The
directors and executive officers of the Company are as follows:
|
Name
|
Age
|
Position
|
|
Preston J.
Shea
|
58
|
Director, President,
Secretary,
Chief
Financial Officer
|
|
|
|
|
Preston
J. Shea, President, Secretary, and Director is licensed as an attorney in the
State of Arizona and as a Barrister and Solicitor by the Law Society of Upper
Canada in Ontario. From 1999 to present, he has been vice president and general
counsel for an international business organization with offices in Canada and
the United States and representative offices in Russian, China, Austria and
Mexico. From 1990 to 1999, he practiced international immigration law and
business law in Ontario, Canada, Detroit, Michigan and Phoenix, Arizona, with
an
emphasis on the North American Free Trade Agreement. Prior to that, from 1986
to
1990, he was employed by the government of Canada in various positions including
Chief of Staff for the Federal Minister of the Environment, Special Assistant
to
the Federal Minister of International Trade, and as a Senior Investment Advisor
in the Los Angeles offices of the Canadian Consulate. Prior to his tenure with
the Canadian government, he was actively engaged in various legal and business
positions in the private sector.
Directors
serve until the next annual meeting or until their successors are qualified
and
elected. Officers serve at the discretion of the Board of Directors.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
Certificate of Incorporation and Bylaws of the Company provide that the Company
will indemnify and advance expenses, to the fullest extent permitted by the
Delaware General Corporation Law, to each person who is or was a director,
officer or agent of the Company, or who serves or served any other enterprise
or
organization at the request of the Company (an "Indemnitee"). Under Delaware
law, to the extent that an Indemnitee is successful on the merits of a suit
or
proceeding brought against him or her by reason of the fact that he or she
was a
director, officer or agent of the Company, or serves or served any other
enterprise or organization at the request of the Company, the Company will
indemnify him or her against expenses (including attorneys' fees) actually
and
reasonably incurred in connection with such action. If unsuccessful in defense
of a third-party civil suit or a criminal suit, or if such a suit is settled,
an
Indemnitee may be indemnified under Delaware law against both (i) expenses,
including attorneys' fees, and (ii) judgments, fines and amounts paid in
settlement if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action, had no reasonable cause to believe his
other conduct was unlawful. If unsuccessful in defense of a suit brought by
or
in the right of the Company, where the suit is settled, an Indemnitee may be
indemnified under Delaware law only against expenses (including attorneys'
fees)
actually and reasonably incurred in the defense or settlement of the suit if
he
or she acted in good faith and in a manner he or she reasonably believed to
be
in, or not opposed to, the best interests of the Company except that if the
Indemnitee is adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the Company, he or she cannot be made whole
even for expenses unless a court determines that he or she is fully and
reasonably entitled to indemnification for such expenses. Also under Delaware
law, expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of
the
final disposition of
the
suit,
action or proceeding upon receipt of an undertaking by or on behalf of the
officer or director to repay such amount if it is ultimately determined that
he
or she is not entitled to be indemnified by the Company. The Company may also
advance expenses incurred by other employees and agents of the Company upon
such
terms and conditions, if any, that the Board of Directors of the Company deems
appropriate. Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Section
16(a) of the Securities Exchange Act of 1934 requires executive officers and
directors, and persons who beneficially own more than 10% of any class of the
Registrant’s equity securities (“Reporting Persons”) to file initial reports of
ownership and reports of changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (“SEC”). Executive officers, directors and
beneficial owners of more than 10% of any class of the Registrant’s equity
securities are required by SEC regulations to furnish the Registrant with copies
of all Section 16(a) forms they file.
Based
solely on a review of the copies of such forms furnished to the Registrant
during or with respect to fiscal 2005, and certain written representations
from
executive officers and directors, the Registrant is aware that the Directors
have inadvertently
failed
to
file a Form 3 at the time of their respective election to the Board. Except
as
stated in the preceding sentence, the Company believes that all Reporting
Persons have complied on a timely basis with all filing requirements applicable
to them.
CODE
OF ETHICS
The
Company maintains a Code of Ethics that was filed AS Exhibit 14 with its Annual
Report on Form 10-KSB for 2004 filed on November 15, 2004. That code applies
to
the chief executive, financial and accounting officers, controller and persons
performing similar functions. If the Company amends the code or grants a waive
from the code with respect to the foregoing persons, it will post that amendment
or waiver on its website.
