, Inc., Richard T. Cole, Ronald W. Pickett, James Weathers, Jim Johnson,
Steve Sanford and Robert P. Crabb, plus Mr. Douglas Glenn, who was
also appointed to our board of directors upon consummation of the
Merger.
In
connection with, and subsequently to, the closing of the Merger, we issued
365
units in a private placement (the “Private Placement”), consisting of an
aggregate of 3,650,000 shares of our common stock and five-year warrants to
purchase an aggregate of an additional 1,825,000 shares of common stock at
an
initial cash exercise price of $1.50 per share, at $10,000 per unit. In the
event that we are not in material compliance with our 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. First Montauk Securities Corp., a
registered broker dealer firm (the “Placement Agent”) served as our exclusive
placement agent in the Private Placement. In connection with the Private
Placement, the Placement Agent received five-year warrants to purchase an
aggregate of 292,000 shares of common stock at an initial exercise price of
$1.50 per share. In the event that we are not in material compliance with our
registration obligations set forth on Exhibit A to the Subscription Agreement
entered into with the investors in the Private Placement, then the Placement
Agent will also have a cashless exercise option upon exercising their
warrants.
The
Private Placement was made solely to “accredited investors,” as that term is
defined in Regulation D under the Securities Act of 1933, as amended (the
“Securities Act”). The securities sold in the Private Placement were not
registered under the Securities Act, or the securities laws of any state, and
were offered and sold in reliance on the exemption from registration afforded
by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws, which exempt transactions
by
an issuer not involving any public offering.
Our
principal executive offices are located at 814 Kempsville Road, Suite 106,
Norfolk, Virginia 23502 and our telephone number is (757) 466-3448. We maintain
a website at www.geeksoncall.com which contains a description of our company,
but this website is not part of this prospectus. Please note that you should
not
view this website as part of this prospectus and should not rely on it in making
a decision to invest in our common stock.
THE
OFFERING
Common
stock offered by selling stockholders
|
This
prospectus relates to the sale by certain selling stockholders
of
5,767,000 shares of our common stock consisting of:
|
|
|
|
|
(i)
|
3,650,000
shares of our common stock issued to investors in the Private
Placement;
|
|
|
|
|
(ii)
|
1,825,000
shares of our common stock issuable upon the exercise of warrants
issued
to investors in the Private Placement; and
|
|
|
|
|
(iii)
|
292,000
shares of our common stock issuable upon the exercise of warrants
issued
to the placement agent in the Private Placement.
|
|
|
|
Offering
price
|
Market
price or privately negotiated prices.
|
|
|
Common
stock outstanding before the
offering
|
13,338,686
shares
1
.
|
|
|
Common
stock to be outstanding after the offering
|
19,105,686
shares
2
.
|
|
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the common stock
by the
selling stockholders. However, we will receive the exercise price,
if the
cashless exercise feature is not used, upon exercise of the warrants
by the selling stockholders. We expect to use the proceeds received
from
the exercise of the warrants, if any, for general working capital
purposes.
|
|
|
________________________
1
Represents
the number of shares of our common stock outstanding as of April 15, 2008,
and
excludes:
|
·
|
2,275,000
shares of our common stock issuable upon exercise of outstanding
stock
options; and
|
|
·
|
825,000
shares of our common stock reserved for future issuance under our
2008
Equity Incentive Plan.
|
2
Includes 2,117,000 shares of our common stock issuable upon exercise
of
outstanding warrants, which shares are offered for sale in this
prospectus.
OTB
Bulletin Board Symbol
|
GOCH.OB
|
|
|
Risk
Factors
|
You
should carefully consider the information set forth in this prospectus
and, in particular the specific factors set forth in the “Risk Factors”
section beginning on page 4 of this prospectus before deciding
whether or
not to invest in our common
stock.
|
SPECIAL
NOTE REGARDING FORWA
RD
LOOKING STATEMENTS
This
prospectus contains forward-looking statements within the meaning of Section
27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”). Such statements include statements regarding our
expectations, hopes, beliefs or intentions regarding the future, including
but
not limited to statements regarding our market, strategy, competition,
development plans (including acquisitions and expansion), financing, revenue,
operations, and compliance with applicable laws. Forward-looking statements
involve certain risks and uncertainties, and actual results may differ
materially from those discussed in any such statement. Factors that could
cause
actual results to differ materially from such forward-looking statements
include
the risks described in greater detail in the following paragraphs. All
forward-looking statements in this document are made as of the date hereof,
based on information available to us as of the date hereof, and we assume
no
obligation to update any forward- looking statement. Market data used throughout
this prospectus is based on published third party reports or the good faith
estimates of management, which estimates are based upon their review of internal
surveys, independent industry publications and other publicly available
information. Although we believe that such sources are reliable, we do not
guarantee the accuracy or completeness of this information, and we have not
independently verified such information.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Prospective investors should
carefully consider the risks described below, together with all of the other
information included or referred to in this prospectus, before purchasing shares
of our common stock. There are numerous and varied risks, known and unknown,
that may prevent us from achieving our goals. If any of these risks actually
occurs, our business, financial condition or results of operations may be
materially adversely affected. In such case, the trading price of our common
stock could decline and investors in our common stock could lose all or part
of
their investment.
Risks
Relating
to Our Business
We
have a limited operating history and have sustained recurring
losses.
Our
wholly-owned operating subsidiary, Geeks On Call America, Inc., was formed
in
June 2001 and has not reported a net profit for any year. For the six months
ended February 29, 2008, we reported a net loss of $1,598,128 on revenues
of
$3,016,134. For the six months ended February 28, 2007, we reported a net
loss
of $273,893 on revenues of $3,488,409. 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
independent auditors have expressed substantial doubt about our ability
to
continue as a going concern, which may hinder our ability to obtain future
financing
.
In
their
report dated November 30, 2007 except for Note 15 as to which the date
is
December 20, 2007, our independent auditors stated that our financial statements
for the two years ended August 31, 2007 and 2006 were prepared assuming
that we
would continue as a going concern, and that they have substantial doubt
about
our ability to continue as a going concern. Our auditors’ doubts are based on
our recurring losses and deficits in cash flows from operations. We continue
to
experience net operating losses. Our ability to continue as a going concern
is
subject to our ability to generate a profit and/or obtain necessary funding
from
outside sources, including by the sale of our securities, or obtaining
loans
from financial institutions, where possible. Our continued net operating
losses
and our auditors’ doubts increase the difficulty of our meeting such goals and
our efforts to continue as a going concern may not prove
successful.
Our
expansion plans outside the United States 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 United
States 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 is our Chairman and Chief
Executive Officer, Richard Artese, our Executive Vice President and Chief
Operating Officer, and Keith Wesp, our Vice President of Finance and Assistant
Secretary. The loss of any of the foregoing individuals, 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 any of the foregoing individuals 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
and
if
the supply of this labor pool is reduced in the future, then our operating
expenses could be substantially increased as we attempt to replace such
persons
.
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 as we attempt
to
replace such persons without our receiving offsetting increased
revenues.
Our
industry is extremely competitive,
and
since
most of these competitors have greater marketing, financial and other resources
than we do, we may not be successful in implementing our marketing or
operational strategies
.
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.
Our
revenue growth is dependent upon the sale of franchises and the operation
of
franchises by third parties outside of our direct
control.
Our
ability to successfully franchise additional businesses will depend on various
factors, including the financial and other capabilities of the franchisees,
as
well as 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.
If
franchisees default on their third party indebtedness, our operating performance
would be adversely affected
.
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.
We
may not recover the advertising costs necessary to penetrate new markets,
which
could have a material adverse effect on us.
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, which could have a material adverse effect
on us.
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 Inc. (“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 into 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, which could have a material
adverse effect on us.
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 Our
Common
Stock
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 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 Securities
Exchange Commission (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 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 this
resale
registration statement);
|
·
|
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
your investment will only occur if our stock price appreciates.
The
market for common stock is limited, and you may not be able to sell the shares
of our common stock that you hold.
Our
common stock is currently traded on the OTC Bulletin Board, not on a national
securities exchange. Therefore, our common stock is thinly traded, the market
for purchases and sales of our common stock is limited and the sale of a limited
number of shares could cause the price to fall significantly. Accordingly,
it
may be difficult to sell shares of our common stock quickly without
significantly depressing the value of the stock. Unless we are successful in
developing continued investor interest in our stock, sales of our stock could
continue to result in major fluctuations in the price of the stock.
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 Exchange Act. 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 filing date of this “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.
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 owns or controls a significant percentage of our
common stock. Additionally, this does 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, including purchasers of
units
in the Private Placement. As a result, in addition to their positions with
us,
such persons will have significant influence over all corporate actions
requiring stockholder approval, irrespective of how our other stockholders,
including purchasers in the Private Placement, 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 stockholders 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 stockholders from realizing
a
premium over our stock price.
We
may not be able to achieve secondary trading of our stock in certain states
because our common stock is not nationally traded, which could subject our
stockholders to significant restrictions and costs.
Because
our common stock is not listed for trading on a national securities exchange,
our common stock is subject to the securities laws of the various states
and
jurisdictions of the United States in addition to federal securities
law. These laws cover any primary offering we might attempt and all
secondary trading by our stockholders. While we may register our common stock
or
qualify for exemptions for our common stock in one of more states, if we
fail to
do so the investors in those states where we have not taken such steps may
not
be allowed to purchase our stock or those who presently hold our stock may
not
be able to resell their shares without substantial effort and expense. These
restrictions and potential costs could be significant burdens on our
stockholders.
Our
certificate of incorporation allows for our board to create new series of
preferred stock without further approval by our stockholders, which could
adversely affect the rights of the holders of our common
stock.
Our
board
of directors has the authority to fix and determine the relative rights and
preferences of preferred stock. Our board of directors also has the authority
to
issue preferred stock without further stockholder approval. As a result, our
board of directors could authorize the issuance of a series of preferred stock
that would grant to holders the preferred right to our assets upon liquidation,
the right to receive dividend payments before dividends are distributed to
the
holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. In addition, our
board of directors could authorize the issuance of a series of preferred stock
that has greater voting power than our common stock or that is convertible
into
our common stock, which could decrease the relative voting power of our common
stock or result in dilution to our existing stockholders.
USE
OF PROCEEDS
The
selling stockholders will receive all of the proceeds from the sale of the
shares offered by them under this prospectus. We will not receive any proceeds
from the sale of the shares by the selling stockholders covered by this
prospectus. We will, however, receive proceeds from the exercise of the warrants
if the warrants are exercised for cash. Any such proceeds received by us will
be
used for working capital and general corporate purposes.
MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our
common stock has been quoted on the OTC Bulletin Board under the symbol GOCH.OB
since February 1, 2008. Prior to February 1, 2008, there was no active market
for our common stock. As of April 15, 2008, there were 13,338,686 record
holders
of our common stock.
The
following table sets forth the high and low bid prices for our common stock
for
the periods indicated, as reported by the OTC Bulletin Board. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
Period
|
|
|
|
|
|
2008
|
|
High
|
|
Low
|
|
February
1, 2008 through April 15, 2008
|
|
$
|
2.99
|
|
$
|
1.15
|
|
The
last
reported sales price of our common stock on the OTC Bulletin Board on April
15,
2008 was $1.25 per share.
DIVIDEND
POLICY
We
have
not declared nor paid any cash dividend on our common stock, and we currently
intend to retain future earnings, if any, to finance the expansion of our
business, and we do not expect to pay any cash dividends in the foreseeable
future. The decision whether to pay cash dividends on our common stock will
be
made by our board of directors, in their discretion, and will depend on our
financial condition, operating results, capital requirements and other factors
that our board of directors considers significant.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
our
operating subsidiary 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 February 29, 2008, we have granted more than 300
independently-owned and-operated Geeks On Call franchises that support customers
in 33 cities across the United States.
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 to provide
a variety of software products, the addition of business-class computers
from
Gateway, and the exclusive private labeling of a 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.
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 training class.
Three
Months Ended February 29, 2008 compared to Three Months Ended February
28,
2007
Revenue
The
following table summarizes our revenues for the three months ended February
29,
2008 and February 28, 2007:
|
|
Three
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Total
Revenue
|
|
$
|
1,411,063
|
|
$
|
1,825,137
|
|
For
the
three months ended February 29, 2008, revenue decreased by $414,074 as
compared
to the similar period in 2007. This decrease in revenue was primarily
attributable to a reduction in the number of active operating franchises
and
their corresponding royalty revenues, and a reduction in the granting of
new
franchises.
Operating
Loss
The
following table summarizes our operating loss for the three months ended
February 29, 2008 and February 28, 2007:
|
|
Three
months ended
|
|
|
|
February
29, 2008
|
|
February
28, 2007
|
|
Operating
loss
|
|
$
|
1,188,083
|
|
$
|
72,210
|
|
Operating
expenses, which consist of selling, general and administrative expenses,
advertising and depreciation and amortization totaled $2,599,146 for
the three
months ended February 29, 2008, as compared to $1,879,347 for the three
months
ended February 28, 2007, representing an increase of approximately 37%.
Our
operating loss for the three months ended February 29, 2008 was $1,188,083
as compared to an operating loss of $72,210 for the three months ended
February
28, 2007, representing an increase of approximately 1,545%. Our operating
loss
increased due to increased selling, general and administrative expenses
and
advertising expenses as explained below.
Selling,
general and administrative expenses
The
following table summarizes our selling, general and administrative expenses
for
the three months ended February 29, 2008 and February 28, 2007:
|
|
Three
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Selling,
general and administrative expenses
|
|
$
|
1,688,374
|
|
$
|
924,880
|
|
For
the
three months ended February 29, 2008, selling, general and administrative
expenses were $1,688,374 as compared to $924,880 for the three months ended
February 28, 2007. The increase in selling, general and administrative
expenses
of $763,494 are attributable to the costs associated with the reverse merger
and
the hiring of additional staff and consultants as well as the stock based
compensation of $264,900 charged to operations during the current quarter
ended
February 29, 2008
Advertising
The
following table summarizes our advertising expense for the three months
ended
February 29, 2008 and February 28, 2007:
|
|
Three
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Advertising
expense
|
|
$
|
873,622
|
|
$
|
930,718
|
|
Our
advertising expenses for three months ended February 29, 2008, were $873,622
compared to $930,718 for the three months ended February 28, 2007. The
decrease
in advertising expense was directly related to a reduction in the number
of
active operating franchises.
Depreciation
and amortization
The
following table summarizes our depreciation and amortization for the
three
months ended February 29, 2008 and February 28, 2007:
|
|
Three
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Depreciation
and amortization
|
|
$
|
37,150
|
|
$
|
41,749
|
|
Depreciation
and amortization decreased by $4,599 for the three months ended February
29,
2008 compared to the three months ended February 28, 2007. The decrease
is
attributed to the reduction in depreciable assets.
Six
Months Ended February 29, 2008 Compared to
the
Six Months Ended February 28, 2007
Revenues
The
following table summarizes our revenue for the six months ended February
29,
2008 and February 28, 2007:
|
|
Six
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Total
Revenue
|
|
$
|
3,016,134
|
|
$
|
3,488,409
|
|
For
the
six months ended February 29, 2008, revenue decreased by $472,275 as compared
to
the similar period in 2007. This decrease is primarily attributable to a
reduction in the number of active operating franchises and corresponding royalty
revenues, and a reduction in the granting of new franchises.
Operating
Loss
The
following table summarizes our operating loss for the six months ended
February
29, 2008 and February 28, 2007:
|
|
Six
months ended
|
|
|
|
February
29, 2008
|
|
February
28, 2007
|
|
Operating
loss
|
|
$
|
1,596,118
|
|
$
|
252,346
|
|
Operating
expenses, which consist of selling, general and administrative expenses,
advertising and depreciation and amortization totaled $4,612,252 for the six
months ended February 29, 2008, as compared to $3,740,755 for the six months
ended February 28, 2007, representing an increase of approximately 23%. Our
operating loss for the six months ended February 29, 2008 was $1,596,118 as
compared to an operating loss of $252,346 for the six months ended February
28,
2007, representing an increase of approximately 533%. Our operating loss
increased due to increased selling, general and administrative expenses and
advertising expenses as explained below.
Selling
General & Administrative
The
following table summarizes our selling, general and administrative expenses
for
the six months ended February 29, 2008 and February 28, 2007:
|
|
Six
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Selling,
general and administrative expenses
|
|
$
|
2,666,395
|
|
$
|
1,867,477
|
|
Selling,
General and Administrative expenses, which consist of salaries, commissions,
professional fees and overhead expenses, increased $798,918 or 43% to $2,666,395
for the six months ended February 29, 2008, as compared to $1,867,477 for
the six months ended February 28, 2007. The increase is primarily attributable
to the costs associated with the reverse merger and the hiring of additional
staff and consultants as well as the stock based compensation of $264,990
charged to operations during the second quarter ended February 29,
2008.
Advertising
The
following table summarizes our advertising expense for the six months ended
February 29, 2008 and February 28, 2007:
|
|
Six
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Advertising
expense
|
|
$
|
1,872,321
|
|
$
|
1,786,808
|
|
Advertising
expenses increased $85,513 or 5% to $1,872,321 for the six months ended February
29, 2008, as compared to $1,786,808 for the six months ended February 28, 2007.
This increase was attributable to franchises sold in prior quarters which became
operational this quarter.
Depreciation
and Amortization
The
following table summarizes our depreciation and amortization for the six
months
ended February 29, 2008 and February 28, 2007:
|
|
Six
months ended
|
|
|
|
February
29,
2008
|
|
February
28,
2007
|
|
Depreciation
and amortization
|
|
$
|
73,536
|
|
$
|
86,470
|
|
Depreciation
and amortization expense totaled $73,536 during the six months ended February
29, 2008, as compared to $86,470 during the six months ended February 28,
2007.
The decrease is a result from the reduction in depreciable
assets.
Net
Cash Used in Operating Activities
The
following table summarizes our net cash used in operating activities for
the six
months ended February 29, 2008 and February 28, 2007:
|
|
Six
months ended
|
|
|
|
February
29, 2008
|
|
February
28, 2007
|
|
Net
cash used in operating activities
|
|
$
|
1,727,103
|
|
$
|
471,489
|
|
Cash
utilized in operating activities was $1,727,103 for the six months ended
February 29, 2008, as compared to $471,489 for the six months ended February
28,
2007. The increase was primarily due to the cost of the reverse merger and
the
hiring of additional staff and consultants.
Net
Cash Used in Investing Activities
The
following table summarizes our net cash used in investing activities for
the six
months ended February 29, 2008 and February 28, 2007:
|
|
Six
months ended
|
|
|
|
February
29, 2008
|
|
February
28, 2007
|
|
Net
cash used in investing activities
|
|
$
|
64,975
|
|
$
|
239,207
|
|
Net
cash
used in investing activities totaled $64,975 for the six months ended February
29, 2008, as compared to $239,207 for the six months ended February 28, 2007.
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
The
following table summarizes our net cash used in and provided by financing
activities for the six months ended February 29, 2008 and February 28,
2007:
|
|
Six
months ended
|
|
|
|
February
29, 2008
|
|
February
28, 2007
|
|
Net
cash used in and provided by financing activities
|
|
$
|
2,875,107
|
|
$
|
243,050
|
|
Net
cash provided by financing activities totaled $2,875,107 for the six
months ended February 29, 2008, as compared to cash provided by financing
activities of $243,050 for the six months ended February 28, 2007. The reason
for the increase was primarily attributable to the proceeds from the sale
of
common stock in connection with the Private Placement.
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 fiscal 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 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 activities was $498,137 during the fiscal year ended
August 31, 2007, as compared to $1,452,010 during the fiscal 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 fiscal year ended August
31, 2007, as compared to $99,778 for the fiscal 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 fiscal year ended
August 31, 2007, as compared to $1,091,610 for the fiscal year ended August
31,
2006. The reason for the decrease is that we did not need to
utilize additional lines of credit and we did not issue additional
securities as of August 31, 2007.
Liquidity
and Capital Resources
As
of
February 29, 2008, we had cash and cash equivalents of $1,363,875, as compared
to $280,846 as of August 31, 2007. The increase is attributable to the proceeds
from the Private Placement. We have historically met our liquidity
requirements from a variety of sources, including private placements and
a line
of credit with a banking facility. As of February 29, 2008 we had no borrowings
from any banking facility.
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 have netted us proceeds of $4,971,000, and
establishing a line of credit with a banking facility in the amount of $700,000.
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 six months.
Our
operating capital requirements include the planned costs to operate our
business, including amounts required to fund working capital and capital
expenditures.
We
have
agreed to file this “resale” registration statement with the SEC (the date of
such filing, the “SEC Filing Date”) covering all shares of common stock included
within the units sold in the Private Placement and all shares of common
stock
underlying the warrants included in the units, on or before the date which
is 60
days after the final closing date of the Private Placement. We will maintain
the
effectiveness of the “resale” registration statement unless all securities have
been sold or are otherwise able to be sold without volume limitation pursuant
to
Rule 144, at which time exempt sales may be permitted for purchasers of
the
units. We have agreed to use our best efforts to have this “resale” registration
statement declared effective by the SEC as soon as possible and, in any
event,
within 150 days after the final closing date of the Private Placement (the
“Trigger Date”).
If
the
registration statement is not timely declared effective by the Trigger
Date,
then we are obligated to pay to investors a fee of 1% of the subscription
price
paid in the Private Placement per month that the registration statement
is not
declared effective, payable in cash, up to a maximum of 9%; provided, however,
that we shall not be obligated to pay any such liquidated damages if (x)
we are
unable to fulfill our registration obligations as a result of rules,
regulations, positions or releases issued or actions taken by the SEC pursuant
to its authority with respect to “Rule 415”, provided we register at such time
the maximum number of shares of common stock permissible upon consultation
with
the staff of the SEC or (y) all securities have been sold or are otherwise
able
to be sold without volume limitation pursuant to Rule 144. We may register
other
shares of our presently outstanding common stock beginning 150 days after
the
“resale” registration statement is declared effective, provided we, prior or
contemporaneous with such registration, register any shares of common stock
excluded in accordance with the immediately preceding sentence.
