Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the transition period from _____ to ________
Commission File Number 0-25753
Nevada 87-0449667
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
903 Clint Moore Road, Boca Raton, Florida 33487
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Securities registered pursuant to Section 12(g) of the Exchange Act:
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act ). Yes [ ] No [X].
State issuer's revenue for its most recent fiscal year: $29,995,265
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within the past 60 days (see definition of affiliate in Rule 12b-2 of the Exchange Act). Approximately $3,779,054 as of October 6, 2006.
State the number of shares outstanding of each of the issuer's classes of common stock equity, as of the most recent practicable date. As of October 6, 2006, 106,152,179 shares of common stock, par value $.001 per share (the "Common Stock") were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
TABLE OF CONTENTS
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Page
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS.................................................................................3
ITEM 2. DESCRIPTION OF PROPERTY ...............................................................................16
ITEM 3. LEGAL PROCEEDINGS......................................................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................17
PART II
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ITEM 5. MARKET FOR COMMON EQUITYAND RELATED STOCKHOLDER MATTERS ...............................................17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..............................................19
ITEM 7. FINANCIAL STATEMENTS...................................................................................28
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................28
ITEM 8A. CONTORLS AND PROCEDURES................................................................................28
ITEM 8B. OTHER INFORMATION......................................................................................28
PART III
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT.........................................................................................29
ITEM 10. EXECUTIVE COMPENSATION.................................................................................32
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS...........................................................35
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................38
ITEM 13. EXHIBITS...............................................................................................39
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................................................42
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When used in this annual report, the terms the "Company," "Power2Ship," "we," "our," and "us" refers to Power2Ship, Inc., a Nevada corporation and our subsidiaries. The information which appears on our web site at www.power2ship.com is not part of this annual report.
Cautionary Statements Regarding Forward Looking Information
Certain statements in this annual report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to implement our business model, raise sufficient capital to fund our operating losses and pay our ongoing obligations, economic and market conditions and fluctuations, government and industry regulation, competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this annual report in its entirety, including the risks described in "Risk Factors." Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this annual report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Power2Ship, Inc. is a technology company that specializes in providing pertinent, real-time information to the worldwide transportation and security industries. Our technological solutions integrate disparate legacy systems, and synthesize historically fragmented inaccessible data. This data is then reformatted into valuable, actionable information, and delivered to appropriate end users across the logistics value chain. Specific applications of our technology include: vehicle tracking, inventory/asset visibility, secure trucking, and matching available freight with available trucks.
A significant arm of our company is a third party logistics provider designed to be a showcase for our core technology while simultaneously producing significant recurring revenues. This wholly owned subsidiary was added in March 2005 when we acquired the assets of Commodity Express Transportation (CXT). CXT presently serves the southeastern United States from its South Carolina base. CXT is fully licensed by the U.S. Department of Transportation as both a freight carrier and a freight broker. CXT operates a fleet of 92 tractors comprised of 45 owned units and 47 owner-operator units with which it has independent contractor lease agreements. In addition, CXT has 285 trailers, a freight brokerage, and a warehouse operation.
Power2Ship seeks to acquire additional third party logistics companies with networks of agents and/or sales people located throughout the nation. We specifically seek operations which can both significantly benefit from our technology solutions and compliment our current logistics operations.
During fiscal year 2006, we handled a substantial portion of the freight transportation requirements to and from particular manufacturing facilities and distribution centers for Amcor PET Packaging and TBC Corporation. Collectively, these customers represented approximately 53% and 11%, respectively, of our gross revenue. Amcor PET Packaging is a leading global packaging company providing PET (polyethylene terephthalate) packaging solutions to the consumer products industry. CXT provides freight transportation services for several of Amcor's 14 United States manufacturing plants and warehousing services for one of Amcor's plants. Our Amcor transportation business is derived from our agreement with TPS Logistics, an independent freight brokerage company. TPS has an annual logistics agreement with Amcor that may be terminated under certain conditions with thirty days advance notification. TBC Corporation, a subsidiary of Sumitomo Corporation of America, is one of the largest wholesalers and retailers of tires in North America. We have no agreements with TBC Corporation.
Effective June 30, 2006, the operations of Power2Ship Intermodal ceased as it had been unprofitable since its acquisition.
Future revenue sources
In the future, as we continue to expand our operations, we expect to
generate revenue from:
o acquired logistics operations;
o software licensing, royalty, and transaction fees;
o expanding our existing logistics services operation; and
o expanding our technology operations into international markets.
We also are collaborating with several technology and defense companies that, in response to the Homeland Security Act and Operation Safe Commerce, are working to develop solutions that address global transportation security issues. We believe that our secure, wireless, Internet-based system which uses a combination of global positioning satellite technologies can become a key component in the security solutions being developed by other companies to counteract the threat of terrorism. Our system is capable of capturing and processing data transmitted wirelessly from other technologies that may be part of any comprehensive security system. Examples of these technologies include radio-frequency identification (RFID) tags fastened to the outside of containers and/or trailers, smart tags affixed to the goods inside shipping containers, and electronic seals applied at the time the container is loaded. Further, our system has the ability to alert a truck's owner or authorities if a vehicle deviates from its designated route. Because our application was designed to provide economic benefit to the transportation industry, it is uniquely suited to providing a Homeland Security solution without causing onerous expense to either the private or public sector.
Key customers
We had two major customers that generated combined revenue equal to approximately 64% and 54% of our total revenue during fiscal years 2006 and 2005, respectively. No other customer accounted for more than 10% of our total revenue.
Sales and Marketing Relationships
We market our products and services to shippers and carriers, as well as to various third party hardware manufacturers and service providers serving the logistics industry.
Strategic Relationships
We have a strategic relationship with Emerson Fittipaldi, legendary Formula One and Indy Car champion. Through Emerson's involvement, we plan to expand our domestic and international markets in both transportation and security. We intend to change the name of our company to Fittipaldi Logistics, Inc. We have ongoing relationships with homeland security companies, hardware manufacturers, monitoring systems and marketing agencies.
Competition
The transportation industry is highly competitive and fragmented. We compete against a large number of other asset-based and non-asset based transportation companies, as well as non-asset based logistics companies, third
party freight brokers, carriers offering logistics services and freight forwarders. We believe that our technology, based on an open architecture, provides us with a competitive advantage. Our technology is unique because it integrates into a myriad of legacy systems on both shipper and carrier ends of the supply chain. We believe that while some competitors provide components of our technology, no single competitor provides the same end-to-end, fully integrated solution.
Our History
Power2Ship, formerly known as Jaguar Investments, Inc., was formed in Nevada on October 28, 1987. The company was initially a shell company with no business or operations. In December 2001, we acquired 100% of the issued and outstanding shares of common stock of Premier Sports Media and Entertainment Group, Inc. in exchange for 1,000,000 shares of our common stock in a private transaction exempt from registration under the Securities Act of 1933. The shares of common stock issued by us to the Premier Sports Media and Entertainment Group shareholders in this transaction represented approximately 8% of our issued and outstanding common stock immediately after the transaction. Before this transaction we did not engage in any material business operations.
On March 11, 2003, we consummated a merger with Freight Rate, Inc. d/b/a Power2Ship, under which Freight Rate became our wholly owned subsidiary. At the effective time of the merger, the holders of Freight Rate's common and preferred stock, warrants and options exchanged those securities for the following of our securities:
o 11,907,157 shares of our common stock,
o options to acquire an aggregate of 13,986,679 shares of common
stock at exercise prices of $.38 to $.75 per share,
o common stock purchase warrants to acquire 3,913,204 shares of
our common stock at exercise prices of $.75 to $1.75 per
share,
o 100,000 shares of our Series X Preferred Stock which are
convertible on March 11, 2004 into shares of common stock
based upon the degree to which a one-year funding schedule of
up to $2.5 million is met. If the entire $2.5 million of
funding is concluded, the Series X Preferred Stock will be
cancelled, and
o 87,000 shares of our Series Y Preferred Stock issued to our
CEO in exchange for an equal number of Freight Rate's Series C
Convertible Preferred Stock owned by him at the time of the
merger.
For accounting purposes, the transaction was treated as a recapitalization of Freight Rate and accounted for as a reverse acquisition.
In connection with the merger, R&M Capital Partners, Inc., a principal stockholder of our company prior to the merger with Freight Rate, agreed to cancel 2,650,000 shares of our common stock they owned for no consideration. Prior to the merger, R&M Capital Partners, Inc. owned an aggregate of 6,500,000 shares of our common stock, which represented approximately 52% of our outstanding common stock immediately prior to the merger. A term of the merger agreement as negotiated by Freight Rate provided that the Freight Rate shareholders would own 70% of our securities on a fully diluted basis following the closing of the merger. R&M Capital Partners, Inc., whose sole shareholder
had been a shareholder of Premier Sports Media and Entertainment Group, Inc., agreed to the cancellation at our request in order to facilitate the merger. We believe R&M Capital Partners, Inc. agreed to the cancellation in order to facilitate our merger with Freight Rate based upon its business judgment and since Freight Rate was not prepared to complete the merger and allow R&M Capital Partners, Inc. to retain as significant as a concentration of stock in our company. Following the cancellation of these shares, R&M Capital Partners, Inc. owned 3,850,000 shares of our common stock. For accounting purposes, the cancellation of the 2,650,000 shares was treated as part of the recapitalization.
Under the terms of the merger agreement, we issued an aggregate of 100,000 shares of our Series X Convertible Preferred Stock to holders of Freight Rate's common stock and Series C Convertible Preferred Stock prior to the transaction, including to Mr. Gass, a former member of our board of directors and Mr. Richard Hersh, our Chairman and CEO.
Simultaneous with closing the merger we entered into a stock purchase agreement under which we sold 95% of the issued and outstanding common stock of Premier Sports Media and Entertainment Group to The DAR Group, Inc., an unaffiliated third party, in consideration for the forgiveness by The DAR Group of all of our indebtedness to The DAR Group of approximately $2.0 million and the assumption by The DAR Group of all of our liabilities as of the closing date of the stock purchase agreement.
On February 25, 2005, we formed P2S Holdings, Inc., a Florida corporation, as a wholly owned subsidiary. Then, on March 21, 2005, CXT, a wholly owned subsidiary of P2S Holdings formed as a Delaware corporation on March 21, 2002, acquired certain assets and liabilities representing the business of Commodity Express Transportation, Inc., a South Carolina company engaged in the business of motor carriage specializing in full truckload transportation services primarily using dry vans.
Under the terms of the mutual agreement we acquired the assets for a purchase price of $100,000 in cash and the assumption of liabilities in the amount of $193,655, of which $100,000 is described in greater detail below. At the closing we also assumed certain leases related to the operation of the seller's business, including tractor and trailer leases, owner/operator leases and a warehouse lease. We also entered into leases with the seller to lease certain commercial property and certain trailers described in greater detail below. At closing, we replaced certain deposits and letters of credit previously made or issued on the seller's behalf with third parties in the aggregate amount of approximately $145,000 related to the operation of the seller's business, and replaced additional letters of credit totaling approximately $20,000 after closing. The mutual agreement contained customary representations and warranties and cross-indemnification provisions.
At closing we entered into an equipment lease agreement with Commodity Express Transportation to lease commercial trailers used to haul dry commodities. The monthly lease charges range from $170 to $240 per trailer and the lease expiration dates range from March 2006 to March 2010. The agreement contains customary default provisions, requires Commodity Express Transportation to pay for any damage to an individual trailer in excess of $250 and requires lessee to maintain and repair the trailers and tires as needed.
CXT also entered into an agreement with TPS Logistics, Inc. wherein TPS engaged CXT as its exclusive carrier to perform all of TPS' transportation needs for its customers. The agreement will terminate the earlier of March 20, 2010 or when the agreement between TPS and its current largest customer is no longer effective. As compensation TPS will receive a percentage of all revenue derived from its current largest customer for freight hauled to and from Blythewood, S.C. Mr. W. A. Stokes is vice president and his wife is principal of TPS.
We deposited the shares of CXT owned by P2S Holdings our wholly owned subsidiary and sole shareholder of CXT, into an escrow account for a period of two years following the closing of the transaction. During this period we retain voting rights over these securities. In the event of a default under the escrow agreement, the seller has the right to assume control of CXT during the period of default. Once the period of default has been cured, control of CXT reverts to us. A default under the escrow agreement would occur if CXT's net worth drops below certain level or if we are delinquent in our payments to Commodity Express Transportation, Stokes Logistics Consulting, LLC or TPS Logistics, Inc. under the respective agreements.
On March 21, 2005, Power2Ship Intermodal acquired certain assets and liabilities representing the business of GFC, Inc., a company in the business of motor carriage specializing in intermodal drayage transportation services. Under the terms of the asset purchase agreement with GFC, Inc., we purchased certain of their assets including trucking and brokerage authority permits, contracts with shipping customers, agents, and truck owner-operators and escrow deposits for a purchase price of $300,000. The purchase price consisted of a $100,000 secured promissory note from the seller that we forgave and $200,000 to be paid $8,333.33 per month on the 24 consecutive monthly anniversaries of the closing date beginning on the first monthly anniversary of the closing date. At the closing we also assumed the obligations corresponding to the escrow deposits. In addition, we issued the seller a warrant to purchase 200,000 shares of our common stock for $.27 per share for the three year period commencing on the closing date. The asset purchase agreement contained customary representations and warranties and cross-indemnification provisions. In March 2006, the Company entered into a settlement agreement and mutual release with the parties that sold it the GFC assets in which the Company agreed to issue the seller 300,000 shares of its common stock valued at $42,000 and to pay the seller a total of $36,000 over two years in full settlement of the $191,667 outstanding balance of the purchase price. In March 2006, the Company recorded an impairment of intangible assets of $113,667 based on this settlement. As of June 30, 2006, the Company had recorded $18,000 of this obligation as current notes payable and $13,500 as long term notes payable. The operations of Power2Ship Intermodal ceased to exist effective June 30, 2006 and the Company recorded impairments to intangible assets of $185,578 associated with this event.
Government regulation
We are subject to licensing and regulation as a transportation broker and are licensed by the U.S. Department of Transportation ("DOT"). Power2Ship and CXT each has a DOT license to engage in operations, in interstate or foreign commerce, arranging or brokering transportation of freight (except household goods) by motor vehicle. CXT and Power2Ship Intermodal have DOT certificates and permits authorizing them to engage in transportation as a common carrier of property by motor vehicle in interstate or foreign commerce. These DOT licenses
remain in effect so long as we maintain adequate insurance coverage for the protection of the public as well as designation of our agents for service of process.
The transportation industry has been subject to legislative and regulatory changes that have affected the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services. We cannot predict the effect, if any, that future legislative and regulatory changes may have on the transportation industry.
Intellectual property
To protect our proprietary rights, we generally rely on copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties, and agreements with consultants, vendors and customers, although we have not signed such agreements in every case. Despite such protections, a third party could, without authorization, copy or otherwise obtain and use some or all of intellectual property. In general, there can be no assurance that our efforts to protect our intellectual property rights will be effective or that these protections will be sufficient so as to prevent misappropriation of our intellectual property. Our failure or inability to protect our proprietary rights could materially adversely affect our business, financial condition and results of operations.
In June 2005 we filed a patent application with the United States Patent and Trademark Office entitled "Dynamic and Predictive Information System and Method for Shipping Assets and Transport" which was based upon, and claims the benefit of, our provisional patent application no. 60/579,594 entitled "System and Method for Managing Logistics and Revenue Logistics for the Transportation of Freight" filed in June 2004. The patent application remains pending and we cannot be assured if or when it will be granted.
In July 2005, we received Certificates of Registration from the United States Patent and Trademark Office officially registering the service marks "P2S" and "POWER2SHIP" and, in October 2005, we received the Certificate of Registration officially registering the service mark "MOBILEMARKET".
Employees
As of June 30, 2006, we had 17 full-time employees. None of our employees are subject to collective bargaining agreements, and we believe that we have satisfactory relationships with our employees. In addition, our subsidiary CXT had approximately 80 people leased from a personnel leasing firm as of June 30, 2006.
Risk Factors
Before you invest in our common stock, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this prospectus before you decide to purchase our securities. If any of the following risks and uncertainties develops into actual events, our business, financial condition or results of
operations could be materially adversely affected and you could lose all of your investment in our company.
We will require additional capital to fund our ongoing operations and satisfy our debt obligations. If we are unable to raise additional capital, then we will not be able to continue operations.
While we have been successful in increasing our revenues during fiscal year 2006, our revenue growth has not been significant enough to generate sufficient gross profits to fund our daily operations. We do not presently have sufficient financial resources to fund our ongoing operations beyond October 31, 2006. While we believe that our revenues will continue to increase during fiscal 2007, we cannot accurately predict when or if our revenues and gross profits will increase to the level necessary to sustain our operations. At June 30, 2006 we had a working capital deficit of $4,849,787. As of June 30, 2006, we had $900,000 principal amount Series B 5% secured convertible debentures that were past due, although we have entered into an agreement with the holder that effectively extends the maturity date until December 31, 2006 as long as we satisfy the terms of the agreement, $290,000 principal amount 8% unsecured convertible promissory notes, and accrued interest thereon, that were past due and had an additional $3,813,940 of short and long term debt and accrued interest thereon. As of October 6, 2006, we had $1,750,000 principal amount Series B 5% secured convertible debentures that is past due, although we have entered into an agreement with the holder that effectively extends the maturity date until December 31, 2006 as long as we satisfy the terms of the agreement, $175,000 principal amount 8% unsecured convertible promissory notes, and accrued interest thereon, that is past due and had an additional $2,171,500 of short and long term debt, and accrued interest thereon. In order to provide sufficient working capital to fund our ongoing operations, pay our obligations as they become due and provide additional working capital for the future development of our business model, we will need to raise additional capital. We do not presently have any additional sources of working capital other than our $3 million revolving line of credit secured by our accounts receivable. While we are seeking additional sources of working capital, there are no assurances we will be successful in raising additional capital as needed. If we are unable to raise additional working capital as needed, we may be required to curtail or discontinue some or all of our business and operations.
We have a history of losses and an accumulated deficit. We expect losses to continue for the foreseeable future and we may be unable to continue as a going concern.
For fiscal years 2006 and 2005 we reported total revenue of $29,995,265 and $9,247,633, respectively, and a loss to common stockholders of $5,675,329 and $6,645,320, respectively. At June 30, 2006 we had an accumulated deficit of $24,731,371. Further, during fiscal years 2006 and 2005, we reported net cash used in operating activities of $3,306,858 and $3,200,848, respectively. Our revenue has not been sufficient to sustain our operations and we cannot predict if or when we will have profitable operations. The independent auditor's report for the fiscal year ended June 30, 2006 on our financial statements includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and negative operating cash flows raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. As described below, we will need to raise additional working capital in order to
implement our business model and sustain our operations. Because we are subject to all of the business risks inherent in a new company with an unproven market, we cannot guarantee you that we will ever report profitable operations or generate sufficient revenue to sustain our company as a going concern.
Our primary assets serve as collateral under our outstanding secured debentures and revolving line of credit. If we should default on these obligations, the holders could foreclose on our assets and we would be unable to continue our business and operations.
We have granted the holders of our 14.25% secured convertible debentures and our Series B 5% secured convertible debentures a blanket security interest in all of our assets and properties. As set forth above, we have $1,750,000 principal amount Series B 5% secured convertible debentures, and accrued interest thereon, that is past due as of October 6, 2006, although we have entered into an agreement with the holder that effectively extends the maturity date until December 31, 2006 as long as we satisfy the terms of the agreement, and $1,597,000 of our 14.25% secured convertible debentures become due on December 31, 2006. We do not presently have sufficient funds to satisfy these obligations. We also have granted a first priority lien on our accounts receivable to the lender providing our $3 million revolving line of credit. We intend to seek to restructure our financial obligations with the various debenture holders. If we should default under the repayment provisions of these obligations, the holders could seek to foreclose on our primary assets in an effort to seek repayment under the obligations. If the holders were successful, we would be unable to conduct our business as it is presently conducted and our ability to generate revenue and fund our ongoing operations would be materially adversely affected.
Although we have entered into an agreement amending our Series B 5% secured convertible debentures due in June and September 2006, we may be unable to make the payments stipulated in the amendment agreement or, even if we are able to make these payments, we may be unable to repay the balance of these debentures by December 31, 2006, whereupon the holders could foreclose on our assets and we would be unable to continue our business and operations
In September, we reached agreement with the holder of $1,750,000 its 5% Series B secured convertible debentures, which matured in September 2006, and $350,000 of our 14.25% secured convertible debentures due December 31, 2006. The holder has agreed not to exercise its rights of conversion under the aforementioned debentures until November 1, 2006, for which we paid $100,000 in accrued interest, and not to exercise its rights of conversion under the aforementioned debentures from November 1 until January 1, 2007 upon our paying the holder an additional $100,000 on November 1, 2006, to be applied as determined by the holder to accrued interest or principal. In addition, we agreed to amend the conversion price of the $350,000 principal amount of 14.25% secured convertible debenture to make it identical to the conversion provision of the 5% Series B secured convertible debentures which is equal to the lesser of i) $0.456 per share, representing 120% of the closing bid price of our common stock as quoted by Bloomberg, LP on June 28, 2004, or ii) 100% of the average of the three lowest closing bid prices for our common stock, as quoted by Bloomberg, LP, for the 30 trading days immediately preceding any conversion date.
Our Series B 5% secured convertible debentures contain certain covenants prohibiting us from raising capital at less than the market price. These limitations may hamper our ability to raise working capital in future periods which could result in our ability to continue as a going concern.
The purchase agreement for our Series B 5% secured convertible debentures contains covenants that restrict us from raising capital from the sale of stock or other securities convertible into stock at a price less than the market price of our common stock on the date of issuance. The existence of these covenants may severely limit our ability to raise capital from the sale of stock or convertible securities because any potential purchasers of our stock or convertible securities may want to pay a discount to the market price of our stock. If the holders of the outstanding debentures should assert one or more events of default, we could be forced to discontinue our operations.
We may be in default under certain covenants contained in our agreements with the holders of our Series B 5% secured convertible debentures and our 14.25% secured convertible debentures. If we receive notice of noncompliance and potential default, we would have an obligation to rectify these defaults or otherwise obtain a waiver from these holders under the terms of those agreements. While we have not received any such notice to date, it is possible that notice could be provided in the future, which would likely cause our company to be in default under our agreements and obligations to the holders. Any default would permit the holder of the Series B 5% secured convertible debentures, in their sole discretion, to accelerate full repayment of the $1,750,000 in principal and accrued interest thereon, claim an indeterminate amount of penalties and perhaps result in acceleration of other obligations owed to other parties. Any default would accelerate our obligations to the 14.25% secured convertible debenture holders in the remaining principal amount of $1,597,000 together with all accrued and unpaid interest thereon and perhaps other obligations owed to other parties. We cannot assure you that we would be in a position to arrange alternative financing to satisfy these obligations in the event of a default. The debentures are collateralized by a blanket security interest in our assets. In the event of a default under either of the series of debentures, the holders could seek to foreclose on our primary assets. If the holders were successful, we would be unable to conduct our business as it is presently conducted and our ability to generate revenues and fund our ongoing operations would be materially adversely affected.
Historically we have been dependent on revenue from a limited number of customers. If we were to be deprived of revenue from one or more these key customers, our future revenue and business operations could be materially and adversely effected.
For fiscal year 2006, revenue from our largest two customers accounted for approximately 53% and 11%, respectively, of our gross revenue and no other customer accounted for more than 10% of our total revenue. We do not have an agreement with one of these customers and our agreement with the other customer may be cancelled upon 30 days notice. We are seeking to expand our customer base in fiscal year 2007 in order to eliminate our dependence upon revenues from a limited number of customers. Because of the significant nature of the revenue from our two largest customers to our results of operations, however, the loss of these customers, prior to our obtaining additional customers, could have a material adverse effect on our business operations and prospects.
We are dependent on short term contracts with our customers. If these contracts were terminated, our results of operations would be materially adversely affected.
We have entered into agreements to provide transportation services with some of our shipper customers. These agreements, however, do not commit them to using us for any specific volume of transportation services and the agreements can be terminated on 30 days notice. The termination of any of these contracts could have a material adverse effect on our business operations and prospects.
We face risks related to rapidly evolving technologies. If we do not respond to these evolving technologies, we may have difficulty in retaining our customers or expanding our customer base.
Our markets are subject to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. Our growth and future operating results will depend, in part, upon our ability to enhance existing applications and develop and introduce new applications or capabilities that:
o meet or exceed technological advances in the marketplace;
o meet changing customer requirements;
o comply with changing industry standards;
o achieve market acceptance;
o integrate third party software effectively; and
o respond to competitive offerings.
We may not possess sufficient resources to continue to make the necessary investments in technology. In addition, we may not successfully identify new software opportunities or develop and bring new software to market in a timely and efficient manner. If we are unable, for technological or other reasons, to develop and introduce new and enhanced software in a timely manner, we may lose existing customers and fail to attract new customers, which may adversely affect our ability to generate revenues sufficient to provide for our ongoing operations.
There is a limited ability to safeguard our proprietary information and we may be unable to prevent a third party from the unauthorized use of our propriety information.
Our success and ability to compete are substantially dependent on our internally developed technologies and trademarks. We seek to protect such intellectual property through a combination of confidentiality procedures, contractual provisions, copyright and trade secret laws and intend to apply for patents. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our software or obtain and use information that it regards as proprietary. Policing unauthorized use of our software is difficult, and software piracy could be a problem. Furthermore, potential competitors may independently develop technology similar to ours. While we have applied for a patent for our propriety software with the United States Patent and Trademark Office, we cannot provide any assurance that we will be granted a patent or, if granted, that third parties will not violate these protections. Any such violation of our intellectual property rights could prove costly to defend and funds devoted to these possible efforts would reduce the amount of working capital available to fund our ongoing operations.
Our Chairman and former Chief Executive Officer is the sole holder of our Series Y Convertible Preferred Stock which may give him voting control of our company and the ability to solely influence its business and direction.
Our voting securities consist of shares of our common stock and our Series Y Convertible Preferred Stock. Holders of shares of our common stock are entitled to one vote per share and holders of shares of our Series Y Convertible Preferred Stock are entitled to 200 votes per share on all matters submitted to a vote of our stockholders, and these classes of our voting securities vote together on all matters submitted to a vote of our stockholders. Mr. Hersh, our Chairman and former Chief Executive Officer, is the sole holder of our Series Y Convertible Preferred Stock which, together with his common stock holdings, gives him voting rights at September 30, 2006 of approximately 14% of our voting securities. As a result of these voting rights, notwithstanding that our common stockholders are entitled to vote on matters submitted to our stockholders, Mr. Hersh may have the power to strongly influence the election of all of our directors and strongly influence the business and direction of our company.
The exercise of outstanding options and warrants, the conversion of shares of our Series B, C, D and Y Convertible Preferred Stock and the conversion of our 14.25% secured convertible debentures, our Series B 5% convertible secured debentures, and our Series C and D unsecured convertible debentures will be dilutive to our existing stockholders.
As of October 6, 2006 we had the following securities outstanding which were convertible or exercisable into shares of our common stock:
o options to purchase a total of 41,286,682 shares at prices
ranging between $0.025 and $1.01 per share;
o warrants to purchase a total of 59,412,537 shares at prices
ranging between $0.05 and $2.00 per share;
o 151,600 shares of our Series B Convertible Preferred Stock
which are convertible into 3,032,000 shares;
o 832 shares of our Series C Convertible Preferred Stock which
are convertible into 83,200 shares;
o 40 shares of our Series D Convertible Preferred Stock which
are convertible into 40,000,000 shares;
o 87,000 shares of our Series Y Convertible Preferred Stock
which are convertible into 230,405 shares;
o $1,597,000 of our 14.25% secured convertible debentures which
are convertible into 5,974,560 shares;
o $145,000 of our Series C 10% unsecured convertible debentures
which are convertible into 966,667 shares;
o $365,000 of our Series D 8% unsecured convertible debentures
which are convertible into 18,250,000 shares at a current
conversion price of $0.02 per share or 80% of the lowest price
per common share offered by the Company in a private offering;
and
o $1,750,000 of our Series B 5% secured convertible debentures
which are convertible into 80,769,233 shares at a conversion
price of $0.02167 per share which was 100% of the average of
the three lowest closing bid prices during the 30 trading days
immediately preceding October 6, 2006.
The exercise of these warrants and options and the conversion of the debentures and shares of our preferred stock may materially adversely affect the market price of our common stock and will have a dilutive effect on our existing stockholders.