AUDIT
COMMITTEE
The
Company’s Audit Committee consists of Messrs. Pinckard and Shea. Neither of
those members has been designated by the Board or the Audit Committee as an
“audit committee financial expert.” The Board is seeking to fill a board seat
with a member that would fulfill that qualification.
The
following table sets forth the total compensation earned by or paid to the
Company's Chief Executive Officer for the last three fiscal years. No officer
of
the Company earned more than $100,000 in the last three fiscal years.
SUMMARY
COMPENSATION TABLE
|
Name
and Principal Position
|
Annual
Compensation
|
Long
Term Compensation
|
All
Other Compensa-tion($)
|
|
Awards
|
Payouts
|
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compensation ($)
|
Restricted
Stock Award(s)
($)
|
Securities
Underlying Options/
SARs
(#)
|
LTIP
Payouts
($)
|
|
Preston
J. Shea President, Secretary
CFO
(1)
|
2006
2005
|
-0-
-0-
|
-0-
-0-
|
-0-
-0-
|
$
$5,000
|
-0-
-0-
|
-0-
-0-
|
$0
$0
|
(1)
Effective September 08, 2003.
EMPLOYMENT
AND RELATED AGREEMENTS
The
Company has no employment agreements with any of its current management.
The
following table sets forth certain information, as of June 30, 2006, concerning
shares of the Company’s common stock, the only class of securities that are
issued and outstanding, held by (1) each stockholder known to own beneficially
more than five percent of the common stock as of June 30, 2006 with the number
of outstanding shares at 2,778,775, (2) each of the directors, (3) each of
the
executive officers, and (4) all of the directors and executive officers as
a
group:
|
Name
|
|
Percentage
Beneficially
Number
of Shares
|
|
Owned(1)
|
|
|
Kenneth
R. Pinckard (Director)
3104
E. Camelback Rd., #245
Phoenix,
AZ 85016
|
|
0
|
|
0
|
%
|
|
Barry
M. Goldwater, Jr.(Director)
3104
E. Camelback Rd., #274
Phoenix,
AZ 85016
|
|
|
0
|
|
|
0
|
%
|
|
Barry
M. Goldwater, Jr.(Director)
3104
E. Camelback Rd., #274
Phoenix,
AZ 85016
|
|
|
|
|
|
|
|
|
1636
Los Alamos circle
Mesa,
AZ 85204
|
|
|
185,000
|
|
|
6.66
|
%
|
|
Sundance
Financial
Corp.
13470
N. 865
th
Place
Scottsdale,
AZ 85260
|
|
|
185,000
|
|
|
6.66
|
%
|
|
Digital
Crossing, LLC
10835
N. Tatum Blvd., #9-170
Phoenix,
AZ 85032
|
|
|
200,000
|
|
|
7.20
|
%
|
|
Perry
D. & Rose Logan
420
Saint Andrews Court
Las
Vegas, NV 89144
|
|
|
1,236,438
|
|
|
44.50
|
%
|
_________________
(1)
Except as otherwise indicated, we believe that the beneficial owners of Common
Stock listed above, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable. Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or investment power
with
respect to securities. Shares of Common Stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed outstanding
for
purposes of computing the percentage of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage of any other person.
1996
EQUITY INCENTIVE PLAN
On
June
12, 1996, the Company adopted the 1996 Equity Incentive Plan (the "1996 Plan")
reserving 10,000,000 shares of the Company's Common Stock pursuant to which
employees, consultants and other persons or entities who are in a position
to
make a significant contribution to the success of the Company are eligible
to
receive awards in the form of incentive or non-incentive options, stock
appreciation rights, restricted stock or deferred stock. The 1996 Plan
terminates on June 12, 2006. The 1996 Plan is administered by the Board of
Directors. Restricted stock entitles the recipients to receive shares of the
Company's Common Stock subject to such restriction and condition as the
Compensation Committee may determine for no consideration or such considerations
as determined by the Compensation Committee. Deferred stock entitles the
recipients to receive shares of the Company's Common Stock in the future. As
of
the date hereof, 5,002,978 shares of common stock have been issued pursuant
to
the 1996 Plan.