We
follow
FSP EITF 00-19-2, “Accounting for Registration Payment Arrangements” (“FSP
00-19-2”), which addresses accounting for registration payment arrangements. FSP
00-19-2 specifies that the contingent obligation to make future payments
or
otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a
financial
instrument or other agreement, should be separately recognized and measured
in
accordance with SFAS No. 5, “Accounting for Contingencies”. FSP 00-19-2 further
clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the issuance
of
EITF 00-19-2, this guidance shall be effective for financial statements
issued
for fiscal years beginning after December 15, 2006 and interim periods
within
those fiscal years. We can not estimate the liquidated damages, if any,
as of
this Form S-1 filing date. Accordingly, we have not recorded and/or disclosed
any amount of liquidated damages, if any, in accordance with SFAS No. 5.
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.
Going
Concern Matters
The
independent auditors report on our August 31, 2007 and 2006 financial statements
included in our Current Report on Form 8-K dated February 8, 2008 states
that we
have experienced recurring losses and difficulty in generating sufficient
cash
flow to meet our obligations and sustain our operations.
A
large
portion of the second
quarter
losses are attributable to one time costs associated with the process of
raising
capital and consummating the Merger along with the retirement of debt.
These losses are not recurring.
Management
has developed a strategic plan to address our requirements for generating cash
flow and achieving profitable operations.
We
aim to
move towards profitability by accelerating the growth of our existing franchise
network, while simultaneously opening company operated territories, the first
of
which are located in four major United States markets including Phoenix,
AZ, Sacramento, CA, Northwestern, VA and Kansas City, MO.
We
are
also launching an endorsed vendor program strengthening brand awareness and
delivering value added IT solutions to the franchise community. These new
business to business relationships will grow recurring revenue and increase
our
royalty base.
We
cannot
however make assurances that our business operations will develop and provide
us
with significant cash to continue operations.
Off-Balance
Sheet Arrangements
Since
our
inception we have not engaged in any off-balance sheet arrangements, including
the use of structured finance, special purpose entities or variable interest
entities.
BUSINESS
The
Company
Our
operating subsidiary, Geeks On Call America, Inc., was formed 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-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 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 United
States 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 February 29,
2008,
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.
Each
or
our technicians 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 United States.
Franchise
Operations
We
grant
Geeks On Call
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:
|
·
|
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;
|
|
·
|
convenience:
offering on-site support and service plans and other value-added
services
and products made available at the customer’s location;
and
|
|
·
|
reasonable
prices: simple flat rate pricing and easy to understand service agreements
and contracts.
|
We
intend
to reach our goal of creating brand loyalty through:
|
·
|
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;
|
|
·
|
market
penetration: aggressively advertising to small businesses utilizing
telemarketing and face to face sales techniques unique for this
industry;
|
|
·
|
customer
advantages: educational seminars and content available to customers
free
of charge;
|
|
·
|
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
|
|
·
|
partnerships:
establishing alliances with communications and Internet Service
Providers and other relevant third-party vendors to enable the Company
and
its franchisees to provide value-added services to its customers.
|
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., CompUSA
TM
) 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
April 15, 2008, we employed 61 full-time employees. With a portion of the
proceeds of the Private Placement, we anticipate employing approximately
110 to
150 full-time employees within the next twelve months.
Legal
Proceedings
There
is
no current or pending litigation involving us which would have a material
impact
on our operations, nor, to our knowledge, is any such litigation
threatened.
MANAGEMENT
Set
forth
below is certain information regarding our directors and executive officers.
Each of the directors listed below was elected to our board of directors to
serve until our next annual meeting of stockholders or until his successor
is
elected and qualified. All directors hold office for one-year terms until the
election and qualification of their successors. The following table sets forth
information regarding the members of our board of directors and our executive
officers:
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
G. Artese
|
|
40
|
|
Executive
Vice President and Chief Operating Officer
|
|
|
|
|
|
Keith
Wesp
|
|
35
|
|
Vice
President of Finance 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
,
Executive
Vice President and Chief Operating Officer
.
Mr.
Artese has served as Executive Vice President and Chief Operating Officer of
Geeks On Call since March 2008. From November 2005 to March 2008, Mr. Artese
served as the Vice President and Chief Information Officer. 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
,
Vice
President of Finance and Assistant Secretary
.
Mr.
Wesp has served as Vice President of Finance and Assistant Secretary for
Geeks
On Call since March 2008. From August 2001 to March 2008, Mr. Wesp served
as the
Controller and Assistant Secretary. From October 1995 until July 2001, Mr.
Wesp
worked for Rothman and Vaughan, CPA’s, as an accountant.
Independent
Directors
We
do not
believe that any of our directors other than Jim 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.
Committees
of the Board of Directors
On
February 14, 2008, our board of directors formed an audit committee and
a
compensation committee. The audit committee is comprised of James Weathers,
Robert P. Crabb, Steve Sanford and Keith Wesp. The compensation committee
is
comprised of Jim Johnsen, Ronald W. Pickett, Douglas Glenn and Richard
Artese.
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 do not currently have an “audit committee financial
expert”, however, 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-K, as promulgated by the SEC. Additionally, the
board
of directors is expected to adopt charters relative to each such committee,
in
the near future.
Compensation
Committee Interlocks and Insider Participation
Our
compensation committee is comprised of Ronald W. Pickett, Jim
Johnsen, Douglas Glenn, and Richard Artese. Richard Artese is also
employed as our Executive Vice President and Chief Operating
Officer.
None
of
our executive officers serves as a member of the board of directors or
compensation committee of any other entity that has one or more of its
executive officers serving as a member of our board of directors.
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 April 15, 2008, none of our directors received any compensation from
us.
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
|
|
Executive
Vice President and Chief Operating Officer
|
|
|
2006
|
|
|
125,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
Wesp
|
|
|
2007
|
|
|
95,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
95,000
|
|
Vice
President of Finance and Assistant Secretary
|
|
|
2006
|
|
|
75,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
75,000
|
|
We entered
into employment agreements with four individuals including 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 five years. Mr. Cole receives an annual base salary of $275,000, which
may be increased annually at the discretion of our board of directors;
provided, however, that Mr. Cole receives 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 is eligible to receive a bonus tied to certain milestones,
which amount is also to be determined by our board of directors. Mr. Cole
also receives a company car to use during the term of his
agreement.
If
Mr.
Cole’s employment is terminated without cause (as defined in his
agreement) or if he resigns for good reason (as defined in his
agreement), 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
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 first 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 receives an annual base salary of
$150,000, which may be increased annually at the discretion of our board of
directors. In addition to a base salary, Mr. Artese is eligible to receive
a
bonus tied to certain milestones, which amount is also to be determined
by our board of directors.
On
March
28, 2008, our board of directors adopted resolutions appointing Mr. Artese
to
the position of Executive Vice President and Chief Operating Officer. In
connection therewith, Mr. Artese's annual salary was increased from $150,000
to
$200,000.
If
Mr.
Artese’s employment is terminated without cause (as defined in his agreement) or
if he resigns for good reason (as defined in his agreement), 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 received, immediately upon the consummation of the Merger,
250,000
options
with a six year term. Twenty percent of the options 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 receives an annual base salary of $95,000, which may be increased
annually at the discretion of our board of directors. In addition to a base
salary, Mr. Wesp is eligible to receive a bonus tied to certain milestones,
which amount is also to be determined by our board of directors.
On
March
28, 2008, our board of directors adopted resolutions appointing Mr. Wesp to
the position of Vice President of Finance and Assistant Secretary. In
connection therewith, Mr. Wesp's annual salary was increased from $95,000
to
$135,000.
If
Mr.
Wesp’s employment is terminated without cause
(as
defined in his agreement)
or if he resigns for good reason (as defined in
his agreement), 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
received, immediately upon the consummation of the Merger, 175,000
options
with a six year term. Twenty percent of the options vest on each of the first
five anniversaries of the date of grant. The options have an exercise price
of
$1.00 per share.
Equity
Compensation Plan Information
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
|
Name
|
|
Shares
|
|
Vesting
Schedule
|
|
Expiration
|
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
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We
have
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 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. 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, among other things, Geek Link System products in metropolitan areas
outside of our present foot print of 33 cities throughout the United
States.
On
October 2, 2007, Telkonet, Geeks On Call and certain stockholders of ours
entered into an agreement whereby Telkonet acquired 1,160,043.435 shares
of our
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 sold 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 one of our directors. Richard Cole, our co-founder,
Chairman and Chief Executive Officer, is the Managing Member of RTC. Frank
Santoro, a former Director of ours, is also a member of RTC.
InovaOne
Studios, Inc. (“InovaOne”), owned by Steve Sanford, recently completed a
strategic study for us which resulted in our rebranding efforts; however,
InovaOne’s work for us was completed before Mr. Sanford was elected to our
board.
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 receives 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.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of April 15, 2008 by:
|
·
|
each
person or entity known by us to beneficially own more than 5% of
our
common stock;
|
|
|
|
|
·
|
each
of our directors;
|
|
|
|
|
·
|
each
of the executive officers named in the Summary Compensation Table
above;
and
|
|
|
|
|
·
|
all
of our directors and executive officers as a
group.
|
The
percentages of common stock beneficially owned are reported on the basis
of
regulations of the SEC governing the determination of beneficial ownership
of
securities. Under the rules of the SEC, a person is deemed to be a beneficial
owner of a security if that person has or shares voting power, which includes
the power to vote or to direct the voting of the security, or investment
power,
which includes the power to dispose of or to direct the disposition of the
security. Unless otherwise indicated, each of the stockholders named in the
table below has sole voting and investment power with respect to such shares
of
our common stock. Except as otherwise indicated, the address of each of the
stockholders listed below is: c/o 814 Kempsville Road, Suite 106, Norfolk,
Virginia 23502. Shares of our common stock subject to options, warrants,
or
other rights currently exercisable or exercisable within 60 days of
April 15, 2008, are deemed to be beneficially owned and outstanding for
computing the share ownership and percentage of the stockholder holding such
options and warrants, 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)
|
|
|
|
|
|
|
|
5%
Owners
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RTC
Investments, LLC
(2)
|
|
|
2,777,249
|
|
|
20.8
|
%
|
|
|
|
|
|
|
|
|
Telkonet,
Inc.
(3)
|
|
|
2
,454,500
|
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
Executive
Officers and Directors
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
T. Cole (2)(4)
|
|
|
970,071
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
Ronald
W. Pickett (3)(5)
|
|
|
100,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
James
Weathers (2)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Jim
Johnsen (2)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Steve
Sanford (2)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Robert
P. Crabb
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Richard
Artese (6)
|
|
|
4,761
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Keith
Wesp (7)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Name
of
Beneficial
Owner
|
|
Number
of Shares Beneficially
Owned
|
|
Percentage
Beneficially
Owned
(1)
|
|
|
|
|
|
|
|
Douglas
Glenn
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors as a group (nine persons)
(2)(3)(4)(5)(6)(7)
|
|
|
1,074,832
|
|
|
7.8
|
%
|
*Represents
less than 1%.
(1)
|
Based
on 13,338,686 shares of our common stock outstanding on April 15,
2008.
|
(2)
|
Messrs.
Cole, Weathers, Sanford and Johnsen own 8.33%, 44.68%, 3.90%, 2.77%,
respectively, of RTC Investments, LLC (“RTC”). None of the shares held by
RTC are included in the ownership numbers of Messrs. Cole, Weathers,
Sanford and Johnsen elsewhere on this
table.
|
(3)
|
Mr.
Pickett is the former Chief Executive Officer of Telkonet, Inc.,
and is
currently the Vice Chairman of Telkonet, Inc.’s board of
directors.
|
(4)
|
Includes
options
to acquire
200,000
shares
of our
common stock that vest
ed
immediately
upon
consummation of the Merger
.
Does not include options to acquire 800,000 shares of our common
stock
that are not currently exercisable or exercisable within 60
days.
|
(5)
|
Includes
options to acquire 100,000 shares of our common stock that vested
immediately upon consummation of the Merger. Does not include options
to
acquire 400,000 shares of our common stock that are not currently
exercisable
or
exercisable within 60
days.
|
(6)
|
Does
not include options to acquire 250,000 shares of our common stock
which
are not currently exercisable
or
exercisable within 60
days.
|
(7)
|
Does
not include options to acquire 175,000 shares of our common stock
which
are not currently exercisable or exercisable within 60
days.
|
Changes
of Control
Pursuant
to the terms of our employment agreements with Messrs. Cole, Artese and
Wesp, in
the event of a change of control of our company, all of their unvested
stock
options vest immediately. In addition, pursuant to the terms of our consulting
agreement with Mr. Glenn, in the event of a change of control of our company,
all of his unvested stock options vest immediately and we are obligated
to pay
Mr. Glenn within ten calendar days of such change of control the balance
of any
outstanding consulting fees even if unearned.
SELLING
STOCKHOLDERS
Up
to
5,767,000 shares of common stock are being offered by this prospectus, all
of
which are being registered for sale for the accounts of the selling security
holders and include the following:
|
·
|
3,650,000
shares of common stock issued in the Private Placement;
|
|
·
|
1,825,000
shares of common stock issuable upon the exercise of warrants issued
to
investors in the Private Placement;
and
|
|
·
|
292,000
shares of common stock issuable upon the exercise of warrants issued
to
the placement agent in connection with the Private Placement.
|
Each
of
the transactions by which the selling stockholders acquired their securities
from us was exempt under the registration provisions of the Securities
Act.
The
shares of common stock referred to above are being registered to permit public
sales of the shares, and the selling stockholders may offer the shares for
resale from time to time pursuant to this prospectus. The selling stockholders
may also sell, transfer or otherwise dispose of all or a portion of their
shares
in transactions exempt from the registration requirements of the Securities
Act or pursuant to another effective registration statement covering those
shares. We may from time to time include additional selling stockholders
in
supplements or amendments to this prospectus.
The
table
below sets forth certain information regarding the selling stockholders and
the
shares of our common stock offered by them in this prospectus. None of the
selling stockholders have had a material relationship with us within the
past
three years other than as described in the footnotes to the table below or
as a
result of their acquisition of our shares or other securities. To our knowledge,
subject to community property laws where applicable, each person named in
the
table has sole voting and investment power with respect to the shares of
common
stock set forth opposite such person’s name.
Beneficial
ownership is determined in accordance with the rules of the SEC. Each selling
stockholder’s percentage of ownership of our outstanding shares in the table
below is based upon 13,338,686 shares of common stock outstanding as of
April 15, 2008.
|
|
Ownership Before Offering
|
|
After Offering(1)
|
|
Selling Stockholder
|
|
Number
of
shares
of
common stock
beneficially
owned
|
|
Number of
shares
offered
|
|
Number of
shares
of
common
stock
beneficially
owned
|
|
Percentage
of
common
stock
beneficially
owned
|
|
Alpha
Capital Anstalt (2)
|
|
|
375,000
|
(3)
|
|
375,000
|
(3)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Ayres
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald
Brauser
|
|
|
225,000
|
(5)
|
|
225,000
|
(5)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
J. Jensen Trust “B”(6)
|
|
|
37,500
|
(7)
|
|
37,500
|
(7)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cranshire
Capital, L.P.(8)
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur
Donald Cross, II
|
|
|
37,500
|
(7)
|
|
37,500
|
(7)
|
|
0
|
|
|
0
|
|
|
|
Ownership Before Offering
|
|
After Offering(1)
|
|
Selling
Stockholder
|
|
Number of
shares of
common stock
beneficially
owned
|
|
Number of
shares
offered
|
|
Number of
shares of
common stock
beneficially
owned
|
|
Percentage
of
common
stock
beneficially
owned
|
|
William
B. Cross and Virginia S. Cross
|
|
|
|
(9)
|
|
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Juan
Damiani
|
|
|
45,000
|
(10)
|
|
45,000
|
(10)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
David Tompkins Separate Property Trust(11)
|
|
|
75,000
|
(9)
|
|
75,000
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Montauk Securities Corp.(12)
|
|
|
|
(13)
|
|
|
(13)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry
Fox
|
|
|
105,000
|
(14)
|
|
105,000
|
(14)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Icon
Capital Partners(15)
|
|
|
75,000
|
(9)
|
|
75,000
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
R. and Janet B. Jackson
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jensen’s
Children Trust(6)
|
|
|
112,500
|
(16)
|
|
112,500
|
(16)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
D. Ritofsky MDPA Profit Sharing Plan(17)
|
|
|
75,000
|
(9)
|
|
75,000
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Kamen
|
|
|
292,500
|
(18)
|
|
292,500
|
(18)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Karsten
|
|
|
187,500
|
(19)
|
|
187,500
|
(19)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Katz
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
R. Kinser
|
|
|
300,000
|
(20)
|
|
300,000
|
(20)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor
K. Kurylak(21)
|
|
|
|
(13)
|
|
32,470
|
(13)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Kohn
|
|
|
300,000
|
(20)
|
|
300,000
|
(20)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur
Luhrs
|
|
|
37,500
|
(7)
|
|
37,500
|
(7)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mara
Gateway Associates, LP(22)
|
|
|
375,000
|
(3)
|
|
375,000
|
(3)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ernest
Pellegrino(23)
|
|
|
45,660
|
(24)
|
|
45,660
|
(24)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSCO
Trust Company Custodian FBO Mark S. Litwin Roth IRA(25)
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
D. Perry
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Max
Povolosky(26)
|
|
|
15,000
|
(27)
|
|
15,000
|
(27)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin
Martin(28)
|
|
|
81,600
|
(29)
|
|
81,600
|
(29)
|
|
0
|
|
|
0
|
|
|
|
Ownership
Before Offering
|
|
After
Offering(1)
|
|
Selling
Stockholder
|
|
Number
of
shares
of
common
stock
beneficially
owned
|
|
Number of
shares
offered
|
|
Number of
shares of
common
stock
beneficially
owned
|
|
Percentage
of
common
stock
beneficially
owned
|
|
Monarch
Capital Fund Ltd.(30)
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
P. Morbeck
|
|
|
37,500
|
(7)
|
|
37,500
|
(7)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NFS/MTC
Rollover IRA, FBO
Michael
L. Peterson(31)
|
|
|
150,000
|
(4)
|
|
150,000
|
(4)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
J. Peschel
|
|
|
37,500
|
(7)
|
|
37,500
|
(7)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharaoh
Limited(32)
|
|
|
300,000
|
(20)
|
|
300,000
|
(20)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandor
Capital Master Fund, L.P.(33)
|
|
|
750,000
|
(34)
|
|
750,000
|
(34)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sebastian
J. Lentini IRA Rollover(35)
|
|
|
75,000
|
(9)
|
|
75,000
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jill
M. Schreck
|
|
|
37,500
|
(7)
|
|
37,500
|
(7)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth
Sjursen
|
|
|
37,500
|
(7)
|
|
37,500
|
(7)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack
Steele
|
|
|
75,000
|
(9)
|
|
75,000
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unity
Capital(36)
|
|
|
75,000
|
(9)
|
|
75,000
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
J. Walsh(37)
|
|
|
81,600
|
(29)
|
|
|
(29)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter
Bilofsky, Trust of the Eight Family Trust U/T/A DTD
11/8/99(38)
|
|
|
75,000
|
(9)
|
|
75,000
|
(9)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yitzchak
Weitman(39)
|
|
|
3,200
|
(40)
|
|
3,200
|
(40)
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jose
Zajac
|
|
|
45,000
|
(10)
|
|
45,000
|
(10)
|
|
0
|
|
|
0
|
|
|
(1)
|
Represents
the amount of shares that will be held by the selling stockholders
after
completion of this offering based on the assumptions that (a) all
shares
registered for sale by the registration statement of which this
prospectus
is part will be sold and (b) no other shares of our common stock
are
acquired or sold by the selling stockholders prior to completion
of this
offering. However, the selling stockholders may sell all, some
or none of
the shares offered pursuant to this prospectus and may sell other
shares
of our common stock that they may own pursuant to another registration
statement under the Securities Act or sell some or all of their
shares
pursuant to an exemption from the registration provisions of the
Securities Act, including under Rule 144. To our knowledge there
are
currently no agreements, arrangements or understanding with respect
to the
sale of any of the shares that may be held by the selling stockholders
after completion of this offering or
otherwise.
|
|
(2)
|
Konrad
Ackerman, as chief executive officer, has voting and dispositive
power
over these securities.
|
|
(3)
|
Includes
currently exercisable warrants to purchase 125,000 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(4)
|
Includes
currently exercisable warrants to purchase 50,000 shares of our common
stock at an exercise price of $1.50 per
share.
|
|
(5)
|
Includes
currently exercisable warrants to purchase 75,000 shares of our common
stock at an exercise price of $1.50 per
share.
|
|
(6)
|
C.