We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE, or the Nasdaq Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and Nasdaq are those that address board of directors' independence, audit committee oversight, and the adoption of a code of ethics. Although we have adopted a Code of Ethics, we have not yet adopted any of these other corporate governance measures and, since our securities are not yet listed on a national securities exchange or Nasdaq, we are not required to do so. We have not adopted corporate governance measures such as an audit or other independent committees of our board of directors as we presently only have one independent director. If we expand our board membership in future periods to include additional independent directors, we may seek to establish an audit and other committees of our board of directors. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"), the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company's internal controls over financial reporting in their annual reports, including Form 10-KSB. We currently are evaluating the effect that the adoption of Section 404 will have on our consolidated operating results and financial condition and cash flow necessary to implement SOX 404 in order to allow our management to report on, and our independent auditors attest to, our internal controls, as a required part of our annual report on Form 10-KSB beginning with our report for the fiscal year ending June 30, 2008.
We expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX 404. We are unable at this time to quantify the amount we will spend to develop the necessary documentation and testing required by SOX 404, but such amount is likely to exceed the $45,000 we spent on audit fees for fiscal 2006. We do not presently have sufficient resources to fund the documentation and testing required by SOX 404, and we do not have available funds to engage qualified staff or consultants to assist us with compliance issues as required in connection with our audit for the fiscal year ending June 30, 2008.
We are not currently aware of any significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner. However, if we or our auditors identify any significant deficiency or material weakness, our auditors may be unable to attest to our internal controls and investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could suffer.
Provisions of our articles of incorporation and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.
Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of Nevada law also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation's disinterested stockholders.
In addition, our articles of incorporation authorize the issuance of up to 1,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Our board of directors may, without stockholder approval, issue preferred stock with dividends, liquidation, conversion or voting rights that could adversely affect the voting power or other rights of our common stockholders.
Our common stock is currently quoted on the OTCBB, but trading in our stock is limited. Because our stock currently trades below $5.00 per share, and is quoted on the OTC Bulletin Board, our stock is considered a "penny stock" which can adversely affect its liquidity.
The market for our common stock is extremely limited and there are no assurances an active market for our common stock will ever develop. Accordingly, purchasers of our common stock cannot be assured any liquidity in their investment. In addition, the trading price of our common stock is currently below $5.00 per share and we do not anticipate that it will be above $5.00 per share in the foreseeable future. Because the trading price of our common stock is less than $5.00 per share, our common stock is considered a "penny stock," and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934, as amended. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. SEC regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of our securities in the secondary market because few broker or dealers are likely to undertake these compliance activities.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive offices are located in approximately 10,545 square feet of commercial office space at Congress Corporate Plaza, 903 Clint Moore Road, Boca Raton, Florida. We lease these premises from an unaffiliated third party under a lease expiring in May 2007. This lease requires annual payments of base rent during fiscal years 2006 and 2007 of approximately $125,000 and $116,188 respectively, as well as approximately $50,000 per year for our proportionate share of operating costs for the premises. We have provided the landlord with a security deposit of approximately $27,700.
The principal executive offices of our subsidiary, CXT, are located in approximately 5,000 square feet at 210 Bray Park Road, West Columbia, South Carolina. These premises are leased from CXT for a term of five years commencing March 21, 2005 with a one year extension at our option. Further, we have the right to immediately terminate the lease in the event that the contract between TPS Logistics, Inc. and their largest customer is not renewed. The monthly rent is $4,200 during the five-year initial term and $5,040 during the one-year option period. Also, we agreed to pay, prior to the respective due dates thereof, all insurance premiums, charges, costs, expenses and payment required to be paid in accordance with the lease. The lease agreement contains customary default provisions and requires the prior written consent of the landlord to alter the property or to assign the lease to unaffiliated third parties.
CXT also leases 123,750 square feet of warehouse space located at 10700 Farrow Road, Blythewood, South Carolina from an unaffiliated third party. This space primarily is used to store inventory manufactured by one of the plants of TPS Logistic's largest customer. This lease terminates in October 2008. The current monthly base rent is $30,766 and it increases on November 1 of 2006 and 2007 to $31,689 and $32,640, respectively. The landlord has been provided with a $32,000 security deposit. Also, the landlord has the right to terminate the lease with respect to 61,875 square feet by providing at least 90 days prior written notice. In the event of such a partial termination, the current monthly base rent for the remaining space would be reduced to $20,780 and it would increase on November 1 of 2006 and 2007 to $22,040 and $22,702, respectively.
ITEM 3. LEGAL PROCEEDINGS
In October 2005, the Company settled without prejudice a complaint filed in April 2005 in the Circuit Court of the 15th Judicial Circuit for Palm Beach County, Florida (Palm Beach Media Associates, Inc. v. Power2Ship, Inc., Case No. 502005 CA 003494) for an aggregate of $15,000 that was paid $5,000 per month in October, November and December 2005.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol PWRI. The following table sets forth the reported high and low sale prices for our common stock as reported on the OTC Bulletin Board for the periods indicated. The quotations represent inter-dealer prices without retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions. The quotations may be rounded for presentation.
High Low
---- ---
Fiscal Year 2007
----------------
July 1 to September 30, 2006 $0.058 $0.0218
Fiscal Year 2006
----------------
April 1 to June 30, 2006 $0.115 $0.0413
January 1 to March 31, 2006 $0.22 $0.065
October 1 to December 31, 2005 $0.17 $0.0615
July 1 to September 30, 2005 $0.35 $0.16
Fiscal Year 2005
----------------
April 1 to June 30, 2005 $0.39 $0.22
January 1 to March 31, 2005 $0.35 $0.20
October 1 to December 31, 2004 $0.47 $0.30
July 1 to September 30, 2004 $0.45 $0.30
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On October 12, 2006 the last reported sale price of our common stock as reported on the OTC Bulletin Board was $0.05 per share. As of September 29, 2006, we had approximately 609 shareholders of record. In addition, certain of the shares of our common stock are held in "street" name by numerous beneficial owners that do not permit their ownership to be disclosed.
Dividend Policy
We have never paid cash dividends on our common stock. We intend to keep future earnings, if any, to finance the expansion of our business. We do not anticipate that any cash dividends will be paid in the foreseeable future.
Under Nevada law, a company is prohibited from paying dividends if the company, as a result of paying such dividends, would not be able to pay its debts as they become due, or if the company's total liabilities and preferences to preferred shareholders exceed total assets. Any payment of cash dividends on our common stock in the future will be dependent on our financial condition, results of operations, current and anticipated cash requirements, plans for expansion, as well as other factors the Board of Directors deems relevant.
The holders of our Series B Preferred Stock are entitled to receive a 10% per annum cumulative dividend when, as and if, declared by our board of directors. The dividend, if declared, is payable annually in arrears in cash or in shares of our common stock at our option. If the dividend is paid in shares of common stock, then such shares are valued at the average closing price of our common stock for the 10 trading days immediately preceding the date of such dividend. A 10% dividend was paid in shares of our common stock to shareholders of record of our Series B preferred stock on June 30, 2006 and 2005.
Securities Authorized for Issuance under Equity Compensation Plans
Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining for future
exercise of outstanding issuance (excluding
outstanding options options, warrants securities reflected
Plan Category warrants, and rights and rights in column (a))
-------------------------------------------------------------------------------------------------------------
2001 Employee Stock
Compensation Plan 0 n/a 319,000
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Recent Sales of Unregistered Securities
From August through October 2006, we completed an offering of 40 shares of our non-voting, non-redeemable Series D convertible preferred stock, par value of $0.01 per share and stated value of $25,000 per share, to 21 accredited investors and 2 non-accredited investors in a private transaction exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of that act and Rule 506 of Regulation D. We received an aggregate of $700,000 and exchanged $300,000 of outstanding short term notes and debentures. Each share is convertible into 1,000,000 shares of our common stock for an aggregate of 40,000,000 shares. Although not paying a dividend, each share is entitled to receive a participation interest equal to one-fourth of one percent (0.25%) of the annual net profits, after deducting any participation interest paid to Emerson Fittipaldi or any entities affiliated with Emerson Fittipaldi, generated from any future business activities undertaken by the Company or any of its subsidiaries in Brazil. Also, investors were given a right of first refusal to invest up to 200% of the amount they invested in this offering in the Company's
next security offering. We did not pay any commissions in the sale of these securities.
Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers
Richard Hersh, former Chief Executive Officer and Chairman of the Board of Directors, became the beneficial owner of one share of our Series D convertible preferred stock for $25,000 in a private transaction in August 2006.
Daivd S. Brooks, Chief Executive Officer and a member of our Board of Directors, purchased one share of our Series D convertible preferred stock for $25,000 in a private transaction in August 2006.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
The following discussion and analysis of financial condition and results of our operations should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Report. For accounting purposes, our merger with Freight Rate, Inc. was treated as a recapitalization of Freight Rate, Inc. and accounted for as a reverse acquisition. Therefore, the financial statements and accompanying notes thereto included elsewhere in this Report reflect the assets, liabilities and operations of Freight Rate, Inc. as if it had been the reporting entity since inception.
Critical Accounting Policies
Financial Reporting Release No. 60, which was released by the SEC, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 1 to our consolidated financial statements appearing elsewhere herein includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of the more significant accounting policies and methods used by us:
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, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
We follow the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin 104 for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the reported revenue streams of our company:
Freight transportation revenue consists of the total dollar value of services purchased from us by our customers. We recognize freight transportation revenue when shipments of goods reach their destinations and the receiver of the goods acknowledges their receipt by signing a bill of lading. At that time, our
obligations to the customer are completed and collection of receivables is reasonably assured. Emerging Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent", establishes the criteria for recognizing revenues on a gross or net basis. When we provide these freight transportation services, we are the primary obligor, we are a principal to the transaction not an agent, we have the risk of loss for collection, we have discretion to select the supplier when we do not supply the services and we have latitude in pricing decisions.
Access services revenue is recognized in the month that access to our proprietary application is provided to customers. When we provide equipment to customers, in conjunction with providing access services to them, on any basis in which ownership is retained by our company, then we account for equipment provided to the customer as part of the access services agreement and revenue is recognized ratably over the term of the agreement.
Implementation services revenue, generated pursuant to software development contracts with customers, is recognized on the percentage of completion basis for each deliverable in the contract. Revenue from implementation services is expected to be insignificant as a percentage of total revenue in the foreseeable future.
We use SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provision of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 has been applied. We have elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123 and SFAS No. 148. In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the statement of operations the grand-date fair value of stock options and other equity-based compensation issued to employees. The Company adopted FAS No. 123R in the first quarter of fiscal year 2006.
Based on the guidance in SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets", we evaluate long-lived assets, such as property
and equipment and intangible assets subject to amortization for impairment at
each balance sheet date. Among the factors considered in such evaluations are
the occurrence of a significant event, a significant change in the environment
in which the business assets operate, or if the expected future undiscounted
cash flows assets are determined to be less than the carrying value of the
assets. If impairment is deemed to exist, an impairment charge would be
recognized equal to the amount by which the carrying amount of the asset exceeds
the fair value of the assets. Management also evaluates events and circumstances
to determine whether revised estimates of useful lives are warranted. Assets to
be disposed of would be separately presented in the consolidated balance sheet
and reported at the lower of the carrying amount or fair value less costs to
sell, and would no longer be depreciated. The assets and liabilities of a
disposed group classified as held for sale would be presented separately in the
appropriate asset and liability sections of the consolidated balance sheet. As
of June 30, 2006, management expects its long-lived assets to be fully
recoverable.
GOING CONCERN
We had a net loss of $5,597,529 and used cash of $3,775,355 in operating and investing activities during fiscal year 2006. Further, we have accumulated a deficit of $24,731,371 during the period from our inception through June 30, 2006. Our current operations do not provide an adequate source of cash to fund future operations. As described elsewhere herein, we only have sufficient cash on hand to fund our operating activities through October 31, 2006. Also, the report of our independent registered public accounting firm, dated October 11, 2006, on our financial statements for the year ended June 30, 2006 stated that our net loss and cash used in operations for the fiscal year ended June 30, 2006, raised substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to increase our revenues and generate profitable operations in the future. We plan to continue to provide for our capital requirements through the sale of equity or debt securities; however, we have no firm commitments from any third party to provide this financing and we cannot assure you we will be successful in raising working capital as needed. There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due or generate positive operating results. If we are unable to raise additional capital, we may be required to reduce or eliminate certain of our operations.
OVERVIEW
In March 2005 we acquired certain assets and liabilities of Commodity Express Transportation, Inc., a South Carolina company, and GFC, Inc., a South Carolina company. The consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus reflect the assets, liabilities and results of operations of these two acquisitions from their respective dates of acquisition. These two transactions have substantially increased both our revenues and operating expenses.
For the fiscal years ended June 30, 2006 and 2005, virtually all of our total revenue was generated by providing freight transportation services. Revenue from freight transportation services includes the total dollar value of services purchased from us by our customers. We provide freight transportation for our shipper customers using our own transportation equipment (asset based), on transportation equipment of owner-operators which are affiliated with our subsidiary CXT as well as numerous unaffiliated independent carriers located throughout the United States (non-asset based). We are a principal in the transaction to transport the freight. By accepting our customer's order, we accept certain responsibilities for transportation of the load from its origin to its destination. In instances when we arrange for transportation of the load by an unaffiliated independent carrier, the carrier's contract is with our company, not our shipper customer, and we are responsible for prompt payment of carrier charges. We are also generally responsible to our shipper customer for any claims for damage to freight while in transit. The price we charge for these freight transportation services depends largely upon the prices charged by our competitors as well as upon several factors, including the distance the freight is being transported, the type of transportation equipment required to move the freight, the distance that equipment is from the origin of the freight and whether or not that equipment is available in our fleet, the value of the freight and the availability of loads near the locations where the freight is to be delivered.
To a lesser extent, we have historically generated revenues from access services and implementation services. For the fiscal year ended June 30, 2004, we also generated revenue from access services and implementation services, which represented approximately 14% and approximately 1%, respectively, of our total revenue for that year. For the fiscal year ended June 30, 2005 less than 1% of our total revenue was attributable to revenue from access services and we reported no revenue during that period from implementation services. For the year ended June 30, 2006 we had revenue from access services and implementation services represented less than 0.1% of total revenue. Access services revenue represents revenue generated from the unlimited use of the information available through our proprietary application for a fixed monthly fee. Implementation services include design, programming and testing of custom developed interfaces that permit our proprietary application to communicate and share data with a customer's existing computer software. While we market these services to our existing and potential customer base, we cannot predict if we will report significant revenue from either access services or implementation services in any future periods.
During fiscal years ended June 30, 2006 and 2005, revenue generated from one customer represented approximately 53% and 40%, respectively, of our freight transportation revenue. Because our agreement with that customer can be terminated upon a 30 days notice to us, our dependence on revenues from this customer puts us at risk until such time, if ever, that we can diversify our revenue base. In order to lessen the risks to us from this dependence on a single customer, we are marketing our services to potential shipper customer and companies involved in freight security to the maximum extent permitted by our limited sales and marketing budget.
Our revenue growth during fiscal 2007 is substantially related to revenue from the assets of a freight transportation company acquired in March 2005 which now comprise the operations of our CXT subsidiary. CXT is a freight transportation services provider serving customers located in the southeastern United States. Its freight transportation services are provided by independent truck owner-operators under contract with CXT or by independent drivers that utilize tractors and trailers provided by CXT, as well as by other trucking companies, including Power2Ship, arranged by CXT's freight transportation brokerage.
During fiscal years 2003 through 2005, we also generated access services revenue and implementation services revenue under an agreement with The Great Atlantic and Pacific Tea Company, one of the nation's first supermarket chains which operates 417 stores in 10 states under the trade names A&P, Waldbaum's, The Food Emporium, Super Foodmart, SuperFresh, Farmer Jack, Sav-A-Center and Food Basics. Under this agreement we provided The Great Atlantic and Pacific Tea Company with unlimited use of our proprietary application for a fixed monthly fee, as well as a virtual private network (VPN) fee which provided our customer with data encryption and other extra security measures for their data together with software development in the form of the design, programming and testing of a custom developed interface to our proprietary application This agreement was terminated in January 2005.
We also are collaborating with several technology and defense companies that, in response to the Homeland Security Act and Operation Safe Commerce, are working to develop solutions that address global transportation security issues.
We believe that our secure, wireless, Internet-based system which uses a combination of global positioning satellite technologies can become a key component in the security solutions being developed by other companies to counteract the threat of terrorism. Our system is capable of capturing and processing data transmitted wirelessly from other technologies that may be part of any comprehensive security system. Examples of these technologies include radio-frequency identification (RFID) tags fastened to the outside of containers and/or trailers, smart tags affixed to the goods inside shipping containers, and electronic seals applied at the time the container is loaded. Further, our system has the ability to alert a truck's owner or authorities if a vehicle deviates from its designated route. Because our application was designed to provide economic benefit to the transportation industry, it is uniquely suited to providing a Homeland Security solution without causing onerous expense to either the private or public sector.
During fiscal 2007 our greatest challenge will be raising sufficient additional capital to fund our ongoing operations, pay our obligations as they become due and continue to implement our business model. As of June 30, 2006, we had secured debt of $900,000 and unsecured debt of $290,000 that was due and $2,597,000 of secured debt and $236,280 of unsecured debt which becomes due by June 30, 2007. In September 2006, we entered into an agreement with the lender of $900,000 of secured debt that was due on June 28, 2006 that effectively extended the maturity date of this debt until October 31, 2006 and, upon payment of $100,000 on November 1, 2006, will extend the maturity date until December 31, 2006. The $290,000 of unsecured debt due on June 30, 2006 consisted of i) a $115,000 unsecured promissory note to Richard Hersh, the Company's former Chief Executive Officer, who entered into a separation and severance agreement in September 2006 pursuant to which he agreed to forgive this note and ii) a $175,000 unsecured promissory note that was due on June 30, 2006. While we have deferred certain employees' compensation and reduced or eliminated certain non-essential personnel and administrative costs, if we are unable to secure additional capital as needed we may be unable to satisfy this secured and unsecured debt which could adversely affect our ability to continue our operations as presently conducted, as well as severely limiting our ability to diversify our revenue sources. If we are unable to satisfy the secured debt when it becomes due, the holders could foreclose on our assets and we would be forced to cease our operations.
RESULTS OF OPERATIONS
Revenue
Total revenue generated during the year ended June 30, 2006 increased by $20,747,632 or approximately 224% as compared with total revenue generated during the year ended June 30, 2005. This increase consisted primarily of freight transportation revenue increasing $20,724,643, or approximately 224%, in fiscal year 2006 from fiscal year 2005. Most of this revenue growth was attributed to consolidating a full year of operating results from our subsidiaries CXT and Power2Ship Intermodal during fiscal year 2006 as compared with consolidating only three and one-third months of operating results during fiscal year 2005. We had two major customers that collectively generated revenue of 64% and 54% of our total revenue during fiscal years 2006 and 2005, respectively.
We anticipate that our total revenue will continue increasing in fiscal year 2007 though at a much slower rate than achieved in fiscal year 2006. Most of this revenue growth is expected to be freight transportation revenue attributed to the efforts of our corporate sales and marketing personnel and from existing and new transportation agents. In addition, we expect to generate
revenue in fiscal year 2007 by providing logistics consulting and implementation services to large shipper customers such as Averitt Express with whom we have an agreement to provide such services. A potential source of revenue in fiscal year 2007 is providing logistics consulting and implementation services related to global transportation security to technology and/or defense companies or United States federal or state government agencies. We have not entered into any agreements related to global transportation security as of the date of this annual report and cannot predict if and when we may do so. Another potential source of revenue in fiscal year 2007 is providing logistics consulting and implementation services to countries outside the United States such as Brazil where we are expecting to begin operations in our second fiscal quarter. Finally, we are seeking, subject to the availability of sufficient financing, to increase our revenue by acquiring one or more logistics and transportation services companies. We have not entered into any acquisition agreements as of the date of this annual report and cannot predict if and when we may do so.
Operating Expenses
Total operating expenses incurred during fiscal year 2006 increased by $19,217,479 or approximately 132% as compared with total operating expenses incurred during fiscal year 2005. Freight transportation expenses increased by $18,624,885 or approximately 225% in fiscal year 2006 as compared with fiscal year 2005. Most of our freight transportation expenses are variable costs associated with moving freight that increase by relatively the same percentage as freight transportation revenue when gross margins are constant as was the case during fiscal year 2006. We expect freight transportation expenses in fiscal year 2007 to increase proportionately with our increase in freight transportation revenue in fiscal year 2007.
Selling, general and administrative expenses increased by $592,594 or approximately 9% to $6,872,519 in fiscal year 2006 from $6,279,925 in fiscal year 2005. This increase was attributable to a decrease of $254,626 or approximately 6% in salaries, benefits and consulting expenses offset by an increase of $847,220 or approximately 47% in other selling, general and administrative expenses.
Salaries, benefits and consulting expenses decreased by $254,626 or approximately 6% in fiscal year 2006. This decrease consisted of a decrease of $1,306,190 or approximately 30% in salaries, benefits and consulting expenses by our Florida-based operations partially offset by an increase of $1,051,564 or 609% in salaries and benefits by our subsidiaries CXT and Power2Ship Intermodal. The decrease by our Florida-based operation primarily consisted of a decrease of $1,220,920 or approximately 49% in consulting expense as we had less of a need for consulting services in fiscal year 2006 than in fiscal year 2005. The increase by our subsidiaries CXT and Power2Ship Intermodal of $846,266 and $205,298, respectively, was a result of reporting twelve months of expense in fiscal year 2006 compared with the period from our date of acquisition of these subsidiaries in March 2005 through June 30, 2005.
The most significant expenses contributing to the $847,220 increase in other selling, general and administrative expenses were as follows:
- Increases in other selling, general and administrative expenses incurred by our subsidiaries CXT and Power2Ship Intermodal of $789,084 and $362,667, respectively, for the twelve months ended
June 30, 2006 compared with the period from our date of acquisition of these subsidiaries in March 2005 through June 30, 2005.
- Decreases in other selling, general and administrative expenses incurred by our Boca Raton Florida-based operations of $304,531 primarily associated with:
- Advertising and marketing expenses, including convention and trade show expenses, which decreased by $210,125 or approximately 90% to $22,142 in fiscal year 2006 from $232,267 in fiscal year 2005. This decrease resulted from management's decision to discontinue the marketing strategy to drive carriers and shippers to its website that had been implemented in fiscal year 2005 but had not proven to be effective.
- Legal and accounting fees which decreased by $96,505 or approximately 29% to $233,584 during fiscal year 2006 from $330,089 during fiscal year 2005. This decrease resulted from lower legal and accounting fees related to public reporting requirements, litigation and other legal matters incurred in the ordinary course of business in fiscal year 2006 compared with fiscal year 2005.
- Travel and entertainment expenses which decreased by $75,770 or approximately 41% to $110,056 during fiscal year 2006 from $185,826 during fiscal year 2005. This decrease resulted primarily from attending fewer conventions and trade shows.
- Bank service charges which increased by $64,057 or approximately 790% to $72,142 during fiscal year 2006 from $8,085 during fiscal year 2005. This increase was a result of the higher volume of transaction fees incurred when using the Comdata card to pay carriers as well as to higher service charges associated with our $1,000,000 revolving credit facility.
- Bad debt expense which increased by $40,019 to $40,702 during fiscal year 2006 from $683 in fiscal year 2005. This increase was based on the reduced likelihood of collecting accounts receivable over 90 days past due which were $103,015 as of June 30, 2006.
We expect selling, general and administrative expenses in fiscal year 2007 to remain relatively constant with fiscal year 2006. We anticipate that increases in salaries and fringe benefits associated with annual increases should be offset by the closing of our Power2Ship Intermodal operation.
Other Income (Expense)
Total other expense increased by $566,462 or approximately 45% in fiscal year 2006 as compared with fiscal year 2005. This increase primarily consisted of an increase of $550,917 or approximately 43% in interest expense. The increase in interest expense for fiscal year 2006 consisted of increases of:
- $361,908 or approximately 30% from our Florida-based operation as a result of having a higher average balance of outstanding debentures and promissory notes and the higher amount of interest expense as a result of amortization of discounts on notes payable and
- $189,009 or approximately 247% from our subsidiaries CXT and Power2Ship Intermodal for a full twelve months in fiscal year 2006 compared with the period from our date of acquisition of these subsidiaries in March 2005 through June 30, 2005.
We expect interest expense to be materially lower in fiscal year 2007 assuming that most of our convertible debentures due by December 31, 2006 are converted to equity securities or repaid with the proceeds from the sale of our equity securities. However, there can be no assurance that acceptable financing to repay our debentures can be obtained on suitable terms, if at all.
Our net loss available to common shareholders decreased by $969,991 or approximately 15% to $5,675,329 in fiscal year 2006 from $6,645,320 in fiscal year 2005. This decrease was a result of a decrease in our loss from operations of $1,530,153 or approximately 29% to $3,775,124 in fiscal year 2006 versus $5,305,277 in fiscal year 2005 and a decrease in preferred stock dividends of $6,300 that partially were offset by the $566,462 increase in other expenses.
LIQUIDITY AND CAPITAL RESOURCES
We have experienced losses and negative cash flows from operations since our inception, and our independent auditors' report on our financial statements for fiscal 2006 contains an explanatory paragraph regarding our ability to continue as a going concern. As of June 30, 2006, we had an accumulated deficit of $24,731,371, a stockholders' deficit of $2,973,232, and cash and cash equivalents of $223,525.
At June 30, 2006 we had a working capital deficit of $4,849,787 as compared with a working capital deficit of $38,477 at June 30, 2005. This $4,811,310 decrease in working capital was attributed to an increase of $1,158,576 in current assets offset by an increase of $5,969,886 in current liabilities. The increase in current assets consisted of a $1,651,592 increase in accounts receivable, net of allowances for doubtful accounts, and a $171,212 increase in prepaid expenses partially offset by a $614,228 decrease in cash and a $50,000 decrease in short term notes receivable. The increase in current liabilities consisted of a $3,672,817 increase in short term notes payable, a $1,291,174 in accounts payable and accrued expenses, a $795,627 increase in the outstanding balance on our line of credit, and a $210,268 increase in accrued salaries.
During fiscal year 2006 our cash balance decreased by $614,228. This decrease consisted of $3,306,858 used in operating activities and $468,497 used in investing activities which were offset by $3,161,127 provided by financing activities. This compares with an increase in our cash balance of $5,623 during fiscal year 2005 that consisted of $3,200,848 used in operating activities and $647,401 used in investing activities which were offset by $3,853,872 provided by financing activities.
Net cash of $3,306,858 used in operating activities for fiscal year 2006 consisted of the $5,597,529 net loss and $498,986 used for operating assets and liabilities partially offset by $2,789,657 of non-cash expenses. Non-cash expenses primarily consisted of $2,137,291 of depreciation and amortization, $356,410 of expenses associated with the issuance of our common stock, options and warrants as payment for services, interest, preferred dividends and litigation and note settlement, a $229,527 impairment of intangible assets and a $66,429 increase in our allowance for doubtful accounts receivable.
Net cash used in operating activities for fiscal year 2005 of $3,200,848 consisted of our net loss of $6,561,220 partially offset by $3,149,653 of non-cash expenses and $210,719 provided by the net change in operating assets and liabilities. Non-cash expenses primarily consisted of $2,181,247 of expenses associated with the issuance of our common stock, options and warrants as payment for services, interest and litigation settlement and $958,621 of depreciation and amortization.
Net cash used in investing activities in fiscal year 2006 consisted of $106,034 spent on property and equipment and $362,463 in capitalized costs of software development. In fiscal year 2005, net cash used in investing activities consisted of $16,409 spent on property and equipment, $361,784 in capitalized costs of software development and $269,208 associated with the acquisitions of assets by our subsidiaries CXT and Power2Ship Intermodal.
Net cash provided by financing activities of $3,161,127 in fiscal year 2006 consisted of $1,460,000 from issuances of promissory notes, $1,260,000 received from the issuance of shares of our common stock and warrants, $795,627 received from our line of credit and $50,000 received from notes receivable that partially were offset by $404,500 in repayments of a short term promissory note.
Net cash provided by financing activities of $3,853,872 in fiscal year 2005 included $2,493,350 received from the issuance of shares of our common stock, $900,000 in net proceeds received from the issuance of our Series B 5% convertible debentures, $642,500 from issuances of promissory notes and $76,355 in net proceeds received from our line of credit partially offset by $208,333 in repayments of promissory notes and a $50,000 short term loan to an unaffiliated entity.
We estimate that our cash on hand at June 30, 2006 of $223,525 plus $710,000 received from the sale of Series D convertible preferred stock from August through October 2006 and $40,000 received from the issuance of short term promissory notes, will fund our operating activities until approximately October 31, 2006. If we are unable to obtain additional working capital before then, we will defer certain employees' compensation and eliminate certain personnel and administrative costs so that we may continue to meet operating obligations until such time as we can raise additional working capital. If we are unable to raise additional working capital as needed, we may be required to curtail or discontinue some or all of our business and operations.