1999
STOCK OPTION PLAN
On
November 15, 1999, the Board of Directors adopted the 1999 Stock Option Plan
(the "1999 Plan"). This plan was approved by a majority of our stockholders
on
January 28, 2000. The purpose of the 1999 Plan is to advance the interests
of
the Company by encouraging and enabling acquisition of a financial interest
in
the Company by its officers and other key individuals. The 1999 Plan is intended
to aid the Company in attracting and retaining key employees, to stimulate
the
efforts of such individuals and to strengthen their desire to remain with the
Company. A maximum of 1,500,000 shares of the Company's common stock is reserved
for issuance under stock options to be issued under the 1999 Plan. The option
exercise price will be 100% of the fair market value of the Company's common
stock on the date the option is granted and will be exercisable for a period
not
to exceed 10 years from the date of grant. As of the date hereof, no options
have been issued pursuant to this plan.
2004
STOCK INCENTIVE PLAN
On
February 28, 2004, the Board of Directors adopted the 2004 Stock Incentive
Plan
(the "2004 Plan"). The purpose of the 2004 Plan is to advance the
interests of the Company by encouraging and enabling acquisition of a financial
interest in the Company by its officers and other key individuals. The 2004
Plan
is intended to aid the Company in attracting and retaining key employees, to
stimulate the efforts of such individuals and to strengthen their desire to
remain with the Company. A maximum of 100,000 shares of the Company's common
stock is reserved for issuance under stock options to be issued under the 2004
Plan.
On
May
24, 2004, the Company filed a Registration on Form S-8 with the Securities
Exchange Commission covering the 100,000 shares provided by this plan, at a
maximum offering price of $1.00 per share. As of June 30, 2006, the Company
has
issued 94,000 shares covered by the 2004 Plan.
On
October 2, 2001, the Company entered into a Secured Note in the original
principal amount of $180,000 with interest accruing at 12% per annum with
Suntine Enterprises, LLC. Larry Kohler, who was not then, but later became
Chief
Financial Officer and a Director of the Company, is the manager of Suntine
Enterprises, LLC. The note, including payment of principal and all interest,
was
due on October 2, 2004 and is secured by all assets of the Company. In mid-2002,
the Company failed to make its payments due on its premises lease and the
landlord of the premises, locked the doors. Some of the Company's equipment
was
repossessed by the lessors and the remainder of the Company's equipment and
other tangible assets were disposed of by the landlord. Due to the loss of
the
Company's tangible assets, and it current financial condition, this note is
now
in default.
The
following Exhibits are incorporated by reference:
3.1(a)
Articles of Incorporation, dated May 12, 1988
3.2(a)
Bylaws
4.1(a)
Certificate of Designation of Series A
Convertible Preferred Stock, dated December 12, 1992
4.2(a)
Certificate of Designation of Series B
Convertible Preferred Stock, dated December 22, 1993
4.3(a)
Certificate of Designation of Series P
Convertible Preferred Stock, dated September 11, 1995
4.4(a)
Certificate of Designation of Series S
Convertible Preferred Stock, dated August 28, 1995
4.5(a)
Certificate of Designation of Series C
Convertible Preferred Stock, dated November 2, 1995
4.6(a)
Certificate of Designation of Series D and Series
E Convertible Preferred Stock dated August 25, 1999
4.8(a)
Form of Warrant Agreement to debt holders, dated April 8, 1998
4.9(a)
Form of Warrant Agreement to participants in Private Placement
dated April 8, 1998
4.10(b)
Pledge Agreement dated January 11, 2001 with Dale Riker and Russ Ritchie
4.11(b)
Investment Agreement dated December 13, 2000, with Swartz Private Equity, LLC
4.12(b)
Merrill Lynch Portfolio Reserve Loan and Collateral Account Agreement, dated
January 12, 2002
10.1(a)
1996 Equity Incentive Plan
10.2(a)
1999 Stock Option Plan
10.3(c)
Employment Agreement dated January 1, 2001, with John D. McPhilimy
10.4(c)
Employment Agreement dated July 1, 2001, with Bruce D. Sandig
10.5(d)
Settlement Agreement and Release dated April 30, 2003, between the Company
and
Russell H. Ritchie, Dale E. Riker, Suntine Enterprises, LLC, and Cornerstone
Wireless Communications, LLC.
14(e)
Dimensional Visions, Inc. Code of Ethics, attached as Exhibit to Form 10-KSB
for
FYE 6-30-04
21.1(b)
Subsidiaries of the Registrant
The
following Exhibits are filed herewith:
3.1
Certificate
of
Amendment of Articles of Incorporation of Dimensional Visions Incorporated
dated
January 16, 2006
3.2
Certificate
of
Amendment of Articles of Incorporation of Elevation Media, Inc., dated March
24,
2006
3.3
Certificate
of Amendment of Certificate of Incorporation of Dimensional Visions Incorporated
dated January 22, 2004
23.1
Consent
of Moore & Associates, Chartered
31.1
Certification
of Chief Executive Officer and of Chief Financial Officer pursuant to the
Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification
of Chief Executive Officer and of Chief Financial Officer pursuant to the
Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002.