James Jensen, as trustee, has voting and dispositive power over these
securities.
|
|
(7)
|
Includes
currently exercisable warrants to purchase 12,500 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(8)
|
Mitchell
Kopin, as partner, has voting and dispositive power over these
securities.
|
|
(9)
|
Includes
currently exercisable warrants to purchase 25,000 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(10)
|
Includes
currently exercisable warrants to purchase 15,000 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(11)
|
Daniel
Tompkins, as trustee, has voting and dispositive power over these
securities.
|
|
(12)
|
Victor
K. Kurylak as president and chief executive officer, has voting
and dispositive power over these securities. First Montauk Securities
Corp. is a registered broker-dealer and may be deemed an
underwriter.
|
|
(13)
|
Represents currently
exercisable warrants to purchase 32,470 shares of our common stock
at an
exercise price of $1.50 per
share.
|
|
(14)
|
Includes
currently exercisable warrants to purchase 35,000 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(15)
|
Adam
Cabibi, as partner, has voting and dispositive power over these
securities.
|
|
(16)
|
Includes
currently exercisable warrants to purchase 37,500 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(17)
|
John
D. Ritofsky, as trustee, has voting and dispositive power over these
securities.
|
|
(18)
|
Includes
currently exercisable warrants to purchase 97,500 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(19)
|
Includes
currently exercisable warrants to purchase 62,500 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(20)
|
Includes
currently exercisable warrants to purchase 100,000 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(21)
|
Victor
K. Kurylak is an affiliate of First Montauk Securities Corp. These
securities were transferred to Mr. Kurylak by First Montauk Securities
Corp. in the ordinary course of business, and at the time of the
transfer,
Mr. Kurylak had no agreements or understandings directly or indirectly
with any person to distribute or vote the shares of common stock
underlying the warrants.
|
|
(22)
|
Lisa
Clark, as authorized signatory, has voting and dispositive power over
these securities.
|
|
(23)
|
Ernest
Pellegrino is an affiliate of First Montauk Securities Corp. These
securities were transferred to Mr. Pellegrino by First Montauk
Securities
Corp. in the ordinary course of business, and at the time of the
transfer,
Mr. Pellegrino had no agreements or understandings directly or
indirectly
with any person to distribute or vote the shares of common stock
underlying the warrants.
|
|
(24)
|
Includes
currently exercisable warrants to purchase 45,660 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(25)
|
Mark
S. Litwin, as trustee, has voting and dispositive power over these
securities.
|
|
(26)
|
Max
Povolosky is an affiliate of First Montauk Securities Corp. These
securities were transferred to Mr. Povolosky by First Montauk Securities
Corp. in the ordinary course of business, and at the time of the
transfer,
Mr. Povolosky had no agreements or understandings directly or indirectly
with any person to distribute or vote the shares of common stock
underlying the warrants.
|
|
(27)
|
Represents
currently exercisable warrants to purchase 15,000 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(28)
|
Kevin
Martin is an affiliate of First Montauk Securities Corp. These
securities
were transferred to Mr. Martin by First Montauk Securities Corp.
in the
ordinary course of business, and at the time of the transfer, Mr.
Martin
had no agreements or understandings directly or indirectly with
any person
to distribute or vote the shares of common stock underlying the
warrants.
|
|
(29)
|
Represents currently
exercisable warrants to purchase 81,600 shares of our common stock
at an
exercise price of $1.50 per
share.
|
|
(30)
|
Thomas
Van Pouke is a director of Navigator Management Ltd., the
investment manager of Monarch Capital Fund Ltd. and, in such
capacity, may be deemed to have voting and dispositive power over
these
securities.
|
|
(31)
|
Michael
Peterson, as beneficiary, has voting and dispositive power over these
securities.
|
|
(32)
|
Matthias
Belz and Peza Brown, as executive officers, have voting and dispositive
power over these securities.
|
|
(33)
|
John
S. Lemark, as manager, has voting and dispositive power over these
securities.
|
|
(34)
|
Includes
currently exercisable warrants to purchase 250,000 shares of our
common
stock at an exercise price of $1.50 per
share.
|
|
(35)
|
Sebastian
J. Lentini has voting and dispositive power over these
securities.
|
|
(36)
|
Eli
Schick, as partner, has voting and dispositive power over these
securities.
|
|
(37)
|
Daniel
J. Walsh is an affiliate of First Montauk Securities Corp. These
securities were transferred to Mr. Walsh by First Montauk Securities
Corp.
in the ordinary course of business, and at the time of the transfer,
Mr.
Walsh had no agreements or understandings directly or indirectly
with any
person to distribute the shares of common stock underlying the
warrants.
|
|
(38)
|
Walter
Bilofsky, as trustee, has voting and dispositive power over these
securities.
|
|
(39)
|
Yitzchak
Weitman is an affiliate of First Montauk Securities Corp. These
securities
were transferred to Mr. Weitman by First Montauk Securities Corp.
in the
ordinary course of business, and at the time of the transfer, Mr.
Weitman
had no agreements or understandings directly or indirectly with
any person
to distribute the shares of common stock underlying the
warrants.
|
|
(40)
|
Represents
currently exercisable warrants to purchase 3,200 shares of our
common
stock at an exercise price of $1.50 per
share.
|
DESCRIPTION
OF SECURITIES
Authorized
and Outstanding Capital Stock
We
have
authorized
110,000,000
shares of capital stock, par value $0.001 per share, of
which
100,000,000
are
shares of common stock and
10,000,000
are
shares of “blank-check” preferred stock.
As
of
April 15, 2008 we have the following issued and outstanding securities
on a fully diluted basis:
|
·
|
13,338,686
shares of common stock;
|
|
·
|
no
shares of preferred stock;
|
|
·
|
options
to purchase an aggregate of
2,275,000
shares of common stock issued under the Plan with an exercise price
of
$1.00 per share; and
|
|
·
|
warrants
to purchase 2,117,000 shares of common stock, of which (i) warrants
to
purchase 1,825,000 shares of common stock were issued to investors
in the
Private Placement at an exercise price of $1.50 per share and (ii)
warrants to purchase 292,000 shares of common stock were issued
to First
Montauk Securities Corp. in connection with the Private Placement.
In the
event that we are not in material compliance with our registration
obligations set forth on Exhibit A to the Subscription Agreement
entered
into with the investors in the Private Placement, then the investors
and placement agent have a cashless exercise option upon exercising
their warrants.
|
Common
Stock
We
are
authorized to issue
100
,000,000
shares
of common stock. The holders of our common stock are entitled to one vote per
share on all matters submitted to a vote of the stockholders, including the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority of the votes entitled to be cast by all shares
of
common stock that are present in person or represented by proxy, subject to
any
voting rights granted to holders of any preferred stock. Except as otherwise
provided by law, and subject to any voting rights granted to holders of any
preferred stock, amendments to our Certificate of Incorporation generally must
be approved by a majority of the votes entitled to be cast by all outstanding
shares of common stock. Our Certificate of Incorporation does not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of preferred stock created by the board of
directors from time to time, the holders of common stock will be entitled to
such cash dividends as may be declared, if any, by the board of directors from
funds available. Subject to any preferential rights of any outstanding series
of
preferred stock, upon our liquidation, dissolution or winding up, the holders
of
common stock will be entitled to receive pro rata all assets available for
distribution to such holders.
For
a
period of 12 months from the effectiveness of the registration statement
of
which this prospectus forms a part, the investors will have a right to
participate in any future financings contemplated by us, subject to customary
exceptions.
Our
common stock is quoted on the OTC Bulletin Board under the trading symbol
“GOCH.”
Preferred
Stock
We
are
authorized to issue
10
,000,000
shares
of “blank check” preferred stock, none of which as of the date hereof is
designated or outstanding. The board of directors is vested with authority
to
divide the shares of preferred stock into series and to fix and determine the
relative designation, powers, preferences and rights of the shares of any such
series and the qualifications, limitations, or restrictions or any unissued
series of preferred stock.
Description
of Options
We
granted options to purchase
2,275,000
shares
of
our common stock to certain of our executive officers, directors and
employees. All such options were issued pursuant to the Plan and are
exercisable when vested at a price of $1.00 per share.
Description
of Warrants
We
issued
five-year warrants to purchase 1,825,000 shares of our common stock, at an
exercise price of $1.50 per share to investors in the Private Placement,
we also
issued a five year warrant to the First Montauk Securities Corp. to purchase
an
aggregate of 292,000 shares of our common stock, at an initial cash exercise
price of $1.50 per share, in connection with its efforts as a placement agent
in
connection with the Private Placement.
The
warrants contain provisions that protect the holders against dilution by
adjustment of the purchase price in certain events such as stock dividends,
stock splits and other similar events. The warrants contain a provision for
“cashless exercise” in the event that we are not in material compliance with our
registration obligations set forth on Exhibit A to the Subscription Agreement
entered into with the investors in the Private Placement. No fractional shares
will be issued upon exercise of the warrants. If, upon exercise of the warrants,
a holder would be entitled to receive a fractional interest in a share, we
may,
in our discretion, upon exercise, round up to the nearest whole number the
number of shares of our common stock to be issued to the warrant holder or
otherwise equitably adjust the number of shares and/or exercise price
per share.
Registration
Rights
We
have
agreed to file this “resale” registration statement with the SEC (the date
of such filing, the “SEC Filing Date”) covering all shares of common stock
included within the units sold in the Private Placement and all shares of
common
stock underlying the warrants included in the units, on or before the date
which
is 60 days after the final closing date of the Private Placement. We will
maintain the effectiveness of the “resale” registration statement unless all
securities have been sold or are otherwise able to be sold without volume
limitation pursuant to Rule 144, at which time exempt sales may be permitted
for
purchasers of the units. We have agreed to use our best efforts to
have this “resale” registration statement declared effective by the SEC as
soon as possible and, in any event, within 150 days after the final closing
date
of the Private Placement (the “Trigger Date”).
If
the
registration statement is not timely declared effective by the Trigger
Date, then we are obligated to pay to investors a fee of 1% of the subscription
price paid in the Private Placement per month that the registration
statement is not declared effective, payable in cash, up to a maximum of
9%;
provided, however, that we shall not be obligated to pay any such liquidated
damages if (x) we are unable to fulfill our registration obligations as a
result
of rules, regulations, positions or releases issued or actions taken by the
SEC
pursuant to its authority with respect to “Rule 415”, provided we register at
such time the maximum number of shares of common stock permissible upon
consultation with the staff of the SEC or (y) all securities have been sold
or
are otherwise able to be sold without volume limitation pursuant to Rule
144. We
may register other shares of our presently outstanding common stock beginning
150 days after the “resale” registration statement is declared effective,
provided we, prior or contemporaneous with such registration, register any
shares of common stock excluded in accordance with the immediately preceding
sentence.
In
addition, we have granted piggyback registration rights to the Placement Agent
with respect to the shares of common stock underlying the Placement Agent
Warrants.
Future
Stock Issuances
Pursuant
to the Subscription Agreement from the Private Placement, until the 12 month
anniversary of the date that the SEC declared a registration statement effective
that registers the resale of the common stock issued in the Private Placement
and the common stock underlying the warrants issued in the Private Placement,
should we issue or sell any shares of any class of common stock or any warrants
or other convertible security pursuant to which shares of any class of our
common stock may be acquired at a price less than $1.00 per share, subject
to
certain exemptions, we shall promptly issue additional shares to each investor
in the Private Placement in an amount sufficient that the subscription price
paid in the Private Placement, when divided by the total number of shares
issued, will result in an actual price paid by each investor per share equal
to
such lower price.
Lock
-up
Agreements
The shares
of common stock issued in exchange for shares of common stock of Geeks On
Call
in the Merger, are subject to lock-up agreements. These lock-up agreements
provide that such persons may not sell or transfer any of their shares for
a
period of six 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) without the consent of the Placement Agent,
with
the exception of contributions made to non-profit organizations qualified
as
charitable organizations under Section 501(c)(3) of the Internal Revenue
Code or
in privately negotiated sales to persons who agree, in writing, to be bound
to
the terms of the lock-up agreements.
Transfer
Agent
Our
transfer agent is Island Stock Transfer, 100 Second Ave South, Suite 104N,
St.
Petersburg, Florida 33701.
Changes
in and Disagreements with Accountants
Effective
as of February 8, 2008, we dismissed Davis Accounting Group, P.C. (“Davis”) as
our independent accountants. Davis had previously been engaged as the principal
accountant to audit our financial statements. The reason for the dismissal
of
Davis is that, following the consummation of the Merger on February 8, 2008
(i)
the former stockholders of Geeks On Call owned a majority of the outstanding
shares of our common stock and (ii) our primary business unit became the
business previously conducted by Geeks On Call. The independent registered
public accountant of Geeks On Call was the firm of RBSM, LLP, (“RBSM”). We
believe that it is in our best interest to have RBSM continue to work with
our
business, and we therefore retained RBSM as our new independent registered
public accounting firm, effective as of February 8, 2008. RBSM is located at
5
West 37th Street, 9th Floor, New York, NY 10018.
The
report of Davis on our financial statements for all periods prior to February
8,
2008 did not contain an adverse opinion or disclaimer of opinion, nor was
it
qualified or modified as to uncertainty, audit scope or accounting principles,
except that the report was qualified as to our ability to continue as a
going
concern.
From
our
inception through February 8, 2008, there were no disagreements with Davis
on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Davis, would have caused it to make reference to the matter
in
connection with its reports.
As
of
February 8, 2008, RBSM was engaged as our new independent registered public
accounting firm. The appointment of RBSM was approved by our board of directors.
During our two most recent fiscal years and the subsequent interim periods
through February 8, 2008 (the date of engagement of RBSM), we did not consult
RBSM regarding either: (i) the application of accounting principles to a
specific completed or contemplated transaction, or the type of audit opinion
that might be rendered on our financial statements; or (ii) any matter that
was
the subject of a disagreement as described in Item 304(a)(1)(iv) of Regulation
S-K.
Indemnification
of Directors and Officers
Section
145 of the Delaware General Corporation Law (“DGCL”) provides, in general, that
a corporation incorporated under the laws of the State of Delaware, such as
we
will be, may indemnify any person who was or is a party or is threatened to
be
made a party to any threatened, pending or completed action, suit or proceeding
(other than a derivative action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent
of
the corporation, or is or was serving at the request of the corporation as
a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit
if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that
no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware
or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such
expenses.
Our Certificate
of Incorporation and Bylaws provide that we will indemnify our directors,
officers, employees and agents to the extent and in the manner permitted by
the
provisions of the DGCL, as amended from time to time, subject to any permissible
expansion or limitation of such indemnification, as may be set forth in any
stockholders’ or directors’ resolution or by contract.
We
also
have director and officer indemnification agreements with each of our executive
officers and directors that provide, among other things, for the indemnification
to the fullest extent permitted or required by Delaware law, provided that
such
indemnitee shall not be entitled to indemnification in connection with any
“claim” (as such term is defined in the agreement) initiated by the indemnitee
against us or our directors or officers unless we join or consent to the
initiation of such claim, or the purchase and sale of securities by the
indemnitee in violation of Section 16(b) of the Exchange Act.
Any
repeal or modification of these provisions approved by our stockholders shall
be
prospective only, and shall not adversely affect any limitation on the liability
of any of our directors or officers existing as of the time of such repeal
or
modification.
We
are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or
not
the DGCL would permit indemnification.
Anti-Takeover
Effect of Delaware Law, Certain By-Law Provisions
Certain
provisions of our Bylaws are intended to strengthen the board’s position in the
event of a hostile takeover attempt. These provisions have the following
effects:
|
·
|
they
provide that only business brought before an annual meeting by the
board
or by a stockholder who complies with the procedures set forth in
the
Bylaws may be transacted at an annual meeting of stockholders;
and
|
|
·
|
they
provide for advance notice or certain stockholder actions, such as
the
nomination of directors and stockholder
proposals.
|
We
are
subject to the provisions of Section 203 of the DGCL, an anti-takeover law.
In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in
a prescribed manner. For purposes of Section 203, a “business combination”
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an “interested stockholder” is a
person who, together with affiliates and associates, owns, or within three
years
prior, did own, 15% or more of the voting stock.
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and persons controlling us, we have
been
advised that it is the SEC’s opinion that such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable.
PLAN
OF DISTRIBUTION
Each
selling stockholder and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on the over-the-counter market or any other stock exchange,
market or trading facility on which the shares are traded, or in private
transactions. These sales may be at fixed or negotiated prices. A selling
stockholder may use any one or more of the following methods when selling
shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the date of this
prospectus;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of
sale;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. Each
selling stockholder does not expect these commissions and discounts relating
to
its sales of shares to exceed what is customary in the types of transactions
involved.
First
Montauk Securities Corp., is a registered broker dealer and FINRA member
firm
and listed as a selling shareholder in this prospectus. First Montauk
Securities
Corp. served as placement agent in our recently completed Private Placement
offering, and received, in addition to cash commissions and reimbursement
of
certain expenses, warrants to purchase an aggregate of 292,000 shares
of our
common stock with an exercise price of $1.50 per share. The registration
statement of which this Prospectus forms a part includes the shares of
common
stock underlying the warrants held by First Montauk Securities Corp.
and certain
associated persons. The SEC has indicated that it is their position that
any broker dealer firm which is a selling shareholder is deemed an underwriter
and therefore First Montauk Securities Corp. may be deemed an underwriter
with
respect to the securities being sold by it.
Of
the
total of 292,000 warrants held by First Montauk Securities Corp. (or
its
associated persons as listed in the selling shareholder table), 240,000
were
received in connection with a Private Placement completed on February
8, 2008
and the remainder were received in connection with our most recent financing
completed on February 22, 2008. The 292,000 warrants held by First Montauk
Securities Corp. expire on February 8, 2013. The 292,000 shares of common
stock
issued or issuable upon conversion of placement agent warrants received
by First
Montauk Securities Corp. (or its assignees as indicated in the selling
shareholder table) are restricted from sale, transfer, assignment, pledge
or
hypothecation or be the subject of any hedging, short sale, derivative,
put, or
call transaction that would result in the effective economic disposition
of the
securities by any person for a period of 180 days immediately following
the
effective date of the Registration Statement of which this prospectus
forms a
part except transfers of the warrants to officers or partners of First
Montauk
Securities Corp. as allowed under FINRA Rule 2710 (g)(1) and (2).
First
Montauk Securities Corp. has indicated to us its willingness to act as
selling
agent on behalf of certain of the selling shareholders named in the Prospectus
under “Selling Shareholders”. that purchased our privately placed securities.
All shares sold, if any, on behalf of selling shareholders by First Montauk
Securities Corp. would be in transactions executed by First Montauk Securities
Corp. on an agency basis and commissions charged to its customers in
connection
with each transaction shall not exceed a maximum of 4.5% of the gross
proceeds.
First Montauk Securities Corp. does not have an underwriting agreement
with us
and/or the selling shareholders and no selling shareholders are required
to
execute transactions through First Montauk Securities Corp. Further,
other than
their existing brokerage relationship as customers with First Montauk
Securities
Corp., no selling shareholder has any pre-arranged agreement, written or
otherwise, with First Montauk Securities Corp. to sell their securities
through
First Montauk Securities Corp.
FINRA
Rule 2710 requires FINRA members firms (unless an exemption applies)
to satisfy
the filing requirements of Rule 2710 in connection with the resale, on
behalf of
selling shareholders, of the securities on a principal or agency basis.
FINRA Notice to Members 88-101 states that in the event a
selling shareholder intends to sell any of the shares registered for resale
in this Prospectus through a member of FINRA participating in a distribution
of
our securities, such member is responsible for insuring that a timely
filing, if
required, is first made with the Corporate Finance Department of FINRA
and
disclosing to FINRA the following:
·
|
it
intends to take possession of the registered securities or to facilitate
the transfer of such certificates;
|
·
|
the
complete details of how the selling shareholders shares are and
will be
held, including location of the particular
accounts;
|
·
|
whether
the member firm or any direct or indirect affiliates thereof have
entered
into, will facilitate or otherwise participate in any type of payment
transaction with the selling shareholders, including details regarding
any
such transactions; and
|
·
|
in
the event any of the securities offered by the selling shareholders
are
sold, transferred, assigned or hypothecated by any selling shareholder
in
a transaction that directly or indirectly involves a member firm
of FINRA
or any affiliates thereof, that prior to or at the time of said
transaction the member firm will timely file all relevant documents
with
respect to such transaction(s) with the Corporate Finance Department
of
FINRA for review.
|
FINRA
has
recently proposed rule changes to FINRA Rule 2710 which may, if approved,
modify
the requirements of its members to make filings under FINRA Rule 2710.
Further,
no FINRA member firm may receive compensation in excess of that allowable
under
FINRA rules, including Rule 2710, in connection with the resale of the
securities by the selling shareholders, which total compensation may not
exceed
8%.
We
have
advised the selling shareholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and
to the
activities of the selling shareholders and their affiliates. In addition,
we
will make copies of this Prospectus available to the selling shareholders
for
the purpose of satisfying the Prospectus delivery requirements of the Securities
Act.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholder has informed us
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the common stock. In no event shall any
broker-dealer receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%).
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
The
selling stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold
under Rule 144 rather than under this prospectus. There is no underwriter or
coordinating broker acting in connection with the proposed sale of the shares
by
the selling stockholders.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the shares may not simultaneously engage in market making
activities with respect to our common stock for a period of two business days
prior to the commencement of the distribution. In addition, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may limit
the timing of purchases and sales of shares of our common stock by the selling
stockholders or any other person. We will make copies of this prospectus
available to the selling stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time
of
the sale.
LEGAL
MATTERS
Haynes
and Boone, LLP, New York, New York, will pass upon the validity of the shares
of
our common stock offered by us pursuant to this prospectus.
EXPERTS
The
financial statements as of August 31, 2007 and for the years ended August 31,
2007 and 2006 included in this prospectus have been audited by RBSM LLP,
independent registered public accounting firm, as stated in their report
appearing elsewhere herein, and are included in reliance upon the report of
such
firm given upon their authority as experts in accounting and
auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the SEC a registration statement on Form S-1, together with any
amendments and related exhibits, under the Securities Act with respect to
our
shares of common stock offered by this prospectus. The registration statement
contains additional information about us and our shares of common stock that
we
are offering in this prospectus.
We
file
annual, quarterly and current reports and other information with the SEC
under
the Exchange Act. Our SEC filings are available to the public over the
Internet at the SEC’s website at http://www.sec.gov. You may also read and copy
any document we file at the SEC’s public reference room located at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms and their copy charges.
In
addition, through our website, http://www.geeksoncall.com, you can access
electronic copies of documents we file with the SEC, including our Annual
Report
on Form 10-KSB, our Quarterly Reports on Form 10-QSB, and Current Reports
on
Form 8-K and any amendments to those reports. Information on our website
is not
incorporated by reference in this prospectus. Access to those electronic
filings
is available as soon as practicable after filing with the SEC. You may also
request a copy of those filings, excluding exhibits, from us at no cost.