Our future capital requirements depend primarily on the rate at which we can decrease our use of cash to fund operations. Cash used for operations will be affected by numerous known and unknown risks and uncertainties including, but not limited to, our ability to successfully market our products and services, the degree to which competitive products and services are introduced to the market, and our ability to attract key personnel as we grow. As long as our cash flow from operations remains insufficient to completely fund operations, we will continue depleting our financial resources and seeking
additional capital through equity and/or debt financing. If we raise additional capital through the issuance of debt, this will result in increased interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of Power2Ship held by existing stockholders will be reduced and those stockholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. There can be no assurance that acceptable financing to fund our ongoing operations and for future acquisitions or for the integration and expansion of existing operations can be obtained on suitable terms, if at all. Our ability to continue our existing operations and to continue to implement our growth and acquisition strategy could suffer if we are unable to raise the additional funds on acceptable terms which will have the effect of adversely affecting our ongoing operations and limiting our ability to increase our revenues or possibly attain profitable operations in the future. If we are unable to raise sufficient working capital as needed, our ability to continue our business and operations will be in jeopardy. All of our assets serve as collateral for our 14.25% secured convertible debentures and our Series B 5% secured convertible debentures. If we default on our obligations under one or both of these securities, including, but not limited to, the payment of interest when due, then the debenture holders could foreclose on our assets and we would be unable to continue our business and operations.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included beginning at F-1 following Item 14 of this Report. See Index to the Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by the Report, being June 30, 2006, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer. Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures are effective.
In addition, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 8B. OTHER INFORMATION
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
The following table sets forth information on our executive officers
and directors as of October 6, 2006.
Name Age Positions ---------------------------------------- -------- ------------------------------------------------------ Richard Hersh 63 Chairman of the Board of Directors David S. Brooks 35 Chief Executive Officer and Member, Board of Directors S. Kevin Yates 41 Chief Operating Officer and Member, Board of Directors |
DAVID S. BROOKS. Mr. Brooks became the Company's Chief Executive Officer, and was elected to its Board of Directors, in September 2006. From 2001 through 2003, Mr. Brooks was Vice President, Business Development for MercuryMD, Inc., a provider of mobile information systems serving the healthcare market. He was Chief Operating Officer for iNTERFACEWARE, Inc., a provider of products and services designed to make exchanging electronic healthcare data easy for healthcare providers and software vendors, from 2003 through 2004. From 2004 to the present, Mr. Brooks founded and became President of bcc: Consulting, LLC, a strategic sales and marketing company. In 2006, he became Chief Operating Officer of PocketMD, LLC, the provider of a mobile information solution targeting the United States Department of Veterans Affairs. Mr. Brooks is working full-time for the Company while also remaining available to PocketMD on a limited basis.
S. KEVIN YATES. Mr. Yates became the Company's Chief Operating Officer, and was elected to its Board of Directors, in September 2006. During the past five years, Mr. Yates' experience has included sales management positions with the medical imaging business of Millenium Healthcare Solutions in 2001; A4 Health Systems, a provider of software and service solutions for physician practice and hospital settings in 2002; Per-Se Technologies, a provider of connective healthcare solutions to physicians, hospitals, and pharmacies from 2002 to 2003; and from 2004 to 2006 with Cerner Corporation, a supplier of healthcare information technology solutions and Bridge Medical, a leader in the point-of-care software market that was acquired by Cerner in 2005. In 2006, Mr. Yates became President of PocketMD, LLC, the provider of a mobile information solution targeting the United States Department of Veterans Affairs. He is in the process of transitioning from PocketMD to the Company and expects to relinquish most of his PocketMD duties by the end of 2006.
RICHARD HERSH. Mr. Hersh has been Chairman since March 2003 and from March 2003 until September 2006 he served as our Chief Executive Officer. Mr. Hersh served as Chairman and Chief Executive Officer of Freight Rate, Inc. from August 2001 until March 2003. Mr. Hersh served as Chief Operating Officer of
Freight Rate, Inc. from 1998 until being elected CEO and Chairman in April 2001. Prior to joining Freight Rate, Inc., he held several management positions including Operations Manager of Express Web, Inc., Chief Executive Officer of TRW, Inc. a start-up recycling company, Vice President of Operations for Book Warehouse, a discount bookstore chain, and Director of Operations for Dollar Time. Also, Mr. Hersh founded and was Chief Executive Officer of Helyn Brown's, a retailer of women's apparel with stores in Florida and Louisiana, which he sold after approximately 16 years.
All directors are elected at each annual meeting and serve for one year and until their successors are elected and qualified. Our officers serve at the pleasure of our board of directors.
Key Employees
JOHN URBANOWICZ. Mr. Urbanowicz served as our Vice President of Information Technology from January 2003 until September 2006 when he became our Executive Vice President of Information Technology. From June 2002 until January 2003, he provided us with various consulting services in the areas of technology, logistics and operations. During the approximately 20 years prior to joining our company, Mr. Urbanowicz was involved predominantly in the logistics and distribution fields as a distribution manager, general manager, IT manager and, most recently, as a software and business consultant. From January 2002 until April 2002, Mr. Urbanowicz was Director of Application Development for Independent Read360Network, Inc. where he was responsible for application design and development for content delivery to Palm and wireless devices through RF and IR connectivity. From August 2000 until December 2001 he served as Vice President of Information Technology at Healthtrac Corporation where he was responsible for product definition and development of an online health portal and a health risk assessment tool including content management capability, and from April 1999 until June 2000 Mr. Urbanowicz was Vice President of Information Technology for Furkon, Inc. where he was responsible for overseeing day to day business operations along with overseeing in excess of 40 developers in design, testing and implementation of multi-tier browser based application using Java and Oracle.
W. A. STOKES. Mr. Stokes became President of CXT in March 2005. During the prior twenty-two years, he had been President of Commodity Express Transportation, Inc., a South Carolina company which he founded and from which CXT acquired its current business operations.
Potential Conflicts of Interest
We have no arrangement, understanding or intention to enter into any transaction for participating in any business opportunity with any officer, director, or principal shareholder or with any firm or business organization with which such persons are affiliated, whether by reason of stock ownership, position as an officer or director, or otherwise.
There can be no assurance that members of management will resolve all conflicts of interest in our favor. Our officers and directors are accountable to our Company and its stockholders as fiduciaries, which means they are legally obligated to exercise good faith and integrity in handling our affairs and in
their dealings with our company. Failure by them to conduct our business in its best interests may result in liability to them.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than 10% of our common stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% beneficial owners also are required by rules promulgated by the Securities and Exchange Commission to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of the Section 16(a) reports filed for the fiscal year ended June 30, 2006, there were no delinquent filings.
Code of Ethics and Corporate Governance Matters
Audit Committee. The board of directors has not yet established an audit committee, and the functions of the audit committee are currently performed by the entire board of directors. We are under no legal obligation to establish an audit committee and have elected not to do so at this time so as to avoid the time and expense of identifying independent directors willing to serve on the audit committee and obtaining director and officers' liability insurance. We may establish an audit committee in the future if the board determines it to be advisable or we are otherwise required to do so by applicable law, rule or regulation.
Board of Directors Independence. Our board of directors consists of three members, none of which are "independent" within the meaning of definitions established by the Securities and Exchange Commission or any self-regulatory organization. We currently are not subject to any law, rule or regulation requiring that all or any portion of our board of directors include "independent" directors. As a result of our minimal resources, small companies such as ours generally have difficulty in attracting independent directors. In addition, we will require additional resources to obtain directors and officers insurance coverage which generally is necessary to attract and retain independent directors. As we grow in the future, our Board of Directors intends to seek additional members who are independent, have a variety of experiences and backgrounds, who will represent the balanced, best interests of all of our stockholders and at least one of which who is an "audit committee financial expert" described below.
Audit Committee Financial Expert. We do not yet have an audit committee and, therefore, we have no "audit committee financial expert" within the meaning of Item 401(e) of Regulation S-B. In general, an "audit committee financial expert" is an individual member of the audit committee who:
* understands generally accepted accounting principles and
financial statements,
* is able to assess the general application of such principles
in connection with accounting for estimates, accruals and
reserves,
* has experience preparing, auditing, analyzing or evaluating
financial statements comparable to the breadth and complexity
to the company's financial statements,
* understands internal controls over financial reporting, and
* understands audit committee functions.
Code of Ethics. We have adopted a Code of Ethics and Business Conduct to provide guiding principles to our principal executive officer, principal financial officer, and principal accounting officer or controller of our company in the performance of their duties. Our Code of Ethics and Business Conduct also strongly recommends that all directors and employees of our company comply with the code in the performance of their duties. Our Code of Ethics and Business Conduct provides that the basic principle that governs all of our officers, directors and employees is that our business should be carried on with loyalty to the interest of our stockholders, customers, suppliers, fellow employees, strategic partners and other business associates. We believe that the philosophy and operating style of our management are essential to the establishment of a proper corporate environment for the conduct of our business.
Generally, our Code of Ethics and Business Conduct provides guidelines regarding:
* conflicts of interest,
* financial reporting responsibilities,
* insider trading,
* inappropriate and irregular conduct,
* political contributions, and
* compliance with laws.
A copy of our Code of Ethics has been filed with the Securities and Exchange Commission as an exhibit to this annual report. We will provide a copy, without charge, to any person desiring a copy of the Code of Ethics, by written request to us at our principal offices.
ITEM 10. EXECUTIVE COMPENSATION
The table below sets forth information relating to the compensation paid by us during the past three fiscal years to: (i) the Chief Executive Officer; and (ii) each other executive officer who earned more than $100,000 during the last three completed fiscal years ending June 30, 2006 (the "Named Executive Officers").
Summary Compensation Table
Long-Term Compensation
Annual Compensation Restricted Securities
Name and Principal Fiscal ------------------- Other Annual Stock Underlying All Other
Position Year Salary Bonus Compensation Awards Options SAR (#) Compensation
-------- ---- ------ ----- ------------ ------ --------------- ------------
Richard Hersh, 2006 $244,933(1) $ 0 $ 0 $0 0 $0
Chief Executive 2005 $205,200(1) $ 0 $ 0 $0 2,060,881 $0
Officer 2004 $171,913(1) $ 0 $ 0 $0 0 $0
Michael J. Darden, 2006 $240,897(2) $ 0 $ 0 $0 0 $0
President 2005 $194,395(2) $9,304 $ 0 $0 1,043,812 $0
2004 $148,319 $1,083 $19,200 $0 0 $0
|
(1) Includes accrued salary that remains unpaid as of the date of this annual report of $134,800, $85,200 and $51,913 at the end of fiscal years 2006, 2005 and 2004, respectively. On March 10, 2003, we issued Mr. Hersh a convertible promissory note in the amount of $135,000 in exchange for his forgiveness of $147,520 of accrued salary. The interest rate of the note is 8% per annum and it has a maturity date of June 30, 2006. The outstanding principal balance of the note may be converted at any time into shares of our common stock at a
conversion price equal to the lesser of (a) $1.51 per share, or (b) 50% of the average of the closing bid price of the common stock for the five trading days immediately preceding the date of conversion, but not less than $0.75 per share
(2) Includes accrued salary that remains unpaid as of the date of this annual report of $47,640 and $4,391 at the end of fiscal years 2006 and 2005.
Employment Agreements
Effective September 15, 2006, we entered into an employment agreement with David S. Brooks having a term of two years with one-year renewals thereafter unless terminated by either party prior thereto. Mr. Brooks' annual base salary, which may be deferred until we have raised an aggregate of $3,000,000, will be $150,000 and he received a fully vested option to purchase 9,000,000 shares of our common stock for $0.025 per share that expires in five years.
Effective September 15, 2006, we entered into an employment agreement with S. Kevin Yates having a term of two years with one-year renewals thereafter unless terminated by either party prior thereto. Mr. Brooks' annual base salary, which may be deferred until we have raised an aggregate of $3,000,000, will be $150,000 and he received a fully vested option to purchase 9,000,000 shares of our common stock for $0.025 per share that expires in five years.
Effective January 1, 2003, we entered into a five-year employment agreement with Richard Hersh to serve as our Chief Executive Officer. Under the terms of this agreement, Mr. Hersh received a monthly salary based on 75% of the first year base salary in the agreement of $150,000 until the Company received an aggregate of $2 million in funding. He received annual salary increases of 20% per year on each anniversary of the effective date of the agreement. Mr. Hersh had agreed to defer a portion of his salary and, as of June 30, 2006, had an accrued salary of $271,913. In September 2006, Mr. Hersh resigned as Chief Executive Officer of the Company and entered into a Separation and Severance Agreement with the Company that, among other terms and conditions, settled all claims for payment by Mr. Hersh for $20,000 and the issuance of a fully vested option to purchase 11,000,000 shares of our common stock for $0.025 per share that expires in five years (see Note 15 - Subsequent Events in Consolidated Financial Statements for further details of this Employment Agreement).
Effective September 25, 2006, we entered into an employment agreement with John Urbanowicz having a term of two years with one-year renewals thereafter unless terminated by either party prior thereto. Mr. Urbanowicz' annual base salary is $150,000 and he received a fully vested option to purchase 5,000,000 shares of our common stock for $0.025 per share that expires in five years. Prior to entering into this agreement, Mr. Urbanowicz had agreed to defer a portion of his salary and, as of June 30, 2006, had an accrued salary of $16,156.
Option Grants in Year Ended June 30, 2006
(individual grants)
The following table sets forth certain information with respect to stock options granted in fiscal 2006 to the Named Executive Officers.
NO. OF SECURITIES % OF TOTAL OPTIONS/SARs
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME SARs GRANTED IN FISCAL YEAR PRICE DATE
---- ---------------- ----------------------- -------- -----------
Richard Hersh -- -- -- --
Michael J. Darden -- -- -- --
|
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table sets forth certain information with respect to stock options held as of June 30, 2006 by the Named Executive Officers.
NO. OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE JUNE 30, 2006 JUNE 30, 2006 (1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
Richard Hersh 0 n/a 6,182,642 0 0 0
Michael J. Darden 0 n/a 2,932,811 0 0 0
|
(1) Based upon the closing bid price of our common stock as reported on the OTC Bulletin Board on June 30, 2006 of $0.059.
In September 2006, the Company granted its Chairman, Richard Hersh, upon his entering into a Separation and Severance Agreement with the Company, an option to purchase 11,000,000 shares of the Company's common stock for an exercise price of $0.025 per share and an expiration date that is five years from the grant date.
In September 2006, the Company granted its Chief Executive Officer, David S. Brooks and its Chief Operating Officer, S. Kevin Yates, upon their entering into employment agreements with the Company, an option to purchase 9,000,000 shares of the Company's common stock for an exercise price of $0.025 per share and an expiration date that is five years from their grant date.
Director's Compensation
We have in the past and may, at the sole discretion of the Board of Directors in the future, provide our non-employee, independent directors with shares of our common stock as compensation for participating on our board of directors.
2001 Employee Stock Compensation Plan
In January 2001 we adopted our 2001 Employee Stock Compensation Plan. The plan is intended to further the growth and advance the best interests of our company, by supporting and increasing our ability to attract, retain and compensate persons of experience and ability and whose services are considered
valuable, to encourage the sense of proprietorship in such persons, and to stimulate the active interest of such persons in the development and success of Power2Ship. The plan provides for stock compensation through the award of shares of our common stock.
The board of directors may appoint a Compensation Committee of the board of directors to administer the plan. In the absence of such appointment, our board of directors is responsible for the administration of this plan. To date, our board has not appointed a Compensation Committee to administer the plan. The board of directors has the sole power to award shares of common stock under the plan, as well as determining those eligible to receive an award of plan shares. Awards of shares under the plan may be made as compensation for services rendered, directly or in lieu of other compensation payable, as a bonus in recognition of past service or performance or may be sold to an employee.
The maximum number of shares which may be awarded under the plan is 5,000,000. At the date of this annual report 4,681,000 shares had been granted under the plan. Awards may generally be granted to:
* executive officers, officers and directors (including advisory and
other special directors) of Power2Ship;
* full-time and part-time employees of our company;
* natural persons engaged by us as a consultant, advisor or agent;
and
* a lawyer, law firm, accountant or accounting firm, or other
professional or professional firm engaged by us.
Grants to employees may be made for cash, property, services rendered or other form of payment constituting lawful consideration under applicable law. Shares awarded other than for services rendered may not be sold at less than the fair value of our common stock on the date of grant.
The plan will terminate on the tenth anniversary of its effective date, unless terminated earlier by the board of directors or unless extended by the board of directors, after which time no incentive award grants can be authorized under the plan. The board of directors has absolute discretion to amend the plan with the exception that the board has no authority to extend the term of the plan, to increase the number of shares subject to award under the plan or to amend the definition of "Employee" under the plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information available to us as of October 6, 2006, with respect to the beneficial ownership of the outstanding shares of our common stock by:
* each person who is the beneficial owner of more than 5% of the
outstanding shares of the class of stock;
* each director
* each executive officer; and
* all executive officers and directors as a group.
Unless otherwise indicated, the business address of each person listed is in care of 903 Clint Moore Road, Boca Raton, Florida 33487. We believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. Under securities laws, a person is considered to be the beneficial owner of securities he owns and that can be acquired by him within 60 days from October 6, 2006 upon the exercise of options, warrants, convertible securities or other understandings. We determine a beneficial owner's percentage ownership by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person and which are exercisable within 60 days of October 6, 2006, have been exercised or converted.
Name of Amount and Nature of Percentage Percent of Beneficial Owner Beneficial Ownership of Class Voting Control (1) ---------------- -------------------- ---------- ------------------ Common Stock: Richard Hersh (2) 12,389,528 10.5% 21.9% David S. Brooks (3) 10,000,000 8.6% 7.5% S. Kevin Yates (4) 9,000,000 7.8% 6.8% All officers and directors as a group (two persons) (2,3,4) 31,389,528 22.9% 31.5% Chris Bake (5) 10,800,000 9.3% 8.1% Michael Garnick (6) 17,533,344 16.0% 13.8% Carmelo Luppino (7) 20,143,775 17.1% 14.9% Arthur Notini (8) 6,333,333 5.7% 4.9% The Amber Capital Fund Ltd. (9) 11,000,000 9.6% 8.4% John Geuting (10) 9,266,667 8.1% 7.0% Series D Convertible Preferred Stock: Richard Hersh (2) 1 2.5% 21.9% David S. Brooks (3) 1 2.5% 7.5% S. Kevin Yates (4) -- -- 6.8% All officers and directors as a group (three persons) (2)(3)(4) 2 5.0% 31.5% Series Y Convertible Preferred Stock: Richard Hersh (2) 87,000 100% 21.9% David S. Brooks (3) -- -- 7.5% S. Kevin Yates (4) -- -- 6.8% All officers and directors as a group (three persons) (2)(3)(4) 87,000 100% 31.5% |
* represents less than 1%
(1) Percentage of Voting Control is based upon the number of issued and outstanding shares of our common stock and our Series Y Convertible Preferred Stock on October 6, 2006. On that date we had 106,331,068 outstanding shares of common stock with one vote per share and 87,000 shares of Series Y Convertible Preferred Stock with 200 votes per share for an aggregate of 123,731,068 votes.
(2) Includes 11,000,000 shares of common stock underlying an option exercisable at $0.025 per share which expires on September 15, 2011 and 1,000,000 shares of common stock underlying Series D convertible preferred stock convertible at $0.025 per share owned my Mr. Hersh's wife.
(3) Includes 9,000,000 shares of common stock underlying an option exercisable at $0.025 per share which expires on September 15, 2011 and 1,000,000 shares of common stock underlying Series D convertible preferred stock convertible at $0.025 per share.
(4) Includes 9,000,000 shares of common stock underlying an option exercisable at $0.025 per share which expires on September 15, 2011.
(5) Mr. Bake's address is 10300 W. Charleston, Suite 131, #381, Las Vegas, Nevada 89135. Includes 1,700,000 shares of common stock underlying warrants of which 250,000 are exercisable at $0.05 per share expiring on January 1, 2009, 250,000 are exercisable at $0.05 per share expiring on February 1, 2009 and 1,200,000 are exercisable at $0.05 per share expiring on April 3, 2009. Mr. Bake also is a control person of both C & J Services SW and World Internet Trade Expeditors. C & J Services owns 700,000 shares of common stock and 200,000 shares underlying a warrant exercisable at $0.05 per share expiring on February 28, 2008, 500,000 shares underlying warrants exercisable at $0.05 per share of which 250,000 expire on December 23, 2008, 125,000 expire on January 4, 2009, 50,000 expire on January 20, 2009 and 75,000 expire on February 7, 2009, 1,000,000 shares underlying a warrant exercisable at $0.05 per share expiring on March 31, 2009, 150,000 shares underlying a warrant exercisable at $0.05 per share expiring on April 14, 2009 and 5,750,000 underlying $115,000 principal amount of our Series D 8% unsecured convertible debentures assuming a current conversion price of $0.02 per share. World Internet Trade Expeditors owns 400,000 shares of common stock and 400,000 shares of common stock underlying a warrant exercisable at $.15 per share expiring on February 28, 2008.
(6) Mr. Garnick's address is 1590 Stockton Road, Meadowbrook, Pennsylvania 19046. Includes 1,000,000 shares of common stock underlying a warrant exercisable at $0.05 per share which expires on February 28, 2008 and 2,000,000 shares of common stock underlying a warrant exercisable at $0.05 per share which expires on April 28, 2009.
(7) Mr. Luppino's address is 77 Sheather Road, Mt. Kisko, New York 10549. Includes 700,000 shares of our common stock underlying a warrant exercisable at $0.05 per share expiring on February 2, 2008, 350,000 shares underlying a warrant exercisable at $0.05 per share expiring on May 10, 2008, 1,500,000 shares underlying a warrant exercisable at $0.05 per share expiring on November 10, 2008, 1,333,333 shares underlying a warrant exercisable at $0.05 per share expiring on November 15, 2008, 2,000,000 shares underlying a warrant exercisable at $0.05 per share expiring on April 26, 2009 and 4,000,000 shares underlying $100,000 of our Series D convertible preferred stock. Mr. Luppino is the control person of both Luppino Landscaping & Masonry, LLC and Triple L Concrete, LLC. The number of shares owned by Mr. Luppino includes 666,667 shares underlying a warrant exercisable at $0.05 per share expiring on May 20, 2008 which is held by Luppino Landscaping & Masonry, LLC and 666,667 shares underlying a warrant exercisable at $0.05 per share expiring on May 20, 2008 which is held by Triple L Concrete, LLC.
(8) Mr. Notini's address is 1055 Mammoth Road, Dracut, Massachusetts 01826. Includes 2,333,333 shares underlying warrants exercisable at $0.05 per share, of which 1,000,000 shares expire on February 28, 2008 and 1,333,333 shares expire on October 31, 2008, and 2,000,000 shares underlying a warrant exercisable at $0.05 per share expiring on May 12, 2009.
(9) Michael B. Collins is a control person of The Amber Capital Fund Ltd. which is located at 5 Park Road, Hamilton, Bermuda HM09. Includes 2,000,000 shares underlying a warrant exercisable at $0.05 per share expiring on February 28, 2008, 1,000,000 shares underlying a warrant exercisable at $0.05 per share expiring on May 3, 2009 and 5,000,000 underlying $100,000 principal amount of our Series D convertible debentures assuming a current conversion price of $0.02 per share.
(10) John Geuting's address is 4005 Byron Road, Wilmington, Delaware 19802. Includes 800,000 shares underlying a warrant exercisable at $0.05 per share expiring on February 28, 2008, 666,667 shares underlying a warrant exercisable at $0.05 per share expiring on November 18, 2008 and 6,000,000 shares underlying $150,000 principal amount Series D convertible preferred stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2006, we engaged Chris Bake, a principal shareholder of the Company, as a consultant to provide us with various business advisory services for one year for which we granted him a three-year warrant to purchase 500,000 shares of common stock exercisable at $0.10 per share valued at $32,200. In April 2006, we amended the consulting agreement with Mr. Bake and granted him another three-year warrant to purchase 1,200,000 shares of common stock exercisable at $0.10 valued at $71,640.
In May 2006, we engaged The Amber Capital Fund, Ltd., a principal shareholder of the Company, as a consultant to provide us with various business advisory services for one year for which we issued 1,000,000 shares of common stock valued at $80,000.
In April 2005, Richard Hersh, our Chief Executive Officer and Michael J. Darden, our President, were granted options providing each with the right to purchase 10% of the shares of common stock of CXT for an exercise price of $60,000 expiring three years from the date these options were granted. In September 2006, Mr. Hersh entered into a Separation and Severance Agreement that, among other terms and conditions, cancelled his CXT option.
In February 2005, we engaged Carmelo Luppino, a principal shareholder of the Company, as a consultant to provide us with various business advisory services for one year. During fiscal year 2005, we issued Mr. Luppino 700,000 shares of common stock valued at $203,000 and warrants to purchase 1,050,000 shares of common stock for $0.15 per share and 221,755 shares for $0.38 per share valued at $273,301. During fiscal year 2006, we issued Mr. Luppino a three-year warrant to purchase 1,500,000 shares exercisable at $0.15 per share valued at $169,200.
In October 2004, we engaged Michael Garnick, a principal shareholder of the Company, as a consultant to provide us with various business advisory services, particularly related to legal matters, for one year. During fiscal year 2005, we issued Mr. Garnick 450,000 shares of common stock valued at $151,500. During fiscal year 2006, we issued Mr. Garnick 1,150,000 shares of common stock valued at $74,980.
In July and August 2004 we acquired the 30% interest in all of our intellectual property, including certain service marks and patent rights to our ASP software that collectively had been owned by Messrs. Hersh, Darden and Urbanowicz in consideration for an aggregate of 600,000 shares of our common stock pursuant to the terms of Intellectual Property Assignment Agreements. The agreements with Messrs. Hersh, Urbanowicz and Darden were executed on July 19, July 21 and August 26, 2004. We valued the shares issued to Messrs. Hersh, Urbanowicz and Darden at $226,000 using the closing prices of our common stock on those dates as reported on the OTCBB of $0.38, $0.37 and $0.38 per share,
respectively. This $226,000 intangible asset is being amortized over its estimated useful life of two years from the effective dates of the Intellectual Property Assignment Agreements. We recorded amortization expense of $103,587 for fiscal year 2005.
At the time of the transaction, Messrs. Hersh and Darden were two of the three members of our board of directors. In our discussions with Messrs. Hersh, Darden and Urbanowicz leading up to the signing of the agreement, we analyzed our business in an attempt to reach a fair value of the intellectual property rights we wished to acquire. As a result of this analysis, we believe that the value of our business is based primarily on our unique intellectual property, including but not limited our trade marks, service marks and ASP software. Our board of directors determined that the value of our company, based upon our market capitalization as calculated using the average closing price of our common stock for the 30 trading days preceding the agreement to acquire the intellectual property rights, was $15 million. In determining the ultimate purchase price of the intellectual property rights, we established an arbitrary amount of $226,000, which represented approximately 1.5% of our market capitalization. We believe that this amount is fair to our stockholders and reasonable consideration to be paid to Messrs. Hersh, Darden and Urbanowicz for the rights we acquired.
Before deciding to use a market capitalization valuation method, alternative valuation methods were considered by our board of directors, but upon analysis were deemed to be inappropriate. Our board of directors considered a valuation based on book value, but determined that book value was not meaningful since we have a negative book value. Our board of directors considered a valuation based on discounted cash flow, but deemed this basis to be unreliable since it requires numerous assumptions, including our projected cash flows, which are difficult to make with any degree of confidence at our current stage of development. Finally, our board of directors considered a valuation based on comparable company analysis, but determined it would not be possible since we are unaware of any comparable companies.