The
following is a summary of the aggregate fees billed to Registrant by its
principal accountant(s) for professional services rendered for the fiscal years
ended June 30, 2005 and 2004.
|
Fee
Category
|
|
Fiscal
2006 Fees
|
|
Fiscal
2005 Fees
|
|
|
Audit
Fees (1)
|
|
|
18,000
|
|
|
11,000
|
|
|
Audit-Related
Fees
(2)
|
|
|
0
|
|
|
0
|
|
|
Tax
Fees
(3)
|
|
|
0
|
|
|
0
|
|
|
All
Other Fees (4)
|
|
|
0
|
|
|
0
|
|
|
Total
Fees
|
|
|
18,000
|
|
|
11,000
|
|
1.
Audit
Fees. Consists of fees billed for professional services rendered for the audits
of Registrant's financial statements for the fiscal years ended June 30, 2006
and 2005, and for review of the financial statements included in Registrant's
Quarterly Reports on Form 10-QSB for those fiscal years.
2.
Audit-Related Fees. Consists of fees billed for services rendered to Registrant
for audit-related services, which generally include fees for audit and review
services in connection with a proposed spin-off transaction, separate audits
of
employee benefit and pension plans, and ad hoc fees for consultation on
financial accounting and reporting standards.
3.
Tax
Fees. Consists of fees billed for services rendered to Registrant for tax
services, which generally include fees for corporate tax planning, consultation
and compliance.
4.
All
Other Fees. Consists of fees billed for all other services rendered to
Registrant, which generally include fees for consultation regarding computer
system controls and human capital consultations. No services were performed
related to financial information systems design and implementation for the
fiscal years ended June 30, 2006 and 2005.
None
of
the "audit-related," "tax" and "all other" services in 2006, as defined above,
were approved by the Audit Committee in reliance on the de minimus exception
to
the preapproval requirements under federal securities laws and regulations.
Pre-Approval
of Services of Principal Accounting Firm
The
Audit
Committee's written policy is to pre-approve all audit and permissible non-audit
services provided by Registrant's principal accounting firm (independent
auditor). These services may include audit services, audit-related services,
tax
services and other permissible non-audit services. Any service incorporated
within the independent auditor's engagement letter, which is approved by the
Audit Committee, is deemed pre-approved. Any service identified as to type
and
estimated fee in the independent auditor's written annual service plan, which
is
approved by the Audit Committee, is deemed pre-approved up to the dollar amount
provided in such annual service plan.
During
the year, the principal accounting firm may also provide additional accounting
research and consultation services required by, and incident to, the audit
of
Registrant's financial statements and related reporting compliance. These
additional audit-related services are pre-approved up to the amount approved
in
the annual service plan approved by the Audit Committee. The Audit Committee
may
also pre-approve services on a case-by-case basis during the year.
The
Audit
Committee's approval of proposed services and fees are noted in the meeting
minutes of the Audit Committee and/or by signature of the Audit Committee on
the
engagement letter. The principal accounting firm of Registrant and management
are periodically requested to summarize the principal accounting firm services
and fees paid to date, and management is required to report whether the
principal accounting firm's services and fees have been pre-approved in
accordance with the required pre-approval process of the Audit Committee.
Non-Audit
Services
The
Audit
Committee of the Board of Directors has considered whether the provision of
non-audit services by the Registrant's principal accountants is compatible
with
maintaining auditor independence.
NOTES
TO FINANCIAL STATEMENTS
YEARS
ENDED JUNE 30, 2006 AND 2005
Note
1: Summary of Significant Accounting Policies
DESCRIPTION
OF BUSINESS, FINANCING AND BASIS OF FINANCIAL STATEMENT
PRESENTATION
Studio
One Media, Inc., (the “Company” or “SOMD”) was originally organized in Delaware
on May 12, 1988, as Dimensional Visions Group, Ltd. The name was changed on
January 15, 1998 to Dimensional Visions Incorporated. On February 8, 2006,
it
changed its name to Elevation Media, Inc., and on March 28, 2006 the Company’s
name was changed to Studio One Media, Inc., as part of its overall plan to
implement its revised business plan.