Any
such request should be addressed to us at: Richard T. Cole, Geeks On Call
Holdings Inc., 814 Kempsville Road, Suite 106, Norfolk, Virginia
23502.
GEEKS
ON CALL HOLDINGS, INC.
INDEX
TO FINANCIAL STATEMENTS
AUDITED
FINANCIAL STATEMENTS FOR FISCAL YEARS
END AUGUST 31, 2007 AND 2006
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Balance
Sheets at August 31, 2007 and 2006
|
F-3
|
|
|
Statements
of Operations for the years ended August 31, 2007 and 2006
|
F-4
|
|
|
Statement
of Stockholders' (Deficit) Equity for the years ended August 31,
2007 and
2006
|
F-5
|
|
|
Statements
of Cash Flows for the years ended August 31, 2007 and 2006
|
F-6
|
|
|
Notes
to Financial Statements
|
F-7
to F-19
|
|
|
UNAUDITED
FINANCIAL STATEMENTS FOR FISCAL
QUARTER ENDED FEBRUARY 29, 2008
|
|
|
|
Condensed
Consolidated Balance Sheets at February 29, 2008 and August 31, 2007
|
F-20
|
|
|
Condensed
Consolidated Statements of Operations for the three and six months
ended
February 29, 2008 and February 28, 2007
|
F-21
|
|
|
Condensed
Consolidated Statements of Stockholders' Equity (Deficit) for the
year
ended August 31, 2007 and six months ended February 29,
2008
|
F-22
|
|
|
Condensed
Consolidated Statements of Cash Flows for the six months ended
February
29, 2008 and February 28, 2007
|
F-23
|
|
|
Notes
to Unaudited Condensed Financial Statements
|
F-24
to F-36
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of Directors
Geeks
on Call America, Inc.
We
have audited the accompanying balance sheets of Geeks on Call America, Inc.
(a
Virginia corporation) (the “Company”) as of August 31, 2007 and 2006
and the related statements of operations, stockholders’ (deficit) equity, and
cash flows for each of the two years in the period ended August 31,
2007. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We
have conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of Geeks on Call America, Inc. as
of
August 31, 2007 and 2006, and the results of its operations and its cash flows
for each of the two years in the period ended August 31, 2007, in conformity
with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 2 to the accompanying
financial statements, the Company has suffered recurring losses and is
experiencing difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations, which raises substantial doubt about
its
ability to continue as a going concern. Management's plans in regard to this
matter are described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
RBSM LLP
New
York,
New York
November
30, 2007 except for Note 15 as
to
which
the date is December 20, 2007
GEEKS
ON CALL AMERICA, INC.
|
|
BALANCE
SHEETS
|
|
AUGUST
31, 2007 AND 2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
280,846
|
|
$
|
667,856
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$15,893
and $13,031, respectively (Note 1)
|
|
|
248,091
|
|
|
253,455
|
|
Notes
receivable, current portion (Note 3)
|
|
|
145,892
|
|
|
17,822
|
|
Investments
(Note 1)
|
|
|
-
|
|
|
43,239
|
|
Prepaid
expenses and other current assets (Note 4)
|
|
|
255,402
|
|
|
195,461
|
|
Total
current assets
|
|
|
930,231
|
|
|
1,177,833
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net (Note 5)
|
|
|
483,857
|
|
|
591,608
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,784
|
|
|
1,784
|
|
Notes
receivable, long term portion (Note 3)
|
|
|
406,999
|
|
|
33,694
|
|
Trademarks,
net (Note 6)
|
|
|
8,600
|
|
|
9,556
|
|
Total
other assets
|
|
|
417,383
|
|
|
45,034
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
1,831,471
|
|
|
1,814,475
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities (Note 7)
|
|
|
1,142,087
|
|
|
685,382
|
|
Line
of credit (Note 8)
|
|
|
200,000
|
|
|
200,000
|
|
Obligation
under capital lease, current portion (Note 9)
|
|
|
53,909
|
|
|
53,909
|
|
Deferred
franchise and initial advertising fees (Note 1)
|
|
|
271,450
|
|
|
204,301
|
|
Total
current liabilities
|
|
|
1,667,446
|
|
|
1,143,592
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Obligation
under capital lease, long term portion (Note 9)
|
|
|
53,909
|
|
|
107,818
|
|
Shares
subject to mandatory redemption (Note 12)
|
|
|
685,000
|
|
|
-
|
|
Deferred
rent expense
|
|
|
50,914
|
|
|
50,827
|
|
Total
liabilities
|
|
|
2,457,269
|
|
|
1,302,237
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
(DEFICIT) EQUITY (Note 13)
|
|
|
|
|
|
|
|
Preferred
stock Class B, no par value; authorized 167,130 shares; issued and
outstanding as of August 31, 2007 and 2006: 160,404 shares
|
|
|
2,152,417
|
|
|
1,979,661
|
|
Preferred
stock Class C, no par value; authorized 128,870 shares; issued and
outstanding as of August 31, 2007 and 2006: 119,784 shares
|
|
|
741,291
|
|
|
674,212
|
|
Common
stock, no par value; authorized 5,000,000 shares, issued and outstanding
as of August 31, 2007 and 2006: 2,224,710 and 2,222,786 shares,
respectively
|
|
|
-
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
1,851,153
|
|
|
1,841,535
|
|
Accumulated
deficit
|
|
|
(5,370,659
|
)
|
|
(3,983,170
|
)
|
Total
stockholders' (deficit) equity
|
|
|
(625,798
|
)
|
|
512,238
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' (deficit) equity
|
|
$
|
1,831,471
|
|
$
|
1,814,475
|
|
The
accompanying notes are an integral part of these financial
statements.
GEEKS
ON CALL AMERICA, INC.
|
|
STATEMENTS
OF OPERATIONS
|
|
YEARS
ENDED AUGUST 31, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
REVENUES:
|
|
|
|
|
|
Franchise,
area developer and initial advertising fees
|
|
$
|
1,210,770
|
|
$
|
1,827,287
|
|
Royalties
and advertising fees
|
|
|
5,840,221
|
|
|
6,203,505
|
|
Other
|
|
|
56,863
|
|
|
39,092
|
|
Total
revenue
|
|
|
7,107,854
|
|
|
8,069,884
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
4,035,662
|
|
|
4,699,082
|
|
Advertising
expense
|
|
|
3,993,017
|
|
|
4,753,333
|
|
Depreciation
and amortization
|
|
|
170,535
|
|
|
192,785
|
|
Total
operating expenses
|
|
|
8,199,214
|
|
|
9,645,200
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,091,360
|
)
|
|
(1,575,316
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Other
income
|
|
|
-
|
|
|
3,802
|
|
Dividends
on mandatorily redeemable preferred stock
|
|
|
(39,372
|
)
|
|
-
|
|
Interest
income (expense), net
|
|
|
(16,922
|
)
|
|
3,987
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(1,147,654
|
)
|
|
(1,567,527
|
)
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(1,147,654
|
)
|
|
(1,567,527
|
)
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
239,835
|
|
|
184,382
|
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
(1,387,489
|
)
|
$
|
(1,751,909
|
)
|
|
|
|
|
|
|
|
|
Loss
per shares - basic and diluted
|
|
$
|
(0.62
|
)
|
$
|
(0.80
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and
diluted
|
|
|
2,223,260
|
|
|
2,201,633
|
|
The
accompanying notes are an integral part of these financial
statements.
GEEKS
ON CALL AMERICA, INC.
|
|
STATEMENTS
OF STOCKHOLDERS' (DEFICIT) EQUITY
|
|
YEARS
ENDED AUGUST 31, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
Preferred
stock, Class A
|
|
Preferred
stock, Class B
|
|
Preferred
stock, Class C
|
|
Additional
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid
in Capital
|
|
Deficit
|
|
Total
|
|
Balance,
September 1, 2005
|
|
|
2,182,752
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
167,130
|
|
$
|
1,948,361
|
|
|
-
|
|
$
|
-
|
|
$
|
1,405,271
|
|
$
|
(2,231,261
|
)
|
$
|
1,122,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to employees
|
|
|
3,524
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
35,244
|
|
|
-
|
|
|
35,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common and preferred stock
|
|
|
43,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
119,784
|
|
|
666,000
|
|
|
415,000
|
|
|
-
|
|
|
1,081,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
176,170
|
|
|
-
|
|
|
8,212
|
|
|
-
|
|
|
(184,382
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of common and preferred stock
|
|
|
(6,990
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,726
|
)
|
|
(144,870
|
)
|
|
-
|
|
|
-
|
|
|
(13,980
|
)
|
|
-
|
|
|
(158,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,567,527
|
)
|
|
(1,567,527
|
)
|
Balance,
August 31, 2006
|
|
|
2,222,786
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
160,404
|
|
|
1,979,661
|
|
|
119,784
|
|
|
674,212
|
|
|
1,841,535
|
|
|
(3,983,170
|
)
|
|
512,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to employees
|
|
|
1,924
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,618
|
|
|
-
|
|
|
9,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
172,756
|
|
|
-
|
|
|
67,079
|
|
|
-
|
|
|
(239,835
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,147,654
|
)
|
|
(1,147,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2007
|
|
|
2,224,710
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
160,404
|
|
$
|
2,152,417
|
|
|
119,784
|
|
$
|
741,291
|
|
$
|
1,851,153
|
|
$
|
(5,370,659
|
)
|
$
|
(625,798
|
)
|
The
accompanying notes are an integral part of these financial
statements.
GEEKS
ON CALL AMERICA, INC.
|
|
STATEMENTS
OF CASH FLOWS
|
|
YEARS
ENDED AUGUST 31, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,147,654
|
)
|
$
|
(1,567,527
|
)
|
Adjustments
to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
170,535
|
|
|
192,785
|
|
Bad
debt expense
|
|
|
68,729
|
|
|
18,419
|
|
Compensation
expense for stock issued to employees
|
|
|
9,618
|
|
|
35,244
|
|
Loss
on sale of equipment
|
|
|
-
|
|
|
3,750
|
|
Changes
operating in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(63,365
|
)
|
|
(84,054
|
)
|
Prepaid
expenses and other current assets
|
|
|
(59,941
|
)
|
|
(30,343
|
)
|
Deposits
and other assets
|
|
|
-
|
|
|
3,702
|
|
Accounts
payable and accrued liabilities
|
|
|
456,705
|
|
|
61,510
|
|
Deferred
franchise fees
|
|
|
67,149
|
|
|
(110,279
|
)
|
Deferred
rent expense
|
|
|
87
|
|
|
24,783
|
|
Net
cash used in operating activities
|
|
|
(498,137
|
)
|
|
(1,452,010
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from sale of investments
|
|
|
43,239
|
|
|
-
|
|
Purchase
of investments
|
|
|
-
|
|
|
(2,059
|
)
|
Issuance
(repayments) of loans to franchisees and others, net
|
|
|
(501,375
|
)
|
|
27,423
|
|
Purchase
of plant and equipment
|
|
|
(61,828
|
)
|
|
(125,142
|
)
|
Net
cash used in investing activities
|
|
|
(519,964
|
)
|
|
(99,778
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Repayment
of capital lease obligation
|
|
|
(53,909
|
)
|
|
(30,540
|
)
|
Proceeds
from issuance of shares subject to mandatory redemption
|
|
|
685,000
|
|
|
415,000
|
|
Redemption
of common and preferred stock
|
|
|
-
|
|
|
(158,850
|
)
|
Proceeds
from line of credit
|
|
|
-
|
|
|
200,000
|
|
Proceeds
from issuance of preferred stock, net
|
|
|
-
|
|
|
666,000
|
|
Net
cash provided by financing activities
|
|
|
631,091
|
|
|
1,091,610
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(387,010
|
)
|
|
(460,178
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
667,856
|
|
|
1,128,034
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
280,846
|
|
$
|
667,856
|
|
|
|
|
|
|
|
|
|
Supplement
schedule of cash flow information
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
17,963
|
|
$
|
12,868
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non cash investing activity:
|
|
|
|
|
|
|
|
Equipment
acquired under capital lease
|
|
$
|
-
|
|
$
|
192,267
|
|
The
accompanying notes are an integral part of these financial
statements.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business
and Basis of Presentation
Geeks
On
Call America, Inc (the "Company") was incorporated on June 11, 2001 under the
laws of the State of Virginia (see Note 15). The Company provides
quick-response, on-site computer solutions and telephone technical support
(including services, on-going, support and training) primarily to small to
medium business enterprises 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®. While the Company has
generated revenues from its franchise operations, the Company has incurred
expenses, and sustained losses. Consequently, its operations are subject to
all
risks inherent in the establishment of a new business enterprise. As of the
fiscal year ended August 31, 2007, the Company has accumulated losses of
$5,370,659 and stockholders’ deficit of $625,798
Revenue
Recognition
The
Company accounts for revenue under the guidance provided by SFAS No.
45,“Accounting for Franchise Fee Revenue (as amended)” and EITF 00-21, “Revenue
Arrangements With Multiple Deliverables”.
Franchise
fee revenue is recognized when obligations of the Company to prepare the
franchisee for operations have been substantially completed, with an appropriate
provision for estimated uncollectible amounts. Area developer sales, wherein
the
Company sells the rights to develop a territory or market, are nonrefundable
fees recognized upon signature of the Area Development Agreement and substantial
completion of all obligations associated with the opening of the first franchise
under the agreement. Initial advertising fees are recognized when the territory
is open and the related advertising has been performed. Ongoing
royalties and advertising fees are recognized currently as the franchised
territory generates sales and ongoing advertising is performed.
Repossessed
Franchises
From
time
to time the Company may recover franchise rights through repossession if a
franchisee decides not to open a franchise. If, for any reason, the Company
refunds the consideration received, the original sale is canceled, and revenue
previously recognized is accounted for as a reduction in revenue in the period
the franchise is repossessed. If franchise rights are repossessed but no refund
is made (a) the transaction is not regarded as a sale cancellation, (b) no
adjustment is made to any previously recognized revenue, (c) any estimated
uncollectible amounts resulting from unpaid receivables is provided for, and
(d)
any consideration retained for which revenue was not previously recognized
is
reported as revenue.
Deferred
Franchise Fees
The
Company may receive all or part of the initial franchise or advertising fee
prior to the execution of the franchise agreement of completion of the earnings
process. These amounts are classified as deferred revenue until the
fee qualifies to be recognized as revenue or is refunded.
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash
and cash equivalents
For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents. The Company had $280,846 and $667,856 in cash and cash
equivalents at August 31, 2007 and 2006,
respectively.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance
for doubtful accounts
The
Company periodically reviews its trade and notes receivables in determining
its
allowance for doubtful accounts. As of August 31, 2007 and 2006, allowance
for
doubtful accounts balance for trade receivables was $15,893 and $13,031,
respectively. There was no allowance for doubtful accounts for the
notes receivable as of August 31, 2007 and 2006 as they are deemed fully
collectible.
Investments
The
Company determines the appropriate classification of marketable debt and equity
securities at the time of purchase and re-evaluates such designation as of
each
balance sheet date. At August 31, 2006, the Company’s investments
consisted of certificates of deposit classified as held-to-maturity and are
carried at their face value, which was equivalent to their face
value. The Company redeemed all of these certificates of deposit at
their maturity dates during 2007.
Inventories
Inventories,
totaling $69,453 and $79,875 as of August 31, 2007 and 2006, respectively are
stated at the lower of cost (first in, first out) or net realizable value,
and
consist primarily of business forms, marketing and promotional supplies for
sale
to the Company’s franchisees. Inventories are included in prepaid
expenses and other current assets in the accompanying balance
sheets.
Concentration
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents,
trade receivable and notes receivable. The Company keeps its cash and
temporary cash investments with high credit quality institutions. At
times, such investments may be in excess of the FDIC insurance limit.
Property
and Equipment
Property
and equipment are recorded at cost and depreciated over their estimated useful
lives using the straight-line method as follows:
Office
furniture and equipment
|
10
years
|
Computer
equipment
|
5 years
|
Vehicles
|
5 years
|
Software
|
3 years
|
Leasehold
improvements
|
lesser of lease terms or 7
years
|
Expenditures
for repairs and maintenance which do not materially extend the useful lives
of
property and equipment are charged to operations. When property or equipment
is
sold or otherwise disposed of, the cost and related accumulated depreciation
are
removed from the respective accounts with the resulting gain or loss reflected
in operations. Management periodically reviews the carrying value of its
property and equipment for impairment. The property and equipment had not
incurred any impairment loss at August 31, 2007 and 2006.
Advertising
The
Company follows the policy of charging the costs of advertising to expense
as
incurred. The Company charged to operations $3,993,017 and $4,753,333
as advertising costs for the years ended August 31, 2007 and 2006,
respectively.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment
of Long-Lived Assets
The
Company follows Statement of Financial Accounting Standards No. 144,
“
Accounting
for the Impairment or Disposal of Long-Lived Assets
”
(“SFAS
No. 144”). SFAS No. 144 requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or
a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based
upon
forecasted discounted cash flows. Should impairment in value be indicated,
the
carrying value of the long-lived assets and certain identifiable intangibles
will be adjusted, based on estimates of future discounted cash flows resulting
from the use and ultimate disposition of the asset. SFAS No. 144 also
requires assets to be disposed of be reported at the lower of the carrying
amount or the fair value less disposal costs.
Stock
Based Compensation
On
December 16, 2004, the FASB issued FASB SFAS No. 123(R) (revised 2004),
"
Share-Based
Payment
"
which is a revision of SFAS No. 123, "
Accounting
for Stock-Based Compensation
".
SFAS No. 123(R) supersedes APB opinion No. 25, "
Accounting
for Stock Issued to Employees
",
and amends SFAS No. 95, "
Statement
of Cash Flows
".
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in Statement 123. However, Statement 123(R) requires all share-based payments
to
employees, including grants of employee stock options, to be recognized in
the
income statement based on their fair values. Pro-forma disclosure is no longer
an alternative. The effective date for our application of SFAS No. 123(R) is
September 1, 2006. Management has elected to apply SFAS No. 123(R) commencing
on
that date.
There
were no grants of employee options during the years ended August 31, 2007 and
2006. There were no unvested options outstanding as of the date of adoption
of
SFAS No. 123(R).
Segment
reporting
The
Company follows SFAS No. 130, “
Disclosures
about Segments of an Enterprise and Related Information
”.
The
Company operates as a single segment and will evaluate additional segment
disclosure requirements as it expands its operations.
Income
taxes
The
Company follows SFAS No. 109, “
Accounting
for Income Taxes
”
(SFAS
No. 109) for recording the provision for income taxes. Deferred tax assets
and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected
to
be realized or settled. Deferred income tax expenses or benefits are based
on
the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required
to
reduce the deferred tax assets to the amount that is more likely than not to
be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which
the
temporary differences are expected to reverse.
Loss
per share
In
accordance with SFAS No. 128, “
Earnings
per Share
”,
the
basic loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding as if the potential
common shares had been issued and if the additional common shares were
dilutive. Common equivalent shares are excluded from the computation
of the diluted loss per share as their effect would be
anti-dilutive.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Loss
per share (continued)
The
following common stock equivalents were excluded from the calculation of the
diluted loss per share for the years ended August 31, 2007 and 2006 since the
effect would have been anti-dilutive:
|
|
August
31, 2007
|
|
August
31, 2006
|
|
Stock
options for common stock
|
|
|
-0-
|
|
|
-0-
|
|
Class
B preferred stock, if converted
|
|
|
930,938
|
|
|
930,938
|
|
Class
C preferred stock, if converted
|
|
|
292,778
|
|
|
292,778
|
|
Total
|
|
|
1,223,716
|
|
|
1,223,716
|
|
Recent
accounting pronouncements
In
February 2006, the FASB issued SFAS No. 155, “
Accounting
for
certain Hybrid Financial Instruments an amendment of FASB Statements No. 133
and
140”
(“SFAS
No. 155”)
.
SFAS
No. 155 permits fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of SFAS No. 133, establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, clarifies that concentrations
of
credit risk in the form of subordination are not embedded derivatives, and
amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS
No.
155 is effective for all financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15, 2006.
The SFAS No. 155 did not have a material impact on the Company’s financial
position, results of operations or cash flows.
In
March
2006, the FASB issued SFAS No. 156, “
Accounting
for Servicing of Financial Assets - an amendment to FASB Statement No.
140
”
(“SFAS
No. 156”). SFAS No. 156 requires that an entity recognize a servicing asset or
servicing liability each time it undertakes an obligation to service a financial
asset by entering into a service contract under certain situations. The new
standard is effective for fiscal years beginning after September 15, 2006.
SFAS
No.156 did not have a material impact on the Company's financial position,
results of operations or cash flows.
In
July
2006, the FASB issued Interpretation No. 48, “
Accounting
for
uncertainty in Income Taxes”
(“FIN
No.
48”).
FIN No.
48 clarifies the accounting for Income Taxes by prescribing the minimum
recognition threshold a tax position is required to meet before being recognized
in the financial statements. It also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition and clearly scopes income taxes out of SFAS
No. 5, “
Accounting
for Contingencies”.
FIN No.
48 is effective for fiscal years beginning after December 15, 2006. The Company
has not yet evaluated the impact of adopting FIN No. 48 on the Company’s
financial position, results of operations or cash flows.
In
September 2006, FASB issued its SFAS No. 157, “
Fair
Value Measurements
”
(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. SFAS No.157 applies under
other accounting pronouncements that require or permit fair value measurements,
the Board having previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly, SFAS No. 157
does
not require any new fair value measurements. However, for some entities, the
application of SFAS No. 157 will change current practice. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. The Company does
not expect adoption of this standard will have a material impact on its
financial position, results of operations or cash flows.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In
September 2006 the FASB issued its SFAS No. 158, “
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R)
”
(“SFAS
No. 158”). SFAS No. 158 improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income
of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. SFAS No. 158 also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date
for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its financial position, results
of operations or cash flows.