ITEM 13. EXHIBITS
(a) Exhibits
2.1 Merger Agreement between Jaguar Investments, Inc., Freight Rate, Inc.,
and Jag2 Corporation (1)
3.1 Articles of Incorporation (2)
3.2 Certificate of Amendment to Articles of Incorporation (3)
3.3 Certificate of Amendment to the Articles of Incorporation (4)
3.4 Certificate of Voting Powers, Designations, Preferences and Rights to
Series B Convertible Preferred Stock (10)
3.5 Certificate of Voting Powers, Designations, Preferences and Rights to
Series C Convertible Preferred Stock (10)
3.6 Certificate of Voting Powers, Designations, Preferences and Rights to
Series Y Preferred Stock (5)
3.7 Certificate of Correction of Certificate of Voting Powers,
Designations, Preferences and Right to Series Y Preferred Stock (5)
3.8 Certificate of Amendment to Articles of Incorporation Increasing
Authorized Shares of Common Stock to 250,000,000 filed on August 13,
2004 (9)
3.9 Certificate of Voting Powers, Designations, Preferences and Rights to
Preferred Stock of Series X Convertible Preferred Stock (5)
3.10 Bylaws (2)
3.11 Amended Bylaws dated March 31, 2003 (5)
3.12 Certificate to Set Forth Designations, Preferences and Rights to Series
D Convertible Preferred Stock **
4.1 Form of Common Stock Purchase to Newbridge Securities Corporation for
Business Advisory Agreement (10)
4.2 $ 1,747,000 principal amount 14.25% secured convertible debenture (10)
4.3 $2,000,000 principal amount Series B 5% secured convertible debenture
(6)
4.4 Form of non-plan option agreement (10)
4.5 Form of common stock purchase warrant (10)
4.6 Form of Common Stock Purchase Warrant re: 14.25% secured convertible
debentures (10)
4.7 Form of Common Stock Purchase Warrant issued to Newbridge Securities
Corporation as Placement Agent for 14.25% secured convertible
debentures (10)
4.8 Form of Warrant for 2005 Unit Offering (17)
4.9 Form of Series C 10% unsecured convertible debenture*
4.10 Form of Warrant for Series C 10% unsecured convertible debenture
offering*
4.11 Form of Series D 8% unsecured convertible debenture *
4.12 Form of Warrant for Series D 8% unsecured convertible debenture*
5 Opinion of Schneider Weinberger & Beilly, LLP*
10.1 Securities Purchase Agreement (6)
10.2 Investor Registration Rights Agreement (6)
10.3 Placement Agent Agreement with Newbridge Securities Corporation (6)
10.4 2001 Employee Stock Compensation Plan (3)
10.5 Form of Registration Rights Agreement dated as of December 21, 2001, by
and between Jaguar Investments, Inc. and certain shareholders of Jaguar
Investments, Inc. (7)
10.6 Employment Agreement with Richard Hersh (8)
10.7 Employment Agreement with Michael J. Darden (8)
10.8 Employment Agreement with John Urbanowicz (8)
10.9 Business Advisory Agreement with Newbridge Securities Corporation (10)
10.10 Form of Intellectual Property Assignment Agreement between Power2Ship,
Inc. and each of Richard Hersh, Michael J. Darden and John Urbanowicz
(10)
10.11 Security Agreements for 14.25% secured convertible debentures (10)
10.12 Registration Rights Agreement for 14.25% secured convertible debentures
(10)
10.13 Consulting Agreement with Michael Garnick (11)
10.14 Form of Motor Carrier Transportation Agreement (11)
10.15 Asset Purchase Agreement with GFC, Inc. (14)
10.16 Commission Sales Agreement with Associated Warehouses, Inc. (12)
10.17 Mutual Agreement with Commodity Express Transportation, Inc. (15)
10.18 Loan and Security Agreement with Mercantile Capital, LP (12)
10.19 Escrow Agreement with Commodity Express Transportation, Inc. (15)
10.20 Equipment Lease Agreement with Commodity Express Transportation, Inc.
(15)
10.21 Commercial Lease with Commodity Express Transportation, Inc. (15)
10.22 Commodity Express Transportation, Inc. - TPS Logistics, Inc. Agreement
(15)
10.23 Consulting Agreement with Stokes Logistics Consulting, LLC (15)
10.24 Employment Agreement with W.A. Stokes (15)
10.25 Fee Assumption Agreement (15)
40
|
10.26 Asset Purchase Agreement with GFC, Inc. (16)
10.27 Consulting Agreement with Michael Allora (16)
10.28 Form of Unsecured Promissory Note (13)
10.29 Agreement with Welley Shipping (China) Company, Limited (18)
10.30 Termination Agreement with Cornell Capital Partners, LP (19)
10.31 Form of shipper agreement*
10.32 Form of carrier agreement*
10.33 Letter of Engagement Between Power2Ship, Inc. and Averitt Express (20)
10.34 Separation and Severance Agreement with Richard Hersh **
10.35 Consulting Agreement with Richard Hersh **
10.36 Employment Agreement with David S. Brooks **
10.37 Employment Agreement with S. Kevin Yates **
10.38 Consulting Agreement with David S. Brooks and S. Kevin Yates (as
amended) **
10.39 Agreement to Amend Debentures Held by Cornell Capital Partners, LP
and/or its Affiliate, Montgomery Equity Partners, Ltd. **
14.1 Code of Ethics (11)
21.1 Subsidiaries of Registrant *
23.1 Consent of Sherb & Co., LLP*
23.2 Consent of Schneider Weinberger & Beilly, LLP (included in Exhibit 5
hereto*)
31.1 Section 302 Certificate of Chief Executive Officer *
31.2 Section 302 Certificate of Principal financial and accounting officer *
32.1 Section 906 Certificate of Chief Executive Officer and Principal
financial and accounting officer *
|
* Previously filed ** Filed herewith
(1) Incorporated by reference to Current Report on Form 8-K filed on March
26, 2003.
(2) Incorporated by reference to registration statement on Form 10-SB, as
amended.
(3) Incorporated by reference to definitive Schedule 14C Information
Statement filed on February 2, 2001.
(4) Incorporated by reference to definitive Schedule 14C Information
Statement filed on April 22, 2003.
(5) Incorporated by reference to Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002.
(6) Incorporated by reference to Current Report on Form 8-K filed on July
8, 2004.
(7) Incorporated by reference to Current Report on Form 8-K filed on
January 3, 2002.
(8) Incorporated by reference to Quarterly Report on Form 10-QSB for the
period ended March 31, 2003.
(9) Incorporated by reference to Preliminary Information Statement on
Schedule 14C filed on July 8, 2004.
(10) Incorporated by reference to registration statement on Form SB-2, SEC
File No. 333-118792, filed on September 3, 2004.
(11) Incorporated by reference to Amendment No. 1 to registration statement
the Form SB-2, SEC File No. 333-118792, filed on October 20, 2004.
(12) Incorporated by reference to Amendment No. 3 to the registration
statement on Form SB-2, SEC File No. 333-118792, filed on December 15,
2004.
(13) Incorporated by reference to Quarterly Report on Form 10-QSB for the
period ended December 31, 2004 filed on February 14, 2005.
(14) Incorporated by reference to Current Report on Form 8-K/A filed on
February 25, 2005.
(15) Incorporated by reference to Current Report on Form 8-K filed on March
25, 2005.
(16) Incorporated by reference to Current Report on Form 8-K filed on March
28, 2005.
(17) Incorporated by reference to Quarterly Report on Form 10-QSB for the
period ended March 31, 2005.
(18) Incorporated by reference to Current Report on Form 8-K filed on June
3, 2005.
(19) Incorporated by reference to Current Report on Form 8-K filed on July
28, 2005.
(20) Incorporated by reference to Current Report on Form 8-K filed on
February 17, 2006.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The financial statements for our fiscal years 2006 and 2005 have been audited by Sherb & Co. LLP. The following table shows the fees that we paid or accrued for the audit and tax services provided by Sherb & Co. LLP for fiscal years 2006 and 2005.
Fiscal 2006 Fiscal 2005
----------- -----------
Audit Fees $ 66,000 $72,500
Audit-Related Fees 0 0
Tax Fees 11,000 6,000
All Other Fees 3,500 6,000
--------- ---------
Total $ 79,500 $84,500
|
Audit Fees -- This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-QSB and services that are normally provided by the independent auditors in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees -- This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit Fees." The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting.
Tax Fees -- This category consists of professional services rendered by the independent auditor for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees -- This category consists of fees for other miscellaneous items.
The board of directors has adopted a procedure for pre-approval of all
fees charged by Sherb & Co. LLP. Under the procedure, the board approves the
engagement letter with respect to audit, tax and review services. Other fees are
subject to pre-approval by the board, or, in the period between meetings, by a
designated member of board. Any such approval by the designated member is
disclosed to the entire board at the next meeting. The audit and tax fees paid
to Sherb & Co. LLP with respect to fiscal year 2006 were pre-approved by the
entire board of directors.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: October 13, 2006
POWER2SHIP, INC.
By: /s/ David S. Brooks
-------------------
Name: David S. Brooks
Title: Chief Executive Officer,
principal executive officer
and principal financial
and accounting officer
|
In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David S. Brooks
------------------- Chief Executive Officer, principal
David S. Brooks executive officer, principal financial officer October 13, 2006
/s/ S. Kevin Yates
------------------
S. Kevin Yates Chief Operating Officer, director October 13, 2006
/s/ Richard Hersh Director October 13, 2006
-----------------
Richard Hersh
|
POWER2SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet, June 30, 2006 F-3
Consolidated Statements of Operations, Years Ended
June 30, 2006 and 2005 F-4
Consolidated Statement of Changes in Stockholders' Deficit for the
Period from July 1, 2004 through June 30, 2006 F-5
Consolidated Statements of Cash Flows, Years Ended
June 30, 2006 and 2005 F-6
Notes to Consolidated Financial Statements F-8
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Power2Ship, Inc.
We have audited the accompanying consolidated balance sheet of Power2Ship, Inc. and subsidiaries as of June 30, 2006, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years ended June 30, 2006 and 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of Power2Ship, Inc. and subsidiaries as of June 30, 2006, and the results of its operations and its cash flows for the years ended June 30, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company had net losses and cash used in operations of $5,597,529 and $3,306,858 respectively, for the year ended June 30, 2006. This raises substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sherb & Co., LLP
--------------------
Sherb & Co., LLP
Certified Public Accountants
Boca Raton, Florida
October 11, 2006
|
POWER2SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2006
ASSETS
Current assets:
Cash and cash equivalents $ 223,525
Accounts receivable, net of allowance of $97,287 2,773,019
Prepaid expenses 270,807
--------------
Total current assets 3,267,351
Property and equipment 636,542
Less: accumulated depreciation (253,627)
--------------
Net property and equipment 382,915
Software development costs, net of accumulated amortization
of $153,339 1,033,526
Deferred financing costs 69,475
Intangible asset, net of accumulated amortization of $229,106 42,819
Restricted cash for interest on debentures 2,367
Other assets 453,256
--------------
Total assets $ 5,251,709
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable - short term $ 236,280
Convertible notes payable less discount of $120,463 3,551,537
Convertible note payable to related party 115,000
Lines of credit 912,287
Accounts payable 1,977,647
Accrued expenses 965,891
Accrued salaries 358,496
--------------
Total current liabilities 8,117,138
Long term debt:
Long term notes payable 40,660
Convertible notes payable less discount of $872,857 67,143
--------------
Total liabilities 8,224,941
Stockholders' deficit :
Preferred stock, $.01 par value, 1,000,000 shares authorized:
Series B convertible preferred stock, $.01 par value, 200,000
shares authorized; 155,600 shares issued and outstanding 1,556
Series C convertible preferred stock, $.01 par value, 20,000
shares authorized; 832 shares issued and outstanding 8
Series Y convertible preferred stock, $.01 par value, 87,000
shares authorized; 87,000 shares issued and outstanding 870
Common stock, $.001 par value, 250,000,000 shares
authorized; 84,347,750 issued and outstanding 84,348
Deferred compensation (408,896)
Additional paid-in capital 22,080,253
Accumulated deficit (24,731,371)
--------------
Total stockholders' deficit (2,973,232)
--------------
Total liabilities and stockholders' deficit $ 5,251,709
==============
|
See accompanying notes
POWER2SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
--------------------
2006 2005
-------------------- -------------------
Revenue:
Freight transportation $ 29,972,096 $ 9,247,453
Access services 1,833 180
Implementation services 21,336 -
-------------------- -------------------
Total revenue 29,995,265 9,247,633
Operating expenses:
Freight transportation 26,897,870 8,272,985
Selling, general and administrative:
Salaries, benefits and consulting fees 4,211,734 4,466,360
Other selling, general and administrative 2,660,785 1,813,565
-------------------- -------------------
Total operating expenses 33,770,389 14,552,910
-------------------- -------------------
Loss from operations (3,775,124) (5,305,277)
-------------------- -------------------
Other income (expense):
Gain on asset disposal 1,415 -
Forgiveness of debt - 18,111
Interest expense, net (1,826,726) (1,275,809)
Other income 2,906 1,755
-------------------- -------------------
Total other expense (1,822,405) (1,255,943)
-------------------- -------------------
Net loss (5,597,529) (6,561,220)
Less: Preferred stock dividend (77,800) (84,100)
-------------------- -------------------
Loss available to common shareholders $ (5,675,329) $ (6,645,320)
==================== ===================
Loss per share-basic and diluted $ (0.09) $ (0.14)
==================== ===================
Weighted average shares outstanding
- basic and diluted 60,007,425 46,698,677
==================== ===================
|
See accompanying notes
POWER2SHIP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD JULY 1, 2004 THROUGH JUNE 30, 2006
Series B Stock Series C Stock Series Y Stock Common Stock Additional
--------------- -------------- --------------- --------------- Deferred Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Compensation Capital Deficit Total
--------------- ------------- --------------- ------ ------- ------------ -------- -------- -----
Balance,
June 30, 2004 198,000 $1,980 10,832 $108 87,000 $870 38,248,146 $38,248 $(208,410) $11,969,765 $(12,410,722) $(608,161)
Common stock
cancelled for
services -
financial
consultant (300,000) (300) 150,000 (149,700) -
Warrants
cancelled for
services -
financial
consultant 58,410 (58,410) -
Conversion of
Series B
preferred
stock
to common
stock (29,800) (298) 596,000 596 (298) -
Conversion
of Series C
preferred
stock to
common stock (10,000) (100) 1,000,000 1,000 (900) -
Sale of units
of common
stock and
warrants 16,629,000 16,629 2,476,721 2,493,350
Conversion of
notes and
accrued
interest to
common stock 2,590,823 2,591 409,909 412,500
Common stock
issued
for Series B
preferred
dividend 339,661 340 83,760 (84,100) -
Common stock
issued
for services 5,380,396 5,380 1,516,129 1,521,509
Common stock
issued for
intellectual
property 600,000 600 225,400 226,000
Common stock
issued
for services -
financial
consultants 1,050,000 1,050 (338,000) 336,950 -
Warrants issued
for acquisition
GFC/P2SI 34,600 34,600
Options and
warrants
issued for
services 759,738 759,738
Beneficial
conversion
for convertible
notes payable 194,111 194,111
Amortization of
deferred
compensation 194,405 194,405
Net loss - - - - - - - - - - (6,561,220) (6,561,220)
------- ------ ----- ----- ------ ----- --------- ------ --------- ----------- ------------- -----------
Balance,
June 30, 2005 168,200 $1,682 832 $8 87,000 $ 870 66,134,026 $66,134 $(143,595) $17,797,775 $(19,056,042) $(1,333,168)
Conversion of
Series B
preferred stock
to common (12,600) (126) 252,000 252 (126) -
Sale of units
of common
stock and
warrants 9,908,333 9,908 1,250,092 1,260,000
Conversion of
notes and
accrued interest
to common stock 2,387,431 2,387 253,044 255,431
Common stock issued
for services and
note settlement 1,515,960 1,517 239,048 240,565
Common stock issued
for services -
financial
consultants 4,150,000 4,150 (518,480) 514,330 -
Options and
warrants
issued for
services (440,045) 597,890 157,845
Amortization of
deferred
compensation 693,224 693,224
Warrants issued for
discount on
notes payable 1,428,200 1,428,200
Accrual of
value of
common stock
for Series B
preferred
dividend (77,800) (77,800)
Net loss - - - - - - - - - - (5,597,529) (5,597,529)
------- ------- ------ ----- ------ ----- ---------- ------- --------- ------------ ------------ -----------
Balance,
June 30, 2006 155,600 $ 1,556 832 $ 8 87,000 $870 84,347,750 $84,348 $(408,896) $22,080,253 $(24,731,371) $(2,973,232)
======= ======= ====== ===== ====== ===== ========== ======= ========= ============ ============ ===========
|
POWER2SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
----------------------------------------
2006 2005
---------------- ---------------
Cash flows from operating activities:
Net loss $ (5,597,529) $ (6,561,220)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 117,048 63,779
Amortization of software development costs 54,093 54,092
Amortization of intangible asset 138,636 113,325
Amortization of deferred compensation 693,224 194,405
Amortization of deferred financing costs 417,052 420,387
Amortization of discount on notes payable 717,238 112,633
Impairment of intangible asset 229,527 -
Increase in allowance for doubtful accounts 66,429 27,895
Gain on forgiveness of debt - (18,110)
Issuance of stock options and warrants
for services and conversion 157,845 759,738
Issuance of stock for services, interest and litigation settlement 198,565 1,421,509
Changes in operating assets and liabilities:
Increase in accounts receivables (1,717,970) (830,233)
Decrease (increase) in prepaid expenses (171,212) 64,486
Increase in other assets (84,317) (208,040)
Increase in accounts payable and accrued expenses 1,474,513 1,184,506
---------------- ---------------
Net cash used in operating activities (3,306,858) (3,200,848)
---------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (106,034) (16,409)
Cash used in acquisitions - (269,208)
Capitalized costs of software development (362,463) (361,784)
---------------- ---------------
Net cash used in investing activities (468,497) (647,401)
---------------- ---------------
Cash flows from financing activities:
Proceeds from convertible promissory notes net of costs of $0
and $100,000, respectively 910,000 900,000
Proceeds from promissory notes 550,000 642,500
Proceeds from notes receivable 50,000 -
Repayments of promissory notes (404,500) (208,333)
Issuance of note receivable - (50,000)
Proceeds from line of credit net of costs of $0 and $40,305, respectively 795,627 76,355
Proceeds from sale of common stock and warrants net of costs of $0
and $428,847 respectively 1,260,000 2,493,350
---------------- ---------------
Net cash provided by financing activities 3,161,127 3,853,872
---------------- ---------------
Net increase (decrease) in cash and cash equivalents (614,228) 5,623
Cash and cash equivalents, beginning of period 837,753 832,130
---------------- ---------------
Cash and cash equivalents, end of period $ 223,525 $ 837,753
================ ===============
|
POWER2SHIP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
----------------------------------------
2006 2005
---------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 461,515 $ 239,574
================ ===============
Cash paid for income taxes during the period $ 8,760 $ -
================ ===============
Non-cash transactions affecting investing and financing activities:
Conversion of notes and accrued interest to common stock $ 255,431 $ 412,500
================ ===============
Common stock and warrants for services to be rendered in future $ 958,525 $ 338,000
================ ===============
Conversion of Series B preferred stock to common stock $ 252 $ 596
================ ===============
Common stock issued for note settlement $ 42,000 $ -
================ ===============
Warrants issued for discount on notes payable $ 1,428,200 $ -
================ ===============
Common stock issued for intellectual property $ - $ 226,000
================ ===============
Common stock and warrants cancelled $ - $ (208,410)
================ ===============
Warrants issued for acquisition $ - $ 34,600
================ ===============
Conversion of Series C to common stock $ - $ 1,000
================ ===============
Beneficial conversion for convertible notes payable $ - $ 194,111
================ ===============
Acquisition details GFC:
Fair value of assets acquired $ - $ 234,600
================ ===============
Liabilities assumed $ - $ (200,000)
================ ===============
Warrants issued for acquisitions $ - $ (34,600)
================ ===============
Acquisition details CXT:
Fair value of assets acquired $ - $ 169,208
================ ===============
Liabilities assumed $ - $ (69,208)
================ ===============
Common stock issued for acquisitions $ - $ (100,000)
================ ===============
|
See accompanying notes
POWER2SHIP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 2006 AND 2005
NOTE 1 - DESCRIPTION OF BUSINESS
On February 25, 2005, the Company formed P2S Holdings, Inc., a Florida
corporation, as a wholly owned subsidiary. Then, on March 21, 2005, Commodity
Express Transportation, Inc. ("CXT"), a wholly owned subsidiary of P2S Holdings
formed as a Delaware corporation on March 21, 2002, acquired certain assets and
liabilities representing the business of Commodity Express Transportation, Inc.,
a South Carolina based company engaged in the business of motor carriage
specializing in full truckload transportation services primarily using dry vans.
CXT presently serves the southeastern United States from its South Carolina base
with a fleet of 92 tractors comprised of 45 owned units and 47 owner-operator
units with which it has independent contractor lease agreements and 285
trailers. In addition, CXT rents a 137,000 square foot warehouse facility in
South Carolina to service its largest customer and provides freight
transportation brokerage services through its wholly owned subsidiary, Commodity
Express Brokerage, Inc., a Florida corporation formed on March 3, 2005. See Note
13 - "Acquisitions" for further details related to this transaction.
Also, on March 21, 2005, Power2Ship Intermodal, Inc. ("P2SI"), a wholly owned subsidiary of CXT formed as a Delaware corporation on March 21, 2002, acquired certain assets and liabilities representing the business of GFC, Inc. It is a New Jersey based company in the business of motor carriage specializing in intermodal drayage transportation services. Effective June 30, 2006, the operations of P2SI ceased to exist. See Note 8 - "Notes Payable and Convertible Notes Payable" and Note 13 - "Acquisitions" and for further details).
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Freight transportation revenue consists of the total dollar value of services purchased from us by our customers. The Company recognizes freight transportation revenue when shipments of goods reach their destinations and the receiver of the goods acknowledges their receipt by signing a bill of lading. At that time, our obligations to the customer are completed and collection of receivables is reasonably assured. Emerging Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent", establishes the criteria for recognizing revenues on a gross or net basis. When we provide these freight transportation services, we are the primary obligor, we are a principal to the transaction not an agent, we have the risk of loss for collection, we have discretion to select the supplier when we do not supply the services and we have latitude in pricing decisions.
Access services revenue is recognized in the month that access to the P2S MobileMarket(TM) is provided to customers. When the Company provides equipment to customers, in conjunction with providing access services to them, on any basis in which ownership is retained by the Company, then the Company accounts for equipment provided to the customer as part of the access services agreement and revenue is recognized ratably over the term of the agreement.
Implementation services revenue, generated pursuant to software development contracts with customers, is recognized on the percentage
of completion basis for each deliverable provided for in the contract. Revenue from implementation services is expected to be insignificant as a percentage of total revenue in the foreseeable future.
The FASB has concluded that companies may adopt the new standard in one of two ways: the modified prospective transition method and the modified retrospective transition method. Under the modified retrospective transition method, prior periods may be retroactively adjusted either as of the beginning of the year of adoption or for all periods presented. The modified prospective transition method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the fiscal period of adoption of SFAS 123(R), while the retrospective method would record compensation expense for all unvested stock options and share awards beginning with the fiscal period retroactively adjusted. The Company adopted SFAS 123(R) on March 31, 2006 and elected to use the modified prospective transition method.
SFAS 123(R) is a new and very complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation. There is little experience and guidance available with respect to developing these assumptions and models. There is also uncertainty as to how the standard will be interpreted and applied as more companies adopt the standard and companies and their advisors gain experience with the standard. SFAS 123(R) requires the recognition of the fair value of stock compensation in net income.
The fair value concepts were not changed significantly in SFAS 123(R); however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options
as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.
The Company previously accounted for stock-based compensation issued to its employees using the intrinsic value method. Accordingly, compensation cost for stock options issued was measured as the excess, if any, of the fair value of our common stock at the date of grant over the exercise price of the options. The pro forma net loss and per share amounts as if the fair value method had been applied to employee stock options granted are presented below for the years ended June 30, 2006 and 2005 in accordance with the Company's adoption of SFAS 123(R) effective March 31, 2006.
Year Ended Year Ended
June 30, 2006 June 30, 2005
--------------- ---------------
Loss available to common shareholders, as reported $ (5,389,138) $ (6,645,320)
Add: Stock-based employee compensation expense
included in reported net loss, net of related tax effects -- --
Deduct: Total stock-based compensation expense determined under
fair value based method for all awards, net of related tax
effects (22,861) (988,876)
--------------- ---------------
Pro forma loss available to common shareholders $ (5,411,999) $ (7,634,196)
=============== ===============
Loss per share:
Basic and diluted - as $ (0.09) $ (0.14)
reported
=============== ===============
Basic and diluted - pro forma $ (0.09) $ (0.16)
=============== ===============
|
performance of business operations, the operating environment and business strategy, competitive information and market trends. At June 30, 2006, the Company had no assets which were considered to be impaired.
- the preliminary or planning stage includes all activities related to conceptualizing, evaluating and selecting the alternatives for implementing the project including, but not limited to, developing a project plan, determining desired functionalities and content, identifying required hardware and software tools and selecting external vendors and consultants. All internal and external costs during the preliminary project stage are expensed as incurred.
- the application and infrastructure development stage begins immediately upon conclusion of the preliminary or planning stage and includes, but is not limited to, all activities related to designing the software configuration and software interfaces, acquiring or customizing the software necessary to build the application, coding, hardware installation and testing, including parallel processing. Generally, any internal and external costs incurred during the application and infrastructure development stage are capitalized and amortized on a straight-line basis over the estimated economic life of the software of three to five years. General and administrative costs and overhead costs are not capitalized. Amortization for each module or component of software begins after all substantial testing is completed and it is deemed to be ready for its intended use. The only exception to beginning amortization at that time would be if the functionality of that module or component is entirely dependent on the completion of other modules or component in which case the amortization would begin when both the module and the other modules upon which it is functionally dependent are ready for their intended use.
- the post-implementation/operation stage includes, but is not limited to, activities related to training, user administration, application maintenance, system backups, routine security reviews, the costs of which are expensed as incurred. Also, upgrades and enhancements that result in additional functionality may occur during this stage, the costs of which are amortized on a straight-line basis over the estimated economic life of the upgrade or enhancement of three to five years.
At June 30, 2006, the net book value of capitalized software was $1,033,526. Amortization expense for the years ended June 30, 2006 and 2005 was $54,093 and $40,621, respectively.
The Company makes ongoing evaluations of the recoverability of its capitalized internal use software and Web site by comparing the amount capitalized for each module or component of software to their estimated net realizable values. If such evaluations indicate that the unamortized costs exceed the net realizable values, the Company writes off the amount by which the unamortized costs exceed the net realizable values.
The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation up to $100,000 per institution. At June 30, 2006, the Company's cash balances exceeded the insured limits by approximately $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash on deposit.
The Company performs on-going credit evaluations of its customer base including those that represent its accounts receivable at June 30, 2006. The Company maintains reserves for potential credit losses and such losses historically have been within management's expectations.
Additionally, the Company had factored accounts receivable of approximately $296,000 at June 30, 2006 with a corresponding liability of $296,000 as amounts due to the factoring company, which is included in accounts payable on the balance sheet. Also, the Company has a deposit of approximately $70,000 with the factoring company that may be used to cover potential credit losses that is included in other assets on the balance sheet. As of July 1, 2006, the Company no longer factors its accounts receivable.
In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. SFAF 153 is effective for fiscal periods
beginning after December 15, 2005. The adoption of this pronouncement is not
expected to have any significant effect on the Company's financial position or
results of operations.
In April 2005, the Securities and Exchange Commission's Office of the Chief Accountant and its Division of Corporation Finance has released Staff Accounting Bulletin (SAB) No.107 to provide guidance regarding the application of FASB Statement No.123 (revised 2004), Share-Based Payment. Statement No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SAB 107 provides interpretative guidance related to the interaction between Statement No. 123R and certain SEC rules and regulations, as well as the staff's views regarding the valuation of share-based payment arrangements for public companies. SAB 107 also reminds public companies of the importance of including disclosures within filings made with the SEC relating to the accounting for share-based payment transactions, particularly during the transition to Statement No. 123R.
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"). This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS No.154 also requires retrospective application to prior periods' financial statements of a voluntary change in accounting principle unless it is impracticable. SFAS No.154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted SFAS No.154 on July 1, 2006, which we do not expect SFAS No. 154 to have a significant impact on our consolidated financial condition and results of operations.
In July 2006, the FASB issued FASB Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes -- An Interpretation of FASB Statement No. 109." FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. We are currently evaluating the provisions of FIN No. 48 to determine the impact on our consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE 3 - GOING CONCERN
The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. During the years ended June 30, 2006 and 2005, the Company incurred losses from operations of $3,775,124 and $5,305,277, respectively and, for the same periods, had negative cash flows from operations of $3,306,858 and $3,200,848, respectively. While the Company is attempting to increase sales, the growth has not been significant enough to support the Company's daily operations. Management intends to continue raising additional funds with private placements of its debt and equity securities to accredited investors. While the Company believes in the viability of its strategy to improve sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The financial statements do not
include any adjustments that might result from the outcome of these uncertainties.
NOTE 4 - CONCENTRATIONS
During fiscal years 2006 and 2005, our largest customer represented approximately 53% and 40%, respectively, of our total revenue. During fiscal years 2006 and 2005, our second largest customer accounted for approximately 11% and 14%, respectively, of our total revenue. No other customer accounted for more than 10% of our total revenue during fiscal years 2006 and 2005. As of June 30, 2006, our two largest customers accounted for 18% and 6%, respectively, of our accounts receivable.