Historically,
the Company produced and marketed lithographically printed stereoscopic and
animation print products. The Company, through its wholly owned subsidiary,
InfoPak, Inc., developed a data delivery system that provides end users with
specific industry printed materials by way of a portable hand-held reader.
Data
is acquired electronically from the data provided by mainframe systems and
distributed through a computer network to all subscribers. InfoPak has ceased
to
operate and its corporate charter has been administratively
terminated.
The
Company has historically financed its operations primarily through the sale
of
its securities. The Company has had no sales during the years ended June 30,
2006, 2005, 2004 and 2003. The volume of business is not sufficient to support
the Company's cost structure. Accordingly during April 2002 the Company ceased
its present operations.
Effective
May 6, 2004, the Company's stockholders approved a one for sixty Reverse Split
of its common stock ("The Reverse Split"). The effect of the Reverse Split
has
been retroactively reflected as of July 1, 2002 in the financial statements.
All
references to number of shares issued, conversions to common stock, per share
amounts and stock option data have been restated to reflect the effect of the
Reverse Split for the period presented.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company has incurred losses since inception of $24,845,373 and has a working
capital deficiency of $496,620 as of June 30, 2006. The future of the Company
as
an operating business will depend on its ability to (1) obtain sufficient
capital contributions and/or financing as may be required to sustain its
operations and (2) ultimately achieve a sale, merger, or other business
combination with another entity acceptable to the board of directors.
Management's plan to address these issues includes, (a) continued exercise
of
tight cost controls to conserve cash, (b) obtaining financing, a sale, merger,
or other business combination with another entity, and (c) negotiating a
settlement of various obligations in order to position the company for a sale,
merger, or business combination.
The
financial statements have been prepared on a going concern basis, which
contemplates the realization and settlement of liabilities and commitments
in
the normal course of business. The available funds at June 30, 2006, are not
sufficient to satisfy the present cost structure. Management recognizes that
the
Company must obtain additional funding to enable it to continue operations.
Unless the Company is able to merge with or acquire another operating entity
or
other business combination it may not be able to continue as a going
concern.
Further,
there can be no assurances, that the Company will achieve a sale, merger, or
other business combination with another entity. In the event the Company is
not
able to accomplish a sale, merger, or other business combination with another
entity, it may cease its operations and/or seek protection under the bankruptcy
laws.
INCOME
TAXES
The
Company accounts for income taxes under the liability method. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to
reverse.
LOSS
PER SHARE
Basic
and
diluted loss per common share is calculated using the weighted average number
of
common shares outstanding during the period. There are no dilutive effects
from
outstanding options, warrants and convertible securities on the weighted average
number of common shares outstanding.
F-7
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements
and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
STOCK-BASED
COMPENSATION
The
Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25") and has adopted the disclosure-only
alternative of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123").
Note
2: Accounts Payable, Accrued Expenses
On
January 29, 2002, the investor group as the guarantor on the secured line of
credit with Merrill Lynch paid off this obligation, after the loan was declared
in default. The Company continues to accrue interest under this
obligation.
The
outstanding debt may also be converted by the individual stockholders at a
rate
of one half a share of the Company's common stock for every dollar
assumed.
During
July and August of 2001 the Company borrowed $45,000 and issued a 14%
convertible debenture for $25,000 due in October 2001 and issued a 12%
convertible debenture for $20,000 due in February 2002. Both debentures are
in
default under the terms of the debenture agreement. The Company continues to
accrue interest on these obligations. The debentures are convertible into 6,000
shares of the Company's common stock at $7.50 per share after given effect
for
the 1 to 60 share reverse split.
During
September and October 2001 the Company borrowed $180,000 from a limited
liability company and signed a 12% secured note that pledged the assets of
the
Company as collateral for the loan. The note was originally due on October
2,
2004 along with all unpaid accrued interest. Under the terms of the secured
note
the obligation was declared in default as a result of its insolvency. The
Company continues to accrue interest under this obligation.
During
January 2002 the company borrowed $8,267 from an individual and no repayment
terms have been established at this time.