In
December 2006, the FASB issued FSP EITF 00-19-2, “
Accounting
for Registration Payment Arrangements
”
(“
FSP
00-19
-2”)
which addresses accounting for registration payment arrangements.
FSP
00-19
-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument
or
other agreement, should be separately recognized and measured in accordance
with
SFAS No. 5, “Accounting for Contingencies”.
FSP
00-19
-2
further clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the
issuance of EITF 00-19-2, this guidance shall be effective for financial
statements issued for fiscal years beginning after December 15, 2006 and interim
periods within those fiscal years.
The
Company does not expect adoption of this standard will have a material impact
on
its financial position, results of operations or cash flows
In
February 2007, the FASB issued SFAS No. 159, “
The
Fair Value Option for Financial Assets and Financial
Liabilities
”
(“SFAS
No. 159”).
SFAS
No.
159 permits entities to choose to measure many financial instruments, and
certain other items, at fair value.
SFAS
No.
159 applies to reporting periods beginning after November 15, 2007. The adoption
of SFAS No. 159 is not expected to have a material impact on the Company’s
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R),
"Business
Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in
an
acquiree, including the recognition and measurement of goodwill acquired in
a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15,
2008. Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any, that the adoption will have on its financial
position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160,
"Noncontrolling
Interest in Consolidated Financial Statements, an amendment of ARB
No. 51"
("SFAS No. 160"), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the consolidated balance
sheets. SFAS No. 160 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008. Earlier
adoption is prohibited and the Company is currently evaluating the effect,
if
any, that the adoption will have on its financial position, results of
operations or cash flows.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
2 - GOING CONCERN MATTERS
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying financial
statements, the Company incurred a net loss available to common stockholders
of
$1,387,489 and $1,751,909 (included $239,835 and $184,382 preferred stock
dividends, respectively) for the year ended August 31, 2007 and 2006,
respectively. Additionally, the Company has negative working capital of $737,215
and an accumulated deficit of $5,370,659 as of August 31, 2007. These factors
among others may indicate that the Company will be unable to continue as a
going
concern for a reasonable period of time.
The
Company’s continued existence is dependent upon management’s ability to develop
profitable operations and resolve its liquidity problems. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable
to
continue as a going concern.
The
Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance that
the Company will be successful in its effort to secure additional equity
financing.
NOTE
3 - NOTES RECEIVABLE
Note
receivables are recorded at cost, less allowance for doubtful accounts, if
applicable. Repayment of the notes receivable is dependent on the
performance of the underlying franchises that collateralize the notes
receivable. An allowance, if applicable, is estimated based on a
comparison of amounts due to the estimated fair value of the underlying
franchise.
At
August
31, 2007 and 2006, the notes receivable consists of bridge loans offered to
franchises during the period which the franchise is establishing their permanent
financing with a third party lender. The notes receivable bear an
interest rate of 9% per annum and are recorded at face
value. Interest is recognized over the life of the note
receivable.
A
summary
of the notes receivable are as follows:
|
|
August
31,
2007
|
|
August
31,
2006
|
|
Notes
receivable, 9% per annum, secured by
franchise
|
|
$
|
552,891
|
|
$
|
51,516
|
|
Less: Current
portion:
|
|
|
(145,892
|
)
|
|
(17,822
|
)
|
Long
term portion:
|
|
$
|
406,999
|
|
$
|
33,694
|
|
NOTE
4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consist primarily of advance payments for
advertising with various forms of media and saleable promotional supplies or
inventories as follows:
|
|
August
31,
2007
|
|
August
31,
2006
|
|
Prepaid
expenses
|
|
$
|
185,949
|
|
$
|
115,586
|
|
Promotional
supplies or inventories
|
|
|
69,453
|
|
|
79,875
|
|
|
|
$
|
255,402
|
|
$
|
195,461
|
|
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
5 - PROPERTY AND EQUIPMENT
As
of
August 31, 2007 and 2006; property and equipment was comprised of the
following:
|
|
August
31,
2007
|
|
August
31,
2006
|
|
Office
furniture and equipment
|
|
$
|
349,259
|
|
$
|
346,209
|
|
Computer
equipment
|
|
|
355,003
|
|
|
352,204
|
|
Vehicles
|
|
|
60,885
|
|
|
60,885
|
|
Software
|
|
|
245,551
|
|
|
260,044
|
|
Leasehold
improvements
|
|
|
51,267
|
|
|
51,267
|
|
|
|
|
1,061,965
|
|
|
1,070,609
|
|
Less:
accumulated depreciation
|
|
|
(578,108
|
)
|
|
(479,001
|
)
|
|
|
$
|
483,857
|
|
$
|
591,608
|
|
For
the
years ended August 31, 2007 and 2006; depreciation expense charged to operations
was $169,579 and $191,828, respectively.
NOTE
6 - TRADEMARKS
Trademarks
are recorded at cost and are amortized ratably over 15 years as summarized
below:
|
|
August
31,
2007
|
|
August
31,
2006
|
|
Trademarks
|
|
$
|
14,333
|
|
$
|
14,333
|
|
Less
accumulated amortization
|
|
|
(5,733
|
)
|
|
(4,777
|
)
|
|
|
$
|
8,600
|
|
$
|
9,556
|
|
For
the
years ended August 31, 2007 and 2006, the amortization expense charged to
operations was $956 and 956, respectively.
NOTE
7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of
August 31, 2007 and 2006, accounts payable and accrued liabilities are comprised
of the following:
|
|
August
31, 2007
|
|
August
31, 2006
|
|
Accounts
payable
|
|
$
|
970,013
|
|
$
|
520,647
|
|
Accrued
salaries and expenses
|
|
|
169,197
|
|
|
154,601
|
|
Payroll
taxes payable
|
|
|
2,877
|
|
|
10,134
|
|
|
|
$
|
1,142,087
|
|
$
|
685,382
|
|
NOTE
8 - LINE OF CREDIT
The
Company has established a revolving bank line of credit with a financial
institution. On October 13, 2006, the line of credit was increased
from $200,000 to $700,000. The line of credit accrues interest at
prime plus 0.5% interest per annum and is collateralized by inventory, accounts
receivable, equipment and other instruments of the Company. The line
does not have an expiration date.
As
of
August 31, 2007 and 2006, the Company had $200,000 borrowed against the line
of
credit.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
9 - CAPITAL LEASES
The
Company leases certain equipment under a capitalized lease with monthly payments
of $5,090 due through August 1, 2009. The following is the future
minimum lease payments under the capital lease:
Year
ended August 31:
|
|
|
|
2008
|
|
$
|
61,082
|
|
2009
|
|
|
55,992
|
|
Total
minimum lease payments
|
|
|
117,074
|
|
Less
amount representing interest
|
|
|
(9,256
|
)
|
Present
value of minimum lease payments
|
|
|
107,818
|
|
Less
current portion
|
|
|
(53,909
|
)
|
Long
term portion
|
|
$
|
53,909
|
|
NOTE
10 - INCOME TAXES
The
Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future
tax
consequences of events that have been included in the financial statement or
tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets
and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
At
August
31, 2007 the Company has available for federal income tax purposes a net
operating loss carryforward of approximately $ 5,300,000 expiring in the year
2026, that may be used to offset future taxable income. The Company has provided
a valuation reserve against the full amount of the net operating loss benefit,
since in the opinion of management based upon the earnings history of the
Company; it is more likely than not that the benefits will not be realized.
Due
to significant changes in the Company’s ownership, the future use of its
existing net operating losses may be limited. Components of deferred tax assets
as of August 31, 2007 and 2006 are as follows:
Deferred
tax assets - non current:
|
|
August
31,
2007
|
|
August
31,
2006
|
|
Net
operating loss carryforward
|
|
$
|
1,855,000
|
|
$
|
1,400,000
|
|
Less
valuation allowance
|
|
|
(1,855,000
|
)
|
|
(1,400,000
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
NOTE
11 - COMMITMENTS AND CONTINGENCIES
Operating
lease commitments
The
Company leases office facilities under an operating lease that expires November
30, 2012. Additionally, the Company leases office equipment under
various operating leases expiring at various dates through
2007. Future minimum lease payments as of August 31, 2007 are as
follows:
Year
ended August 31,
|
|
|
|
2008
|
|
$
|
167,848
|
|
2009
|
|
|
172,345
|
|
2010
|
|
|
177,510
|
|
2011
|
|
|
182,839
|
|
2012
|
|
|
188,323
|
|
Thereafter
|
|
|
48,140
|
|
Total minimum lease payments
|
|
$
|
937,005
|
|
Rent
expense charged to operations amounted to $164,654 and $186,518 for the years
ended August 31, 2007 and 2006, respectively.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
11 - COMMITMENTS AND CONTINGENCIES (continued)
Litigation
The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse
decisions or settlements may occur, the Company believes that the final
disposition of such matters should not have a material adverse effect on its
financial position, results of operations or liquidity. There was no
outstanding litigation as of August 31, 2007 and 2006.
NOTE
12 - SHARES SUBJECT TO MANDATORY REDEMPTION
Class
D - Preferred Stock
During
the year ended August 31, 2007, the Company sold an aggregate of 123,201 shares
of its Class D preferred stock at an average price of $5.56 per share,
mandatorily redeemable on the fifth anniversary from the date of issuance at
market value of the Company multiplied by the put fraction as described in
the
Articles of Incorporation. The put fraction numerator is the number
of shares of common stock the Class D - Preferred stock is convertible into
and
the denominator is the sum of these shares plus the then outstanding common
stock.
The
Class
D - Preferred Stock is not convertible into common stock or any other equity
instrument of the Company (See Note 13) except as noted above and carries voting
rights and is entitled to receive, when and as declared by the board of
directors, cumulative annual dividends at an annual rate of $0.56 per share
and
is fully participating with any dividends declared or paid in respect to common
stock. The dividends accumulate and accrue on a day to day basis
whether or not earned or declared. Unless all accumulative dividends
of Class D - Preferred stock for all past and current dividend periods have
been
paid or declared, no dividends other than a dividend solely in common stock
will
be paid or declared by the Company. The Company cannot sell, redeem
or acquire shares of its common stock or Class D - Preferred stock unless all
cumulative dividends of Class D preferred stock have been paid or
declared.
Class
D -
Preferred stock has a liquidation value of $685,000 and $-0- plus any accrued
and unpaid dividends of $39,372 and $-0- as of August 31, 2007 and 2006,
respectively. The Company has properly classified the Class D -
Preferred stock as liabilities at August 31, 2007 because these instruments
embody obligations to repurchase the Company’s equity shares that require the
Company to settle by transferring its assets at the holders’ option not the
issuer’s option.
NOTE
13 - STOCKHOLDERS’ EQUITY
Preferred
stock
The
Company is authorized four classes of preferred stock: Class A has 200,000
authorized shares; Class B has 167,130 authorized shares; Class C has 128,870
authorized shares and Class D has 179,860 authorized shares (See Note 12
above). All classes have no par value.
Class
A - Preferred stock
Class
A -
Preferred stock does not carry voting rights and is redeemable upon demand
at
the original purchase price plus any accrued dividends. Each share is
convertible by the holder into one share of common stock after a holding period
of one year. As of May 6, 2004; all outstanding shares of Class A -
Preferred stock were converted into common shares.
Class
B - Preferred stock
Class
B -
Preferred stock carries voting rights and is entitled to receive, when and
as
declared by the board of directors, cumulative annual dividends at an annual
rate of $1.077 per share. The dividends accumulate and accrue on a
day to day basis whether or not earned or declared. Unless all
accumulative dividends of Class B - Preferred stock for all past and current
dividend periods have been paid or declared, no dividends other than a dividend
solely in common stock will be paid or declared by the Company. The
Company cannot sell, redeem or acquire shares of its common stock or Class
A -
Preferred stock unless all cumulative dividends of Class B preferred stock
have
been paid or declared.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
13 - STOCKHOLDERS’ EQUITY (continued)
Class
B
preferred stock has a liquidation value of $1,727,551 plus any accrued and
unpaid dividends of $601,912 and $429,156 as of August 31, 2007 and 2006,
respectively.
All,
but
not less than all, of Class B - Preferred stock are be convertible, at the
option of the holders, at any time into shares of the Company’s common stock at
a conversion price of $10.75 per share adjusted for stock dividends, splits
or
issuances of common stock below the initial conversion price of
$10.77.
Holders
of the Class B - Preferred stock can require the Company to repurchase the
shares five years from the date of issuance at market value of the Company
multiplied by the put fraction. The put fraction numerator is the
number of shares of common stock the Class B - Preferred stock is convertible
into and the denominator is the sum of the total number of shares of common
stock into which all securities of the Company convertible into common stock
then outstanding could be converted (including all such shares included in
the
numerator of the put fraction).
Class
B - Preferred stock (continued)
In
December 2005, the Company redeemed 2,669 shares of Class B preferred stock
at
$21.54 per share.
In
March
2006, the Company redeemed 4,057 shares of Class B preferred stock at $21.54
per
share.
Class
C - Preferred stock
Class
C -
Preferred stock carries voting rights and is entitled to receive, when and
as
declared by the board of directors, cumulative annual dividends at an annual
rate of $0.56 per share. The dividends accumulate and accrue on a day
to day basis whether or not earned or declared. Unless all
accumulative dividends of Class C - Preferred stock for all dividend periods
have been paid or declared, no dividends other than a dividend solely in common
stock will be paid or declared by the Company. The Company cannot
sell, redeem or acquire shares of its common stock unless all cumulative
dividends of Class C preferred stock have been paid or
declared.
Class
C -
Preferred stock has a liquidation value of $666,000 plus any accrued and unpaid
dividends of $75,291 and $8,212 as of August 31, 2007 and 2006,
respectively.
All,
but
not less than all, of Class C - Preferred stock are be convertible, at the
option of the holders, at any time into shares of the Company’s common stock at
a conversion price of $5.56 per share.
Holders
of the Class C - Preferred stock can require the Company to repurchase the
shares commencing five years from the date of issuance at market value of the
Company multiplied by the put fraction. The put fraction numerator is
the number of shares of common stock the Class C - Preferred stock is
convertible into and the denominator is the sum of the total number of shares
of
common stock into which all securities of the Company convertible into common
stock then outstanding could be converted (including all such shares included
in
the numerator of the put fraction).
During
the year ended August 31, 2006, the Company sold an aggregate of 119,784 shares
of its Class C preferred stock at an average price of $5.56 per share adjusted
for stock dividends, splits or issuances of common stock below the initial
conversion price.
Common
stock
The
Company is authorized to issue 5,000,000 shares of its no par value common
stock. As of August 31, 2007 and 2006, there were 2,224,710 and 2,222,786 shares
of common stock issued and outstanding, respectively.
During
the year ended August 31, 2006, the Company sold an aggregate of 43,500 shares
of its common stock at an average price of $9.54 per share.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
Common
stock (continued)
In
March
2006, the Company repurchased 6,990 shares of its common stock at an average
repurchase price of $2.00 per share originally issued with a restricted stock
award program.
In
March
2006, the Company issued 3,524 shares of its common stock with the exercise
of a
restricted stock award program at $10.00 per share.
In
March
2007, the Company issued 1,924 shares of its common stock with the exercise
of a
restricted stock award program at $5.00 per share.
NOTE
14 - WARRANTS AND OPTIONS
The
Company does not have any outstanding warrants or options as of August 31,
2007
Restricted
Stock Awards.
The
Company provided a restricted stock award plan to employees whereby the Company
may grant shares with vesting over a four year period. The Company
also has a right to, but no obligation to re-purchase awarded shares to any
employee terminated within the first two years of any grant. As of August 31,
2007, all employees were fully vested and the restricted award program was
canceled.
NOTE
15 - SUBSEQUENT EVENTS
On
December 6, 2007, the Company reincorporated under the laws of the State of
Delaware.
On
December 14, 2007, the Company filed an “Amended and Restated Certificate of
Incorporation” with the State of Delaware. With the amendment and restatement,
the Company is authorized to issue two classes of stock to be designated,
respectively, “Common Stock” and “Preferred Stock”. The total number of shares
the Company is authorized to issue is five million seven hundred thousand
(5,700,000) shares. Five million (5,000,000) shares shall be $0.001
par value Common Stock and seven hundred (700,000) shares shall be $0.001 par
value preferred stock. The Preferred Stock authorized by the Amended
and Restated Certificate of Incorporation may be issued from time to time in
one
or more class.
The
Board
of Directors of the Company is authorized to fix or alter the preferences,
limitations and respective rights granted to and imposed upon additional class
of Preferred Stock and the number of shares constituting any such class and
the
designation thereof.
The
class
of Preferred Stock designated are as follows:
Class
B Preferred Stock
Dividends
The
Class
B Preferred Stock shall consist of one hundred sixty-seven thousand one-hundred
thirty (167,130) shares. The holders of the then outstanding Class B Stock
will
be entitled to receive, when and as declared by the Board of Directors and
out
of funds legally available therefore, cumulative annual dividends at an annual
rate of $1.077 per share. Dividends will accumulate and accrue from
the date of its original issue and will accrue from day to day thereafter,
whether or not earned or declared. Such dividends will be
cumulative.
Participation
Fully
participating
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
15 - SUBSEQUENT EVENTS (continued)
Voting
Rights
Each
holder of shares of Class B Stock will be entitled to vote on all matters
including the election of directors unless expressly provided and will be
entitled to the number of votes per share of Class B Stock equal to the largest
number of full shares of Common Stock into which all shares of Class B Stock
held by the holder could be converted.
Conversion
The
holder of Class B Stock will have the right to convert all, but not less than
all, of the Class B Stock at the option of the holder at any time into Common
Stock. The number of shares of Common Stock is determined as
follows: the sum of the Conversion Ratio Share Number and the Return
of Capital Share Number. For purposes of such calculation, the
following terms shall have the following meanings:
“Conversion
Ratio Share Number”
means
the product of (A) 1.00186 and (B) the sum of (y) the number of shares being
converted multiplied by 3 and (z) the Dividend Accrual Share Number
“Dividend
Accrual Share Number”
means
all earned but unpaid dividends with respect to converted shares, whether or
not
declared, to and including, the time of conversion, divided by
10.77.
“Return
of Capital Share Number”
means
the
quotient of (A) 10.77 multiplied by the number of shares being converted,
divided by (B) 3.85
Class
C Preferred Stock
Dividends
The
Class
C Preferred Stock shall consist of One hundred twenty-eight thousand eight
hundred seventy (128,870) shares. The holders of the then outstanding Class
C
Stock will be entitled to receive, when and as declared by the Board of
Directors and out of funds legally available therefore, cumulative annual
dividends at an annual rate of $0.56 per share. Dividends will
accumulate and accrue from the date of its original issue and will accrue from
day to day thereafter, whether or not earned or declared. Such
dividends will be cumulative.
Participation
Fully
participating
Voting
Rights
Each
holder of shares of Class C Stock will be entitled to vote on all matters
including the election of directors unless expressly provided and will be
entitled to the number of votes per share of Class C Stock equal to the largest
number of full shares of Common Stock into which all shares of Class C Stock
held by the holder could be converted.
Conversion
The
holder of Class C Stock will have the right to convert all, but not less than
all, of the Class C Stock at the option of the holder at any time into Common
Stock. The number of shares of Common Stock is determined as
follows: the sum of (A) the number of shares being converted plus (B)
all earned but unpaid dividends with respect to converted shares, whether or
not
declared, to and including the time of conversion, divided by 5.56 plus (C)
a
fraction, numerator of which is 5.56 multiplied by the number of shares being
converted, and the denominator of which is 3.85.
GEEKS
ON CALL AMERICA, INC.
NOTES
TO FINANCIAL STATEMENTS
AUGUST
31, 2007 AND 2006
NOTE
15 - SUBSEQUENT EVENTS (continued)
Class
D Preferred Stock
Dividends
The
Class
D Preferred Stock shall consist of One hundred seventy-nine thousand eight
hundred sixty (179,860) shares. The holders of the then outstanding Class D
Stock will be entitled to receive, when and as declared by the Board of
Directors and out of funds legally available therefore, cumulative annual
dividends at an annual rate of $0.56 per share. Dividends will
accumulate and accrue from the date of its original issue and will accrue from
day to day thereafter, whether or not earned or declared. Such
dividends will be cumulative.
Participation
Fully
participating
Voting
Rights
Each
holder of shares of Class D Stock will be entitled to vote on all matters
including the election of directors unless expressly provided and will be
entitled to the number of votes per share of Class D Stock equal to the largest
number of full shares of Common Stock into which all shares of Class D Stock
held by the holder could be converted.
Conversion
The
holder of Class D Stock will have the right to convert all, but not less than
all, of the Class D Stock at the option of the holder at any time into Common
Stock. The number of shares of Common Stock is determined as
follows: the sum of (A) the number of shares being converted plus (B)
all earned but unpaid dividends with respect to converted shares, whether or
not
declared, to and including the time to conversion, divided by 5.56 plus (C)
a
fraction, numerator of which is 5.56 multiplied by the number of shares being
converted, and the denominator of which is 3.85.
In
December 14, 2007, the Company issued 930,938 shares of common stock in exchange
for 160,404 shares of Class B-Preferred Stock (representing all) and issued
60,502 shares of common stock in settlement of accumulative and unpaid
dividends.
In
December 14, 2007, the Company issued 292,778 shares of common stock in exchange
for 119,784 shares of Class C-Preferred Stock (representing all) and issued
17,012 shares of common stock in settlement of accumulative and unpaid
dividends
In
December 14, 2007, the Company issued 252,770 shares of common stock in exchange
for 103,417 shares of Class D-Preferred Stock and issued 8,222 shares of common
stock in settlement of accumulative and unpaid
dividends. Additionally, the Company issued a promissory note in
exchange for the remaining 19,784 shares of Class D-Preferred
Stock.