NOTE 5 - INTANGIBLE ASSETS
In March 2005, the Company allocated $89,874 of the purchase price for the assets acquired by Commodity Express Transportation, Inc. and $334,600 of the purchase price for the assets of GFC, Inc. acquired by Power2Ship Intermodal, Inc. to intangible assets attributable to the customer lists of these businesses which are being amortized over their estimated useful lives of 5 years. The Company recorded amortization expense for the year ended June 30, 2006 of $ 25,632 and, recorded impairments to intangible assets of $185,578 associated the operations of P2SI ceasing to exist effective June 30, 2006 and $43,949 associated with Commodity Express Transportation.
At June 30, 2006, future amortization was as follows:
2007 $ 8,909
2008 8,909
2009 8,909
2010 6,683
---------
$ 33,410
=========
|
In July and August, 2004, the Company entered into Intellectual Property Assignment Agreements with three of its executives pursuant to which each of them assigned to the Company all of their right, title and interest in and to all the intellectual property which they had contributed to the Company in the past in consideration for an aggregate of 600,000 shares of the Company's common stock issued in January 2005. The Company believes that there are no other parties with any claims to any right, title and interest in and to any of the Company's intellectual property. The shares issued in this transaction were valued at their fair market value of $226,000 and recorded as an intangible asset which is being amortized over its estimated useful life of 24 months from the effective dates of the Intellectual Property Assignment Agreements. The Company recorded amortization expense associated with the intellectual property of $113,004 for the year ended June 30, 2006. The net book value of the Intellectual Property Assignment Agreements was $9,409 at June 30, 2006.
NOTE 6 - RELATED PARTY TRANSACTIONS
In April 2005, Richard Hersh, our Chief Executive Officer and Michael J. Darden, our President, were granted options providing each of them with the right to purchase ten percent of the shares of common stock of Commodity Express Transportation, Inc., our wholly owned subsidiary, for an exercise price of $60,000 expiring three years from the date these options were granted. In September 2006, Mr. Hersh entered into a Separation and Severance Agreement that, among other terms and conditions, cancelled his option to purchase shares of Commodity Express Transportation, Inc. (see Note 15 - Subsequent Events).
In January 2005, Richard Hersh loaned the Company $25,000 which was repaid in February 2005.
In November, 2004, an employee received $6,000 from the Company in the form of a short-term demand note. As of June 30, 2005 the balance of the note was $250.
In July and August, 2004, the Company entered into Intellectual Property Assignment Agreements with three of its executives pursuant to which each of them assigned to the Company all of their right, title and interest in and to all the intellectual property which they had contributed to the Company in the past in consideration for an aggregate of 600,000 shares of the Company's common stock issued in January 2005. See Note 5 - "Intangible Assets" for a further description of these transactions.
NOTE 7 - PROPERTY AND EQUIPMENT
At June 30, 2006, property and equipment consisted of the following:
Estimated
Useful lives
------------
Computer hardware and software $ 210,853 5 years
Vehicles 25,000 5 years
Machinery and equipment 317,369 3 to 5 years
Furniture and fixtures 80,292 7 years
Leasehold improvements 3,028 4 years
----------
Less: Accumulated depreciation (253,627)
----------
$ 382,915
==========
|
Depreciation expense was $117,048 and $63,779 for the years ended June 30, 2006 and 2005, respectively.
NOTE 8 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
As of June 30, 2006, the balances on the Company's revolving lines of credit with Branch Banking and Trust Company and Mercantile Business Credit, LP were $875,751 and $36,536, respectively. The $1,000,000 line of credit with Mercantile Business Credit, LP matured on May 31, 2006. The Company was unable to pay all sums due and owing to Mercantile on or before the maturity date and, on June 1, 2006, the lender notified the Company that it was in default under the loan documents and demanded immediate payment of $206,208. In August 2006, the Company cured the default by paying the remaining sums due and owing to Mercantile.
As of June 30, 2006, the Company owed $50,440 to a vendor for software maintenance services of which $23,280 were recorded as short term and $27,160 as long term notes payable.
In June 2006, the Company issued a $50,000 short-term promissory note to one accredited investor. The note had an interest rate of 10% and a maturity date of September 25, 2006. In September, the holder exchanged this note for $50,000 of the Series D convertible preferred stock (see Note 15 - Subsequent Events).
In April and May 2006, the Company issued $940,000 of its Series D 8% unsecured convertible debentures to seven accredited investors, all of whom were existing significant shareholders of our company, in consideration for $690,000 and the
exchange of $250,000 principal amount of the Company's unsecured short term promissory notes and convertible debentures. The maturity date of the Series D debentures is the earlier to occur of June 30, 2008 or the date the Company receives proceeds from a private or public offering of its securities resulting in gross proceeds of at least $5,000,000. The debenture holders received three-year warrants to purchase an aggregate of 9,400,000 shares of common stock for $0.05 per share. The fair value of these warrants, estimated using the Black-Scholes option-pricing model, was $613,640 and recorded as discounts on notes payable to be amortized as interest expense over the term of the debentures. In addition, the Company modified the exercise prices of warrants previously granted to the seven debenture holders to purchase an aggregate of 14,650,000 shares of common stock at prices ranging from $0.10 to $1.00 per share, to an exercise price of $0.05 per share. The increase in value associated with the modified warrants, estimated using the Black-Scholes option-pricing model, was $106,199 and recorded as discounts on notes payable to be amortized as interest expense over the term of the debentures. The key assumptions used in this estimate were the market price of our common stock on the grant date of each warrant, no dividend yield, an expected volatility factor of 192.56%, an approximate risk-free interest rate of 7.25% and a three year expected life. Finally, the conversion price per share of these debentures equal to 80% of the price per common share offered by the Company in any subsequent offering, but in no event less than $0.02 per share or greater than $0.10 per share, results in recognition of a beneficial conversion provision having a value of $235,000. However, after giving affect to the fair value of the warrants granted in conjunction with these debentures, the beneficial conversion provision was limited to the remaining face value of the debentures or $220,161 that was recorded as discounts on notes payable to be amortized as interest expense over the term of the debentures.
In March 2006, the Company borrowed $100,000 from one accredited investor and issued the investor a short-term 8% unsecured promissory note with a due date of April 30, 2006. In April 2006, the investor exchanged the note for a $100,000 principal amount Series D 8% convertible debenture.
In December 2005, the Company borrowed $400,000 from one accredited investor and issued the investor a $400,000 unsecured debenture having a maturity date of May 15, 2006 at which date a $40,000 transaction fee is due and payable. The lender received a five-year warrant to purchase 1,000,000 shares of common stock for $.07 per share that expires on December 30, 2010. The fair value of this warrant was estimated on its grant date using the Black-Scholes option-pricing model when the market price was $.07 per share and assuming no dividend yield, an expected volatility factor of 193%, an approximate risk-free interest rate of 7.25% and a five year expected life. The warrant was valued at $68,200 which was recorded as a discount on notes payable and is being amortized as interest expense over the term of the debenture. The principal amount of the note and associated transaction fee were paid to the investor prior to the maturity date in May 2006.
In October and November 2005, the Company issued $420,000 of its Series C 10% unsecured, convertible debentures to eight accredited investors in consideration for $320,000 and the forgiveness of a $100,000 unsecured short-term promissory note originally issued to one investor in January 2005. The maturity dates of the debentures are the earlier to occur of the one-year anniversary of the debentures or the date the Company receives at least $5,000,000 in aggregate proceeds from subsequent financings. In addition, the lenders received three-year warrants to purchase an aggregate of 5,600,000 shares of common stock for $0.15 per share. The fair value of these warrants was estimated on their grant dates using the Black-Scholes option-pricing model when the market prices ranged from $.13 to $.15 per share and assuming no dividend yield, an expected volatility factor of 193%, an approximate risk-free interest rate of 7.25% and a three year expected life. Since these warrants were valued at $700,133, which
exceeded the principal amount of the debentures, the discount on notes payable
was limited to $420,000 and is being amortized as interest expense over the term
of the debentures. The conversion price per share is the greater of i) $0.15 or
ii) 50% of the average closing price of the common stock for the ten trading
days immediately preceding the conversion date. However, in the event the
Company sells unregistered shares of its common stock, excluding shares
underlying employee options or shares issued in connection with a merger or
acquisition, for less than $0.15 per share, then the conversion price for any
outstanding debentures automatically changes to the greater of i) 50% of the
average closing price of the Common Stock on the Over-the-Counter Bulletin Board
or such other quotation system as the Common Stock may be principally quoted for
the ten (10) trading days immediately preceding the date that holder provides
written notice to Company of their intent to exercise the conversion provision
or ii) the lowest price per share paid by any investor for the Company's
unregistered shares of common stock at any time between the date of issue of the
debenture and the conversion date. Since the Company sold shares of its common
stock for $.10 per share in December 2005, a beneficial conversion feature was
realized which, in this case, is not recorded since the discount on notes
payable associated with the warrants already equaled the principal amount of the
debentures. In January 2006, one holder converted $25,000 principal amount of
the debentures, and $432 of accrued interest, into 254,316 shares of common
stock. In April and May 2006, three holders exchanged $250,000 principal amount
of the Series C debentures for $250,000 principal amount of the Series D
debentures leaving a balance of $145,000 at June 30, 2006.
In March 2005, pursuant to its asset purchase agreement with GFC, Inc., the Company agreed to pay GFC a total of $200,000 in twenty-four equal payments of $8,333 per month without interest commencing on April 21, 2005 and continuing for the next twenty-three consecutive months subject to partial or full acceleration based on the gross freight revenue of Power2Ship Intermodal generated during the one month period commencing on March 21, 2006. In March 2006, the Company entered into a settlement agreement and mutual release with the parties that sold it the GFC assets in which the Company agreed to issue the seller 300,000 shares of its common stock valued at $42,000 and to pay the seller a total of $36,000 over two years in full settlement of the $191,667 outstanding balance of the purchase price. In March 2006, the Company recorded an impairment of intangible assets of $113,667 based on this settlement. As of June 30, 2006, the Company had recorded $18,000 of this obligation as current notes payable and $13,500 as long term notes payable. Effective June 30, 2006, the operations of Power2Ship Intermodal ceased to exist.
In January 2005, the Company issued a 5% unsecured three-month promissory note for $30,000 to one accredited investor. The Company obtained a waiver from the investor as to the repayment of $30,000 of principal and accrued interest in April 2005. In August 2005, the investor forgave the repayment of the promissory note and accrued interest in consideration for the purchase of one unit consisting of 200,000 shares of common stock and a warrant to purchase 200,000 shares for $0.15 per share that expires on July 31, 2008.
In June and September 2004, the Company issued $1,000,000 and $1,000,000, respectively, of its Series B 5% secured convertible debentures to one accredited investor. In January 2006, the investor converted $50,000 into 707,214 shares of common stock and, in June 2006, converted $50,000 into 851,789 shares of common stock. The maturity date for $900,000 of these debentures was June 2006 and $1,000,000 matures in September 2006. See Note 15 - Subsequent Events for details of an agreement with the investor in September 2006. Interest accrues at the rate of 5% per annum during the term of the debentures unless converted or redeemed prior to their maturity dates. The Company paid $225,000 in commissions and expenses related to these debentures that were accounted for as deferred financing costs and are being amortized as interest expense over the term of the debentures. Any portion of the outstanding balance of the debentures
may be converted by the holder at any time into common stock at a conversion price per share equal to the lesser of $0.456 or 100% of the average of the three lowest closing bid prices of the common stock for the thirty trading days immediately preceding the conversion date. The Company may redeem the debentures at any time by providing three days notice and paying a premium of up to 20% of the amount being redeemed in a combination of cash and common stock. The Company has provided the debenture holder with a security interest in its tangible and intangible assets, subject to automatic subordination to most traditional asset-based loans, to secure the prompt payment of principal.
Also in June 2004, the Company issued an aggregate of 816,260 shares of its common stock valued at $310,179 to the same investor that purchased the Series B unsecured convertible debentures and a placement agent upon entering into a Standby Equity Distribution Agreement and related agreements with the investor. The value of these shares was accounted for as deferred financing costs that are being amortized as interest expense over a two-year term. In July 2005, the Standby Equity Distribution Agreement and related agreements were terminated and the unamortized deferred financing costs of $155,090 were amortized as interest expense.
In March and April, 2004, the Company issued $1,747,000 of its 14.25% secured convertible debentures to 35 accredited investors and paid commissions and expenses of $227,110 accounted for as deferred financing costs that are being amortized as interest expense over the terms of the debentures. In addition, the Company issued 873,500 warrants valued at $108,160 and 131,025 common shares valued at $55,031 to the lenders accounted for as interest expense. The debentures mature on December 31, 2006, and earn interest of 14.25% per annum payable semi-annually in arrears on June 30 and December 31. The debentures may be converted by the holders at any time into common stock at a conversion price per share of $0.2673. EITF 98-5 requires that a beneficial conversion feature be recognized when the conversion price is less than the market price at the time the debentures are issued. The Company recognized a beneficial conversion provision of $194,111 that was recorded as a discount on notes payable and is being amortized as interest expense over the remaining terms of the debentures. The Company may redeem the debentures with fifteen days notice at any time, by paying a premium of up to 15% of their original purchase price in a combination of cash and common stock. The Company has provided the debenture holders with a security interest in its tangible and intangible assets, subject to automatic subordination to most traditional asset-based loans, to secure the prompt payment of principal. In addition, the Company is subject to a security agreement requiring it to deposit six months of interest on the debentures in a separate account with Newbridge Securities Corporation to be paid to investors in the event of a default. During the quarter ended September 30, 2005, one investor converted $100,000 of their debentures into common stock decreasing the outstanding balance to $1,597,000. The Company may be in default under certain covenants contained in its agreements with the debenture holders. If the Company receives notice of noncompliance and potential default, the Company would have an obligation to rectify or otherwise receive a waiver from the debenture holders under the terms of those agreements. While the Company has not received any such notice to date, it is possible that notice could be provided in the future, which would likely cause the Company to be in default under its agreement and obligations to the debenture holders. Any default could accelerate the Company's obligations to the debenture holders in the remaining principal amount of $1,597,000 together with all accrued and unpaid interest thereon and perhaps other obligations owed to other parties. We cannot assure you that we would be in a position to arrange alternative financing to satisfy these obligations in the event of a default.
In July 2003, the Company issued a promissory note in the amount of $170,000 to a software vendor for licenses to use certain logistics software. The note required the Company to pay $30,000 upon issuing the note followed by 22
consecutive payments of $5,000 on the first of each month from August 2003 through May 2005 for a total of $140,000. All the aforementioned payments were made when due and the $30,000 remaining balance of the note was waived resulting in a write-off of $30,000 against prepaid interest and a gain of $18,111 during fiscal year 2005.
In March 2003, the Company issued a convertible promissory note in the amount of $175,000 to an unaffiliated Company shareholder. The interest rate of the note is 8% per annum and it has a maturity date of June 30, 2006. The holder of the note has the right to convert the outstanding principal balance of the note into the Company's common stock at any time prior to its maturity date at a conversion price equal to the lesser of 1) $1.51 per share or 2) 50% of the average of the closing bid prices of the common stock for the five trading days immediately preceding the date of conversion but no less than $0.25 per share. Given this type of conversion provision, EITF 98-5 specifies that a beneficial conversion feature be recognized based upon the five days preceding the commitment date. This resulted in a beneficial conversion of $175,000 which was treated as a discount on notes payable which is being amortized as interest expense over the term of the debt. The note is in default and the holder has notified the Company that it is seeking to accelerate full repayment of the $175,000 in principal and accrued interest thereon, and perhaps result in acceleration of other obligations owed to other parties. We cannot assure you that we would be in a position to arrange alternative financing to satisfy these obligations.
In March 2003, the Company issued a convertible promissory note in the amount of $135,000 to its Chief Executive Officer upon the forgiveness of $147,520 of accrued salary. During fiscal year 2004, the Company repaid $20,000 of this note decreasing its outstanding balance to $115,000 which remains the outstanding balance as of March 31, 2006. The interest rate of the note is 8% per annum and it has a maturity date of June 30, 2006. The holder of the note has the right to convert the outstanding principal balance of the note into the Company's common stock at any time prior to its maturity date at a conversion price equal to the lesser of 1) $1.51 per share or 2) 50% of the average of the closing bid prices of the common stock for the five trading days immediately preceding the date of conversion but no less than $0.75 per share. In September 2006, the Company entered into a Separation and Severance Agreement with the Company's Chief Executive Officer in which he settled all outstanding claims with the Company including this note and accrued interest thereon.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
2007 $ 715,980
2008 530,852
2009 507,840
2010 and beyond 651,265
-----------
$2,405,937
===========
|
The Company leases office space under an operating lease commencing May 15, 2003. The lease terminates on May 31, 2007.
At June 30, 2006, minimum future rental commitments were as follows:
2007 $116,188
For the years ended June 30, 2006 and 2005, rent expense was $191,962 and $198,528, respectively.
The Company leases terminal transportation space under an operating lease commencing March 21, 2005 and terminating on March 20, 2010.
At June 30, 2006, minimum future rental commitments were as follows:
2007 $ 50,400
2008 50,400
2009 50,400
2010 37,800
-------------
$ 189,000
=============
|
For the years ended June 30, 2006 and 2005, rent expense was $52,513 and $14,523, respectively.
In addition, the Company leases a copier with minimum future rental commitments through November 3, 2006 as follows:
2007 $1,596
Total amounts expensed for the years ended June 30, 2006 and 2005, were $11,093 and $11,162, respectively.
NOTE 10 - EMPLOYMENT AGREEMENTS
Effective January 1, 2003, the Company commenced a five-year employment agreement with its Chief Executive Officer, Richard Hersh. The term of employment may be automatically renewed for successive one year terms beginning on the five-year anniversary of the agreement unless previously terminated according to the termination provisions in the agreement or if the Company or Hersh elects to terminate the agreement by written notice at least ninety days prior to the expiration of the then-current term of employment. Under the terms of this agreement, Hersh will receive a base salary and became eligible to receive a bonus based on the financial performance of the Company. In September 2006, Mr. Hersh resigned as Chief Executive Officer of the Company and entered into a Separation and Severance Agreement with the Company that, among other terms and conditions, settled all claims for payment by Mr. Hersh for $20,000 and the issuance of a fully vested option to purchase 11,000,000 shares of our common stock for $0.025 per share that expires in five years (see Note 15 - Subsequent Events for further details of this Employment Agreement).
Effective January 1, 2003, the Company commenced a four-year employment agreement with its Vice President of Technology, John Urbanowicz. The term of employment may be automatically renewed for successive one year terms beginning on the four-year anniversary of the agreement unless previously terminated according to the termination provisions in the agreement or if the Company or Urbanowicz elects to terminate the agreement by written notice at least ninety days prior to the expiration of the then-current term of employment. Under the terms of this agreement, Urbanowicz will receive a base salary and became eligible to receive a discretionary bonus based on performance. Effective September 25, 2006, we entered into an employment agreement with John Urbanowicz that replaced the prior agreement (see Note 15 - Subsequent Events for further details).
Effective April 15, 2003, the Company commenced a four-year employment agreement with its President, Michael J. Darden. The term of employment may be automatically renewed for successive one year terms beginning on the four-year anniversary of the agreement unless previously terminated according to the termination provisions in the agreement or if the Company or Darden elects to terminate the agreement by written notice at least ninety days prior to the expiration of the then-current term of employment. Under the terms of this agreement, Darden will receive a base salary, be granted a certain number of stock options subject to a specified vesting period and became eligible to receive a bonus based on the financial performance of the Company. In September 2006, Mr. Darden was terminated by the Company and his employment agreement was cancelled (see Note 15 - Subsequent Events for further details).
At June 30, 2006, the aggregate commitments pursuant to the employment agreements with our executive officers were as follows:
2007 $513,111
2008 155,520
---------
$668,631
=========
|
NOTE 11 - INCOME TAXES
The Company had available at June 30, 2006, operating loss carryforwards for federal and state taxes of approximately $19,700,000, which could be applied against taxable income in subsequent years through 2025. Such amounts would be subject to the limitations contained under Section 382 of the Internal Revenue Code relating to changes in ownership. However, given that the realization of this tax effect is uncertain, a full valuation allowance was recorded.
Reconciliation of the differences between income taxes computed at the federal statutory tax rates and the provision for income taxes is as follows:
2006 Percent 2005 Percent
---- ------- ---- -------
Income tax benefit computed at
Federal statutory tax rate $ 1,862,000 34.0% $ 2,231,000 34.0%
State tax, net of
Federal benefits 192,000 3.5% 3.6%
230,000
Non-deductible non-cash
expenses (203,000) (10.9)% (16.9)%
(374,000)
Reinstatement/change in deferred tax
asset valuation allowance (1,851,000) (26.6)% (2,087,000) (20.7)%
Provision for income taxes $ - -% $ - -%
=========== ======= =========== ========
|
Temporary differences that give rise to significant deferred tax assets are as follows:
2006 2005
---- ----
Net operating loss carryforward $ 7,204,000 $ 5,353,000
=========== =============
Total deferred tax assets 7,204,000 5,353,000
----------- -------------
Valuation allowance (7,204,000) (5,353,000)
----------- -------------
Net deferred tax asset $ - $ -
=========== =============
|
NOTE 12 - STOCKHOLDERS' DEFICIT
During the year ended June 30, 2005, 29,800 shares of Series B preferred stock were converted to 596,000 shares of common stock. On June 30, 2005, the Company issued 339,661 shares of common stock as a 10% dividend to the holders of the preferred stock as of that date which were recorded at their fair market value of $84,100.
During fiscal year 2005, 10,000 shares of Series C preferred stock were converted to 1,000,000 shares of common stock.
- 4,525,000 shares issued upon the sales of 18.1 units for $25,000 per unit to 18 investors for an aggregate of $452,500 between December 2005 and February 2006;
- 5,583,333 shares issued upon the sale of approximately 27.9 units for $30,000 per unit to 21 investors for an aggregate of $837,500, including the forgiveness of a $30,000 unsecured short term promissory note, during the quarter ended September 30, 2005;
- 4,947,000 shares issued to nine consultants for providing various management consulting services of which 4,150,000 shares valued at $519,980 were issued to five consultants and were recorded as deferred compensation and are being expensed as consulting expense over the respective terms of the consulting agreements and 797,000 shares valued at $143,560 were issued to four consultants and were recorded as consulting expense during fiscal year 2006;
- 1,559,003 shares issued upon conversion of $100,000 principal amount Series B 5% secured convertible debenture to the sole holder of these debenture;
- 254,316 shares issued upon the conversion of $25,000 Series C 10% unsecured convertible debentures and accrued interest thereon to one investor;
- 374,112 shares issued upon the conversion of $100,000 of the Company's 14.25% secured convertible debentures to one investor;
- 252,000 shares issued upon the conversion of an aggregate of 12,600 shares of the Company's Series B convertible preferred stock to seven shareholders;
- 418,960 shares valued at $55,005 issued to two law firms for providing legal services; and
- 300,000 shares valued at $42,000 issued as part of the price paid for a settlement agreement with the entity that sold the Company certain assets of GFC, Inc.
During the year ended June 30, 2005, the Company issued an aggregate of 25,469,212 shares of its common stock consisting of:
- 16,629,000 shares, and warrants to purchase 16,629,000 shares of common stock for $0.15 per share, issued upon the sale of approximately 95.2 of its units, to 72 investors including 65 who paid $2,494,350 and seven who forgave $362,500 of promissory notes for 2,416,668 shares of common stock. The Company paid commissions of $106,250 to one placement agent related to these sales;
- 5,380,396 shares issued to 15 individuals and entities pursuant to various consulting and other types of agreements that were recorded during the year as consulting expense of $1,520,509, the fair market value of the shares at the date of issuance;
- 1,050,000 shares issued pursuant to consulting agreements with three consultants valued at $338,000 that were recorded as deferred compensation and are being expensed over the respective terms of the consulting agreements;
- 174,155 shares issued upon the conversion of $50,000 of the Company's 14.25% secured convertible debentures by one lender and recorded interest expense of $1,714 to account for the unamortized portion of deferred financing costs associated with the converted debentures;
- an aggregate of 600,000 shares, valued at $226,000, the fair market value of the shares at the date of issuance, issued to three of the Company's executives in consideration for their assigning to the Company all of their right, title and interest in and to all the intellectual property which they had contributed to the Company in the past;
- 596,000 issued to four shareholders upon the conversion of 29,600 shares of their Series B preferred stock;
- 1,000,000 shares issued to one shareholder upon the conversion of 10,000 shares of their Series C preferred stock;
- 339,661 shares valued at $84,100 issued as preferred dividends to the holders of the Company's Series B preferred stock and
- 300,000 shares valued at $150,000 cancelled upon termination of a consulting agreement with one consulting company and the elimination of the deferred compensation recorded upon the original issuance of these shares.
For purposes of the pro forma calculations, the fair value of each option was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions used:
2006 2005
---- ----
Dividend yield None None
Expected volatility factor 207% 94%
Approximate risk free interest rates 7.44% 4.75%
Expected lives, in years 3.3 3
|
The determination of fair values for all stock options and warrants is based on the assumptions described in the preceding paragraph, and because additional option grants are expected to be made each year, the above pro forma disclosures are not representative of pro forma effects on reported net income or loss for future years.
Also, stock options to purchase 4,160,776 shares of common stock expired during the year ended June 30, 2006.
During the year ended June 30, 2005, the Company:
Granted three-year stock options to purchase 5,585,505 shares of common stock to the Company's employees for prices ranging from $0.25 to $0.38 per share, which were equal to or above the fair values of the common stock at the respective grant dates, and accordingly, under APB 25, no compensation was recognized and
Cancelled stock options to purchase 221,755 shares of common stock owned by the Company's former Chief Executive Officer.
Also, stock options to purchase 2,409,982 shares of common stock expired during the year ended June 30, 2005.
A summary of the stock option activity is as follows:
-----------------------------------------------------------------------------------------------------
Weighted Average Number of Exercise Price
Exercise Price Options Per Option
-----------------------------------------------------------------------------------------------------
Outstanding options at June 30, 2004 $0.40 14,753,749 $0.31 - $1.01
Granted................................ $0.29 5,585,505 $0.25 - $0.38
Cancelled.............................. $0.38 (221,755) $0.38
Exercised.............................. 0
Expired................................ $0.38 (2,409,982) $0.38
----------
Outstanding options at June 30, 2005 $0.32 17,707,517 $0.25 - $1.01
Granted................................ $0.15 54,000 $0.15
Cancelled.............................. 0
Exercised.............................. 0
Expired................................ $0.42 (4,160,776) $0.38 - $0.56
----------
Outstanding options at June 30, 2006 $0.35 13,600,741 $0.15 - $1.01
Exercisable options at June 30, 2006 $0.35 13,600,741 $0.15 - $1.01
-----------------------------------------------------------------------------------------------------
|
The following table summarizes information concerning stock options outstanding at June 30, 2006:
-----------------------------------------------------------------------------------------------------------------
Weighted Weighted
average average
Number of Options remaining exercise
Range of Exercise Price Outstanding life in years price
-----------------------------------------------------------------------------------------------------------------
$0.15 - 0.40 13,175,741 1.34 $0.34
$0.50 - 0.56 125,000 0.64 $0.50
$1.01 300,000 1.29 $1.01
----------
13,600,741
-----------------------------------------------------------------------------------------------------------------
|
The following table summarizes information concerning stock options exercisable at June 30, 2006:
------------------------------------------------------------------------
Weighted Average
Range of Exercise Price Number of Options Exercise Price
------------------------------------------------------------------------
$0.15 - 0.40 13,175,741 $0.34
$0.50 - 0.56 125,000 $0.50
$1.01 300,000 $1.01
----------
13,600,741
------------------------------------------------------------------------
|
For the fiscal years ended June 30, 2006 and 2005, the following tables show the weighted average exercise prices and corresponding weighted average grant-date fair values of options granted classified separately for options whose exercise price is less than, equals or exceeds the price of the stock on the grant date.
---------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Exercise Price Fair Value
---------------------------------------------------------------------------------------------
For the fiscal year ended June 30, 2006
---------------------------------------
Exercise price is less than price on grant date N/A N/A
Exercise price equals price on grant date N/A N/A
Exercise price exceeds price on grant date $0.15 $0.08
For the fiscal year ended June 30, 2005
---------------------------------------
Exercise price is less than price on grant date N/A N/A
Exercise price equals price on grant date $0.26 $0.26
Exercise price exceeds price on grant date $0.38 $0.29
---------------------------------------------------------------------------------------------
|
During the year ended June 30, 2006, the Company granted common stock purchase warrants for:
5,583,333 shares exercisable at $0.15 per share expiring on July 31, 2008 to 21 individual investors. No value is attributed to these warrants since they were related to financing transactions;
5,600,000 shares at $0.15 per share expiring from October to November 2008 to eight individual lenders. No value is attributed to these warrants since they were related to financing transactions;
4,525,000 shares at $0.10 per share expiring from December 2008 to February 2009 to eight individual lenders. No value is attributed to these warrants since they were related to financing transactions;
9,400,000 shares at $0.05 per share expiring from April to May 2009 to seven individual lenders. No value is attributed to these warrants since they were related to financing transactions;
5,793,960 shares exercisable at prices ranging from $0.05 to $0.15 per share expiring three years from their respective grant dates to vendors and consultants. The warrants were valued at $597,890 of which $157,845 was expensed as consulting and legal fees and $440,045 was recorded as deferred compensation to be expensed as consulting expense over the respective terms of the consulting agreements ; and
1,000,000 shares exercisable at $0.07 per share expiring five years from its grant date to 1 lender.