A
summary
of Accounts and Accrued Expenses Follows
|
|
|
|
6-30-06
|
|
|
6-30-05
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$
|
45,253
|
|
$
|
414,910
|
|
|
Accrued
Interest
|
|
|
306,805
|
|
|
256,077
|
|
|
Salaries
|
|
|
0
|
|
|
16,072
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
352,058
|
|
$
|
687,059
|
|
Note
3: Short-Term Borrowings
On
April
30, 2003, the Company entered into a settlement agreement and release with
"the
debt holder group," which includes the investor group representing $399,253
of
short term debt, the limited liability company of $180,000 of short term debt
and an entity owned by the investor group which made disbursements of
approximately $ 53,208 for the benefit of the Company through June 30,2004,
which is included in accounts payable. The agreement calls for all of debt
holder group liabilities to be paid in full by issuing $50,000 in post
reorganization unrestricted Company Common Stock and issuing $200,000 in post
reorganization restricted Company Common Stock. The agreement requires the
Company's common stock to be issued within 10 days of the completion of the
reorganization of the Company. At the time the stock is issued, interest accrued
on the motes will be cancelled. The debt holder group is permitted to liquidate
up to $10,000 worth of the unrestricted common stock each month for five months
commencing 10 days after receipt of the Company's Common Stock. The debt holder
group may receive additional unrestricted stock if the Company's stock falls
below $50,000 upon liquidation and additional shares of restricted stock if
the
price of the restricted shares fall below $200,000 one year after first receipt.
As of September 2006, no plan of reorganization has been entered
into.
A
summary
of Short Term Borrowings Follows:
|
|
|
|
Rates
|
|
|
2006
|
|
|
2005
|
|
|
Investors
Group
|
|
|
10
|
%
|
$
|
399,253
|
|
$
|
399,253
|
|
|
Convertible
Debentures
|
|
|
12-14
|
%
|
|
45,000
|
|
|
45,000
|
|
|
Secured
Note
|
|
|
12
|
%
|
|
180,000
|
|
|
180,000
|
|
|
Individual
|
|
|
|
|
|
8,267
|
|
|
8,267
|
|
|
|
|
|
|
|
$
|
632,520
|
|
$
|
632,520
|
|
Note
4: Commitments and Contingencies
There
are
no legal proceedings, which the Company believes will have a material adverse
effect on its financial position.
The
Company has not declared dividends on Series A or B Convertible Preferred Stock.
The cumulative dividends in arrears through June 30, 2006 was approximately
$137,525.
The
Company leases certain office facilities pursuant to a one-year lease that
commenced February 2006. The lease expense is $6,400 per month.
Note
5: Common Stock
As
of
June 30, 2006, there are outstanding 78,683 non-public warrants and options
to
purchase the Company's common stock at prices ranging from $7.50 to $9.00 with
a
weighted average price of $7.88 per share.
As
of
June 30, 2006, there were 524,044 shares of various classes of Convertible
Preferred Stock outstanding, which can be converted to 14,814 shares of common
stock (see Note 6).
As
of
June 30, 2006, there are convertible debentures outstanding that can be
converted to 6,000 shares of common Stock (see note 3) and the investor group
can also convert the outstanding loan to 19,963 shares of common stock at an
exchange rate of three shares for every dollar.
During
the year ended June 30, 2006, the Company issued 478,571 shares for $199,000
in
cash, 839,227 shares valued at $314,113 in purchase of three promissory notes,
50,000 shares valued at $94,000 in purchase of 50,000 shares of stock in an
entity with which it has a contract, and 300,000 Shares of the Company's common
stock for consulting services rendered to the Company and valued a
$332,500.
The
total
number of shares of the Company's common stock that would have been issued
upon
conversion of the outstanding warrants, options, preferred stock and loans
converted equaled 119,460 shares as of June 30, 2006, and would be in addition
to the 2,778,785 shares of common stock outstanding as of June 30,
2006.
Note
6: Preferred Stock
The
Company has authorized 10,000,000 shares of $.001 par value per share Preferred
Stock, of which the following were issued outstanding:
|
|
|
|
Allocated
|
|
|
Outstanding
|
|
|
Series
A Preferred
|
|
|
100,000
|
|
|
15,500
|
|
|
Series
B Preferred
|
|
|
200,000
|
|
|
3,500
|
|
|
Series
C Preferred
|
|
|
1,000,000
|
|
|
13,404
|
|
|
Series
D Preferred
|
|
|
375,000
|
|
|
130,000
|
|
|
Series
E Preferred
|
|
|
375,000
|
|
|
275,000
|
|
|
Series
P Preferred
|
|
|
600,000
|
|
|
86,640
|
|
|
Total
Preferred Stock
|
|
|
2,650,000
|
|
|
524,044
|
|
The
Company's Series A Convertible 5% Preferred Stock ("Series A Preferred"),
100,000 shares authorized, is convertible into common stock at the rate of
.027
share of common stock for each share of the Series A Preferred. Dividends from
date of issue, are payable from retained earnings, and have been accumulated
on
June 30 each year, but have not been declared or paid (see Note 4).