Related
Party Transaction
In
October 2007, the Company entered into an exclusive private label/marketing
agreement (the “Agreement”) with Telkonet, Inc. (a major supplier of the
Company) for products under the trade name Geek Link System. Pursuant
to the Agreement, the Company is to resale these private labeled products to
customers through the Company’s existing network of franchisees. In
addition, the Company, Telkonet, Inc. and certain stockholders of the Company
entered into an agreement whereby Telkonet, Inc. acquired 1,160,043.435 shares
of the Company’s common stock from these existing stockholders, which in effect
transferred 39.6% ownership in the Company to Telkonet, Inc. by these
stockholders. With the effect of the December 14, 2007 preferred
stock conversion, Telkonet, Inc.’s ownership of the Company decreased to 30.68%.
GEEKS
ON CALL HOLDINGS, INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
February
29,
|
|
August
31,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
(unaudited)
|
|
(audited)
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,363,875
|
|
$
|
280,846
|
|
Accounts
receivable, net of allowance for doubtful accounts of $36,519 and
$15,893,
respectively
|
|
|
301,781
|
|
|
248,091
|
|
Notes
receivable, current portion
|
|
|
88,196
|
|
|
145,892
|
|
Lease
receivable, current portion
|
|
|
14,725
|
|
|
-
|
|
Employee
advances
|
|
|
65,761
|
|
|
-
|
|
Prepaid
expenses and other current assets
|
|
|
458,779
|
|
|
255,402
|
|
Total
current assets
|
|
|
2,293,117
|
|
|
930,231
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $651,166 and
$578,108,
respectively
|
|
|
485,573
|
|
|
483,857
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,784
|
|
|
1,784
|
|
Notes
receivable, long term portion
|
|
|
431,621
|
|
|
406,999
|
|
Lease
receivable, long term portion
|
|
|
8,550
|
|
|
-
|
|
Trademarks,
net of accumulated amortization of $6,211 and $5,733,
respectively
|
|
|
8,122
|
|
|
8,600
|
|
Total
other assets
|
|
|
450,077
|
|
|
417,383
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,228,767
|
|
$
|
1,831,471
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,081,080
|
|
$
|
1,142,087
|
|
Line
of credit
|
|
|
-
|
|
|
200,000
|
|
Obligation
under capital lease, current portion
|
|
|
92,167
|
|
|
53,909
|
|
Deferred
franchise and initial advertising fees
|
|
|
141,607
|
|
|
271,450
|
|
Total
current liabilities
|
|
|
1,314,854
|
|
|
1,667,446
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Obligation
under capital lease, long term portion
|
|
|
26,955
|
|
|
53,909
|
|
Shares
subject to mandatory redemption
|
|
|
-
|
|
|
685,000
|
|
Deferred
rent expense
|
|
|
51,379
|
|
|
50,914
|
|
Total
liabilities
|
|
|
1,393,188
|
|
|
2,457,269
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY ( DEFICIT)
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.001; authorized 10,000,000 shares, none issued
and
outstanding
|
|
|
-
|
|
|
-
|
|
Preferred
stock Class B, no par value; authorized 167,130 shares; issued
and
outstanding as of February 29, 2008 and August 31, 2007: -0- and
160,404
shares, respectively
|
|
|
-
|
|
|
2,152,417
|
|
Preferred
stock Class C, no par value; authorized 128,870 shares; issued
and
outstanding as of February 29, 2008 and August 31, 2007: -0- and
119,784
shares, respectively
|
|
|
-
|
|
|
741,291
|
|
Common
stock, par value of $0.001; authorized 100,000,000 and 5,000,000
shares respectively; Issued and outstanding as of February 29,
2008 and
August 31, 2007: 13,800,000 and 4,707,229 shares,
respectively
|
|
|
13,800
|
|
|
4,707
|
|
Additional
paid-in capital
|
|
|
8,859,558
|
|
|
1,846,446
|
|
Accumulated
deficit
|
|
|
(7,037,779
|
)
|
|
(5,370,659
|
)
|
Total
stockholders' equity (deficit)
|
|
|
1,835,579
|
|
|
(625,798
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
3,228,767
|
|
$
|
1,831,471
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
.
GEEKS
ON CALL HOLDINGS, INC
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(unaudited)
|
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
February
29,
|
|
February
28,
|
|
February
29,
|
|
February
28,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
Franchise,
area developer and initial advertising fees
|
|
$
|
141,055
|
|
$
|
342,165
|
|
$
|
403,865
|
|
$
|
491,712
|
|
Royalties
and advertising fees
|
|
|
1,259,378
|
|
|
1,463,736
|
|
|
2,576,579
|
|
|
2,966,594
|
|
Other
|
|
|
10,630
|
|
|
19,236
|
|
|
35,690
|
|
|
30,103
|
|
Total
revenue
|
|
|
1,411,063
|
|
|
1,825,137
|
|
|
3,016,134
|
|
|
3,488,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,688,374
|
|
|
924,880
|
|
|
2,666,395
|
|
|
1,867,477
|
|
Advertising
expense
|
|
|
873,622
|
|
|
930,718
|
|
|
1,872,321
|
|
|
1,786,808
|
|
Depreciation
and amortization
|
|
|
37,150
|
|
|
41,749
|
|
|
73,536
|
|
|
86,470
|
|
Total
operating expenses
|
|
|
2,599,146
|
|
|
1,897,347
|
|
|
4,612,252
|
|
|
3,740,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,188,083
|
)
|
|
(72,210
|
)
|
|
(1,596,118
|
)
|
|
(252,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
4,275
|
|
|
-
|
|
|
4,275
|
|
|
-
|
|
Dividends
on mandatorily redeemable preferred stock
|
|
|
10,862
|
|
|
-
|
|
|
(6,340
|
)
|
|
-
|
|
Interest
income (expense), net
|
|
|
(364
|
)
|
|
(13,900
|
)
|
|
55
|
|
|
(21,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(1,173,310
|
)
|
|
(86,110
|
)
|
|
(1,598,128
|
)
|
|
(273,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes (benefit)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(1,173,310
|
)
|
|
(86,110
|
)
|
|
(1,598,128
|
)
|
|
(273,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
9,199
|
|
|
58,672
|
|
|
68,992
|
|
|
118,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
(1,182,509
|
)
|
$
|
(144,782
|
)
|
$
|
(1,667,120
|
)
|
$
|
(392,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per shares, basic and diluted
|
|
$
|
(0.16
|
)
|
$
|
(0.03
|
)
|
$
|
(0.28
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
|
|
7,370,627
|
|
|
4,703,122
|
|
|
6,038,933
|
|
|
4,703,122
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
.
GEEKS
ON CALL HOLDINGS, INC
|
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIT)
|
YEAR
ENDED AUGUST 31, 2007 AND FOR THE SIX MONTHS ENDED FEBRUARY 29,
2008
|
|
|
|
Common
stock
|
|
Preferred
stock,
Class
A
|
|
Preferred
stock,
Class
B
|
|
Preferred
stock,
Class
C
|
|
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Adjusted
for recapitalization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 1, 2006, adjusted for fractional shares issued in conjunction
with merger on February 8, 2008
|
|
|
4,703,158
|
|
$
|
4,703
|
|
|
-
|
|
$
|
-
|
|
|
160,404
|
|
$
|
1,979,661
|
|
|
119,784
|
|
$
|
674,212
|
|
$
|
1,836,832
|
|
$
|
(3,983,170
|
)
|
$
|
512,238
|
|
Issuance
of common stock to employees
|
|
|
4,071
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,614
|
|
|
-
|
|
|
9,618
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
172,756
|
|
|
-
|
|
|
67,079
|
|
|
|
|
|
(239,835
|
)
|
|
-
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,147,654
|
)
|
|
(1,147,654
|
)
|
Balance,
August 31, 2007
|
|
|
4,707,229
|
|
|
4,707
|
|
|
-
|
|
|
-
|
|
|
160,404
|
|
|
2,152,417
|
|
|
119,784
|
|
|
741,291
|
|
|
1,846,446
|
|
|
(5,370,659
|
)
|
|
(625,798
|
)
|
Fractional
shares adjustment
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Preferred
stock dividend
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
49,696
|
|
|
-
|
|
|
19,296
|
|
|
-
|
|
|
(68,992
|
)
|
|
-
|
|
Common
stock issued in exchange for conversion of Series B preferred stock
and
accrued dividends on December 14, 2007
|
|
|
2,097,756
|
|
|
2,098
|
|
|
-
|
|
|
-
|
|
|
(160,404
|
)
|
|
(2,202,113
|
)
|
|
-
|
|
|
-
|
|
|
2,200,015
|
|
|
-
|
|
|
-
|
|
Common
stock issued in exchange for conversion of Series C preferred stock
and
accrued dividends on December 14, 2007
|
|
|
655,475
|
|
|
656
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(119,784
|
)
|
|
(760,587
|
)
|
|
759,931
|
|
|
-
|
|
|
-
|
|
Common
stock issued in exchange for conversion of Series D redeemable
preferred
stock and accrued dividends on December 14, 2007
|
|
|
552,225
|
|
|
552
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
620,160
|
|
|
-
|
|
|
620,712
|
|
Cancellation
of previously issued common stock for services rendered
|
|
|
(12,695
|
)
|
|
(13
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(23,087
|
)
|
|
-
|
|
|
(23,100
|
)
|
Effect
of merger with Geeks On Call Holdings, Inc.
(formerly
Lightview, Inc.) on February 8, 2008
|
|
|
2,150,000
|
|
|
2,150
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,150
|
)
|
|
-
|
|
|
-
|
|
Sale
of common stock
|
|
|
3,650,000
|
|
|
3,650
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,193,253
|
|
|
-
|
|
|
3,196,903
|
|
Fair
value of vested options to employees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
264,990
|
|
|
-
|
|
|
264,990
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,598,128
|
)
|
|
(1,598,128
|
)
|
Balance,
February 29, 2008
|
|
|
13,800,000
|
|
|
13,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
8,859,558
|
|
$
|
(7,037,779
|
)
|
$
|
1,835,579
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
.
GEEKS
ON CALL HOLDINGS, INC
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(unaudited)
|
|
|
Six
months ended
|
|
|
|
February
29,
|
|
February
28,
|
|
|
|
2008
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,598,128
|
)
|
$
|
(273,893
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
73,536
|
|
|
86,470
|
|
Bad
debt expense
|
|
|
64,022
|
|
|
-
|
|
Fair
value of vested options issued to employees
|
|
|
264,990
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(117,712
|
)
|
|
33,947
|
|
Prepaid
expenses and other current assets
|
|
|
(203,377
|
)
|
|
(351,557
|
)
|
Employee
advances
|
|
|
(65,761
|
)
|
|
-
|
|
Deposits
and other assets
|
|
|
-
|
|
|
25,000
|
|
Accounts
payable and accrued liabilities
|
|
|
(15,295
|
)
|
|
84,393
|
|
Deferred
franchise fees
|
|
|
(129,843
|
)
|
|
(77,930
|
)
|
Deferred
rent expense
|
|
|
465
|
|
|
2,081
|
|
Net
cash used in operating activities
|
|
|
(1,727,103
|
)
|
|
(471,489
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from sale of investments
|
|
|
-
|
|
|
43,239
|
|
Issuance
(repayments) of loans to franchisees and others, net
|
|
|
9,799
|
|
|
(231,170
|
)
|
Purchase
of plant and equipment
|
|
|
(74,774
|
)
|
|
(51,276
|
)
|
Net
cash used in investing activities
|
|
|
(64,975
|
)
|
|
(239,207
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Redemption
of common stock
|
|
|
(23,100
|
)
|
|
-
|
|
Repayment
of note obligation
|
|
|
(110,000
|
)
|
|
-
|
|
Repayment
of credit line
|
|
|
(200,000
|
)
|
|
|
|
Proceeds
(repayments) of capital lease obligation
|
|
|
11,304
|
|
|
(84,450
|
)
|
Proceeds
from issuance of shares subject to mandatory redemption
|
|
|
-
|
|
|
385,000
|
|
Repayments
(advances) to preferred stockholders
|
|
|
-
|
|
|
(57,500
|
)
|
Proceeds
from sale of common stock
|
|
|
3,196,903
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
2,875,107
|
|
|
243,050
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,083,029
|
|
|
(467,646
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
280,846
|
|
|
667,856
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,363,875
|
|
$
|
200,210
|
|
Supplement
schedule of cash flow information
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
14,719
|
|
$
|
9,165
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
SUPPLEMENTAL
SCHEDULE OF NON CASH INVESTING AND FINANCING
ACTIVITIES:
|
Fair
value of options issued to employees
|
|
$
|
264,990
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB, and therefore,
do
not include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
In
the
opinion of management, all adjustments (consisting of normal recurring
accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended February 29, 2008 are
not
necessarily indicative of the results that may be expected for the fiscal
year
ending August 31, 2008. The unaudited condensed consolidated financial
statements should be read in conjunction with the August 31, 2007 financial
statements and footnotes thereto included in the Company's current report
on Form 8-K filed with the SEC on February 13,
2008.
Business
and Basis of Presentation
Geeks
On
Call America, Inc. was incorporated under the laws of the State of Virginia
on
June 11, 2001 and subsequently reincorporated on December 14, 2007 under
the
laws of the State of Delaware. The Company provides quick-response, on-site
computer solutions and telephone technical support (including services,
on-going, support and training) primarily to small to medium business
enterprises and residential computer users in the United States. On-site
solutions are provided through a network of independent franchisees who
are
certified IT solutions providers conducting business under the trade names
1 800
905 GEEK and Geeks On Call®. While the Company has generated revenues from its
franchise operations, the Company has incurred expenses, and sustained
losses.
Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise. As of February 29, 2008, the
Company
has accumulated losses of $7,037,779.
The
condensed consolidated financial statements include the accounts of the
Company,
which is now named Geeks On Call Holdings, Inc., the registrant (formerly
Lightview, Inc.) and Geeks On Call America, Inc., the wholly - owned subsidiary
of Geeks On Call Holdings, Inc. (the “Company”). All significant intercompany
balances and transactions have been eliminated in consolidation.
Merger
and Corporate Restructure
On
February 8, 2008, the Company consummated a reverse merger by entering
into an
Agreement of Merger and Plan of Reorganization (“Merger”) with the stockholders
of Geeks On Call America, Inc. (the “Share Exchange”), pursuant to which the
stockholders of Geeks On Call America, Inc. (“Geeks”) exchanged all of the
issued and outstanding capital stock of Geeks for 8,000,000 shares of common
stock of Geeks On Call Holdings Inc., representing 79% of Geeks On Call
Holdings, Inc.’s (the “ Parent”) outstanding capital stock, after the return to
treasury and retirement of 2,866,667 shares of common stock of the Parent
held
by certain stockholders of the Parent made concurrently with the share
exchange.
Upon consummation of the Merger, Geeks became a wholly-owned subsidiary
of the
Parent (the “Company”).
The
acquisition is accounted for as a “reverse acquisition”, since the stockholders
of Geeks owned a majority of the Parent’s common stock immediately following the
transaction. The combination of the two companies is recorded as a
recapitalization of Geeks pursuant to which Geeks is treated as the surviving
and continuing entity although the Parent is the legal acquirer. Accordingly,
the Company’s historical financial statements are those of Geeks. The Company
did not recognize goodwill or any intangible assets in connection with
this
transaction.
All
references to common stock, share and per share amounts have been retroactively
restated to reflect the reverse acquisition as if the transaction had taken
place as of the beginning of the earliest period presented.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The
total
consideration paid was $-0- and the significant components of the transaction
are as follows:
Geeks
On Call Holdings, Inc. (Formerly named Lightview, Inc.)
Summary
Statement of Financial Position
At
February 8, 2008
|
|
|
|
Assets:
|
|
$
|
-0-
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Net
liabilities assumed
|
|
$
|
-0-
|
|
|
|
|
|
|
Total
consideration:
|
|
$
|
-0-
|
|
Revenue
Recognition
The
Company accounts for revenue under the guidance provided by SFAS
No.
45
,
“Accounting
for Franchise Fee Revenue (as amended)” and EITF 00-21, “Revenue Arrangements
With Multiple Deliverables”.
Franchise
fee revenue is recognized when obligations of the Company to prepare the
franchisee for operations have been substantially completed, with an appropriate
provision for estimated uncollectible amounts. Area developer sales, wherein
the
Company sells the rights to develop a territory or market, are nonrefundable
fees recognized upon signature of the Area Development Agreement and substantial
completion of all obligations associated with the opening of the first franchise
under the agreement. Initial advertising fees are recognized when the territory
is open and the related advertising has been performed. Ongoing royalties
and
advertising fees are recognized currently as the franchised territory generates
sales and ongoing advertising is performed.
Repossessed
Franchises
From
time
to time the Company may recover franchise rights through repossession if
a
franchisee decides not to open a franchise. If, for any reason, the Company
refunds the consideration received, the original sale is canceled, and revenue
previously recognized is accounted for as a reduction in revenue in the period
the franchise is repossessed. If franchise rights are repossessed but no
refund
is made (a) the transaction is not regarded as a sale cancellation, (b) no
adjustment is made to any previously recognized revenue, (c) any estimated
uncollectible amounts resulting from unpaid receivables is provided for,
and (d)
any consideration retained for which revenue was not previously recognized
is
reported as revenue.
Deferred
Franchise Fees
The
Company may receive all or part of the initial franchise or advertising fee
prior to the execution of the franchise agreement of completion of the earnings
process. These amounts are classified as deferred revenue until the fee
qualifies to be recognized as revenue or is refunded.
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenue and expenses during the reporting period.
Actual
results could differ from those estimates.
Cash
and cash equivalents
For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or
less
to be cash and cash equivalents. The Company had $1,363,875 in cash and cash
equivalents at February 29, 2008.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Allowance
for doubtful accounts
The
Company periodically reviews its trade and notes receivables in determining
its
allowance for doubtful accounts. As of February 29, 2008 and August 31, 2007
allowance for doubtful accounts balance for trade receivables was $36,519
and
15,893, respectively.
Inventories
Inventories,
totaling $134,992 and $69,453 as of February 29, 2008 and August 31, 2007,
respectively, are stated at the lower of cost (first in, first out) or net
realizable value, and consist primarily of products for sale to franchisees,
business forms, marketing and promotional supplies for sale to the Company’s
franchisees. Inventories are included in prepaid expenses and other current
assets in the accompanying balance sheet.
Concentration
of Credit Risk
Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents,
trade receivable and notes receivable. The Company keeps its cash and temporary
cash investments with high credit quality institutions. At times, such
investments may be in excess of the FDIC insurance limit.
Property
and Equipment
Property
and equipment are recorded at cost and depreciated over their estimated useful
lives using the straight-line method as follows:
Office
furniture and equipment
|
|
10
years
|
Computer
equipment
|
|
5
years
|
Vehicles
|
|
5
years
|
Software
|
|
3
years
|
Leasehold
improvements
|
|
lesser
of lease terms or 7
years
|
Expenditures
for repairs and maintenance which do not materially extend the useful lives
of
property and equipment are charged to operations. When property or equipment
is
sold or otherwise disposed of, the cost and related accumulated depreciation
are
removed from the respective accounts with the resulting gain or loss reflected
in operations. Management periodically reviews the carrying value of its
property and equipment for impairment. The property and equipment had not
incurred any impairment loss at February 29, 2008.
Advertising
The
Company follows the policy of charging the costs of advertising to expense
as
incurred. The Company charged to operations $873,622 and $930,718 as advertising
costs for the three-month periods ended February 29 2008 and February 28,
2007,
respectively and $1,872,321 and $1,786,808 for the six-month periods ended
February 29, 2008 and February 28, 2007, respectively.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Impairment
of Long-Lived Assets
The
Company follows Statement of Financial Accounting Standards No. 144,
“
Accounting
for the Impairment or Disposal of Long-Lived Assets
”
(“SFAS
No. 144”). SFAS No. 144 requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses,
or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based
upon
forecasted discounted cash flows. Should impairment in value be indicated,
the
carrying value of the long-lived assets and certain identifiable intangibles
will be adjusted, based on estimates of future discounted cash flows resulting
from the use and ultimate disposition of the asset. SFAS No. 144 also requires
assets to be disposed of be reported at the lower of the carrying amount
or the
fair value less disposal costs.
Stock
Based Compensation
On
December 16, 2004, the FASB issued SFAS No. 123(R) (revised 2004), "
Share-Based
Payment
"
which
is a revision of SFAS No. 123, "
Accounting
for Stock-Based Compensation
".
SFAS
No. 123(R) supersedes APB opinion No. 25, "
Accounting
for Stock Issued to Employees
",
and
amends SFAS No. 95, "
Statement
of Cash Flows
".
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments
to
employees, including grants of employee stock options, to be recognized in
the
income statement based on their fair values. Pro-forma disclosure is no longer
an alternative. The effective date for our application of SFAS No. 123(R)
is
September 1, 2006. Management has elected to apply SFAS No. 123(R) commencing
on
that date.
As
more
fully described in Note 11 below, the Company granted 2,275,000 and -0- stock
options during the six-month period ended February 29, 2008 and February
28,
2007, respectively to employees and directors of the Company under a
non-qualified employee stock option plan.
As
of
February 29, 2008, 2,275,000 employee stock options were outstanding with
300,000 exercisable.
Segment
reporting
The
Company follows SFAS No. 130, “
Disclosures
about Segments of an Enterprise and Related Information
”.
The
Company operates as a single segment and will evaluate additional segment
disclosure requirements as it expands its operations.
Income
taxes
The
Company follows SFAS No. 109, “
Accounting
for Income Taxes
”
(SFAS
No. 109) for recording the provision for income taxes. Deferred tax assets
and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected
to
be realized or settled. Deferred income tax expenses or benefits are based
on
the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required
to
reduce the deferred tax assets to the amount that is more likely than not
to be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which
the
temporary differences are expected to reverse.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Loss
per share
In
accordance with SFAS No. 128, “
Earnings
per Share
”,
the
basic loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares outstanding.
Diluted loss per share is computed similar to basic loss per share except
that
the denominator is increased to include the number of additional common shares
that would have been outstanding as if the potential common shares had been
issued and if the additional common shares were dilutive. Common equivalent
shares are excluded from the computation of the diluted loss per share as
their
effect would be anti-dilutive.