Also, during the year ended June 30, 2006, warrants to purchase 1,222,962 shares
of common stock expired and a warrant to one consultant to purchase 1,250,000
shares of common stock was cancelled.
During the year ended June 30, 2005, the Company granted common stock purchase warrants for:
19,045,667 shares at $0.15 per share expiring on February 28, 2008 to 65 individual investors and seven individual lenders. There is no value attributed to these warrants since they were related to financing transactions;
5,988,737 shares at prices ranging from $0.15 to $0.50 per share expiring three years from their respective grant dates to vendors and consultants. The warrants were valued at $759,738 and expensed as consulting and legal fees; and
200,000 shares at $0.27 per share expiring three years from their grant date to GFC, Inc. upon the closing of a transaction to purchase of certain assets from GFC, Inc. that were valued at $34,600.
During the year ended June 30, 2005, the Company cancelled 300,000 warrants to purchase shares of common stock at $0.75 per share expiring on March 31, 2007, granted to a consulting company for providing the Company with financial services for a period of one year, upon early termination of the consulting agreement. The previously recorded deferred compensation was eliminated.
Also, during the year ended June 30, 2005, warrants to purchase 2,523,608 shares of common stock expired.
A summary of the warrant activity is as follows:
-------------------------------------------------------------------------------------------------
Weighted Average Number of Exercise Price
Exercise Price Warrants Per Warrant
-------------------------------------------------------------------------------------------------
Outstanding warrants at June 30, 2004 $0.73 8,271,039 $0.38 - 2.00
Granted................................... $0.19 25,234,400 $0.15 - 0.38
Expired................................... $0.79 (2,523,608) $0.75 - 1.13
Cancelled................................ $0.75 (498,625) $0.75
------------
Outstanding warrants at June 30, 2005 $0.28 30,483,206 $0.15 - 2.00
Granted................................... $0.10 31,902,292 $0.05 - 0.15
Expired................................... $0.75 (1,222,962) $0.38 - 2.00
Cancelled................................ $0.50 (1,250,000) $0.50
------------
Outstanding warrants at June 30, 2006 $0.13 59,912,536 $0.05 - 2.00
Exercisable warrants at June 30, 2006 $0.13 58,195,870 $0.05 - 2.00
-------------------------------------------------------------------------------------------------
|
The following table summarizes information concerning warrants outstanding at June 30, 2006:
-----------------------------------------------------------------------------------------------------------
Weighted Average
Remaining Life Weighted Average
Range of Exercise Price Number of Warrants (in years) Exercise Price
-----------------------------------------------------------------------------------------------------------
$0.05 - 0.20 53,284,627 2.24 $0.10
$0.25 - 0.74 5,487,934 1.53 $0.42
$0.75 - 2.00 1,139,975 1.02 $0.98
----------
59,912,536
==========
-----------------------------------------------------------------------------------------------------------
|
The following table summarizes information concerning warrants exercisable at June 30, 2006:
--------------------------------------------------------------------------------
Weighted Average
Range of Exercise Price Number of Warrants Exercise Price
--------------------------------------------------------------------------------
$0.05 - 0.20 52,367,961 $0.10
$0.25 - 0.74 4,687,934 $0.41
$0.75 - 2.00 1,139,975 $0.97
----------
58,195,870
==========
--------------------------------------------------------------------------------
|
NOTE 13 - ACQUISITIONS
In March 2005, a wholly owned subsidiary of the Company, Commodity Express Transportation, Inc., purchased certain assets, including customer lists, maintenance equipment, office equipment, telecommunications equipment, certain contracts, five vehicles/trucks, and assumed certain liabilities of Commodity Express Transportation, Inc., a South Carolina company, for a purchase price of $100,000 in cash and the assumption of liabilities in the amount of $193,655. See Note 5 "Intangible Assets" for further details related to the allocation of the purchase price. In addition, upon closing this transaction, the Company replaced certain deposits and a letter of credit previously made or issued on the seller's behalf with third parties in the aggregate amount of approximately $145,000 related to the operation of the seller's business and, after closing, replaced approximately $20,000 of additional letters of credit. The Company also assumed certain leases related to the operation of the seller's business, including tractor leases, owner/operator leases and a warehouse lease. At the closing of this transaction, the Company entered into a(n):
- equipment lease agreement whereby the Company agreed to lease from the seller certain trailers for terms ranging from twelve to sixty months;
- commercial lease pursuant to which the Company agreed to rent from the seller the commercial property used as the corporate offices for Commodity Express Transportation for a term of five years for $4,200 per month with a one-year renewal option for $5,040 per month;
- agreement with TPS Logistics, Inc., a company in the transportation brokerage business in which the president of Commodity Express Transportation is an officer, to be the exclusive carrier for TPS' largest customer in consideration for one percent of the gross receipts from such customer for a term that will terminate on the earlier of March 20, 2010 or when the agreement between TPS and its largest customer is no longer effective;
- consulting agreement with Stokes Logistics Consulting, LLC, a company in which the president of Commodity Express Transportation is a principal, having a term of five years which may be extended for two successive one year terms upon consent of both parties, pursuant to which he will be paid a monthly consulting fee based upon gross revenue of Commodity Express Transportation, with the minimum and maximum payable in any one year of $100,000 and $200,000, respectively;
- employment agreement with W.A. Stokes, president of Commodity Express Transportation, having a term of one year which may be extended for two additional one year terms, pursuant to which he will be paid an annual base salary of $150,000 and a quarterly bonus based on the gross revenue that Mr. Stokes is responsible for generating from facilities operated by its current largest customer other than its South Carolina facility;
- escrow agreement pursuant to which the Company deposited all the shares of its wholly owned subsidiary that acquired the assets of Commodity Express Transportation into an escrow account until March 21, 2007 during which period the Company retains voting rights over these securities expect in the event of a default under the escrow agreement, which would occur if the net worth of Commodity Express Transportation dropped below certain levels or if the Company was delinquent in its payments under the equipment or commercial lease agreements, consulting agreement or agreement with TPS Logistics, Inc. described above, in which case(s) the seller would have the right to assume control of Commodity Express Transportation until such default(s) had been cured; and
- fee assumption agreement pursuant to which the Company agreed to assume the seller's liability to pay the business broker involved with this transaction $100,000 which we paid at the closing with the issuance of 370,370 shares of our common stock.
In March 2005, a wholly owned subsidiary of the Company, Power2Ship Intermodal, Inc., purchased certain assets, including trucking and brokerage authority permits, contracts with shipping customers, contracts with agents, lease contracts with owner-operators and escrow deposits from owner-operators and agents from GFC, Inc., a South Carolina company, for a purchase price of $300,000, of which $100,000 was paid by canceling the $100,000 secured promissory note made by the seller to the Company, and $200,000 is to be paid in twenty-four equal monthly payments of $8,333.33 subject to partial or full acceleration based on the gross freight revenue of Power2Ship Intermodal generated during the one month period commencing on March 21, 2006 and the assumption of those obligations corresponding to owner-operator and agent escrow deposits. In addition, the Company issued the seller a three-year warrant to purchase 200,000 shares of the Company's common stock for $.30 per share, which vests 50% on the closing date and 50% on the one year anniversary of the closing date which was valued at $34,600 using the fair value estimated on the date of the grant using the Black-Scholes option-pricing model. In March 2006, the Company entered into a Settlement Agreement and Mutual General Release that, among other terms and conditions, the $191,667 outstanding balance of the promissory note made by the Company to the seller was settled for $30,000, payable $1,500 per month over consecutive 24 months, and 300,000 shares of the Company's common stock valued at its fair market value of $42,000. Effective
June 30, 2006, the operations of Power2Ship Intermodal, Inc. ceased to exist. See Note 5 "Intangible Assets" and Note 15 - "Subsequent Events" for further details).
Also, in conjunction with the acquisition of certain assets from GFC, the Company entered into a consulting agreement with Michael Allora, the former president of GFC, with a term of five years and automatic one-year extensions unless terminated prior thereto. The agreement provides for Mr. Allora to earn a commission based on the annual increases, if any, in the gross revenue of the acquired business with such commission to be paid in five equal annual installments as well as a three-year stock option at the end of each yearly period during which the annual gross revenue of the acquired business has increased from the prior year and is in excess of $10,000,000. This agreement was terminated in September 2005 due to certain breaches by Mr. Allora.
NOTE 14 - PROFORMA FINANCIAL STATEMENTS (UNAUDITED)
The following Pro Forma Combined Statement of Operations of Power2Ship, Inc. and its wholly owned subsidiaries Commodity Express Transportation, Inc. and Power2Ship Intermodal, Inc., gives effect to the acquisitions of certain assets of Commodity Express Transportation, Inc., a South Carolina company and GFC, Inc., a South Carolina company, under the purchase method of accounting prescribed by Accounting Principles Board Opinion No. 16, Business Combinations, as if such acquisitions had occurred on July 1, 2004. This pro forma statement is presented for illustrative purposes only. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable.
Commodity Pro Forma
Power2Ship Express GFC Adjustments Pro Forma
---------- ------- --- ----------- ---------
Revenue:
Freight transportation $ 9,247,453 $11,245,098 $4,117,692 $ - $ 24,610,243
Access services 180 - - - 180
Implementation services - - - - -
------------ ----------- ---------- ---------- ------------
Total revenue 9,247,633 11,245,098 4,117,692 - 24,610,423
Operating expenses:
Freight transportation 8,272,985 6,949,303 3,441,909 - 18,664,197
Selling, general and administrative:
Salaries, benefits and
consulting fees 4,466,360 1,656,301 201,705 - 6,324,366
Other selling, general &
administrative 1,813,565 2,490,441 403,501 82,404 4,789,911
------------ ----------- ---------- ---------- ------------
Total operating expenses 14,552,910 11,096,045 4,047,115 82,404 29,778,474
------------ ----------- ---------- ---------- ------------
Loss from operations (5,305,277) 149,053 70,577 (82,404) (5,168,051)
------------ ----------- ---------- ---------- ------------
Other income (expense):
Forgiveness of debt 18,111 - - - 18,111
Interest income 1,560 - - - 1,560
Interest expense (1,277,369) (182,550) (73,805) - (1,533,724)
Other income 1,755 - - - 1,755
------------ ----------- ---------- ---------- ------------
Total other expense (1,255,943) (182,550) (73,805) - (1,512,298)
------------ ----------- ---------- ---------- ------------
Loss available to common shareholders $(6,561,220) $ (33,497) $ (3,228) $ (82,404) $(6,680,349)
=========== ========== ========= ========= ===========
|
NOTE 15 - SUBSEQUENT EVENTS
In July and August, the holder of Series B 5% secured convertible debentures converted $150,000 of the debentures into 4,166,245 shares of common stock.
In July, the Company issued unsecured promissory notes to 5 investors for an aggregate investment of $36,000. The notes accrue 10% interest per annum and mature in October 2006.
From August through October, the Company issued 40 shares of Series D convertible preferred stock, with a par value $0.01 and a stated value of $25,000, to 23 investors in consideration for $700,000 and the exchange of $300,000 of unsecured debentures and promissory notes.
In July and August, two investors converted an aggregate of $225,000 of Series D unsecured convertible debentures, and $5,321 of accrued interest thereon, into an aggregate of 10,558,185 shares of common stock.
In August, David S. Brooks and Kevin Yates, the Company's current Chief Executive Officer and Chief Operating Officer, respectively, entered into a consulting agreement to provide the Company with business advisory services including strategic evaluation, planning and advice, fund-raising support, sales and marketing support, contract negotiation and business development. The term of the agreement was 12 months with an optional six-month extension. Subject to the successful completion of various financing activities the Company is pursuing, the Company agreed to pay each of them an annual fee of $100,000.
In August, David S. Brooks and Kevin Yates unanimously were elected directors of the board at a special meeting of the board of directors of the Company attended by all members of the board.
In September, the Company reached agreement with the holder of $1,750,000 of its
5% Series B secured convertible debentures, which matured in September 2006, and
$350,000 of its 14.25% secured convertible debentures due December 31, 2006. The
holder has agreed not to exercise its rights of conversion under the
aforementioned debentures until November 1, 2006, for which the Company paid
$100,000 in accrued interest, and not to exercise its rights of conversion under
the aforementioned debentures from November 1 until January 1, 2007 upon the
Company paying the holder an additional $100,000 on November 1, 2006, to be
applied as determined by the holder to accrued interest or principal. In
addition, the Company agreed to amend the conversion price of the $350,000
principal amount of 14.25% secured convertible debenture to make it identical to
the conversion provision of the 5% Series B secured convertible debentures which
is equal to the lesser of i) $0.456 per share, representing 120% of the closing
bid price of our common stock as quoted by Bloomberg, LP on June 28, 2004, or
ii) 100% of the average of the three lowest closing bid prices for our common
stock, as quoted by Bloomberg, LP, for the 30 trading days immediately preceding
any conversion date.
In September, Richard Hersh resigned as Chief Executive Officer of the Company and entered into a separation and severance agreement in which he agreed to the cancellation of all his outstanding options, including options to purchase an aggregate of 6,182,642 shares of the Company's common stock exercisable at prices ranging from $0.25 to $0.38 per share and an option to purchase 10% of the common stock of the Company's subsidiary Commodity Express Transportation, Inc. for $60,000, to forgive a convertible promissory note with a principal balance of $115,000 and accrued interest of $32,241, to forego $313,201 in accrued compensation, and to settle any other claims with, or obligations by, the Company, in consideration for $20,000 and a warrant to purchase 11,000,000 shares of common stock for $0.025 per share that expires in five years. In addition, Mr. Hersh entered into a consulting agreement with the Company that has a term of five years and a monthly consulting fee of $10,000. He will advise the Company's management and board of directors on various business matters including identifying and introducing the Company to prospective investors, lenders, strategic partners, acquisition and merger candidates and joint venture partners.
In September, the Company's Board of Directors elected David S. Brooks Chief Executive Officer of the Company. Mr. Brooks entered into an employment agreement with the Company having a term of two years with one-year renewals thereafter unless terminated by either party prior thereto. Mr. Brooks' annual base salary of $150,000 may be deferred until the Company has raised an aggregate of $3,000,000 and he received an option to purchase 9,000,000 shares of common stock for $0.025 per share that expires in five years. Mr. Brooks purchased one share of the Company's Series D convertible preferred stock for $25,000 in a private transaction in August 2006.
In September, the Company's Board of Directors elected the Company's Board of Directors elected S. Kevin Yates Chief Operating Officer of the Company. Mr. Yates entered into an employment agreement with the Company having a term of two years with one-year renewals thereafter unless terminated by either party prior thereto. Mr. Yates' annual base salary of $150,000 may be deferred until the Company has raised an aggregate of $3,000,000 and he received an option to purchase 9,000,000 shares of common stock for $0.025 per share that expires in five years.
In September 2006, the Company terminated for cause its employment agreement with Michael Darden, its President. Thereafter, Mr. Darden resigned as a Director from the Company and its subsidiaries. Mr. Darden has asserted that the
Company has violated its employment agreement with him and has expressed his intention to initiate litigation. The Company believes that it has substantial and meritorious defenses and counterclaims in the event of litigation by Mr. Darden, and has retained counsel in that eventuality. Prior to his termination, Mr. Darden wrongfully withdrew $50,000 from the Company's bank account, where he was a signatory, and deposited it in an account controlled by him. The Company is pursuing various remedies to recover these funds which were wrongfully misappropriated from the Company's account.
In October, one investor converted 2 shares of Series D convertible preferred stock into 2,000,000 shares of common stock.
In October, one investor converted $100,000 principal amount of Series D unsecured convertible debentures, and $3,578 of accrued interest thereon, into 5,178,889 shares of common stock.
EXHIBIT 3.12
CERTIFICATE TO SET FORTH DESIGNATIONS,
PREFERENCES AND RIGHTS TO
SERIES D CONVERTIBLE PREFERRED STOCK OF
POWER2SHIP, INC.
We, Richard Hersh, Chief Executive Officer, and Michael J. Darden, President and Secretary of POWER2SHIP, INC., a corporation organized and existing under the General Corporation Law of the State of Nevada (the "Corporation"), in accordance with the provisions of Section 78.195 under Nevada Revised Statutes thereof, DO HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors by the Articles of Incorporation of said Corporation, said Board of Directors adopt a resolution providing for the issuance of a Series of 40 shares of Series D Convertible Preferred Stock pursuant to a written consent, dated August 23, 2006, which resolution is as follows:
1. Designation, Amounts and Par Value. The designation of this series, which consists of Forty (40) shares of Preferred Stock, is the Series D Convertible Preferred Stock (the "Series D Preferred Stock"). The "Stated Value" of the Series D Preferred Stock shall be $25,000.00 per share. The par value is $.01 per share.
2. Dividends. No dividend shall be payable with respect to the Series D Preferred Stock.
3. Rank and Liquidation.
(a) The Series D Preferred Stock shall rank prior to any other class or series of Common Stock of the Corporation hereinafter designated, in each case as to the distribution of assets upon liquidation, dissolution or winding up of the Corporation.
(b) Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the Holders of the Series D Preferred Stock shall be entitled to receive before any payment or distribution shall be made on any class of Common Stock ("Junior Stock"), out of the assets of the Corporation available for distribution to stockholders, the Stated Value per share of Series D Preferred Stock. Upon the payment in full of all amounts due to Holders of the Series D Preferred Stock, the holders of the Common Stock of the Corporation shall receive all remaining assets of the Corporation legally available for distribution. If the assets of the Corporation available for distribution to the Holders of the Series D Preferred Stock, or any class of capital stock parri passu with that of the Series D Preferred Stock, shall be insufficient to permit payment in full of the amounts payable as aforesaid to the Holders of Series D Preferred Stock upon such liquidation, dissolution or winding up, whether voluntary or involuntary, then all such assets of the Corporation shall be distributed to the exclusion of the holders of shares of Junior Stock ratably among the Holders of the Series D Preferred Stock and any class of capital stock parri passu with that of the Series D Preferred Stock.
(c) The purchase or the redemption by the Corporation of shares of any class of stock, the merger or consolidation of the Corporation with or into any other corporation or entity in which the Corporation is the survivor, or the sale or transfer by the Corporation of substantially all of its assets shall be deemed to be a liquidation, dissolution or winding-up of the Corporation for the purposes of this paragraph 3.
4. Conversion into Common Stock. The Series D Preferred Stock shall have the following conversion rights and obligations:
(a) Subject to the further provisions of this paragraph 4, each Holder of shares of Series D Preferred Stock shall have the right, at any time commencing after the issuance to the Holder of Series D Preferred Stock, to convert not less than four-tenths (4/10) of a share on one or more occasions into fully paid and non-assessable shares of Common Stock of the Corporation determined in accordance with the Conversion Price provided in paragraph 4(b) below (the "Conversion Price").
(b) The number of shares of Common Stock issuable upon conversion of the Series D Preferred Stock shall equal (i) the Stated Value per share being converted, divided by (ii) the Conversion Price. The Conversion Price shall be $0.025 per share, subject to adjustment as described herein and in any subscription agreement.
(c) Holder will give notice of its decision to exercise its right to
convert the Series D Preferred Stock or part thereof by telecopying an executed
and completed Notice of Conversion (a form of which is annexed as Exhibit A to
the Articles of Amendment) to the Corporation via confirmed telecopier
transmission. The Holder will not be required to surrender the Series D
Preferred Stock certificate until the Series D Preferred Stock has been fully
converted. Each date on which a Notice of Conversion is telecopied to the
Corporation in accordance with the provisions hereof shall be deemed a
Conversion Date. The Corporation will itself, or will cause the Corporation's
transfer agent to, transmit the Corporation's Common Stock certificates
representing the Common Stock issuable upon conversion of the Series D Preferred
Stock to the Holder via express courier for receipt by such Holder within five
(5) business days after receipt by the Corporation of the Notice of Conversion
(the "Delivery Date"). In the event the Common Stock is electronically
transferable, then delivery of the Common Stock must be made by electronic
transfer provided request for such electronic transfer has been made by the
Holder. A Series D Preferred Stock certificate representing the balance of the
Series D Preferred Stock not so converted will be provided by the Corporation to
the Holder if requested by Holder, provided the Holder has delivered the
original Series D Preferred Stock certificate to the Corporation. To the extent
that a Holder elects not to surrender Series D Preferred Stock for reissuance
upon partial payment or conversion, the Holder hereby indemnifies the
Corporation against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount of the Stated Value of the
Series D Preferred Stock then owned by the Holder.
In the case of the exercise of the conversion rights set forth in paragraph 4(a), the conversion privilege shall be deemed to have been exercised and the shares of Common Stock issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Corporation of the Notice of Conversion. The person or entity entitled to receive Common Stock issuable upon such conversion shall, on the date such conversion privilege is deemed to have been exercised and thereafter, be treated for all purposes as the record holder of such Common Stock and shall on the same date cease to be treated for any purpose as the record holder of such shares of Series D Preferred Stock so converted.
Upon the conversion of any shares of Series D Preferred Stock, no adjustment or payment shall be made with respect to such converted shares on account of any dividend on the Common Stock.
The Corporation shall not be required, in connection with any conversion of Series D Preferred Stock to issue a fraction of a share of its Common Stock and shall instead deliver a stock certificate representing the
nearest whole number and may issue a fraction of a share of Series D Preferred Stock.
(d) The Conversion Price determined pursuant to Paragraph 4(b) shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall at any time (A) declare any
dividend or distribution on its Common Stock or other securities of the
Corporation other than the Series D Preferred Stock, (B) split or subdivide the
outstanding Common Stock, (C) combine the outstanding Common Stock into a
smaller number of shares, or (D) issue by reclassification of its Common Stock
any shares or other securities of the Corporation, then in each such event the
Conversion Price shall be adjusted proportionately so that the Holders of Series
D Preferred Stock shall be entitled to receive the kind and number of shares or
other securities of the Corporation which such Holders would have owned or have
been entitled to receive after the happening of any of the events described
above had such shares of Series D Preferred Stock been converted immediately
prior to the happening of such event (or any record date with respect thereto).
Such adjustment shall be made whenever any of the events listed above shall
occur. An adjustment made to the Conversion Price pursuant to this paragraph
4(d) (i) shall become effective immediately after the effective date of the
event.
(ii) For so long as Series D Preferred Stock is outstanding, the Holder is granted the anti-dilution and price protection rights set forth herein.
(e) (i) In case of any merger of the Corporation with or into any other corporation or entity (other than a merger in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification, conversion, or change of the outstanding shares of Common Stock) then unless the right to convert shares of Series D Preferred Stock shall have terminated as part of such merger, lawful provision shall be made so that Holders of Series D Preferred Stock shall thereafter have the right to convert each share of Series D Preferred Stock into the kind and amount of shares of stock and/or other securities or property receivable upon such merger by a Holder of the number of shares of Common Stock into which such shares of Series D Preferred Stock might have been converted immediately prior to such consolidation or merger. Such provision shall also provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in sub-paragraph (d) of this paragraph 4. The foregoing provisions of this paragraph 4(e) shall similarly apply to successive mergers.
(ii) In case of any sale or conveyance to another person or entity of the property of the Corporation as an entirety, or substantially as an entirety, in connection with which shares or other securities or cash or other property shall be issuable, distributable, payable, or deliverable for outstanding shares of Common Stock, then, unless the right to convert such shares shall have terminated, lawful provision shall be made so that the Holders of Series D Preferred Stock shall thereafter have the right to convert each share of the Series D Preferred Stock into the kind and amount of shares of stock or other securities or property that shall be issuable, distributable, payable, or deliverable upon such sale or conveyance with respect to each share of Common Stock immediately prior to such conveyance.
(f) Whenever the number of shares to be issued upon conversion of the Series D Preferred Stock is required to be adjusted as provided in this paragraph 4, the Corporation shall forthwith compute the adjusted number of shares to be so issued and prepare a certificate setting forth such adjusted conversion amount and the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Transfer Agent for the Series D Preferred Stock and the Common Stock; and the Corporation shall mail to each
Holder of record of Series D Preferred Stock notice of such adjusted conversion price.
(g) In case at any time the Corporation shall propose:
(i) to pay any dividend or distribution payable in shares upon its Common Stock or make any distribution (other than cash dividends) to the holders of its Common Stock; or
(ii) to offer for subscription to the holders of its Common Stock any additional shares of any class or any other rights; or
(iii) any capital reorganization or reclassification of its shares or the merger of the Corporation with another corporation or entity (other than a merger in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification, conversion, or change of the outstanding shares of Common Stock); or
(iv) the voluntary dissolution, liquidation or winding-up of the Corporation;
then, and in any one or more of said cases, the Corporation shall cause at least fifteen (15) days prior notice of the date on which (A) the books of the Corporation shall close or a record be taken for such stock dividend, distribution, or subscription rights, or (B) such capital reorganization, reclassification, merger, dissolution, liquidation or winding-up shall take place, as the case may be, to be mailed to the Transfer Agent for the Series D Preferred Stock and for the Common Stock and to the Holders of record of the Series D Preferred Stock.
(h) So long as any shares of Series D Preferred Stock or any obligation amount shall remain outstanding and the Holders thereof shall have the right to convert the same in accordance with provisions of this paragraph 4, the Corporation shall use its best efforts to reserve sufficient shares of its authorized and unissued Common Stock that would be necessary to allow conversion of the Series D Preferred Stock, and if it determines that its authorized and unissued shares of Common Stock are not sufficient to allow such conversion, it will amend its Articles of Incorporation and make appropriate filings with the Securities and Exchange Commission in order to increase its authorized capitalization.
(i) The term "Common Stock" as used in this Articles of Amendment shall mean the $.001 par value Common Stock of the Corporation as such stock is constituted at the date of issuance thereof or as it may from time to time be changed, or shares of stock of any class or other securities and/or property into which the shares of Series D Preferred Stock shall at any time become convertible pursuant to the provisions of this paragraph 4.
(j) The Corporation shall pay the amount of any and all issue taxes (but not income taxes) which may be imposed in respect of any issue or delivery of stock upon the conversion of any shares of Series D Preferred Stock, but all transfer taxes and income taxes that may be payable in respect of any change of ownership of Series D Preferred Stock or any rights represented thereby or of stock receivable upon conversion thereof, shall be paid by the person or persons surrendering such stock for conversion.
(k) In the event a Holder shall elect to convert any shares of Series D Preferred Stock as provided herein, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, or for any other reason unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of said shares of Series D Preferred Stock shall have
been issued and the Corporation posts a surety bond for the benefit of such Holder in the obligation amount sought to be converted, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder in the event it obtains judgment.
5. Voting Rights. The Holder of shares of Series D Preferred Stock shall not have voting rights except as described in Section 6 hereof.
6. Restrictions and Limitations.
(a) Amendments to Charter. The Corporation shall not amend its Articles of Incorporation without the approval by the holders of at least 70% of the then outstanding shares of Series D Preferred Stock if such amendment would:
(i) reduce the amount payable to the Holders of Series D Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation;
(ii) cancel or modify the conversion rights of the Holders of Series D Preferred Stock provided for in Section 4 herein; or
(iii) cancel or modify the rights of the Holders of the Series D Preferred Stock provided for in this Section 6.
7. Net Profits Participation. Each share of Series D Preferred Stock will be entitled to receive a participation interest ("Participation Interest") in the annual net profits generated from any future business activities undertaken by the Company or any of its subsidiaries in Brazil ("Brazil Net Profits"). This Participation Interest shall equal one-fourth of one percent (0.25%) of the difference between Brazil Net Profits and any participation interest held by Emerson Fittipaldi or any entities affiliated with Emerson Fittipaldi for the annual period for which such Participation Interest is being determined. Brazil Net Profits shall be determined by the Company's regularly appointed independent registered public accounting firm. This Participation Interest shall be paid to Holders within 30 days of completing the annual audit of the financial statements of the business activities undertaken by the Company or any of its subsidiaries in Brazil. Any fractional shares of Series D Preferred Stock shall be entitled to an allocable proportion of a Participation Interest.
8. Redemption. Holders of the Series D Preferred Stock shall have no right to have the Corporation redeem the Series D Preferred Stock. The Corporation shall have no right to redeem the Series D Preferred Stock.