The
Company's Series B Convertible 8% Preferred Stock ("Series B Preferred") is
convertible at the rate of .067 share of common stock for each share of Series
B
Preferred. Dividends from date of issue are payable on June 30 from retained
earnings at the rate of 8% per annum and have not been declared or paid (see
Note 4).
The
Company's Series C Convertible Preferred Stock ("Series C Preferred") is
convertible at a rate of .007 share of common stock per share of Series C
Preferred.
The
Company's Series D Convertible Preferred Stock ("Series D Preferred") is
convertible at a rate of .034 share of Common stock per share of Series D
Preferred.
The
Company's Series E Convertible Preferred Stock ("Series E Preferred") is
convertible at a rate of .034 share of Common stock per share of Series E
Preferred.
The
Company's Series P Convertible Preferred Stock ("Series P Preferred") is
convertible at a rate of .007 share of common stock for each share of Series
P
Preferred.
The
Company's Series A Preferred, Series B Preferred, Series D Preferred and Series
E Preferred were issued for the purpose of raising operating funds. The Series
C
Preferred was issued to certain holders of the Company's 10% Secured Notes
in
lieu of accrued interest and also will be held for future investment
purposes.
The
Series P Preferred was issued to InfoPak shareholders in exchange for (1) all
of
the outstanding capital stock of InfoPak, (2) as signing bonuses for certain
employees and a consultant of InfoPak, and (3) to satisfy InfoPak's outstanding
debt obligations to certain shareholders.
Note
7: Stock Option Plan and Equity Incentive Plan
On
November 15, 1999, the Board of Directors of the Company adopted the 1999 Stock
Option Plan (the "1999 Plan"). This plan was approved by a majority of our
stockholders at our January 28, 2000, stockholders' meeting. The purpose of
the
1999 Plan is to advance the interests of the Company by encouraging and enabling
acquisition of a financial interest in the Company by its officers and other
key
individuals. The 1999 Plan is intended to aid the Company in attracting and
retaining key employees, to stimulate the efforts of such individuals and to
strengthen their desire to remain with the Company. A maximum of 1,500,000
shares of the Company's common stock are available to be issued under the 1999
Plan. The option exercise price will be 100% of the fair market value of the
Company's common stock on the date the option is granted and will be exercisable
for a period not to exceed 10 years from the date of grant.
As
of
June 30, 2005, no stock options have been granted under this plan.
The
Company on June 13, 1996 adopted the 1996 Equity Incentive Plan (the "Plan")
covering 10,000,000 shares of the Company's common stock $.001 par value,
pursuant to which officers, directors, key employees and consultants of the
Company are eligible to receive incentive, as well as non-qualified stock
options, SAR's, and Restricted Stock and Deferred Stock. The Compensation
Committee of the Board of Directors will administer the Plan, which expires
in
June 2006. Incentive stock options granted under the Plan are exercisable for
a
period of up to 10 years from the date of grant at an exercise price, which
is
not less than the fair market value of the common stock on the date of the
grant, except that the terms of an incentive stock option granted under the
Plan
to a stockholder owning more than 10% of the outstanding common stock may not
exceed five years and the exercise price of an incentive stock option granted
to
such a stockholder may not be less than 110% of the fair market value of common
stock on the date of the grant. Non-qualified stock options may be granted
on
terms determined by the Compensation Committee of the Board of Directors. SAR’s,
which give the holder the privilege of surrendering such rights for the
appreciation in the Company's common stock between the time of grant and the
surrender, may be granted on any terms determined by the Compensation Committee
of the Board of Directors.
Restricted
stock awards entitle the recipient to acquire shares for no cash consideration
or for consideration determined by the Compensation Committee. The award may
be
subject to restrictions, conditions and forfeiture as the Committee may
determine. Deferred stock award entitles recipient to receive shares in the
future. Since inception of this plan in 1996 through June 30, 2000, 5,102,978
shares of common stock have been issued. As of June 30, 2006 and 2005, no
options or SAR's have been granted.
The Plan
has now expired.
On
May
17, 2004, the Company adopted an employee stock incentive plan setting aside
100,000 shares of the Company’s common stock for issuance to officers,
employees, directors and consultants for services rendered or to be rendered.