The
following common stock equivalents were excluded from the calculation of
the
diluted loss per share for the three and six month periods ended February
29,
2008 and February 28, 2007 since the effect would have been
anti-dilutive:
|
|
Three
Months
ended
February 29,
2008
|
|
Three
Months
ended
February 28,
2007
|
|
Six
Months
ended
February 29,
2008
|
|
Six
Months
ended
February 28,
2007
|
|
Warrants
|
|
|
1,875,000
|
|
|
-
|
|
|
1,875,000
|
|
|
-
|
|
Stock
options for common stock
|
|
|
300,000
|
|
|
-
|
|
|
300,000
|
|
|
-
|
|
Class
B preferred stock, if converted
|
|
|
-
|
|
|
1,969,742
|
|
|
-
|
|
|
1,969,742
|
|
Class
C preferred stock, if converted
|
|
|
-
|
|
|
619,480
|
|
|
-
|
|
|
619,480
|
|
Total
|
|
|
2,175,000
|
|
|
2,589,222
|
|
|
2,175,000
|
|
|
2,589,222
|
|
Recent
accounting pronouncements
In
February 2006, the FASB issued SFAS No. 155, “
Accounting
for
certain Hybrid Financial Instruments an amendment of FASB Statements No.
133 and
140”
(“SFAS
No. 155”)
.
SFAS No.
155 permits fair value remeasurement for any hybrid financial instrument
that
contains an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of SFAS No. 133, establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, clarifies that concentrations
of
credit risk in the form of subordination are not embedded derivatives, and
amends SFAS No. 140 to eliminate the prohibition on a qualifying special
purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS
No.
155 is effective for all financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15, 2006.
The SFAS No. 155 did not have a material impact on the Company’s financial
position, results of operations or cash flows.
In
March
2006, the FASB issued SFAS No. 156, “
Accounting
for Servicing of Financial Assets - an amendment to FASB Statement No.
140
”
(“SFAS
No. 156”). SFAS No. 156 requires that an entity recognize a servicing asset or
servicing liability each time it undertakes an obligation to service a financial
asset by entering into a service contract under certain situations. The new
standard is effective for fiscal years beginning after September 15, 2006.
SFAS
No.156 did not have a material impact on the Company's financial position,
results of operations or cash flows.
In
July
2006, the FASB issued Interpretation No. 48, “
Accounting
for
uncertainty in Income Taxes”
(“FIN
No.
48”).
FIN No.
48 clarifies the accounting for Income Taxes by prescribing the minimum
recognition threshold a tax position is required to meet before being recognized
in the financial statements. It also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition and clearly scopes income taxes out of
SFAS
No. 5, “
Accounting
for Contingencies”.
FIN No.
48 is effective for fiscal years beginning after December 15, 2006. The Company
did not have a material impact on the Company's financial position, results
of
operations or cash flows.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In
September 2006, FASB issued its SFAS No. 157, “
Fair
Value Measurements
”
(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP),
and
expands disclosures about fair value measurements. SFAS No.157 applies under
other accounting pronouncements that require or permit fair value measurements,
the Board having previously concluded in those accounting pronouncements
that
fair value is the relevant measurement attribute. Accordingly, SFAS No. 157
does
not require any new fair value measurements. However, for some entities,
the
application of SFAS No. 157 will change current practice. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. The Company
does
not expect adoption of this standard will have a material impact on its
financial position, results of operations or cash flows.
In
September 2006 the FASB issued its SFAS No. 158, “
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R)
”
(“SFAS
No. 158”). SFAS No. 158 improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income
of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. SFAS No. 158 also improves financial reporting by requiring
an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date
for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. SFAS No. 158 did not have a material
impact on its financial position, results of operations or cash
flows.
In
December 2006, the FASB issued FSP EITF 00-19-2, “
Accounting
for Registration Payment Arrangements
”
(“
FSP
00-19
-2”)
which addresses accounting for registration payment arrangements.
FSP
00-19
-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether
issued
as a separate agreement or included as a provision of a financial instrument
or
other agreement, should be separately recognized and measured in accordance
with
SFAS No. 5, “Accounting for Contingencies”.
FSP
00-19
-2
further clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the issuance
of
EITF 00-19-2, this guidance shall be effective for financial statements issued
for fiscal years beginning after December 15, 2006 and interim periods within
those fiscal years.
The
Company does not expect adoption of this standard will have a material impact
on
its financial position, results of operations or cash flows
In
February 2007, the FASB issued SFAS No. 159, “
The
Fair Value Option for Financial Assets and Financial
Liabilities
”
(“SFAS
No. 159”).
SFAS
No.
159 permits entities to choose to measure many financial instruments, and
certain other items, at fair value.
SFAS
No.
159 applies to reporting periods beginning after November 15, 2007. The adoption
of SFAS No. 159 is not expected to have a material impact on the Company’s
financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R),
"Business
Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest
in an
acquiree, including the recognition and measurement of goodwill acquired
in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption
is prohibited and the Company is currently evaluating the effect, if any,
that
the adoption will have on its financial position, results of operations or
cash
flows.
GEEKS
ON CALL HOLDINGS, INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent
accounting pronouncements (continued)
In
December 2007, the FASB issued SFAS No. 160,
"Noncontrolling
Interest in Consolidated Financial Statements, an amendment of ARB
No. 51"
("SFAS
No. 160"), which will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity within the consolidated balance sheets.
SFAS
No. 160 is effective as of the beginning of the first fiscal year beginning
on
or after December 15, 2008. Earlier adoption is prohibited and the Company
is currently evaluating the effect, if any, that the adoption will have on
its
financial position, results of operations or cash flows.
In
June 2007, the Accounting Standards Executive Committee issued Statement of
Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide
Investment Companies and Accounting by Parent Companies and Equity Method
Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1
provides guidance for determining whether an entity is within the scope of
the
AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP
07-1 was originally determined to be effective for fiscal years beginning
on or
after December 15, 2007, however, on February 6, 2008, FASB issued a
final Staff Position indefinitely deferring the effective date and prohibiting
early adoption of SOP 07-1 while addressing implementation issues.
In
June
2007, the FASB ratified the consensus in EITF Issue No. 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services to be Used in Future
Research and Development Activities” (EITF 07-3), which requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development (R&D) activities be deferred
and amortized over the period that the goods are delivered or the related
services are performed, subject to an assessment of recoverability.
EITF 07-3 will be effective for fiscal years beginning after
December 15, 2007. The Company does not expect that the adoption of
EITF 07-3 will have a material impact on our consolidated financial
position, results of operations or cash flows.
In
December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1
defines collaborative arrangements and requires collaborators to present
the
result of activities for which they act as the principal on a gross basis
and
report any payments received from (made to) the other collaborators based
on
other applicable authoritative accounting literature, and in the absence
of
other applicable authoritative literature, on a reasonable, rational and
consistent accounting policy is to be elected. EITF 07-1 also provides for
disclosures regarding the nature and purpose of the arrangement, the entity’s
rights and obligations, the accounting policy for the arrangement and the
income
statement classification and amounts arising from the agreement. EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date. The Company has not yet evaluated the potential
impact
of adopting EITF 07-1 on our consolidated financial position, results of
operations or cash flows.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
NOTE
2 - GOING CONCERN MATTERS
The
accompanying condensed consolidated financial statements have been prepared
on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the
accompanying financial statements, the Company incurred a net loss of $1,598,128
and $273,893 for the six-month period ended February 29, 2008 and February
28,
2007, respectively. Additionally, the Company has negative cash flows from
operation of $1,727,103 and an accumulated deficit of $7,037,779 as of February
29, 2008. These factors among others may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
GEEKS
ON CALL HOLDINGS, INC
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
2 - GOING CONCERN MATTERS (continued)
The
Company’s continued existence is dependent upon management’s ability to develop
profitable operations and resolve its liquidity problems. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount
and
classification of liabilities that might result should the Company be unable
to
continue as a going concern.
The
Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors. There can be no assurance
that
the Company will be successful in its effort to secure additional equity
financing.
NOTE
3 - NOTES RECEIVABLE
Note
receivables are recorded at cost, less allowance for doubtful accounts, if
applicable. Repayment of the notes receivable is dependent on the performance
of
the underlying franchises that collateralize the notes receivable. An allowance,
if applicable, is estimated based on a comparison of amounts due to the
estimated fair value of the underlying franchise. There is no allowance as
of
February 29, 2008 and August 31, 2007.
At
February 29, 2008 and August 31, 2007, the notes receivable consists of bridge
loans offered to franchises during the period which the franchise is
establishing their permanent financing with a third party lender. The notes
receivable bear an interest rate of 9% per annum and are recorded at face
value.
Interest is recognized over the life of the note receivable.
A
summary
of the notes receivable are as follows:
|
|
February
29,
2008
|
|
August
31,
2007
|
|
Notes
receivable, 9% per annum, secured by
Franchise
|
|
$
|
519,817
|
|
$
|
552,891
|
|
Less:
Current portion:
|
|
|
(88,196
|
)
|
|
(145,892
|
)
|
Long
term portion:
|
|
$
|
431,621
|
|
$
|
406,999
|
|
NOTE
4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consist primarily of advance payments for
advertising with various forms of media and saleable promotional supplies
or
inventories as follows:
|
|
February
29,
2008
|
|
August
31,
2007
|
|
Prepaid
expenses
|
|
$
|
323,787
|
|
$
|
185,949
|
|
Promotional
supplies and inventories
|
|
|
134,992
|
|
|
69,453
|
|
|
|
$
|
458,779
|
|
$
|
255,402
|
|
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
5 - PROPERTY AND EQUIPMENT
As
of
February 29, 2008 and August 31, 2007; property and equipment was comprised
of
the following:
|
|
February
29,
2008
|
|
August
31,
2007
|
|
Office
furniture and equipment
|
|
$
|
349,259
|
|
$
|
349,259
|
|
Computer
equipment
|
|
|
367,449
|
|
|
355,003
|
|
Vehicles
|
|
|
60,885
|
|
|
60,885
|
|
Software
|
|
|
307,879
|
|
|
245,551
|
|
Leasehold
improvements
|
|
|
51,267
|
|
|
51,267
|
|
|
|
|
1,136,739
|
|
|
1,061,965
|
|
Less:
accumulated depreciation
|
|
|
(651,166
|
)
|
|
(578,108
|
)
|
|
|
$
|
485,573
|
|
$
|
483,857
|
|
For
the
three-month periods ended February 29, 2008 and February 28, 2007, depreciation
expense charged to operations was $36,911 and $41,510, respectively. For
the
six-month periods ended February 29, 2008 and February 28, 2007, depreciation
expense charged to operations was $73,058 and $85,992,
respectively.
NOTE
6 - TRADEMARKS
Trademarks
are recorded at cost and are amortized ratably over 15 years as summarized
below:
|
|
February
29,
2008
|
|
August
31,
2007
|
|
Trademarks
|
|
$
|
14,333
|
|
$
|
14,333
|
|
Less
accumulated amortization
|
|
|
(6,211
|
)
|
|
(5,733
|
)
|
|
|
$
|
8,122
|
|
$
|
8,600
|
|
For
the
three-month period February 29, 2008 and February 28, 2007, the amortization
expense charged to operations was $239 and $239, respectively. For the six-month
period February 29, 2008 and February 28, 2007, the amortization expense
charged
to operations was $478 and $478, respectively.
NOTE
7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of
February 29, 2008 and August 31, 2007, accounts payable and accrued liabilities
are comprised of the following:
|
|
February
29,
2008
|
|
August
31,
2007
|
|
Accounts
payable
|
|
$
|
916,530
|
|
$
|
970,013
|
|
Accrued
salaries and expenses
|
|
|
153,386
|
|
|
169,197
|
|
Payroll
taxes payable
|
|
|
11,164
|
|
|
2,877
|
|
|
|
$
|
1,081,080
|
|
$
|
1,142,087
|
|
NOTE
8 - LINE OF CREDIT
The
Company has established a revolving bank line of credit with a financial
institution. On October 13, 2006, the line of credit was increased from $200,000
to $700,000. The line of credit accrues interest at prime plus 0.5% interest
per
annum and is collateralized by inventory, accounts receivable, equipment
and
other instruments of the Company. The line does not have an expiration
date.
As
of
February 29, 2008, the Company had no borrowings against a line of
credit.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
9 - SHARES SUBJECT TO MANDATORY REDEMPTION
Class
D - Preferred Stock
During
the year ended August 31, 2007, the Company sold an aggregate of 123,201
shares
of its Class D Preferred Stock at an average price of $5.56 per share,
mandatorily redeemable on the fifth anniversary from the date of issuance
at
market value of the Company multiplied by the put fraction as described in
the
Articles of Incorporation. The put fraction numerator is the number of shares
of
common stock the Class D Preferred stock is convertible into and the
denominator is the sum of these shares plus the then outstanding common
stock.
The
holder of Class D Preferred stock will have the right to convert all, but
not
less than all, of the Class D Preferred stock at the option of the holder
at any
time into Common stock. The number of shares of Common stock is determined
as
follows: the sum of (A) the number of shares being converted plus (B) all
earned
but unpaid dividends with respect to converted shares, whether or not declared,
to and including the time to conversion, divided by 5.56 plus (C) a fraction,
numerator of which is 5.56 multiplied by the number of shares being converted,
and the denominator of which is 3.85.
The
Company has properly classified the Class D Preferred stock as liabilities
at August 31, 2007 because these instruments embody obligations to repurchase
the Company’s equity shares that require the Company to settle by transferring
its assets at the holders’ option not the issuer’s option.
On
December 14, 2007, the Company issued 534,828 shares of common stock in exchange
for 103,417 shares of Class D Preferred Stock and issued 17,397 shares of
common
stock in settlement of unpaid dividends. Additionally, the Company issued
a
promissory note for $110,000 in exchange for the remaining 19,784 shares
of
Class D Preferred Stock. The promissory note was paid off as of February
29,
2008
NOTE
10 - STOCKHOLDERS’ EQUITY
Preferred
stock
As
of
August 31, 2007, the Company was authorized four classes of preferred stock:
Class A has 200,000 authorized shares; Class B has 167,130 authorized shares;
Class C has 128,870 authorized shares and Class D has 179,860 authorized
shares.
All classes have no par value.
On
December 14, 2007, the Company filed an “Amended and Restated Certificate of
Incorporation” with the State of Delaware. With the amendment and restatement,
the Company is authorized to issue two classes of stock to be designated,
respectively, “Common Stock” and “Preferred Stock”. The total number of shares
the Company is authorized to issue is five million seven hundred thousand
(5,700,000) shares. Five million (5,000,000) shares shall be $0.001 par value
Common Stock and seven hundred (700,000) shares shall be $0.001 par value
Preferred stock. The Preferred Stock authorized by the Amended and Restated
Certificate of Incorporation may be issued from time to time in one or more
class.
As
a
result of the merger as of February 8, 2008 described in Note 1 above, the
Company is authorized to issue 10,000,000 of $0.001 par value preferred stock
and 100,000,000 shares of $0.001 par value common stock.
Class
A - Preferred stock
Class
A -
Preferred stock did not carry voting rights and is redeemable upon demand
at the
original purchase price plus any accrued dividends. Each share is convertible
by
the holder into one share of common stock after a holding period of one year.
As
of May 6, 2004; all outstanding shares of Class A - Preferred stock were
converted into common shares.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
10 - STOCKHOLDERS’ EQUITY (continued)
Class
B - Preferred stock
Class
B Preferred stock carried voting rights and is entitled to receive, when
and as declared by the board of directors, cumulative annual dividends at
an
annual rate of $1.077 per share. The dividends accumulate and accrue on a
day to
day basis whether or not earned or declared. Unless all accumulative dividends
of Class B Preferred stock for all past and current dividend periods have
been
paid or declared, no dividends other than a dividend solely in common stock
will
be paid or declared by the Company. The Company cannot sell, redeem or acquire
shares of its common stock or Class A Preferred stock unless all cumulative
dividends of Class B Preferred stock have been paid or declared.
Holders
of the Class B Preferred stock can require the Company to repurchase the
shares
five years from the date of issuance at market value of the Company multiplied
by the put fraction. The put fraction numerator is the number of shares of
common stock the Class B Preferred stock is convertible into and the denominator
is the sum of the total number of shares of common stock into which all
securities of the Company convertible into common stock then outstanding
could
be converted (including all such shares included in the numerator of the
put
fraction).
Conversion
The
holder of Class B Preferred stock will have the right to convert all, but
not
less than all, of the Class B Preferred stock at the option of the holder
at any
time into Common stock. The number of shares of Common Stock is determined
as
follows: the sum of the Conversion Ratio Share Number and the Return of Capital
Share Number. For purposes of such calculation, the following terms shall
have
the following meanings:
“Conversion
Ratio Share Number”
means
the product of (A) 1.00186 and (B) the sum of (y) the number of shares being
converted multiplied by 3 and (z) the Dividend Accrual Share Number
“Dividend
Accrual Share Number”
means
all earned but unpaid dividends with respect to converted shares, whether
or not
declared, to and including, the time of conversion, divided by
10.77.
“Return
of Capital Share Number”
means
the
quotient of (A) 10.77 multiplied by the number of shares being converted,
divided by (B) 3.85
In
December 2005, the Company redeemed 2,669 shares of Class B Preferred stock
at
$21.54 per share.
In
March
2006, the Company redeemed 4,057 shares of Class B Preferred stock at $21.54
per
share.
In
December 14, 2007, the Company issued 1,969,742 shares of common stock in
exchange for the remaining 160,404 shares of Class B Preferred Stock and
issued
128,014 shares of common stock in settlement of accumulative and unpaid
dividends.
Class
C - Preferred stock
Class
C Preferred stock carried voting rights and is entitled to receive, when
and as declared by the board of directors, cumulative annual dividends at
an
annual rate of $0.56 per share. The dividends accumulate and accrue on a
day to
day basis whether or not earned or declared. Unless all accumulative dividends
of Class C Preferred stock for all dividend periods have been paid or
declared, no dividends other than a dividend solely in common stock will
be paid
or declared by the Company. The Company cannot sell, redeem or acquire shares
of
its common stock unless all cumulative dividends of Class C Preferred stock
have
been paid or declared.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
10 - STOCKHOLDERS’ EQUITY (continued)
Conversion
The
any
holder of Series C Preferred stock will have the right to convert all, but
not
less than all, of the Series C Preferred stock at the option of the holder
at
any time into Common stock. The number of shares of Common stock is determined
as follows: the sum of (A) the number of shares being converted plus (B)
all
earned but unpaid dividends with respect to converted shares, divided by
5.56
plus (C) a fraction, numerator of which is 5.56 multiplied by the number
of
shares being converted, and the denominator of which is 3.85.
Holders
of the Class C Preferred stock can require the Company to repurchase the
shares
commencing five years from the date of issuance at market value of the Company
multiplied by the put fraction. The put fraction numerator is the number
of
shares of common stock the Class C Preferred stock is convertible into and
the
denominator is the sum of the total number of shares of common stock into
which
all securities of the Company convertible into common stock then outstanding
could be converted (including all such shares included in the numerator of
the
put fraction).
During
the year ended August 31, 2006, the Company sold an aggregate of 119,784
shares
of its Class C Preferred stock at an average price of $5.56 per share adjusted
for stock dividends, splits or issuances of common stock below the initial
conversion price.
In
December 14, 2007, the Company issued 619,480 shares of common stock in exchange
for 119,784 shares of Class C-Preferred stock (representing all) and issued
35,995 shares of common stock in settlement of accumulative and unpaid
dividends.
All
issued and outstanding preferred stock had been converted to the Company’s
common stock as of February 29, 2008.
Common
stock
The
Company is authorized to issue 100,000,000 shares of its common stock with
a par
value of $.001. As of February 29, 2008 and August 31, 2007, there were
13,800,000 and 4,707,229 shares of common stock issued and
outstanding.
In
conjunction with the merger as described on February 8, 2008; the Company
split
it’s outstanding shares of common at a ratio of 1:2.115868. All references in
the financial statements and notes to financial statements, numbers of shares
and share amounts have been retroactively restated to reflect the
split.
In
year
ended August 31, 2007, the Company issued an aggregate of 4,071 shares of
common
stock for services rendered valued at $9,618
On December
14, 2007, the Company issued a total of 2,097,756 shares of common stock in
exchange for 160,404 shares of Class B Preferred stock and accrued and
unpaid dividends.
On
December 14, 2007, the Company issued a total of 655,475 shares of common
stock
is exchange for 119,784 shares of Class C Preferred stock and accrued and
unpaid dividends.
On
December 14, 2007, the Company issued a total of 552,225 shares of common
stock
in exchange for 103,417 shares of Class D Preferred stock and accrued and
unpaid
dividends
NOTE
11 - WARRANTS AND OPTIONS
During
the six-month period ended February 29, 2008, the Company issued 1,825,000
warrants to purchase its common stock at $1.50 per share over the next
five
years. The warrants were issued in conjunction with the Private Placement
of the
Company’s common stock.
GEEKS
ON CALL HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FEBRUARY
29, 2008
(unaudited)
NOTE
11 - WARRANTS AND OPTIONS (continued)
Restricted
Stock Awards.
On
February 8, 2008, the Company established a non qualified “2008 Equity Incentive
Plan” whereby the Company may grant options with vesting to be determined from
time to time at the prevailing market price of the stock at the time of the
grant date. The terms of the options are not to exceed ten years. The Company
has reserved 3,000,000 shares of its common stock under the incentive
plan.
On
February 8, 2008, the Company granted an aggregate of 2,275,000 options to
purchase its common stock at $1.00 per share over the next six years. The
fair
value, determined using the Black Scholes Option Pricing Model, of the vested
portion of the options of $264,990 was recorded as stock compensation expense
for the three and six month period ended February 29, 2008. The following
assumptions were utilized: Dividend yield: -0-%, volatility: 124.86%; risk
free
rate: 2.60%; expected life: 6 years.