9. Status of Converted or Redeemed Stock. In case any shares of Series D Preferred Stock shall be redeemed or otherwise repurchased or reacquired, the shares so redeemed, converted, or reacquired shall resume the status of authorized but unissued shares of Preferred Stock and shall no longer be designated as Series D Preferred Stock.
10. Authority to Amend. This Articles of Amendment was adopted by the Corporation's Board of Directors on August 23, 2006, and no stockholder consent was required for the adoption thereof pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of said Corporation.
IN WITNESS WHEREOF, such Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by its Chief Executive Officer and its President this 23rd day of August 2006.
POWER2SHIP, INC.
By: /s/ Richard Hersh By: /s/ Michael J. Darden
-------------------------------------- ----------------------------
Richard Hersh, Chief Executive Officer Michael J. Darden, President
|
EXHIBIT A
NOTICE OF CONVERSION
(To Be Executed By the Registered Holder in Order to Convert the Series D Convertible Preferred Stock of Power2Ship, Inc.)
The undersigned hereby irrevocably elects to convert $______________ of the Stated Value of the above Series D Convertible Preferred Stock into shares of Common Stock of Power2Ship, Inc. according to the conditions hereof, as of the date written below.
Select one:
[ ] A Series D Convertible Preferred Stock certificate is being delivered herewith. The unconverted portion of such certificate should be reissued and delivered to the undersigned.
[ ] A Series D Convertible Preferred Stock certificate is not being delivered to Power2Ship, Inc.
Deliveries Pursuant to this Notice of Conversion Should Be Made to:
EXHIBIT 10.34
SEPARATION AND SEVERANCE AGREEMENT
This Separation and Severance Agreement ("Agreement") is made and entered into by and between POWER2SHIP, INC., a Nevada corporation, and its various subsidiaries and affiliates (the "Company"), and Richard Hersh ("Hersh") as of the 15th day of September 2006.
A. Hersh has been employed by the Company as Chief Executive Officer, serves as a Director of the Company and serves as an officer and/or Director of various subsidiaries or affiliated companies of the Company.
B Hersh and the Company entered into an Employment Agreement on January 1,, 2003 (the "Employment Agreement") with the Company's predecessor, Freight Rate, Inc.
C. After lengthy discussions among the parties concerning the operations, management structure and future of the Company, the parties desire to terminate their relationship on an amicable basis pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, undertakings and releases, receipt of which is hereby acknowledged as sufficient consideration by both parties, the parties agree as follows:
1. Recitals. The above recitals are true, correct, and are herein incorporated by reference.
2. Resignation of Employment. Hersh hereby resigns as Chief Executive Officer, but will remain as Chairman of the Board, to be effective on the date hereof ("Termination Date").
3. Termination. The Employment Agreement is permanently terminated effective on the Termination Date.
4. Severance and Benefits. Subject to the conditions set forth herein, the Company and Hersh agree to the following.
(a) In full settlement of all claims for payment made or that could be made by Hersh pursuant to the terms of the Employment Agreement or any compensation, commissions, vacation pay, health insurance payments or benefits
program heretofore provided, or promised, to Hersh, and for the forgiveness of all amounts due to Hersh on the convertible promissory note dated March 10, 2003 issued to him by Freight Rate, Inc., the Company will pay to Hersh $20,000, to be paid in-full upon the Company receiving at least Three Million Dollars in additional, aggregate funding.
(b) Hersh currently owns options to purchase 6,182,642 shares of the Company's common stock exercisable at prices ranging from $0.25 to $0.38 per share (the "P2S Options"). In consideration for canceling the P2S Options, canceling the option previously granted to Hersh to purchase 10% of the common stock of Commodity Express Transportation, Inc. and waiving any other claims Hersh has or may have against the Company, the Company will issue Hersh a warrant to purchase 11,000,000 shares of its common stock exercisable at $0.025 per share that expires five years from its grant date.
5. General Releases and Voluntary Waiver of Rights.
(a) Except for the obligations created by or arising out of this Agreement or any future consulting or distribution agreement between the Company and Hersh, effective on the Termination Date, Hersh's descendants, heirs, successors and assigns do hereby release, acquit, satisfy and forever discharge and covenant not to sue the Company, its agents, servants, employees and all persons for whose conduct it is legally responsible, including, but not limited to, its officers, directors, attorneys, insurers, stockholders, parent, subsidiary, affiliated or related entities and their respective successors and assigns, and each of them, past or present, from any and all manner of action, causes of action, rights, liens, agreements, contracts, covenants, obligations, suits, claims, debts, dues, sums of monies, costs, expenses, attorneys' fees, judgments, orders and liabilities, accounts, covenants, controversies, promises, damages, of whatever kind and nature in law or equity or otherwise whether now known or unknown, including specifically but not limited to, any and all claims arising out of such employment relationship which Hersh ever had (including claims not yet accrued) against the Company, its agents, servants, employees and persons for whom it is legally responsible, for and upon any reason arising out of the employment relationship Hersh had with the Company and the transactions and relationships described herein. Hersh specifically acknowledges that he has been advised that he should consult with an attorney concerning his rights and the signing of this Release.
(b) Except for the obligations created by or arising out of this Agreement or any future consulting or distribution agreement between the Company and Hersh, effective on the Termination Date, the Company, and the Company's subsidiary and affiliated companies and its affiliated officers and directors, and their successors and assigns, and each of them, does hereby release, acquit, satisfy and forever discharge and covenant not to sue Hersh or Hersh's descendants, heirs, successors and assigns, and each of them, past or present, from any and all manner of action, causes of action, rights, liens, agreements, contracts, covenants, obligations, suits, claims, debts, dues, sums of monies, costs, expenses, attorneys' fees, judgments, orders and liabilities, accounts, covenants, controversies, promises, damages, of whatever kind and nature in law or equity or otherwise whether now known or unknown, including specifically but not limited to, any and all claims arising out of such employment relationship Hersh had with the Company and the transactions and relationships described herein.
8. Non-Admissions. The Company and Hersh agree that neither this Agreement nor the consideration given shall be construed as an admission of any wrongdoing or liability by the Company or Hersh, and that all such liability or wrongdoing is expressly denied.
9. Confidentiality. In the course of serving as an officer, Director and employee of the Company, the Company as disclosed to Hersh, and Hersh may otherwise have obtained knowledge of or access to, trade secrets and other proprietary and confidential information concerning the Company, the Company products, financial condition, services, research and development plans, and other matters pertaining to the Company's business ("Confidential Information"). Hersh agrees to treat and hold all Confidential Information as secret and confidential, and to apply strict standards of care to maintain the secrecy of the Confidential Information. In this regard, Hersh agrees not to copy or reproduce any Confidential Information and not to disclose the contents of any Confidential Information to any person or entity, other than officers and directors of the Company or with their written permission. Hersh further agrees to return to the Company written or other copies (including electronic media containing Confidential Information) of any and all Confidential Information in Hersh's possession. The provisions of this Section 10 shall not apply to any Confidential Information that Hersh is obligated by law to disclose to any court or any federal or state government agency.
10. Anti-Coercion. Each of the Parties hereto has entered into this Agreement without undue influence, fraud, coercion, duress, misrepresentation, or restraint having been imposed upon them by any other party, and further acknowledges that each party had the opportunity to be represented by counsel of their own selection.
11. Interpretation of Release. For the purposes of interpretation and construction of this Agreement, this Agreement shall be deemed to have been drafted by the Company and by Hersh.
12. Notices. Any notice required or permitted to be given under the terms of this Agreement shall be sufficient if in writing and if sent postage prepaid by registered or certified mail, return receipt requested; by overnight delivery; by courier; or by confirmed telecopy, in the case of Hersh to the business or residence as shown on the records of the Company, or in the case of the Company to its principal office or at such other place as it may designate.
13. Entire Agreement. This Agreement constitutes the entire agreement between the parties and shall not be modified, altered, or discharged, except by a writing signed by each of the parties hereto.
14. Governing Law, Jurisdiction and Venue. This Agreement shall be governed by the laws of the State of Florida. The Parties acknowledge that this Agreement contains provisions, which are enforceable in the State of Florida, and all Parties consent to the personal jurisdiction of the State of Florida and County of Palm Beach.
15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same Agreement.
16. Waiver of Breach - Effect. No waiver or any breach of any term or provision of this Agreement shall be construed to be, nor shall be, a waiver of any other breach of this Agreement. No waiver shall be binding unless in writing and signed by the Party waiving the breach.
17. Full Understanding and Voluntary Acceptance. In entering into this Agreement, the parties represent that they have relied upon the advice of their attorneys or have chosen to enter into this Agreement without the assistance of counsel based upon their understanding of the terms hereof. The terms of this Agreement have been completely read and explained to them by there attorneys and/or they have reviewed the terms hereof in complete detail and that the terms are fully understood and voluntarily accepted by them.
18. Headings. The headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions.
HERSH ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, THAT HE HAS BEEN GIVEN AMPLE OPPORTUNITY TO REVIEW IT AND TO CONSULT WITH A REPRESENTATIVE OR ATTORNEY OF HERSH'S CHOOSING CONCERNING ITS TERMS. HERSH FURTHER ACKNOWLEDGES THAT HE UNDERSTANDS THE TERMS AND CONDITIONS OF THIS AGREEMENT AND IS VOLUNTARILY ENTERING INTO IT WITH THE COMPANY.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
POWER2SHIP, INC.
By:/s/ David S. Brooks ---------------------------------------- David S. Brooks, Chief Executive Officer /s/ Richard Hersh ----------------------------------------- RICHARD HERSH |
EXHIBIT 10.35
CONSULTING AGREEMENT
CONSULTING AGREEMENT (the "Agreement") dated as of the 15th day of September 2006, between POWER2SHIP, INC., a Nevada corporation ("P2S"), and Richard Hersh (Consultant)
R E C I T A L S:
A. Company desires to engage Consultant on a non-exclusive basis to provide the services hereinafter described relating to the Company; and
B. Consultant acknowledges that he has the technical knowledge and business background and experience to undertake his duties hereunder and will diligently and faithfully render the services requested by Company.
NOW, THEREFORE, in consideration of the terms and the mutual undertakings contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, it is agreed as follows:
1. Term. Subject to the terms and conditions set forth herein, the term of this Agreement shall commence on the date set forth above (the "Effective Date") and expire on September 14, 2011 (the Expiration Date").
2. Services, Availability of Consultant. Company hereby engages Consultant to provide the services herein described in Section 3 (the "Services") and to use his best efforts to perform his obligations hereunder. Consultant may provide the services from any location and in any form (i.e., oral, written, electronic, etc.) that he deems appropriate. Nonetheless, unless prevented by sickness or disability, the Consultant shall be available with reasonable advance notice during normal working hours, and at such other times as may reasonably be required to perform Consultant's service, to participate in meetings at the Company's or other locations, as directed by the Company's Chief Executive Officer. The Consultant acknowledges that in the course of providing consulting services, Consultant may be required, from time to time, to travel on behalf of the Company at the Company's expense. The Consultant shall be prohibited from providing consulting services to other companies that may reasonably be deemed to be competitors of the Company unless Consultant obtains the prior written permission from the Company's Chief Executive Officer.
3. Duties. For purposes hereof, the Services shall include:
(a) Advising the Company's management and Board of Directors on business matters as requested by the Company's Chief Executive Officer;
(b) Identifying and introducing the Company to prospective investors or lenders;
(c) Identifying and introducing the Company to potential strategic partners, acquisition or merger candidates or joint venture parties; and
(d) Such other duties as reasonably requested by the Company's Chief Executive Officer.
4. Compensation. As compensation hereunder, the Company shall pay to Consultant a monthly fee or service payment at the rate of $10,000 per month. One-half of the consulting fee shall be paid semi-monthly, in arrears, on the 15th day and the last day of each month during the entire term of this Agreement commencing September 30, 2006.
5. Termination:
a. The Agreement shall terminate upon the occurrence of any of the following events:
i. The Expiration Date;
ii. Upon written notice to Consultant by the Company of termination of the Agreement for Cause (as defined in Section 5(b)) or
iii. Upon thirty (30) days written notice of termination by Consultant to Company for any reason
b. For purposes of this Agreement, the term "Cause" shall mean the Consultant's i) conviction or entry of a plea of guilty or nolo contendere, with respect to any felony; (ii) commission of any act of willful misconduct, gross negligence, fraud or dishonesty that materially affects the Company; or (iii) violation of any material term of this Agreement, provided that the Company first delivers written notice thereof to the Consultant and the Consultant shall not have cured such violation within ten (10) days after receipt of such written notice. Notwithstanding the foregoing, Consultant may not be terminated for Cause in the event of his death or disability.
c. Unless terminated pursuant to Sections 5.a. and 5.b. herein, Consultant's compensation shall be paid to Consultant or his designated beneficiaries during the entire term of the Agreement.
6. Confidentiality.
(a) In connection with this Agreement, Consultant may gain access to Confidential Information (as hereinafter defined) of Company and/or its Affiliates. Confidential Information includes information communicated orally, in writing, by electronic or magnetic media, by visual observation, or by other means, and may be marked confidential or proprietary, or bear a marking of like import, or which Company or any of its Affiliates state to be Confidential or proprietary, or which would logically be considered confidential or proprietary under circumstances of its disclosure known to Consultant.
(b) Consultant acknowledges and understands that (i) Confidential Information provides Company and its Affiliates with a competitive advantage (or that could be used to the disadvantage of Company and its Affiliates by a competitor), (ii) Company and its Affiliates have a continuing interest in maintaining the confidentiality of Confidential Information and (iii) Company and its Affiliates have a compelling business interest in preventing unfair competition stemming from the use or disclosure of Confidential Information. Moreover, Consultant acknowledges that clients of Company and/or its Affiliates
entrust Company and its Affiliates with responsibility for acquiring knowledge relating to aspects of their clients' businesses, with the expectation that Company and its Affiliates will hold all such knowledge, including in some cases the fact that they are doing business with Company and its Affiliates, and the specific transactions in which they are engaged, in the strictest confidence ("Client Confidences").
(c) For purposes hereof, "Confidential Information" includes, but is not limited to information pertaining to business plans, technology, intellectual property, joint venture agreements, licensing agreements, financial information, contracts, customers, Client Confidences, employee identities and contact information, products, trade secrets, specifications, designs, plans, drawings, software, data, prototypes, processes, methods, research, development or other information relating to the business activities and operations of Company and/or its Affiliates.
(d) Consultant agrees to keep Confidential Information confidential and, except as authorized by Company or any of its Affiliates, in writing, Consultant shall not, directly or indirectly, use Confidential Information for any reason except to perform his obligations under this Agreement. No other rights or licenses, to trademarks, inventions, copyrights, patents or any other intellectual property rights are implied or granted under this Agreement or by the conveying of Confidential Information to Consultant.
(e) Consultant shall use Confidential Information only for purposes of performing under this Agreement. In the event the performance of the Services requires Consultant to disclose Confidential Information to any employee, agent, representative or other third person, disclosure shall be made only on an "as needed" basis and Consultant shall advise those persons who require access to the Confidential Information of their obligations with respect thereto. Further, Consultant shall copy Confidential Information only as necessary, and ensure that all confidentiality notices are reproduced in full on such copies.
(f) The restrictions in subsection (d) of this Section shall not apply to any Confidential Information if Consultant can demonstrate that the Confidential Information:
(i) is or becomes available to the public through no breach of this Agreement;
(ii) was previously known by Consultant without any obligation to hold it in confidence;
(iii) is received from a third party free to disclose such information without restriction;
(iv) is independently developed by Consultant without the use of the Confidential Information;
(v) is approved for release by written authorization of Company;
(vi) is required by law or regulation to be disclosed, but only to the extent and for the purposes of such required disclosure; or
(vii) is disclosed in response to a valid order of a court or lawful request of a governmental agency, but only to the extent of
and for the purposes of such order or request, provided that Consultant notifies Company of the order or request ten days prior to disclosure and permits Company and/or its Affiliate to seek an appropriate protective order.
7. Representations and Covenants of Consultant.
(a) Consultant hereby represents and warrants to Company that (i) Consultant has the full, complete and entire right, power and authority to enter into this Agreement, (ii) the execution of this Agreement by Consultant and the performance of Consultant's Services hereunder will not, directly or indirectly, violate, or be a breach of, any agreement, law, rule, regulation, order, commitment or responsibility of any kind, (iii) this Agreement contains the valid and binding obligations of Consultant and (iv) Consultant is not, directly or indirectly, in breach of any confidentiality agreement or covenant not to compete to which he is a party.
(b) Consultant will not use in the performance of his responsibilities under this Agreement any confidential or proprietary information or trade secrets of any other person or entity.
(c) Consultant has not entered into and will not enter into any agreement (whether oral or written) in conflict with this Agreement.
(d) Consultant will promptly advise Company of any potential conflict of interest that may arise during his service as a consultant to Company, and will withdraw from any activity upon request when Company, in its sole discretion, deems such withdrawal necessary or desirable to avoid any actual or potential conflict of interest.
(e) Consultant shall execute and deliver to Company such Non-Disclosure Agreements and/or Business Ethics and related policies as are established from time-to-time by Company, and are generally applicable to Company's consultants.
8. Liability and Indemnification. Consultant (including any person or entity acting for or on behalf of Consultant) shall not be liable for any mistakes of fact, errors of judgment, for losses sustained by the Company or any subsidiary or for any acts or omissions of any kind, unless caused by the gross negligence or intentional misconduct of Consultant or any person or entity acting for or on behalf of Consultant. The Company and its present and future subsidiaries, jointly and severally, agree to indemnify and hold harmless Consultant and its present and future shareholders as well as its and their officers, directors, affiliates, associates, employees, shareholders, attorneys and agents ("Indemnified Parties" or "Indemnified Party") against any loss, claim, damage or liability whatsoever (including reasonable attorneys' fees and expenses) to which such Indemnified Party may become subject as a result of performing any act (or omitting to perform any act) contemplated to be performed by Consultant pursuant to this Agreement if such act or omission did not violate the provisions of this Section 7 of this Agreement. So long as the Company has not provided counsel to the Indemnified Party in accordance with the terms of the Agreement, the Company and its subsidiaries agree to reimburse the defense of any action or investigation (including reasonable attorneys' fees and expenses) subject to an understanding from such Indemnified Party to repay the Company or its subsidiaries if it is ultimately determined that such Indemnified Party is not entitled to such indemnity. In case any action, suit or proceeding shall be brought or threatened, in writing, against any Indemnified Party, it shall notify the company within twenty (20) days after the Indemnified Party receives notice of such action, suit or such threat. The Company shall have the right to appoint the Company's counsel to defend such action, suit or proceeding, provided that such Indemnified Party consents to such representation by such counsel, which consent shall not be unreasonably withheld. In the event
any counsel appointed by the Company shall not be acceptable to such Indemnified Party, then the Company shall have the right to appoint alternative counsel for such Indemnified Party reasonably acceptable to such Indemnified Party, until such time as acceptable counsel can be appointed. In any event, the Company shall, at its sole cost and expense, be entitled to appoint counsel to appear and participate as co-counsel in the defense thereof. The Indemnified Party, or its co-counsel, shall promptly supply the Company's counsel with copies of all documents, pleadings and notices that are filed, served or submitted in any of the aforementioned. No Indemnified Party shall enter into any settlement without the prior written consent of the Company, which consent shall not be unreasonably withheld.
9. Notices. Unless otherwise specifically provided herein, all notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid at the following addresses, and/or to such other addresses and/or persons which either party may designate by like notice:
(a) if to Consultant, to:
13704 NW 23 Court Sunrise, Florida 33323
(b) if to Company, to:
Power2Ship, Inc. 903 Clint Moore Road Boca Raton, Florida 33487 Attn: Chief Executive Officer
10. Independent Contractor and Non-Exclusivity. The relationship of Consultant to Company shall be that of an independent contractor. Nothing herein shall create an employment relationship between the parties, or a joint venture. Each party shall pay the taxes attributable to it, including those, if any, arising by reason of execution of this Agreement. Consultant shall pay all taxes and the cost of insurance and health and other benefits to which Consultant may be entitled and Company shall have no obligation to pay any such taxes, insurance, benefits or similar items for or on behalf of Consultant or any person employed by Consultant. Subject to the terms and conditions of this Agreement, neither party shall operate under the direct or indirect supervision of the other. Moreover, neither party shall attempt, or have the right, to bind the other party to any agreement, understanding or contract with any third party. Consultant shall retain, by employment or otherwise, such personnel as he deems necessary to perform his obligations under this Agreement. The compensation, benefits, taxes, insurance and all other aspects of the relationship between Consultant and his employees and/or agents shall be the sole responsibility of Consultant, and Company shall have no responsibility therefore. No provision of this Agreement shall be construed to preclude the Consultant, or any officer, director, agent, assistant, affiliate or employee of Consultant from engaging in any activity whatsoever, including, without limitation, receiving compensation for managing investments or acting as an advisor, participant in any corporation, partnership, trust or other business entity not in competition with the Company or from receiving compensation or profit therefor. Consultant shall have no obligation to present any business combination to the Company and shall incur no liability for its failure to do so. The foregoing notwithstanding, the Consultant shall devote not less than 50% of its working time to the affairs of the Company.
11. Additional Provisions.
(a) This Agreement shall inure to the benefit of, and be binding upon, Company and Consultant and their respective successors and assigns. Consultant shall not assign or delegate the performance of any of his rights and/or obligations under this Agreement without the prior written consent of Company and any attempted assignment in violation of this Agreement shall be null and void.
(b) This Agreement constitutes the entire Agreement, representation and understanding of the parties hereto with respect to the subject matter hereof, and no amendment or modification hereof shall be valid or binding unless made in writing and signed by the parties hereto.
(c) No waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the party against whom it is sought to be enforced. No waiver of any default or breach of this Agreement shall be deemed a continuing waiver or a waiver of any other breach or default.
(d) If any provision of this Agreement is invalid or unenforceable in any jurisdiction such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability, but the foregoing shall not render invalid or unenforceable in such jurisdiction the remainder of this Agreement or the remainder of such provision or affect the validity or unenforceability of any provision of this Agreement in any other jurisdiction.
(e) Any legal suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted exclusively in a federal or state court of competent jurisdiction located in the County of Palm Beach, State of Florida. Each of the parties hereto hereby: (i) waives any objection which it may now have or hereafter have to the venue of any such suit, action or proceeding, and (ii) irrevocably consents to the jurisdiction of such courts in any such suit, action or proceeding. The parties further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding and agree that service of process upon a party mailed by certified mail to such party's address shall be deemed in every respect effective service of process upon such party in any such suit, action or proceeding. Each of the parties waives any right to object to the jurisdiction, the venue of either of such courts, or to claim any such court is an inconvenient forum.
(f) Consultant acknowledges that prior to the execution of this Agreement he had full opportunity to consult with his own independent attorneys and advisors as deemed appropriate and Consultant fully understands the nature and scope of his rights and obligations hereunder.
(g) The Parties agree that should any dispute arise in the administration of this Agreement, the dispute shall be resolved through arbitration under the rules of the American Arbitration Association, with its location in the State of Florida and County of Palm Beach.
Space below intentionally left blank.
IN WITNESS WHEREOF, the parties have executed this Agreement or caused this Agreement to be executed as of the date first above written.
POWER2SHIP, INC.
CONSULTANT
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of September 15, 2006 by and between Power2Ship, Inc., a Nevada Corporation, its affiliates and assigns (the "Company"), and Sterling Kevin Yates (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee as its Chief Operating Officer and the Employee desires to be so employed; and
WHEREAS, Employee and the Company desire to set forth in writing all of their respective duties, rights and obligations with respect to the Employee's employment by the Company
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby agrees to employ the Employee,
and the Employee hereby accepts such continued employment by the
Company, in the capacity and upon the terms and conditions hereinafter
set forth. The term of employment under this Agreement shall be for the
period commencing as of September 15, 2006 (the "Commencement Date")
and ending on the second anniversary of the Commencement Date or
September 15, 2008) unless earlier terminated as herein provided (the
"Term of Employment"). Thereafter, this Agreement shall be renewed for
successive one (1) year terms unless previously terminated pursuant to
Section 5 herein or if either party elects to terminate his Agreement
by written notice to the other party at least ninety (90) days prior to
the expiration of the then-current Term of Employment. The last day of
the Employee's Term of Employment shall be referred to in this
Agreement as the "Date of Termination."
2. Duties. During the Term of Employment, the Employee shall serve as the Company's Chief Operating Officer and shall assume those responsibilities customarily associated with and incident to the position of Chief Operating Officer. The Employee shall serve the Company faithfully, conscientiously and to the best of the Employee's ability and shall promote the interests and reputation of the Company. Unless prevented by sickness or disability, the Employee shall devote all of his time, attention, knowledge, energy and skills, during normal working hours, and at such other times as the Employee's duties may reasonably require, to the duties of the Employee's employment. The principal place of employment of the Employee shall be the Company's
principal executive offices or at such other place(s) to be determined by the Company and Employee. The Employee acknowledges that in the course of his employment, Employee may be required, from time to time, to travel on behalf of the Company at the Company's expense. The Employee's principal work place shall be in Florida. The Company shall not prohibit Employee from additional opportunities in his free time as long as there is not a conflict of interest now or in the future with Power2Ship and its affiliates. Employee must receive prior permission in writing from the Board of Directors to execute additional opportunities.
3. Compensation and Benefits. As full and complete compensation for the Employee's execution and delivery of this Agreement and performance of any services hereunder, the Company shall pay, grant or provide the Employee with the following beginning upon the Commencement Date, though the Company may elect to defer salary until the date that the Company has received an additional aggregate funding of at least Three Million Dollars:
(a) Base Salary. When the Company is funded with at least Three Million Dollars, the Company shall pay the Employee a base salary (the "Base Salary") at an annual rate of no less than $150,000. Base salary shall be payable at such times and in accordance with the standard payroll practices of the Company, but in no event less than twice per month.
(b) Options. Effective on the Commencement Date, the Employee will be granted fully vested options to purchase 9,000,000 shares of common stock at a strike price of $0.025. These options will expire five years after their grant date.
(c) Employee Benefits. The Company shall afford the Employee the opportunity to participate during the Term of Employment in any medical, dental, disability and life insurance, retirement, savings and any other employee benefits plans or programs (including perquisites) which the Company maintains for its senior executives.
(d) Expenses. The Employee shall be entitled to reimbursement of all reasonable business expenses (in accordance with the Company's policies for its senior executives, as the same may be amended from time to time in the Company's sole discretion), within one week following the Employee's submission of an appropriate expense report and related receipts and/or vouchers to the Company.
(e) Vacations, Holidays or Temporary Leave. The Employee shall be entitled to take vacations in accordance with the Company's vacation policy for other senior executives. Such vacation(s) shall be taken at such time or times, and as a whole or in increments, as the Employee shall elect, consistent with the reasonable needs of the Company's business. The Employee shall further be entitled to the number of paid holidays and leaves
for illness or temporary disability in accordance with the policies of the Company for its senior executives (as such policies may be amended from time to time or terminated in the Company's sole discretion).
4. Restrictive Covenant; Protection of Confidential Information.
(a) The Employee recognizes and acknowledges that certain
confidential business and technical information used by the
Employee in connection with his duties hereunder including,
without limitation, certain confidential and proprietary
information relating to the design, development, construction
and marketing of Internet services, is a valuable, special and
unique asset of the Company, such information, subject to
Section 4(c) below, collectively being referred to as the
"Confidential Information". During and subsequent to the Term
of Employment, the Employee shall not (a) use Confidential
Information or any part thereof other than in connection with
his duties hereunder, (b) disclose such information to any
person, firm, corporation, association or other entity for any
purpose or reason unless directed to do so by the Board of
Directors. Notwithstanding the foregoing, the Employee is
being hired as an expert in the field of logistics and,
therefore, logistic practices are excluded from this
provision.
(b) During the Term of Employment and for all time thereafter, the Employee shall not, directly or indirectly, furnish or make accessible to any person, firm, corporation or other business entity, whether or not he competes with the business of the Company, any trade secret obtained by the Employee during his employment by the Company which relates to the business practices, methods, processes or other confidential or secret aspects of the business of the Company without the prior written consent from the Company (such information being referred to as the "Company Confidential Information").
(c) Confidential Information and Company Confidential Information shall not include any information or documents that (a) are, or become, publicly available without breach by the Employee of this Section 4, (b) the Employee receives from any third party who, to the best of the Employee's knowledge upon reasonable inquiry, is not in breach of an obligation of confidence with the Company, or (c) is required to be disclosed by law, statute, governmental or judicial proceeding; provided, however, that in the event that the Employee is requested by any governmental or judicial authority to disclose any Confidential Information, the Employee shall give the Company prompt notice of such request, such that the Company may seek a protective order or other appropriate relief, and in any such proceeding the Employee shall disclose only so much of the Confidential Information as is required to be disclosed.