A
compensation committee appointed by the Board of Directors who shall have the
right to grant awards or stock options administers the plan.
On
May
24, 2004, the Company filed a Registration on Form S-8 with the Securities
Exchange Commission covering the 100,000 shares provided by this plan, at a
maximum offering price of $1.00 per share.
As
of
June 30, 2006, the Company has issued 96,000 shares covered by the 2004 Stock
Incentive Plan adopted by the Company on May 17, 2004.
If
the
Company had elected to recognize compensation expense based on the fair value
of
stock plans as prescribed by FAS No. 123, the Company's net loss and net loss
per share would have not changed for the pro forma amounts as indicated
below:
|
|
|
|
2006
|
|
|
2005
|
|
|
Net
loss available to common shareholders
|
|
$
|
(107,973
|
)
|
$
|
(106,677
|
)
|
|
Net
loss - pro forma
|
|
$
|
(107,973
|
)
|
$
|
(106,677
|
)
|
|
Net
loss per share - as reported
|
|
$
|
0.08
|
|
$
|
$
0.10
|
|
|
Net
loss - pro forma
|
|
$
|
0.08
|
|
$
|
0.10
|
|
Note
8: Income Taxes
The
tax
effects of significant items comprising the Company's net deferred taxes as
of
June 30, 2006 were as follows:
|
Deferred
tax assets
|
|
|
|
|
|
Goodwill
|
|
$
|
173,000
|
|
|
Net
operating loss carryforwards
|
|
|
8,041,675
|
|
|
|
|
|
8,214,675
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
|
8,214,674
|
|
|
Valuation
allowance
|
|
|
(8,214,675
|
)
|
|
|
|
|
|
|
|
Net
deferred tax asset reported
|
|
$
|
--
|
|
The
change in valuation allowance for the year ended June 30, 2003 was increased
by
approximately $40,675.
There
was
no provision for current income taxes for the years ended June 30, 2006 and
2005.
The
federal net operating loss carry forwards of approximately $21,806,000 expires
in various years through 2026. In addition the Company has state carry forwards
of approximately $6,927,000.
The
Company has had numerous transactions in its common stock. Such
transactions may have resulted in a change in the Company's ownership, as
defined in the Internal Revenue Code Section 382. Such change may result
in an annual limitation on the amount of the Company's taxable income that
may
be offset with its net operating loss carryforwards. The Company has not
evaluated the impact of Section 382, if any, on its ability to utilize its
net
operating loss carryforwards in future years.
NOTE
9. The Effect of Recent Account Standards
Below
is
a listing of the most recent accounting standards SFAS 150-153 and their effect
on the Company.
Statement
No. 150 Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity (Issued 5/03)
This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity.
Statement
No. 151 Inventory Costs-an amendment of ARB No. 43, Chapter 4 (Issued
11/04)
This
statement amends the guidance in ARB No. 43, Chapter 4,
Inventory
Pricing
, to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43,
Chapter 4, previously stated that “…under some circumstances, items such as idle
facility expense, excessive spoilage, double freight and re-handling costs
may
be so abnormal ass to require treatment as current period charges….” This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of “so abnormal.” In
addition, this Statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facilities.
Statement
No. 152 Accounting for Real Estate Time-Sharing Transactions (an amendment
of
FASB Statements No. 66 and 67)
This
Statement amends FASB Statement No. 66,
Accounting
for Sales of Real Estate
, to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2,
Accounting
for Real Estate Time-Sharing Transactions
.
This
Statement also amends FASB Statement No. 67, Accounting
for
Costs and Initial Rental Operations of Real Estate Projects
, states
that the guidance for (a) incidental operations and (b) costs incurred to sell
real estate projects does not apply to real estate time-sharing transactions.
The accounting for those operations and costs is subject to the guidance
in SOP 04-2.
Statement
No. 153 Exchanges of Non-monetary Assets (an amendment of APB Opinion No.
29)
The
guidance in APB Opinion No. 29,
Accounting
for Non-monetary Transactions
is based
on the principle that exchanges of non-monetary assets should be measured based
on the fair value of the assets exchanged. The guidance in that Opinion,
however, includes certain exceptions to the principle. This Statement
amends Opinion 29 to eliminate the exception for non-monetary exchanges of
similar productive assts and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. A
non-monetary exchange has commercial substance if the future cash flows of
the
entity are expected to change significantly as a result of the
exchange.
The
adoption of these new Statements is not expected to have a material effect
on
the Company’s current financial position, results or operations, or cash flows.