NOTE
12 - RELATED PARTY TRANSACTIONS
As
of
February 29, 2008, the Company was due for travel and other advances from
officers and employees of $65,761. Subsequent to February 29, 2008, all
advances
have been repaid.
In
October 2007, the Company entered into an exclusive private label/marketing
agreement (the “Agreement”) with Telkonet, Inc. (a major supplier of the
Company) for products under the trade name Geek Link System. Pursuant to
the
Agreement, the Company is to resale these private labeled products to customers
through the Company’s existing network of franchisees. In addition, the Company,
Telkonet, Inc. and certain stockholders of the Company entered into an agreement
whereby Telkonet, Inc. acquired 1,160,043.435 shares of the Company’s common
stock from these existing stockholders, which in effect transferred 39.6%
ownership in the Company to Telkonet, Inc. by these stockholders. With the
effect of the December 14, 2007 preferred stock conversion, Telkonet Inc.’s
ownership of the Company decreased to 30.68%.
NOTE
13 - SUBSEQUENT EVENTS
On
March
12, 2008, the Company entered into an Asset Purchase Agreement (the “Agreement”)
with Mr. Gregory C. Hutson (the “Seller”).
Pursuant
to the Agreement, the Company acquired from the Seller certain software or
protocol known as quiXsupport Helpdesk Software, together with related
intellectual property rights, including the rights to the domain names
RemoteMe.com, Virtual-Geek.com and MrHelpdesk.com (the “TTS Process”). In
consideration for the acquired assets, the Company agreed to pay the
Seller $100,000 in cash and 125,000 shares of unregistered common stock.
The Agreement does not prohibit the Company from licensing or otherwise
acquiring other technology in the future which may be similar to the TTS
Process.
In
connection with the acquisition of the assets, the Company entered into
a consulting agreement with the Seller expiring on September 30,
2009 (the “Consulting Agreement”). The consulting fees payable to the
Seller are approximately $76,000 over the term of the Consulting
Agreement.
On
March
28, 2008, the board of directors appointed Keith Wesp to the position of
Vice
President of Finance and Richard Artese to the position of Executive Vice
President and Chief Operating Officer.
GEEKS
ON
CALL HOLDINGS, INC.
5,767,000
Shares
Common
Stock
PROSPECTUS
________________,
2008
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth the costs and expenses payable by us in connection
with the issuance and distribution of the securities being registered. None
of
the following expenses are payable by the selling stockholders. All of the
amounts shown are estimates, except for the SEC registration fee.
SEC
registration fee
|
|
$
|
283.30
|
|
Legal
fees and expenses
|
|
$
|
35,000.00
|
|
Accounting
fees and expenses
|
|
$
|
|
|
Miscellaneous
|
|
$
|
4,716.70
|
|
TOTAL
|
|
$
|
|
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section
145 of the Delaware General Corporation Law (the “DGCL”) provides, in general,
that a corporation incorporated under the laws of the State of Delaware, as
we
are, may indemnify any person who was or is a party or is threatened to be
made
a party to any threatened, pending or completed action, suit or proceeding
(other than a derivative action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer, employee or agent
of
the corporation, or is or was serving at the request of the corporation as
a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person’s conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit
if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that
no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery of the State of Delaware
or
any other court in which such action was brought determines such person is
fairly and reasonably entitled to indemnity for such expenses.
Our
Certificate of Incorporation and Bylaws provide that we will indemnify our
directors, officers, employees and agents to the extent and in the manner
permitted by the provisions of the DGCL, as amended from time to time, subject
to any permissible expansion or limitation of such indemnification, as may
be
set forth in any stockholders’ or directors’ resolution or by contract. In
addition, our director and officer indemnification agreements with each of
our
directors and officers provide, among other things, for the indemnification
to
the fullest extent permitted or required by Delaware law, provided that no
indemnitee will be entitled to indemnification in connection with any claim
initiated by the indemnitee against us or our directors or officers unless
we
join or consent to the initiation of the claim, or the purchase and sale of
securities by the indemnitee in violation of Section 16(b) of the Exchange
Act.
Any
repeal or modification of these provisions approved by our stockholders will
be
prospective only and will not adversely affect any limitation on the liability
of any of our directors or officers existing as of the time of such repeal
or
modification.
We
are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions, whether or
not
the DGCL would permit indemnification.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
Sales
by Geeks On Call
On
June
30, 2006,
Geeks
On
Call
issued
80,935.252 shares of Series C Preferred Stock (the “Series C Shares”) to RTC. On
August 31, 2006, Geeks On Call issued an additional 38,848.921 Series C Shares
to RTC. The Series C shares were converted into 309,790 shares of its common
stock prior to the consummation of the Merger.
On
August
11, 2006, Geeks On Call was authorized to sell 179,860 shares of Series D
Preferred Stock (the “Series D Shares”) at a price of $5.56 per share. Geeks On
Call issued 42,266.187 Series D Shares on September 29, 2006; 17,985.612 Series
D Shares on October 23, 2006; 8,992.806 Series D Shares on November 14, 2006;
8,992.806 Series D Shares on April 10, 2007; 8,992.806 Series D Shares on July
13, 2007 and 35,971.223 Series D Shares on July 30, 2007.
The
Series D shares were converted into 260,992 shares of its common stock prior
to
the consummation of the Merger.
The
sale
of the Series C Shares and the Series D shares was made solely to “accredited
investors,” as that term is defined in Regulation D under the Securities Act.
The Series C Shares and the Series D Shares were not registered under the
Securities Act, or the securities laws of any state, and were offered and sold
in reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions
of
state securities laws, which exempt transactions by an issuer not involving
any
public offering.
Sales
by Geeks On Call Holdings
On
December 22, 2006 by action taken by our former board of directors, we
issued
500,000 shares of our common stock to Ryan Goldstein, our former President,
Treasurer, and Director. The shares were issued in consideration for his
time
efforts, and services in connection with the founding of our company. Our
former
board of directors determined that such services had a value equal to $500.
Our
former board of directors further determined that the value of shares of
our
common stock on December 22, 2006 was equal to their par value, $0.001
per
share. This transaction was conducted in reliance upon an exemption from
registration provided under Section 4(2) of the Securities Act. At the
time, Mr.
Goldstein was our officer and director and had access to all of the information
which would be required to be included in a registration statement, and
the
transaction did not involve a public offering.
On
December 28, 2006, by action taken by our former board of directors, we
issued
1,500,000 shares of our common stock to Daniel Kominars, our former Secretary
and Director. The shares were issued in consideration for his time, efforts,
and
services in connection with the founding of our company. Our former board
of
directors determined that such services had a value equal to $1,500. Our
former
board of directors further determined that the value of shares of our common
stock on December 28, 2006 was equal to their par value, $0.001 per share.
This
transaction was conducted in reliance upon an exemption from registration
provided under Section 4(2) of the Securities Act. At the time, Mr. Kominars
was
our officer and director and had access to all of the information which
would be
required to be included in a registration statement, and the transaction
did not
involve a public offering.
In
January through March of 2007, we issued 1,500,000 shares of common stock
to 62
investors. The purchase price paid for such shares was $0.04 per share,
amounting in the aggregate to $60,000.00. The shares were offered and sold
in a
Private Placement pursuant to the exemption from the registration requirements
of the Securities Act provided by Regulation S promulgated thereunder.
Each
purchaser represented to us that such purchaser was not a United States
person
(as defined in Regulation S) and was not acquiring the shares for the account
or
benefit of a United States person. Each purchaser further represented that
at
the time of the origination of contact concerning the subscription for
the units
and the date of the execution and delivery of the subscription agreement
for
such units, such purchaser was outside of the United States. We did not
make any
offers in the United States, and there were no selling efforts in the United
States. There were no underwriters or broker-dealers involved in the Private
Placement and no underwriting discounts or commissions were
paid.
At
the
closing of the Merger on February 8, 2008, 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 our 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 our
common stock were issued to the holders of Geeks On Call’s common stock. The
sales of these securities were deemed to be exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, as
transactions by an issuer not involving a public offering. The recipients
of
securities in each such transaction represented their intention to acquire
the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates issued in such transactions. All recipients were accredited
or
sophisticated persons and had adequate access, through employment, business
or
other relationships, to information about us.
Subsequent
to the closing of the Merger, we accepted subscriptions for a total of 365
units
in the Private Placement, consisting of an aggregate of 3,650,000 shares of
the
our common stock and warrants to purchase an aggregate of 2,117,000 shares
of
common stock at an exercise price of $1.50 per share, for a per unit purchase
price of $10,000. We received net proceeds from such closing of the Private
Placement of $3,193,253.
The
Private Placement was made solely to “accredited investors,” as that term is
defined in Regulation D under the Securities Act. The securities sold in the
Private Placement were not registered under the Securities Act, or the
securities laws of any state, and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule
506)
under the Securities Act and corresponding provisions of state securities laws,
which exempt transactions by an issuer not involving any public
offering.
On
February 8, 2008, we entered into a consulting agreement with First Montauk
Securities Corp. 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 is for six months. First Montuak Securities Corp. received
150,000
unregistered shares of our common stock upon consummation of the Merger as
a fee
for providing us the foregoing services.
The
securities granted to First Montauk Securities Corp. were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by Section 4(2)
and
Regulation D (Rule 506) under the Securities Act and corresponding provisions
of
state securities laws, which exempt transactions by an issuer not involving
any
public offering.
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
No.
|
|
Description
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of February 8, 2008, by and among Geeks
On
Call Holdings, Inc., Geeks On Call America, Inc. and Geeks On Call
Acquisition Corp. (Incorporated by reference to Exhibit 2.1 of our
Current
Report on Form 8-K filed on February 13,
2008)
|
3.1
|
|
Certificate
of Incorporation (Incorporated herein by reference to Exhibit 3.1
to the
Company’s Current Report on Form 8-K filed January 25,
2008)
|
|
|
|
3.2
|
|
Bylaws
(Incorporated by reference to Exhibit 3.2 to our Current Report
on Form
8-K filed January 25, 2008)
|
|
|
|
5.1*
|
|
Opinion
of Haynes and Boone, LLP
|
|
|
|
10.1
|
|
Form
of Subscription Agreement (Incorporated by reference to Exhibit
10.1 of
our Current Report on Form 8-K filed on February 22,
2008)
|
|
|
|
10.2
|
|
Form
of Investor and Placement Agent Warrant (Incorporated by reference
to
Exhibit 10.2 of our Current Report on Form 8-K filed on February
13,
2008)
|
|
|
|
10.3
|
|
Form
of Lockup Agreement (Incorporated by reference to Exhibit 10.3
of our
Current Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.4
|
|
Placement
Agent Agreement, dated October 22, 2007, between Geeks On Call
America,
Inc. and First Montauk Securities Corp. (Incorporated by reference
to
Exhibit 10.4 of our Current Report on Form 8-K filed on February
22,
2008)
|
|
|
|
10.5
|
|
Placement
Agent Amendment No. 1, dated January 18, 2008, between Geeks On
Call
America, Inc. and First Montauk Securities Corp. (Incorporated
by
reference to Exhibit 10.5 of our Current Report on Form 8-K filed
on
February 22, 2008)
|
|
|
|
10.6
|
|
Placement
Agent Amendment No. 2, dated January 31, 2008, between Geeks On
Call
America, Inc. and First Montauk Securities Corp. (Incorporated
by
reference to Exhibit 10.6 of our Current Report on Form 8-K filed
on
February 22, 2008)
|
|
|
|
10.7
|
|
Form
of Directors and Officers Indemnification Agreement (Incorporated
by
reference to Exhibit 10.3 of our Current Report on Form 8-K filed
on
February 13, 2008)
|
|
|
|
10.8
|
|
Employment
Agreement, dated February 8, 2008, between Geeks On Call Holdings,
Inc.
and Richard T. Cole (Incorporated by reference to Exhibit 10.4
of our
Current Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.9
|
|
Employment
Agreement dated February 8, 2008, between Geeks On Call Holdings,
Inc. and
Richard Artese (Incorporated by reference to Exhibit 10.5 of our
Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.10
|
|
Employment
Agreement dated February 8, 2008, between Geeks On Call Holdings,
Inc. and
Keith Wesp (Incorporated by reference to Exhibit 10.6 of our Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.11
|
|
Consulting
Agreement dated February 8, 2008, between Geeks On Call Holdings,
Inc. and
Douglas Glenn (Incorporated by reference to Exhibit 10.7 of our
Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.12
|
|
Asset
Purchase Agreement dated March 12, 2008, between Geeks On Call
Holdings,
Inc. and Mr. Gregory C. Hutson (Incorporated by reference to Exhibit
10.1
of our Current Report on Form 8-K filed on March 18,
2008)
|
|
|
|
10.13
|
|
Geeks
On Call Holdings, Inc. 2008 Equity Incentive Plan (Incorporated
by
reference to Exhibit 10.8 of our Current Report on Form 8-K filed
on
February 13, 2008)
|
|
|
|
10.14
|
|
Form
of 2008 Incentive Stock Option Agreement (Incorporated by reference
to
Exhibit 10.9 of our Current Report on Form 8-K filed on February
13,
2008)
|
10.15
|
|
Form
of 2008 Non-Qualified Stock Option Agreement (Incorporated by reference
to
Exhibit 10.10 of our Current Report on Form 8-K filed on February
13,
2008)
|
|
|
|
10.16
|
|
Agreement
of Conveyance, Transfer and Assignment of Assets and Assumption of
Obligations dated as of February 8, 2008, by and between Geeks On
Call
Holdings, Inc. and Lightview Holdings (Incorporated by reference
to
Exhibit 10.11 of our Current Report on Form 8-K filed on February
13,
2008)
|
|
|
|
16.1
|
|
Letter
of Davis Accounting Group, P.C., Certified Public Accountants
(Incorporated by reference to Exhibit 16.1 of our Current Report
on Form
8-K filed on February 13, 2008)
|
|
|
|
21.1
|
|
List
of Subsidiaries (Incorporated by reference to Exhibit 21.1 of our
Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
23.1**
|
|
Consent
of RBSM, LLP
|
|
|
|
23.2*
|
|
Consent
of Haynes and Boone, LLP (included in Exhibit 5.1)
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature
page)
|
________________
*To
be
filed by amendment.
**Filed
herewith.
ITEM
17. UNDERTAKINGS.
The
undersigned registrant hereby undertakes to:
(1)
File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(A)
Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(B)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end
of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the effective registration
statement;
(C)
Include any additional or changed material information on the plan of
distribution.
(2)
For
determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona
fide offering thereof.
(3) File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4) For
determining liability of the undersigned registrant under the Securities Act
of
1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities
of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if
the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(A) Any
preliminary prospectus or prospectus of the undersigned registrant relating
to
the offering required to be filed pursuant to Rule 424 under the Securities
Act
of 1933;
(B) Any
free writing prospectus relating to the offering prepared by or on behalf of
the
undersigned registrant or used or referred to by the undersigned
registrant;
(C) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(D) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such
issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided
,
however
,
that no
statement made in a registration statement or prospectus that is part of the
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norfolk, State of
Virginia on the 18
th
day of April, 2008.
GEEKS
ON CALL HOLDINGS, INC.
|
|
|
By:
|
/s/
Richard T. Cole
|
|
Name:
Richard T. Cole
|
|
Title:
Chief Executive Officer
|
POWER
OF
ATTORNEY
KNOW
ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Richard T. Cole and Keith Wesp his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and all
capacities, to sign any or all further amendments or supplements (including
post-effective amendments filed pursuant to Rule 462(b) of the Securities Act
of
1933) to this registration statement and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the SEC, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and
about the premises, as fully as to all intents and purposes as he might or
could
do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause
to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
Chief
Executive Officer and Chairman of the Board of
Directors
(Principal Executive Officer)
|
|
April
18, 2008
|
/s/
Richard T. Cole
|
Richard
T. Cole
|
|
|
|
|
|
|
|
|
|
|
|
Vice
President of Finance and Assistant Secretary
(Principal
Financial and Accounting Officer)
|
|
|
/s/
Keith Wesp
|
Keith
Wesp
|
|
|
|
|
|
|
|
|
|
/s/
Ronald W. Pickett
|
|
Vice-Chairman
of the Board of Directors
|
|
|
Ronald
W. Pickett
|
|
|
|
|
|
|
|
|
|
/s/
Robert P. Crabb
|
|
Director
and Secretary
|
|
|
Robert
P. Crabb
|
|
|
|
|
|
|
|
|
|
/s/
James Weathers
|
|
Director
|
|
|
James
Weathers
|
|
|
|
|
|
|
|
|
|
/s/
Jim Johnsen
|
|
Director
|
|
|
Jim
Johnsen
|
|
|
|
|
|
|
|
|
|
/s/
Steve Sanford
|
|
Director
|
|
|
Steve
Sanford
|
|
|
|
|
|
|
|
|
|
/s/
Douglas Glenn
|
|
Director
|
|
|
Douglas
Glenn
|
|
|
|
|
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of February 8, 2008, by and among Geeks
On
Call Holdings, Inc., Geeks On Call America, Inc. and Geeks On Call
Acquisition Corp. (Incorporated by reference to Exhibit 2.1 of our
Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
3.1
|
|
Certificate
of Incorporation (Incorporated herein by reference to Exhibit 3.1
to the
Company’s Current Report on Form 8-K filed January 25,
2008)
|
|
|
|
3.2
|
|
Bylaws
(Incorporated by reference to Exhibit 3.2 to our Current Report on
Form
8-K filed January 25, 2008)
|
|
|
|
5.1*
|
|
Opinion
of Haynes and Boone, LLP
|
|
|
|
10.1
|
|
Form
of Subscription Agreement (Incorporated by reference to Exhibit 10.1
of
our Current Report on Form 8-K filed on February 22,
2008)
|
|
|
|
10.2
|
|
Form
of Investor and Placement Agent Warrant (Incorporated by reference
to
Exhibit 10.2 of our Current Report on Form 8-K filed on February
13,
2008)
|
|
|
|
10.3
|
|
Form
of Lockup Agreement (Incorporated by reference to Exhibit 10.3 of
our
Current Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.4
|
|
Placement
Agent Agreement, dated October 22, 2007, between Geeks On Call America,
Inc. and First Montauk Securities Corp. (Incorporated by reference
to
Exhibit 10.4 of our Current Report on Form 8-K filed on February
22,
2008)
|
|
|
|
10.5
|
|
Placement
Agent Amendment No. 1, dated January 18, 2008, between Geeks On Call
America, Inc. and First Montauk Securities Corp. (Incorporated by
reference to Exhibit 10.5 of our Current Report on Form 8-K filed
on
February 22, 2008)
|
|
|
|
10.6
|
|
Placement
Agent Amendment No. 2, dated January 31, 2008, between Geeks On Call
America, Inc. and First Montauk Securities Corp. (Incorporated by
reference to Exhibit 10.6 of our Current Report on Form 8-K filed
on
February 22, 2008)
|
|
|
|
10.7
|
|
Form
of Directors and Officers Indemnification Agreement (Incorporated
by
reference to Exhibit 10.3 of our Current Report on Form 8-K filed
on
February 13, 2008)
|
|
|
|
10.8
|
|
Employment
Agreement, dated February 8, 2008, between Geeks On Call Holdings,
Inc.
and Richard T. Cole (Incorporated by reference to Exhibit 10.4 of
our
Current Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.9
|
|
Employment
Agreement dated February 8, 2008, between Geeks On Call Holdings,
Inc. and
Richard Artese (Incorporated by reference to Exhibit 10.5 of our
Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.10
|
|
Employment
Agreement dated February 8, 2008, between Geeks On Call Holdings,
Inc. and
Keith Wesp (Incorporated by reference to Exhibit 10.6 of our Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
10.11
|
|
Consulting
Agreement dated February 8, 2008, between Geeks On Call Holdings,
Inc. and
Douglas Glenn (Incorporated by reference to Exhibit 10.7 of our Current
Report on Form 8-K filed on February 13,
2008)
|
10.12
|
|
Asset
Purchase Agreement dated March 12, 2008, between Geeks On Call
Holdings,
Inc. and Mr. Gregory C. Hutson (Incorporated by reference to Exhibit
10.1
of our Current Report on Form 8-K filed on March 18,
2008)
|
|
|
|
10.13
|
|
Geeks
On Call Holdings, Inc. 2008 Equity Incentive Plan (Incorporated
by
reference to Exhibit 10.8 of our Current Report on Form 8-K filed
on
February 13, 2008)
|
|
|
|
10.14
|
|
Form
of 2008 Incentive Stock Option Agreement (Incorporated by reference
to
Exhibit 10.9 of our Current Report on Form 8-K filed on February
13,
2008)
|
|
|
|
10.15
|
|
Form
of 2008 Non-Qualified Stock Option Agreement (Incorporated by reference
to
Exhibit 10.10 of our Current Report on Form 8-K filed on February
13,
2008)
|
|
|
|
10.16
|
|
Agreement
of Conveyance, Transfer and Assignment of Assets and Assumption
of
Obligations dated as of February 8, 2008, by and between Geeks
On Call
Holdings, Inc. and Lightview Holdings (Incorporated by reference
to
Exhibit 10.11 of our Current Report on Form 8-K filed on February
13,
2008)
|
|
|
|
16.1
|
|
Letter
of Davis Accounting Group, P.C., Certified Public Accountants
(Incorporated by reference to Exhibit 16.1 of our Current Report
on Form
8-K filed on February 13, 2008)
|
|
|
|
21.1
|
|
List
of Subsidiaries (Incorporated by reference to Exhibit 21.1 of our
Current
Report on Form 8-K filed on February 13, 2008)
|
|
|
|
23.1**
|
|
Consent
of RBSM, LLP
|
|
|
|
23.2*
|
|
Consent
of Haynes and Boone, LLP (included in Exhibit 5.1)
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature
page)
|
________________
*To
be
filed by amendment.
**Filed
herewith.
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