(d) The Employee acknowledges that his services are of a special, unique and extraordinary character and, his position with the Company places him in a position of confidence and trust with the clients and employees of the Company, and in connection with his services to the Company, the Employee will have access to Confidential Information vital to the Company's business. The Employee further acknowledges that in view of
the nature of the business, in which the Company is engaged, the foregoing confidentiality provision is reasonable and necessary in order to protect the legitimate interests of the Company and that violation thereof would result in irreparable injury to the Company. Accordingly, the Employee consents and agrees that if the Employee violates or threatens to violate any of the provisions of Section 4 hereof, the Company would sustain irreparable harm and, therefore, the Company will be entitled to obtain from any court of competent jurisdiction, without posting any bond or other security, preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which the Company may be entitled.
5. Termination of Employment:
(a) The Employee's employment with the Company shall terminate upon the occurrence of any of the following events:
(i) The Scheduled Date of Termination;
(ii) The death of the Employee during the Term of Employment;
(iii) The Disability (as defined below) of Employee during the Term of Employment; or
(iv) Upon written notice to the Employee by the Company of
termination of his employment for Cause (as defined in
Section 5(c)).
(v) Resignation without good reason
(vi) Termination without cause (as defined below)
(b) For purposes of this Agreement, the "Disability" of the Employee shall mean his inability, because of mental or physical illness or incapacity, whether total or partial, to perform his full time duties under this Agreement with reasonable accommodation for a period aggregating 90 days out of any 12-month period under circumstances where, in the opinion of a qualified physician reasonably acceptable to the Company, it is reasonably certain that the Employee will not be able to resume his duties on a regular full time basis within 30 days of the date the Employee receives notice of termination for Disability.
(c) For purposes of this Agreement, the term "Cause" shall mean the Employee's i) conviction or entry of a plea of guilty or nolo contendere, with respect to any felony; (ii) commission of any act of willful misconduct, gross negligence, fraud or dishonesty that materially affects the Company as stated in
the Power2Ship Employee Handbook Code of Conduct; or (iii) violation of any material term of this Agreement or any material written policy of the Company, provided that the Company first deliver written notice thereof to the Employee and the Employee shall not have cured such violation within thirty (30) days after receipt of such written notice.
6. Payments upon Termination of Employment:
(a) Death or Disability: If the Employee's employment hereunder is terminated due to the Employee's death or disability pursuant to Sections 5(a)(ii)(iii), the Company shall pay or provide to the Employee, his designated beneficiary or his estate (i) all Base Salary pursuant to Section 3(a) hereof, any expenses pursuant to 3(c), any accrued vacation pursuant to Section 3(e) and any bonus pursuant to Section 3(f) hereof, in each case which has been earned but unpaid, or incurred but not reimbursed, as of the Date of Termination; and (ii) any benefits to which the Employee may be entitled under any employee benefits plan or program pursuant to Section 3(b) hereof in which he is a participant in accordance with the terms of such plan or program up to and including the Date of Termination. Should the Company wish to purchase insurance to cover the costs associated with the Employee's termination of employment pursuant to Sections 5(a) (i), (ii), (iii), the Employee agrees to execute any and all necessary documents necessary to effectuate said insurance.
(b) Termination for Cause, Resignation Without Good Reason, or
Expiration of Term of Employment: If the Employee's employment
hereunder is terminated due to the termination of the
Employee's employment by the Company for "Cause" pursuant to
Section 5(a)(iv) or due to the Employee's resignation Without
Good Reason pursuant, the Company shall pay or provide to the
Employee (i) all base salary pursuant to Section 3(a) hereof
and any vacation pay pursuant to Section 3(e) hereof, in each
case which has been earned but unpaid as of the Date of
Termination and (ii) any benefits to which the Employee may be
entitled under any employee benefits plan or program pursuant
to Section 3(b) hereof in which he is a participant in
accordance with the terms of such plan or program up to and
including the Date of Termination.
(c) Termination Without Cause: If the Employee's employment hereunder is terminated due to the termination of the Employee's employment by the Company Without Cause the Employee shall be entitled to all compensation for the term of the Contract to be paid in a lump sum payment within ten (10) days of termination.
(d) No Other Payments. Employee shall not be entitled to receive any other payments or benefits from the Company due to the termination of his employment, including but not limited to, any employee benefits under any of the Company's employee benefits plans or programs (other than at the Employee's expense under the Consolidated Omnibus Budget Reconciliation Act of 1985 or pursuant to the terms of any pension plan which
the Company may have in effect from time to time). Upon termination, all unvested options provided to Employee shall be deemed null and void unless under the circumstances defined in Section 5(a) (vi) or 5(d) (iii). Unvested options shall not vest after Employee's receipt of a notice of termination pursuant to Section 5(a)(iv) hereof provided, however, if such notice was provided pursuant to Section 5(c)(iii) hereof and Employee cures such breach within the applicable time period, Employee's options may vest subsequent thereto.
7. No Conflicting Agreements; Indemnification:
(a) The Employee hereby represents and warrants that he is not a party to any agreement, or non-competition or other covenant or restriction contained in any agreement, commitment, arrangement or understanding (whether oral or written), which would in any way conflict with or limit his ability to commence work on the first day of the Term of Employment or would otherwise limit his ability to perform all responsibilities in accordance with the terms and subject to the conditions of this Agreement.
(b) The Employee agrees that the compensation provided for in
Section 3 represents the minimum compensation to be paid to
Employee in respect of the services performed or to be
performed for the Company by Employee.
8. Deductions and Withholding. The Employee agrees that the Company shall withhold from any and all compensation required to be paid to the Employee pursuant to this Agreement all federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect and all amounts required to be deducted in respect of the Employee's coverage under applicable employee benefit plans.
9. Entire Agreement. This Agreement embodies the entire agreement of the parties with respect to the Employee's employment and supersedes any other prior oral or written agreements between the Employee and the Company, including but not limited to, the Original Employment Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto.
10. Waiver. The waiver by the Company or a breach of any provision of this Agreement by the Employee shall not operate or be construed as a waiver of any subsequent breach by the Employee. The waiver by the Employee of a breach of any provision of this Agreement by the Company shall not operate or be construed as a waiver of any subsequent breach by the Company.
11. Governing Law. This Agreement shall be subject to, and governed by, the laws of the State of Florida applicable to contracts made and to be performed in the State of Florida, regardless of where the Employee is in fact required to work. Arbitration clause would be appropriate
12. Jurisdiction. Any legal suit, action or proceeding against any party hereto arising out of or relating to this Agreement shall be instituted in a federal or state court in the State of Florida, and each party hereto waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding and each party hereto irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding.
13. Assignability. The obligations of the Employee may not be delegated and, except as expressly provided in Section 5 relating to the designation of beneficiaries, the Employee may not, without the Company's written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest therein. Any such attempted delegation or disposition shall be null and void and without effect. The Company and the Employee agree that this Agreement and all of the Company's rights and obligations hereunder may be assigned or transferred by the Company to, and may be assumed by, may become binding upon, and may inure to the benefit of, any successor to the Company. The term "successor" shall mean, with respect to the Company, any other corporation or other entity that by merger, consolidation or purchase, acquires all or a material part of the assets of the Company. Any assignment by the Company of its rights and obligations hereunder to any successor shall not be considered a termination of employment for purposes of this Agreement.
14. Severability. If any provision of this Agreement as applied to either party or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any other provision of this Agreement or the validity or enforceability of this Agreement.
15. Notices. All notices to the Employee hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt
Kevin Yates 315 Gennessee Road Irmo, SC 29063
16. All notices to the Company hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to:
Power2Ship, Inc. 903 Clint Moore Rd.
Boca Raton, FL 33487
Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party.
17. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument.
19. Attorneys' Fees. In the event that either party hereto commences litigation against the other to enforce such party's rights hereunder, the prevailing party shall be entitled to recover all costs, expenses and fees, including reasonable attorneys' fees.
20. Neutral Construction. Each party to this Agreement was represented by counsel, or had the opportunity to consult with counsel. No party may rely on any drafts of this Agreement in any interpretation of the Agreement. Each party to this Agreement has reviewed this Agreement and has participated in its drafting and, accordingly, no party shall attempt to invoke the normal rule of construction to the effect that ambiguities are to be resolved against the drafting party in any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.
POWER2SHIP, INC.,
a Nevada Corporation
By:______________________________________
Richard Hersh, Chief Executive Officer
EMPLOYEE
By: _____________________________________
Kevin Yates
EXHIBIT 10.37
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of September 15, 2006 by and between Power2Ship, Inc., a Nevada Corporation, its affiliates and assigns (the "Company"), and David S. Brooks (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee as its Chief Executive Officer and the Employee desires to be so employed; and
WHEREAS, Employee and the Company desire to set forth in writing all of their respective duties, rights and obligations with respect to the Employee's employment by the Company
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby agrees to employ the Employee,
and the Employee hereby accepts such continued employment by the
Company, in the capacity and upon the terms and conditions hereinafter
set forth. The term of employment under this Agreement shall be for the
period commencing as of September 15, 2006 (the "Commencement Date")
and ending on the second anniversary of the Commencement Date or
September 15, 2008) unless earlier terminated as herein provided (the
"Term of Employment"). Thereafter, this Agreement shall be renewed for
successive one (1) year terms unless previously terminated pursuant to
Section 5 herein or if either party elects to terminate his Agreement
by written notice to the other party at least ninety (90) days prior to
the expiration of the then-current Term of Employment. The last day of
the Employee's Term of Employment shall be referred to in this
Agreement as the "Date of Termination."
2. Duties. During the Term of Employment, the Employee shall serve as the Company's Chief Executive Officer and shall assume those responsibilities customarily associated with and incident to the position of Chief Executive Officer. The Employee shall serve the Company faithfully, conscientiously and to the best of the Employee's ability and shall promote the interests and reputation of the Company. Unless prevented by sickness or disability, the Employee shall devote all of his time, attention, knowledge, energy and skills, during normal working hours, and at such other times as the Employee's duties may reasonably require, to the duties of the Employee's employment. The principal place of employment of the Employee shall be the Company's
principal executive offices or at such other place(s) to be determined by the Company and Employee. The Employee acknowledges that in the course of his employment, Employee may be required, from time to time, to travel on behalf of the Company at the Company's expense. The Employee's principal work place shall be in Florida. The Company shall not prohibit Employee from additional opportunities in his free time as long as there is not a conflict of interest now or in the future with Power2Ship and its affiliates. Employee must receive prior permission in writing from the Board of Directors to execute additional opportunities.
3. Compensation and Benefits. As full and complete compensation for the Employee's execution and delivery of this Agreement and performance of any services hereunder, the Company shall pay, grant or provide the Employee with the following beginning upon the Commencement Date, though the Company may elect to defer salary until the date that the Company has received an additional aggregate funding of at least Three Million Dollars:
(a) Base Salary. When the Company is funded with at least Three Million Dollars, the Company shall pay the Employee a base salary (the "Base Salary") at an annual rate of no less than $150,000. Base salary shall be payable at such times and in accordance with the standard payroll practices of the Company, but in no event less than twice per month.
(b) Options. Effective on the Commencement Date, the Employee will be granted fully vested options to purchase 9,000,000 shares of common stock at a strike price of $0.025. These options will expire five years after their grant date.
(c) Employee Benefits. The Company shall afford the Employee the opportunity to participate during the Term of Employment in any medical, dental, disability and life insurance, retirement, savings and any other employee benefits plans or programs (including perquisites) which the Company maintains for its senior executives.
(d) Expenses. The Employee shall be entitled to reimbursement of all reasonable business expenses (in accordance with the Company's policies for its senior executives, as the same may be amended from time to time in the Company's sole discretion), within one week following the Employee's submission of an appropriate expense report and related receipts and/or vouchers to the Company.
(e) Vacations, Holidays or Temporary Leave. The Employee shall be entitled to take vacations in accordance with the Company's vacation policy for other senior executives. Such vacation(s) shall be taken at such time or times, and as a whole or in increments, as the Employee shall elect, consistent with the reasonable needs of the Company's business. The Employee shall further be entitled to the number of paid holidays and leaves for illness or temporary disability in accordance with the policies of the Company for its senior executives (as such
policies may be amended from time to time or terminated in the Company's sole discretion).
4. Restrictive Covenant; Protection of Confidential Information.
(a) The Employee recognizes and acknowledges that certain
confidential business and technical information used by the
Employee in connection with his duties hereunder including,
without limitation, certain confidential and proprietary
information relating to the design, development, construction
and marketing of Internet services, is a valuable, special and
unique asset of the Company, such information, subject to
Section 4(c) below, collectively being referred to as the
"Confidential Information". During and subsequent to the Term
of Employment, the Employee shall not (a) use Confidential
Information or any part thereof other than in connection with
his duties hereunder, (b) disclose such information to any
person, firm, corporation, association or other entity for any
purpose or reason unless directed to do so by the Board of
Directors. Notwithstanding the foregoing, the Employee is
being hired as an expert in the field of logistics and,
therefore, logistic practices are excluded from this
provision.
(b) During the Term of Employment and for all time thereafter, the Employee shall not, directly or indirectly, furnish or make accessible to any person, firm, corporation or other business entity, whether or not he competes with the business of the Company, any trade secret obtained by the Employee during his employment by the Company which relates to the business practices, methods, processes or other confidential or secret aspects of the business of the Company without the prior written consent from the Company (such information being referred to as the "Company Confidential Information").
(c) Confidential Information and Company Confidential Information shall not include any information or documents that (a) are, or become, publicly available without breach by the Employee of this Section 4, (b) the Employee receives from any third party who, to the best of the Employee's knowledge upon reasonable inquiry, is not in breach of an obligation of confidence with the Company, or (c) is required to be disclosed by law, statute, governmental or judicial proceeding; provided, however, that in the event that the Employee is requested by any governmental or judicial authority to disclose any Confidential Information, the Employee shall give the Company prompt notice of such request, such that the Company may seek a protective order or other appropriate relief, and in any such proceeding the Employee shall disclose only so much of the Confidential Information as is required to be disclosed.
(d) The Employee acknowledges that his services are of a special, unique and extraordinary character and, his position with the Company places him in a position of confidence and trust with the clients and employees of the Company, and in connection with his services to the Company, the Employee will have access to Confidential Information vital to the Company's business. The Employee further acknowledges that in view of
the nature of the business, in which the Company is engaged, the foregoing confidentiality provision is reasonable and necessary in order to protect the legitimate interests of the Company and that violation thereof would result in irreparable injury to the Company. Accordingly, the Employee consents and agrees that if the Employee violates or threatens to violate any of the provisions of Section 4 hereof, the Company would sustain irreparable harm and, therefore, the Company will be entitled to obtain from any court of competent jurisdiction, without posting any bond or other security, preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which the Company may be entitled.
5. Termination of Employment:
(a) The Employee's employment with the Company shall terminate upon the occurrence of any of the following events:
(i) The Scheduled Date of Termination;
(ii) The death of the Employee during the Term of Employment;
(iii) The Disability (as defined below) of Employee during the Term of Employment; or
(iv) Upon written notice to the Employee by the Company of
termination of his employment for Cause (as defined in
Section 5(c)).
(v) Resignation without good reason
(vi) Termination without cause (as defined below)
(b) For purposes of this Agreement, the "Disability" of the Employee shall mean his inability, because of mental or physical illness or incapacity, whether total or partial, to perform his full time duties under this Agreement with reasonable accommodation for a period aggregating 90 days out of any 12-month period under circumstances where, in the opinion of a qualified physician reasonably acceptable to the Company, it is reasonably certain that the Employee will not be able to resume his duties on a regular full time basis within 30 days of the date the Employee receives notice of termination for Disability.
(c) For purposes of this Agreement, the term "Cause" shall mean the Employee's i) conviction or entry of a plea of guilty or nolo contendere, with respect to any felony; (ii) commission of any act of willful misconduct, gross negligence, fraud or dishonesty that materially affects the Company as stated in
the Power2Ship Employee Handbook Code of Conduct; or (iii) violation of any material term of this Agreement or any material written policy of the Company, provided that the Company first deliver written notice thereof to the Employee and the Employee shall not have cured such violation within thirty (30) days after receipt of such written notice.
6. Payments upon Termination of Employment:
(a) Death or Disability: If the Employee's employment hereunder is terminated due to the Employee's death or disability pursuant to Sections 5(a)(ii)(iii), the Company shall pay or provide to the Employee, his designated beneficiary or his estate (i) all Base Salary pursuant to Section 3(a) hereof, any expenses pursuant to 3(c), any accrued vacation pursuant to Section 3(e) and any bonus pursuant to Section 3(f) hereof, in each case which has been earned but unpaid, or incurred but not reimbursed, as of the Date of Termination; and (ii) any benefits to which the Employee may be entitled under any employee benefits plan or program pursuant to Section 3(b) hereof in which he is a participant in accordance with the terms of such plan or program up to and including the Date of Termination. Should the Company wish to purchase insurance to cover the costs associated with the Employee's termination of employment pursuant to Sections 5(a) (i), (ii), (iii), the Employee agrees to execute any and all necessary documents necessary to effectuate said insurance.
(b) Termination for Cause, Resignation Without Good Reason, or
Expiration of Term of Employment: If the Employee's employment
hereunder is terminated due to the termination of the
Employee's employment by the Company for "Cause" pursuant to
Section 5(a)(iv) or due to the Employee's resignation Without
Good Reason pursuant, the Company shall pay or provide to the
Employee (i) all base salary pursuant to Section 3(a) hereof
and any vacation pay pursuant to Section 3(e) hereof, in each
case which has been earned but unpaid as of the Date of
Termination and (ii) any benefits to which the Employee may be
entitled under any employee benefits plan or program pursuant
to Section 3(b) hereof in which he is a participant in
accordance with the terms of such plan or program up to and
including the Date of Termination.
(c) Termination Without Cause: If the Employee's employment hereunder is terminated due to the termination of the Employee's employment by the Company Without Cause the Employee shall be entitled to all compensation for the term of the Contract to be paid in a lump sum payment within ten (10) days of termination.
(d) No Other Payments. Employee shall not be entitled to receive any other payments or benefits from the Company due to the termination of his employment, including but not limited to, any employee benefits under any of the Company's employee benefits plans or programs (other than at the Employee's expense under the Consolidated Omnibus Budget Reconciliation Act of 1985 or pursuant to the terms of any pension plan which
the Company may have in effect from time to time). Upon termination, all unvested options provided to Employee shall be deemed null and void unless under the circumstances defined in Section 5(a) (vi) or 5(d) (iii). Unvested options shall not vest after Employee's receipt of a notice of termination pursuant to Section 5(a)(iv) hereof provided, however, if such notice was provided pursuant to Section 5(c)(iii) hereof and Employee cures such breach within the applicable time period, Employee's options may vest subsequent thereto.
7. No Conflicting Agreements; Indemnification:
(a) The Employee hereby represents and warrants that he is not a party to any agreement, or non-competition or other covenant or restriction contained in any agreement, commitment, arrangement or understanding (whether oral or written), which would in any way conflict with or limit his ability to commence work on the first day of the Term of Employment or would otherwise limit his ability to perform all responsibilities in accordance with the terms and subject to the conditions of this Agreement.
(b) The Employee agrees that the compensation provided for in
Section 3 represents the minimum compensation to be paid to
Employee in respect of the services performed or to be
performed for the Company by Employee.
8. Deductions and Withholding. The Employee agrees that the Company shall withhold from any and all compensation required to be paid to the Employee pursuant to this Agreement all federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect and all amounts required to be deducted in respect of the Employee's coverage under applicable employee benefit plans.
9. Entire Agreement. This Agreement embodies the entire agreement of the parties with respect to the Employee's employment and supersedes any other prior oral or written agreements between the Employee and the Company, including but not limited to, the Original Employment Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto.
10. Waiver. The waiver by the Company or a breach of any provision of this Agreement by the Employee shall not operate or be construed as a waiver of any subsequent breach by the Employee. The waiver by the Employee of a breach of any provision of this Agreement by the Company shall not operate or be construed as a waiver of any subsequent breach by the Company.
11. Governing Law. This Agreement shall be subject to, and governed by, the laws of the State of Florida applicable to contracts made and to be performed in the State of Florida, regardless of where the Employee is in fact required to work. Arbitration clause would be appropriate
12. Jurisdiction. Any legal suit, action or proceeding against any party hereto arising out of or relating to this Agreement shall be instituted in a federal or state court in the State of Florida, and each party hereto waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding and each party hereto irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding.
13. Assignability. The obligations of the Employee may not be delegated and, except as expressly provided in Section 5 relating to the designation of beneficiaries, the Employee may not, without the Company's written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest therein. Any such attempted delegation or disposition shall be null and void and without effect. The Company and the Employee agree that this Agreement and all of the Company's rights and obligations hereunder may be assigned or transferred by the Company to, and may be assumed by, may become binding upon, and may inure to the benefit of, any successor to the Company. The term "successor" shall mean, with respect to the Company, any other corporation or other entity that by merger, consolidation or purchase, acquires all or a material part of the assets of the Company. Any assignment by the Company of its rights and obligations hereunder to any successor shall not be considered a termination of employment for purposes of this Agreement.
14. Severability. If any provision of this Agreement as applied to either party or to any circumstances shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall in no way affect any other provision of this Agreement or the validity or enforceability of this Agreement.
15. Notices. All notices to the Employee hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt
David Brooks 7 Thackeray Place Durham, NC 27707
16. All notices to the Company hereunder shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to:
Power2Ship, Inc. 903 Clint Moore Rd.
Boca Raton, FL 33487
Either party may change the address to which notices shall be sent by sending written notice of such change of address to the other party.
17. Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument.
19. Attorneys' Fees. In the event that either party hereto commences litigation against the other to enforce such party's rights hereunder, the prevailing party shall be entitled to recover all costs, expenses and fees, including reasonable attorneys' fees.
20. Neutral Construction. Each party to this Agreement was represented by counsel, or had the opportunity to consult with counsel. No party may rely on any drafts of this Agreement in any interpretation of the Agreement. Each party to this Agreement has reviewed this Agreement and has participated in its drafting and, accordingly, no party shall attempt to invoke the normal rule of construction to the effect that ambiguities are to be resolved against the drafting party in any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.
POWER2SHIP, INC.,
a Nevada Corporation
By:______________________________________
Richard Hersh, Chief Executive Officer
EMPLOYEE
By: _____________________________________
David S. Brooks
EXHIBIT 10.38
August 11, 2006
Mr. David Brooks & Mr. Kevin Yates
Dear David and Kevin,
This letter sets forth an agreement (the "Agreement") between Power2Ship, Inc., its affiliates and assigns (the "Company") and Kevin Yates / David Brooks related to your providing various consulting services ("Consulting Services") to the Company. The term of this Agreement shall be twelve (12) months commencing on August, 1, 2006 with an option to be extended for six (6) months. This Agreement shall be binding upon both the Company and yourselves.
Pursuant to the Agreement, you shall provide business advisory services to the Company, including but not limited to: strategic evaluation, planning and advice; fund-raising support; sales and marketing support; contract negotiation; and business development. You may provide the aforementioned services from any location and in any form (i.e., oral, written, electronic, etc.) that you deem appropriate. Additionally, all reasonable business expenses shall be reimbursed in accordance with established Company policy.
In consideration for providing the Consulting Services, the Company shall pay each of you an annual fee of $100,000, Upon the Company's receipt of $500,000 the Company will pay each of you a $10,000 portion of the annual fee. Upon the receipt of an additional $2,000,000 the Company will pay each of you an additional $40,000 portion of the annual fee and the remaining $50,000 of the annual fee will be paid in equal monthly installments through August 15, 2007. In the event you agree to become an executive of the Company, the balance of your annual fee will be paid upon the execution of your employment agreement
All terms of this agreement are contingent upon the successful completion of funding of Power2Ship.
Power2Ship, Inc.
/s/ Richard Hersh /s/ David Brooks
------------- ------------
Richard Hersh David Brooks
Chairman & CEO
/s/ Kevin Yates
-----------
Kevin Yates
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EXHIBIT 10.39
Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07302
September 8, 2006
Power2Ship, Inc.
903 Clint Moore Road
Boca Raton, Florida 33487
Attention: David Brooks
Re: Power2Ship, Inc. (the "Company") 14.25% Secured Convertible Debenture due December 2006 (the "December Debenture") held by Cornell Capital Partners, LP ("Cornell"); 5% Secured Convertible Debenture due June 2006 (the "June Debenture") held by Montgomery Equity Partners, Ltd. ("Montgomery"); and 5% Secured Convertible Debenture due September 2006 (the "September Debenture" and together with the December Debenture and June Debenture, the "Debentures") held by Montgomery.
Dear Mr. Brooks:
This will confirm our understanding regarding the amendment of the Debentures.
1. The Company shall make a payment of $100,000 to Cornell, via wire transfer, on the date of this letter, to be allocated by Cornell and Montgomery to the balance due on the June Debenture, September Debenture, and December Debenture at the sold discretion of Cornell and Montgomery. This payment shall be applied to interest and/or principal in accordance with the terms of the Debenture to which the payment is applied.
2. In the event that the Company makes the full payment set forth in paragraph 1, Cornell and Montgomery agree not to exercise their rights of conversion under the Debentures until November 1, 2006.
3. The Company shall make a payment of $100,000 to Cornell, via wire transfer, on November 1, 2006, to be allocated by Cornell and Montgomery to the balance due on the June Debenture, September Debenture, and December Debenture at the sole discretion of Cornell and Montgomery. This payment shall be applied to interest and/or principal in accordance with the terms of the Debenture to which the payment is applied.
4. In the event that the Company makes the full payment set forth in paragraph 3, Cornell and Montgomery agree not to exercise their rights of conversion under the Debentures until January 1, 2007.
5. The terms of conversion provided to Cornell pursuant to the December Debenture shall be amended as of the date of this agreement, to be identical with those set forth in Section 1.02 of the June Debenture. Accordingly, principal amounts due
Power2Ship, Inc.
September 8, 2006
under the December Debenture shall be convertible into Company common stock of (a) one hundred twenty percent (120%) of the closing bid price on June 28, 2004, or (b) 100% of the average of the three lowest closing bid prices, as quoted by Bloomberg for the thirty (30) trading days immediately preceding the Conversion Date (as defined in the June Debenture), as more fully specified and described in the June Debenture.
6. If the payments set forth in paragraphs 1 and 3 are not made on the specified dates, Cornell and Montgomery shall have the right to make conversions pursuant to the terms of the Debentures, as modified by paragraph 5.
7. As modified herein, the Debentures shall remain in full force and effect, and all sums owed thereunder shall remain due and payable.
If the foregoing accurately reflects our understanding regarding this matter, please indicate your agreement and acceptance by signing in the space provided below and returning an executed copy of this letter to us.
Sincerely,
AGREED AND ACCEPTED:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC POWER2SHIP, INC.
Its General Partner
By: /s/ David Brooks
-----------------
By:/s/ Mark A. Angelo David Brooks
--------------------------------- Authorized Person
Mark A. Angelo
Portfolio Manager
MONTGOMERY EQUITY PARTNERS, LTD.
By: Yorkville Advisors, LLC
Its: General Partner
By:/s/ Mark A. Angelo
---------------------------------
Mark A. Angelo
Portfolio Manager
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent registered public accounting firm, we hereby consent to the incorporation by reference in the registration statement on Form S-8, as amended, SEC file number 333-62240, as originally filed on June 4, 2001 of our report dated October 11, 2006 included in Power2Ship, Inc.'s Form 10-KSB for the year ended June 30, 2006, and to all references to our Firm included in that registration statement.
SHERB & CO, LLP
New York, New York,
October 13, 2006
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, David S. Brooks, certify that:
1. I have reviewed this Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006 of Power2Ship, Inc.;
2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this Annual Report;
4. The small business issuer's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f) for the small business issuer and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
(b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and to the audit committee of small business issuer's board of directors (or persons performing the equivalent function):
(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: October 13, 2006 By: /s/ David S. Brooks
-------------------
Name: David S. Brooks
Title: Chief Executive Officer and principal
executive officer
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Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, David S. Brooks, certify that:
1. I have reviewed this Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006 of Power2Ship, Inc.;
2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this Annual Report;
4. The small business issuer's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f) for the small business issuer and have:
(d) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
(e) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and
(f) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and to the audit committee of small business issuer's board of directors (or persons performing the equivalent function):
(c) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(d) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: October 13, 2006 By: /s/ David S. Brooks
-------------------
Name: David S. Brooks
Title: Chief Executive Officer and Principal
financial and accounting officer
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, David S. Brooks, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Power2Ship, Inc. on Form 10-KSB for the year ended June 30, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in such Annual Report on Form 10-KSB fairly presents in all material respects the financial condition and results of operations of Power2Ship, Inc.
POWER2SHIP, INC.
Dated: October 13, 2006 By: /s/ David S. Brooks
-------------------
Name: David S. Brooks
Title: Chief Executive Officer,
principal executive officer and
principal financial and accounting
officer
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